EXHIBIT 99.3
DISCLOSURE STATEMENT
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- ------------------------------------------X
In re : Chapter 11
:
CELLNET DATA SYSTEMS, INC., ET AL., : Case No. 00-00844 (PJW)
:
Debtors. : (Jointly Administered)
- ------------------------------------------X
DISCLOSURE STATEMENT
FOR JOINT CONSOLIDATED LIQUIDATING PLAN OF REORGANIZATION
OF CELLNET DATA SYSTEMS, INC. AND ITS SUBSIDIARIES
Mark Thompson (MT 4187)
SIMPSON THACHER & BARTLETT
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
-and-
Mark D. Collins (No. 2981)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541
Attorneys for Debtors in Possession
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THIS DISCLOSURE STATEMENT AND THE PLAN ARE THE ONLY DOCUMENTS
AUTHORIZED BY THE COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES
ACCEPTING THE DEBTORS' JOINT CONSOLIDATED LIQUIDATING PLAN OF REORGANIZATION,
DATED JUNE 2, 2000 (AS MAY BE AMENDED, THE "PLAN"). NO REPRESENTATIONS HAVE BEEN
AUTHORIZED BY THE COURT CONCERNING THE DEBTORS OR THE PLAN, EXCEPT AS EXPLICITLY
SET FORTH IN THIS DISCLOSURE STATEMENT.
THIS DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE PLAN,
AND IS NOT INTENDED TO REPLACE CAREFUL AND DETAILED REVIEW AND ANALYSIS OF THE
PLAN, BUT TO AID AND SUPPLEMENT SUCH REVIEW. THIS DISCLOSURE STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED PROVISIONS SET FORTH
IN THE PLAN (WHICH IS INCLUDED AS EXHIBIT A TO THIS DISCLOSURE STATEMENT). IN
THE EVENT OF A CONFLICT BETWEEN THE PLAN AND THE DISCLOSURE STATEMENT, THE
PROVISIONS OF THE PLAN WILL GOVERN. ALL HOLDERS OF CLAIMS ARE ENCOURAGED TO
REVIEW THE FULL TEXT OF THE PLAN AND TO READ CAREFULLY THIS ENTIRE DISCLOSURE
STATEMENT BEFORE DECIDING WHETHER TO VOTE TO ACCEPT THE PLAN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE
AS OF THE DATE HEREOF, AND THE DELIVERY OF THIS DISCLOSURE STATEMENT DOES NOT
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
NO PERSON SHOULD CONSTRUE THE CONTENTS OF THIS DISCLOSURE
STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX ADVICE. EACH
PERSON SHOULD CONSULT WITH THEIR OWN LEGAL, BUSINESS, FINANCIAL AND TAX
ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION AND THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN.
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I. INTRODUCTION
A. Preliminary Statement
On the Petition Date, CellNet Data Systems, Inc. (the
"Parent") and its subsidiaries filed separate voluntary petitions for relief
under chapter 11 of the Bankruptcy Code (the "Cases"). This Disclosure Statement
and the accompanying Plan relate to all of the companies listed on the signature
page (collectively with Parent, the "Debtors").(2) The Cases are being jointly
administered, with the Debtors managing their businesses and affairs as debtors
in possession, subject to the control and supervision of the Court. On February
15, 2000, the United States Trustee for the District of Delaware (the "United
States Trustee") appointed the Creditors' Committee. The Plan contemplates the
substantive consolidation of the Debtors.
The Debtors submit this Disclosure Statement pursuant to
section 1125 of the Bankruptcy Code in connection with the solicitation of
acceptances of the Plan, a copy of which is annexed hereto as Exhibit A.
CAPITALIZED TERMS USED AND NOT DEFINED HEREIN HAVE THE MEANING
ASCRIBED TO THEM IN THE PLAN UNLESS THE CONTEXT REQUIRES OTHERWISE.
The Bankruptcy Court has approved this Disclosure Statement as
containing "adequate information" in accordance with section 1125(b) of the
Bankruptcy Code to enable a hypothetical, reasonable investor in each of the
relevant Classes to make an informed judgment about the Plan.
B. Purpose of this Disclosure Statement
The purpose of this Disclosure Statement is to provide holders
of Claims with such information as would enable a hypothetical, reasonable
individual or entity typical of the holders of Claims and Interests to make
informed judgments on voting on the Plan. This Disclosure Statement does not
purport to be a complete description of the Plan, the financial status of the
Debtors, the applicable provisions of the Bankruptcy Code, or of other matters
that may be deemed significant by creditors or other parties in interest. For
further information, you should examine the Plan directly, you may want to
consult your own legal and financial advisors and you may want to examine the
documents that the Parent has previously filed with the Securities and Exchange
Commission.
You are urged to read carefully the contents of this
Disclosure Statement and the Plan before making your decision to accept or
reject the Plan. Particular attention should be directed to the provisions of
the Plan affecting or impairing your rights as they existed before the
institution of the Debtors' Cases.
- ---------------------------
(2) The Cases filed by the other companies were dismissed when they were
sold during the Cases.
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NO REPRESENTATIONS CONCERNING THE DEBTORS OR THE PLAN ARE
AUTHORIZED EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT. IN DECIDING TO
ACCEPT THE PLAN YOU SHOULD NOT RELY UPON ANY REPRESENTATIONS OF THE
DEBTORS OR ANY OTHER PARTY OTHER THAN THOSE IN THIS DISCLOSURE STATEMENT.
C. Voting
The Court has fixed _____ (Eastern time) on _______, 2000 as
the "Voting Record Date." Only Persons who hold Claims or Interests on the
Voting Record Date and certain other parties specified by the Court, are
entitled to receive a copy of this Disclosure Statement and all of the related
materials.
Any Claim holder or Interest holder whose legal, contractual
or equitable rights are altered, modified or changed by the proposed treatment
under the Plan or whose treatment under the Plan is not provided for in section
1124 of the Bankruptcy Code is considered "impaired."
Holders of Claims in Class 1 (Allowed Priority Claims), Class
2 (Secured Claims) and holders of Administrative Claims and Priority Tax Claims
are unimpaired under the Plan and deemed to have accepted the Plan.
Under the Plan, holders of Allowed Claims in Class 3 (General
Unsecured Claims) (the "Voting Class") are impaired and entitled to vote on the
Plan by submitting the ballot (the "Ballot") enclosed with this Disclosure
Statement.
Only Persons who hold Claims that are impaired under the Plan
and are not deemed to have rejected the Plan are entitled to vote whether to
accept the Plan. Holders of Interests in Class 4 and Class 5 (holders of
Preferred Stock and Common Stock, respectively) will receive no Distributions
under the Plan, are deemed to have rejected the Plan and are not entitled to
vote. ON THE EFFECTIVE DATE, THE PREFERRED STOCK AND COMMON STOCK WILL BE
CANCELED AND DE-REGISTERED; CELLNET DATA SYSTEMS, INC. AND CELLNET FUNDING,
L.L.C. WILL CEASE TO BE REPORTING COMPANIES UNDER THE SECURITIES EXCHANGE ACT OF
1934.
Holders of Claims in Class 3 should complete and sign the
Ballot and return it in the enclosed pre-addressed envelope to:
The Altman Group, Inc.
60 East 42nd Street, Suite 1241
New York, NY 10165
Attn: CellNet Data Systems, Inc., ET AL.
ALL PROPERLY COMPLETED BALLOTS RECEIVED BY THE BALLOTING AGENT
PRIOR TO 4:00 P.M. (EASTERN TIME) ON _______, 2000 (THE
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"VOTING DEADLINE"), WILL BE COUNTED FOR PURPOSES OF DETERMINING WHETHER
CLASS 3 HAS ACCEPTED THE PLAN.
In order for the Plan to be accepted by any class of
creditors, it must be accepted by creditors who hold at least two-thirds in
dollar amount of the Claims of such class to which votes are cast and who
comprise more then one-half of the voting creditors holding Claims of such
class. THESE CALCULATIONS ARE BASED ONLY ON THE CLAIM AMOUNTS AND NUMBER OF
CREDITORS WHO ACTUALLY VOTE. ANY BALLOT THAT IS VALIDLY EXECUTED THAT DOES NOT
CLEARLY INDICATE REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE A VOTE FOR
ACCEPTANCE OF THE PLAN. THE VOTE OF EACH CREDITOR IS IMPORTANT.
ANY BALLOTS RECEIVED AFTER THE VOTING DEADLINE WILL NOT BE
COUNTED, NOR WILL ANY BALLOTS RECEIVED BY FACSIMILE BE ACCEPTED. The Balloting
Agent will prepare and file with the Court a certification of the results of the
balloting with respect to the Plan.
In accordance with Bankruptcy Rule 3017(d), the Debtors shall
send Ballots to the Indenture Trustee, transfer agents, registrars, servicing
agents, or other intermediaries holding Claims for or acting on behalf of record
holders of Claims (collectively, the "Intermediaries"). Each Intermediary shall
be entitled to receive, upon request of the Debtors by _______, 2000, reasonably
sufficient copies of Ballots and other voting materials to distribute to the
beneficial owners of the Claims for which it is an Intermediary. The
Intermediary shall be responsible for and pay each such Intermediary's
reasonable costs and expenses associated with the distribution of copies of
Ballots and other applicable voting materials to the beneficial owners of such
Claims and tabulation of the Ballots. Additionally, each Intermediary shall
receive returned Ballots and shall tabulate and return the results to the
Balloting Agent in a summary Ballot by the Voting Deadline, indicating the
number and dollar amount of cast Ballots in the group of creditors for which it
is an Intermediary. The Intermediaries must certify that each beneficial holder
has not cast more than one vote for any purpose, including numerosity and Claim
amount, even if such holder holds securities of the same type in more than one
account.
IF YOUR VOTE IS BEING PROCESSED BY AN INTERMEDIARY, PLEASE
ALLOW TIME FOR TRANSMISSION OF YOUR BALLOT TO SUCH INTERMEDIARY AND FROM THE
INTERMEDIARY TO THE BALLOTING AGENT. IF YOU HAVE A QUESTION CONCERNING THE
VOTING PROCEDURE, CONTACT THE APPLICABLE INTERMEDIARY. DO NOT RETURN YOUR
SECURITIES WITH YOUR BALLOTS.
D. Confirmation Hearing
The Court will hold the Confirmation Hearing commencing at
______ (Eastern time), on _______, 2000, at the United States Bankruptcy Court,
824 Market Street, Wilmington, Delaware 19801, before the Honorable Peter J.
Walsh, Chief United States Bankruptcy Judge. The Confirmation Hearing may be
adjourned from time to time without further notice other than by announcement in
the Court on the scheduled date of such hearing. At the Confirmation Hearing,
the Court will (i) determine whether the requisite vote has been obtained for
the Voting
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Class, (ii) hear and determine objections, if any, to the Plan and to
confirmation of the Plan that have not been previously disposed of, (iii)
determine whether the Plan meets the confirmation requirements of the Bankruptcy
Code, and (iv) determine whether to confirm the Plan.
Any objection to confirmation of the Plan must be in writing
and filed and served as required by the Court pursuant to the order approving
the Disclosure Statement, a copy of which accompanies this Disclosure Statement
as Exhibit B. Specifically, all objections to the confirmation of the Plan must
be served in a manner so as to be received on or before _______, 2000 at 12:00
noon (Eastern time) by: (i) co-counsel to the Debtors, Richards, Layton &
Finger, P.A., One Rodney Square, P.O. Box 551, Wilmington, DE 19899, Attn: Mark
D. Collins, and Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York 10017, Attn: Mark Thompson; (ii) counsel to the Creditors' Committee, Pryor
Cashman Sherman Flynn LLP, 410 Park Avenue, New York, New York 10022-4441, Attn:
Carole Neville and Jeffrey Wisler, Esq. Connolly Bove Lodge & Hutz LLP 1220
Market Street, Wilmington, DE 19899; (iii) counsel to the informal committee of
holder of the Unsecured Notes, Hale & Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, Attn: Mark N. Polebaum, and (iv) the Office of the United
States Trustee, Curtis Center, Suite 950-W, 601 North Walnut Street,
Philadelphia, PA 19106.
E. Recommendations
THE DEBTORS RECOMMEND THAT ALL HOLDERS OF CLAIMS IN CLASS 3
VOTE TO ACCEPT THE PLAN.
II. BACKGROUND
A. Debtors' Business
The Debtors designed, developed, marketed, deployed and
operated wireless communications networks capable of monitoring millions of
fixed endpoints. The primary commercial application of these networks has been
to provide commercial, industrial and residential network meter reading services
to electric, gas and water utility companies. The Debtors had contracts for the
installation of networks to monitor more than 7 million utility meters.
CellNet's business model projected substantial growth but
required substantial additional capital to finance that growth. Debtors
estimated they needed at least $150,000,000 to $200,000,000 in additional equity
capital immediately and over the next several years at least $400,000,000 to
$500,000,000 in project finance would be also required. In the several months
preceding the filing of these Cases, the Debtors generated consistent negative
cash flow of approximately $10,000,000 per month.
B. Unsuccessful Search for Capital
In an effort to raise additional equity capital, the Parent
engaged Morgan Stanley Dean Witter ("MSDW") as its investment banker. Beginning
in the first quarter of 1999, the
40
Parent and MSDW furnished information to more than 90 potential financial
and strategic investors and worked with a number of such parties in significant
detail in order to develop their interest further. The amount of capital needed,
the amount of leverage in Debtors' existing capital structure and investor
uncertainty concerning the future pace of market acceptance for Debtors' utility
meter reading and other services, among other things, made it difficult to raise
the equity capital required. After extensive efforts, including detailed
negotiations with several parties, MSDW and the Parent concluded, in September
1999, that they could not arrange the necessary financing without a financial
restructuring. The Parent then retained The Blackstone Group L.P. ("Blackstone")
for this purpose. Blackstone immediately began to solicit potential lenders and
investors in order to secure both the short-term funding required to maintain
current operations and the long-term capital required to fund growth over the
next several years. Blackstone contacted more than 60 potential investors in
this effort. In spite of the fact that Debtors' financial structure could be
transformed through a chapter 11 reorganization, potential investors continued
to be deterred by the magnitude of capital required to bring Debtors to the
point that they could fund their own operations. After an exhaustive search for
additional capital over nearly a year, the Debtors ultimately concluded that
they could not attract sufficient capital to finance a feasible stand-alone
reorganization.
The Debtors and Blackstone were successful in convincing two
existing constituencies to participate in resolving Debtors' financial needs.
First, a group ("Noteholder Group") which holds approximately two-thirds in
principal amount of its unsecured Senior Discount Notes, provided $22,200,000 in
additional short-term funding on a secured basis.
Secondly, Schlumberger Resource Management Services, Inc.
("Schlumberger"), a wholly owned subsidiary of Schlumberger, Ltd. and a
strategic partner with Debtors in a contract to provide automated meter reading
services to PECO Energy Company, expressed an interest in providing a portion of
the additional long-term capital needed by Debtors. In December, 1999, the
Debtors began negotiations with these parties, yet were unable to negotiate a
long-term financing arrangement. By January, 2000, the Debtors began to
recognize that recapitalization and reorganization were unattainable given the
responses received from potential investors. Recognizing the possibility that
the liquidation of assets would provide the greatest benefit to their creditors,
the Debtors began negotiating directly with Schlumberger with the intent of
selling all of the Debtors' assets to Schlumberger.
In the weeks preceding the petition date, the Debtors were
engaged in a two-tiered negotiation with Schlumberger, first, to obtain
postpetition financing and, second, to develop the terms of the asset sale
contemplated by the Debtors. In the days before filing the Cases, the terms of
postpetition financing were finalized and the Debtors executed a summary of
terms (the "Term Sheet") with Schlumberger for the sale of substantially all of
the Debtors' assets.
C. Filing of the Debtors' Cases
On February 4, 2000, each of the Debtors filed with the
Bankruptcy Court a voluntary petition for relief under chapter 11 of the
Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, these Cases were
consolidated for procedural purposes only and are being jointly administered.
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On February 15, 2000, pursuant to sections 1102(a) and (b) of
the Bankruptcy Code, the United States Trustee appointed an Official Committee
of Unsecured Creditors (the "Committee"), comprised of: (i) HSBC Bank USA, as
Indenture Trustee for holders of the Unsecured Notes; (ii) Victron, Inc.; and
(iii) Volt Viewtek, Inc. On February 18, 2000, Volt Viewtek, Inc. resigned from
the Committee and General Dynamics Government Systems Corporation became a
member of the Committee.
The Committee retained Pryor Cashman Sherman & Flynn LLP as
its counsel, Connolley, Bove, Lodge & Hutz as Delaware counsel and Crossroads
LLC as its financial advisors.
D. Debtor-in-Possession Financing
Pursuant to a February 24, 2000 order entitled Final Order
(i) Authorizing Secured Postpetition Financing Pursuant To 11 U.S.C. Section
364(C) And (D), (ii) Authorizing Use Of Cash Collateral Pursuant To 11 U.S.C.
Section 363 and (iii) Granting Adequate Protection Pursuant To 11 U.S.C.
Sections 361, 363, and 364, Schlumberger Technology Corporation (the
"Lender"), a subsidiary of Schlumberger, Ltd., agreed to provide
post-petition financing to the Debtors pursuant to the Post-Petition Credit
Agreement, dated as of February 4, 2000 (as amended, supplemented or
otherwise modified, the "DIP Agreement"). The DIP Agreement provided the
Debtors with sufficient funds to continue the Debtors' operations in the
ordinary course. By the terms of the DIP Agreement, the Lender forgave all of
the Debtors' obligations arising under the post-petition financing upon the
consummation of the Sale (defined herein).
E. Postpetition Sale Efforts
The Debtors and Schlumberger continued to negotiate the terms
of the asset sale throughout February, 2000. Consistent with the Term Sheet and
in contemplation of executing an asset purchase agreement, the Debtors submitted
a motion to the Bankruptcy Court seeking to grant certain bid protections to
Schlumberger and to establish competing bid procedures. The Asset Purchase
Agreement was finalized and executed on March 1, 2000 and the Bankruptcy Court
entered an order approving the bid protections and procedures on March 9, 2000.
While Debtors were permitted to, and did, solicit competing bids, including bids
to fund a plan of reorganization, no competing bids or recapitalization plans
were submitted by third parties by the deadline established by the Bankruptcy
Court, or at any time thereafter. Ultimately, on May 5, 2000, the Bankruptcy
Court entered the Order Pursuant To Sections 105, 363, 365 And 1146(c) And Fed.
R. Bankr. P. 6004 and 6006 (A) Approving Asset Purchase Agreement With
Schlumberger Resource Management Services, Inc., And (B) Authorizing Sale Of
Assets And Assumption And Assignment Of Assumed Leases And Assumed Contracts
Free And Clear Of Liens, Claims, Encumbrances And Interests And Exempt From Any
Stamp, Transfer, Recording Or Similar Tax (the "Sale").
The Sale had a transaction value of approximately $235
million, which was composed of (a) a cash payment of $54,941,000; (b) repayment
or assumption of secured debt of approximately $118 million; (c) assumed
liabilities to employees and key vendors of
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approximately $26 million, and (d) forgiveness/assumption of post-petition
financing, which was approximately $36 million at the Sale closing. The Sale
closed on May 16, 2000.
F. Post-Sale Assets of the Debtors
After the Sale, the Debtors' primary remaining asset is the
Cash received from Schlumberger pursuant to the Sale. Additionally, the Debtors
will realize additional Cash from the following transactions:
1. the Estates will receive at least $2,250,000 and up to
$4,500,000 from the sale to Bechtel Enterprises, Inc. of certain remaining
assets not purchased by Schlumberger. These assets include the royalty payments
paid in connection with the license of intellectual property to BCN Data Systems
L.L.C., a joint venture limited liability company in which the Parent and
Bechtel Enterprises, Inc. hold equity interests, as well as the Parent's equity
interest in the joint venture. The Debtors filed a motion with the Bankruptcy
Court to approve this sale on May 26, 2000;
2. the Estates may receive additional Cash, in the
amount of $---, on account of the assignment of certain leased property located
in San Ramon, California; and
3. following the Sale, certain funds held in escrow for the
benefit of the holders of Preferred Stock in CellNet Funding, L.L.C. will be
distributed to such holders pursuant to a stipulation among the Debtors, the
Unofficial Committee of Holders of Preferred Securities and Bank of New York, as
Escrow Agent, filed with the Bankruptcy Court on May 16, 2000. Approximately
$200,000 of such monies were distributed to Debtors.
G. Source of Facts Presented Herein
The Debtors believe that the facts set forth herein are
accurate as of the date of this Disclosure Statement. These facts were derived
from internal company records, including unaudited financial statements.
III. SUMMARY OF THE PLAN
A. Substantive Consolidation
The Plan contemplates entry of the Substantive Consolidation
Order, which will effect the substantive consolidation of the Cases into a
single chapter 11 case. On the Confirmation Date or such other date as may be
set by a Final Order of the Court, but subject to the occurrence of the
Effective Date: (i) all Intercompany Claims by and among the Debtors will be
eliminated; (ii) all assets and liabilities of the Debtors will be merged or
treated as though they were merged; (iii) all prepetition cross-corporate
guarantees of the Debtors will be eliminated; (iv) all Claims based upon
guarantees of collection, payment or performance made by one or more Debtors as
to the obligations of another Debtor or of any other Person will be discharged,
released and of no further force and effect; (v) all Interests of any Debtor in
any other Debtor shall be eliminated; and (vi) each and every Claim filed in the
Case of any one
43
Debtor will be deemed filed against the consolidated Debtors in
the consolidated Cases and shall be deemed a single obligation of all of the
Debtors under the Plan on and after the Confirmation Date.
The Plan will serve as a motion seeking entry of an order
substantively consolidating the Reorganization Cases. UNLESS AN OBJECTION TO
SUBSTANTIVE CONSOLIDATION IS MADE IN WRITING BY ANY CREDITOR AFFECTED BY THE
PLAN ON OR BEFORE FIVE (5) DAYS PRIOR TO THE DATE THAT IS FIXED BY THE COURT AS
THE LAST DATE ON WHICH ACCEPTANCES TO THE PLAN MAY BE RECEIVED, OR SUCH OTHER
DATE AS MAY BE FIXED BY THE COURT, THE SUBSTANTIVE CONSOLIDATION ORDER MAY BE
ENTERED BY THE COURT. In the event any such objections are timely filed, a
hearing with respect thereto shall be scheduled by the Court, which hearing may,
but need not, coincide with the Confirmation Hearing.
Substantive consolidation is an equitable remedy which a
bankruptcy court is asked from time to time to apply in cases involving
affiliated debtors. As contrasted with procedural consolidation,(3) substantive
consolidation affects the substantive rights and obligations of creditors and
debtors. Substantive consolidation involves the pooling and merging of the
assets and liabilities of the affected debtors; all of the debtors in the
substantively consolidated group are treated as if they were a single
corporate/economic entity. The consolidated assets create a single fund from
which all claims against the consolidated debtors are to be satisfied.
Consequently, a creditor of one of the substantively consolidated debtors is
treated as a creditor of the substantively consolidated group of debtors and
issues of individual corporate ownership of property and individual corporate
liability on obligations are ignored.
Section 105 of the Bankruptcy Code provides the basis for the
power to substantively consolidate interrelated chapter 11 cases. Within this
framework of a court exercising its equitable powers, the factors to which
courts have looked to determine the appropriateness of substantive consolidation
include: (i) whether creditors dealt with the debtor entities as a single
economic unit and did not rely on their separate identities in extending credit,
and (ii) whether the affairs of the debtors are so entangled that the
consolidation will benefit all creditors of the debtors' estates. Additional
factors include: (i) the presence or absence of consolidated financial
statements; (ii) the existence of inter-company guarantees or loans; (iii) the
unity of interest and ownership between the various corporate entities; (iv) the
transfer of assets without observance of corporate formalities; (v) the degree
of difficulty in segregating and ascertaining individual assets and liabilities;
(vi) the parent, its affiliates and subsidiaries having common directors and/or
officers; (vii) the parent or its affiliates financing one another; and (viii)
the commingling of assets and business functions. Courts have ordered
substantive consolidation where the proponents have demonstrated (i) either a
harm to be avoided or (ii) a
- ----------------------------
(3) Procedural consolidation is the administrative process, pursuant to
Bankruptcy Rule 1015(b), whereby the proceedings of two or more affiliated
debtors are conducted as part of a single proceeding for the convenience of
the bankruptcy court and parties in interest. Procedural consolidation does
not affect the substantive rights of the debtors or their respective
creditors and interest holders. The Cases were procedurally consolidated by
order of the Court dated February 4, 2000.
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benefit to be effected generally which, under the circumstances and
considering whether the rights of third parties would be unduly prejudiced
thereby, it is equitable to effect.
The Debtors believe their creditors treated them as a single
economic unit, relying on consolidated financial information and not their
structurally separate corporate entities in determining their creditworthiness
and extending credit. The Debtors further believe that substantive consolidation
of the Estates will facilitate the implementation of the Plan, enabling the
Debtors to treat holders of Claims with greater similarity and fairness and save
administrative costs by simplifying administration of the remaining assets and
liability of the remaining assets and liabilities. The Debtors believe that, in
addition to being justified pursuant to applicable law, substantive
consolidation is in the best interests of their creditors. Debtors believe that
the recovery of virtually all creditors will be higher or approximately equal,
under the Plan, as it would be if there were no substantive consolidation.
B. Objections to Claims
Any Claim not deemed filed pursuant to section 1111(a) of the
Bankruptcy Code or filed on or before the earlier of the Confirmation Date or
the time fixed by the Bankruptcy Court for filing such Claims, or as otherwise
provided herein, will be disallowed, expunged, and discharged.
C. Claims Resolution
The Debtors will be responsible for scheduling Disputed
Claims. Unless an objection is filed, the Confirmation Order will approve the
Estimated Allowed Claim Schedule, thus making such Claims Allowed at their
scheduled amount.
D. Distributions
The Debtors will distribute Cash from the Distribution Account
to holders of Allowed Class 3 Claims. The Debtors have established a nominal
threshold distribution level for individual Class 3 creditors and will not make
such Distributions in an amount less than $50.00. Funds that otherwise would
have been distributed in amounts less than $50.00 will be included in the Final
Distribution to holders of Allowed Class 3 Claims.
E. Liquidation of the Debtors
The Plan is a liquidating plan of reorganization. However,
while the Debtors have ceased to operate as a provider of services for their
customers following the Asset Purchase Agreement, the Parent will continue to
exist to consummate the Plan and perform the other tasks and functions described
therein.
F. Management of Debtors
As of the Effective Date, the Debtors, other than Parent, will
dissolve pursuant to applicable state law. The Chief Operating Officer of the
Parent, John S. Dubel, and the Vice
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President and Secretary, David L. Perry, will remain as officers and
directors of the Debtors. The Chief Operating Officer, and the Vice President
and Secretary, at the direction of the Chief Operating Officer, will be
responsible for carrying out the provisions of the Plan.
G. Treatment of Officers, Directors and Chief Operating Officer
With the exception of the Officers, the authority, power and
incumbency of the persons then acting as officers and directors of the Debtors
shall be terminated on the Effective Date and such officers and directors shall
be deemed to have resigned. The Plan will be administered and actions will be
taken in the name of the Debtors through the Chief Operating Officer. The Chief
Operating Officer will, among other things, manage the Debtors and administer
the wind-down of the Debtors' affairs, make all Distributions required to be
made under the Plan and facilitate the Debtors' holding of any undistributed
funds, pending distribution to creditors pursuant to the Plan, and direct the
Vice President and Secretary regarding the implementation of the Plan's
provisions.
H. Dissolution of Creditors' Committee
The Creditors' Committee will continue in existence until the
Effective Date, at which time the Creditors' Committee will dissolve and its
members deemed released of their duties, responsibilities and obligations in
connection with the Debtors' Cases or the Plan.
I. Cancellation of Notes/Stock/Instruments/Agreements
All Common Stock, Preferred Stock and other ownership
interests of any of the Debtors and all notes, bonds, indentures, agreements,
contracts or other instruments or documents evidencing or creating any
indebtedness, obligation or liability of any of the Debtors shall be deemed
canceled on the Effective Date and shall have no force and effect against the
Debtors, except for the purpose of evidencing the right to participate in the
Distributions contemplated by the Plan.
J. Condition to Effectiveness
The following are conditions which must occur for the Plan to
become effective:
1. the Bankruptcy Court has entered the Confirmation Order and
more than ten (10) days have elapsed since the Confirmation Date, no stay of the
Confirmation Order is in effect and the Confirmation Order has not been
reversed, modified or vacated, and
2. the Operating Account and the Distribution Account
have been established by the Debtors.
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K. Executory Contracts and Unexpired Leases
Effective as of the Confirmation Date, each executory contract
and unexpired lease that has not been assumed or rejected by the Debtors as of,
or prior to, the Confirmation Date with the approval of the Bankruptcy Court, if
any, will be deemed rejected pursuant to sections 365 and 1123 of the Bankruptcy
Code. Each entity that is a party to an executory contract or unexpired lease
rejected pursuant to the Plan (and only such entities) will be entitled to file,
not later than thirty (30) days following the Confirmation Date, a proof of
claim for damages alleged to have been suffered due to such rejection; provided,
however, that the opportunity afforded an entity whose executory contract or
unexpired lease is rejected pursuant to the Plan to file a proof of claim on or
before such date shall in no way apply to entities who may assert a claim on
account of an executory contract or unexpired lease that was previously rejected
by the Debtors for which a prior bar date was established. Any person or entity
that has a claim for damages as a result of the rejection of an executory
contract or unexpired lease pursuant to the terms of the Plan that does not file
a proof of claim in accordance with the terms and provisions of the Plan will be
forever barred from asserting that claim against any of the Debtors or any
property of the Estates.
L. Injunction
The Confirmation Order will provide, among other things, that
all Persons who have held, hold or may hold Claims against or Interests in any
of the Debtors are, with respect to any such Claims or Interests, permanently
enjoined from and after the Confirmation Date from taking any of the following
actions (other than actions to enforce any rights or obligations under the
Plan): (a) commencing, conducting or continuing in any manner, directly or
indirectly, any suit, action or other proceeding of any kind (including, without
limitation, any proceeding in a judicial, arbitral, administrative or other
forum) against or affecting the Debtors or any of their property; (b) enforcing,
levying, attaching (including, without limitation, any pre-judgment attachment),
collecting or otherwise recovering by any manner or means, whether directly or
indirectly, any judgment, award, decree or order against the Debtors or any of
their property; (c) creating, perfecting or otherwise enforcing in any manner,
directly or indirectly, any encumbrance of any kind against the Debtors or any
of their property; (d) asserting any right of setoff of any kind, directly or
indirectly, against any obligation due the Debtors or any of their property,
except as contemplated or allowed by the Plan; (e) acting or proceeding in any
manner, in any place whatsoever, that does not conform to or comply with the
provisions of the Plan; and (f) prosecuting or otherwise asserting any right,
claim or cause of action released pursuant to the Plan.
M. Exculpation
Except with respect to the express duties provided herein,
none of the Debtors, nor any of their respective present or former members,
directors, officers, employees, advisors, attorneys, affiliates, subsidiaries or
agents, shall have or incur any liability to any holder of a Claim or Interest,
or members of the Committee, or any other party in interest, or any of their
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respective agents, employees, representatives, financial advisors or attorneys,
or any of their successors or assigns, for any act or omission in connection
with, relating to, or arising out of these Cases, the pursuit of confirmation of
the Plan, or the consummation of the Plan, except for their willful misconduct,
and in all respects shall be entitled to reasonably rely upon the advice of
counsel with respect to their duties and responsibilities under the Plan or in
the context of these Cases. Except with respect to the express duties provided
herein, no holder of a Claim or Interest, or members of the Committee, or any
other party in interest, including their respective agents, employees,
representatives, financial advisors, or attorneys, shall have any right of
action against the Debtors, or any of their respective present or former
members, directors, officers, employees, advisors, attorneys, affiliates,
subsidiaries or agents, for any act or omission in connection with, relating to,
or arising out of, these Cases, the pursuit of confirmation of the Plan, the
consummation of the Plan or the administration of the Plan, except for their
willful misconduct.
N. Retention of Jurisdiction
The Bankruptcy Court will retain jurisdiction over the Cases,
pursuant to and for the purposes of sections 105(a) and 1127 of the Bankruptcy
Code, and all matters arising out of or relating to the Cases.
IV . CLASSIFICATION AND TREATMENT OF CLAIMS
O. Administrative Claims
An Administrative Claim is a claim under section 503(b) of the
Bankruptcy Code that is entitled to priority under section 507(a)(1) of the
Bankruptcy Code for costs or expenses of administration of the Cases including,
without limitation, any actual and necessary expenses of preserving the estates
of the Debtors, any actual and necessary expenses of operating the business of
the Debtors, any indebtedness or obligations incurred or assumed by the Debtors
as debtors in possession in connection with their conduct of the businesses of
the Debtors, and all compensation or reimbursement of expenses of professionals
within the meaning of sections 327 and 1103 of the Bankruptcy Code to the extent
allowed by the Bankruptcy Court. Administrative Claims also include professional
fees and expenses that are accrued but unpaid as of the Effective Date.
Under the Plan, the Debtors will make a Distribution in an
amount equal to the amount of the Allowed Administrative Claim to each holder of
an Allowed Administrative Claims, if any. Such payment will be made on the First
Distribution Date or on the fifteenth (15th) day after such later date that such
Claim becomes an Allowed Administrative Claim, unless the holder shall have
agreed to different treatment of such Claim. The Debtors estimate that Allowed
Administrative Claims will approximate less than $1,000,000.
Under the Plan, Allowed Claims for professional fees and
expenses will be paid in accordance with the Bankruptcy Court order allowing
such fees and expenses. The Debtors estimate that Allowed Claims for
professional fees and expenses that have not been paid
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pursuant to prior order of the Bankruptcy Court and are not paid by
Schlumberger pursuant to the Sale will be less than $1,000,000.
P. Priority Tax Claims
Under the Plan, the Debtors will make a Distribution in an
amount equal to the amount of the Allowed Priority Tax Claim to each holder of
an Allowed Priority Tax Claim, if any. Such payment will be made on the First
Distribution Date or on the fifteenth (15th) day after such later date that such
Claim becomes an Allowed Priority Tax Claim, unless the holder shall have agreed
to different treatment of such Claim.
Q. Class 1 - Priority Non-Tax Claims
Priority Claims consist of all Claims that are entitled to
priority pursuant to sections 507(a)(2)-(7) and (9) of the Bankruptcy Code,
including: (1) unsecured claims for accrued employee compensation earned within
ninety (90) days prior to the Petition Date, to the extent of $4,300 per
employee; (2) unsecured claims for contributions to employee benefit plans
arising from services rendered within one hundred eighty (180) days prior to the
Petition Date, but only to the extent of (a) the number of employees covered by
such plans multiplied by $4,300, less (b) the aggregate amount paid to such
employees from the estate for wages, salaries or compensation; and (3) unsecured
claims of individuals, to the extent of $1,950 for each such individual, arising
from the deposit, before the Petition Date, of money in connection with the
purchase, lease, or rental of property, or the purchase of services, or the
personal, family, or household use of such individuals, that were not delivered
or provided. The Debtors estimate that Allowed Priority Claims and allowed
Priority Non-Tax Claim, combined, will amount to less than $1,000,000.
Under the Plan, the legal, equitable, and contractual rights
of Allowed Priority Claims will be left unaltered and the Debtors will make a
Distribution in an amount equal to the amount of the Allowed Priority Claim to
each holder of an Allowed Priority Claim, if any. Such Distribution will be made
on the First Distribution Date or on the fifteenth (15th) day after such later
date that such Claim becomes an Allowed Claim, as applicable, whichever is
later, unless such holder shall have agreed to different treatment of such
Claim.
R. Class 2 - Secured Claims
Class 2 consists of all Secured Claims. The Debtors expect
there will be no Secured Claims.
Under the Plan, the legal, equitable, and contractual rights
of Allowed Secured Claims will be left unaltered and the Debtors will make a
Distribution in an amount equal to the amount of the Allowed Secured Claim to
each holder of an Allowed Secured Claim, if any. Such Distribution will be made
on the First Distribution Date or on the fifteenth (15th) day after such later
date that such Claim becomes an Allowed Claim, as applicable, whichever is
later, unless such holder shall have agreed to different treatment of such
Claim.
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S. Class 3 - General Unsecured Claims
Class 3 consists of all Allowed Unsecured Claims. Each Allowed
Unsecured Claim in Class 3 shall be paid Cash equal to its Pro Rata share of the
Cash available to the Estates after satisfaction of Allowed Administrative
Claims, Allowed Priority Tax Claims and Allowed Priority Claims. Such Cash shall
be paid in a series of distributions, beginning on the First Distribution Date.
The Debtors estimate that the amount of Class 3 Claims is approximately
$415,000,000; however, this amount is strictly an estimate as the Debtors have
not conducted a detailed analysis of such claims.
Under the plan, no distribution shall be made to the holder of
a Disputed Class 3 Claim unless and until a Final Order providing that such
Claim has become an Allowed Claim has been entered by the Clerk of the
Bankruptcy Court.
T. Class 4 - Preferred Interests in the Debtors
Class 4 consists of all Interests in the Debtors arising from
the ownership of Preferred Stock. On the Effective Date, all Interests in the
Debtors and all related agreements shall be canceled. Holders of Allowed Class 4
Interests will receive no distribution and retain no rights or property on
account of their Allowed Class 4 Interests.
U. Class 5 - Common Interests in the Debtors
Class 5 consists of all Interests in the Debtors arising from
the ownership of Common Stock. On the Effective Date, all Interests in the
Debtors and all related agreements shall be canceled. Holders of Allowed Class 5
Interests will receive no distribution and retain no rights or property on
account of their Allowed Class 5 Interests.
V. IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THE PLAN
V. Classes Not Impaired by the Plan
Class 1 and Class 2 are not Impaired. Under section 1126(f) of
the Bankruptcy Code, holders of Allowed Claims in such classes are conclusively
presumed to have voted to accept the Plan, and therefore, the votes of such
holders will not be solicited.
W. Classes Impaired by the Plan
Class 3, Class 4 and Class 5 are Impaired by the Plan, and the
holders of Allowed Claims in Class 3 are entitled to vote to accept or reject
the Plan.
X. Classes Presumed to Reject the Plan
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Class 4 and Class 5 are to receive no distribution under the
Plan. Under Bankruptcy Code section 1126(g), holders of these Interests are
conclusively deemed to have rejected the Plan and, therefore, the votes of such
holders will not be solicited.
VI. IMPLEMENTATION OF THE PLAN
Substantially all of the funds to effect the payments provided
under the Plan will be generated from proceeds from the Sale or other
dispositions of the Debtors' assets. As set forth in Section IV above, (i) the
Debtors will make Distributions to holders of Allowed Administrative Claims,
Allowed Priority Tax Claims, Class 1 Claims, and Class 2 Claims on the First
Distribution Date or on the fifteenth (15th) day after such later date that such
Claim becomes an Allowed Claim, as applicable, whichever is later, unless such
holder shall have agreed to different treatment of such Claim, (ii) in the case
of Class 3, Cash remaining after the aforementioned Distributions will be paid
in a series of distributions, beginning on the First Distribution Date, and
(iii) the Debtors will not make any distributions to holders of Interests in
Class 4 and Class 5.
VII. THE PLAN CONFIRMATION PROCESS
Y. Acceptance and Confirmation
At the Confirmation Hearing, the Bankruptcy Court will confirm
the Plan only if all the requirements of section 1129 of the Bankruptcy Code are
met. Among the requirements for confirmation of the Plan are that the Plan is
(i) accepted by the impaired class of claims or, if rejected by the impaired
class, that the Plan "does not discriminate unfairly" and is "fair and
equitable" as to the Class, (ii) feasible, and (iii) in the best interests of
creditors whose claims are impaired under the Plan.
Z. Acceptance of the Plan
In order for the Plan to be accepted by any class, it must be
accepted by creditors who hold at least two-thirds in dollar amount of the
Claims in such impaired class as to which votes are cast, and who comprise more
than one-half of the voting creditors holding claims in such class. A Class is
impaired if the legal, equitable, or contractual rights attaching to the Claims
in that class are modified, other than by curing defaults and reinstating
maturity or payment in full in cash. Creditors whose claims are not impaired by
the Plan may not vote and are conclusively presumed, pursuant to the Bankruptcy
Code, to have accepted the Plan.
If any impaired Class does not accept the Plan, the Debtors
may nevertheless seek confirmation of the Plan. As set forth by section 1129(b)
of the Bankruptcy Code, to obtain such confirmation and "cram-down" on the
dissenting class or classes, the Debtors must demonstrate to the Bankruptcy
Court that the Plan "does not discriminate unfairly" and is "fair and equitable"
with respect to each dissenting class. A plan does not discriminate unfairly if,
among other things, the dissenting class is treated substantially equally with
respect to other classes of equal
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rank. The Debtors will satisfy the "fair and equitable" test if the Debtors
can demonstrate to the Bankruptcy Court that either: (a) each holder of a claim
or interest in the dissenting classes receives or retains, under the Plan,
property of a value equal to the allowed amount of its claim or interest; or (b)
the holders of Interests that are junior to the Interests of the holders of such
dissenting class will not receive or retain any property under the Plan.
Under the Debtors' Plan, Class 4 and Class 5 are deemed to
reject the Plan and, therefore, are the dissenting classes. For the purposes of
"cramming down" on holders of Interests in Class 4 and Class 5, the Debtors must
show, pursuant to section 1129(b)(2)(C) of the Bankruptcy Code, that the Plan is
"fair and equitable" as to these dissenting classes of Interests. The Debtors
believe that they satisfy this "fair and equitable" test as to Class 4 and Class
5, as no class junior to Class 3 receives a Distribution. Accordingly, the
requirements of section 1129(b) of the Bankruptcy Code are satisfied and the
Debtors can "cram-down" on these dissenting classes.
AA. Feasibility
As a condition to confirmation of a plan, section 1129(a) of
the Bankruptcy Code requires that the confirmation of the Plan is not likely to
be followed by the liquidation of the Debtors (unless, like here, such
liquidation is proposed in the Plan) or the need for further financial
reorganization. Since liquidation is proposed in the Plan, the Debtors believe
that the Plan meets the feasibility requirement and that it will be able to make
all payments required by the Plan without the necessity for further financial
reorganization.
BB. Best Interests Test
Confirmation of the Plan also requires that each claimant
either (a) accept the Plan or (b) receive or retain under the Plan property of a
value, as of the Effective Date of the Plan, that is not less than the value
such claimant would receive or retain if the Debtors were liquidated under
chapter 7 of the Bankruptcy Code.
To determine what Creditors and holders of Interests would
receive if the Debtors were liquidated, the Bankruptcy Court must determine the
dollar amount that would be generated from the liquidation of the Debtors'
assets and properties in the context of a chapter 7 liquidation case. Such cash
amount would be reduced by the cost and expenses of liquidation and by
additional administrative priority claims that would result from, in all
likelihood, a chapter 7 liquidation.
The cost of liquidation under chapter 7 would include the fees
payable to a trustee, as well as those that might be payable to additional
attorneys and other professionals that such trustee may engage, plus any unpaid
expenses incurred by the Debtors during the Cases, such as compensation for
attorneys, financial advisors, and accountants.
The Debtors believe that all Unsecured Claims will receive
greater value under the Plan than in a chapter 7 liquidation and that the Plan
satisfies the "best interests of the creditors" test. In addition, Interest
holders would not be entitled to receive any distributions on
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account of their Interests in either a chapter 7 or chapter 11 case since
Unsecured Creditors would not receive payment in full in either scenario.
VIII. GENERAL FEDERAL INCOME TAX CONSIDERATIONS
The confirmation and execution of the Plan may have tax
consequences to holders of Claims and Interests. The Debtors do not offer an
opinion as to any federal, state, local, or other tax consequences to holders of
Claims and Interests as a result of the confirmation of the Plan. All holders of
Claims and Interests are urged to consult their own tax advisors with respect to
the federal, state, local, and foreign tax consequences of the Plan. THIS
DISCLOSURE STATEMENT IS NOT INTENDED, AND SHOULD NOT BE CONSTRUED, AS LEGAL OR
TAX ADVICE TO ANY CREDITOR.
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the alternatives
include (a) liquidation of the Debtors under chapter 7 of the Bankruptcy Code,
or (b) dismissal of the Cases.
CC. Liquidation Under Chapter 7
If no plan can be confirmed, the Cases may be converted to
cases under chapter 7 of the Bankruptcy Code, in which a trustee would be
elected or appointed to liquidate the assets of the Debtors for distribution to
their creditors in accordance with the priorities established by the Bankruptcy
Code. The Debtors believe that conversion of the Cases to cases under chapter 7
of the Bankruptcy Code would result in diminished distributions to all creditors
due to increased costs of administration and the resultant delay in distribution
on account of any such conversion.
Thus, the Debtors believe that holders of Unsecured Claims
would receive a lower distribution on account of the additional expenses
incurred from conversion of the Cases to chapter 7 cases.
DD. Alternative Plan of Reorganization
If the Plan is not confined, the Debtors, the Committee, or
any of the parties in interest could attempt to formulate a different Plan. The
Debtors believe that the Plan described herein will provide the greatest and
most expeditious return to creditors.
X. FINANCIAL INFORMATION
EE. Postpetition Financial Information
The Debtors have filed Statements of Financial Affairs and
Schedules of Assets and Liabilities with the Bankruptcy Court as required by the
Bankruptcy Code. As debtors in possession, the Debtors have filed monthly
operating reports with the United States Trustee. This financial information may
be examined in the Bankruptcy Court Clerk's Office.
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XI. CONCLUSION
The Debtors urge holders of impaired Claims to vote to accept
the Plan.
Dated: June 2, 2000
CELLNET DATA SYSTEMS, INC.
/s/ John S. Dubel
By:
Name: John S. Dubel
Title: Chief Operating Officer
On behalf of itself and the following Debtors:
CellNet Funding, L.L.C., CellNet Data
Retrofit Services, Inc., CellNet Data
Services, Inc., CellNet Data Services
(AZ), Inc.,CellNet Data Services (CA), Inc.,
CellNet Data Services (IS), Inc.,
CellNet Data Services (KC), Inc.,
CellNet Data Services (ME), Inc.,
CellNet Data Services (MSP), Inc.,
CellNet Data Services (NH), Inc.,
CellNet Data Services (PA), Inc.,
CellNet Data Services (SF), Inc.,
CellNet Data Services (SL), Inc.,
CellNet Data Services (TX), Inc.,
CN Holdings, Inc., CN Holdings (TX), Inc.,
CN Frequency (ME), Inc., CN Frequency (NH),
Inc., CN Frequency (PA), Inc., CN Frequency
(SF), Inc., CN Partners (TX), L.P.
54