THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE PLAN.
ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT
HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS
BEING SUBMITTED FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------------------X
:
In re: Chapter 11
:
JACOM COMPUTER SERVICES, INC., Lead Case No.
UNICAPITAL CORPORATION, et al., : 00-42719 (CB)
Debtors. : Case Nos. 00-42719 (CB)
through 00-42837 (CB) and
: No. 01-11617 (CB)
: (Jointly Administered)
- -----------------------------------------------X
DISCLOSURE STATEMENT RELATING TO FIRST AMENDED PLAN OF
REORGANIZATION OF UNICAPITAL CORPORATION
AND DEBTOR SUBSIDIARIES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
----------------------------------------------------------------
Dated: New York, New York
November 16, 2001
GREENBERG TRAURIG, LLP
Counsel for Jacom Computer
Services, Inc., UniCapital
Corporation, et al.
Debtors in Possession
Attn: Richard S. Miller, Esq.
Howard J. Berman, Esq.
Robert Honeywell, Esq.
200 Park Avenue
New York, NY 10166
(212) 801-9200
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT........................................................1
INTRODUCTION.................................................................2
A. Major Parties To The Chapter 11 Cases And Their
Representatives..................................................2
B. Summary of Treatment of Claims Under the Plan....................3
C. Exhibits.........................................................4
D. Notice to Creditors..............................................4
E. Disclosure Statement Enclosures..................................5
F. Summary of Voting Procedures.....................................6
G. Explanation of Chapter 11........................................7
I. GENERAL INFORMATION....................................................7
A. Overview of the Company's Business...............................7
II. ACTIVITIES WITHIN THE CHAPTER II CASES................................15
A. Filing..........................................................15
B. Administration of the Cases.....................................15
C. Bankruptcy Court First Day Orders...............................15
D. Retention and Compensation of Professionals....................16
E. The Debtors' Business Operations................................16
F. Asset Sales.....................................................17
G. Executory Contracts and Unexpired Leases........................18
H. Litigation, Stay Relief and Investigations......................19
I. Other Matters...................................................21
J. Bar Date For Filing Proofs of Claims............................21
K. Notice Regarding Certain Potential Claims.......................22
III. SUMMARY OF THE PLAN...................................................24
A. Overview of the Plan............................................24
B. Pooling of Liabilities for Purposes of Voting and
Distribution....................................................26
C. Summary of Classification and Treatment of Claims and
Equity Interests Under the Plan.................................26
D. Implementation of Plan; Establishments of Claims Reserves.......30
E. Distributions To Holders Of Claims And Interests................31
IV. EFFECT OF THE PLAN ON CLAIMS AND INTERESTS............................31
A. Jurisdiction of Court...........................................31
B. Binding Effect..................................................31
C. Term of Injunctions or Stays....................................32
D. Rights of Action................................................32
E. Revesting of Assets.............................................32
F. Discharge Injunctions and Releases..............................32
i
V. EXECUTORY CONTRACTS...................................................33
VI. CONDITIONS TO CONFIRMATION AND OCCURRENCE OF EFFECTIVE DATE..........33
A. Conditions to Confirmation......................................34
B. Conditions to Occurrence of Effective Date......................34
C. Waiver of Conditions to Confirmation and Occurrence of
Effective Date..................................................35
VII. CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN................35
A. Confirmability and Severability of a Plan.......................35
B. Cramdown........................................................35
VIII. ADMINISTRATIVE PROVISIONS.............................................35
A. Retention of Jurisdiction.......................................35
B. Other Administrative Provisions.................................36
IX. ESTIMATED DISTRIBUTIONS...............................................37
X. FINANCIAL PROJECTIONS.................................................37
A. Responsibility for and Purpose of the Projections...............37
B. Summary of Significant Assumptions..............................39
C. Special Note Regarding Forward-Looking Statements...............41
D. Financial Projections...........................................41
XI. VOTING REQUIREMENTS, ACCEPTANCE, CONFIRMATION AND CONSUMMATION
OF THE PLAN...........................................................46
A. General.........................................................46
B. Eligibility to Vote.............................................46
C. Estimation and Temporary Allowance of Claims....................47
D. Acceptance Requirements.........................................47
E. Transmission of Ballots.........................................47
F. Acceptances Required From Impaired Classes......................48
G. Confirmation Without Acceptance of All Impaired Classes
("Cram-down")...................................................48
H. Feasibility of the Plan.........................................49
I. Best Interests of Creditors.....................................50
XII. COMPLIANCE WITH SECURITIES LAWS.......................................50
A. Compliance with Securities Laws.................................50
XIII. CERTAIN RISK FACTORS TO BE CONSIDERED.................................51
A. Settlements Embodied in the Plan................................51
B. Projected Financial Information.................................51
C. Securities Issued to Class 1....................................52
XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN...................52
A. Federal Income Tax Consequences Generally.......................52
B. Federal Income Tax Consequences to the Debtors..................53
C. Federal Income Tax Consequences to Holders of Allowed Class
1 and 5 Claims..................................................55
D. Disputed Claims.................................................56
E. Withholding and Reporting.......................................57
ii
XV. ALTERNATIVES TO CONFIRMATION OF THE PLAN..............................58
XVI. ALTERNATIVE PLANS OF REORGANIZATION...................................58
XVII. CONFIRMATION HEARING..................................................58
XVIII. CONCLUSION............................................................59
iii
PRELIMINARY STATEMENT
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE.
NO PERSON MAY GIVE ANY INFORMATION ON BEHALF OF THE DEBTORS REGARDING THE
PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN, OTHER THAN THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT.
THIS DISCLOSURE STATEMENT IS DESIGNED TO PROVIDE ADEQUATE INFORMATION TO
ENABLE HOLDERS OF CLAIMS AGAINST THE DEBTORS TO MAKE AN INFORMED JUDGMENT ON
WHETHER TO ACCEPT OR REJECT THE PLAN. ALL CREDITORS ARE ADVISED AND ENCOURAGED
TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING
TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS
DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN
(WHICH IS ANNEXED HERETO AS EXHIBIT 1), OTHER EXHIBITS ANNEXED HERETO AND OTHER
DOCUMENTS REFERENCED AS FILED WITH THE COURT IN CONNECTION WITH THE PLAN.
SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE NO ASSURANCE THAT: (A) THE
INFORMATION AND REPRESENTATIONS CONTAINED HEREIN ARE MATERIALLY ACCURATE, AND
(B) THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
PERSONS OR ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING
OR TRANSFERRING CLAIMS AGAINST THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE
STATEMENT IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED, AND SHOULD BE AWARE
THAT ACTUAL DISTRIBUTIONS MAY VARY FROM THE ESTIMATES CONTAINED HEREIN.
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE COURT AS
CONTAINING ADEQUATE INFORMATION OF A KIND AND IN SUFFICIENT DETAIL TO ENABLE
HOLDERS OF CLAIMS TO MAKE AN INFORMED JUDGMENT WITH RESPECT TO VOTING TO ACCEPT
OR REJECT THE PLAN. HOWEVER, THE COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT
DOES NOT CONSTITUTE A RECOMMENDATION OR DETERMINATION BY THE COURT WITH RESPECT
TO THE MERITS OF THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), OR SIMILAR PUBLIC GOVERNMENTAL OR
REGULATORY AUTHORITY AND NEITHER THE SEC NOR SUCH AUTHORITY HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT, THE INFORMATION CONTAINED
HEREIN, OR THE MERITS OF THE PLAN OF REORGANIZATION. THE ISSUANCE OF CERTAIN
SECURITIES AS DESCRIBED HEREIN IN EXCHANGE FOR THE CANCELLATION OF CERTAIN
EXISTING INDEBTEDNESS HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR SIMILAR STATE OR "BLUE SKY" LAWS. THE ISSUANCE OF SUCH SECURITIES
ARE BEING MADE PURSUANT TO SECTION 1145 OF THE BANKRUPTCY CODE.
ALL CAPITALIZED TERMS AND PHRASES USED IN THIS DISCLOSURE STATEMENT AND
NOT OTHERWISE DEFINED HEREIN WILL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
PLAN.
INTRODUCTION
UniCapital Corporation ("UniCapital") and the other above-named debtors
and debtors-in-possession, as set forth on Annex A (collectively, the "Debtors")
in the above-captioned chapter 11 cases (the "Chapter 11 Cases") pending in the
United States Bankruptcy Court for the Southern District of New York (the
"Court") under chapter 11 of the United States Bankruptcy Code, 11 U.S.C. ss.ss.
101 et seq. (as amended, the "Bankruptcy Code"), filed their First Amended Plan
of Reorganization, dated November 16, 2001 with the Bankruptcy Court, as such
plan may be further amended from time to time (the "Plan"), a copy of which is
annexed as Exhibit 1. The Debtors are distributing this disclosure statement
(the "Disclosure Statement"), pursuant to section 1125 of the Bankruptcy Code,
to provide the Debtors' creditors with adequate information so that they can
make an informed judgment to accept or reject the Plan. Please read this
Disclosure Statement and the Plan carefully and follow the instructions set
forth below to vote on the Plan.
The Debtors have had extensive discussions regarding the Plan with Bank of
America, N.A. (the "Agent" or "Bank of America"), in its capacity as Agent for
certain lenders (the "Revolving Lenders") under the Credit Agreement,(1) and the
Official Committee of Unsecured Creditors appointed in the Chapter 11 Cases (the
"Committee"). The Plan is the product of such discussions and negotiations among
the Debtors, the Agent and the Committee. The Debtors [and the Committee] urge
you to vote to accept the Plan.
A. MAJOR PARTIES TO THE CHAPTER 11 CASES AND THEIR REPRESENTATIVES
The Debtors' principal legal advisor is Greenberg Traurig, LLP. The
Debtors have also retained Morgan, Lewis & Bockius, LLP as special counsel in
connection with certain corporate securities and SEC matters. The Debtors'
auditors are PricewaterhouseCoopers LLP ("Pricewaterhouse"). They can be
contacted at:
----------------
(1) Unless otherwise defined herein, capitalized terms used in this
Disclosure Statement are defined as set forth in the Plan or as defined in the
Bankruptcy Code.
2
- -----------------------------------------------------------
GREENBERG TRAURIG, LLP PRICEWATERHOUSECOOPERS LLP
200 Park Avenue 1177 Avenue of the Americas
New York, NY 10166 New York, NY 10019
(212) 801-9200 (212) 596-8000
Attn: Richard S. Miller, Esq. Attn:
- -----------------------------------------------------------
The Committee is composed of:
- -----------------------------------------------------------------------------------------
COMPTEL DATA SYSTEMS BATTENFELD GLOUCESTER DUCKER FORDERTECHNIK
c/o Robert E. Seaman III, ENGINEERING CO., INC. Ernst-Tellering-Strasse 13
Attorney at Law 11 Dory Road, P.O. Box 900 D-40764 Langenfeld,
207 Washington St. Gloucester, MA 01931-0900 Germany
Northvale, NJ 07647 (978) 282-9317 Counsel:
(201) 767-3261 Attn: Donald J. Shade Lisman, Webster,
Kirkpatrick &
Leckerling, P.C.
84 Pine Street
Burlington, VT 05401
(802) 864-5756
Attn: Mark Oettinger, Esq.
- ------------------------------------------------------------------------------------------
The Committee retained Togut, Segal & Segal LLP as its legal advisors and
Deloitte Consulting L.P. and Deloitte & Touche LLP as reorganization consultants
and accountants, respectively. These advisors can be contacted at:
- ------------------------------------------------------------------------------------------
TOGUT, SEGAL & SEGAL LLP DELOITTE CONSULTING L.P. DELOITTE & TOUCHE LLP
One Penn Plaza-Suite 3335 Two World Financial Center Two World Financial Center
New York, NY 10119 New York, NY 10281-1420 New York, NY 10281-1420
(212) 594-5000 (212) 436-2000 (212) 436-2000
Attn: Albert Togut, Esq. Attn: Roy H. Owen Attn: Francis L. Conway
- ------------------------------------------------------------------------------------------
B. SUMMARY OF TREATMENT OF CLAIMS UNDER THE PLAN
The table on this page summarizes the treatment for creditors and
shareholders (equity interests) under the Plan. For a more complete explanation,
please refer to the discussion in Article III, Section C of this Disclosure
Statement, entitled "Summary of Classification and Treatment of Claims and
Equity Interests Under the Plan" and to the Plan itself.
- -------------------------------------------------------------------------------
ESTIMATED
CLASS DESCRIPTION TREATMENT RECOVERY
- -------------------------------------------------------------------------------
Administrative Unimpaired 100%
Claims
Priority Tax Unimpaired 100%
Claims
3
- -------------------------------------------------------------------------------
ESTIMATED
CLASS DESCRIPTION TREATMENT RECOVERY
1 Revolving Lender Impaired See, Article III,
Secured Claims Section C of this
Disclosure
Statement
2 Lehman Secured Impaired See, Article III,
Claims Section C of this
Disclosure
Statement
3 Other Secured Impaired See, Article III,
Claims Section C of this
Disclosure
Statement
4 Priority Non-Tax Unimpaired 100%
Claims
5 General Unsecured Impaired __% 2
Claims
6 Subordinated Impaired No Recovery
Claims
7 Penalty Claims Impaired No Recovery
8 Equity Interests Impaired No Recovery
in UniCapital
C. EXHIBITS
All exhibits to this Disclosure Statement will be filed with the Court on
or before the date of the hearing on approval of this Disclosure Statement and
are incorporated as if fully set forth herein and are a part of this Disclosure
Statement.
D. NOTICE TO CREDITORS
1. PURPOSE OF DISCLOSURE STATEMENT. This Disclosure Statement is being
transmitted to holders of impaired Claims against the Debtors that are entitled
to vote to accept or reject the Plan (i.e., Class 1 -- Revolving Lender Claims;
Class 2 - Lehman Secured Claims; Class 3 -- Other Secured Claims; and Class 5 --
General Unsecured Claims). The Disclosure Statement is not being transmitted to
holders of Interests in UniCapital (i.e., Class 8) as no recovery is available
to the holders of such Interests. However, notice of the hearing on confirmation
of the Plan will be given to holders of Interests in Class 8.
- ------------------
2 The estimates for these recoveries are explained more fully in Article
IX of this Disclosure Statement.
4
The purpose of this Disclosure Statement is to provide creditors with
information that (i) summarizes the Plan and alternatives to the Plan, (ii)
advises creditors of their rights under the Plan, (iii) assists creditors
entitled to vote in making informed decisions to accept or reject the Plan, and
(iv) assists the Court in determining whether the Plan complies with the
provisions of chapter 11 of the Bankruptcy Code and should be confirmed. This
Disclosure Statement contains important information regarding the Debtors'
history, developments in the Chapter 11 Cases, the Plan, including a summary
thereof, and considerations pertinent to acceptance or rejection of the Plan.
This Disclosure Statement is designed to provide holders of impaired Claims that
are entitled to vote to accept or reject the Plan with adequate information to
enable such holders to make a reasonably informed decision with respect to the
Plan. All creditors are encouraged to read this Disclosure Statement and its
exhibits carefully and in their entirety before deciding to accept or reject the
Plan.
2. INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT. This Disclosure
Statement is the only document authorized by the Bankruptcy Court to be used in
connection with the solicitation of votes accepting the Plan. No solicitation of
votes may be made except pursuant to this Disclosure Statement, and no Person
has been authorized by the Bankruptcy Court or the Debtors to use or disclose
any information concerning the Debtors other than the information contained
herein. Other than as explicitly set forth in this Disclosure Statement, you
should not rely upon any information relating to the Debtors, their estates, the
value of their assets, the nature or amounts of their liabilities, their
creditors' Claims, or the amount or value of any distributions made under the
Plan. All financial information contained in this Disclosure Statement has been
provided by the Debtors. The financial information contained herein as described
in Article X ("Financial Projections") of this Disclosure Statement has not been
the subject of a certified audit and has not been prepared in accordance with
generally accepted accounting principles. This Disclosure Statement is accurate
to the best of the Debtors' knowledge, information and belief. The Debtors have
endeavored to make this Disclosure Statement as clear and comprehensive as
possible in order to furnish creditors with adequate information to make an
informed decision regarding acceptance or rejection of the Plan.
PLEASE READ THIS DISCLOSURE STATEMENT, INCLUDING THE PLAN, IN ITS ENTIRETY PRIOR
TO VOTING ON THE PLAN. A COPY OF THE PLAN IS ANNEXED AS EXHIBIT 1. THIS
DISCLOSURE STATEMENT PROVIDES A BRIEF SUMMARY OF THE TERMS OF THE PLAN, FOR THE
CONVENIENCE OF CREDITORS, BUT THE PLAN ITSELF QUALIFIES SUCH SUMMARY.
ACCORDINGLY, IF THERE EXISTS ANY INCONSISTENCY BETWEEN THE PLAN AND THIS
DISCLOSURE STATEMENT, THE TERMS OF THE PLAN WILL CONTROL.
E. DISCLOSURE STATEMENT ENCLOSURES.
Accompanying the Disclosure Statement are the following enclosures:
1. DISCLOSURE STATEMENT APPROVAL ORDER. A copy of the order of the Court
dated _________________, 2001, approving this Disclosure Statement and, among
other things, establishing procedures for voting on the Plan, and scheduling the
hearing to consider, and the deadline for objecting to, confirmation of the Plan
(the "Disclosure Statement Approval Order").
5
2. NOTICE OF CONFIRMATION HEARING. A copy of the notice of the deadline
for submitting ballots to accept or reject the Plan and, among other things, the
date, time and place of the hearing to confirm the Plan, and the deadline for
filing objections to confirmation of the Plan (the "Notice of Confirmation
Hearing").
3. BALLOTS. One or more ballots (and return envelopes) for voting to
accept or reject the Plan, unless you are not entitled to vote. See Article XI
below for an explanation of which parties-in-interest are entitled to vote.
F. SUMMARY OF VOTING PROCEDURES.
The following entities are entitled to vote on the Plan:
(1) The Revolving Lenders under the Credit Agreement; and
(2) other creditors of the Debtors that hold Allowed Secured Claims; and
(3) creditors of the Debtors that hold Allowed General Unsecured Claims.
To be counted, your vote, if being sent by mail, must be received,
pursuant to the following instructions, by the Debtors' agent at the following
address, before the Voting Deadline of 5:00 p.m. (Eastern Time) on January __,
2002.
UniCapital Corporation, et al.
c/o Donlin, Recano & Company, Inc.
P.O. Box ________
Murray Hill Station
New York, New York 10156
Or, if being sent by hand, to the following address:
UniCapital Corporation, et al.
c/o Donlin, Recano & Company, Inc.
419 Park Avenue South, Suite 1206
New York, New York 10016
IF YOU ARE THE HOLDER OF A REVOLVING LENDER CLAIM, A CLASS 2 LEHMAN
SECURED CLAIM, A CLASS 3 SECURED CLAIM OR GENERAL UNSECURED CLAIM:
Please complete the information requested on the Ballot, sign, date
and indicate your vote on the Ballot, and return the completed
Ballot in the enclosed pre-addressed, postage-paid envelope so that
it is actually received by the Voting Agent before the Voting
Deadline.
6
IF YOU ARE A HOLDER OF A CLAIM AND YOU HAVE RETURNED YOUR BALLOT, BUT FAILED TO
INDICATE ON YOUR BALLOT WHETHER YOU ACCEPT OR REJECT THE PLAN, SUCH BALLOT WILL
BE COUNTED AS AN ACCEPTANCE OF THE PLAN.
G. EXPLANATION OF CHAPTER 11.
Chapter 11 is the principal reorganization vehicle of the Bankruptcy Code.
Under chapter 11, a debtor is authorized to reorganize its affairs for its
benefit and the benefit of its creditors. In a chapter 11 case the debtor
typically remains in control of the estate as the "debtor-in-possession." Upon
filing a petition for chapter 11 reorganization and during the pendency of a
reorganization case, the Bankruptcy Code imposes an automatic stay against
creditors' attempts to collect or enforce, through litigation or otherwise,
claims against the debtor. The automatic stay provisions of section 362 of the
Bankruptcy Code, unless lifted by court order, will generally prohibit or
restrict attempts by secured or unsecured creditors or other claimants to
collect or enforce any claims against the debtor that arose prior to the
commencement of the chapter 11 case.
The provisions of the Bankruptcy Code are designed to encourage the
parties in interest in a chapter 11 proceeding to negotiate the terms of a plan
of reorganization so that it may be confirmed. The plan of reorganization is the
vehicle for satisfying the claims against and interests in the debtor. After the
plan of reorganization has been filed, the holders of claims against and/or
interests in a debtor may be permitted to vote to accept or reject the plan.
Section 1125 of the Bankruptcy Code requires a debtor, before soliciting
acceptances of the proposed plan, to prepare a disclosure statement containing
adequate information of such kind, and in such detail, as to enable a
hypothetical reasonable investor to make an informed judgment about the plan.
The Court has determined that this Disclosure Statement meets that test.
I. GENERAL INFORMATION
A. OVERVIEW OF THE COMPANY'S BUSINESS
UniCapital was founded in October 1997. It commenced operations in May
1998 in conjunction with the consummation of an initial public offering,
pursuant to which UniCapital raised approximately $532 million, and the
acquisition of twelve equipment-leasing, specialty finance and related
businesses. Shortly thereafter, UniCapital completed the acquisition of five
additional equipment leasing, specialty finance and related businesses, and
prior to the Petition Date it established numerous new subsidiaries to carry out
its operations. The various companies owned directly or indirectly by UniCapital
include 119 subsidiaries that are Debtors in the Chapter 11 Cases.
The Debtors have originated, acquired, sold and serviced equipment leases
and arranged structured financings in the equipment leasing and specialty
finance industry. The Debtors' leases and structured financing arrangements have
covered a broad range of equipment, including aircraft and aircraft engines,
computer and telecommunications equipment, construction and manufacturing
equipment, office equipment, tractor trailers, printing equipment, car washes,
petroleum retail equipment, and vending machines. The Debtors have generally
7
funded the acquisition or origination of leases through warehouse credit
facilities or through recourse or non-recourse financing, and either retained
the leases for their own account or sold them to third parties.
The Debtors have several non-debtor affiliates (these non-debtor entities,
together with the Debtors are referred to collectively herein as the "Company").
The Company, either directly or through a third-party servicing entity, has
provided lease administration and processing services for many of the leases
originated by the Company. Prior to the Petition Date, the Company also provided
transaction processing and management services for certain lease contracts, from
the time they were originated through their termination, including set-up,
billing, cash posting, customer service, accounting, tax compliance and asset
management. The service offerings included lien searches, UCC filings, asset
tracking, insurance tracking, preparation of sales, use and property tax
returns, invoices and collections.
B. BUSINESS SEGMENTS
The Debtors have three reportable segments, which are based primarily on
the nature of the products and services provided by each segment:
o Big Ticket Division (characterized as "discontinued
operations" for financial statement reporting purposes);
o Technology and Finance Group; and
o Business Credit Group.
1. BIG TICKET DIVISION. Big Ticket leases, which are customized financing
transactions, typically involved equipment with a purchase price in excess of
$5.0 million, such as aircraft, aircraft engines and other transportation
equipment. As originally constituted, the Debtors' Big Ticket Division includes
the UniCapital Air Group and the UniCapital Aircraft Engine Group. The
UniCapital Rail Group, which made an insignificant contribution to the results
of Debtors' operations in 1999, was discontinued in December 1999. In addition,
as described below, during June 2000, the Debtors decided to discontinue the
operations of the Big Ticket Division and dispose of the division's remaining
assets. Since the Petition Date, the Debtors have continued to sell and dispose
of assets in the Big Ticket Division.
2. TECHNOLOGY AND FINANCE GROUP. The Debtors' Technology and Finance Group
includes middle market leasing and computer and telecommunications equipment
leasing. Middle market leases generally include those leases for equipment with
a purchase price ranging from $250,000 to $5 million. The Debtors have provided
lease and secured financing for a variety of equipment, including computer,
communication and electronic equipment, printing presses and other manufacturing
equipment, to businesses throughout the United States and Canada. The Debtors'
computer and telecommunications leasing operations provide lease financing and
other value-added services, such as installation and configuration, for computer
and telecommunications equipment, including leasing for mainframe, mid-range and
8
personal computers, workstations, servers, telephone systems, switches,
networks, peripherals and related high-technology equipment to Fortune 1000
companies and other large and middle market companies throughout the United
States and Canada. Until June 2000, the Technology and Finance Group also
arranged structured financing primarily for community-based mental health/mental
retardation facilities and correctional facilities; the subsidiary that pursued
these business opportunities was sold on June 27, 2000.
3. BUSINESS CREDIT GROUP. The Debtors' Business Credit Group provides
small ticket lease financing, which generally includes those leases for
equipment with a purchase price of less than $250,000. The Debtors have provided
lease financing for a variety of equipment, including heavy machinery, computer
systems and related office technology equipment, petroleum retail equipment, car
washes, fuel dispensers and convenience store operating equipment, and vending
equipment, to lessees in a variety of businesses throughout the United States.
C. CAPITAL RESOURCES PRIOR TO PETITION DATE
1. INITIAL PUBLIC OFFERING. UniCapital was founded in October 1997, as a
privately-held corporation. In May 1998, UniCapital conducted an initial public
offering (the "IPO") pursuant to which it issued 28,000,000 shares of common
stock and raised approximately $532 million. The IPO proceeds were intended to
be used to acquire twelve equipment-leasing, specialty finance and related
businesses, to pay off certain indebtedness and for general corporate purposes,
including other possible acquisitions.
2. CREDIT FACILITIES
The Company's business was cash intensive and required access to
substantial short-term and long-term credit and other capital to fund new
equipment leases and the purchase of equipment. To meet their cash needs prior
to the Petition Date, the Company had in place a series of credit facilities
which consisted of the following: (i) a $300 million corporate revolving credit
facility with Bank of America, as Agent and the Revolving Lenders, primarily to
finance acquisition and working capital needs (the "Revolving Facility"); and
(ii) an asset-backed commercial paper conduit facility with Bank of America, as
agent and Bank Investor, totaling $450 million to finance small ticket and
middle market leases, consisting of a limited recourse equipment lease
receivable facility under which two non-Debtor special purpose entities (the
"SPEs") are the borrowers (the "Limited Recourse Conduit Facility"). The
indebtedness owed by the non-Debtor SPEs under the Limited Recourse Conduit
Facility is not affected by the Plan.
The obligations under the Revolving Facility are guaranteed by all of
UniCapital's subsidiaries other than certain non-Debtor SPEs. In addition, the
Revolving Facility is secured by a pledge of all of the capital stock of
UniCapital's domestic guaranteeing subsidiaries, and a first priority, valid and
perfected security interest in all of the assets and properties of UniCapital
and the guaranteeing subsidiaries, other than assets financed on a non-recourse
basis and any assets subject to liens granted in connection with certain
permitted indebtedness (including securitizations).
9
In early 2000, as a condition to the amendment and subsequent waiver
extensions of the Revolving Facility, the Company agreed, among other things, to
(i) develop a revised business plan, including the sale of the assets of the Big
Ticket Division, (ii) apply collateral proceeds and the net proceeds of any
liquidity event or asset sales (excluding $30 million of such proceeds that the
Company has been allowed to retain) to reduce the amount outstanding under the
Revolving Facility with a corresponding permanent reduction in the Revolving
Lenders' commitment thereunder, (iii) require the consent of Bank of America, as
Agent for the Revolving Lenders under the Revolving Facility, to any lease,
sales or securitizations or other collateral transfers, and limit the noncash
consideration for such transfers, (iv) appoint E. Talbot Briddell or another
manager acceptable to Bank of America, as Agent, as Chief Executive Officer of
UniCapital, and (v) retain independent financial consultants to assist the
Company in evaluating the Company's business and financial condition.
Prior to the Petition Date, the Company and the Revolving Lenders amended
the Revolving Facility to waive temporarily required compliance with certain
financial covenants, which waiver was extended through December 8, 2000. The
Limited Recourse Conduit Facility was to terminate on August 14, 2000, but Bank
of America as agent and Bank Investor and the Bank Investors under that facility
agreed to extend the termination date to December 8, 2000. The amount
outstanding under the Revolving Facility as of November 30, 2000 was $243.2
million. The amount outstanding under the Limited Recourse Conduit Facility as
of November 30, 2000 was $394.9 million.
In addition to the Revolving Facility and the Limited Recourse Conduit
Facility, the Debtors have financed or sold leases through various third party
financing arrangements. One of the largest of these, with Key Corporate Capital,
Inc. ("Key Global"), was pursuant to three, non-recourse discretionary purchase
facilities under which Key Global purchased, or arranged for the purchase of,
certain lease receivables from originating Debtor subsidiaries. The purchasing
provisions of the Key Global facility expired prior to the Petition Date. Key
Global asserts a security interest in the underlying leases and equipment to
secure certain obligations of the originating Debtors. Likewise, certain other
originating Debtor subsidiaries entered into various third party financing
arrangements with other lenders and purchasers, who may assert security
interests in the underlying leases and equipment.
3. TERM LOANS
Effective March 30, 2000, the Company converted a revolving credit
facility with Lehman, as agent and lender, into a term loan (the "Aircraft
Facility"). As a condition to the conversion, the Company pledged 100% of the
stock of UniCapital AFT-II, Inc. (a non-Debtor subsidiary), and affiliated SPEs
pledged five aircraft engines and certain Class C Notes related to the Company's
middle market and small ticket securitization transactions. On July 26, 2000,
the aircraft securing the Aircraft Facility were sold and the full amount of the
Aircraft Facility was repaid. On that same date, the parties closed on a new
aircraft facility (the "New Aircraft Facility") pursuant to which the Company
pledged 100% of the stock of UniCapital AFT-II, Inc., and certain affiliated
non-Debtor SPEs pledged various assets including three aircraft engines and
Class C Notes related to the Company's middle market and small ticket
securitization transactions. The New Aircraft Facility is non-recourse to the
10
Debtors and was due to mature on December 31, 2000. The amount outstanding under
the New Aircraft Facility as of the Petition Date was $15.4 million.
Effective May 15, 2000, Morgan Stanley Asset Funding Inc. (the "Warehouse
Lender") converted a $200 million warehouse facility (the "Warehouse Facility")
into a term loan by not permitting additional borrowings under the facility. The
Warehouse Facility had provided for loans to a non-Debtor SPE to finance certain
small ticket and middle market leases and loans. Effective July 12, 2000, the
parties provided for Morgan Stanley & Co. Incorporated to act as sales agent to
attempt to sell the collateral pledged under the Warehouse Facility. The sales
effort had limited success, and effective October 16, 2000, the parties agreed
to settle all claims related to the Warehouse Facility by transferring all
collateral to the Warehouse Lender in exchange for the forgiveness of all
outstanding amounts under the facility.
4. SECURITIZATIONS
The Company's financing strategy called for periodic asset-backed
securitizations to be executed as a means of repaying amounts outstanding under
the Revolving Facility and the Limited Recourse Conduit Facility. Prior to the
Petition Date, the Company closed two such securitizations in the original
aggregate amount of $642,510,000. In those securitization transactions, the
Company transferred middle market and small ticket leases and secured sale
contracts to an affiliated SPE established for the limited purpose of acquiring
assets from the Company. This entity transferred such assets to other affiliated
SPEs, which then issued interest-bearing securities that are collateralized by
the underlying assets. The Company retained the residual interest (or a portion
thereof) in the underlying assets, which were represented by residual class and
equity certificates. The residual class and equity certificates have been
pledged by the Company to secure certain commitments, including the pledge of
the Class C Notes referenced in the discussion of the Aircraft Facility and New
Aircraft Facility above. To the extent no restricting event then exists, the
beneficial holder of the residual class and equity certificates is entitled to
receive any excess cash flows generated by the securitized assets on a monthly
basis. If a restricting event exists, as one currently does, the beneficial
holder of the residual and equity class certificates receives excess cash flow
after the repayment in full of the senior notes. The senior notes issued under
each securitization benefit from a surety bond issued by Ambac Assurance Corp.
("Ambac"). The indenture trustee for each securitization is Wells Fargo Bank of
Minnesota, National Association ("Wells Fargo").
Under the terms of each securitization transaction, if the Company
sustains losses for two consecutive quarters or if certain financial triggers
occur, then a majority in interest of the noteholders (currently controlled by
Ambac, as note insurer) can remove the Company as servicer of the underlying
leases and sale contracts. As of June 30, 2000, the Company had sustained losses
for two consecutive quarters. On September 27, 2000, Ambac directed Wells Fargo,
as indenture trustee, to replace the Company as servicer. On September 28, 2000,
Wells Fargo provided a notice of servicing termination to the Company.
11
D. EVENTS LEADING TO THE FILING OF THE DEBTORS' CHAPTER 11 CASES
The Debtors' financial and liquidity difficulties are the result of, among
other things, serious operational and cash flow problems, combined with adverse
developments in the debt and equity markets and in the markets for certain of
the assets held by the Debtors, experienced over the past three years prior to
the Petition Date. A number of factors combined to undermine the Debtors'
financial position, including: (i) higher than anticipated capital requirements
for the operation of the acquired subsidiaries; (ii) additional capital
necessary to support a change in corporate strategy relating to leases in the
Big Ticket Division; (iii) adverse developments in the debt and equity markets
that made it more difficult and expensive to obtain the capital necessary to
support the Company's business; (iv) adverse developments in the markets for
commercial jet aircraft and jet aircraft engines of the type held by the
Company's Big Ticket Division; and (v) the difficulty in integrating the
operations of the newly acquired subsidiaries, the offices and operations of
which were located throughout the United States. The Debtors are analyzing
whether additional factors contributed to the Debtors' current financial
difficulties, including claims based upon mismanagement, overpayment for
companies acquired and other acts or omissions by former management.
1. INCREASED CAPITAL REQUIREMENTS. UniCapital went public in May 1998 as a
holding company with twelve subsidiaries: two subsidiaries composed the Big
Ticket Division and originated aircraft transactions; nine subsidiaries
originated small ticket and middle market leases and specialty financing
arrangements; and one additional subsidiary performed lease servicing and data
management functions. The Company's overall business strategy relied upon the
continued, and indeed increased, origination of leases in all eleven of the
non-servicing subsidiaries. One anticipated benefit of consolidating the twelve
subsidiaries was the expectation that these subsidiaries -- particularly the
nine in small ticket and middle market -- would be able to access the capital
needed to purchase equipment to be leased at a lower cost than they had
previously been able to achieve. This reduction in the cost of capital would be
achieved by participating in consolidated corporate credit facilities, thus
realizing certain economies of scale in borrowing, rather than securing funds
through individual borrowings based on their own credit histories and on the
credit attributes of each specific transaction. To support that effort, the
Company had arranged the Revolving Facility and the Limited Recourse Conduit
Facility, as well as other committed sources of debt financing.
As these subsidiaries maintained and increased their levels of lease
origination, the available credit under the Company's corporate-level debt
facilities was consumed. Moreover, as the Company added the five operating
subsidiaries acquired in the summer of 1998, it used funds borrowed under the
Revolving Facility to pay, inter alia, the cash portion of the purchase
consideration in those acquisitions. Following consummation of those
acquisitions, additional lease originations by the three small ticket and middle
market subsidiaries in that group further consumed available capacity under the
Company's corporate-level debt facilities. In addition, the Company had entered
into employment agreements with certain key personnel at each operating
subsidiary at the time of each acquisition, which reduced the compensation
payable to such personnel below historical levels. As these employment
agreements expired in early 2000, the Company determined that relatively higher
compensation and commission arrangements were necessary in order to retain
critical sales and management personnel at the operating subsidiaries so as to
12
forestall erosion in the Company's lease origination rate. Higher compensation
became an element of fixed cost, while higher commissions not only increased
variable cost but also created a demand for cash at the inception of each lease
while cash flow from the lease itself materialized only over the term of the
lease. In both events, higher compensation and commissions only further
increased demands on available liquidity.
2. CHANGES IN BIG TICKET STRATEGY. Changes in the capital requirements for
the Company's Big Ticket Division also contributed to impaired liquidity. At the
time of their acquisition in May 1998, the Company's initial two Big Ticket
Division subsidiaries engaged principally in the trading of commercial jet
aircraft. Two more Big Ticket subsidiaries were acquired as part of the five
post-IPO acquisitions consummated in the summer of 1998; of those, one also
engaged in trading commercial jet aircraft, while the other focused its business
on trading commercial jet aircraft engines. None of these businesses engaged
primarily in holding assets for the long term (i.e., holding assets for the
purpose of generating a cash flow stream of lease payments over an extended
period of time). Instead, these businesses generated revenue and net income
principally from gains on dispositions of assets held for short periods, as well
as from fees. Accordingly, none of these businesses initially represented an
extraordinary long-term demand on available liquidity under the Company's credit
facilities. In early 1999, however, the Company announced its intention to
reorient its business away from trading activities and toward acquiring and
holding aircraft and engines, as assets, as well as equipment leases and finance
contracts, as portfolio assets, for the purpose of realizing a stream of lease
payments over time. This change of strategy required the Debtors to finance very
large asset-acquisition transactions through borrowings under their available
credit facilities and through the establishment of new debt sources. These
additional demands for capital further strained the Company's available
liquidity and increased competition among all of the Company's operating
subsidiaries, and between such subsidiaries and corporate headquarters, for a
relatively limited pool of available capital.
3. CONTRACTION OF CAPITAL MARKETS. At the same time that demands for
capital were increasing, the supply of available capital became relatively
constrained, due primarily to adverse developments in the worldwide equity and
debt markets. Shortly after UniCapital's initial public offering in May 1998,
the equity market for "industry consolidators" such as the Company began to
deteriorate. Stock prices of industry consolidators -- both absolutely and as a
multiple of reported earnings per share -- declined dramatically. Not
surprisingly, this deterioration in the equity market for industry consolidators
depressed the price of the Company's common stock. As the price per share of the
Company's common stock declined, the Company's ability to effect a secondary
public offering of equity securities -- the proceeds of which would have been
available to reduce outstanding indebtedness -- decreased as well, since a
public offering at a lower stock price would have been significantly dilutive.
Thus, the public equity markets became essentially unavailable to the Company as
a source of additional financing or as a counterbalance to additional leverage.
In the summer and fall of 1998, the public and private debt markets became
correspondingly constrained, primarily as a result of the evaporation of
liquidity in such markets brought about by the Russian debt default, the Asian
financial crisis, and the failure of the Long Term Capital Management hedge
13
fund. All of these events conspired to make the markets for corporate debt --
both commercial paper and high-yield indebtedness -- effectively unavailable to
the Company and other borrowers. As a result, the Company became unable to
access debt markets to increase available cash and was severely constrained in
its ability to effect securitization transactions in both 1998 and 1999 that
would have both increased cash and possibly de-leveraged the Company's balance
sheet to a limited extent.
4. DECLINING MARKET FOR BIG TICKET ASSETS. In the fall of 1999, an
additional factor in the Company's financial deterioration manifested itself as
the markets for commercial jet aircraft and jet aircraft engines declined
precipitously. This decline was caused primarily by: (a) a deterioration in the
market for wide-body aircraft and the engines that supported them, resulting
from the economic downturn in the Far East; (b) a deterioration in the market
for used aircraft resulting from increased production and decreased prices of
comparable new aircraft; and (c) the deterioration of demand from smaller and
start-up airlines that resulted from, among other things, airline industry
consolidation. Commercial jet aircraft and jet aircraft engine assets had
formerly been held by the Company's Big Ticket Division for only a relatively
short period, but starting in early 1999, the Company began to implement a
strategy of building a portfolio of these assets and holding them for a longer
period, during which they were expected to generate cash flows from lease
payments. Thus, the Company carried far more of these assets on its balance
sheet at the end of 1999 than at the beginning, and was correspondingly more
highly exposed to the risk of declining values in the markets for these assets.
When the values of these assets began to decline in the fall of 1999, and such
decline accelerated in early 2000, the Company was compelled to (a) commit
additional capital to the financing of the Big Ticket Division Assets, (b) pay
incremental fees to maintain the financing on the Big Ticket Division Assets,
and (c) reappraise the Big Ticket Division assets on its books. As a result of
the reappraisal, the Company recognized substantial losses in the first, second
and third quarters of 2000. These Big Ticket losses, accompanied by the
deterioration in other aspects of the Debtors' business in early 2000,
ultimately led to breaches of the financial covenants in the Debtors' credit
facilities, which were waived through a series of amendments and extensions that
began in May 2000 and continued through December 8, 2000.
In June 2000, under the direction of E. Talbot Briddell of Phoenix
Management Services, Inc. ("Phoenix"), the newly appointed Chief Executive
Officer of UniCapital and President of the Company, the Debtors began to
implement a restructuring program. The Company made substantial changes in
senior management, eliminated thirty-eight positions, and reduced the salaries
of certain of its senior employees. The restructuring program also mandated the
discontinuation of the operations of certain subsidiaries, through closure, sale
or otherwise. In particular, the Company determined to discontinue the
operations of its Big Ticket Division, as a result of the losses incurred in
that division, and formulated a plan to dispose of the division's remaining
assets. The Company also determined to cease the operations of several companies
because they were producing insufficient operating cash flows and were projected
to continue to do so in the foreseeable future.
In November 2000, certain key members of the management team from Phoenix,
the Company's former turnaround consultants, agreed to become employees of the
Debtors. On November 22, 2000, the Debtors entered into employment agreements
14
with four key officers. Mr. Briddell agreed to stay on as Chairman of the Board
and Chief Executive Officer responsible for the daily business and financial
affairs of the Debtors. Vincent Colistra served as Chief Operating Officer until
the summer of 2001. Albert J. Mink agreed to serve, and continues to serve, as
the Chief Accounting Officer. Brian Gleason initially served as the Vice
President of Financial Operations, but no longer holds such position. Dan Chait,
formerly the treasurer of UniCapital, now serves as its Chief Financial Officer.
Given the nature of the Debtors' assets, any perception in the marketplace
of an inability to administer the leases and collect lease payments would be
devastating to the value of the leases and any residual value of the underlying
assets once off lease. Accordingly, on December 1, 2000, UniCapital Operating
Group, Inc. ("Portland"), a non-Debtor subsidiary, entered into a purchase and
sale agreement with Portfolio Financial Servicing Company ("PFSC") for the sale
of substantially all of the assets of Portland for approximately $10 million. In
addition, the Debtors entered into servicing agreements with PFSC, which provide
for PFSC's continued servicing of the Company's lease portfolio.
Upon the expiration of the financial covenant default waivers under the
Debtors' credit facilities on December 8, 2000, and in order to complete the
Debtors' financial restructuring, the Debtors filed the Chapter 11 Cases on the
Petition Date.
II. ACTIVITIES WITHIN THE CHAPTER II CASES
A. FILING. On December 11, 2000, the Debtors commenced these cases by
filing voluntary Chapter 11 petitions with the Bankruptcy Court.(3) By Orders of
the Bankruptcy Court, dated December 12, 2000 and May 2, 2001, the Debtors'
Chapter 11 Cases were consolidated for procedural purposes and are being jointly
administered under Case Number 00-42719 (CB). The Honorable Cornelius
Blackshear, United States Bankruptcy Judge, has presided over the Chapter 11
Cases since the Petition Date.
B. ADMINISTRATION OF THE CASES. After the Petition Date, and in accordance
with sections 1107(a) and 1108 of the Bankruptcy Code, the Debtors continued to
operate their businesses and manage their properties as debtors in possession.
On December 19, 2000, the United States Trustee appointed the Committee under
section 1102(a) of the Bankruptcy Code.
C. BANKRUPTCY COURT FIRST DAY ORDERS. On December 12, 2000, the Bankruptcy
Court entered a number of orders granting the Debtors various forms of relief.
In particular, the Debtors obtained orders authorizing: (i) the continued use of
business forms and records and the maintenance of bank accounts and cash
management system; (ii) the investment of the cash generated from the Debtors'
post-petition operations in accordance with Bankruptcy Court approved investment
guidelines; (iii) the payment of certain pre-petition wages, salaries and
commissions to employees, and the implementation of an employee retention plan;
(iv) the retention of various professionals to render services to the Debtors;
and (v) the interim use of cash collateral and post-petition financing to enable
the Debtor's operations to continue.
-----------------
(3) One of the Debtors, Aircraft 23651, Inc., commenced its Chapter 11
Case on March 22, 2001.
15
D. RETENTION AND COMPENSATION OF PROFESSIONALS.
1. BANKRUPTCY AND SPECIAL COUNSEL. The Debtors have retained Greenberg
Traurig, LLP as bankruptcy counsel. In addition, the Debtors retained Morgan
Lewis & Bockius, LLP as special counsel in connection with certain corporate
securities and SEC matters, and Lazare Potter Giacovas & Kranjac LLP in
connection with the adversary proceeding filed in the Chapter 11 Cases, styled
Gruntal & Co., L.L.C. v. Jacom Computer Services, Inc. and Key Corp Leasing, a
division of Key Corporate Capital Inc., No. 01-02621 (CB).
2. FINANCIAL ADVISORS AND AUDITORS. The Debtors retained Pricewaterhouse
as their tax advisors and accountants.
3. ORDINARY COURSE PROFESSIONALS. The Debtors have continued the retention
of a number of professionals to assist the Debtors in the ordinary course of the
Debtors' business, including attorneys, brokers, sales agents, aircraft
servicing personnel and corporate trust services (collectively, the "Ordinary
Course Professionals"). The Ordinary Course Professionals have been essential to
the Debtors' daily operations as well as the proper management of the Debtors'
estates. The order approving the Debtors' retention of the Ordinary Course
Professionals was entered by the Bankruptcy Court on February 20, 2001. Pursuant
to that order, the Debtors were authorized to compensate specified professionals
in the ordinary course for amounts due from and after the Petition Date, within
certain individual and aggregate dollar limits. By an agreed order dated
September 26, 2001, the Debtors added additional attorneys and aircraft brokers
to the list of professionals authorized to be retained in the ordinary course.
4. CLAIMS AGENT. Because of the large number of creditors in the Chapter
11 Cases, on December 14, 2000, the Debtors obtained Bankruptcy Court approval
to appoint Donlin, Recano & Co. as the official claims agent (the "Claims
Agent") for the Clerk of the Bankruptcy Court. The services performed and to be
performed by the Claims Agent include: (a) distribution of notices required to
be sent to parties in interest, (b) receipt, maintenance, docketing and
administration of the proofs of claims filed in the Chapter 11 Cases, (c)
tabulation of acceptances and rejections of the Plan, and (d) provision of other
administrative services that the Debtors may require.
5. PROFESSIONALS RETAINED BY THE COMMITTEE. The Committee retained Togut
Togut & Segal LLP as its legal advisors and Deloitte Consulting L.P. and
Deloitte & Touche LLP as its reorganization consultants and accountants,
respectively.
E. THE DEBTORS' BUSINESS OPERATIONS.
The Debtors have taken actions necessary to minimize the disruption of
their business operations and to facilitate their reorganization. These include
the following:
1. ADMINISTRATIVE EXPENSES. The Debtors have considered good relations
with their trade and other business vendors to be essential to the continued
operation of their businesses during the pendency of the Chapter 11 Cases.
Accordingly, the Debtors have paid these vendors claims as they become due in
the ordinary course of business, as allowed by the Bankruptcy Code and orders of
the Court. This includes the servicing fees due and owing to PFSC under the
Servicing Agreements, under which the Debtors' portfolio of leases and finance
16
contracts have continued to be serviced during the Chapter 11 Cases. In
addition, as part of their efforts to reduce administrative expenses, the
Debtors rejected a number of real estate leases and moved into a smaller
headquarters space in Aventura, Florida, rejecting their prior headquarters
office lease in Miami.
2. CASH COLLATERAL ORDERS. During the Chapter 11 Cases, the Debtors have
been authorized to use their cash collateral and obtain post-petition financing
under five Cash Collateral Orders: an interim Order dated December 12, 2000, and
four final Orders of the Bankruptcy Court dated January 8, 2001, April 2, 2001,
June 28, 2001 and September 26, respectively. Each of the Cash Collateral Orders
has required the Debtors' adherence to a budget with specified limits on line
item expenses, and various other conditions required by the Agent in exchange
for its consent to the Debtors' use of cash collateral and the Agent's
commitment to provide post-petition financing.
3. LEASE SERVICING AND ASSET RECOVERY. The Debtors have continued to
provide for the servicing of their portfolio of leases and finance contracts
during the Chapter 11 Cases, through the Servicing Agreements with PFSC. In
addition, the Debtors have regularly worked with PFSC collection personnel and
other interested parties during the Chapter 11 Cases to ensure the Estates'
receipt of income from the portfolio and the recovery and remarketing of
residual interests in equipment that comes off lease. The Debtors have also
resolved several disputes with third parties over their respective interests in
lease receivables sold by or to the Debtors, resulting in settlements that
clarified the amounts due to the third parties and the Debtors. Such settlements
were reached with: (a) The Chase Manhattan Bank ("Chase") (by order dated May
23, 2001), under which the Debtors and Chase released all claims against each
other related to a prior loan purchase agreement; (b) Fleet Business Credit
Corporation (by order dated June 8, 2001), under which the Debtors disclaimed
any interest in a lease schedule previously transferred by the Debtors; and (c)
Deutsche Financial Services Company ("DFS") (by order dated September 26, 2001),
under which the Debtors, the Agent and DFS resolved conflicting claims regarding
security interests asserted by DFS in certain lease receivables.
4. EMPLOYEE MATTERS. The Debtors considered their employees to be one of
their most valuable assets because continued employee cooperation and support is
important to preservation of the value of the Debtor's assets. Accordingly, the
Debtors took numerous steps to minimize disruptions. During the Chapter 11
Cases, the Debtors sought and the Bankruptcy Court entered two orders, dated
December 12, 2000, authorizing the Debtors to (a) pay certain accrued
pre-petition employee obligations in the nature of wages, salary and other
compensation earned and to honor certain employee reimbursement requests
incurred in a manner consistent with the Debtors' prepetition practices and
policies, and (b) implement an employee retention plan to provide for the
payment of stay bonuses, severance payments and vacation pay to employees
necessary for the continued operations of the Debtors.
F. ASSET SALES.
1. OFFICE ASSETS. As part of the Debtors' reorganization, the Debtors have
closed numerous offices around the country and sold various office furniture and
equipment. By orders of the Bankruptcy Court dated April 4 and April 11, 2001,
the Debtors sold certain office assets in their offices in Miami, Florida,
Orlando, Florida, Boulder, Colorado, Denver, Colorado and Orangeburg, New York.
17
On June 8 and June 13, 2001, the Bankruptcy Court entered orders authorizing de
minimis sales by the Debtors of assets within specified dollar value ranges,
without further order of the Court, and subject to procedures for providing
monthly summaries of the sale to the Agent and Committee. Under the de minimis
sales procedures, the Debtors have sold approximately $252,000 million of assets
during the period of June-September 2002, consisting primarily of office
furniture and computer equipment in offices the Debtors have closed. The Debtors
have also sold a tract of real property in Danielson, Connecticut, under the
Bankruptcy Court's order dated March 14, 2001.
2. BIG TICKET ASSETS. During the Chapter 11 Cases, the Debtors have
continued their business of selling aircraft engines and related parts in the
ordinary course through the Big Ticket Division. Since the Petition Date, the
Debtors have sold approximately $9.9 million of aircraft engines and related
parts. In addition, some non-Debtor subsidiaries of the Debtors have sold some
of their aircraft-related assets, including aircraft engines and beneficial
interests in trusts owning aircraft, and the Agent, the Committee and other
interested parties have filed agreed orders with the Bankruptcy Court on the
distribution of the proceeds from such sales. These have included agreed orders
dated May 15 and May 25, 2001, providing for the payment of certain sales
proceeds to Lehman Commercial Paper, Inc. as agent under a Credit Agreement
dated July 21, 2000, under which it held liens in the stock of the non-Debtor
subsidiaries effecting the sales.
G. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
1. ASSUMPTION OF CONTRACTS AND LEASES. The Debtors have moved to assume
the executory contracts or unexpired leases in connection with (a) the sale of
office assets in Boulder, Colorado, and (b) the Orangeburg, New York office
lease of Jacom Computer Services, Inc., as modified to reduce the office space
to that needed for a few personnel through December 31, 2001. The Debtors will
also be assuming various contracts under the Plan.
2. REJECTION OF CONTRACTS AND LEASES. The Debtors have filed several
motions to reject various office leases and contracts for storage spaces in
numerous locations around the country. By orders dated February 1, 2001,
February 7, 2001, February 21, 2001, April 4, 2001, May 23, 2001, May 31, 2001,
July 23, 2001, and __________, 2001, the Debtors have rejected a total of ____
non-residential real property leases and _____ storage space agreements. The
Debtors reviewed these leases and contracts, and concluded that they have no
potential value to the Debtors' Estates. Because the costs associated with
marketing such leases and contracts, in addition to the cure amounts that would
be required to be paid if they were to be assumed and assigned, would be
significantly greater than any potential value that might be realized by any
future sale or sublease, the Debtors concluded that such leases and contracts
were burdensome and should be rejected.
3. 365(D)(4) EXTENSIONS. To give the Debtors an opportunity to review and
analyze certain leases, the Debtors filed motions on January 17, April 19 and
July 5, 2001, (the "365(d)(4) Motions") seeking to extend the Debtors' time
within which to assume or reject such leases. By orders dated February 1, May 2
and July 23, 2001, the Bankruptcy Court approved the Debtors' 365(d)(4) Motions,
allowing the Debtors additional time to fully determine which of the leases
identified on Exhibit A to the 365(d)(4) Motions and any other unexpired leases
18
of nonresidential real property which may have been inadvertently omitted
therefrom, should be assumed and assigned or rejected. The final extension
period expired on August 31, 2001.
H. LITIGATION, STAY RELIEF AND INVESTIGATIONS.
1. MARKET SCAN. By motion dated February 15, 2001, Market Scan Information
Services, Inc. ("Market Scan") sought to lift the stay to permit it to continue
certain litigation in a California state court involving one of the Debtors, HLC
Financial, Inc. ("HLC"), Soron Litman and Lawrence Ciuffitelli. By an agreed
order dated March 14, 2001, Market Scan was permitted to liquidate its claims
against HLC in the state court case. The parties subsequently settled their
claims against each other, by a settlement approved by order dated May 23, 2001.
The settlement provided for the dismissal of the state court litigation, but
preserved any claims, defenses or counterclaims related to two suits: Litman v.
HLC Financial, Inc., et al., in Los Angeles County Superior Court, Central
District, and Litman and Ciuffitelli v. UniCapital, New and New, in the United
States District Court, Southern District of New York.
2. NEFF & FIORENZA. On April 27, 2000, UniCapital and UniCapital Aircraft
Engine Group ("UAEG") commenced an action entitled UniCapital Corp. and
UniCapital Aircraft Engine Group v. Randall Fiorenza and James Neff, in the
Delaware Court of Chancery. In this action, UniCapital and UAEG sued Messrs.
Fiorenza and Neff for breach of their employment agreements, misuse of
confidential information and misappropriation of trade secrets, breach of
fiduciary duties, usurpation of corporate opportunity and unfair competition.
Because UniCapital and UAEG are the plaintiffs, this matter was not stayed as a
result of the bankruptcy filing. The suit is now in the discovery phase, and the
parties are engaged in settlement negotiations.
In June 7, 2000, Messrs. Fiorenza and Neff filed a demand for arbitration
with the American Arbitration Association ("AAA") against UniCapital and UAEG
alleging wrongful termination of their employment agreements and seeking damages
in excess of $3 million. On or about March 6, 2001, Messrs. Fiorenza and Neff
moved in the Bankruptcy Court to lift the stay to permit them to continue the
arbitration. On July 19, 2001, they withdrew their motion to lift the stay and
withdrew the arbitration.
3. RYAN INTERNATIONAL. On January 23, 2001, Ryan International Airlines,
Inc. ("Ryan") and Gold Transportation Group, Inc. ("Gold") filed an adversary
proceeding for interpleader and declaratory relief from Wells Fargo as owner
trustee on behalf of CL Aircraft XXXIV, Inc., one of the Debtors. By agreed
order dated September 18, 2001, the parties settled the adversary proceeding,
under which the parties agreed to the segregation of additional rent and the
payment of certain overdue lease payments.
4. KEYCORP; GRUNTAL. By motion dated February 1, 2001, KeyCorp Leasing, a
Division of Key Corporate Capital, Inc. ("KeyCorp"), sought to lift the stay to
permit it proceed against Gruntal & Co., LLC ("Gruntal") and Jacom, the lessee
under certain lease receivables purchased by KeyCorp, in state court to enforce
the related leases. By motion dated March 28, 2001, Gruntal in turn sought
relief from the stay to seek declaratory relief from the Bankruptcy Court.
KeyCorp opposed the motion and requested the Bankrupcy Court to abstain from
determining the dispute in the pending state court action. The KeyCorp and
Gruntal motions for stay relief were withdrawn without prejudice. Gruntal then
19
filed an adversary proceeding in the Bankruptcy Court, seeking declaratory
relief regarding the terms of the lease schedules and certain disputed payments.
KeyCorp filed counterclaims against Gruntal for breach of the leases. The
adversary proceeding is still pending before the Bankruptcy Court.
5. UITSG AND HEWITT. UniCapital Technology Corporation ("UTC") and
Varilease Corporation ("Varilease") have sued UITSG, LLC ("UITSG"), Timothy
Hewitt, and Denise DeSimone in New York state court, seeking damages for UITSG's
breach of an Asset Purchase Agreement. The agreement required UITSG to forward
to UTC payments collected from former customers in full or partial satisfaction
of outstanding receivables that existed prior to the effective date of the
agreement. With appropriate setoffs for defendants, UTC and Varilease are
contractually entitled to approximately $325,000. The parties are now in
settlement negotiations.
UTC and UniCapital have also sued Timothy Hewitt and UITSG in Florida
state court, seeking damages for Hewitt's willful and intentional misconduct
while he was employed by UTC as a Vice President by shipping over $500,000 in
goods to an unauthorized purchaser that subsequently failed to pay for those
goods. UTC and UniCapital are seeking approximately $500,000 in damages. The
parties have agreed to stay discovery pending settlement discussions in the New
York suit. The unauthorized purchaser, 2001 Technologies, Inc., filed for
chapter 7 bankruptcy protection after UniCapital received a $475,000 stipulated
judgment from it.
6. ARCH LEASING BONDHOLDERS. By motion dated July 27, 2001, several
bondholders of the Arch Leasing Corporation Trust (the "Trust") sought to lift
the stay to permit them to proceed against Varilease in a class action filed in
Missouri state court related to transactions among the Trust, Varilease and
other defendants. They simultaneously filed a motion with the Bankruptcy Court
for authority to file a class claim after the bar date in the Chapter 11 Cases
had passed. Both motions are pending in the Bankruptcy Court.
7. FINOVA/VANGUARD AIRLINES. By motion dated September 24, 2001, FINOVA
Capital Corporation ("FINOVA") sought to lift the stay to permit it to foreclose
on three airplanes owned by the Debtors, in which FINOVA asserts a security
interest under a mortgage loan. The motion is pending in the Bankruptcy Court.
8. SHAREHOLDER CLASS ACTION. IN RE UNICAPITAL CORP. SEC. LITIG., Master
File No. 00-2054-CIV-HIGHSMITH (the "Shareholder Action"), is currently pending
in the United States District Court for the Southern District of Florida. In
this putative class action, plaintiffs brought claims under the Sections 11, 12
and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 against UniCapital, certain underwriters of its
public offering (Morgan Stanley Dean Witter & Co, Salomon Smith Barney, Inc. and
Friedman, Billings, Ramsey Group, Inc.) (the "Underwriters") and certain of its
former officers and directors (Robert New (now deceased), Jonathan New and
Stuart Cauff). The Shareholder Action against UniCapital has been stayed because
of the bankruptcy filing. By order entered June 29, 2001, the district court
held that the complaint sufficiently stated claims under Sections 11 and 12 of
the Securities Act against the Underwriters, and claims under sections 11 of the
Securities Act and sections 10(b) and 20(a) of the Securities Exchange Act
against Messrs. Robert New, Jonathan New and Cauff, as well as claims under
section 15 of the Securities Act against Messrs. Robert and Jonathan New. The
20
order gave plaintiffs ten days to amend their section 10(b) claim to state a
viable claim against the Underwriters and ordered all defendants to file their
answers within fifteen days of the date allowed for plaintiffs to amend their
section 10(b) claim.
UniCapital anticipates the Shareholder Action will proceed pursuant to the
District Court's orders. The Debtors expect to file a motion or adversary
proceeding to subordinate all claims asserted against UniCapital in the
Shareholder Action.
9. SEC INVESTIGATION (UNICAPITAL). An informal inquiry regarding
UniCapital captioned IN THE MATTER OF UNICAPITAL CORP., File No. MFL-2713, is
being conducted by the Southeast Regional Office (Miami) of the SEC. This
informal inquiry has been pending since December 2000, and relates generally to
UniCapital's accounting and financial reporting relating to goodwill impairment
and other issues. The SEC has made a very substantial request for documents, to
which UniCapital has been responding.
10. SEC INVESTIGATION (AVIATION SALES COMPANY). The SEC is also conducting
a formal investigation captioned IN THE MATTER OF AVIATION SALES COMPANY, File
No. FL-02566-A. According to the formal order of investigation, this
investigation relates to accounting and financial reporting by Aviation Sales
Company ("Aviation Sales") with respect to certain purchases and sales of
aircraft engines. The SEC issued a subpoena duces tecum to UniCapital in
December 2000, asking for all documents relating to the purchase by UniCapital
of six engines from Aviation Sales and the purchase by Aviation Sales of three
engines from UniCapital, all occurring simultaneously on September 30, 1998. The
Company has been responding to this subpoena.
I. OTHER MATTERS.
1. COMMITTEE PRESERVED ISSUE. Through several stipulations (signed by the
Bankruptcy Court on March 16, 2001, April 9, 2001, May 1, 2001, June 5, 2001,
August 14, 2001 and August 28, 2001) and provisions in the Cash Collateral
Orders, the Committee has agreed to waive its right to challenge the liens of
the Agent on the assets of the Debtors, except with respect to the Agent's
perfection of its liens under the UCC. Other than with respect to the Committee
Preserved Issue, no creditor or party in interest can object or contest the
extent, validity, priority or allowance of the Revolving Lender Claims, assert
any defenses thereto or otherwise challenge the Revolving Lender Claims and
security interests on the assets of Jacom Computer Services, Inc. in the State
of New York.
2. COMMITTEE PREFERENCE ANALYSIS. The Committee has investigated payments
made by the Debtors prior the Petition Date, and is determining whether to
challenge any such payments as preferential payments voidable under section 547
of the Bankruptcy Code.
J. BAR DATE FOR FILING PROOFS OF CLAIMS. The Debtors' Schedules and
Statements of Affairs were filed on March 8-12, 2001. Amended Schedules were
filed on May 1, 2001 and June 1-6, 2001. By order dated March 30, 2001, (the
"Bar Date Order"), the Court fixed May 25, 2001, as the date by which certain
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proofs of claims must be filed against the Debtors' Estates (the "Bar Date").(4)
Under the Bar Date Order, any person or entity that was required to file a
timely proof of claim and failed to do so on or before the Bar Date will not be
entitled with respect to such Claim to receive any payment or distribution of
property from the Debtors, their successors or assigns, and will be forever
barred from asserting such Claim against the Debtors' Estates.
As of July 30, 2001, approximately 1,500 claims have been filed in the
Chapter 11 Cases in the approximate amount of $880.5 million. The Debtors
continue to review and analyze the remaining filed claims and intend to file
objections to claims where appropriate, including for claims that are late,
duplicate or amended and superseded.
K. NOTICE REGARDING CERTAIN POTENTIAL CLAIMS. The following constitutes
notice of alleged or potential Causes of Action. The Debtors are investigating
the following matters as claims or Causes of Action which the Debtors and the
Estates may have against the following Persons, and which the Debtors and
Estates may pursue through the commencement of litigation prior to the Effective
Date and which Litigation LLC may pursue subsequent to the Effective Date:
1. PRIOR ROLL-UP TRANSACTIONS. The Debtors and their Estates are
investigating whether excessive consideration was paid by the Debtors in
connection with the Debtors' original acquisitions of eighteen (18) Subsidiaries
in 1998. The Subsidiaries, the transactions of which are subject to
investigation, and the selling Persons who are the subject of such investigation
and may be potential defendants in litigation, are set forth on EXHIBIT 2 to the
Disclosure Statement.
2. SELLER TAX INDEMNITIES. The Debtors and their Estates are also
investigating whether the Debtors have claims against the selling Persons in the
roll-up transactions for unpaid taxes, pursuant to Seller Tax Indemnities
provided in connection with the acquisitions. The Subsidiaries, the transactions
of which are subject to investigation, and the selling Persons who are the
subject of such investigation and may be potential defendants in litigation, are
set forth on EXHIBIT 2 to the Disclosure Statement.
3. EXCESSIVE AND ULTRA VIRES PAYMENTS TO OFFICERS. The Debtors and their
Estates are investigating whether preferential, excessive, illegal or ultra
vires payments of salaries, commissions, expense reimbursements and other
payments were made to directors, officers, employees and agents of the Debtors
and the Debtors' Subsidiaries or to their respective affiliates. The Persons who
are the subject of such investigation, and who may be potential defendants in
litigation, are set forth on EXHIBIT 2 to the Disclosure Statement.
4. CLAIMS AGAINST FORMER MANAGEMENT. The Debtors and their Estates are
investigating whether former directors, officers, employees and agents of the
-------------------
4 Pursuant to the Bar Date Order, the Court fixed June 11, 2001 as the
date by which Claims of governmental units must be filed against the Debtors'
Estates.
22
Debtors and the Debtors' Subsidiaries and their respective affiliates may have
committed mismanagement, waste, breaches of fiduciary duty, ultra vires acts,
fraud, misappropriation of corporate opportunities and other acts or omissions
that may have damaged the Debtors and their Estates. This includes without
limitation arrangements or agreements for the purchase, sale, remarketing,
restructuring or re-leasing of Equipment Leases by such Persons and their
affiliates that may have damaged, defrauded or appropriate the corporate
opportunities of the Debtors and their Estates. The Persons who are the subject
of such investigation, and who may be potential defendants in litigation, are
set forth on EXHIBIT 2 to the Disclosure Statement. The Debtors and non-Debtor
Subsidiaries have also filed a claim in the probate case of Robert New, the
former President and Chief Executive Officer of UniCapital and certain of the
Debtors, in the estimated amount of $500,000,000.00.
5. PREFERENTIAL TRANSFERS PRIOR TO PETITION DATE; OTHER AVOIDANCE ACTIONS.
The Debtors and their Estates are investigating whether certain vendors and
other creditors of the Debtors received payments on debts owed by the Debtors
during the 90 days prior to the Petition Date (I.E. on or after September 12,
2000). Either the Debtors (prior to the Effective Date, with the consent of the
Agent) or Litigation LLC (from and after the Effective Date) may seek to avoid
such payments to the extent they are subject to avoidance under Section 547(b)
of the Bankruptcy Code. Litigation LLC will retain TS&S to prosecute the
Permitted Avoidance Actions. However, Litigation LLC may also prosecute all
other avoidance actions not included in the Permitted Avoidance Actions,
including without limitation actions against any insiders or affiliates of the
Debtors.
6. TAXES OWED BY LESSEES OF THE TAA AND SECURITIZATION SUBSIDIARIES. The
Debtors and their Estates are investigating whether the Estates are owed amounts
for certain sales and property taxes paid or owed by the Estates, which may be
subject to payment or reimbursement by Equipment Lessees under Equipment Leases
that are now owned by the TAA Subsidiaries and the Securitization Subsidiaries.
Either the Debtors (prior to the Effective Date, with the consent of the Agent)
or the Reorganized Debtors (from and after the Effective Date) may seek to
collect these tax payments and reimbursements directly from the Equipment
Lessees, or seek other relief from the Bankruptcy Court or other courts of
appropriate jurisdiction to recover such payments and reimbursements.
7. RETAINED CLAIMS AND DEFENSES . Pursuant to Section 1123(b)(3) of the
Bankruptcy Code, Litigation LLC will have possession and control of the Causes
of Action (other than the Lease Collection Actions), D&O Claims and D&O
Insurance, and will, pursuant to the Plan, retain and have the right to enforce
any and all present or future rights, claims or Causes of Action (other than
Lease Collection Actions), including with respect to D&O Claims and D&O
Insurance, against any Person and with respect to any rights of the Debtors that
arose before or after the Petition Date (collectively, the "Retained Claims and
Defenses") and all such Retained Claims and Defenses shall survive the
confirmation and effectiveness of the Plan. Notwithstanding the foregoing, none
of the Retained Claims and Defenses shall be barred or estopped because the Plan
and the Disclosure Statement does not specifically identify either a Retained
Claim and Defense or the person against whom a Retained Claim and Defense may be
asserted.
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III. SUMMARY OF THE PLAN
A. OVERVIEW OF THE PLAN. The Plan represents and incorporates a proposed
Compromise and Settlement of numerous issues which are described in greater
detail in the Plan (Section 2.01). Rather than subject the Estates to the
enormous costs, delays and uncertainties attendant to a judicial determination
of such issues, the Debtors seek to resolve the matter consensually through the
Plan. The Debtors believe that this Compromise and Settlement is fair and
reasonable and in the best interests of the Estates.
The issues involved in the Compromise and Settlement relate primarily to
the payment of Priority Claims (both tax and non-tax) and the provision of
reserves for Disputed Priority Claims, the payment of the Revolving Lender
Claims (Class 1), the treatment of Lehman Secured Claims (Class 2) and Other
Secured Claims (Class 3), and the treatment of General Unsecured Claims (Class
5), and the settlement of certain claims arising under the TAA (Section 2.01(b)
of the Plan). The Plan further provides for certain releases and limitations of
liability, including the Debtors' release of claims against the Agent, the
Lenders, Portland, the TAA Parties and directors and officers of the Debtors and
their Subsidiaries who served during the Chapter 11 Cases (Section 9.08), and
the release by holders of Claims and Interests of the Agent, Bank of America,
the Bank Investors, the TAA Parties, the Lenders, Newco, Asset LLC, Litigation
LLC, Portland, PFSC and various related Persons, of certain Persons who served
as agents, employees, officers and directors of the Debtors and their
Subsidiaries and affiliates during the Chapter 11 Cases (Section 9.09 of the
Plan).
Because Bank of America, as Agent and Lender, has a security interest in
all of the Debtors' assets, which (but for the Committee Preserved Issue) have
been determined to have been duly and validly perfected, the Debtors believe
that holders of Priority Claims, including Priority Tax Claims, and General
Unsecured Claims would not be entitled to receive any distributions absent the
Compromise and Settlement that is incorporated in the Plan. Provided that the
Lien Release Condition is satisfied or waived by the Agent and the Requisite
Lenders, approximately $10 million, representing the Portland Sale Proceeds,
will made available by Bank of America, as Agent and Lender, to fund reserves to
satisfy all Priority Claims, including Priority Tax Claims, and Administrative
Claims. To the extent that the total amount of Portland Sale Proceeds used to
fund reserves for Priority and Administrative Claims is less than $10 million,
the balance of the Portland Sale Proceeds (the Excess Portland Proceeds) will be
included in Distributions for the benefit of General Unsecured Claims. The total
Distributions going to or for the benefit of General Unsecured Claims are: (i)
the Minimum Funding Requirement, (ii) the Additional Funding Requirement
(including the Excess Portland Proceeds), (iii) the Subsequent Funding
Requirement, if any, (iv) the Net Proceeds Sharing Payment, if any, and (v) the
Supplemental Net Proceeds Payment, if any. These Distributions are further
described below. However, the total amount of Distributions to the holders of
Allowed General Unsecured Claims is capped at ten percent (10%) of the Allowed
amounts of such Claims (or the Minimum Funding Requirement if greater), plus a
Ratable Share of the Supplemental Net Proceeds Payment, if any.
The provisions of the Plan relating to the above matters and the
treatment of each Class of Claims under the Plan reflect this Compromise and
24
Settlement, which, upon the Effective Date, will be binding upon the Debtors,
all Creditors, and all Persons whether or not such Persons have voted to accept
or reject the Plan.
B. POOLING OF LIABILITIES FOR PURPOSES OF VOTING AND DISTRIBUTION
The Plan provides that the Assets and liabilities of the Estates shall be
aggregated and pooled for the limited purposes of Plan voting and Distributions.
The Debtors believe that the aggregation and pooling of Assets and liabilities
embodied in the Plan and the release of the Agent's Liens against the Portland
Sale Proceeds may enable Distributions to be made to holders of General
Unsecured Claims, once the Priority Claims are determined. The aggregation and
pooling of the Debtors' assets and liabilities is based on the Bankruptcy
Court's general equitable powers, which allows a court in appropriate cases to
disregard the separateness of two or more affiliated-debtors and to pool
together the assets and liabilities of such entities.
C. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS
UNDER THE PLAN
The following Section briefly summarizes the classification and treatment
of Claims and Equity Interests under the Plan.
UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS. Administrative Claims include the costs and
expenses of administration of the Chapter 11 Cases of a kind specified in
section 503(b) of the Bankruptcy Code and entitled to priority under section
507(a)(1) of the Bankruptcy Code. Subject to the Bar Date provisions in the
Plan, each holder of an Allowed Administrative Claim will be paid in full. For a
complete description of the treatment of Administrative Claims under the Plan,
please see Section 4.01 of the Plan.
2. PRIORITY TAX CLAIMS. Priority Tax Claims are claims of a kind specified
in section 507(a)(8) of the Bankruptcy Code. Subject to the provisions of
Section 7.12 of the Plan and except as otherwise agreed, UniCapital shall make
deferred Cash payments to each holder of a Priority Tax Claim over a period not
exceeding six years from the date of assessment of such tax equal to the Allowed
Amount of such Priority Tax Claim. Such payments shall be made in equal
quarterly installments (on the first day of each calendar quarter) of principal,
plus simple interest accruing from the Effective Date at the U.S. Treasury Rate
on the unpaid portion of each Priority Tax Claim. UniCapital reserves the right,
however, with the consent of the Agent, to pay in full, at any time, without
premium or penalty, the balance of any Priority Tax Claim . Except as provided
in Section 7.12 of the Plan, the payment of all Allowed Priority Tax Claims
shall be funded and satisfied solely and exclusively from the Priority Claims
Reserve.
Section 7.12 of the Plan provides for the payment of Priority Tax Claims
related to Equipment Leases to be paid consistent with past practices out of
Lessee Tax Payments, as and when received by the Reorganized Debtors or their
agent. In the event that any State Governmental Authority issues an assessment
or charge against the Reorganized Debtors or UniCapital with respect to any tax
liability based upon or related to an Equipment Lease, that was or should have
been collected or reported by any entity for the period prior to the Effective
Date, then any Claim with respect to such tax liability shall be paid over six
years as described above and shall be funded solely and exclusively from Lessee
Tax Payments.
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Any governmental unit that accepts Distributions with respect to its
Allowed Priority Tax Claims agrees that by accepting such Distributions, such
governmental unit is irrevocably submitting to the jurisdiction and venue of the
Bankruptcy Court with respect to all actions, proceedings and disputes regarding
any Claims of such governmental unit, and waiving any related immunities or
defenses to such jurisdiction or venue.
In addition, the Plan reflects a compromise and settlement under Section
9019 of the Bankruptcy Code, and the findings of the Bankruptcy Court in the
Confirmation Order, that no Priority Tax Claims shall be Allowed with respect to
any failure to file state and local tax returns in the names of the correct
entities, and all state and local tax returns filed by the Debtors and their
Subsidiaries prior to the Effective Date shall be deemed to have been filed on
behalf of all Debtors and Subsidiaries required to file such returns.
Certain transactions or activities prior to the Petition Date may have
generated sales tax exposure for the Debtors and their Subsidiaries. A summary
of the potential sales tax claims relating to such transactions is set forth in
EXHIBIT 3 to the Disclosure Statement.
CLASSIFIED CLAIMS
3. CLASS 1: ALLOWED REVOLVING LENDER CLAIMS. The Revolving Lender Claims
consist of any Allowed Claims of the Lenders arising under the Credit Agreement,
the DIP Loans, the Cash Collateral Orders and the Plan. Holders of Claims in
Class 1 are impaired and are entitled to vote to accept or reject the Plan.
Holders of Revolving Lender Claims will receive the following treatment: (i) all
of the common stock of Newco; (ii) the Revolving Lender Distribution; (iii)
prior to the Termination Date, after the Revolving Lender Distribution has been
paid in full, fifty percent (50%) of each Distribution of Net Proceeds until
such time as the Allowed Revolving Lender Claim has been paid in full; and (iv)
after the Termination Date, after the Revolving Lender Distribution has been
paid in full, one hundred percent (100%) of each Distribution of Net Proceeds
until the Allowed Revolving Lender Claims have been paid in full.
Notwithstanding anything in the Plan to the contrary, in the event the Lien
Release Condition is not satisfied or waived by the Agent and the Requisite
Lenders in their sole discretion, then all provisions of the Plan with respect
to the allocation of Net Proceeds and the Portland Sale Proceeds between the
Agent and the holders of Allowed Class 5 Claims shall be of no force or effect.
4. CLASS 2: LEHMAN SECURED CLAIMS. The Lehman Secured Claims consists of
any and all Secured Claims against the Debtors arising under the Lehman Credit
Agreement. Each holder of Allowed Claims in Class 2 is impaired and is entitled
to vote to accept or reject the Plan. Under the Plan, holders of Lehman Secured
Claims will be Reinstated, or receive either the Lehman Collateral (or other
Collateral of equivalent value) or the proceeds from the sale of the Lehman
Collateral up to the amount of the Allowed Lehman Secured Claim. For a complete
description of the treatment of an Allowed Secured Claim in Class 3, please see
Section 5.02 of the Plan.
5. CLASS 3: OTHER SECURED CLAIMS. Other Secured Claims consist of any
Secured Claim other than the Revolving Lender Claims and the Lehman Secured
Claims. Holders of Allowed Claims in Class 3 are impaired and are entitled to
vote to accept or reject the Plan. At the sole option of the Debtors or Asset
26
LLC, as the case may be, each holder of an Allowed Claim in Class 3 will receive
any of the following treatments: either: (i) all Cash proceeds received with
respect to such Collateral net of Excluded Amounts, to the extent of the Allowed
amount of such Class 3 Claim (E.G. all rental payments received by the
Reorganized Debtors in the ordinary course, with respect to Equipment Leases
pledged or sold to the holder of a Class 3 Claim); or (ii) Asset LLC or the
Reorganized Debtors will sell the Collateral and such proceeds (less Excluded
Amounts and the costs of sale) will be remitted to the holder of such Claim to
the extent of the Allowed amount of such Claim; or (iii) Asset LLC or the
Reorganized Debtors will abandon the Collateral subject to the Lien(s) securing
such Class 3 Claim to such holder, or grant such holder a Lien on similar
Collateral of then equivalent value; or (iv) a mutually agreed treatment. Any of
the above treatments in subsections (i), (ii) and (iii) may be exercised in
combination or in sequence as to any Allowed Class 3 Claim.
Any holders of Class 3 Claims shall remit Lessee Tax Payments and other
Excluded Amounts to PFSC, either immediately (with respect to such amounts
received prior to the Effective Date) or within five (5) Business Days after
receipt. In the event a holder of a Class 3 Claim does not remit such amounts,
UniCapital shall be authorized enforce a re-direction of the Collateral proceeds
to ensure the payment of Excluded Amounts. All amounts remitted to the holders
from and after the Petition Date shall be credited against the Allowed amounts
of such Class 3 Claims. The treatment of Class 3 Claims under the Plan shall be
the exclusive remedy with respect to such Claims, and the holders of Class 3
Claims shall have no recourse as to UniCapital, the Reorganized Debtors, Asset
LLC, Litigation LLC or Newco as to any rights or remedies under any documents,
instruments and agreements underlying such Claims.
For a complete description of the treatment of Class 3 Claims under the
Plan, please see Section 5.03 of the Plan.
6. CLASS 4: PRIORITY NON-TAX CLAIMS. Priority Non-Tax Claims consist of
any Claim entitled to priority pursuant to section 507(a) of the Bankruptcy
Code, other than (a) an Administrative Claim, or (b) a Priority Tax Claim. Each
holder of Allowed Priority Non-Tax Claims in Class 4 is not impaired, and is not
entitled to vote to accept or reject the Plan. Under the Plan, each holder of an
Allowed Claim in Class 4 will be paid in full.
7. CLASS 5: GENERAL UNSECURED CLAIMS. General Unsecured Claims consist of
any unsecured Claim that is not an Administrative Claim, a Priority Tax Claim, a
Revolving Lender Claim, a Lehman Secured Claim, a Secured Claim, a Priority
Non-Tax Claim, a Penalty Claim or a Subordinated Claim. Holders of Allowed
Claims in Class 5 are impaired and are entitled to vote to accept or reject the
Plan. Under the Plan, holders of Allowed Claims in Class 5 will receive, in the
aggregate, the following, subject to the Termination Date:
(i) MINIMUM FUNDING REQUIREMENT: $5,000,000, funded into the Class 5
Escrow Account on the Effective Date;
(ii) ADDITIONAL FUNDING REQUIREMENT: up to an additional $5,000,000, equal
to the sum of: (I) the Excess Portland Proceeds, paid into the Class 5 Escrow
Account on the Effective Date; (II) a 25% portion of the difference between
amounts distributed to the Agent from the Disputed Tax Reserve, less claims
27
against UniCapital under the Tax Indemnity, to be paid thirty (30) days after
the third anniversary of the Effective Date; and (III) the gross proceeds from
Permitted Avoidance Actions;
(iii) SUBSEQUENT FUNDING REQUIREMENT: If the aggregate of the Minimum
Funding Requirement and the Additional Funding Requirement (without deducting
the Class 5 Litigation Costs) has not exceeded $6,000,000 by the third
anniversary of the Effective Date, then the Agent shall pay the amount necessary
to increase such amount to $6,000,000;
(iv) NET PROCEEDS SHARING PAYMENT: If the Revolving Lender Distribution
has been paid prior to the third anniversary of the Effective Date, then Asset
LLC shall distribute fifty percent (50%) of each Distribution of Net Proceeds
thereafter until the Allowed Revolving Lender Claims have been paid in full,
then all remaining Net Proceeds through and including such third anniversary;
and
(v) SUPPLEMENTAL NET PROCEEDS PAYMENT: If the Allowed Revolving Lender
Claims are paid in full, then Asset LLC and Litigation LLC shall pay an amount
equal to the sum of all remaining Net Proceeds to UniCapital as Disbursing
Agent, which shall deposit such amounts first, into the Class 5 Escrow Account,
for funding additional Distributions to the holders of Allowed Class 5 Claims
until such holders are paid in full, and next, to the holders of Allowed Claims
in Classes 6, 7 and 8 in the order of priority set forth in the Bankruptcy Code.
Notwithstanding anything in the Plan to the contrary, in the event the
Lien Release Condition is not satisfied or waived by the Agent and the Requisite
Lenders in their sole discretion, then all provisions of the Plan with respect
to the Revolving Lender Distribution and the Class 5 Cash will be inapplicable
and of no force or effect, and the holders of Class 5 Claims will receive no
distribution of Class 5 Cash nor any Distribution of Net Proceeds. On the
Effective Date, the Committee Preserved Issue shall be released and discharged.
For a complete description of the treatment of Class 5 under the Plan,
please see Section 5.05 of the Plan.
8. CLASS 6: SUBORDINATED CLAIMS. Subordinated Claims consist of any Claim
that is subject to subordination under section 510 of the Bankruptcy Code,
including, but limited to, any Claim arising from the recession of a purchase or
sale of a Security of the Debtors or affiliate of the Debtors, for damages for
the purchase or sale of a Security of the Debtors or an affiliate of the
Debtors, or for reimbursement or contribution allowed under section 502 of the
Bankruptcy Code on account of such a claim. For purposes of the Plan, each
holder of a Subordinated Claim in Class 6 will not receive any distribution of
property under the Plan on account of their Claim. Holders of Claims in Class 6
are conclusively presumed to have rejected the Plan and are not entitled to vote
to accept or reject the Plan.
9. CLASS 7: PENALTY CLAIMS. Penalty Claims consist of any Claim for any
fine, penalty or forfeiture, or for multiple, exemplary or punitive damages, to
the extent that such fine, penalty, forfeiture or damages are not compensation
for actual pecuniary loss suffered by the holder of such Claim. For purposes of
the Plan, each holder of Penalty Claims in Class 7 will not receive any
distribution of property under the Plan on account of its Penalty Claims.
28
Holders of Penalty Claims in Class 7 are conclusively presumed to have rejected
the Plan and are not entitled to vote to accept or reject the Plan.
10. CLASS 8: UNICAPITAL EQUITY INTERESTS. UniCapital Equity Interests
consist of any holder of equity in UniCapital, including, without limitation,
any "equity security" in the Debtors as defined by section 101(16) of the
Bankruptcy Code. For purposes of the Plan, each holder of UniCapital Equity
Interests in Class 8 will not receive any distribution of property under the
Plan on account of its UniCapital Equity Interests. Holders of UniCapital Equity
Interests in Class 8 are conclusively presumed to have rejected the Plan and are
not entitled to vote to accept or reject the Plan.
D. IMPLEMENTATION OF PLAN; ESTABLISHMENTS OF CLAIMS RESERVES
1. CORPORATE TRANSACTIONS. The Plan is a reorganization pursuant to
section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended. On the
Effective Date, the Company will be restructured as follows:
(a) TRANSFER OF ASSETS TO ASSET LLC. UniCapital will transfer all of
its Assets, except for its Causes of Action, D&O Claims and D&O Insurance and
Cash to fund the Administrative Expense Budget and reserves under the Plan, but
including its remaining Cash and its Equity Interests in any Subsidiary, to
Asset LLC, in exchange for all of the Membership Interests in Asset LLC;
(b) TRANSFER OF CAUSES OF ACTION, D&O CLAIMS AND D&O INSURANCE TO
LITIGATION LLC. All of the Reorganized Debtors will transfer and assign all of
their respective Causes of Action (other than Lease Collection Actions), D&O
Claims and D&O Insurance to UniCapital. UniCapital will then immediately
transfer all Causes of Action (other than Lease Collection Actions), D&O Claims
and D&O Insurance of UniCapital and the Reorganized Debtors to Litigation LLC,
in exchange for all of the Membership Interests in Litigation LLC. However,
UniCapital will continue to own and retain all Seller Tax Indemnities.
(c) TRANSFER OF MEMBERSHIP INTERESTS TO NEWCO. Immediately after the
Asset transfers described in paragraphs (a) and (b), UniCapital will transfer
the Membership Interests in Asset LLC and Litigation LLC to Newco, in exchange
for all of the common stock of Newco.
(d) TRANSFER OF NEWCO STOCK TO BANK OF AMERICA. Immediately after the
Membership Interest transfers described in paragraph (c), UniCapital will
transfer and distribute all of the common stock of Newco to Bank of America or
its designee, in partial payment of the Allowed Revolving Lender Claims in the
amount specified in the Corporate Exhibit Appendix.
(e) PLAN IMPLEMENTATION AND DISSOLUTION OF UNICAPITAL. From and after
the Effective Date, UniCapital will stay in existence to implement and
effectuate its duties and responsibilities under the Plan, and will then
dissolve. Other than Claims in Classes 1, 2 and 3, all holders of Allowed Claims
will have recourse for such Claims solely from UniCapital, and not against the
Reorganized Debtors, Newco, Asset LLC or Litigation LLC or their respective
properties. From and after the Effective Date, UniCapital's sole assets will
consist of the Administrative Claims Reserve, funded amounts in the
Administrative Expense Budget, the Priority Claims Reserve, the Class 5 Cash,
the right to receive any additional Distributions to the holders of Allowed
Class 5 Claims pursuant to Article V of the Plan, and the right to receive any
additional funding of the Administrative Expense Budget and the Priority Claims
Reserve pursuant to Article VII of the Plan.
29
(f) CORPORATE GOVERNANCE. The Corporate Exhibit Appendix lists the
officers and directors of UniCapital, the Reorganized Debtors, Asset LLC,
Litigation LLC, and Newco from and after the Effective Date. The Corporate
Exhibit Appendix also includes the Operating Agreements of Asset LLC and
Litigation LLC, and the articles of incorporation and bylaws of Newco.
2. DISPUTED CLAIMS RESERVES AND OTHER RESERVES. The Plan has detailed
provisions for the establishment of Disputed Claims Reserves, the Administrative
Claims Reserve and the Priority Claims Reserve, which will be administered by
UniCapital. The Priority Claims Reserve will consist of four (4) segregated
accounts, for Allowed Priority Tax Claims, Allowed Priority Non-Tax Claims, the
Disputed Tax Reserve and the Disputed Non-Tax Reserve. The Priority Claims
Reserve will be funded exclusively out of the Portland Sale Proceeds, and will
be released in part to fund the Released Portland Proceeds (payable to the
Agent) and the Portland Reserve Sharing Payment (payable into the Class 5 Escrow
Account). The Minimum Funding Requirement may be funded, in the Agent's
discretion, from the Portland Sale Proceeds in lieu of the initial funding of
the Dispute Tax Reserve and the Disputed Non-Tax Reserve, but in such event such
amounts shall be reimbursed from Net Proceeds before any Net Proceeds are paid
to the Agent. For a complete description of these provisions, see Section 7.01
of the Plan.
E. DISTRIBUTIONS TO HOLDERS OF CLAIMS AND INTERESTS.
The Plan contains provisions regarding initial and subsequent
Distributions, estimation of Claims, the resolution of Disputed Claims, late
Claims, DE MINIMIS Distributions, setoffs and counterclaims, Unclaimed Property,
the exemption from transfer taxes under section 1146 of the Bankruptcy Code,
withholding taxes, the payment of Lessee Tax Payments to State Governmental
Authorities, the turnover of Lessee Tax Payments and other Excluded Amounts, and
the entity who is responsible for making Distributions after the Effective Date.
For a complete description of these provisions see Sections 7.02 through 7.14 of
the Plan.
IV. EFFECT OF THE PLAN ON CLAIMS AND INTERESTS
A. JURISDICTION OF COURT. Until the Effective Date, the Court will retain
jurisdiction over the Debtors and their Estates. Thereafter, jurisdiction of the
Court will be consistent with the subject matters set forth in Article XIII of
the Plan.
B. BINDING EFFECT. Except as otherwise provided in section 1141(d) of the
Bankruptcy Code, on and after the Confirmation Date, the provisions of the Plan
will bind any holder of a Claim against, or Equity Interest in, the Debtors and
their respective successors and assigns, whether or not the Claim or Equity
30
Interest of such holder is impaired under the Plan and whether or not such
holder has accepted the Plan.
C. TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided in the Plan,
all injunctions or stays provided for in the Chapter 11 Cases pursuant to
sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, will remain in full force and effect until the latter of:
(1) the Final Claims Resolution Date and (2) the Effective Date.
D. RIGHTS OF ACTION. On the Effective Date, pursuant to Section 1123(b)(3)
of the Bankruptcy Code, Litigation LLC will, after the transactions contemplated
in Article VI of the Plan, have possession and control of the Causes of Action
(other than the Lease Collection Actions), D&O Claims and D&O Insurance, and
will, pursuant to the Plan, retain and have the right to enforce any and all
present or future rights, claims or Causes of Action (other than Lease
Collection Actions), but including with respect to D&O Claims and D&O
Insurance), against any Person and with respect to any rights of the Debtors
that arose before or after the Petition Date. All present or future rights,
claims or Causes of Action (other than Lease Collection Actions) against any
Person that existed prior to the Effective Date are preserved and are
transferred to Litigation LLC pursuant to the transactions contemplated in
Article VI of the Plan, including, without limitation, such claims, rights or
Causes of Action (other than Lease Collection Actions) identified in the
Disclosure Statement. Litigation LLC will be deemed the Estates' representative
in accordance with Section 1123 of the Bankruptcy Code and will have all the
powers of a trustee under sections 704, 724 and 1106 of the Bankruptcy Code. In
addition, no entity other than Litigation LLC (after the transactions
contemplated in Article VI of the Plan) will have authority to assert,
prosecute, settle or enforce any judgment entered in respect of any of the
Causes of Action (other than Lease Collection Actions), notwithstanding that
prior to the Petition Date an entity may or could have asserted such claim or
Causes of Action. The Reorganized Debtors will continue to have authority to
assert, prosecute, settle or enforce any judgment entered in respect of any of
the Lease Collection Actions. For a complete description of the rights, Causes
of Action and defenses that Litigation LLC has under the Plan, see Section 9.04
of the Plan.
E. REVESTING OF ASSETS. Except as otherwise provided in the Plan
(including with respect to the retention of Liens by the holders of Claims in
Classes 1, 2 and 3), on the Effective Date all property comprising the Estate of
each Debtor (other than UniCapital) will revest in the relevant Reorganized
Debtor free and clear of all Claims, liens, charges, encumbrances and Interests
of creditors and equity security holders, and all Assets and Membership
Interests transferred to UniCapital, Asset LLC, Litigation LLC and Newco
pursuant to the transactions provided in Article VI of the Plan will be vested
in UniCapital, Asset LLC, Litigation LLC and Newco, respectively, free and clear
of all Claims, liens, charges, encumbrances and Interests of creditors and
equity security holders (other than as specified explicitly in the Plan). For a
complete description of the revesting provisions contained in the Plan see
Section 9.05 of the Plan.
F. DISCHARGE INJUNCTIONS AND RELEASES.
Except as otherwise provided in the Plan or Confirmation Order, and
subject to section 1141(d)(1) of the Bankruptcy Code, when the Confirmation
31
Order becomes a Final Order, the Plan and the Confirmation Order will discharge
all debts of, Claims against, Liens on, and Interests in each of the Debtors,
their assets, or properties, which debts, Claims, Liens, and Interests arose at
any time before the entry of the Confirmation Order. The discharge of the
Debtors will be effective as to each debt, Claim, Lien or Interest, regardless
of whether a proof of Claim or Interest therefor was filed, whether the Claim is
an Allowed Claim, or whether the holder thereof votes to accept the Plan. The
Plan also contains certain releases and limitations of liability, including the
Debtors' release of claims against the Agent, the Lenders, Portland and the TAA
Parties (and various related Persons) and directors and officers of the Debtors
and their Subsidiaries who served during the Chapter 11 Cases, and the release
by holders of Claims and Interests, on the one hand, of the Agent, Bank of
America, the Bank Investors, the TAA Parties, the Lenders, Newco, Asset LLC,
Litigation LLC, Portland, PFSC and various related Persons, and of certain
Persons who served as agents, employees, officers and directors of the Debtors
and their Subsidiaries and affiliates during the Chapter 11 Cases, on the other
hand. The Plan further provides for injunctions prohibiting claims and actions
which have been released or discharged under the Plan. For a complete
description of the discharge, injunction and release provisions of the Plan, see
Sections 9.06 through 9.10 of the Plan.
V. EXECUTORY CONTRACTS
As of the Effective Date, subject to Section 9.09 of the Plan, all
executory contracts and unexpired leases of each Debtor will be deemed rejected
by such Debtor pursuant to the provisions of section 365 of the Bankruptcy Code,
except: (a) the P&C Agreement; (b) the Servicing Agreements; (c) any of the
Equipment Leases which are executory contracts as of the Effective Date; (d) any
executory contract or unexpired lease that has been or is the subject of a
motion, stipulation or agreed order to assume or assume and assign Filed
pursuant to section 365 of the Bankruptcy Code by any of the Debtors before the
Effective Date; (e) any executory contract or unexpired lease listed in the
"Schedule of Assumed and Assumed and Assigned Executory Contracts and Unexpired
Leases" in the Supplemental Appendix to be Filed by the Debtors to the extent
such contract or lease is executory as of the Effective Date; (f) any executory
contract or unexpired lease assumed or assumed and assigned pursuant to the
provisions of the Plan, including any included in the Assets transferred
pursuant to the transactions described in Article VI of the Plan; and (g) any
agreement, obligation, security interest, transaction or similar undertaking
that the relevant Debtor believes is not executory or is not a lease, and which
is later determined by the Court to be an executory contract or unexpired lease
that is subject to assumption or rejection under section 365 of the Bankruptcy
Code as of the Effective Date.
The Plan also contains provisions for the cure of any monetary or other
defaults with respect to those executory contracts and unexpired leases which
are deemed assumed under the Plan and a Bar Date for filing of Claims in
connection with those executory contracts and unexpired leases which have been
rejected. For a complete description of the provisions in the Plan regarding the
treatment of executory contracts and unexpired leases, see Section 10.01 through
10.04 of the Plan.
32
VI. CONDITIONS TO CONFIRMATION AND OCCURRENCE
OF EFFECTIVE DATE
A. CONDITIONS TO CONFIRMATION. The Plan may not be confirmed unless each
of the conditions set forth below is satisfied. Except as provided in Section
11.03 of the Plan, any one or more of the following conditions may be waived at
any time by the Debtors, with the consent of the Agent.
1. The Disclosure Statement Order shall have been entered and shall
have become a Final Order.
2. The Confirmation Order shall be in a form reasonably acceptable to
the Debtors and the Agent.
3. The Compromise and Settlement and all other provisions embodied in
the Plan shall not have been modified, altered or changed in any respect.
4. The Portland Transaction shall be in full force and effect and
shall not at any time be subject to any challenge.
5. The Debtors shall have complied with their obligations and
agreements set forth in the Cash Collateral Orders and the Budgets annexed
thereto.
6. The TAA Subsidiaries (i) shall not have filed a voluntary petition
or petitions seeking bankruptcy protection under the Bankruptcy Code or similar
state insolvency laws, and (ii) an order or orders for relief (or such similar
relief as provided for under applicable state law) shall not have been entered
or granted with respect to such entities in respect of any insolvency
petition(s) for relief under the Bankruptcy Code or similar state insolvency
laws.
7. Priority Claims (Allowed and Disputed) as of the date of the
Confirmation Hearing shall not be greater than an amount acceptable to the Agent
and the Requisite Lenders.
8. An Administrative Expense Budget shall have been delivered and
acceptable to the Agent in its sole discretion.
9. The Confirmation Hearing shall have occurred no later than January
14, 2002, or such later date agreed to by the Agent in its sole discretion.
B. CONDITIONS TO OCCURRENCE OF EFFECTIVE DATE. The Effective Date for the
Plan will not occur unless each of the conditions set forth in Section 11.02 of
the Plan is satisfied. Except as provided in Section 11.03 of the Plan, any one
or more of the following conditions may be waived at any time by the Debtors,
with the consent of the Agent.
1. The Confirmation Order shall have been entered and shall have become a
Final Order.
2. The Debtors shall have (i) on or by the Consummation Date, assumed, to
the extent executory, and otherwise ratified and accepted: (x) the P&C
Agreement; and (y) the Servicing Agreements; and (ii) complied with all of their
respective material obligations, duties and covenants set forth in such
agreements through the Consummation Date.
33
3. Priority Claims (Allowed and Disputed) as of the date of the
Confirmation Hearing shall not be greater than an amount acceptable to the Agent
and the Requisite Lenders.
4. An Administrative Expense Budget shall have been delivered and
acceptable to the Agent in its sole discretion.
5. The Effective Date shall have occurred no later than January 26, 2002,
or such later date agreed to by the Agent in its sole discretion.
C. WAIVER OF CONDITIONS TO CONFIRMATION AND OCCURRENCE OF EFFECTIVE DATE.
Each of the conditions to confirmation of the Plan or to the occurrence of the
Effective Date is for the benefit of the Debtors. Other than the requirement
that the Disclosure Statement Order and the Confirmation Order must be entered,
the requirement that a particular condition be satisfied may be waived in whole
or in part by the Debtors, with the consent of the Agent.
VII. CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN
A. CONFIRMABILITY AND SEVERABILITY OF A PLAN. The Debtors, with the
consent of the Agent, reserve the right to alter, amend, modify, revoke or
withdraw the Plan. The Debtors, with the consent of the Agent, reserve the right
to make non-substantive changes in the Plan. Each provision of the Plan will be
considered separable and, if for any reason any provision or provisions in the
Plan are determined to be invalid and contrary to any existing or future law,
the balance of the Plan will be given effect without relation to the invalid
provision.
B. CRAMDOWN. The Debtors will request the Bankruptcy Court to confirm in
accordance with section 1129(b) of the Bankruptcy Code as to Classes 6, 7 and 8
and reserve the right to confirm the Plan in accordance with section 1129(b) of
the Bankruptcy Code with respect to any Class that rejects the Plan.
VIII. ADMINISTRATIVE PROVISIONS
A. RETENTION OF JURISDICTION. Notwithstanding confirmation of the Plan or
occurrence of the Effective Date, the Court will retain jurisdiction for all
purposes permitted under applicable law, including, without limitation, the
following purposes:
1. Determination of the allowability of Claims upon objection to such
Claims by Debtors (prior to the Effective Date), UniCapital (after the Effective
Date, with respect to all Claims other than Classes 1, 2 or 3), or Asset LLC
(after the Effective Date, with respect to Classes 2 and 3), and the validity,
extent, priority and nonavoidability of consensual and nonconsensual Liens and
other encumbrances;
2. Determination of tax liability pursuant to section 505 of the
Bankruptcy Code;
3. Approval, pursuant to section 365 of the Bankruptcy Code, of all
matters related to the assumption, assumption and assignment, or rejection of
any executory contract or unexpired lease of any of the Debtors;
34
4. Determination of requests for payment of administrative expenses
entitled to priority under section 507(a)(1) of the Bankruptcy Code, including
compensation of parties entitled thereto under section 330 of the Bankruptcy
Code;
5. Resolution of controversies and disputes regarding the interpretation
of the Plan;
6. Implementation of the provisions of the Plan and entry of orders in aid
of confirmation and consummation of the Plan, including, without limitation,
appropriate orders protecting the Debtors, their successors and Estates from
actions by creditors and/or Interest holders of the Debtors or any of them,
ensuring Distributions to holders of Allowed Claims, resolving disputes and
controversies regarding property of the Estates or the Disputed Claims Reserves,
and ensuring the recovery and turnover of Assets of the Estates, including the
enforcement of contractual, subrogation or other rights of the Estates to
recover or collect Lessee Tax Payments from any third parties holding same;
7. Modification of the Plan pursuant to section 1127 of the Bankruptcy
Code;
8. Issuance of orders, if appropriate, as requested by the UniCapital, the
Reorganized Debtors, Asset LLC or Litigation LLC under, and subject to, the
provisions of Bankruptcy Rule 2004;
9. Adjudication of any Causes of Action (other than Lease Collection
Actions and Seller Tax Indemnities) by Litigation LLC, including, but not
limited to, the D&O Claims;
10. All matters, controversies and disputes relating to the discharge,
injunctions and releases granted under the Plan and the Bankruptcy Code;
11. Entry of a Final Order closing the Chapter 11 Cases.
B. OTHER ADMINISTRATIVE PROVISIONS. The Plan contains further provisions
regarding: the governing law of the Plan, the Bar Date for filing Administrative
Claims, preservation of avoided transfers, corporate action, and Plan
amendments, and other matters. For a complete description of these provisions in
the Plan, see Section 13.02 through 13.14 of the Plan.
35
IX. ESTIMATED DISTRIBUTIONS
Set forth below is an estimate of distributions to creditors under the
Plan.
[TO BE SUPPLIED]
THE CLAIMS ESTIMATES AND RECOVERIES ON ACCOUNT OF SUCH CLAIMS ARE THE DEBTORS'
BEST ESTIMATES BASED UPON AVAILABLE INFORMATION. THERE CAN BE NO GUARANTEE THAT
THE PROJECTED RESULTS WILL BE OBTAINED. THE DEBTORS CONTINUE TO EXAMINE CLAIMS
AND INFORMATION CONTAINED IN THEIR BOOKS AND RECORDS. AS A RESULT, THE NUMBERS
CONTAINED IN THIS DISCLOSURE STATEMENT MAY BE SUBJECT TO MATERIAL CHANGE.
X. FINANCIAL PROJECTIONS
A. RESPONSIBILITY FOR AND PURPOSE OF THE PROJECTIONS.
As a condition to confirmation of a plan, the Bankruptcy Code requires,
among other things, that the Court determine that confirmation is not likely to
be followed by the liquidation or the need for further financial reorganization
of the debtor. In connection with the development of the Plan, and for purposes
36
of determining whether the Plan satisfies this feasibility standard, the
Debtors' management has, through the development of financial projections (the
"Projections"), analyzed the ability of UniCapital and Asset LLC, as Disbursing
Agents, to meet their obligations under the Plan while maintaining sufficient
liquidity and capital resources to avoid a subsequent financial restructuring.
The Projections were also prepared to assist each holder of a Class 1, Class 2,
Class 3 or Class 5 Claim in determining whether to accept or reject the Plan.
The Projections should be read in conjunction with the assumptions,
qualifications and footnotes to tables containing the Projections set forth
herein. The Projections were prepared in good faith based upon assumptions
believed to be reasonable and applied in a manner consistent with past practice.
The assumptions about the cash flows of Asset LLC and the Reorganized Debtors
after the assumed Effective Date, which are utilized in the Projections, were
prepared in ___________ 2001 and were based, in part, on economic, competitive,
and general business conditions prevailing at the time. While as of the date of
this Disclosure Statement such conditions have not materially changed, any
future changes in these conditions may materially impact the ability of Asset
LLC and the Reorganized Debtors to achieve the Projections.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE DEBTORS' INDEPENDENT ACCOUNTANT,
PRICEWATERHOUSE, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE
FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS OR ACCURACY THEREOF AND,
ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH
RESPECT THERETO.
THE DEBTORS AND UNICAPITAL DO NOT, AND IT IS ANTICIPATED THAT THE
REORGANIZED DEBTORS, ASSET LLC AND LITIGATION LLC WILL NOT, AS A MATTER OF
COURSE, PUBLISH PROJECTIONS OF THEIR ANTICIPATED FINANCIAL POSITION, RESULTS OF
OPERATIONS OR CASH FLOWS. ACCORDINGLY, ALL SUCH PARTIES DO NOT INTEND TO, AND
DISCLAIM ANY OBLIGATION TO, (A) FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS
OR EQUITY INTERESTS OR ANY OTHER PARTY PRIOR TO OR AFTER THE EFFECTIVE DATE, (B)
INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS THAT MAY BE REQUIRED TO BE
FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY
AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN PREPARED
EXCLUSIVELY BY THE DEBTORS' MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE
REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE DEBTORS, UNICAPITAL AND THE REORGANIZED DEBTORS. THE DEBTORS
37
CAUTION THAT NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THESE
FINANCIAL PROJECTIONS OR TO ABILITY ASSET LLC AND THE REORGANIZED DEBTORS TO
ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE.
FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH
THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR,
ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE OF THESE
EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER.
THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTY OR OTHER
ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
FINALLY, THE FOLLOWING PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE FAIR
VALUE OF ASSET LLC AND THE REORGANIZED DEBTORS AND THEIR ACTUAL LIABILITIES AS
OF THE EFFECTIVE DATE. THE DEBTORS WILL BE REQUIRED TO MAKE SUCH ESTIMATIONS AS
OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE BASED UPON THE FAIR VALUES AS
OF THAT DATE, WHICH COULD BE MATERIALLY GREATER OR LOWER THAN THE VALUES ASSUMED
IN THE FOREGOING ESTIMATES.
B. SUMMARY OF SIGNIFICANT ASSUMPTIONS.
The Debtors have developed the Projections (summarized below) to assist
creditors in their evaluation of the Plan and to analyze its feasibility. THE
PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS DESCRIBED BELOW.
ACTUAL RESULTS AND VALUES MAY AND WILL VARY FROM THOSE PROJECTED.
1. PLAN TERMS AND CONSUMMATION. The Projections assume an Effective Date
of _________ 2002, with Allowed Claims and Equity Interests treated in
accordance with the treatment provided in the Plan with respect to such Allowed
Claims and Equity Interests. If consummation of the Plan does not occur on or
around _________ 2002, additional bankruptcy expenses will be incurred until
such time as a plan of reorganization is confirmed. These expenses could
significantly impact the results of operations and cash flows of Asset LLC and
the Reorganized Debtors.
2. ASSUMPTIONS PRECEDING THE EFFECTIVE DATE. As a basis for the
Projections, management has estimated the operating results for the period of
time leading up to the Effective Date. Specifically, it has been assumed that
prior to the Effective Date, the sale of the $________________ in assets of the
Big Ticket division and $________________ in sales of general office assets will
have been consummated.
The Projections further assume that:
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------------.
38
Cash income prior to the Effective Date consists primarily of the
projected receipt of collections from the Debtors' Equipment Leases. The Debtors
also project that they will continue to generate some income from the sale of
assets in the Big Ticket Division through the Effective Date. Expenses prior to
the Effective Date include corporate general and administrative expenses,
continuing expenses relating to the servicing of the Equipment Leases and the
sales of assets, professional fees and other bankruptcy-related expenses.
3. GENERAL ECONOMIC CONDITIONS. The Projections were prepared assuming
that economic conditions do not differ significantly over the next five years
from current economic conditions.
4. INCOME. The reorganized Debtors will have ______ primary sources of
income:
o ____________ Cash Flow: __________ cash flow has been projected
based on numerous assumptions, including
______________________________________. These assumptions are
consistent with the Company's recent experience and historical
valuation methodology. However, ------------------------------------.
o ------------------------------------
o ------------------------------------
5. EXPENSES. Management has estimated that the Asset LLC and the
Reorganized Debtors will incur corporate general and administrative expenses of
$____ million per year. These expenses include the costs of management, back
office operations, audit and accounting fees, and other miscellaneous expenses.
The expenses of UniCapital as Disbursing Agent will be funded by the
Administrative Expense Budget, which the Plan limits to $___________ per month,
including an initial funding of $___________ for the first ___ months of the
Administrative Expense Budget.
6. INCOME TAXES. The Projections assume that Asset LLC and the Reorganized
Debtors will incur $_______________ in annual corporate tax obligations.
7. DISTRIBUTIONS TO CREDITORS. The Projections assume that all Net
Proceeds of the Reorganized Debtors, Asset LLC and Litigation LLC, excluding
cash required for the operation of such entities and any expenses described in
the Plan definition of "Net Proceeds," will be distributed to the Agent on
behalf of the holders of the Class 1 Claims, except for: (i) Net Proceeds that
are required to be distributed to the holders of Class 3 Claims as provided in
the Plan, and (ii) Net Proceeds that are required to be distributed to the
holders of Class 5 Claims as the Net Proceeds Sharing Payment and/or the
Supplemental Net Proceeds Payment. The Projections also assume that the Portland
Sale Proceeds are used in full to fund the Priority Claims Reserve and the
Administrative Claims Reserve, with the excess, if any, distributed as Excess
Portland Proceeds, PRO RATA, to holders of General Unsecured Claims. No further
cash distributions from the Assets of the Debtors or from Net Proceeds are
assumed for purposes of the Projections.
39
8. OTHER. The Projections do not include proceeds for Causes of Action of
the Debtors, including preference and fraudulent transfer claims and contract,
fraud and tort claims not arising under the Bankruptcy Code. Although the Plan
provides for reservation and assignment to Litigation LLC of all such Causes of
Action (other than Lease Collection Actions), the Debtors have not concluded
their analysis of possible Causes of Action that Litigation LLC may bring and
believe that any estimate of proceeds of those Causes of Action at this time
would not be meaningful. For the same reason, the Projections also do not
include any expenses that Litigation LLC may incur in pursuing those Causes of
Action, which would reduce cash available for payment to creditors to the extent
the expenses exceed the proceeds of pursuing those Causes of Action. Amounts
that Litigation LLC recovers from such Causes of Action, net of expenses, will
increase the amount available for Distributions.
C. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
Statements contained in this Disclosure Statement and incorporated by
reference, including the Projections in this section, may be considered
"forward-looking statements" within the meaning of federal securities law. Such
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to, general economic and business
conditions, particularly as they may affect collections on the Equipment Leases
held by the Reorganized Debtors. For additional information about the Debtors
and relevant risk factors, see Section XII, Certain Risk Factors To Be
Considered.
D. FINANCIAL PROJECTIONS.
The financial projections prepared by management are summarized in the
following tables. Specifically, the attached tables include:
a. Pro-forma balance sheet of the Debtors at ______________ 2001.
b. Projected balance sheets of Asset LLC and Reorganized Debtors for
fiscal years ending in December 2002, 2003, 2004, 2005 and 2006.
c. Projected income statements of Asset LLC and Reorganized Debtors for
fiscal years ending in December 2002, 2003, 2004, 2005 and 2006.
d. Projected statements of cash flow of Asset LLC and Reorganized Debtors
for fiscal years ending in December 2002, 2003, 2004, 2005 and 2006.
40
DEBTORS' PRO-FORMA BALANCE SHEET
_______________, 2001
(UNAUDITED)
(IN THOUSANDS)
[TO BE SUPPLIED]
NOTES TO PRO-FORMA BALANCE SHEET
(a) .
(b) .
41
ASSET LLC & REORGANIZED DEBTORS
PROJECTED BALANCE SHEETS
FISCAL YEAR ENDING 2002 THROUGH 2006
(UNAUDITED)
(IN THOUSANDS)
[TO BE SUPPLIED]
42
ASSET LLC & REORGANIZED DEBTORS
PROJECTED INCOME STATEMENTS
FISCAL YEARS 2002 THROUGH 2006
(UNAUDITED)
(IN THOUSANDS)
[TO BE SUPPLIED]
43
ASSET LLC & REORGANIZED DEBTORS
STATEMENT OF CASH FLOWS
FISCAL YEARS 2002 THROUGH 2006
(UNAUDITED)
(IN THOUSANDS)
[TO BE SUPPLIED]
44
XI. VOTING REQUIREMENTS, ACCEPTANCE, CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. GENERAL.
To confirm the Plan, the Bankruptcy Code requires that the Court make a
series of findings concerning the Plan and the Debtors, including that: (i) the
Plan classifies Claims and Interests in a permissible manner; (ii) the Plan
complies with the applicable provisions of the Bankruptcy Code; (iii) the
Debtors comply with the applicable provisions of the Bankruptcy Code; (iv) the
Debtors have proposed the Plan in good faith and not by any means forbidden by
law; (v) the disclosure required by section 1125 of the Bankruptcy Code has been
made; (vi) the Plan has been accepted by the requisite votes of holders of
Claims or Interests (except to the extent that "cram-down" is available under
section 1129(b) of the Bankruptcy Code (SEE below discussion on "Cram-down,"
Section G), (vii) the Plan is feasible and Confirmation will not likely be
followed by the liquidation or the need for further financial reorganization of
the Debtors; (viii) the Plan is in the "best interests" of all holders of Claims
or Interests in an impaired Class by providing to such holders on account of
their Claims or Interests property of a value, as of the Effective Date, that is
not less than the amount that such holder would receive or retain in a chapter 7
liquidation, unless each holder of a Claim or Interest in such Class has
accepted the Plan (SEE Section I entitled "Best Interests of Creditors"); (ix)
all fees and expenses payable under 28 U.S.C. ss. 1930 (relating to bankruptcy
fees payable to the clerk of the Bankruptcy Court and the office of the United
States Trustee) have been paid or the Plan provides for the payment of such fees
on the Effective Date; (x) the Plan provides for the continuation after the
Effective Date of all retiree benefits, as defined in section 1114 of the
Bankruptcy Code, at the level established at any time prior to Confirmation
pursuant to section 1114 of the Bankruptcy Code, for the duration of the period
that the Debtors have obligated themselves to provide such benefits; and (xi)
the Plan proponents must have disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as a director or
officer of the Debtors or a successor to the Debtors under the Plan, and the
appointment to or continuance in such office by such individual must be
consistent with public policy.
The Debtors believe that the Plan satisfies all of the statutory
requirements of chapter 11 of the Bankruptcy Code. Certain of these requirements
are discussed in more detail below. The Debtors have proposed the Plan in good
faith.
B. ELIGIBILITY TO VOTE.
Pursuant to the Bankruptcy Code, only classes of claims against or equity
interests of a debtor that are "impaired" (within the meaning of section 1124 of
the Bankruptcy Code) under the terms and provisions of a plan of reorganization
are entitled to vote to accept or reject a plan. A class is "impaired" if the
legal, equitable, or contractual rights attaching to the claims or interests of
that class are modified, other than by curing defaults and reinstating maturity
or by payment in full in cash. Classes of claims and interests that are not
impaired are NOT entitled to vote on a plan and, under section 1126(f) of the
Bankruptcy Code, are conclusively presumed to have accepted a plan. In addition,
under section 1126(g), classes of claims and interests that receive no
45
distributions are deemed to have rejected the Plan and the votes of such holders
will not be solicited.
The holders of Claims in Class 1, Class 2, Class 3 and Class 5 are
entitled to vote to accept or reject the Plan if (a) such claim is a Revolving
Lender Claim, a Class 2 Lehman Secured Claim, Class 3 Other Secured Claim, or a
General Unsecured Claim, (b) such holder's Claim has been scheduled by the
Debtors and such Claim is NOT scheduled as disputed, contingent or unliquidated,
or (c) such holder has filed a proof of claim on or before May 25, 2001,
pursuant to section 502(a) of the Bankruptcy Code, Bankruptcy Rule 3003 and the
Bar Date Order, except where the Debtors have specifically agreed to a late
filed proof of claim. Any Claim in the aforesaid Class as to which an objection
has been filed and has not been withdrawn or dismissed is not entitled to vote
UNLESS the Court, pursuant to Bankruptcy Rule 3018(a) and upon application of
the holder whose Claim has been objected to, temporarily allows the Claim in an
amount that the Court deems proper solely for the purpose of accepting or
rejecting the Plan.
A vote may be disregarded if the Court determines, pursuant to section
1126(e) of the Bankruptcy Code, that it was not solicited or procured in good
faith or in accordance with the provisions of the Bankruptcy Code.
C. ESTIMATION AND TEMPORARY ALLOWANCE OF CLAIMS.
Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule 3018,
the Court may estimate and temporarily allow a Claim for voting and other
purposes. The Debtors or holders of particular Claims may seek an order of the
Court temporarily allowing, for voting purposes only, certain Disputed Claims.
D. ACCEPTANCE REQUIREMENTS.
The Bankruptcy Code defines acceptance of a plan by a class of claims as
acceptance by creditors that hold at least two-thirds in dollar amount and more
than one-half in number of the allowed claims of such class who actually vote
for acceptance or rejection of a plan. The vote of a holder of a claim may be
disregarded if the Court determines, after notice and a hearing, that the
acceptance or rejection was not solicited or procured in good faith or in
accordance with the provisions of the Bankruptcy Code.
E. TRANSMISSION OF BALLOTS.
All record holders of Allowed Claims which are impaired (including any
Claims that are temporarily Allowed for voting purposes) as of the date the
order approving this Disclosure Statement was entered by the Bankruptcy Court
are entitled to vote to accept or reject the Plan and may do so by completing
the appropriate ballot which is enclosed with this Disclosure Statement. In most
cases, each ballot enclosed with this Disclosure Statement has been encoded with
the amount of your Claim for voting purposes (if your Claim is a Disputed Claim,
this amount may not be the amount ultimately allowed for purposes of
distributions under the Plan) and the Class to which your Claim relates. PLEASE
CAREFULLY FOLLOW THE INSTRUCTIONS ACCOMPANYING THE ENCLOSED BALLOT, AS DESCRIBED
IN THE INTRODUCTION SECTION OF THIS DISCLOSURE STATEMENT.
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VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE ON THE
PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS MAY RECEIVE MORE
THAN ONE BALLOT. YOU SHOULD COMPLETE SIGN, AND RETURN EACH BALLOT THAT YOU
RECEIVE.
F. ACCEPTANCES REQUIRED FROM IMPAIRED CLASSES.
In order for a plan to be confirmed without resort to the "cram-down"
provisions of the Bankruptcy Code, each Class of "impaired" Claims and Interests
must be determined to have accepted the Plan. As previously mentioned, each
Class of "impaired" Claims and Interests will be determined to have accepted the
Plan if Creditors and Interest holders who actually vote, accept the plan by
votes (i) representing at least two-thirds in amount of Allowed Claims or
Interests in such impaired Class and (ii) more than one-half in number of
Allowed Claims in such Class.
The holders of Class 1, Class 2, Class 3 and Class 5 Claims are "impaired"
under the Plan, and the Debtors are soliciting acceptances for the Plan from the
holders of Class 1, Class 2, Class 3 and Class 5 Claims. The holders of Claims
in Classes 6 and 7 and UniCapital Equity Interests in Class 8 will receive no
distribution under the Plan and, therefore, are deemed to reject the Plan.
Class 4 Claims are unimpaired under the Plan and are deemed to have
accepted the Plan.
G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES ("CRAM-DOWN").
In the event that a plan otherwise satisfies the Bankruptcy Code's
requirements for confirmation, but one or more classes of Claims or Interests
votes to reject the Plan, a debtor has the right to seek confirmation of its
plan under the "cram-down" provisions of the Bankruptcy Code. The Debtors intend
to exercise their right to "cram-down" the Plan.
The Bankruptcy Court can "cram-down" the Plan at the Debtors' request only
if at least one impaired Class of Claims, the Class 1, Class 2, Class 3 or Class
5 Claims (excluding the votes of insiders) has accepted the Plan and all other
requirements of section 1129(a) of the Bankruptcy Code are satisfied.
In addition, the Bankruptcy Court must find that, as to each impaired
Class that has not accepted the Plan, the Plan does not "discriminate unfairly"
and is "fair and equitable" with respect to such non-accepting Class. Because
Classes 6, 7 and 8 are deemed to have rejected the Plan, the Bankruptcy Court
will have to determine at the Confirmation Hearing whether the Plan is fair and
equitable to, and does not discriminate unfairly against, Classes 6, 7 and 8 and
any rejecting impaired Class of Claims.
A plan does not "discriminate unfairly" within the meaning of the
Bankruptcy Code if the dissenting class will receive value relatively equal to
the value given to all other similarly situated classes.
47
A plan of reorganization is "fair and equitable" within the meaning of the
Bankruptcy Code if no class receives more than it is legally entitled to receive
for its claims or interests.
A plan is "fair and equitable" as to a class of secured claims that
rejects a plan if the plan provides (a)(i) that the holders of claims included
in the rejecting class retain the liens securing those claims, whether the
property subject to those liens is retained by the debtors or transferred to
another entity, to the extent of the allowed amount of such claims, and (ii)
that each holder of a claim of such class receives on account of that claim
deferred cash payments totaling at least the allowed amount of that claim, of a
value, as of the effective date of the plan, equal to at least the value of the
holder's interest in the estate's interest in such property; or (b) for the sale
of such property, subject to the holder's bidding rights under Section 363(k) of
the Bankruptcy Code, with the holder's liens to attach to the sale proceeds; or
(c) for the realization by such holders of the indubitable equivalent of such
claims.
If a class of unsecured claims rejects a plan, the plan may still be
confirmed as long as the plan provides (a) for each holder of a claim included
in the rejecting class to receive or retain on account of that claim property
that has a value, as of the effective date of the plan, equal to the allowed
amount of such claim, or (b) that the holder of any claim or any interest that
is junior to the claims of such class will not receive or retain on account of
such junior claim or interest any property at all.
If a class of interests rejects a plan, the plan may still be confirmed as
long as the plan provides (a) that each holder of an interest included in the
rejecting class receive or retain on account of that interest property that has
a value, as of the effective date of the plan, equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or the
value of such interest, or (b) that the holder of any interest that is junior to
the interest of such class will not receive or retain under the plan on account
of such junior interest any property at all.
Holders of Claims in Classes 6 and 7 and UniCapital Equity Interests in
Class 8 will not receive or retain any property under the Plan, and are
therefore deemed to have rejected the Plan pursuant to section 1126(g) of the
Bankruptcy Code. Accordingly, the Debtors intend to seek confirmation of the
Plan pursuant to the "cram-down" provisions of section 1129(b) of the Bankruptcy
Code. The Debtors further believe that the Plan satisfies the requirements of
section 1129(b) since no claim or interest that is junior to the aforementioned
classes will receive any property under the Plan.
H. FEASIBILITY OF THE PLAN.
In connection with confirmation of the Plan, the Court will have to
determine that the Plan is feasible pursuant to section 1129(a)(11), which means
that confirmation of the Plan is not likely to be followed by the liquidation or
the need for further financial reorganization of the Debtors. As discussed, the
Debtors believe that the Plan is comparable to a liquidation and, therefore, no
further restructuring will be necessary.
48
I. BEST INTERESTS OF CREDITORS.
To confirm the Plan over the objections of dissenting holders of Claims
and Interests, the Court must also independently determine that the Plan is in
the "best interests" of all dissenting holders of Claims and Interests impaired
under the Plan. Under the "best interests" test, the Court must find that the
Plan provides to each dissenting holder of an impaired Claim or Interest a
recovery of a value at least equal to the value, as of the Effective Date, of
the distribution that each such holder would receive were the Debtors liquidated
under chapter 7 of the Bankruptcy Code. It is the Debtors' belief that a
liquidation under chapter 7 of the Bankruptcy Code would increase administrative
costs in the form of chapter 7 trustee's fees and other professional fees, and
reduce recoveries to the dissenting holders of Claims and Interests. In
addition, in a chapter 7 liquidation it is doubtful whether the Agent would
release its liens against certain collateral so that Class 5 creditors would not
receive any distribution attributed to such collateral.
To calculate a chapter 7 trustee fees, section 326(a) of the Bankruptcy
Code provides that such fee is calculated based on all moneys disbursed not to
exceed 25 percent on the first $5,000 or less, 10 percent on any amount in
excess of $5,000 but not in excess of $50,000, 5 percent on any amount in excess
of $50,000 but not in excess of $1,000,000, and reasonable compensation not to
exceed 3 percent of such moneys in excess of $1,000,000. Based on the Debtors
financial projections, it is very likely that a chapter 7 trustee's fees will
exceed $____________. In addition to the chapter 7 trustee's fee, a chapter 7
trustee would require the assistance of other professionals and such
professionals' fees would be in addition to the chapter 7 trustee's fee. The
Debtors' believe the Plan is in the best interest of creditors and all creditors
are receiving value greater than or at least equal to the value, as of the
Effective Date, of the distribution that each such holder would receive were the
Debtors liquidated under chapter 7 of the Bankruptcy Code.
XII. COMPLIANCE WITH SECURITIES LAWS
A. COMPLIANCE WITH SECURITIES LAWS.
Section 1145 of the Bankruptcy Code exempts the original issuance of
securities under a plan of reorganization from registration under the Securities
Act of 1933, as amended (the "Securities Act") and state law. Under Section
1145, the issuance of the reorganization securities is exempt from registration
if three principal requirements are satisfied: (1) the securities must be issued
by a debtor, its successor, or an affiliate participating in a joint plan of
reorganization with the debtor; (2) the recipients of the securities must hold a
claim against the debtor or such affiliate, an interest in the debtor or such
affiliate; and (3) the securities must be issued entirely in exchange for the
recipient's claim against or interest in the debtor or such affiliate, or
"principally" in such exchange and "partly" for cash or property.
1. ISSUANCE OF NEWCO STOCK AND LLC MEMBERSHIP INTERESTS. The Debtors
believe that the issuance of the Membership Interests in Asset LLC and
Litigation LLC to UniCapital followed by their transfer to Newco, and the
issuance of the stock in Newco to UniCapital followed by its transfer to Bank of
America, will satisfy the conditions listed above because: (a) the issuance of
such securities are expressly contemplated under the Plan; (b) the recipient of
49
direct and indirect ownership of such securities, Bank of America, is the holder
of "Claims" against the Debtors, in its capacity as Agent under the Credit
Agreement; and (c) the recipient will obtain the Newco Stock, and indirect
ownership of the Membership Interests, in exchange for its pre-petition Claims.
Accordingly, under section 1145 of the Bankruptcy Code, the issuance of the
Membership Interests in Asset LLC and Litigation LLC and the issuance of
securities under the Plan will be exempt from registration under the Securities
Act of 1933 and applicable state and local laws requiring registration of
securities. If any of Newco, Asset LLC or Litigation LLC determines, with the
advice of counsel, that it is required to comply with the registration and
reporting requirements of the Securities and Exchange Act of 1934, as amended,
or the Investment Company Act of 1940, as amended, then it will take any and all
actions to comply with such reporting requirements and file necessary periodic
reports with the Securities and Exchange Commission.
2. TRANSFERABILITY. Upon issuance thereof, the beneficial interests
represented by the stock of Newco and Membership Interests will not be
transferable, but will instead be subject to the limitations on transferability
for private placements under federal and state securities laws. The Debtors will
not seek to have the stock of Newco or the Membership Interests listed on a
nationally recognized stock exchange after the Effective Date.
XII. CERTAIN RISK FACTORS TO BE CONSIDERED
The holder of an impaired Claim should consider carefully the following
risk factors as well as all of the other information contained in this
Disclosure Statement, including the Plan and other Exhibits hereto, before
deciding whether to vote to accept or reject the Plan.
A. SETTLEMENTS EMBODIED IN THE PLAN
The Plan contains various debtor-creditor and inter-creditor settlements
that are reflected in the relative recoveries of the creditor groups and that
are designed to achieve a global resolution of these Chapter 11 Cases. The Plan
is premised upon settlement, rather than litigation of these disputes.
The Plan represents, in effect, a linked series of concessions by
creditors in separate classes of Claims. In proposing the Plan, the Debtors
intend to offer a non-litigation alternative to creditors in the context of the
reorganization of the Debtors.
The Debtors believe that settlement of these disputes is the best way to
ensure a prompt resolution of the Chapter 11 Cases. They further believe that
although litigation may produce somewhat different absolute and relative
recoveries from those embodied in the Plan, such litigation may not increase the
values to be distributed under the Plan and may not be finally resolved for
years, thus delaying distributions to creditors and will be costly to the
Estates.
B. PROJECTED FINANCIAL INFORMATION
The financial projections included in this Disclosure Statement are
dependent upon the assumptions described in Article X of the Disclosure
50
Statement. In addition, unanticipated events and circumstances occurring
subsequent to the preparation of the projections may affect the actual financial
results of Asset LLC, Litigation LLC and Newco. Therefore, the actual results
achieved throughout the period covered by the projections will vary from the
projected results. The variations may be material.
C. SECURITIES ISSUED TO CLASS 1
As discussed in Article XII, the Membership Interests and common stock of
Newco will be subject to limitations on transferability under applicable federal
and state securities laws. Even after such limitations expire, there is no
assurance that an active market will exist for trading the Membership Interests
or the common stock of Newco. No trading market currently exists for such
Membership Interests and stock. Other than the valuation of the Newco stock
included in Corporate Exhibit Appendix, the Debtors have not attempted to
estimate the value of such stock and Membership Interests in connection with the
development of the Plan, and no assurance can be given as to the value or market
price of such stock and Membership Interests following the Effective Date.
XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes the material federal income tax
consequences expected to result from the consummation of the Plan. This
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Tax Code"), applicable Treasury Regulations, judicial authority
and current administrative rulings and pronouncements of the Internal Revenue
Service (the "IRS"). There can be no assurance that the IRS will not take a
contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to, among others, the Debtors, and the holders
of Claims.
The following summary is for general information only. The federal income
tax consequences of the Plan as well as computations of and rules regarding the
utilization of Net Operating Losses (NOLs), are complex and subject to
significant uncertainties. This summary does not address foreign, state or local
tax consequences nor does it purport to address all of the federal income tax
consequences of the Plan. This summary also does not purport to address the
federal income tax consequences of the Plan to taxpayers subject to special
treatment under the federal income tax laws, such as broker-dealers, tax-exempt
entities, financial institutions, insurance companies, S corporations, small
business investment companies, mutual funds, regulated investment companies,
foreign corporations, and non-resident alien individuals. EACH HOLDER OF A CLAIM
IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE POTENTIAL
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE PLAN AND THE
LIQUIDATING TRUST.
A. FEDERAL INCOME TAX CONSEQUENCES GENERALLY
(a) GENERAL. The Plan is a reorganization pursuant to section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (sometimes
referred to as a "C Reorg"). On the Effective Date, the management,
control and operation of the Reorganized Debtors will become the general
responsibility of the respective boards of directors (or managers, general
51
partners or similar governing Persons, as applicable) of the Reorganized
Debtors.
(b) TRANSFER OF ASSETS TO ASSET LLC AND LITIGATION LLC, MEMBERSHIP
INTERESTS TO NEWCO, AND STOCK OF NEWCO TO BANK OF AMERICA. On the
Effective Date, in exchange for all of the Membership Interests in Asset
LLC, UniCapital will transfer all of its Assets, except for its Causes of
Action, D&O Claims and D&O Insurance, but including its Cash and its
Equity Interests in any Subsidiary, to Asset LLC, free and clear of all
Liens except valid and enforceable Liens as of the Effective Date,
including the Liens of the Agent and Lenders. The Reorganized Debtors will
simultaneously transfer and assign all of their respective Causes of
Action (other than Lease Collection Actions), D&O Claims and D&O Insurance
to UniCapital, and UniCapital will then transfer all of such Causes of
Action, D&O Claims and D&O Insurance, and those owned by UniCapital (other
than Seller Tax Indemnities, and D&O Claims and D&O Insurance related to
Seller Tax Indemnities), to Litigation LLC in exchange for all of the
Membership Interests in Litigation LLC. UniCapital will then contribute
all of the Membership Interests of Asset LLC and Litigation LLC to Newco,
in exchange for all of the stock of Newco. UniCapital will then transfer
all of the stock of Newco to Bank of America, in partial payment of the
Allowed Revolving Lender Claims. UniCapital will take all steps necessary
to effect its duties under the Plan, then dissolve under applicable
non-bankruptcy law.
B. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
1. TRANSFER OF DEBTORS' ASSETS.
The Debtors may realize federal taxable income as the result of (i) the
transfer of the Assets to Asset LLC and Litigation LLC as described above (the
"Transfer") to the extent the fair market value of the transferred Assets
exceeds their adjusted tax basis, and (ii) certain deferred and other
intercompany items that will be recognized upon the Transfer. Any such income as
the result of the Transfer may be offset by net operating losses ("NOLs") and
NOL carryforwards as well as by other losses realized on the Transfer.
Accordingly, the Debtors do not believe that the Transfer will result in any
material tax liability.
The Debtors believe that as of _______, 2001, the NOLs and NOL
carryforwards that are allocable to the Debtors amount to in excess of
$_____________, and additional NOLs may be generated for the portion of the tax
year ending December 31, 2001 that will precede the Effective Date. Any such
NOLs, however, may be subject to audit and possible challenge by the IRS. The
Debtors believe that, assuming the NOLs are not subject to a successful
challenge by the IRS and assuming that a non permitted change of ownership does
not occur under Section 382 of the Tax Code, and the "C"-type reorganization is
respected, the NOLs should be sufficient to offset the federal taxable income
arising on the Effective Date (as described above). The Debtors believe,
therefore, that they should not be subject to tax as determined under the
regular federal income tax rules. The Debtors may be subject, however, to the
alternative minimum tax ("AMT"). For purposes of computing alternative minimum
taxable income ("AMTI"), NOL carryforwards may not offset more than 90% of the
pre-NOL AMTI. The rate of corporate tax on AMTI is 20 percent. Thus, a
corporation that has taxable income prior to taking into account its NOL
carryforwards may be required to pay federal tax at an effective rate of at
52
least two percent (2%) of its pre-NOL AMTI (10 percent of the 20 percent AMT
rate), regardless of the aggregate amount of its NOL carryforwards.
You should also be aware that Bank of America may be able to take
advantage of potential U.S. federal income tax benefits (the "Tax Benefits") by
virtue of its acquisition of 100% of the common stock of Newco as part of the
Plan and the potential existence of certain (1) net operating loss carryovers of
the Reorganized Debtors, and (2) worthless stock losses related to the stock in
the Reorganized Debtors. The net operating loss carryovers result from tax
losses reported by the Debtors in 1999 and 2000. The worthless stock losses may
be available because of significant tax basis in the stock of the Debtors and
certain non-debtor subsidiaries, which following the Effective Date will be
owned by Asset LLC.
It is important to recognize, however, that in order to realize the Tax
Benefits Bank of America may be required, among other things, to satisfy a
significant number of requirements and to comply with various restrictions and
limitations imposed by applicable law. As a result, there can be no assurance
that any of the potential Tax Benefits will be realized. The amount of the Tax
Benefits, if they exist at all, cannot be ascertained at this time given these
uncertainties and the fact that any benefits actually available will necessarily
depend upon, among other things, future events which cannot be predicted.
Further, the worthless stock losses will not be realizable immediately by Bank
of America, and may only be available, if at all, after the Reorganized Debtors'
respective assets are sold, transferred or otherwise disposed.
You should also understand that the Tax Benefits do not constitute
"Assets" of the Debtors, as such term is defined in the Plan. The Tax Benefits
themselves cannot be sold, transferred or assigned by the Debtors to any third
party and would not be available to any creditor other than Bank of America.2
Moreover, any value ultimately realized from the Tax Benefits by the Bank of
America will not constitute "Net Proceeds" or "Supplemental Net Proceeds," as
such terms are defined in the Plan, and will not be applied or credited against
the Allowed Revolver Lender Distribution or the Allowed Revolving Lender Claims
for any purposes under the Plan. The Plan represents and embodies a compromise
and settlement on this and other issues set forth in the Plan reached between
the Debtors, the Lenders, Bank of America and the Committee. Confirmation of the
Plan will preclude any later challenge by any party as to this or any of the
other issue compromised and resolved under the Plan.
Finally, you should also be aware that the Plan and the transactions
contemplated thereunder are designed to maximize asset recovery for all
creditors. In that regard, the structure of the Plan, including the re-vesting
of the Assets of the Debtors in the Reorganized Debtors as contemplated under
the Plan (as opposed to, for example, simply transferring the Asset to a
liquidating trust) is intended, among other things, (i) to reduce the cost to
administer the Assets; (ii) to achieve certain efficiencies and economies; and
(iii) to avoid an ownership change of the Assets that could trigger personal
property sale and transfer tax liability.
------------
(5) Technically, any "qualified creditor," as defined in Section
382(l)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, could also
acquire the stock and thus the tax attributes of Newco. To do so, however, such
creditor would have to satisfy all claims of Bank of America against the
Debtors.
53
2. CANCELLATION OF INDEBTEDNESS INCOME.
Upon the Effective Date of the Plan, the Debtors will be discharged of
their outstanding indebtedness to the extent such discharge is allowed by law
and such indebtedness is not otherwise satisfied. As a result, the Debtors
generally will realize cancellation of indebtedness ("COI") income to the extent
that the Cash and fair market value of any property paid by the Debtors in
return for the discharge of indebtedness is less than the adjusted issue price
(plus the amount of any accrued but unpaid interest) of such indebtedness
discharged thereby. Under Section 108(a) of the Tax Code, however, COI income
will not be recognized if the COI income occurs in a case brought under the
Bankruptcy Code, provided the taxpayer is under the jurisdiction of a court in
such case and the COI is granted by the court or is pursuant to a plan approved
by the court. Accordingly, because the Debtors are under the jurisdiction of the
Bankruptcy Court and the COI will be pursuant to the Bankruptcy Court's approval
of the Plan, the Debtors should not be required to recognize any COI income
realized as a result of the implementation of the Plan.
Under Section 108(b) of the Tax Code, the Debtors will each be required to
reduce certain tax attributes, including NOLs and NOL carryforwards, in an
amount (subject to certain modifications) equal to the amount of COI income
excluded from income as described in the preceding paragraph. Under the Tax
Code, such tax attribute reduction occurs in the year after the determination of
tax for the year which includes the Effective Date. Therefore, subject to the
possible reduction or limitation discussed above, the NOLs of the Debtors should
be available to offset income arising on or before the Effective Date (as
described above in Section B.1 of this Article).
Any reduction in tax attributes under Section 108(b) of the Tax Code
appears to apply on a separate company basis even though the Debtors and certain
other of their affiliates file a federal consolidated income tax return.
Therefore, only Debtors realizing COI income should be required to reduce their
tax attributes (including their NOLs). The IRS has held in private letter
rulings that where a member of a consolidated group is permitted to exclude from
income COI income pursuant to Section 108(a) of the Tax Code, such member is
required to reduce only its own separate company tax attributes without having
to reduce the tax attributes of any other member of the consolidated group. In a
recent field service advice, however, the IRS ruled that a debtor member was
required to treat all of a consolidated group's NOLs as a tax attribute of the
debtor member subject to reduction under Section 108(b) of the Tax Code as a
result of the exclusion of COI from income. Although such rulings and advice may
not be relied upon by other taxpayers as binding authority, they do provide some
indication of the IRS's position. Accordingly, either as a result of tax
attribute reduction under Section 108(b) of the Tax Code or the liquidation of
the Debtors, the NOLs of the Debtors and each of their affiliates may be
eliminated or substantially limited in use and therefore effectively unavailable
to Newco.
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLASS 1 AND 5
CLAIMS
1. ALLOWED CLASS 1 AND CLASS 5 CLAIMS.
(a) GAIN OR LOSS RECOGNIZED. For federal income tax purposes, each
holder of an Allowed Class 1 and Allowed Class 5 Claim generally should
54
recognize gain or loss on the Effective Date to the extent of the difference
between (i) the sum of the amount of Cash distributed to such holder as of the
Effective Date and (ii) the adjusted tax basis of such holder's Allowed Claim.
The amount of gain or loss of the holders of Allowed Class 1 and Allowed Class 5
Claims may be affected by subsequent Distributions as the result of the
disallowance of Disputed Claims in Class 5 as discussed in Section D of this
Article below.
(b) CHARACTER OF GAIN OR LOSS. The character of any gain or loss as
capital or ordinary income or loss and, in the case of capital gain or loss, as
short-term or long-term, will depend on a number of factors, including: (i) the
nature and origin of the Claim (E.G., Claims arising in the ordinary course of a
trade or business or made for investment purposes); (ii) the tax status of the
holder of the Claim; (iii) whether the Claim is a capital asset in the hands of
the holder; (iv) whether the Claim has been held by the holder for more than one
year; (v) the extent to which the holder previously claimed a loss or a bad debt
deduction with respect to the Claim; and (vi) the extent to which the holder
acquired the Claim at a market discount.
2. OTHER ALLOWED CLAIMS.
For federal income tax purposes, each holder of an Allowed Claim other
than an Allowed Class 1 or Class 5 Claim generally should recognize gain or loss
equal to the amount of any Cash received with respect to its Claim (other than
for accrued but unpaid interest) less its adjusted tax basis in its Claim (other
than for accrued but unpaid interest). The character of such gain or loss as
long-term or short-term capital gain or loss or as ordinary income or loss will
depend on a number of factors, including: (i) the nature and origin of the Claim
(E.G., Claims arising in the ordinary course of a trade or business or made for
investment purposes); (ii) the tax status of the holder of the Claim; (iii)
whether the Claim is a capital asset in the hands of the holder; (iv) whether
the Claim has been held by the holder for more than one year; (v) the extent to
which the holder previously claimed a loss or a bad debt deduction with respect
to the Claim; and (vi) the extent to which the holder acquired the Claim at a
market discount.
3. RECEIPT OF INTEREST.
To the extent that a holder of a Claim receives any Cash in respect of its
Claims for interest, such holder generally will recognize interest income if
such amounts have not already been included for federal income tax purposes in
such holder's taxable income under its method of tax accounting. In the event
that the amount of Cash allocable to a Claim for interest is less than the
amount previously included as interest on the Claim in the holder of a Claim's
federal taxable income, the discharged portion of the interest may be deductible
as an ordinary loss in the taxable year in which the Effective Date occurs (or,
if later, the taxable year in which the Claim becomes Allowed).
D. DISPUTED CLAIMS
1. DISPUTED CLAIMS IN CLASS 5.
On the Effective Date or as soon thereafter as the holders of Allowed
Class 5 Claims are entitled to Distributions of Cash under the Plan, the Debtors
or UniCapital as Disbursing Agent will transfer a fixed amount of Cash from such
Cash Distributions to a Disputed Claims Reserve for Class 5 Claims. The federal
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income tax treatment with respect to disputed claims held by such a reserve is
unclear. Subject to definitive guidance, the Plan requires that UniCapital, as
Disbursing Agent on behalf of the holders of the Disputed Claims in Class 5
whose Cash will be held by the Disputed Claims Reserve, pay tax on net income
allocable to such Claims at the highest marginal tax rate applicable to
corporations while the Dispute Claims Reserve holds Cash. The IRS might assert,
however, that any such income is allocable to the holders of the Allowed Class 5
Claims or otherwise. If the IRS were successful with this argument, UniCapital
as Disbursing Agent should be able to file a claim for a refund for taxes paid
by the Disputed Claims Reserve with respect to such income, barring the lapse of
the applicable statute of limitations period.
To the extent a Disputed Claim in Class 5 is Disallowed, the interests of
the holders of the Allowed Class 5 Claims would be affected. In this regard, the
disallowance of a Disputed Claim in Class 5 would be treated as an additional
distribution of Assets held by the Disputed Claims Reserve to holders of Allowed
Class 5 Claims at such time that should increase the income or the gain (or
decrease the loss) recognized by such holders on a Distribution as well as
increase the holder's tax basis in its allocable share of each Asset in the
Disputed Claims Reserve. To the extent a Disputed Claim in Class 5 becomes an
Allowed Claim, the federal income tax consequences to the holder of such a Claim
should generally be the same as the consequences to holders of Allowed Class 5
Claims described above in Section C. Further, such holder's recognition of gain
or loss resulting from the exchange of a Claim for Assets in the Disputed Claims
Reserve should not occur until the date the Disputed Claim in Class 5 becomes an
Allowed Class 5 Claim. EACH HOLDER OF A CLASS 5 CLAIM IS STRONGLY URGED TO
CONSULT ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE ALLOWANCE OR DISALLOWANCE OF A CLASS 5 CLAIM.
2. OTHER DISPUTED CLAIMS.
On the Effective Date or as soon thereafter as the holders of other
Classes of Allowed Claims are entitled to Distributions of Cash under the Plan,
the Debtors or the applicable Disbursing Agent will transfer Cash to the
Disputed Claims Reserves in respect of the Disputed Claims for such other
Classes ("Other Disputed Claims"). The federal income tax treatment with respect
to such Other Disputed Claims is unclear. Subject to definitive guidance, the
Plan requires that the applicable Disbursing Agent (either UniCapital or Asset
LLC) pay tax on net income allocable to the Disputed Claims Reserves at the
highest tax rate applicable to corporations while such Disputed Claims Reserves
hold Cash on account of such Other Disputed Claims. The IRS might assert,
however, that any such income is allocable to the holders of Allowed Claims in
such other Classes or otherwise. If the IRS were successful with this argument,
the applicable Disbursing Agent should be able to file a claim for a refund for
taxes paid by such Disputed Claims Reserves with respect to such income, barring
the lapse of the applicable statute of limitations period.
E. WITHHOLDING AND REPORTING
The Debtors and, after the Effective Date, the applicable Disbursing
Agent, will withhold all amounts required by law to be withheld from payments to
holders of Allowed Claims as applicable. For example, under federal income tax
law, interest, dividends and other reportable payments may, under certain
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circumstances, be subject to backup withholding at a 31% rate. Backup
withholding generally applies only if the holder (i) fails to furnish its social
security number or other taxpayer identification number ("TIN"); (ii) furnishes
an incorrect TIN; (iii) fails properly to report interest or dividends; or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number and that
it is not subject to backup withholding. Backup withholding is not an additional
tax but merely an advance payment, which may be refunded to the extent it
results in overpayment of tax. Certain persons are exempt from backup
withholding, including corporations and financial institutions.
XV. ALTERNATIVES TO CONFIRMATION OF THE PLAN
The Debtors believe that the Plan affords the holders of Claims the
potential for the greatest realization on the Debtors' assets and, thus, is in
the best interests of such holders. If the Plan is not confirmed, however,
alternatives include (a) alternative plans of reorganization or (b) liquidation
of the Debtors under chapter 7 or chapter 11. As discussed, the Debtors believe
that the Plan is preferable to a liquidation without the increased costs
associated with the appointment of a trustee under chapters 7 or 11.
XVI. ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, the Debtors or, if the Bankruptcy Court did
not grant further extensions of the Debtors' exclusive period in which to
solicit votes for a plan of reorganization, any other party-in-interest in the
Chapter 11 Cases, could propose a different plan or plans. Such plans might
involve either a reorganization and continuation of the Debtors' businesses, or
an orderly liquidation of its assets or a combination of both. The Debtors do
not believe that an alternative plan could provide greater recoveries than those
provided in the Plan. Moreover, the filing of alternative plans would result in
additional costs in administering the Chapter 11 Cases and significant delays in
making distributions.
XVII. CONFIRMATION HEARING
By order of the court dated _________, 2001, the Confirmation Hearing has
been scheduled for _________, 2002 at __:00 _.m. Eastern Time, before the
Honorable Cornelius Blackshear, United States Bankruptcy Judge, in the United
States Bankruptcy Court for the Southern District of New York, One Bowling
Green, New York, New York 10004. The Confirmation Hearing may be adjourned from
time to time by the Court without further notice except for an announcement made
at the Confirmation Hearing or any adjourned hearing. Any objection to
confirmation must be made in writing, filed with the Clerk of the Bankruptcy
Court and served upon the following parties, together with proof of service
thereof, so as to be ACTUALLY RECEIVED on or before _________________, 2002 at
5:00 p.m. (Eastern Time):
FOR THE DEBTORS
UniCapital Corporation
20801 Biscayne Blvd., Suite 403
Aventura, Florida 33180
Tel: (305) 899-5000
Fax: (305) 931-9295
Attn: E. Talbot Briddell
57
with copies to:
Greenberg Traurig, LLP
Attorneys for the Debtors
200 Park Avenue
New York, New York 10166
Tel: (212) 801-9200
Fax: (212) 801-6400
Attn: Richard S. Miller, Esq.
Howard J. Berman, Esq.
FOR THE LENDERS
Clifford Chance Rogers and Wells
200 Park Avenue
New York, New York 10166
Tel: (212) 878-8000
Fax: (212) 878-8375
Attn: Margot Schonholtz, Esq.
Stephen T. Quine, Esq.
FOR THE COMMITTEE
Togut, Segal & Segal LLP
One Penn Plaza, Suite 3335
New York, NY 10119
Tel: (212) 594-5000
Fax: (212) 967-4258
Attn: Albert Togut, Esq.
Neil Berger, Esq.
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED IT WILL NOT
BE CONSIDERED BY THE COURT.
At the Confirmation Hearing, the Court must determine whether the
requirements of section 1129 of the Bankruptcy Code have been satisfied and,
upon demonstration of such compliance, the Court will enter the Confirmation
Order.
XVIII. CONCLUSION
The Debtors submit that the Plan complies in all respects with chapter 11
of the Bankruptcy Code and the Debtors recommend to holders of Claims who are
entitled to vote on the Plan that they vote to accept the Plan. The Debtors
remind such holders that, to be counted, each ballot, signed and marked to
indicate the holder's vote, must be actually received by no later than 5:00 p.m.
Eastern Time on ___________, 2002, at the following address:
UniCapital Corporation, ET AL.
c/o Donlin, Recano & Company, Inc.
P.O. Box _____
Murray Hill Station
New York, New York 10156
Or, if being sent by hand, to the following address:
UniCapital Corporation, ET AL.
c/o Donlin, Recano & Company, Inc.
419 Park Avenue South, Suite 1206
New York, New York 10016
58
Dated: New York, New York
November 16, 2001
Respectfully Submitted,
JACOM COMPUTER SERVICES, INC., UNICAPITAL
CORPORATION, ET AL.
Debtors and Debtors-in-Possession
By: /S/ E. TALBOT BRIDDELL
------------------------------------
E. Talbot Briddell
Chief Executive Officer and
Chairman of the Board of Directors
59