IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - - - X
IN RE :
:
EAGLE FOOD CENTERS, INC. :
: CHAPTER 11
TAX ID NO. : 36-3548019 :
DEBTOR. : CASE NO. 00-01311 (RRM)
:
ROUTE 67 AND KNOXVILLE ROAD :
MILAN, ILLINOIS 61264 :
- - - - - - - - - - - - - - - - - - - - - - - - X
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Jay M. Goffman
Lawrence V. Gelber
Cheri L. Hoff
Four Times Square
New York, New York 10036-6522
-and-
Gregg M. Galardi (I.D. No. 2991)
David R. Hurst (I.D. No. 3743)
Patricia A. Widdoss (I.D. No. 3786)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
Attorneys for Eagle Food Centers, Inc.
Dated: Wilmington, Delaware
April 17, 2000
AS APPROVED APRIL 17, 2000 WITH TECHNICAL MODIFICATIONS
EXECUTIVE SUMMARY
Eagle Food Centers, Inc. ("Eagle" or the "Debtor") filed a petition for
relief under Chapter 11 of the United States Bankruptcy Code on February 29,
2000 (the "Petition Date") in the United States Bankruptcy Court for the
District of Delaware (the "Court"). On March 10, 2000, the Debtor filed with the
Court the Reorganization Plan of Eagle Food Centers, Inc., dated March 10, 2000.
On April 17, 2000, the Debtor filed this First Amended Reorganization Plan of
Eagle Food Centers, Inc. (as further amended or modified, the "Plan"), which
sets forth the manner in which Claims against and Interests in the Debtor will
be treated following the Debtor's emergence from Chapter 11. This Disclosure
Statement describes certain aspects of the Plan, the Debtor's business
operations, significant events occurring in its Chapter 11 Case, and related
matters. This Executive Summary is intended solely as a summary of the
distribution provisions of the Plan and certain matters related to the Debtor's
business. FOR A COMPLETE UNDERSTANDING OF THE PLAN, YOU SHOULD READ THE
DISCLOSURE STATEMENT, THE PLAN, AND THE EXHIBITS THERETO IN THEIR ENTIRETY.
Capitalized terms used in this Executive Summary and not otherwise defined
herein have the meanings ascribed to them in the Plan.
THE BOARD OF DIRECTORS OF THE DEBTOR HAS APPROVED THE PLAN AND
RECOMMENDS THAT THE HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE ON THE PLAN
VOTE TO ACCEPT THE PLAN. THE DEBTOR HAS NEGOTIATED THE TERMS OF THE PLAN WITH
SEVERAL OF THE LARGEST INSTITUTIONAL HOLDERS OF THE DEBTOR'S 8 5/8% SENIOR NOTES
DUE APRIL 15, 2000, WHO ALSO STRONGLY URGE THAT ALL CREDITORS AND INTEREST
HOLDERS VOTE TO ACCEPT THE PLAN.
A. SUMMARY OF THE PLAN
Under the Plan, Claims against and Interests in the Debtor are divided
into Classes. Certain unclassified Claims, including DIP Facility Claims,
Administrative Claims, Priority Tax Claims, and certain Other Priority Claims,
will receive payment in Cash either on the Consummation Date, as such Claims are
liquidated, or in installments over time, as permitted by the Bankruptcy Code,
or as agreed with the holders of such Claims. All other Claims and all Interests
are classified into six (6) Classes and will receive the distributions and
recoveries described in the table below.
The table below summarizes the classification and treatment of the
principal prepetition Claims and Interests under the Plan. The classification
and treatment for all Classes are described in more detail under the section of
the Disclosure Statement entitled "Summary of the Plan -- Certain Matters
Regarding Classification and Treatment of Claims and Interests." Estimated Claim
amounts are based upon Eagle's books and records as of February 29, 2000. There
can be no assurance that the estimated amounts below are correct, and actual
Claim amounts may be significantly different from the estimates. This summary is
qualified in its entirety by reference to the provisions of the Plan, a copy of
which is annexed hereto as Exhibit A.
ALTHOUGH THE DEBTOR BELIEVES THAT THE ESTIMATED PERCENTAGE RECOVERIES
ARE REASONABLE AND WITHIN THE RANGE OF ASSUMED RECOVERY USED IN NEGOTIATIONS OF
THE PLAN, THERE IS NO ASSURANCE THAT THE ACTUAL AMOUNTS OF ALLOWED CLAIMS IN
EACH CLASS WILL NOT MATERIALLY EXCEED THE ESTIMATED AGGREGATE AMOUNTS SHOWN IN
THE TABLE BELOW. The actual recoveries under the Plan by the Debtor's creditors
will be dependent upon a variety of factors including, but not limited to,
whether, and in what amount, contingent claims against the Debtor become
non-contingent and fixed and whether, and to what extent, Disputed Claims are
resolved in favor of the Debtor rather than the claimants. Accordingly, no
representation can be or is being made with respect to whether each Estimated
Percentage Recovery shown in the table below will be realized by the holder of
an Allowed Claim in any particular Class.
i
SUMMARY OF ANTICIPATED DISTRIBUTIONS UNDER THE PLAN
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
- ----------------- ------------------------
CLASS 1: OTHER PRIORITY CLAIMS - UNIMPAIRED
Estimated Allowed Amount: - Each holder of an Allowed Class 1 Other Priority Claim will receive (a) Cash
equal to the unpaid portion of such Allowed Class 1 Other Priority Claim or
DE MINIMIS (b) such other treatment as to which Eagle and such holder shall have
agreed upon in writing.
- Estimated Recovery: 100%
CLASS 2: OTHER SECURED CLAIMS - UNIMPAIRED
Estimated Allowed Amount: - Each holder of an Allowed Class 2 Other Secured Claim will, in the sole
discretion of Eagle, (a) receive deferred cash payments totaling at least the
$1,300,000 allowed amount of such Allowed Class 2 Other Secured Claim, of a value,
as of the Consummation Date, of at least the value of such holder's interest
in the Estate's interest in the Collateral securing the Allowed Class 2 Other
Secured Claim, (b) upon abandonment by Eagle receive the Collateral
securing such holder's Allowed Class 2 Other Secured Claim, (c) receive
payments or liens amounting to the indubitable equivalent of the value of
such holder's interest in the Estate's interest in the Collateral securing the
Allowed Class 2 Other Secured Claim, (d) be Reinstated, or (e) receive such
other treatment as Eagle and such holder shall have agreed upon in writing.
To the extent, if any, that the value of the collateral securing a Class 2
Secured Claim is less than the total amount of such Claim, the difference
shall be treated as a Class 3 General Unsecured Claim.
- Estimated Recovery: 100%
CLASS 3: GENERAL UNSECURED CLAIMS - UNIMPAIRED
Estimated Allowed Amount: - Each holder of an Allowed Class 3 General Unsecured Claim will receive,
in the sole discretion of Eagle, (a) treatment that leaves unaltered the legal,
$5,000,000 - $15,000,000 equitable, and contractual rights to which such Allowed Class 3 General
Unsecured Claim entitles the holder of such Claim; (b) notwithstanding any
contractual provision or applicable law that entitles the holder of such
Allowed Class 3 General Unsecured Claim to demand or receive accelerated
payment of such Claim after the occurrence of a default, treatment that (i)
cures any such default that occurred before or after the Petition Date, other
than a default of a kind specified in Section 365(b)(2) of the Bankruptcy
Code, (ii) reinstates the maturity of such Allowed Class 3 General Unsecured
Claim as such maturity existed before such default, (iii) compensates the
holder of such Allowed Class 3 General Unsecured Claim for any damages
incurred as a result of any reasonable reliance by such holder on such
contractual provision or such applicable law, and (iv) does not otherwise
alter the legal, equitable, or contractual rights to which such Allowed Class
3 General Unsecured Claim entitles the holder of such Claim; or (c) such
other treatment as to which Eagle and such holder shall have agreed upon in
writing.
- Estimated Recovery: 100%
ii
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
CLASS 4: LENDER SECURED CLAIMS - IMPAIRED
Estimated Allowed Amount: - The holder of the Allowed Class 4 Lender Secured Claim will receive (a)
cash equal to the unpaid portion of such Allowed Class 4 Lender Secured
$2,000,000 PLUS accrued interest Claim, including accrued but unpaid interest at the contract rate through the
date of payment, or (b) such other treatment as to which Eagle and such
holder shall have agreed upon in writing.
- Estimated Recovery: 100%
CLASS 5: SENIOR NOTE CLAIMS - IMPAIRED
Estimated Allowed Amount: - The Debtor or Reorganized Debtor, as the case may be, will distribute to the
Indenture Trustee, for the ratable benefit of the holders of Allowed Class 5
$100,000,000 PLUS accrued interest Senior Note Claims, (i) the New Senior Notes, (ii) the Class 5 Cash, and (iii)
through the Consummation Date 15% of the fully-diluted Common Stock of the Reorganized Debtor. The
Indenture Trustee will, then, in full satisfaction of its obligations under the
Senior Notes Indenture transfer all such property to the New Senior Note Indenture
Trustee who will, in turn, and in accordance with the terms of the New Senior
Notes Indenture, (a) distribute to each holder of an Allowed Class 5 Senior Note
Claim such holder's Pro Rata share of the New Senior Notes, Class 5 Cash, and
one-third (1/3) of the Common Stock described in clause (iii) above, and (b)
retain the remaining two-thirds (2/3) of the Common Stock described in clause
(iii) above for future distribution to holders of Allowed Class 5 Senior Note
Claims or return to the Reorganized Debtor. If the Reorganized Debtor is sold to
a third party or the New Senior Notes are retired prior to October 15, 2001,
then the New Senior Notes Indenture Trustee will return to the Reorganized
Debtor the remaining two-thirds (2/3) of the Common Stock referred to in clause
(iii) above; if the Reorganized Debtor is sold to a third party or the New
Senior Notes are retired after October 15, 2001, but prior to October 15, 2002,
then the New Senior Notes Indenture Trustee will return to the Reorganized
Debtor one-third (1/3) of the Common Stock referred to in clause (iii) above; if
the Reorganized Debtor is not sold to a third party or the New Senior Notes are
not retired prior to October 15, 2002, then the New Senior Notes Indenture
Trustee will not return to the Reorganized Debtor any portion of the Common
Stock referred to in clause (iii) above. Any Common Stock distributed to the New
Senior Notes Indenture Trustee and not returned to the Reorganized Debtor in
accordance with the terms described above will be distributed by the New Senior
Notes Indenture Trustee, on a Pro Rata basis, to the holders of Allowed Class 5
Senior Note Claims.
- Estimated Recovery: Approximately 100%
CLASS 6: EQUITY SECURITIES INTERESTS - IMPAIRED
- Each holder of an Allowed Equity Securities Interest will retain such Equity
Securities Interest.
- Estimated Recovery: 85% or more
iii
After careful review of the Debtor's current business operations, estimated
recoveries in a liquidation scenario, and prospects as an ongoing business, the
Debtor has concluded that the recovery to creditors will be maximized by the
Debtor's continued operation as a going concern. The Debtor believes that its
business and assets have significant value that would not be realized in the
liquidation of the Debtor, either in whole or in substantial part. According to
the liquidation analysis prepared by the Debtor and reviewed by its financial
advisors, the Debtor is worth considerably more to its Creditors and Interest
holders in general as a going concern.
B. SUMMARY OF POST-CONFIRMATION OPERATIONS
Attached hereto as Exhibit E are financial statements which project the
financial performance of the Reorganized Debtor through May 1, 2002. These
projections are based on the current business plan for the Reorganized Debtor.
The ongoing post-Confirmation operations of the Reorganized Debtor will be
financed through the use of net operating revenues and the New Senior Secured
Facility.
iv
DISCLAIMER
ALL CREDITORS AND INTEREST HOLDERS ARE ADVISED AND ENCOURAGED TO READ THIS
DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY (INCLUDING ALL EXHIBITS)
BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE
IN THIS DISCLOSURE STATEMENT, INCLUDING THE FOLLOWING SUMMARY, ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE PLAN, OTHER EXHIBITS ANNEXED TO THE PLAN, AND
THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT
ARE MADE ONLY AS OF THE DATE HEREOF, AND THERE CAN BE NO ASSURANCE THAT THE
STATEMENTS CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER THE DATE HEREOF.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF
THE BANKRUPTCY CODE AND RULE 3016(C) OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH ANY FEDERAL OR STATE SECURITIES
LAWS OR OTHER NON-BANKRUPTCY LAW. THIS DISCLOSURE STATEMENT WAS PREPARED TO
PROVIDE HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR WITH "ADEQUATE
INFORMATION" (AS DEFINED IN THE BANKRUPTCY CODE) SO THAT THEY CAN MAKE AN
INFORMED JUDGMENT ABOUT THE PLAN. THIS DISCLOSURE STATEMENT HAS NEITHER BEEN
APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"),
NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING OR
TRANSFERRING SECURITIES OR CLAIMS OF ANY OF THE OTHER DEBTORS SHOULD EVALUATE
THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY
WERE PREPARED.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED HEREIN FOR
PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN AND MAY NOT BE RELIED UPON FOR
ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. THIS DISCLOSURE
STATEMENT SUMMARIZES CERTAIN PROVISIONS OF THE PLAN, STATUTORY PROVISIONS,
DOCUMENTS RELATED TO THE PLAN, EXPECTED EVENTS IN THE DEBTOR'S CHAPTER 11 CASE,
AND FINANCIAL INFORMATION. ALTHOUGH THE DEBTOR BELIEVES THAT THE PLAN AND
RELATED DOCUMENT SUMMARIES ARE FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED
TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR
STATUTORY PROVISIONS. THE DESCRIPTIONS SET FORTH HEREIN OF THE ACTIONS,
CONCLUSIONS, OR RECOMMENDATIONS OF THE DEBTOR OR ANY OTHER PARTY IN INTEREST
HAVE BEEN SUBMITTED TO OR APPROVED BY SUCH PARTY, BUT NO SUCH PARTY MAKES ANY
WARRANTY OR REPRESENTATION REGARDING SUCH DESCRIPTIONS, AND NEITHER WARRANTS OR
REPRESENTS THAT THE INFORMATION CONTAINED HEREIN, INCLUDING THE FINANCIAL
INFORMATION, IS WITHOUT INACCURACY OR OMISSION.
NO PERSON MAY GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THE
INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DISCLOSURE STATEMENT,
REGARDING THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE
INFORMATION REGARDING THE HISTORY, BUSINESS AND OPERATIONS OF THE DEBTOR AND THE
HISTORICAL FINANCIAL INFORMATION REGARDING THE DEBTOR IS INCLUDED FOR PURPOSES
OF SOLICITING ACCEPTANCES OF THE PLAN BUT, AS TO CONTESTED MATTERS, ADVERSARY
PROCEEDINGS, AND OTHER ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT
SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR LIABILITY,
STIPULATION, OR WAIVER, BUT RATHER AS A STATEMENT MADE IN SETTLEMENT
NEGOTIATIONS.
THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NON-BANKRUPTCY
PROCEEDING INVOLVING THE DEBTOR OR ANY OTHER PARTY, NOR SHALL IT BE CONSTRUED TO
BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, OR OTHER LEGAL EFFECTS OF THE
REORGANIZATION AS TO HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN, THE DEBTOR.
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, ALL INFORMATION CONTAINED HEREIN
HAS BEEN PROVIDED BY THE DEBTOR.
v
TABLE OF CONTENTS
PAGE
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EXECUTIVE SUMMARY.........................................................................................................i
A. Summary Of The Plan............................................................................i
B. Summary Of Post-Confirmation Operations.......................................................iv
I. INTRODUCTION..........................................................................................................1
A. Definitions....................................................................................1
B. Notice To Holders Of Claims And Interests......................................................1
C. Solicitation Package...........................................................................2
D. Holders Of Claims Entitled To Vote.............................................................2
E. Voting Procedures, Ballots, And Voting Deadline................................................3
F. Confirmation Hearing And Deadline For Objections To Confirmation...............................4
II. GENERAL INFORMATION..................................................................................................4
A. Overview Of The Plan...........................................................................4
B. Description Of The Debtor's Business...........................................................5
1. OPERATIONS............................................................................5
2. LEASES................................................................................5
3. STORES................................................................................5
4. ORGANIZATION..........................................................................5
5. EMPLOYEES.............................................................................5
6. ASSOCIATE BENEFIT PLANS...............................................................6
7. STRATEGY..............................................................................6
8. TRADEMARKS, TRADE NAMES AND LICENSES..................................................7
9. LEGAL PROCEEDINGS.....................................................................7
C. Significant Prepetition Indebtedness...........................................................7
1. THE REVOLVING CREDIT FACILITY.........................................................7
2. THE 8 5/8% SENIOR NOTES...............................................................7
D. Events Leading To The Chapter 11 Filing........................................................8
E. Purposes And Effects Of The Plan...............................................................8
F. Business And Operating Strategies Of The Reorganized Debtor....................................8
III. CORPORATE STRUCTURE AND MANAGEMENT OF THE DEBTOR....................................................................9
A. Directors And Officers Of The Debtor...........................................................9
B. Directors And Officers Of The Reorganized Debtor...............................................9
C. Employment Agreements..........................................................................9
D. Key Employee Retention Program................................................................10
IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE.......................................................................10
A. Commencement Of The Chapter 11 Case...........................................................10
B. "First Day" Orders............................................................................10
C. Anticipated Timetable For The Chapter 11 Case.................................................12
D. Trade Creditors...............................................................................12
E. Employee Matters..............................................................................12
F. Reclamation Demands and PACA Claims...........................................................12
G. Other Significant Post-Filing Events..........................................................13
1. PROFESSIONALS........................................................................13
2. FINAL APPROVAL OF DIP FACILITY.......................................................13
3. BAR DATE ORDER.......................................................................13
4. LEASE REJECTIONS.....................................................................13
5. ASSET SALES..........................................................................13
H. Lucky Notice of Indemnification...............................................................14
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V. FINANCING DURING THE CHAPTER 11 CASE.................................................................................14
A. The DIP Facility..............................................................................14
B. Use Of Cash Collateral........................................................................14
VI. SUMMARY OF THE PLAN.................................................................................................15
A. Introduction..................................................................................15
B. Certain Matters Regarding Classification And Treatment Of Claims And Interests................15
1. UNCLASSIFIED CLAIMS..................................................................16
2. UNIMPAIRED CLASSES OF CLAIMS.........................................................17
3. IMPAIRED CLASSES OF CLAIMS AND INTERESTS.............................................18
C. Special Provision Regarding Unimpaired Claims.................................................19
D. Accrual Of Postpetition Interest..............................................................19
E. Summary Of Other Provisions Of The Plan.......................................................19
1. CONTINUED CORPORATE EXISTENCE........................................................19
2. CANCELLATION OF SENIOR NOTES AND SENIOR NOTES INDENTURE..............................19
3. REVESTING OF ASSETS..................................................................20
4. PRESERVATION OF RIGHTS OF ACTION; SETTLEMENT OF LITIGATION CLAIMS....................20
5. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS.........................................20
6. TERMINATION OF DIP FACILITY..........................................................20
7. EXEMPTION FROM CERTAIN TRANSFER TAXES................................................21
8. DISTRIBUTIONS UNDER THE PLAN.........................................................21
9. RESOLUTION AND TREATMENT OF DISPUTED, CONTINGENT, AND UNLIQUIDATED CLAIMS............23
10. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................23
11. MODIFICATIONS AND AMENDMENTS.........................................................25
12. RETENTION OF JURISDICTION............................................................25
13. COMPROMISES AND SETTLEMENTS..........................................................25
14. BAR DATES FOR CERTAIN CLAIMS.........................................................25
15. MISCELLANEOUS PROVISIONS.............................................................26
VII. CONFIRMATION OF THE PLAN...........................................................................................27
A. Voting Requirements...........................................................................28
B. Confirmation Without Acceptance Of All Impaired Classes --"Cramdown"..........................28
C. Best Interests Test...........................................................................29
D. Chapter 7 Liquidation Analysis................................................................29
E. Feasibility...................................................................................30
F. Valuation Of The Reorganized Debtor...........................................................31
G. Conditions To Confirmation And Consummation...................................................32
1. CONDITIONS TO CONFIRMATION...........................................................32
2. CONDITIONS TO CONSUMMATION...........................................................32
3. WAIVER OF CONDITIONS.................................................................33
H. Effects Of Confirmation.......................................................................34
1. BINDING EFFECT.......................................................................34
2. DISCHARGE OF THE DEBTOR..............................................................34
3. PERMANENT INJUNCTION.................................................................34
4. RELEASES.............................................................................34
VIII. CERTAIN FACTORS TO BE CONSIDERED..................................................................................35
A. General Conditions............................................................................35
B. Maintenance Of Operations And Postpetition Financing..........................................35
C. Competition...................................................................................35
D. Certain Bankruptcy Considerations.............................................................36
1. FAILURE TO CONFIRM THE PLAN..........................................................36
ii
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2. FAILURE TO CONSUMMATE THE PLAN.......................................................36
E. Inherent Uncertainty Of Financial Projections.................................................36
F. Risks Associated with New Senior Secured Facility.............................................36
G. Payment of New Senior Notes...................................................................37
H. Institutional Holders Lock-up Agreements......................................................37
I. Unimpaired Claims.............................................................................37
J. Dividends.....................................................................................37
K. Affiliate Status..............................................................................37
L. Certain Litigation Risks......................................................................38
M. Certain Tax Considerations....................................................................38
IX. SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN.................................................................38
A. Description Of New Senior Notes...............................................................38
B. Resale Of New Securities Of The Reorganized Debtor............................................39
1. REGISTRATION OF SECURITIES...........................................................39
2. LACK OF ESTABLISHED MARKET FOR NEW SENIOR NOTES......................................40
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..................................................................41
A. Federal Income Tax Consequences To The Debtor.................................................41
1. CANCELLATION OF INDEBTEDNESS INCOME..................................................41
2. AMOUNT AND UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS...........................42
3. DEDUCTIONS OF ACCRUED INTEREST AND ORIGINAL ISSUE DISCOUNT BY
THE REORGANIZED DEBTOR.......................................................43
4. TAX CLASSIFICATION OF THE NEW SENIOR NOTES...........................................44
5. ALTERNATIVE MINIMUM TAX..............................................................44
B. Federal Income Tax Consequences To Holders Of Claims..........................................44
1. CLASS 1 CLAIMS: OTHER PRIORITY CLAIMS; CLASS 2 CLAIMS: OTHER SECURED CLAIMS;
CLASS 3 CLAIMS: GENERAL UNSECURED CLAIMS.....................................44
2. CLASS 5 CLAIMS: SENIOR NOTE CLAIMS...................................................44
XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN...........................................................47
A. Alternative Plan(s)...........................................................................47
B. Liquidation Under Chapter 7 Or Chapter 11 ....................................................47
XII. VOTING REQUIREMENTS................................................................................................48
A. Special Note For Holders of Securities........................................................48
1. BENEFICIAL OWNERS OF SECURITIES......................................................48
2. BANKS, BROKERAGES, AND OTHER NOMINEES................................................49
B. Fiduciaries And Other Representatives.........................................................49
C. Parties In Interest Entitled To Vote..........................................................49
D. Classes Impaired Under The Plan...............................................................50
XIII. FINANCIAL ADVISORS; VOTING AGENT..................................................................................50
XIV. CONCLUSION AND RECOMMENDATION......................................................................................51
iii
TABLE OF EXHIBITS
EXHIBIT A First Amended Reorganization Plan of Eagle Food Centers, Inc.
EXHIBIT B Disclosure Statement Order
EXHIBIT C List of Properties
EXHIBIT D Liquidation Analysis
EXHIBIT E Financial Projections
iv
I. INTRODUCTION
Eagle Food Centers, Inc.("Eagle" or the "Debtor") hereby transmits this
disclosure statement (the "Disclosure Statement") to holders of Claims against
and Interests in the Debtor, pursuant to section 1125 of title 11, United States
Code (the "Bankruptcy Code"), for use in connection with (i) the solicitation of
acceptances of its first amended reorganization plan, filed with the United
States Bankruptcy Court for the District of Delaware on April 17, 2000 (the
"Plan"). A copy of the Plan is annexed to this Disclosure Statement as Exhibit
A. Unless otherwise defined herein, all capitalized terms contained herein have
the meanings ascribed to them in the Plan.
This Disclosure Statement sets forth certain information regarding the
Debtor's prepetition history, the nature of the Chapter 11 Case, and the
anticipated organization and operations of the Reorganized Debtor. This
Disclosure Statement also describes the Plan, including certain alternatives to
the Plan, certain effects of confirmation of the Plan, certain risk factors
associated with New Securities to be issued under the Plan, and the manner in
which distributions will be made under the Plan. In addition, this Disclosure
Statement discusses the confirmation process and the voting procedures that
holders of Claims or Interests in Impaired Classes must follow for their votes
to be counted. FOR A COMPLETE UNDERSTANDING OF THE PLAN, YOU SHOULD READ THE
DISCLOSURE STATEMENT, THE PLAN AND THE EXHIBITS THERETO IN THEIR ENTIRETY.
FOR A DESCRIPTION OF THE PLAN AND VARIOUS RISK AND OTHER FACTORS
PERTAINING TO THE PLAN AS IT RELATES TO HOLDERS OF CLAIMS AGAINST AND INTERESTS
IN THE DEBTOR, PLEASE SEE THE SECTIONS OF THIS DISCLOSURE STATEMENT ENTITLED
"SUMMARY OF THE PLAN" AND "CERTAIN FACTORS TO BE CONSIDERED."
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF
THE PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATED TO THE PLAN,
CERTAIN EVENTS IN THE CHAPTER 11 CASE, AND CERTAIN FINANCIAL INFORMATION.
ALTHOUGH THE DEBTOR BELIEVES THAT THE PLAN AND RELATED DOCUMENT SUMMARIES ARE
FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT
SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS. FACTUAL
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY THE
DEBTOR'S MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE DEBTOR IS
UNABLE TO WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN, INCLUDING
THE FINANCIAL INFORMATION, IS WITHOUT ANY INACCURACY OR OMISSION.
NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR
LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY NON-BANKRUPTCY PROCEEDING INVOLVING
THE DEBTOR OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON THE TAX OR
OTHER LEGAL EFFECTS OF THE REORGANIZATION AS TO HOLDERS OF ALLOWED CLAIMS OR
ALLOWED INTERESTS. YOU SHOULD CONSULT YOUR PERSONAL COUNSEL OR TAX ADVISOR ON
ANY QUESTIONS OR CONCERNS RESPECTING TAX, SECURITIES, OR OTHER LEGAL
CONSEQUENCES OF THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED THEREIN.
A. DEFINITIONS
Unless otherwise defined, capitalized terms used in this Disclosure
Statement shall have the meanings ascribed to them in the Plan.
B. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
This Disclosure Statement is being transmitted to certain holders of
Claims against and Interests in the Debtor. The purpose of this Disclosure
Statement is to provide adequate information to enable you, as the holder of a
Claim against or an Interest in the Debtor, to make a reasonably informed
decision with respect to the Plan prior to exercising your right to vote to
accept or reject the Plan.
On April 17, 2000, the Court approved this Disclosure Statement as
containing information of a kind and in sufficient detail adequate to enable the
holders of Claims against and Interests in the Debtor to make an informed
judgment with respect to acceptance or rejection of the Plan. THE COURT'S
APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE EITHER A GUARANTY OF
THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR AN
ENDORSEMENT OF THE PLAN BY THE COURT.
WHEN AND IF CONFIRMED BY THE COURT, THE PLAN WILL BIND ALL HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN THE DEBTOR, WHETHER OR NOT THEY ARE ENTITLED TO
VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR RETAIN ANY
DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, ALL HOLDERS OF CLAIMS AGAINST
AND INTERESTS IN THE DEBTOR ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND
ITS APPENDICES CAREFULLY AND IN THEIR ENTIRETY BEFORE DECIDING TO VOTE EITHER TO
ACCEPT OR TO REJECT THE PLAN. This Disclosure Statement contains important
information about the Plan and considerations pertinent to acceptance or
rejection of the Plan, and developments concerning the Chapter 11 Case.
THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY THE COURT
TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ON THE PLAN. No
solicitation of votes may be made except after distribution of this Disclosure
Statement, and no person has been authorized to distribute any information
concerning the Debtor other than the information contained herein.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY
ITS NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND PROJECTIONS
THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL, FUTURE RESULTS.
Except with respect to the projections set forth in Exhibit E hereto
(the "Projections"), and except as otherwise specifically and expressly stated
herein, this Disclosure Statement does not reflect any events that may occur
subsequent to the date hereof and that may have a material impact on the
information contained in this Disclosure Statement. Neither the Debtor nor the
Reorganized Debtor intends to update the Projections. Accordingly, the
Projections will not reflect the impact of any subsequent events not already
accounted for in the assumptions underlying the Projections. Further, the Debtor
does not anticipate that any amendments or supplements to this Disclosure
Statement will be distributed to reflect such occurrences. The delivery of this
Disclosure Statement shall not under any circumstances imply that the
information herein is correct or complete as of any time subsequent to the date
hereof.
EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED
HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT.
C. SOLICITATION PACKAGE
Accompanying this Disclosure Statement are copies of (i) the Plan, (ii)
the notice of, among other things, the time for submitting Ballots to accept or
reject the Plan, the date, time and place of the hearing to consider the
confirmation of the Plan and related matters, and the time for filing objections
to confirmation of the Plan (the "Confirmation Hearing Notice"), (iii) the order
of the Court, dated April 17, 2000 (the "Disclosure Statement Order," a copy of
which is annexed hereto as Exhibit B), which, among other things, approves the
Disclosure Statement and establishes certain procedures with respect to the
solicitation and tabulation of votes to accept or to reject the Plan; and, if
applicable, (iv) one or more Ballots (and return envelopes) that you may use in
voting to accept or to reject the Plan. If you did not receive a Ballot in your
package and believe that you should have, please contact the Voting Agent at the
address or telephone number set forth below.
D. HOLDERS OF CLAIMS ENTITLED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired and that are in a class that will receive a distribution under the
plan are entitled to vote to accept or reject a proposed Chapter 11 plan.
Classes of claims or equity interests in which the holders of claims or equity
interests are unimpaired under a Chapter 11 plan are deemed to have accepted the
plan and are not entitled to vote to accept or reject the plan. Classes of
claims or interests which receive no distribution on account of their claims or
interests are deemed to have rejected the plan and are not entitled to vote to
accept or reject the plan.
2
The Bankruptcy Code defines "acceptance" of a plan by a class of claims
as acceptance by creditors in that class that hold at least two-thirds in dollar
amount and more than one-half in number of the claims that cast ballots for
acceptance or rejection of the plan. Acceptance of a plan by a class of
interests requires acceptance by at least two-thirds of the number of shares in
such class that cast ballots for acceptance or rejection of the plan.
Section 1129(b) permits the confirmation of a plan notwithstanding the
non-acceptance of a plan by one or more impaired classes of claims or interests.
Under that section, a plan may be confirmed by a bankruptcy court if it does not
"discriminate unfairly" and is "fair and equitable" with respect to each
non-accepting class. If necessary, the Debtor intends to seek confirmation
pursuant to section 1129(b) of the Bankruptcy Code with respect to Classes 4, 5,
and/or 6 if such Class(es) do not accept the Plan. The determination as to
whether to seek confirmation of the Plan under such circumstances will be
announced before or at the Confirmation Hearing.
E. VOTING PROCEDURES, BALLOTS, AND VOTING DEADLINE
After carefully reviewing the Plan, this Disclosure Statement, and the
detailed instructions accompanying your Ballot, please indicate your acceptance
or rejection of the Plan by voting in favor of or against the Plan on the
enclosed Ballot. Please complete and sign your original Ballot (copies will not
be accepted) and return it in the envelope provided. HOLDERS OF SENIOR NOTES OR
EQUITY SECURITIES SHOULD REFER TO "VOTING REQUIREMENTS - SPECIAL NOTE FOR
HOLDERS OF SECURITIES" FOR FURTHER INFORMATION REGARDING VOTING PROCEDURES.
Each Ballot has been coded to reflect the Class of Claims or Interests
it represents. Accordingly, in voting to accept or reject the Plan, you must use
only the coded Ballot or Ballots sent to you with this Disclosure Statement.
FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AS
SET FORTH ABOVE AND IN ACCORDANCE WITH THE VOTING INSTRUCTIONS ON THE BALLOT AND
RECEIVED NO LATER THAN MAY 12, 2000, AT 5:00 P.M. (EASTERN TIME) (THE "VOTING
DEADLINE") BY LOGAN & COMPANY, INC., 546 VALLEY ROAD, UPPER MONTCLAIR, NEW
JERSEY 07043 (THE "VOTING AGENT"). ANY BALLOT RECEIVED BY THE VOTING AGENT THAT
DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR INDICATES
BOTH AN ACCEPTANCE AND A REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN
ACCEPTANCE OF THE PLAN.
DO NOT RETURN STOCK CERTIFICATES, DEBT INSTRUMENTS,
OR ANY OTHER DOCUMENTATION WITH YOUR BALLOT.
If you have any questions about the procedure for voting your Claim or
Interest or with respect to the packet of materials that you have received,
please contact the Voting Agent:
Logan & Company, Inc.
546 Valley Road
Upper Montclair, New Jersey 07043
Att'n: Kate Logan
Telephone: (973) 509-3190
Att'n: Eagle Food Centers, Inc.
If you wish to obtain, at your own expense (unless otherwise
specifically required by Fed. R. Bank. P. 3017(d)), an additional copy of the
Plan, this Disclosure Statement, or any exhibits to such documents, or if you
have any questions about the amount of your Claim, please contact the Voting
Agent at the address and telephone numbers set forth above.
As described above, the Debtor will request confirmation of the Plan,
as it may be modified from time to time, under Section 1129(b) of the Bankruptcy
Code, and it has reserved the right to (i) modify the Plan to the extent, if
any, that confirmation pursuant to Section 1129(b) of the Bankruptcy Code
requires modification and (ii) use any and all Ballots and Master Ballots
accepting the Plan that were received pursuant to the Solicitation, and not
subsequently revoked, to seek confirmation of the Plan (or of any modification
thereof that does not materially and adversely affect the treatment of the
class(es) of Claims with respect to which such Ballots or Master Ballots were
cast) pursuant to Section 1129(b) of the Bankruptcy Code.
3
F. CONFIRMATION HEARING AND DEADLINE FOR OBJECTIONS TO CONFIRMATION
Pursuant to section 1128 of the Bankruptcy Code and Fed. R. Bank. P.
3017(c), the Court has scheduled a hearing on confirmation of the Plan (the
"Confirmation Hearing") to commence on May 17, 2000 at 12:00 p.m. Eastern Time,
or as soon thereafter as counsel may be heard, before the Honorable Roderick R.
McKelvie, United States District Judge, in the United States District Court, 844
King Street, Wilmington, Delaware 19801. The Court has directed that objections,
if any, to confirmation of the Plan must be filed with the clerk of the
Bankruptcy Court and served so that they are RECEIVED on or before May 12, 2000
at 4:00 p.m. Eastern Time by:
COUNSEL FOR THE DEBTORS:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522
Attn: Jay M. Goffman, Esq.
- AND -
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
Attn: Gregg M. Galardi, Esq.
UNITED STATES TRUSTEE:
The Office of the United States Trustee
601 Walnut Street
Curtis Center, Suite 950-W
Philadelphia, Pennsylvania 19106
Attn: Maria Giannirakis, Esq.
The Confirmation Hearing may be adjourned from time to time by the
Court without further notice except for the announcement of the adjournment date
made at the Confirmation Hearing or at any subsequent adjourned Confirmation
Hearing.
IN THE DEBTOR'S VIEW, THE TREATMENT OF HOLDERS OF CLAIMS AND INTERESTS
IN THE IMPAIRED CLASSES ELIGIBLE TO VOTE CONTEMPLATES A GREATER
POTENTIAL RECOVERY FOR SUCH HOLDERS THAN WOULD BE AVAILABLE IN A
LIQUIDATION. ACCORDINGLY, THE DEBTOR BELIEVES THAT THE PLAN IS IN THE
BEST INTERESTS OF HOLDERS OF CLAIMS AND INTERESTS IN SUCH CLASSES, AND
RECOMMENDS THAT ALL HOLDERS OF CLAIMS AND INTERESTS IN THE IMPAIRED
CLASSES ENTITLED TO DO SO VOTE TO ACCEPT THE PLAN.
II. GENERAL INFORMATION
A. OVERVIEW OF THE PLAN
The primary purpose of the Plan is to realign the capital structure of
the Debtor so as to permit its present operations to continue and allow its
future operating prospects to materialize. Currently, funds available to the
Debtor are insufficient to meet all of its debt service requirements. The
restructuring contemplated by the Plan provides for a reduction in the principal
amount of certain outstanding indebtedness (via an aggregate cash payment to the
holders thereof in the amount of $15,000,000) an extension of the maturity of
such indebtedness, and a distribution of additional Common Stock by the
Reorganized Debtor. By offering the holders of the Senior Notes up to fifteen
percent (15%) of the equity of the Reorganized Debtor, those holders will
participate in the long term growth and appreciation of the Reorganized Debtor's
business, which is expected to be enhanced as described in more detail below.
4
B. DESCRIPTION OF THE DEBTOR'S BUSINESS
1. OPERATIONS
The Debtor, Eagle Food Centers, Inc., is a Delaware corporation, with
its principal executive offices located at Route 67 & Knoxville Road, Milan,
Illinois, 61264. Prior to the commencement of its Chapter 11 case, Eagle
operated a regional supermarket chain consisting of 84 supermarkets in the Quad
Cities area of Illinois and Iowa, north, central and eastern Illinois, eastern
Iowa, and the Chicago/Fox River Valley and northwestern Indiana area under the
trade names "Eagle Country Market" and "BOGO's." Eagle supermarkets offer a full
line of groceries, meats, fresh produce, dairy products, delicatessen and bakery
products, health and beauty aids and other general merchandise, and in certain
stores, prescription medicine, video rental, floral service, in-store banks,
dry-cleaners and coffee shops. Eagle Country Markets represent Eagle's full line
supermarket format which was introduced by management in 1991. Of the 83 Eagle
Country Markets, approximately one-fourth have been opened as new stores and
three-fourths have been remodeled or otherwise converted to the Eagle Country
Market format. In the new stores, extra space has been devoted to expanded
perishable departments, tying together produce, full-service delicatessen,
service bakery, service seafood and meat departments, and, in certain stores,
floral, video rental departments, prescription medicine, dry-cleaners, coffee
shops and in-store banks. All newly built Eagle Country Markets are designed to
encourage shoppers to walk through the higher margin "Power Aisle," which
includes extensive perishable offerings.
2. LEASES
Eagle Country Markets range in size from 16,500 to 67,500 square feet,
with the majority of the stores ranging from 30,000 to 67,500 square feet. Eagle
prefers to lease stores from local developers and pursues this strategy wherever
appropriate and cost-effective. Eagle completed one sale/leaseback transaction
in fiscal 1996, one in 1997, six in 1998, and three in 1999, in order to reduce
the amount of capital committed to real estate. As of the Petition Date, Eagle
owned nine of its stores, one of which was classified in "Property held for
resale," and leased 75 operating stores and 20 subleased or closed stores, many
of which have renewal options for periods ranging from five to 30 years. Some
leases provide the option to acquire the property at certain times during the
initial lease term for approximately its estimated fair market value at that
time, and some require Eagle to pay taxes and insurance on the leased property.
Additionally, Eagle leases its central distribution facility under a lease
expiring in 2007. Eagle's central distribution facility contains a total of
935,332 square feet of space.
3. STORES
The typical store carries over 23,000 items, including food, general
merchandise and specialty department items. Eagle stores carry nationally
advertised brands and an extensive selection of top quality corporate brand
products. All stores carry a full line of dairy, frozen food, health and beauty
aids and selected general merchandise. In addition, most stores have service
delicatessens and bakeries and some stores provide additional specialty
departments such as ethnic food items, floral service, seafood service, beer,
wine, liquor, prescription medicine, dry-cleaners, coffee shops and in-store
banking facilities. The pricing strategy in the Eagle Country Markets is to
offer overall lower prices than comparable supermarket competition. The Company
also operates one BOGO's Food and Deals, which uses a limited assortment format
covering approximately 2,000 stock-keeping units of groceries, produce, meat,
health and beauty aids, and general merchandise.
4. ORGANIZATION
The Company's geographic market is divided into six districts, each
having a District Manager who is responsible for approximately 14 stores.
Districts and stores operate with a certain degree of autonomy to take advantage
of local market and consumer needs. Districts and stores are responsible for
store operations, associate recruitment and development, community affairs and
other functions relating to local operations. Store managers are given
relatively broad discretion in tailoring merchandise and services to the needs
of customers in the particular community. Associate involvement and
participation has been encouraged through meetings with the Chairman and Chief
Executive Officer, district meetings and a store management incentive bonus
program for sales and earnings improvement.
5. EMPLOYEES
As of January 31, 2000, Eagle had approximately 6,100 associates, 349
of whom were management and administrative associates and 5,751 of whom were
hourly associates. Of the hourly associates, substantially all are represented
by 18 collective
5
bargaining agreements with 16 separate locals which are associated with two
international unions. Store associates are represented by several locals of the
United Food and Commercial Workers; warehouse associates, warehouse drivers and
office and clerical workers are represented by Teamsters Local 371. Eagle is
party to 18 collective bargaining agreements with 16 local unions representing
almost 95% of Eagle's associates.
6. ASSOCIATE BENEFIT PLANS
Substantially all associates are covered by trusteed, non-contributory
retirement plans of Eagle or by various multi-employer retirement plans under
collective bargaining agreements. In 1998, the Company adopted SFAS No 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits." The
Statement does not change the measurement or recognition of those plans. It does
revise and standardize the disclosure requirements. Prior years' information has
been restated in conformance with the Statement's requirements.
Eagle's defined benefit plans covering salaried and hourly associates
provide benefits that are based on associates' compensation during years of
service. The company's policy is to fund no less than the minimum required under
the Employee Retirement Income Security Act of 1974. During the years ended
January 29, 2000, January 30, 1999, January 31, 1998, and February 1, 1997,
pension costs under the plans totaled $714,000 , $701,000, $713,000, and
$706,000, respectively.
Eagle also participates in various multi-employer plans. The plans
provide for defined benefits to substantially all unionized workers. Amounts
charged to pension cost and contributed to the plans for the years ended January
29, 2000, January 30, 1999, January 31, 1998, and February 1, 1997, totaled $6.7
million, $6.8 million, $4.3 million, and $6.4 million, respectively. During
1997, Eagle received the benefit of a pension contribution moratorium from one
union local covering seven months for a total reduction in costs of $2.1
million. Under the provisions of the Multi-employer Pension Plan Amendments Act
of 1980, Eagle would be required to continue contributions to a multi-employer
pension fund to the extent of its portion of the plan's unfunded vested
liability if it substantially or totally withdraws from such plans. Management
does not intend to terminate operations that would subject the Company to such
liability.
Eagle has incentive compensation plans for store management and certain
other management personnel. Incentive plans included approximately 233
associates. Provisions for payments to be made under the plans are based
primarily on achievement of sales and earnings in excess of specific performance
targets.
Non-qualified stock option plans were ratified by stockholders and
implemented in 1990 and 1995 for key management associates. Stock options have a
ten year life beginning at the grant date. Options granted under the 1990 plan
were generally vested at 12 months following the grant date. For the options
granted under the 1995 Stock Option Plan, vesting provisions generally provide
for 25% of the shares vesting at each of the first four anniversaries following
the date of the grant. Certain specific employment agreements provide for
different vesting schedules. As of January 31, 2000, there were 221,000 options
available for future grants. Eagle recognized $0 of compensation expense during
fiscal year 1999 as the result of an extension of an exercise period which
resulted in re-measurement. Eagle recognized no compensation expense for fiscal
years 1997 or 1996 because the exercise price was at or above the market value
at the date of grant.
7. STRATEGY
Eagle's strategy is to strengthen its perception as a price leader
compared to other supermarket competitors and to strengthen its image as a high
quality, service-oriented supermarket chain and provider of high quality
perishables. Eagle strives to offer its customers one-stop shopping convenience
and price value for all of their food and general merchandise shopping needs.
Eagle delivers a wide variety of customer services. Most stores provide customer
services such as video rental, check cashing, film processing, lottery ticket
and money order sales, and UPS shipping. All stores provide quick, friendly
checkout service. Eagle has utilized the Eagle Savers' Card for several
continuity promotions and for electronic coupon discounts. Through its store
personnel, Eagle takes an active interest in the communities in which it
operates. Eagle also contributes funds, products and services to local charities
and civic groups. Finally, corporate brand sales are an important element in
Eagle's merchandising plan. Eagle became a member of the Topco Associates, Inc.
buying organization in 1994 and has engaged Daymon Associates, Inc. as its
"corporate brand" broker. Eagle has a strong penetration in many categories with
its Lady Lee brand. In 1995 Eagle entered into an agreement with Topco to carry
World Classics premium corporate brand products and in 1996 introduced the Valu
Time label for the low price corporate brand niche.
6
8. TRADEMARKS, TRADE NAMES AND LICENSES
Eagle uses various trademarks and service marks in its business, the
most important of which are the "Eagle Country Market(TM)", "5-Star Meats(R)",
"Lady Lee(R)", "Eagle Savers' Card(TM)" and "Harvest Day(R)" trademarks, and the
"Eagle(R)" and "Eagle Country Market(R)" service marks. Each such trademark is
federally registered. Pursuant to a trademark license agreement (the "Trademark
License Agreement") entered into with Eagle's former parent, Lucky Stores, Inc.,
Eagle has been granted the royalty-free use of the "5-Star Meats(R)", "Lady
Lee(R)" and "Harvest Day(R)" trademarks until November 30, 2007. The Trademark
License Agreement permits Eagle to use the licensed trademarks only in the
states of Illinois, Indiana, Iowa, Michigan, Ohio, Wisconsin, Kentucky and
Minnesota. Lucky Stores, Inc. has agreed not to grant to any other person the
right to use such trademarks in the states of Illinois, Indiana and Iowa during
the period of the license to Eagle.
9. LEGAL PROCEEDINGS
Eagle is subject to various unresolved legal actions which arise in the
normal course of its business. It is not possible to predict with certainty the
outcome of these unresolved legal actions or the range of the possible loss.
Eagle is also a defendant in various lawsuits, many of which are for allegations
of personal injury, that arise in the ordinary course of business for such a
retailer. Eagle does not believe that an adverse decision on these legal actions
would have a material impact on going operations, in part, because of the nature
of the claims as well as the existence of insurance coverage and adequate
reserves.
C. SIGNIFICANT PREPETITION INDEBTEDNESS
1. THE REVOLVING CREDIT FACILITY
On May 25, 1995, Eagle and Congress Financial Corporation (Central)
("Congress") entered into a $50 million secured credit agreement (as amended,
the "Revolving Credit Facility") that provides for revolving credit loans, with
a $20 million sub-limit for letters of credit. Total availability under the
Revolving Credit Facility is based on percentages of allowable inventory up to a
maximum of $50 million. In April 1998 and February 2000, Eagle extended the
terms of the Revolving Credit Facility, which, as most recently amended,
terminates on April 15, 2002. The amended facility, is secured by a first
priority security interest in all inventories of Eagle located in its stores and
distribution center in Milan, Illinois which first priority lien is
contractually subordinated to the first priority lien of SuperValu Holdings,
Inc. ("SuperValu") pursuant to a subordination agreement executed by Congress on
September 30, 1999 and by SuperValu on October 5, 1999, in the maximum amount of
$770,000 (the "Subordination Agreement"). The Revolving Credit Facility provides
for total availability up to a maximum of $50 million, increases the capital
expenditure limit to $75 million per year, increases the permitted purchase
money security interests and purchase money mortgage amounts to a combined
maximum outstanding amount of $50 million, and provides for reductions in
interest rates and fees. Loans made pursuant to the Revolving Credit Facility
bear interest at a fluctuating interest rate based, at Eagle's option, on a
margin over the base interest rate or a margin over the London Interbank Offered
Rate multiplied by the applicable reserve requirement (the adjusted LIBOR Rate).
The Revolving Credit Facility has one financial covenant related to minimum net
worth, as defined therein. At January 31, 2000, the defined net worth of Eagle
exceeded the minimum amount by approximately $35 million.
As of the Petition Date, Eagle had outstanding borrowings under the
Revolving Credit Facility of $2 million and had no letters of credit
outstanding, resulting in approximately $34 million of availability under the
amended facility. As of January 31, 2000, the prevailing interest rate under the
facility was 9%.
2. THE 8 5/8% SENIOR NOTES
On April 19, 1993, Eagle issued $100 million in principal amount of
senior notes due April 15, 2000 (the "Senior Notes"), that bear interest at the
rate of 8 5/8% per annum. The indenture governing the issuance of the Senior
Notes (the "Senior Note Indenture") contains standard provisions for debt
instruments of this type, as well as certain restrictions relating to asset
dispositions, sale/leaseback transactions, payment of dividends, repurchase of
equity interests, incurrence of additional indebtedness and liens, and various
other restricted payments.
FOR FURTHER INFORMATION REGARDING EAGLE'S BUSINESS OPERATIONS AND HISTORICAL
FINANCIAL RESULTS, SEE EAGLE'S FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30,
1999 AND FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 30, 1999, ON FILE WITH
THE COURT. THE
7
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 2000 WILL BE FILED WITH THE
DISTRICT COURT ON OR ABOUT APRIL 28, 2000. COPIES OF THE FORM 10-K FOR THE
FISCAL YEAR ENDED JANUARY 30, 2000 WILL ALSO BE AVAILABLE BY REQUESTING A COPY
FROM DEBTOR'S COUNSEL ON OR AFTER APRIL 28, 2000. COPIES OF THE FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED OCTOBER 30, 1999 AND THE FORM 10-K FOR THE FISCAL
YEAR ENDED JANUARY 1999 ARE AVAILABLE FROM DEBTOR'S COUNSEL UPON REQUEST.
D. EVENTS LEADING TO THE CHAPTER 11 FILING
As described above, Eagle's basic capital structure includes, in
addition to 10,939,048 issued and outstanding shares of Common Stock, (i) the
Revolving Credit Facility provided by Congress (under which Eagle has
approximately $2 million in outstanding borrowings as of the Petition Date), and
(ii) $100 million in aggregate principal amount of Senior Notes due April 15,
2000.
In early 1999, Eagle determined that it likely would be unable to
satisfy its debt obligations with respect to the Senior Notes as they became
due. Accordingly, Eagle commenced negotiations with Congress and certain of the
largest institutional holders of Senior Notes in an effort to restructure the
company's capital structure and debt obligations. These negotiations, which took
place over the course of many months, ultimately resulted in the amendment to
the Revolving Credit Facility described above, the agreement by Congress to
provide the DIP Facility and the New Senior Secured Facility. Additionally, as a
result of its negotiations with the institutional holders, the Debtor was able
to enter into lock-up agreements (the "Lock-Up Agreements") with the following:
Delaware Investment Advisors, Morgan Stanley, Dean Witter, Summit Investment
Partners, and Alliance Capital Management L.P. (the "Institutional Holders").
These Institutional Holders collectively hold approximately 29% of the Senior
Notes. Pursuant to the Lock-Up Agreements, Eagle agreed to seek approval of a
reorganization plan that would distribute to the holders of Senior Notes, the
New Senior Notes, cash and 15% of Eagle's Common Stock, (as more fully described
in the Plan and Article V.B.3.(b) below) in exchange for the Institutional
Holders agreement to vote in favor of a reorganization plan including such
terms. Eagle thus commenced this Chapter 11 Case in order to implement the terms
of its agreements with Congress and the Institutional Holders which agreements
are embodied in the Plan.
E. PURPOSES AND EFFECTS OF THE PLAN
The primary purposes of the Plan and the restructuring contemplated
thereunder are to reduce Eagle's near-term debt service requirements, to realign
its capital structure, and to provide it with the greater liquidity necessary to
allow the company to avail itself of attractive business opportunities in the
future. If consummated, the restructuring would, in essence, extend the maturity
of the Senior Notes, lessen Eagle's near-term debt service obligations, and
transfer a minority ownership interest in Eagle to the present holders of Senior
Notes, with continued equity participation by the current holders of Eagle's
Equity Securities, albeit on a diluted basis. In addition, Eagle intends to take
advantage of certain favorable provisions of the Bankruptcy Code in order to
close various stores and reject its most burdensome real property leases. Thus,
the restructuring also will strengthen Eagle's balance sheet by eliminating
unprofitable stores and reducing onerous lease obligations on a going forward
basis.
TRADE CREDITORS ARE INTENDED TO BE UNAFFECTED BY THE PLAN AND
RESTRUCTURING, AND EAGLE EXPECTS TO BE ABLE TO CONTINUE TO PAY ALL TRADE
CREDITORS WHO CONTINUE TO PROVIDE NORMAL TRADE CREDIT TERMS IN THE ORDINARY
COURSE OF BUSINESS, SUBJECT TO ANY REQUIRED COURT APPROVAL.
F. BUSINESS AND OPERATING STRATEGIES OF THE REORGANIZED DEBTOR
In conjunction with, and as an integral part of, the Chapter 11 Case,
the Debtor intends to streamline its operations and decrease operating expenses
by closing 19 underperforming stores and eliminating the costs associated with
the leases for such stores and certain other previously closed stores. Following
consummation of the Plan, the Reorganized Debtor will continue to focus on the
prior dual-pronged strategy of strengthening the perception of the consumers in
the markets it serves that the "Eagle" name is synonymous with price and value
(particularly in comparison with the Reorganized Debtor's local and regional
competitors) and strengthening its image as a high quality, service-oriented
supermarket chain and provider of high quality perishables.
8
III. CORPORATE STRUCTURE AND MANAGEMENT OF THE DEBTOR
A. DIRECTORS AND OFFICERS OF THE DEBTOR
The following is a list of Debtor's executive officers and directors as
of April 17, 2000:
NAME POSITION(S)
Robert J. Kelly......................... Chairman
Jeffrey Little.......................... President and Chief Executive Officer
S. Patric Plumley....................... Sr. Vice President, Chief Financial Officer and Secretary
Herbert W. Fickel....................... Treasurer
Randall D. McMurray..................... Controller
Jill A. Cirivello....................... Senior Legal Counsel
Peter B. Foreman........................ Director
Steven M. Friedman...................... Director
Alain M. Oberrotman..................... Director
Jerry I. Reitman........................ Director
William J. Snyder....................... Director
For additional information concerning the Debtor's officers and
directors, SEE the Debtor's Form 10-K for the fiscal year ended January 30,
1999, a copy of which is attached to the Disclosure Statement dated March 10,
2000 filed with the Court and is available from Debtor's counsel.
B. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTOR
The directors and officers of the Debtor before the Consummation Date
will serve as the initial directors and officers of the Reorganized Debtor after
the Consummation Date. The directors and officers who continue to serve after
the Consummation Date will not be liable to any Person for any Claim that arose
prior to the Consummation Date in connection with such directors' or officers'
service to, or employment by, the Debtor, whether in their capacity as director,
officer or employee. The board of directors of the Reorganized Debtor will have
the responsibility for the management, control, and operation of the Reorganized
Debtor on and after the Consummation Date.
C. EMPLOYMENT AGREEMENTS
The Debtor has entered into employment agreements with Messrs. Kelly
and Little, which continue in effect until December 31, 2001 in the case of Mr.
Kelly, and December 13, 2002 in the case of Mr. Little. The most salient terms
of these agreements are discussed below.
MR. KELLY. Effective May 10, 1995, the Debtor retained Mr. Kelly as its
President and Chief Executive Officer and entered into an employment agreement
with Mr. Kelly having an initial term of three years ending May 22, 1998 and
providing for a signing bonus of $150,000 and a base salary of $360,500 per
year. Subsequently, on March 30, 1998, Mr. Kelly was named Chairman of the Board
and, effective April 12, 1998, the Debtor agreed to extend Mr. Kelly's
employment through December 31, 1999 and to certain other amendments to his
employment agreement. Pursuant to a recent amendment, Mr. Kelly's term of
employment as a director and Chairman of the Board was extended to December 31,
2001.
The most recent amendment provides that Mr. Kelly will receive an
annual salary of $190,000 in each of the two years of the agreement, predicated
on Mr. Kelly performing work at the Debtor's Milan, Illinois headquarters or at
its retail store sites for a time period of one week per month, and additional
availability for telephone calls relating to the Debtor's business, on an
9
as-needed basis. Any time spent by Mr. Kelly at the Debtor's headquarters or at
retail store sites over and above one week per month will be compensated at the
annual salary of $350,000 per year.
At the time of entry into his original employment agreement Mr. Kelly
purchased 125,000 shares of common stock of the Debtor by delivering to the
Debtor a promissory note, with the purchase price of the shares based upon the
closing sale price of the Debtor's common stock on the business day immediately
preceding the date of the agreement. Under certain amendments to his employment
agreement, this loan (and interest thereon) was forgiven in 50% increments for
each year of service completed by Mr. Kelly, commencing as of December 31, 1997.
The Debtor also has agreed to provide Mr. Kelly with a tax "gross-up" to the
extent of any such loan forgiveness.
MR. LITTLE. Pursuant to an employment agreement dated December 13,
1999, the Debtor has employed Mr. Little as its President and Chief Executive
Office for a period of three years. Mr. Little's employment agreement provides
for a signing bonus of $100,000 and a base salary of $325,000 per year;
PROVIDED, HOWEVER, that if Mr. Little's employment is terminated within six (6)
months after the date of the agreement for "cause" or for any reason other than
"Good Reason" (as defined in the agreement), the $100,000 bonus payment will be
returned to the Debtor. If at any time the Debtor terminates Mr. Little's
employment other than for "cause," Mr. Little will receive a lump sum payment
equal to eighteen (18) months of compensation, based upon Mr. Little's base
salary as of the date of termination. In addition, under his employment
agreement, Mr. Little's bonus compensation is targeted at a rate of 50% of base
salary during any year of Mr. Little's employment and may be up to 100% of base
salary. The actual amount of Mr. Little's bonus will be determined by the Board
of Directors.
Each of Mr. Kelly's and Mr. Little's employment agreement also provides
for the grant and vesting of options to purchase common stock of the Debtor at
specified times and prices. In addition, the employment agreements provide for
certain other benefits for Messrs. Kelly and Little that are standard for
executives in the industry in which the Debtor operates. Mr. Kelly's and Mr.
Little's employment agreement will each be assumed pursuant to the Plan.
D. KEY EMPLOYEE RETENTION PROGRAM
In order to retain certain key employees during the prepetition period
and throughout the pendency of the Chapter 11 Case, prior to the Petition Date
the Debtor adopted a key employee retention program (the "Retention Program"),
pursuant to which the Debtor will pay bonuses to those eligible key employees
still employed by the Debtor on the six month anniversary of the Consummation
Date. The Retention Program applies to approximately fifteen key employees, and
the aggregate amount of all bonuses payable under the Retention Program is less
than $400,000. If, and to the extent that, Court authorization to pay the
Retention Program bonuses is necessary, the Debtor seeks such authorization in
conjunction with confirmation of the Plan. Furthermore, notwithstanding anything
to the contrary, Eagle reserves the right to provide key employees, whether
presently or hereafter employed with such benefits, bonuses, stock options or
other terms as Eagle determines, in the exercise of its business judgment to be
appropriate.
IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE
A. COMMENCEMENT OF THE CHAPTER 11 CASE
On the Petition Date, the Debtor filed its petition for reorganization
relief under Chapter 11 of the Bankruptcy Code, thereby commencing its Chapter
11 Case. From and after the Petition Date, the Debtor has operated, and expects
to continue to operate, its business and manage its properties as
debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
B. "FIRST DAY" ORDERS
As described below, the Debtor does not expect the Chapter 11 Case to
be protracted. To expedite its emergence from Chapter 11, on March 1, 2000, one
day after the Petition Date, the Debtor requested, and on March 2, 2000 the
Court entered, certain orders essential to the Debtor's reorganization efforts,
including the following:
- Order Approving Agreement with Logan & Company, Inc.,
Appointing Logan & Company, Inc. as Claims and Noticing Agent
of the Court Pursuant to 28 U.S.C. Section 156(c)
10
- Order Authorizing Retention of Professionals Utilized by the
Debtor in the Ordinary Course of Business
- Order Authorizing Debtor to Mail Initial Notices and to File a
List of Creditors (Without Claim Amounts) in Lieu of Matrices
- Order (i) Authorizing (A) Maintenance of Existing Bank
Accounts, (B) Continued Use of Existing Business Forms, and
(C) Continued Use of Existing Cash Management System, and (ii)
Waiving Investment and Deposit Requirements of 11 U.S.C.
Section 345(b)
- Order (A) Authorizing Payment of Prepetition Wages, Salaries,
and Employee Benefits and (B) Authorizing Debtor to Continue
Employee Benefit Plans and Programs Postpetition, (C)
Confirming that Debtor is Able to Pay Withholding and
Payroll-Related Taxes, and (D) Directing All Banks to Honor
Prepetition Checks for Payment of Prepetition Employee
Obligations
- Interim Order Pursuant to 11 U.S.C. Sections 105, 503(b),
507(a) and 366 (i) Prohibiting Utilities from Altering,
Refusing or Discontinuing Services on Account of Prepetition
Invoices and (ii) Establishing Procedures for Determining
Requests for Additional Adequate Assurance
- Order Pursuant to 11 U.S.C. Sections 105(a) and 541 Confirming
Authority to Pay Prepetition Sales, Use and Other Taxes
- Order Pursuant to 11 U.S.C. Sections 105(a) and 363(c)
Authorizing Payment of Certain Prepetition Shipping Charges
- Order Establishing PACA and PASA Trust Claims Procedure and
Granting Authority for Payment of Valid PACA and PASA Trust
Claims
- Order (A) Confirming Grant of Administrative Expense Status to
Obligations Arising from Postpetition Delivery of Goods, (B)
Authorizing Debtors to Pay Certain Expenses in the Ordinary
Course of Business, (C) Confirming Administrative Expense
Treatment for Certain Holders of Valid Reclamation Claims and
(E) Prohibiting Third Parties from Interfering with Delivery
of Goods
- Order Pursuant to 11 U.S.C. Section 365(a) Authorizing
Assumption or Rejection of Certain Leases of Real Property
- Order Authorizing Debtors to Honor Certain Prepetition
Obligations to Customers and to Maintain Certain Customer
Service Policies, Programs and Practices
- Order Pursuant to 11 U.S.C. Section 105 Authorizing Payment of
Prepetition Claims of Critical Trade Creditors
- Interim Order (i) Authorizing Debtor to Incur Postpetition
Secured Indebtedness, (ii) Granting Security Interests and
Priority Pursuant To 11 U.S.C. Section 364, (iii) Modifying
Automatic Stay and (iv) Setting Further Hearing, If Necessary
- Order Pursuant to 11 U.S.C. Section 105(a) Authorizing Debtor
to Pay Certain Contractors in Satisfaction of Perfected or
Potential Mechanics', Materialmen's or Similar Liens or
Interests in the Ordinary Course of Business
- Interim Order Pursuant to 11 U.S.C. Sections 105, 363 and 365
Authorizing the Debtor to (A) Close Certain Stores, (B) Sell
Trade Fixtures, Equipment and Inventory at Those Stores and
(C) Make Severance And Other Incentive Payments to Affected
Employees
- Order Pursuant to 11 U.S.C. Sections 102 and 105 and Fed. R.
Bankr. P. 2002(m) and 9007 Establishing Notice Procedures
11
C. ANTICIPATED TIMETABLE FOR THE CHAPTER 11 CASE
The Debtor expects the Chapter 11 Case to proceed on the following
timetable.
The hearing to consider the adequacy of the Disclosure Statement was
held on April 17, 2000. The hearing on confirmation of the Plan has been
scheduled for May 17, 2000. The Plan provides that once it has been confirmed by
the Court, the Consummation Date will be the Business Day on which all
conditions to the consummation of the Plan (as set forth in Article X.B of the
Plan) have been satisfied or waived (as provided in Article X.C of the Plan).
SEE "Confirmation of the Plan -- Conditions to Confirmation and Consummation."
Based on information currently available to it, the Debtor believes that the
Consummation Date could occur as early as thirty days after the Confirmation
Date. If so, the Debtor would thus emerge from Chapter 11 within 120 days after
the Petition Date. There can be no assurance, however, that this projected
timetable can be achieved.
D. TRADE CREDITORS
The Debtor intends that Trade Claims, classified under the Plan as
Class 3 General Unsecured Claims, will be unaffected by the Chapter 11 Case.
Under the Plan, Class 3 General Unsecured Claims will be Unimpaired and will be
paid in full. Nevertheless, in an attempt to ensure prompt payment of the
Debtor's valued trade creditors, on the Petition Date, the Debtor sought and
received Court approval to make payments on account of the Trade Claims of
certain critical vendors who continue to provide the Debtor with normal trade
credit. In addition, on or about March 9, 2000, the Debtor filed an emergency
motion to pay certain additional critical Trade Creditors, including, but not
limited to, all of the Debtor's "direct-to-store" vendors, and by order dated
March 10, 2000, the Court granted the emergency motion. Finally, after a hearing
on March 21, 2000, the Court granted the Debtor's motion to pay all prepetition
Trade Claims in the ordinary course of business. Thus, the Debtor expects to
have paid all or substantially all prepetition Trade Claims prior to the
commencement of the Confirmation Hearing.
E. EMPLOYEE MATTERS
The Debtor intends that salaries, wages, accrued paid vacation, health
related benefits, and similar employee benefits will be unaffected by the
Chapter 11 Case. Employee benefit claims that accrue prepetition will be
Unimpaired under the terms of the Plan. Nevertheless, to ensure the continuity
of the Debtor's work force and to further accommodate the Unimpaired treatment
of employee benefits, on the Petition Date the Debtor sought and received the
approval of the Court to honor payroll checks outstanding as of the Petition
Date (or to issue replacement checks), to permit employees to use their accrued
vacation time (as long as they remain employees of the Debtor) and to continue
paying medical benefits under the Debtor's health plan. To the extent not
covered by this order, employee claims and benefits not paid or honored, as the
case may be, prior to the Consummation Date will be paid or honored in full upon
Consummation of the Plan or as soon thereafter as such payment or other
obligation becomes due or performable.
Additionally, the Debtor participates in the Central States, Southeast
and Southwest Area Pension Fund ("Central States"), a multiemployer plan as that
term is defined by 29 U.S.C. Section 1301(a)(3) (the "Central States Plan").
Notwithstanding anything to the contrary contained elsewhere in the Plan or the
Disclosure Statement (including, without limitation, Article XIV, Sections F and
H of the Plan), any claim or liability of the Debtor or any third-party to
Central States (including, without limitation, any liability or Claim for
withdrawal liability under 29 U.S.C. Sections 1383 and 1385) is left unimpaired
under the Plan, shall not be discharged and shall continue unaltered as if the
Chapter 11 case had not been commenced, nor shall any third-party be released
from any liability or Claim that Central States may have against that third
party as a result of the Debtor's participation in the Central States Plan.
F. RECLAMATION DEMANDS AND PACA CLAIMS
On the Petition Date, the Debtor sought and received an order (i)
confirming administrative expense treatment for the value of goods received and
accepted by the Debtor, if and to the extent a vendor has a valid, written
reclamation claim for such goods in accordance with section 546(c) of the
Bankruptcy Code and/or section 2-702 of the Uniform Commercial Code, but only to
the extent that such vendor proves the validity of its demand and the amount of
its claim, (ii) authorizing the Debtor to pay holders of valid reclamation
claims in the ordinary course of business, provided that the recipients continue
to provide the Debtor with goods on current or customary trade terms during the
pendency of the Chapter 11 Case, (iii) and prohibiting vendors
12
and all other third parties from reclaiming or interfering with the postpetition
delivery of goods to the Debtor without first obtaining relief from the Court's
order.
Also on the Petition Date, the Debtor sought and received Court
approval to pay in the ordinary course of business valid claims by vendors for
goods covered by the Perishable Agricultural Commodities Act of 1930, 7 U.S.C.
Section 499e(c) ("PACA") and the Packers and Stockyard Act, 7 U.S.C. Sections
181, ET SEQ. ("PASA").
G. OTHER SIGNIFICANT POST-FILING EVENTS
1. PROFESSIONALS
By order dated March 21, 2000, the Debtor was authorized to retain the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP as counsel in its
bankruptcy case. Throughout this case, the Debtor has used the services of
Jefferies & Company, Inc. ("Jefferies"), who was engaged prior to the
commencement of this case as a financial advisor to the Debtor. Pursuant to an
engagement letter, Jefferies earned a prepetition fee of $1.3 million which will
be paid pursuant to the Plan. In addition, the Ad Hoc Committee of Trade Vendor,
represented by the law firm of Pepper Hamilton LLP ("Pepper"), was formed as
well as the Unofficial Committee which has been represented by Cadwalader,
Wickersham & Taft ("Cadwalader"), SEE Article XV.
2. FINAL APPROVAL OF DIP FACILITY
On March 21, 2000, the Court approved on a final basis the
Debtor's motion to incur postpetition indebtedness up to a maximum amount of $50
million from Congress and to grant Congress security interests in all the
Debtor's inventory (subject to SuperValu's first-priority security interest in
the Debtor's inventory up to a maximum amount of $770,000, as discussed in
Article II.C.1) to secure the Debtor's obligations to Congress.
3. BAR DATE ORDER
On March 20, 2000, the Court approved the Debtor's motion for
an order establishing April 21, 2000 as the bar date for holders of claims
against the Debtor arising under or relating to a store, building, ground or
other property lease for property or the premises located at the addresses
listed on Exhibit C attached to this Disclosure Statement. Pursuant to a
stipulation and order dated March 21, 2000, the bar date for Lucky Stores, Inc.
is May 10, 2000.
4. LEASE REJECTIONS
On March 21, 2000, the Court approved the Debtor's motion to
reject (i) the leases of its stores in Freeport, Illinois, Lindenhurst,
Illinois, Hobart, Indiana, Bellevue, Illinois and Cedar Falls, Iowa effective
March 7, 2000; and (ii) the leases of 23 other stores upon ten days' notice to
the landlords and other affected parties. Pursuant to the Court's order, the
Debtor has rejected the leases for its stores in Kankakee, Illinois, Bettendorf,
Iowa and Galesburg, Illinois effective March 31, 2000, and the Debtor has given
notice to the landlord and other affected parties for its store in Downers
Grove, Illinois that the lease for such store will be rejected effective April
30, 2000.
5. ASSET SALES
On March 21, 2000, the Court authorized (the "Store Closing
Order") the Debtor to close certain stores (the "Closing Stores") at which the
Debtor had determined, in its business judgment, to discontinue operations as a
result of poor performance. Further, the Court authorized the sale of trade
fixtures, equipment and inventory at the Closing Stores.
Pursuant to the Store Closing Order, the Debtor has filed
three motions seeking approval to sell trade fixtures, equipment and/or
inventory at certain of the Closing Stores. On April 5, 2000, the Court granted
two of these motions, authorizing the sale of fixtures, equipment and inventory
at the Hickory Hills and Country Club Hills, Illinois stores. The third motion,
seeking to sell trade fixtures and equipment at the Elgin, Illinois store, is
scheduled to be heard by the Court on May 1, 2000.
Additionally, the Debtor has filed multiple motions seeking to
sell its fee interests or to assume, assign and sell its interests in leases and
subleases at certain of its stores, including certain of the Closing Stores. On
April 5, 2000, the Court
13
authorized the sale of the Debtor's fee interests in property in East Moline,
Illinois and Burlington, Iowa. On the same date, the Court authorized the
assumption, assignment and sale of the Debtor's interests in a lease and
subleases as well as trade fixtures, equipment and inventory on property in
Buffalo Grove, Illinois. Further, the Debtor has filed three motions seeking to
assume, assign and sell its interests in leases and subleases on property in
Portage, Indiana Round Lake Beach, Peoria and Niles, Illinois and Cedar Rapids,
Iowa, which motions are scheduled to be heard on May 1, 2000. It is also the
Debtor's intention to file additional motions to assume, assign and sell its
interests in various leases and subleases on property.
H. LUCKY NOTICE OF INDEMNIFICATION
On April 4, 2000, Lucky Stores, Inc. ("Lucky"), a party to the
Transaction Agreement between Eagle and Lucky, dated October 9, 1997 (the
"Transaction Agreement"), gave notice to the Debtor of an indemnification claim
based upon the Debtor's rejection of certain leases assigned or subleased to
Eagle by Lucky (the "Indemnification Notice"). Prior to the Transaction
Agreement, Lucky, through its Midwestern Division, was the owner, tenants,
subtenant or sub-subtenant of 105 locations, together with land and
improvements, which Lucky operated as retail supermarkets. Pursuant to the
Transaction Agreement, Lucky assigned or subleased to Eagle all of Lucky's
obligations and liabilities under the Leases or subleases . In addition,
pursuant to the Transaction Agreement, Eagle agreed to hold harmless and
indemnify Lucky from and against all loss, liability, damage or expense,
including (without limitation) attorneys' fees and costs of investigation and
litigation, resulting directly or indirectly from, among other things, the
failure of Eagle to perform its obligations under the Transaction Agreement and
any claims made by a third party against Lucky when any such claim is based upon
an occurrence on or after the closing date of the Transaction Agreement.
Pursuant to the Indemnification Notice, Lucky asserts that its "indemnification
claim is in the amount of the Debtor's obligation under the [Transaction]
Agreement and under each of the respective assigned leases or subleases" that
were rejected by the Debtor. Moreover, Lucky has advised the Debtor that it
intends to seek indemnification from Eagle pursuant to the terms of the
Transaction Agreement in connection with each assigned lease or sublease that
the Debtor rejects (the "Lucky Rejected Leases"). Furthermore, in the
Indemnification Notice, Lucky reserved the right to file a proof of claim and/or
a request for the payment of an administrative expense. The Indemnification
Notice does not set forth an estimate of the amount of indemnification claim.
The Debtor is unable to estimate with any reasonable certainty the amount of any
indemnification claim by Lucky because the amount of such a claim depends on,
among other things, the number of Lucky Rejected Leases and the landlord's
and/or Lucky's ability to mitigate damages with respect to any Lucky Rejected
Leases. Additionally, the Debtor believes that any indemnification claim
asserted by Lucky is subject to numerous defenses and/or limitations, including,
but not limited to defenses and limitations provided by Sections 362, 365, 502
and 509 of the Bankruptcy Code and applicable nonbankruptcy law.
V. FINANCING DURING THE CHAPTER 11 CASE
A. THE DIP FACILITY
On February 29, 2000, the Debtor and Congress entered into the DIP
Facility Agreement, which governs the terms and conditions of the $50 million
debtor-in-possession financing facility being provided by Congress to the
Debtor. The DIP Facility Agreement contains substantially the same economic
terms, affirmative and negative covenants, and other material terms as the
contained in the Revolving Loan Documents governing the Debtor's prepetition
Revolving Credit Facility with Congress.
B. USE OF CASH COLLATERAL
The Debtor's obligations under the Revolving Credit Facility were
secured by first priority security interest in all inventories of the Debtor
located in its stores and its distribution center in Milan, Illinois. The Cash
proceeds of these inventories constitutes "cash collateral" as that term is
defined in Section 363(a) of the Bankruptcy Code. The Bankruptcy Code requires
court approval of the use of cash collateral, unless all parties holding an
interest in such cash collateral consent to the use thereof. In order to
facilitate the Debtor's continued normal operations during the Chapter 11 Case,
Congress has consented to the Debtors' use of its cash collateral in accordance
with the terms of the DIP Facility Agreement. Similarly, SuperValu has consented
to the use of its cash collateral in accordance with the terms of the SuperValu
Stipulation.
14
VI. SUMMARY OF THE PLAN
A. INTRODUCTION
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. The commencement of a Chapter 11 case creates an estate that is
comprised of all of the legal and equitable interests of the debtor as of the
filing date. The Bankruptcy Code provides that the debtor may continue to
operate its business and remain in possession of its property as a
"debtor-in-possession."
Under Chapter 11, a debtor is authorized to reorganize its business for
the benefit of itself and its creditors and shareholders. In addition to
permitting rehabilitation of the debtor, Chapter 11 promotes equality of
treatment of creditors and equity security holders who hold substantially
similar claims against or interests in the debtor and its assets. In furtherance
of these two goals, upon the filing of a petition for relief under Chapter 11,
Section 362 of the Bankruptcy Code provides for an automatic stay of
substantially all acts and proceedings against the debtor and its property,
including all attempts to collect claims or enforce liens that arose prior to
the commencement of the Chapter 11 case.
The consummation of a plan of reorganization is the principal objective
of a Chapter 11 case. A plan of reorganization sets forth the means for
satisfying claims against and interests in a debtor. Confirmation of a plan of
reorganization by the Court makes the plan binding upon the debtor, any issuer
of securities under the plan, any person or entity acquiring property under the
plan, and any creditor of or equity security holder in the debtor, whether or
not such creditor or equity security holder (i) is impaired under or has
accepted the plan or (ii) receives or retains any property under the plan.
Subject to certain limited exceptions and other than as provided in the plan
itself or the confirmation order, the confirmation order discharges the debtor
from any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan.
THE REMAINDER OF THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE AND
MEANS FOR IMPLEMENTATION OF THE DEBTOR'S PLAN, AND OF THE CLASSIFICATION AND
TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN (AS WELL AS THE EXHIBITS THERETO AND
DEFINITIONS THEREIN), WHICH IS ANNEXED TO THIS DISCLOSURE STATEMENT AS EXHIBIT
A.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE SUMMARIES
OF THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED TO THEREIN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE
PRECISE OR COMPLETE STATEMENTS OF ALL THE TERMS AND PROVISIONS OF THE PLAN OR
DOCUMENTS REFERRED TO THEREIN, AND REFERENCE IS MADE TO THE PLAN AND TO SUCH
DOCUMENTS FOR THE FULL AND COMPLETE STATEMENTS OF SUCH TERMS AND PROVISIONS.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN CONTROL THE
ACTUAL TREATMENT OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR UNDER THE PLAN
AND WILL, UPON OCCURRENCE OF THE CONSUMMATION DATE, BE BINDING UPON ALL HOLDERS
OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR, ITS ESTATE, THE REORGANIZED
DEBTOR, ALL PARTIES RECEIVING OR RETAINING PROPERTY OR AN INTEREST IN PROPERTY
UNDER THE PLAN, AND OTHER PARTIES IN INTEREST. IN THE EVENT OF ANY CONFLICT
BETWEEN THIS DISCLOSURE STATEMENT, ON THE ONE HAND, AND THE PLAN OR ANY OTHER
OPERATIVE DOCUMENT, ON THE OTHER HAND, THE TERMS OF THE PLAN AND/OR SUCH OTHER
OPERATIVE DOCUMENT WILL CONTROL.
B. CERTAIN MATTERS REGARDING CLASSIFICATION AND TREATMENT OF CLAIMS AND
INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization must classify the claims and interests of a debtor's creditors
and equity interest holders. In accordance with Section 1123, the Plan divides
Claims and Interests into Classes and sets forth the treatment for each Class
(other than DIP Facility Claims, Administrative Claims and Priority Tax Claims
which, pursuant to Section 1123(a)(1), need not be and have not been
classified). The Debtor also is required, under Section 1122 of the Bankruptcy
Code, to classify Claims against and Interests in the Debtor into Classes that
contain Claims and Interests that are substantially similar to the other Claims
and Interests in such Class. The Debtor believes that the Plan has
15
classified all Claims and Interests in compliance with the provisions of Section
1122, but it is possible that a holder of a Claim or Interest may challenge the
Debtor's classification of Claims and Interests and that the Court may find that
a different classification is required for the Plan to be confirmed. In that
event, the Debtor intends, to the extent permitted by the Bankruptcy Code, the
Plan, and the Court, to make such reasonable modifications of the
classifications under the Plan to permit confirmation and to use the Plan
acceptances received in this Solicitation for purposes of obtaining the approval
of the reconstituted Class or Classes of which each accepting holder ultimately
is deemed to be a member. Any such reclassification could adversely affect the
Class in which such holder initially was a member, or any other Class under the
Plan, by changing the composition of such Class and the vote required of that
Class for approval of the Plan. Furthermore, a reclassification of a Claim or
Interest after approval of the Plan could necessitate a resolicitation of
acceptances of the Plan.
The amount of any Impaired Claim that ultimately is allowed by the
Court may vary from the estimated allowed amount of such Claim and, accordingly,
the total Claims ultimately allowed by the Court with respect to each Impaired
Class of Claims may also vary from the estimates contained herein with respect
to the aggregate Claims in any Impaired Class. Thus, the value of the property
that ultimately will be received by a particular holder of an Allowed Claim
under the Plan may be adversely or favorably affected by the aggregate amount of
Claims ultimately allowed in the applicable Class. There can be no assurance
that the actual aggregate amounts of Allowed Claims in Impaired Classes will not
materially exceed the aggregate amounts estimated by the Debtor. Thus, no
representation can be or is being made with respect to the accuracy of the
expected percentage recovery by the holder of an Allowed Claim in any particular
Class.
The classification of Claims and Interests and the nature of
distributions to members of each Class are summarized below. The Debtor believes
that the consideration provided under the Plan to holders of Claims and
Interests reflects an appropriate resolution of their Claims and Interests,
taking into account the differing nature and priority of such Claims and
Interests. The Court must find, however, that a number of statutory tests are
met before it may confirm the Plan. Many of these tests are designed to protect
the interests of holders of Claims or Interests who are not entitled to vote on
the Plan, or do not vote to accept the Plan, but who will be bound by the
provisions of the Plan if it is confirmed by the Court. The "cramdown"
provisions of Section 1129(b) of the Bankruptcy Code, for example, permit
confirmation of a Chapter 11 plan in certain circumstances even if the plan has
not been accepted by all impaired classes of claims and interests. SEE
"Confirmation of the Plan -- Confirmation Without Acceptance Of All Impaired
Classes --`Cramdown'". If any of the Impaired Classes under the Plan votes to
reject the Plan, the Debtor intends to request confirmation pursuant to the
cramdown provisions of Section 1129(b). Although the Debtor believes that the
Plan could be confirmed under Section 1129(b), there can be no assurance that
the requirements of such section would be satisfied.
1. UNCLASSIFIED CLAIMS
(a) DIP Facility Claims
On, or one Business Day after, the Consummation Date or the date such
DIP Facility Claim becomes payable pursuant to any agreement between the Debtor
and the holder of such DIP Facility Claim, the holder of an Allowed DIP Facility
Claim will receive in full satisfaction, settlement, release, and discharge of
and in exchange for such Allowed DIP Facility Claim (a) cash equal to the unpaid
portion of such Allowed DIP Facility Claim or (b) such other treatment as to
which the Debtor and such holder have agreed upon in writing. At the present
time there are no outstanding borrowings under the DIP Facility and the Debtor
does not anticipate making any borrowings under the DIP Facility prior to the
Consummation Date.
(b) Administrative Claims
Except as otherwise provided for in the Plan, and subject to the
requirements of Article XIV.A.1 thereof, on, or as soon as reasonably
practicable after, the latest of (i) the Distribution Date, (ii) the date such
Administrative Claim becomes an Allowed Administrative Claim, or (iii) the date
such Administrative Claim becomes payable pursuant to any agreement between the
Debtor and the holder of such Administrative Claim, each holder of an Allowed
Administrative Claim will receive in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Administrative Claim (a) Cash
equal to the unpaid portion of such Allowed Administrative Claim or (b) such
other treatment as to which the Debtor and such holder have agreed upon in
writing; PROVIDED, HOWEVER, that Allowed Administrative Claims with respect to
liabilities incurred by the Debtor in the ordinary course of business during the
Chapter 11 Case will be paid in the ordinary course of business in accordance
with the terms and conditions of any agreements relating thereto. Other than
Administrative Claims paid by the Debtor in the ordinary course of
16
business, the Debtor estimates that the total amount of Administrative Claims in
this Chapter 11 Case will be approximately $4 million.
(c) Priority Tax Claims
On, or as soon as reasonably practicable after, the later of (i) the
Distribution Date or (ii) the date such Priority Tax Claim becomes an Allowed
Priority Tax Claim, each holder of an Allowed Priority Tax Claim will receive in
full satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Priority Tax Claim (a) Cash equal to the unpaid portion of such
Allowed Priority Tax Claim, (b) Cash payments over time in an aggregate
principal amount equal to the amount of such Allowed Priority Tax Claim plus
interest on the unpaid portion thereof at the rate of seven percent (7%) per
annum from the Consummation Date through the date of payment thereof, or (c)
such other treatment as to which the Debtor and such holder have agreed upon in
writing. Cash payments of principal will be made in annual installments, each
such installment amount being equal to ten percent (10%) of such Allowed
Priority Tax Claim plus accrued and unpaid interest, with the first payment to
be due on or before the first anniversary of the Consummation Date, or as soon
thereafter as is practicable, and subsequent payments to be due on the
anniversary of the first payment date or as soon thereafter as is practicable;
PROVIDED, HOWEVER, that any installments remaining unpaid on the date that is
six years after the date of assessment of the tax that is the basis for the
Allowed Priority Tax Claim will be paid on the first Business Day following such
date, or as soon thereafter as is practicable together with any accrued and
unpaid interest to the date of payment; and PROVIDED FURTHER, that the Debtor
reserves the right to pay any Allowed Priority Tax Claim, or any remaining
balance of any Allowed Priority Tax Claim, in full at any time on or after the
Distribution Date without premium or penalty; and PROVIDED FURTHER, that no
holder of an Allowed Priority Tax Claim will be entitled to any payments on
account of any pre-Consummation Date interest accrued on or penalty arising
after the Petition Date with respect to or in connection with such Allowed
Priority Tax Claim. The Debtor estimates that the total amount of Priority Tax
Claims in this Chapter 11 Case will not exceed $1.4 million.
2. UNIMPAIRED CLASSES OF CLAIMS
(a) Class 1: Other Priority Claims
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class 1 Other Priority Claim becomes an
Allowed Class 1 Other Priority Claim, or (iii) the date such Class 1 Other
Priority Claim becomes payable pursuant to any agreement between Eagle and the
holder of such Class 1 Other Priority Claim, each holder of an Allowed Class 1
Other Priority Claim will receive in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Class 1 Other Priority Claim (a)
Cash equal to the unpaid portion of such Allowed Class 1 Other Priority Claim or
(b) such other treatment as to which the Debtor and such holder have agreed upon
in writing. The Debtor believes that as a result of the prior orders of the
Court in this Chapter 11 Case, that there are few, if any, Allowed Class 1 Other
Priority Claims and, thus, estimates the total amount of Allowed Class 1: Other
Priority Claims to be DE minimis.
(b) Class 2: Other Secured Claims
Each holder of a Class 2 Other Secured Claim shall be treated as a
separate class for all purposes under this Plan, and each holder of an Allowed
Class 2 Other Secured Claim shall receive the treatment set forth below. To the
extent, if any, that the value of the collateral securing a Class 2 Other
Secured Claim is less than the total amount of such Claim, the difference shall
be treated as a Class 3 General Unsecured Claim. The Debtor specifically
reserves all rights to challenge the validity, nature and perfection of, and to
avoid pursuant to the provisions of the Bankruptcy Code and other applicable
law, any purported liens and security interests.
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class 2 Other Secured Claim becomes an
Allowed Class 2 Other Secured Claim, or (iii) the date such Class 2 Other
Secured Claim becomes payable pursuant to any agreement between the Debtor and
the holder of such Class 2 Other Secured Claim, each holder of an Allowed Class
2 Other Secured Claim, in full satisfaction, settlement, release, and discharge
of and in exchange for such Allowed Class 2 Other Secured Claim, will, in the
sole discretion of the Debtor, (a) receive deferred cash payments totaling at
least the allowed amount of such Allowed Class 2 Other Secured Claim, of a
value, as of the Consummation Date, of at least the value of such holder's
interest in the Estate's interest in the Collateral securing the Allowed Class 2
Other Secured Claim, (b) upon abandonment by the Debtor receive the Collateral
securing such holder's Allowed Class 2 Other Secured Claim, (c) receive payments
or liens amounting to the indubitable equivalent of the value of such holder's
interest in the Estate's interest in the Collateral securing the Allowed Class 2
Other Secured Claim, (d) be Reinstated, or (e) receive such other treatment as
the Debtor
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and such holder have agreed upon in writing. The Debtor has identified two
holders of Class 2 Other Secured Claims, SuperValu Holdings, Inc. and Navistar
Financial Corp., and believes that on the Consummation Date, the aggregate
amount owed to these two entities, for which they hold first priority liens on
inventory and certain equipment respectively, is likely to be no more than $1.3
million. Pursuant to the Plan, SuperValu and Navistar will continue to receive
payments under their respective agreements in the ordinary course of business
and continue to hold first priority liens to secure Eagle's obligations under
their respective agreements.
(c) Class 3: General Unsecured Claims
Each holder of an Allowed Class 3 General Unsecured Claim will receive
in full satisfaction, settlement, release and discharge of and in exchange for
such Allowed Class 3 General Unsecured Claim, in the sole discretion of the
Debtor, (a) treatment that leaves unaltered the legal, equitable, and
contractual rights to which such Allowed Class 3 General Unsecured Claim
entitles the holder of such Claim; (b) notwithstanding any contractual provision
or applicable law that entitles the holder of such Allowed Class 3 General
Unsecured Claim to demand or receive accelerated payment of such Claim after the
occurrence of a default, treatment that (i) cures any such default that occurred
before or after the Petition Date, other than a default of a kind specified in
Section 365(b)(2) of the Bankruptcy Code, (ii) reinstates the maturity of such
Allowed Class 3 General Unsecured Claim as such maturity existed before such
default, (iii) compensates the holder of such Allowed Class 3 General Unsecured
Claim for any damages incurred as a result of any reasonable reliance by such
holder on such contractual provision or such applicable law, and (iv) does not
otherwise alter the legal, equitable, or contractual rights to which such
Allowed Class 3 General Unsecured Claim entitles the holder of such Claim; or
(c) such other treatment as to which the Debtor and such holder have agreed upon
in writing. The vast majority of the holders of Class 3: General Unsecured
Claims are or will be landlords and/or Lucky as a result of the Debtor's
rejection of certain nonresidential real property leases. The Debtor estimates
that the aggregate amount of the Allowed Class 3: General Unsecured Claims will
be between $5 million and $15 million. In making that estimate, the Debtor
relied upon, among other things, the cap on lease rejection claims set forth in
Section 502(b)(6) of the Bankruptcy Code and has assumed that it will reject
leases relating to approximately 25 closed or closing stores. As noted above,
SEE Article IV.H., Lucky asserts that it holds a claim "in the amount of the
Debtor's full indemnification obligation under the [Transaction] Agreement," for
each Lucky Rejected Lease, which claim the Debtor disputes. If allowed, however,
the Debtor estimates that Lucky's indemnification claim would be between $10
million and $15 million, assuming, among, other things, that the Debtor proceeds
with all of the contemplated rejections of Lucky leases and neither Lucky nor
the respective landlords mitigate damages.
3. IMPAIRED CLASSES OF CLAIMS AND INTERESTS
(a) Class 4: Lender Secured Claims
On, or as soon as reasonably practicable after, the latest of (i) the
Distribution Date, (ii) the date such Class 4 Lender Secured Claim becomes an
Allowed Class 4 Lender Secured Claim, or (iii) the date such Class 4 Lender
Secured Claim becomes payable pursuant to any agreement between the Debtor and
the holder of such Class 4 Lender Secured Claim, the holder of an Allowed Class
4 Lender Secured Claim will receive in full satisfaction, settlement, release,
and discharge of and in exchange for such Allowed Class 4 Lender Secured Claim
(a) cash equal to the unpaid portion of such Allowed Class 4 Lender Secured
Claim, including accrued but unpaid interest at the contract rate through the
date of payment, or (b) such other treatment as to which the Debtor and such
holder have agreed upon in writing. The Debtor's aggregate amount of Allowed
Class 4 Lender Secured Claim is $2 million plus interest accrued through the
Consummation Date.
(b) Class 5: Senior Note Claims
On, or as soon as reasonably practicable after, the Distribution Date,
the Debtor or the Reorganized Debtor, as the case may be, will distribute to the
Indenture Trustee, for the ratable benefit of the holders of Allowed Class 5
Senior Note Claims, and in full satisfaction, settlement, release, and discharge
of and in exchange for all such Allowed Class 5 Senior Note Claims, (i) the New
Senior Notes, (ii) the Class 5 Cash, and (iii) 15% of the fully-diluted Common
Stock of the Reorganized Debtor. The Indenture Trustee will, in accordance with
the terms of the Senior Note Indenture, (a) distribute to each holder of an
Allowed Class 5 Senior Note Claim such holder's Pro Rata share of the New Senior
Notes, Class 5 Cash, and one-third (1/3) of the Common Stock described in clause
(iii) above, and (b) retain the remaining two-thirds (2/3) of the Common Stock
described in clause (iii) above for future distribution to holders of Allowed
Class 5 Senior Note Claims or return to the Reorganized Debtor, as the case may
be, in accordance with the terms of the two next succeeding sentences. If the
Reorganized Debtor is sold to a third party or the New Senior Notes are retired
prior to October 15, 2001, then the Indenture Trustee will return to the
Reorganized Debtor
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the remaining two-thirds (2/3) of the Common Stock referred to in clause (iii)
above; if the Reorganized Debtor is sold to a third party or the New Senior
Notes are retired after October 15, 2001, but prior to October 15, 2002, then
the Indenture Trustee will return to the Reorganized Debtor one-third (1/3) of
the Common Stock referred to in clause (iii) above; if the Reorganized Debtor is
not sold to a third party or the New Senior Notes are not retired prior to
October 15, 2002, then the Indenture Trustee will not return to the Reorganized
Debtor any portion of the Common Stock referred to in clause (iii) above. Any
Common Stock distributed to the Indenture Trustee and not required to be
returned to the Reorganized Debtor in accordance with the terms of the
immediately preceding sentence will be distributed by the Indenture Trustee, on
a Pro Rata basis, to the holders of Allowed Class 5 Senior Note Claims. The
Allowed Class 5 Senior Note Claims will be $100 million plus the interest
accrued at 8-5/8% through the Consummation Date.
(c) Class 6: Equity Securities Interests
Each holder of an Allowed Equity Securities Interest shall retain such
Equity Securities Interest. As a result of the proposed treatment of Class 5,
each holder's Equity Security Interest shall be diluted by 15% on the
Consummation Date, subject to the Debtor's right to "claw-back" certain common
stock from the holders of Senior Notes.
C. SPECIAL PROVISION REGARDING UNIMPAIRED CLAIMS
Except as otherwise provided in the Plan, nothing will affect the
Debtor's or Reorganized Debtor's rights and defenses, both legal and equitable,
with respect to any Unimpaired Claims, including, but not limited to, all rights
with respect to legal and equitable defenses to Setoffs or recoupments against
Unimpaired Claims.
D. ACCRUAL OF POSTPETITION INTEREST
Interest on, and fees and expenses (if any) with respect to, Allowed
Class 2 Other Secured Claims and Allowed Class 3 General Unsecured Claims,
including, but not limited to, unpaid professional fees due the holders of such
Claims, will be paid when due under the contract, agreement, or other instrument
governing the terms and conditions of the obligation comprising such Allowed
Claim, together with any additional amounts required to be paid with respect to
Unimpaired Claims pursuant to Section 1124 of the Bankruptcy Code.
E. SUMMARY OF OTHER PROVISIONS OF THE PLAN
1. CONTINUED CORPORATE EXISTENCE
Following confirmation and consummation of the Plan, the Debtor will
continue to exist as a separate entity, in accordance with the laws of the State
of Delaware, and pursuant to its certificate of incorporation and by-laws in
effect prior to the Consummation Date, except to the extent such certificate of
incorporation and by-laws are amended by the Plan. The certificate of
incorporation and by-laws of the Debtor will be amended as necessary to satisfy
the provisions of the Plan and the Bankruptcy Code and will include, among other
things, pursuant to Section 1123(a)(6) of the Bankruptcy Code, a provision
prohibiting the issuance of non-voting equity securities.
2. CANCELLATION OF SENIOR NOTES AND SENIOR NOTES INDENTURE
On the Consummation Date, except as otherwise provided for in the Plan,
(i) the Senior Notes and any other note, bond, indenture, or other instrument or
document evidencing or creating any indebtedness or obligation of the Debtor,
except such notes or other instruments evidencing indebtedness or obligations of
the Debtor that are Reinstated under the Plan, will be canceled, and (ii) the
obligations of the Debtor under any agreements, indentures or certificates of
designations governing the Senior Notes and any other note, bond, indenture or
other instrument or document evidencing or creating any indebtedness or
obligation of the Debtor, except such notes or other instruments evidencing
indebtedness or obligations of the Debtor that are Reinstated under the Plan, as
the case may be, will be discharged; PROVIDED, HOWEVER, that each indenture or
other agreement that governs the rights of the holder of a Claim and that is
administered by an indenture trustee, an agent, or a servicer will continue in
effect solely for the purposes of (i) allowing such indenture trustee, agent, or
servicer to make the distributions to be made on account of such Claims under
the Plan as provided in Article III of the Plan and (ii) permitting such
indenture trustee, agent, or servicer to maintain any rights or liens it may
have for fees, costs and expenses under such indenture or other agreement;
PROVIDED, FURTHER, that the provisions of clause (ii) of this paragraph will not
affect the discharge of the Debtor's liabilities under the Bankruptcy
19
Code and the Confirmation Order or result in any expense or liability to the
Reorganized Debtor. The Reorganized Debtor will not have any obligations to any
indenture trustee, agent or servicer (or to any Disbursing Agent replacing such
indenture trustee, agent or servicer) for any fees, costs or expenses, except as
expressly provided in Article IV.B.1 of the Plan; PROVIDED, HOWEVER, that
nothing in the Plan will preclude such indenture trustee, agent or servicer (or
any Disbursing Agent replacing such indenture trustee, agent or servicer) from
being paid or reimbursed for prepetition and postpetition fees, costs and
expenses from the distributions until payment in full of such fees, costs or
expenses that are governed by the respective indenture or other agreement in
accordance with the provisions set forth therein.
Any actions taken by an indenture trustee, an agent, or a servicer that
are not for the purposes authorized in Article IV.B.1 of the Plan will not be
binding upon the Debtor. Notwithstanding the foregoing, the Debtor may terminate
any indenture or other governing agreement and the authority of any indenture
trustee, agent, or servicer to act thereunder at any time, with or without
cause, by giving five (5) days' written notice of termination to the indenture
trustee, agent, or servicer. If distributions under the Plan have not been
completed at the time of termination of the indenture or other governing
agreement, the Debtor will designate a Disbursing Agent to act in place of the
indenture trustee, agent, or servicer, and the provisions of Article IV.B.1 of
the Plan will be deemed to apply to the new distribution agent.
3. REVESTING OF ASSETS
The property of the Estate, together with any property of the Debtor
that is not property of the Estate and that is not specifically disposed of
pursuant to the Plan, will revest in the Reorganized Debtor on the Confirmation
Date. Thereafter, the Reorganized Debtor may operate its business and may use,
acquire, and dispose of property free of any restrictions of the Bankruptcy
Code, the Bankruptcy Rules, and the Court. As of the Confirmation Date, all
property of the Debtor will be free and clear of all Claims and Interests,
except as specifically provided in the Plan or the Confirmation Order. Without
limiting the generality of the foregoing, the Debtor or Reorganized Debtor, as
the case may be, may, without application to or approval by the Court, pay fees
that it incurs after the Confirmation Date for professional fees and expenses.
4. PRESERVATION OF RIGHTS OF ACTION; SETTLEMENT OF LITIGATION
CLAIMS
Except as otherwise provided in the Plan or the Confirmation Order, or
in any contract, instrument, release, indenture or other agreement entered into
in connection with the Plan, in accordance with Section 1123(b) of the
Bankruptcy Code, the Reorganized Debtor will retain and may enforce, sue on,
settle, or compromise (or decline to do any of the foregoing) all claims, rights
or causes of action, suits, and proceedings, whether in law or in equity,
whether known or unknown, that the Debtor or the Estate may hold against any
Person or entity. The Reorganized Debtor or its successor(s) may pursue such
retained claims, rights or causes of action, suits, or proceedings as
appropriate, in accordance with the best interests of the Reorganized Debtor or
its successor(s) who hold such rights. Notwithstanding the foregoing, pursuant
to the Plan, on the Consummation Date, the Debtor shall be deemed to have waived
any claims or causes of action it may have or assert against a holder of a Trade
Claim in virtue of Section 547 of the Bankruptcy Code.
5. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS
The chairman of the board of directors, president, chief financial
officer, or any other appropriate officer of the Debtor or Reorganized Debtor,
as the case may be, will be authorized to execute, deliver, file, or record any
and all contracts, instruments, releases, indentures, and other agreements or
documents, and take such actions as may be necessary or appropriate to
effectuate and further evidence the terms and conditions of the Plan. The
secretary or assistant secretary of the Debtor or Reorganized Debtor, as the
case may be, will be authorized to certify or attest to any of the foregoing
actions.
6. TERMINATION OF DIP FACILITY
To the extent not amended and restated with the express consent of
Congress as a part of any post-Confirmation financing procured by the Debtor or
Reorganized Debtor, the DIP Facility will be terminated and will be of no
further force and effect upon payment in full of all amounts outstanding
thereunder, on or one Business Day after the Consummation Date, except as
necessary to evidence and maintain the liens and security interests granted
pursuant to (a) any Final Order authorizing the Debtor's entry into the DIP
Facility and (b) the various agreements approved thereby; PROVIDED, HOWEVER,
that the liens and security interests securing the DIP Facility will remain in
full force and effect until the DIP Facility is repaid in full in cash.
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7. EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to Section 1146(c) of the Bankruptcy Code, any transfers from
the Debtor to the Reorganized Debtor or to any other Person or entity pursuant
to the Plan will not be subject to any document recording tax, stamp tax,
conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate
transfer tax, mortgage recording tax or other similar tax or governmental
assessment, and the Confirmation Order will direct the appropriate state or
local governmental officials or agents to forego the collection of any such tax
or governmental assessment and to accept for filing and recordation any of the
foregoing instruments or other documents without the payment of any such tax or
governmental assessment.
8. DISTRIBUTIONS UNDER THE PLAN
(a) General
On, or as soon as is practicable after the Distribution Date, to the
extent that the Plan provides for distributions on account of Allowed Claims or
Interests in a Class, each holder of an Allowed Claim or Allowed Interest will
receive the full amount of the distributions that the Plan provides for Allowed
Claims or Interests in that Class. Following the Distribution Date,
distributions will also be made, pursuant to Articles III, VII, and IX of the
Plan, respectively, to (i) holders of Claims and Interests to whom a
distribution has become deliverable during the period since the immediately
preceding distribution date and (ii) to holders of Disputed Claims and Interests
whose Claims or Interests were Allowed during the period since the immediately
preceding distribution date. Such interim distributions will also be in the full
amount that the Plan provides for Allowed Claims and Interests in the applicable
Class. Notwithstanding the foregoing, the Disbursing Agent will not be required
to make distributions more frequently than once every 180 days.
Except as otherwise provided in the Plan or the Confirmation Order, all
Cash necessary for the Reorganized Debtor to make payments pursuant to the Plan
will be obtained from the Reorganized Debtor's existing Cash balances, operating
revenues, and/or borrowings under the New Senior Secured Facility. The
Reorganized Debtor or such third party Disbursing Agent(s) as it may employ in
its sole discretion will initially make all distributions required under the
Plan (subject to the provisions of Articles III, VII, and IX thereof) except
distributions to the holders of Allowed Class 5 Senior Note Claims, which
distributions will be deposited with the Indenture Trustee for the Senior Notes,
who shall deliver such distributions to the holders of such Claims in accordance
with the provisions of this Plan and the terms of the Senior Note Indenture. Any
Disbursing Agent (including, if applicable, the Reorganized Debtor in its
capacity as such) may employ or contract with other entities to assist in or
make the distributions required by the Plan. Each Disbursing Agent will serve
without bond, and each third party Disbursing Agent will receive, without
further Court approval, reasonable compensation for distribution services
rendered pursuant to the Plan and reimbursement of reasonable out-of-pocket
expenses incurred in connection with such services from the Reorganized Debtor
on terms acceptable to the Reorganized Debtor.
(b) Distributions For Claims Allowed As Of The
Consummation Date
Except as otherwise provided in the Plan, or as ordered by the Court,
distributions to be made on account of Claims that are Allowed Claims as of the
Consummation Date will be made on the Distribution Date, or as soon thereafter
as practicable. The New Securities to be issued under the Plan will be deemed
issued as of the Distribution Date regardless of the date on which they are
actually distributed.
(c) Interest On Claims
Unless otherwise specifically prohibited by the Plan or the
Confirmation Order, or by applicable bankruptcy law, postpetition interest will
accrue and will be paid on Allowed Claims when due under the contract,
agreement, or other instrument governing the terms and conditions of the
obligation comprising such Allowed Claim. Postpetition interest also will accrue
and be paid upon any Disputed Claim in respect of the period from the Petition
Date to the date a final distribution is made thereon, if and after such
Disputed Claim becomes an Allowed Claim.
(d) Surrender Of Securities Or Instruments
On or before the Distribution Date, or as soon as practicable
thereafter, each holder of an instrument evidencing a Claim on account of Senior
Notes (a "Certificate") must surrender such Certificate to the Indenture Trustee
for cancellation. No
21
distribution of property under the Plan will be made by the Indenture Trustee to
any such holder unless and until such Certificate is received by the Indenture
Trustee, or the unavailability of such Certificate is reasonably established to
the satisfaction of the Indenture Trustee. Any such holder who fails to
surrender or cause to be surrendered such Certificate or fails to execute and
deliver an affidavit of loss and indemnity reasonably satisfactory to the
Indenture Trustee prior to the second (2nd) anniversary of the Consummation
Date, will be deemed to have forfeited all rights and Claims in respect of such
Certificate and will not be entitled to participate in any distribution under
the Plan, and all property in respect of such forfeited distribution, including
interest accrued thereon, will revert to the Reorganized Debtor notwithstanding
any federal or state escheat laws to the contrary.
(e) Record Date For Distributions To Holders Of Senior
Notes
At the close of business on the Distribution Record Date, the transfer
ledgers for the Senior Notes will be closed, and there will be no further
changes in the record holders of the Senior Notes. The Reorganized Debtor and
the Disbursing Agent, if any, will have no obligation to recognize any transfer
of such Senior Notes occurring after the Distribution Record Date and will be
entitled instead to recognize and deal for all purposes hereunder with only
those record holders stated on the transfer ledgers as of the close of business
on the Distribution Record Date.
(f) Delivery Of Distributions
Distributions to holders of Allowed Claims will be made by the
Disbursing Agent, Indenture Trustee or the New Senior Notes Indenture Trustee,
as the case may be, (a) at the addresses set forth on the proofs of Claim filed
by such holders (or at the last known addresses of such holders if no proof of
Claim is filed or if the Debtor has been notified of a change of address), (b)
at the addresses set forth in any written notices of address changes delivered
to the Disbursing Agent after the date of any related proof of Claim, (c) at the
addresses reflected in the Schedules if no proof of Claim has been filed and the
Disbursing Agent has not received a written notice of a change of address, or
(d) in the case of the holder of a Claim that is governed by an indenture or
other agreement and is administered by an indenture trustee, agent, or servicer,
at the addresses contained in the official records of such indenture trustee,
agent, or servicer, or (e) at the addresses set forth in a properly completed
letter of transmittal accompanying securities properly remitted to the Debtors.
If any holder's distribution is returned as undeliverable, no further
distributions to such holder will be made unless and until the Disbursing Agent
or the appropriate indenture trustee, agent, or servicer is notified of such
holder's then current address, at which time all missed distributions will be
made to such holder without interest. Amounts in respect of undeliverable
distributions made through the Disbursing Agent or the indenture trustee, agent,
or servicer, will be returned to the Reorganized Debtor until such distributions
are claimed. All claims for undeliverable distributions must be made on or
before the second (2nd) anniversary of the Consummation Date, after which date
all unclaimed property will revert to the Reorganized Debtor free of any
restrictions thereon and the claim of any holder or successor to such holder
with respect to such property will be discharged and forever barred,
notwithstanding any federal or state escheat laws to the contrary. On the tenth
(10) day following the first and second anniversary of the Distribution Date,
the Disbursing Agent and the New Senior Notes Indenture Trustee shall file with
the Court a list of the persons to whom the Disbursing Agent or the New Senior
Notes Indenture Trustee has been unable to make distributions.
(g) Fractional Dollars; De Minimis Distributions
Payments of fractions of dollars will not be made. Whenever any payment
of a fraction of a dollar under the Plan would otherwise be called for, the
actual payment made will reflect a rounding of such fraction to the nearest
whole dollar (up or down), with half dollars being rounded down. The Disbursing
Agent, or any indenture trustee, agent, or servicer, as the case may be, will;
not make any payment of less than twenty-five dollars ($25.00) with respect to
any Claim unless a request therefor is made in writing to such Disbursing Agent,
indenture trustee, agent, or servicer, as the case may be.
(h) Withholding And Reporting Requirements
In connection with the Plan and all distributions thereunder, the
Disbursing Agent will to the extent applicable, comply with all tax withholding
and reporting requirements imposed by any federal, state, local, or foreign
taxing authority, and all distributions under the Plan will be subject to any
such withholding and reporting requirements. The Disbursing Agent will be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
(i) Setoffs
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The Reorganized Debtor may, but will not be required to, set off
against any Claim, and the payments or other distributions to be made pursuant
to the Plan in respect of such Claim, claims of any nature whatsoever that the
Debtor or Reorganized Debtor may have against the holder of such Claim;
PROVIDED, HOWEVER, that neither the failure to do so nor the allowance of any
Claim under the Plan will be, or be deemed to be, a waiver or release by the
Reorganized Debtor of any such claim that the Debtor or Reorganized Debtor may
have against such holder.
9. RESOLUTION AND TREATMENT OF DISPUTED, CONTINGENT, AND
UNLIQUIDATED CLAIMS
(a) Objection Deadline; Prosecution Of Objections
The Debtor or Reorganized Debtor, as the case may be, will be allowed
up to 180 days after the Consummation Date (unless extended by an order of the
Court) to file objections to Claims with the Court and serve such objections
upon the holders of each of the Claims to which objections are made.
Notwithstanding the foregoing, nothing contained in the Plan will limit the
Reorganized Debtor's right to object to Claims, if any, filed or amended more
than 180 days after the Consummation Date.
(b) No Distributions Pending Allowance
No payments or distributions will be made with respect to all or any
portion of a Disputed Claim unless and until all objections to such Disputed
Claim have been settled or withdrawn or have been determined by Final Order, and
the Disputed Claim, or some portion thereof, has become an Allowed Claim.
(c) Distribution Reserve
The Disbursing Agent will withhold the Distribution Reserve from the
Cash or other property to be distributed under the Plan (other than the Class 5
Cash, New Senior Notes, and Common Stock to be distributed to the Indenture
Trustee for the ratable benefit of the holders of Allowed Class 5 Senior Notes
Claims). As to any Disputed Claim, upon a request for estimation by the Debtor,
the Court will determine what amount is sufficient to withhold as the
Distribution Reserve. The Debtor may request estimation for every Disputed Claim
that is unliquidated and the Disbursing Agent will withhold the Distribution
Reserve based upon the estimated amount of such Claim as set forth in a Final
Order. If the Debtor elects not to request such an estimation from the Court
with respect to a Disputed Claim that is liquidated, the Disbursing Agent will
withhold the Distribution Reserve based upon the Face Amount of the Claim. If
practicable, the Disbursing Agent will invest any Cash that is withheld as the
Distribution Reserve in a manner designed to yield a reasonable net return,
taking into account the safety of the investment.
(d) Distributions After Allowance
The Reorganized Debtor or the Disbursing Agent, as the case may be,
will make payments and distributions from the Distribution Reserve to each
holder of a Disputed Claim that has become an Allowed Claim in accordance with
the provisions of the Plan governing the class of Claims to which such holder
belongs. On the next succeeding interim distribution date after the date that
the order or judgment of the Court allowing all or part of such Claim becomes a
Final Order, the Disbursing Agent will distribute to the holder of such Claim
any Cash or other property in the Distribution Reserve that would have been
distributed on the Distribution Date had such Allowed Claim been allowed on the
Distribution Date. All such distributions will be made together with any
dividends, payments, or other distributions made on account of, as well as any
obligations arising from, the distributed property, as if such Allowed Claim had
been an Allowed Claim on the Distribution Date. Notwithstanding the foregoing,
the Disbursing Agent will not be required to make distributions under Article
IX.D of the Plan more frequently than once every 180 days or to make any
individual payments in an amount less than $25.00. After a Final Order has been
entered, or other final resolution has been reached, with respect to each
Disputed Claim, any Cash or other property remaining in the Distribution Reserve
will become property of the Reorganized Debtor.
10. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
The Bankruptcy Code grants the Debtor the power, subject to the
approval of the Court, to assume, assume and assign, or reject executory
contracts and unexpired leases. If an executory contract or unexpired lease is
rejected, the other party to the agreement may file a claim for damages incurred
by reason of the rejection. In the case of rejection of leases of real property,
such damage claims are subject to certain limitations imposed by the Bankruptcy
Code.
23
(a) Assumed Contracts And Leases
Except as otherwise provided in the Plan, or in any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, as of the Consummation Date the Debtor will be deemed
to have assumed each executory contract and unexpired lease to which it is a
party, unless such contract or lease (i) was previously assumed or rejected by
the Debtor, (ii) previously expired or terminated pursuant to its own terms,
(iii) is the subject of a motion to reject filed on or before the Confirmation
Date or (iv) is contained on a list of all executory contracts and unexpired
leases to be rejected by the Debtor pursuant to Article VIII.A of the Plan
included in the Plan Supplement as Exhibit D to the Plan. The Confirmation Order
will constitute an order of the Court under Section 365 of the Bankruptcy Code
approving the contract and lease assumptions described above, as of the
Consummation Date.
Each executory contract and unexpired lease that is assumed and relates
to the use, ability to acquire, or occupancy of real property will include (a)
all modifications, amendments, supplements, restatements, or other agreements
made directly or indirectly by any agreement, instrument, or other document that
in any manner affect such executory contract or unexpired lease and (b) all
executory contracts or unexpired leases appurtenant to the premises, including
all easements, licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, usufructs, reciprocal easement
agreements, vaults, tunnel or bridge agreements or franchises, and any other
interests in real estate or rights IN REM related to such premises, unless any
of the foregoing agreements has been rejected pursuant to an order of the Court.
Any monetary amounts by which each executory contract and unexpired
lease to be assumed pursuant to the Plan is in default will be satisfied, under
Section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor or the
assignee of the Debtor party by Cure. If there is a dispute regarding (i) the
nature or amount of any Cure, (ii) the ability of the Reorganized Debtor or any
assignee to provide "adequate assurance of future performance" (within the
meaning of Section 365 of the Bankruptcy Code) under the contract or lease to be
assumed, or (iii) any other matter pertaining to assumption, Cure will occur
following the entry of a Final Order resolving the dispute and approving the
assumption or assumption and assignment, as the case may be.
(b) Rejected Contracts And Leases
Except as otherwise provided in the Plan, in any motion to reject filed
on or before the Confirmation Date, or in any contract, instrument, release,
indenture or other agreement or document entered into in connection with the
Plan, none of the executory contracts and unexpired leases to which the Debtor
is a party will be rejected under the Plan; PROVIDED, HOWEVER, that the Debtor
reserves the right, at any time prior to the Confirmation Date, to seek to
reject any executory contract or unexpired lease to which it is a party.
If the rejection by the Debtor, pursuant to the Plan or otherwise, of
an executory contract or unexpired lease results in a Claim not previously
evidenced by a timely filed proof of Claim or a proof of Claim that is deemed to
be timely filed under applicable law, then the Claim will be forever barred and
will not be enforceable against the Debtor or the Reorganized Debtor, or the
properties of either of them, unless a proof of Claim is filed with the clerk of
the Court and served on counsel for the Debtor or Reorganized Debtor, as the
case may be, within thirty (30) days after service of the earlier of (i) notice
of entry of the Confirmation Order or (ii) other notice that the executory
contract or unexpired lease has been rejected.
(c) Compensation And Benefit Programs
Except and to the extent previously assumed by an order of the Court on
or before the Confirmation Date, and except as set forth in (ii) below, all
employee compensation and benefit programs of the Debtor entered into before or
after the Petition Date and not since terminated, including, but not limited to
(a) programs subject to Sections 1114 and 1129(a)(13) of the Bankruptcy Code and
(b) the retention agreements, dated January 21, 2000, between the Debtor and
certain of the Debtor's key executives, will be deemed to be, and will be
treated as though they are, executory contracts that are assumed under Article
VIII.A of the Plan, but only to the extent that rights under such programs are
held by the Debtor or Persons who are employees of the Debtor as of the
Confirmation Date, and the Debtor's obligations under such programs to persons
who are employees of the Debtor on the Confirmation Date will survive
confirmation of this Plan, except for (i) executory contracts or plans
specifically rejected pursuant to the Plan (to the extent such rejection does
not violate Sections 1114 and 1129(a)(13) of the Bankruptcy Code) and (ii)
executory contracts or plans as have previously been rejected, are the subject
of a motion to reject, or have been specifically waived by the beneficiaries of
any such plans or contracts. Notwithstanding the foregoing, the Debtor's
obligations, if any, to pay all "retiree benefits" as defined in Section 1114(a)
of the Bankruptcy Code shall continue.
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11. MODIFICATIONS AND AMENDMENTS
The Debtor may alter, amend, or modify the Plan or any Exhibits thereto
under Section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Date. After the Confirmation Date and prior to substantial
consummation of the Plan, as defined in Section 1101(2) of the Bankruptcy Code,
the Debtor may, under Section 1127(b) of the Bankruptcy Code, institute
proceedings in the Court to remedy any defect or omission or reconcile any
inconsistencies in the Plan, the Disclosure Statement, or the Confirmation
Order, and such matters as may be necessary to carry out the purposes and
effects of the Plan so long as such proceedings do not materially adversely
affect the treatment of holders of Claims or Interests under the Plan. Prior
notice of such proceedings shall be served in accordance with the Bankruptcy
Rules or order of the Court. A holder of a Claim or Interest that has accepted
the Plan shall be deemed to have accepted the Plan, as altered, amended or
modified, if the proposed alteration, amendment or modification does not
materially and adversely change the treatment of the Claim or Interest of such
holder. In addition, any material alteration, amendment or modification that
materially changes the treatment of the Institutional Holders must be approved
by the Institutional Holders.
12. RETENTION OF JURISDICTION
Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the
Consummation Date, the Court will, to the fullest extent permitted by law,
retain exclusive jurisdiction over all matters arising out of, and related to,
the Chapter 11 Case and the Plan, as more fully set forth in Article XII of the
Plan.
13. COMPROMISES AND SETTLEMENTS
Pursuant to Fed. R. Bankr. P. 9019(a), the Debtor may compromise and
settle various Claims against it and/or claims that it may have against other
Persons. Under the Plan, the Debtor expressly reserves the right (with Court
approval, following appropriate notice and opportunity for a hearing) to
compromise and settle Claims against it and claims that it may have against
other Persons up to and including the Consummation Date. After the Consummation
Date, this right shall pass to the Reorganized Debtor pursuant to Articles IV.E
and IV.F of the Plan.
14. BAR DATES FOR CERTAIN CLAIMS
(a) Administrative Claims; Substantial Contribution Claims
The Confirmation Order will establish an Administrative Claims Bar Date
for filing of all Administrative Claims, including substantial contribution
Claims (but not including claims for Professional Fees or the expenses of the
members of the Creditors' Committee (if one has been appointed) and claims by
the Indenture Trustee for fees and expenses to be paid by the Debtor pursuant to
the Senior Notes Indenture), which date will be 45 days after the Confirmation
Date. Holders of asserted Administrative Claims, other than claims for
Professional Fees or the expenses of the members of the Creditors' Committee (if
one has been appointed), not paid prior to the Confirmation Date must submit
proofs of Administrative Claim on or before such Administrative Claims Bar Date
or forever be barred from doing so. The notice of Confirmation to be delivered
pursuant to Fed. R. Bankr. P. 3020(c) and 2002(f) will set forth such date and
constitute notice of this Administrative Claims Bar Date. The Debtor or
Reorganized Debtor, as the case may be, will have 45 days (or such longer period
as may be allowed by order of the Court) following the Administrative Claims Bar
Date to review and object to such Administrative Claims before a hearing for
determination of allowance of such Administrative Claims.
(b) Professional Fee Claims
All final requests for compensation or reimbursement of Professional
Fees pursuant to Sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy
Code for services rendered to the Debtor or the Creditors' Committee (if one has
been appointed) prior to the Consummation Date (other than substantial
contribution Claims under Section 503(b)(4) of the Bankruptcy Code) must be
filed and served on the Reorganized Debtor and its counsel no later than 45 days
after the Consummation Date, unless otherwise ordered by the Court. Objections
to applications of such Professionals or other entities for compensation or
reimbursement of expenses must be filed and served on the Reorganized Debtor and
its counsel and the requesting Professional or other entity no later than 45
days (or such longer period as may be allowed by order of the Court) after the
date on which the applicable application for compensation or reimbursement was
served.
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Pepper represents the Ad Hoc Trade Vendor Committee in regard to this
Chapter 11 Case. Pepper has reviewed this Disclosure Statement and the Plan,
provided comments thereto, and kept creditors advised of the status of this
case. The Debtor believes that Pepper is entitled to a substantial contribution
claim for reasonable fees and expenses in an amount not to exceed $25,000 and
will support Pepper's application for substantial contribution in such an
amount.
Cadwalader represents the Unofficial Noteholders Committee in this
Chapter 11 Case. Cadwalader negotiated several of the Lock-Up Agreements and, as
a result, several provisions of the Plan prior to the Petition Date. During the
pendency of this case, Cadwalader has reviewed the Plan and Disclosure
Statement, provided comments thereto, has kept the bondholders apprised of the
status of this case and has undertaken to negotiate the New Senior Notes
Indenture so that it will conform to the Plan. In accordance with the Lock-Up
Agreements, the Debtor believes that Cadwalader is entitled to a substantial
contribution claim for reasonable fees and expenses in an amount not to exceed
$150,000 and will support Pepper's application for substantial contribution in
such an amount.
15. MISCELLANEOUS PROVISIONS
(a) Severability Of Plan Provisions
If, prior to Confirmation, any term or provision of the Plan is held by
the Court to be invalid, void or unenforceable, the Court, at the request of the
Debtor, will have the power to alter and interpret such term or provision to
make it valid or enforceable to the maximum extent practicable, consistent with
the original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision will then be applicable as altered or
interpreted. Notwithstanding any such holding, alteration or interpretation, the
remainder of the terms and provisions of the Plan will remain in full force and
effect and shall in no way be affected, impaired or invalidated by such holding,
alteration or interpretation. The Confirmation Order will constitute a judicial
determination and will provide that each term and provision of the Plan, as it
may have been altered or interpreted in accordance with the foregoing, is valid
and enforceable pursuant to its terms.
(b) Exculpation And Limitation Of Liability
Neither the Reorganized Debtor, nor any statutory committee, nor the Ad
Hoc Trade Vendor Committee, nor the Unofficial Noteholders Committee, nor any of
their respective present or former members, officers, directors, employees,
advisors, attorneys, or agents, will have or incur any liability to any holder
of a Claim or an Interest, or any other party in interest, or any of their
respective agents, employees, representatives, financial advisors, attorneys, or
affiliates, or any of their successors or assigns, for any act or omission in
connection with, relating to, or arising out of, the Chapter 11 Case, the
solicitation of acceptances of the Plan, the pursuit of confirmation of the
Plan, the consummation of the Plan, or the administration of the Plan or the
property to be distributed under 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.
Notwithstanding any other provision of the Plan, no holder of a Claim
or Interest, no other party in interest, none of their respective agents,
employees, representatives, financial advisors, attorneys, or affiliates, and no
successors or assigns of the foregoing, will have any right of action against
the Reorganized Debtor, any statutory committee the Ad Hoc Trade Vendor
Committee, the Unofficial Noteholders Committee, or any of their respective
present or former members, officers, directors, employees, advisors, attorneys,
or agents, for any act or omission in connection with, relating to, or arising
out of, the Chapter 11 Case, the solicitation of acceptances of the Plan, the
pursuit of confirmation of the Plan, the consummation of the Plan, or the
administration of the Plan or the property to be distributed under the Plan,
except for their willful misconduct.
The foregoing exculpation and limitation on liability shall not,
however, limit, abridge, or otherwise affect the rights, if any, of the
Reorganized Debtor to enforce, sue on, settle, or compromise the Litigation
Claims retained pursuant to Article IV.F of the Plan.
(c) Revocation, Withdrawal, Or Non-Consummation
The Debtor reserves the right to revoke or withdraw the Plan at any
time prior to the Confirmation Date and to file subsequent plans of
reorganization. If the Debtor revokes or withdraws the Plan, or if Confirmation
or Consummation does not occur, then (i) the Plan will be null and void in all
respects, (ii) any settlement or compromise embodied in the Plan (including the
fixing or limiting to an amount certain any Claim or Class of Claims),
assumption or rejection of executory contracts or leases
26
effected by the Plan, and any document or agreement executed pursuant to the
Plan will be deemed null and void, and (iii) nothing contained in the Plan, and
no acts taken in preparation for consummation of the Plan, shall (a) constitute
or be deemed to constitute a waiver or release of any Claims by or against, or
any Interests in, the Debtor or any other Person, (b) prejudice in any manner
the rights of the Debtor or any Person in any further proceedings involving a
Debtor, or (iii) constitute an admission of any sort by the Debtor or any other
Person.
(d) Plan Supplement
Any and all exhibits, lists, or schedules not filed with the Plan or
this Disclosure Statement shall be contained in the Plan Supplement and filed
with the Clerk of the Court at least five (5) Business Days prior to date of the
commencement of the Confirmation Hearing. Upon its filing with the Court, the
Plan Supplement may be inspected in the office of the Clerk of the Court during
normal court hours. Holders of Claims or Interests may obtain a copy of the Plan
Supplement upon written request to the Debtor in accordance with Article XIV.L
of the Plan.
(e) Indemnification Obligations
Except as otherwise specifically limited in the Plan, any obligations
or rights of the Debtor to indemnify its present and former directors, officers,
or employees pursuant to the Debtor's certificate of incorporation, by-laws,
policy of providing employee indemnification, applicable state law, or specific
agreement in respect of any claims, demands, suits, causes of action, or
proceedings against such directors, officers, or employees based upon any act or
omission related to such present and former directors', officers', or employees'
service with, for, or on behalf of the Debtor, will survive confirmation of the
Plan and remain unaffected thereby, irrespective of whether indemnification is
owed in connection with an occurrence before or after the Petition Date. In some
instances, such treatment might have the effect of according administrative
expense status to claims that might otherwise be Class 3 General Unsecured
Claims. To the extent the Plan has such an effect, the Debtor believes that such
treatment is justified by, among other things, the services provided by the
directors, officers and employees as well as the proposed treatment of Class 3
General Unsecured Claims under the Plan.
(f) Prepayment
Except as otherwise provided in the Plan or the Confirmation Order, the
Debtor will have the right to prepay, without penalty, all or any portion of an
Allowed Claim at any time, provided that such prepayment is not violative of, or
does not otherwise prejudice, the relative priorities and parities among the
classes of Claims.
(g) Term Of Injunctions Or Stays
Unless otherwise provided in the Plan or the Confirmation Order, all
injunctions or stays provided for in the Chapter 11 Case under Sections 105 or
362 of the Bankruptcy Code or otherwise, and extant on the Confirmation Date
(excluding any injunctions or stays contained in the Plan or the Confirmation
Order), will remain in full force and effect until the Consummation Date.
VII. CONFIRMATION OF THE PLAN
The Court may confirm the Plan only if it determines that the Plan
complies with the technical requirements of Chapter 11, including, among other
things, that (a) the Plan has properly classified Claims and Interests, (b) the
Plan complies with applicable provisions of the Bankruptcy Code, (c) the Debtor
has complied with applicable provisions of the Bankruptcy Code, (d) the Debtor
has proposed the Plan in good faith and not by any means forbidden by law, (e)
disclosure of "adequate information" as required by section 1125 of the
Bankruptcy Code has been made, (f) the Plan has been accepted by the requisite
votes of all Classes of creditors and Interest holders (except to the extent
that "cramdown" is available under section 1129(b) of the Bankruptcy Code), (g)
the Plan is in the "best interests" of all holders of Claims or Interests in an
Impaired Class, (h) all fees and expenses payable under 28 U.S.C. Section 1930,
as determined by the Court at the Confirmation Hearing, have been paid or the
Plan provides for the payment of such fees on the Consummation Date, and (i) the
Plan provides the continuation after the Consummation 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 sections 1114(e)(1)(B)
or 1114(g) of the Bankruptcy Code, for the duration of the period that the
Debtor has obligated itself to provide such benefits.
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A. VOTING REQUIREMENTS
Under the Bankruptcy Code, only Classes of Claims and Interests that
are "impaired" (as that term is defined in section 1124 of the Bankruptcy Code)
under the Plan are entitled to vote to accept or reject the Plan. A Class is
impaired if the legal, equitable or contractual rights to which the holders of
Claims or Interests are entitled are modified, other than by curing defaults and
reinstating the debt. Pursuant to Sections 1126(f) and (g) of the Bankruptcy
Code, Classes of Claims and Interests that are not impaired are conclusively
presumed to have accepted the Plan and are not entitled to vote on the Plan, and
Classes of Claims and Interests whose holders will receive or retain no property
under the Plan are deemed to have rejected the Plan and are not entitled to vote
on the Plan. The classification of Claims and Interests is summarized, together
with notations as to whether each Class of Claims or Interests is Impaired or
Unimpaired, under the caption "Treatment of Claims and Interests." Additional
information regarding voting is contained in the instructions accompanying the
Ballots.
This Disclosure Statement and the appropriate Ballot are being
distributed to all holders of Claims and Interests who are entitled to vote on
the Plan. There is a separate Ballot designated for each Class of Claims or
Interests in order to facilitate vote tabulation; however, all Ballots are
substantially similar in form and substance and the term "Ballot" is used
without intended reference to the Ballot of any specific Class of Claims.
Each Impaired Class of Claims or Interests that will receive or retain
property or any interest in property under the Plan is entitled to vote to
accept or reject the Plan. Each Unimpaired Class of Claims is deemed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan. An
Impaired Class of Claims will have accepted the Plan if (i) the holders (other
than any holder designated under Section 1126(e) of the Bankruptcy Code) of at
least two-thirds in amount of the Allowed Claims actually voting in such Class
have voted to accept the Plan and (ii) the holders (other than any holder
designated under Section 1126(e) of the Bankruptcy Code) of more than one-half
in number of the Allowed Claims actually voting in such Class have voted to
accept the Plan. An Impaired Class of Interests will have accepted the Plan if
(i) the holders (other than any holder designated under Section 1126(e) of the
Bankruptcy Code) of at least two-thirds in amount of the Allowed Interests
actually voting in such Class have voted to accept the Plan.
B. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES --"CRAMDOWN"
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if it is not accepted by all impaired classes of Claims and
Interests, as long as at least one impaired Class of Claims has accepted it. If
necessary, the Debtor will request Confirmation of the Plan, as it may be
modified from time to time, under Section 1129(b) of the Bankruptcy Code, and it
has reserved the right to modify the Plan to the extent, if any, that
confirmation pursuant to section 1129(b) of the Bankruptcy Code requires
modification.
The Court may confirm the Plan notwithstanding the rejection of an
Impaired Class of Claims or Interests if the Plan "does not discriminate
unfairly" and is "fair and equitable" as to each Impaired Class that has
rejected, or is deemed to have rejected, the Plan. A plan does not discriminate
unfairly within the meaning of the Bankruptcy Code if a rejecting impaired class
is treated equally with respect to other classes of equal rank. A plan is fair
and equitable as to a class of secured claims that rejects such plan if, among
other things, the plan provides (a) (i) that the holders of claims in the
rejecting class retain the liens securing those claims, whether the property
subject to those liens is retained by the debtor 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, of at least the value of the holder's interest
in the estate's interest in such property; (b) for the sale, subject to Section
363(k) of the Bankruptcy Code, of any property that is subject to the liens
securing the claims included in the rejecting class, free and clear of the
liens, with the liens to attach to the proceeds of the sale, and the treatment
of the liens on proceeds under clause (a) or (c) of this subparagraph; or (c)
for the realization by such holders of the indubitable equivalent of such
claims.
A plan is fair and equitable as to a class of unsecured claims that
rejects a plan, if, among other things, the plan provides (a) that each holder
of a claim in the rejecting class will 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 no holder of a claim or interest
that is junior to the claims of such rejecting class will receive or retain
under the Plan any property on account of such junior claim or interest.
28
A plan is fair and equitable as to a class of equity interests that
rejects a plan if 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 no holder of an interest that is junior to
the interest of such rejecting class will receive or retain under the Plan any
property on account of such junior interest.
The Debtors reserve the right to request confirmation of the Plan under
Section 1129(b) of the Bankruptcy Code notwithstanding the rejection of the Plan
by other Class(es) of Claims or Interests entitled to vote on, and voting to
reject, the Plan. The Debtors believe that the Plan may be confirmed pursuant to
the above-described "cramdown" provisions over the dissent of certain Classes of
Claims or Interests, in view of the treatment proposed for such Classes. The
Debtors believe that the treatment under the Plan of the holders of Claims and
Interests in Classes 4, 5, and 6 will satisfy the "fair and equitable" tests for
secured creditors, unsecured creditors and interest holders, respectively. In
addition, the Debtors do not believe that the Plan unfairly discriminates
against any dissenting Class because all dissenting Classes of equal rank would
be treated equally under the Plan.
C. BEST INTERESTS TEST
Under Section 1129(a)(7) of the Bankruptcy Code (the so-called "Best
Interests Test"), to confirm the Plan the Court must determine that, with
respect to each impaired Class of Claims or Interests, each holder of an
Impaired Claim or Interest in such Class either (i) has accepted the Plan or
(ii) will receive or retain property of a value, as of the effective date of the
Plan, not less than the amount that such holder would receive or retain on
account of such Claim or Interest if the Debtor was liquidated under Chapter 7
of the Bankruptcy Code. Accordingly, the Debtor and its advisors have considered
the effect that conversion of the Chapter 11 Case to Chapter 7 would have on
distributions to various Classes of Claims and Interests. The comparison of
recoveries for Impaired Classes indicates that recoveries under the Plan are at
least equal to, and in most cases better than, those expected in a liquidation
under Chapter 7, therefore satisfying the Best Interests Test.
D. CHAPTER 7 LIQUIDATION ANALYSIS
As noted above, the Debtor believes that under the Plan all holders of
Impaired Claims and Impaired Interests will receive property with a value not
less than the value such holder would receive in a liquidation of the Debtor
under Chapter 7 of the Bankruptcy Code. To estimate the likely returns to
holders of Claims and Interests in a Chapter 7 liquidation, the Debtor
determined the amount of liquidation proceeds that would be available for
distribution to, and the allocation of such proceeds among, the Classes of
Claims and Interests based on their relative priority. A copy of that analysis
is set forth as Exhibit D to this Disclosure Statement.
The relative priority of distribution of liquidation proceeds with
respect to any Claim or Interest depends on (i) its status as secured, priority
unsecured or nonpriority unsecured and (ii) its relative subordination
(including both contractual subordination and statutory subordination . In
general, liquidation proceeds would be allocated in the following priority: (i)
first, to the Claims of secured creditors to the extent of the value of their
collateral; (ii) second, to the costs, fees and expenses of the liquidation, as
well as other administrative expenses of the Debtor's Chapter 7 case, including
tax liabilities incurred in the Chapter 7 case; (iii) third, to the unpaid
Administrative Claims of the Debtor's Chapter 11 Case; (iv) fourth, to Priority
Tax Claims and other Claims entitled to priority in payment under Section 507 of
the Bankruptcy Code; (v) fifth, to Unsecured Claims; and (vi) sixth, to Equity
Securities Interests.
The Debtor's management believes that in a Chapter 7 liquidation, based
on the priorities outlined above, distribution of the liquidation proceeds will
result in lower recoveries to holders of Impaired Claims and Interests. In
reaching this conclusion, the Debtor made a number of assumptions and estimates
regarding anticipated differences in expenses, fees, asset recoveries, claims
litigation and settlements, recoveries on deposits and total claims filed that
could occur if the Debtor's Chapter 11 Case was converted to Chapter 7
liquidation. These estimates and assumptions are inherently subject to
significant uncertainties and contingencies, many of which would be beyond the
control of the Debtor. Accordingly, there can be no assurance as to values that
would actually be realized in a Chapter 7 liquidation, nor can there be any
assurance that a Court would accept the Debtor's conclusions or concur with such
assumptions in making its determinations under section 1129(a)(7) of the
Bankruptcy Code.
29
In summary, the Debtor believes that a Chapter 7 liquidation of the
Debtor would result in a substantial diminution in the value to be realized by
the holders of certain Claims and Interests and delay in making distributions to
all Classes of Claims and Interests entitled to a distribution. Consequently,
the Debtors believe that the Plan satisfies the requirements of section
1129(a)(7) of the Bankruptcy Code.
E. FEASIBILITY
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. This is the so-called "feasibility test." In connection with the
development of the Plan, and for purposes of determining whether the Plan
satisfies the feasibility test, the Debtor's management has, through the
development of 3-year financial projections, as set forth in Exhibit E to this
Disclosure Statement (the "Projections"), analyzed the ability of the
Reorganized Debtor to maintain sufficient liquidity and capital resources to (i)
conduct its business and (ii) meet its obligations under the Plan. The
Projections were also prepared to assist each holder of a Claim or Equity
Securities Interest in Classes 4, 5, and 6 in determining whether to accept or
reject the Plan.
The Projections show that the Reorganized Debtor should have sufficient
cash flow to (i) make the payments required under the Plan on the Consummation
Date, (ii) repay and service debt obligations, and (iii) maintain operations on
a going-forward basis. Accordingly, the Debtor believes that the Plan complies
with section 1129(a)(11) of the Bankruptcy Code. The Projections should be read
in conjunction with the assumptions, qualifications, and footnotes to the tables
containing the Projections set forth in Exhibit E. The Projections were prepared
in good faith based upon assumptions believed to be reasonable and applied in a
manner consistent with past practice. The Projections are based on assumptions
existing as of March 4, 2000 related, in part, to the economic, competitive, and
general business conditions prevailing at the time. While as of the date of this
Disclosure Statement such economic, competitive, and general business conditions
have not materially changed, any future changes in these conditions may
materially impact the ability of the Debtor 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 DEBTOR'S INDEPENDENT AUDITORS
HAVE NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE FINANCIAL
INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND, ACCORDINGLY, HAVE NOT
EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT THERETO.
THE DEBTOR DOES NOT, AS A MATTER OF COURSE, PUBLISH PROJECTIONS OF ITS
ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, THE DEBTOR DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO (A)
FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS AND INTERESTS PRIOR TO THE
CONSUMMATION DATE OR TO HOLDERS OF NEW SENIOR NOTES OR COMMON STOCK OR ANY OTHER
PARTY AFTER THE CONSUMMATION DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY
DOCUMENTS THAT MAY BE REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED HEREIN 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 DEBTOR'S CONTROL.
THE DEBTOR CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF
THESE FINANCIAL PROJECTIONS OR TO THE REORGANIZED DEBTOR'S ABILITY 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.
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FINALLY, THE PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE ENTERPRISE VALUE
OF THE REORGANIZED DEBTOR, THE FAIR VALUE OF ITS ASSETS, AND ITS ACTUAL
LIABILITIES AS OF THE CONSUMMATION DATE. ACTUAL ENTERPRISE VALUE, ASSET VALUES,
AND LIABILITIES ON THE CONSUMMATION DATE COULD BE MATERIALLY GREATER OR LOWER
THAN THE VALUES ASSUMED IN THE PROJECTIONS.
F. VALUATION OF THE REORGANIZED DEBTOR
In conjunction with the allocation of the distributions under the Plan,
Eagle determined that it was necessary to estimate post-confirmation values for
the Common Stock issued upon confirmation on a fully diluted basis to provide
for equitable distribution among Classes of Claims and Classes of Interest.
Accordingly, Eagle's financial advisor, Jefferies, prepared a valuation analysis
of Eagle.
In preparing its analysis, Jefferies: (a) reviewed certain recent
publicly available financial statements of Eagle; (b) reviewed certain financial
projections prepared by Eagle for the operations of Reorganized Eagle, including
those financial Projections set forth in this Disclosure Statement; (c) reviewed
assumptions underlying such projections; (d) prepared discounted cash flow
analyses for the operations of Reorganized Eagle on a going concern basis, based
on projections of cash flow to be available to Reorganized Eagle, utilizing
various discount rates and the financial projections referred to above; (e)
considered the market values of publicly traded companies that Jefferies and
Eagle believe are in businesses reasonably comparable to the operating business
of Reorganized Eagle; (f) considered certain economic and industry information
relevant to the operating business of Eagle; (g) discussed the current
operations and prospects of the operating business with Eagle; and (h) made such
other analyses and examinations as Jefferies deemed necessary or appropriate.
Jefferies assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources and that was provided to Jefferies by Eagle
or its representatives. With respect to the financial projections supplied to
Jefferies, Jefferies assumed that the projections have been reasonably prepared
on a basis reflecting the best currently available estimates and judgment of
Eagle as to the future operating and financial performance of Eagle. Such
projections assumed Eagle will operate 64 stores the number reflected in the
Debtor's business plan. To the extent that Eagle operates more or fewer stores
during the projected period, such adjustments may have a material impact on the
operating projections and valuations as presented herein. Jefferies did not make
any independent evaluation of Reorganized Eagle assets, nor did Jefferies verify
any of the information it reviewed.
With respect to the valuation of Reorganized Eagle, in addition to the
foregoing, Jefferies relied upon the following assumptions:
- The valuation range indicated represents the enterprise value
of Eagle, and assumes the pro forma debt levels (as set forth
in the Projections annexed hereto) to calculate a range of
equity value. Such debt levels assume that Eagle will issue
$85 million of New Senior Notes.
- Eagle emerges from Chapter 11 on or about May 1, 2000.
- The projections are predicated upon the assumption that Eagle
will be able to obtain all necessary financing, as described
herein, and that no asset sales will be required for liquidity
purposes. Jefferies does not hereby make any representations
as to whether Eagle will obtain financing or as to the terms
upon which such financing may be obtained.
- Jefferies has also assumed the general continuity of the
present senior management of Eagle following consummation of
the Plan, and has assumed Consummation Date of the Plan will
not differ materially from those conditions prevailing as of
the date of this Disclosure Statement.
As a result of such analyses, reviews, discussions, considerations and
assumptions, Jefferies estimates that the enterprise value of Reorganized Eagle
falls in a range between $153.5 million and $181 million. This estimated range
of values represents a hypothetical value which reflects the estimated intrinsic
value of Eagle derived through the application of various valuation techniques.
Such analysis does not purport to represent valuation levels which would be
achieved in, or assigned by, the public markets for debt and equity securities.
Jefferies' estimate is necessarily based on economic, market, financial and
other conditions
31
as they exist on, and on the information made available to it as of, the date of
this Disclosure Statement. It should be understood that, although subsequent
developments may affect Jefferies' conclusions, Jefferies does not have any
obligation to update, revise or reaffirm its estimate.
The summary set forth above does not purport to be a complete
description of the analyses performed by Jefferies. The preparation of an
estimate involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods in the
particular circumstances and, therefore, such an estimate is not readily
susceptible to summary description. In performing its analyses, Jefferies made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by Jefferies is not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Jefferies relied on the accuracy and reasonableness of the projections
and the underlying assumptions as prepared by Eagle. Jefferies' valuation
assumes that operating results projected by Eagle will be achieved in all
material respects, including revenue and sales growth, improvements in operating
margins, earnings and cash flow, improvement in techniques for managing working
capital, expenses and other elements. Certain of the projected results are
materially better than the recent historical results of operations of Eagle. No
assurance can be given that Eagle will operate the number of stores currently
contemplated or that the projected results will be achieved. To the extent that
the valuation is dependent upon Eagle's achievement of the projections, the
valuation must be considered speculative.
G. CONDITIONS TO CONFIRMATION AND CONSUMMATION
1. CONDITIONS TO CONFIRMATION
The following are conditions precedent to confirmation of the Plan that
must be (i) satisfied or (ii) waived in accordance with Article X.C of the Plan:
(a) The proposed Confirmation Order must be in form and
substance reasonably acceptable to the Debtor, Institutional Holders
and the Exit Lenders.
(b) The Debtor must have arranged for credit availability
under the New Senior Secured Facility, in amount, form and substance
acceptable to the Debtor or Reorganized Debtor, as the case may be, to
provide the Reorganized Debtor with working capital to meet ordinary
and peak requirements and additional borrowings to support future
projects.
2. CONDITIONS TO CONSUMMATION
The following are conditions precedent to the occurrence of the
Consummation Date, each of which must be (i) satisfied or (ii) waived in
accordance with Article X.C of the Plan:
(a) The Confirmation Order, in form and substance reasonably
acceptable to the Debtor, Institutional Holders, and the Exit Lenders,
confirming the Plan, as the same may have been modified, must have
become a Final Order and must, among other things, provide that:
(i) the Debtor and Reorganized Debtor are authorized
and directed to take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases,
leases, indentures and other agreements or documents created in
connection with the Plan or the Restructuring;
(ii) the provisions of the Confirmation Order are
nonseverable and mutually dependent;
(iii) all executory contracts or unexpired leases
assumed or assumed and assigned by the Debtor during the Chapter 11
Case or under the Plan shall remain in full force and effect for the
benefit of the Reorganized Debtor or its assignee(s) notwithstanding
any provision in such contract or lease (including those described in
Sections 365(b)(2) and (f) of the Bankruptcy Code) that prohibits such
assignment or transfer or that enables, permits or requires termination
of such contract or lease;
32
(iv) the transfers of property by the Debtor (a) to
the Reorganized Debtor (i) are or will be legal, valid, and effective
transfers of property, (ii) vest or will vest the Reorganized Debtor
with good title to such property free and clear of all liens, charges,
Claims, encumbrances, or interests, except as expressly provided in the
Plan or Confirmation Order, (iii) do not and will not constitute
avoidable transfers under the Bankruptcy Code or under applicable
bankruptcy or nonbankruptcy law, and (iv) do not and will not subject
the Reorganized Debtor to any liability by reason of such transfer
under the Bankruptcy Code or under applicable nonbankruptcy law,
including, without limitation, any laws affecting successor or
transferee liability, and (b) to holders of Claims under the Plan are
for good consideration and value and are in the ordinary course of the
Debtor's business;
(v) except as expressly provided in the Plan, the
Debtor is discharged effective upon the Confirmation Date from any
"debt" (as that term is defined in Section 101(12) of the Bankruptcy
Code), and the Debtor's liability in respect thereof is extinguished
completely, whether reduced to judgment or not, liquidated or
unliquidated, contingent or noncontingent, asserted or unasserted,
fixed or unfixed, matured or unmatured, disputed or undisputed, legal
or equitable, or known or unknown, or that arose from any agreement of
the Debtor that has either been assumed or rejected in the Chapter 11
Case or pursuant to the Plan, or obligation of the Debtor incurred
before the Confirmation Date, or from any conduct of the Debtor prior
to the Confirmation Date, or that otherwise arose before the
Confirmation Date, including, without limitation, all interest, if any,
on any such debts, whether such interest accrued before or after the
Petition Date;
(vi) the Plan does not provide for the liquidation of
all or substantially all of the property of the Debtor and its
confirmation is not likely to be followed by the liquidation of the
Reorganized Debtor or the need for further financial reorganization;
and
(vii) the New Senior Notes and Common Stock issued
under the Plan in exchange for Claims against Eagle are exempt from
registration under the Securities Act of 1933 pursuant to Section 1145
of the Bankruptcy Code, except to the extent that holders of New Senior
Notes and Common Stock are "underwriters," as that term is defined in
Section 1145 of the Bankruptcy Code.
(b) The Reorganized Debtor must have credit availability under
the New Senior Secured Facility, in amount, form and substance
acceptable to the Debtor or Reorganized Debtor, as the case may be, to
provide the Reorganized Debtor with working capital to meet ordinary
and peak requirements and additional borrowings to support future
projects.
(c) The following agreements, in form satisfactory to the
Debtor or Reorganized Debtor, as the case may be, must have been
executed and delivered, and all conditions precedent thereto must have
been satisfied:
(i) Amended Certificate of Incorporation and
By-laws of Eagle;
(ii) New Senior Notes Indenture; and
(iii) New Senior Secured Facility.
(d) All actions, documents and agreements necessary to
implement the Plan must have been effected or executed.
3. WAIVER OF CONDITIONS
Each of the conditions set forth in Articles X.A and X.B of the Plan,
other than those set forth in Article X.A.1 and X.B.1, may be waived in whole or
in part by the Debtor or Reorganized Debtor, subject to the approval of the
Institutional Holders, without any notice to parties in interest or the Court
and without a hearing. The failure to satisfy or waive any condition to the
Consummation Date may be asserted by the Debtor or Reorganized Debtor regardless
of the circumstances giving rise to the failure of such condition to be
satisfied (including any action or inaction by the Debtor or Reorganized
Debtor). The failure of the Debtor or Reorganized Debtor to exercise any of the
foregoing rights will not be deemed a waiver of any other rights, and each such
right will be deemed an ongoing right that may be asserted at any time.
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H. EFFECTS OF CONFIRMATION
1. BINDING EFFECT
The Plan will be binding upon and inure to the benefit of the Debtor,
all present and former holders of Claims against and Interests in the Debtor,
their respective successors and assigns, including, but not limited to, the
Reorganized Debtor, and all other parties-in-interest in this Chapter 11 Case.
2. DISCHARGE OF THE DEBTOR
All consideration distributed under the Plan will be in exchange for,
and in complete satisfaction, settlement, discharge, and release of, all Claims
of any nature whatsoever against the Debtor or any of its assets or properties,
and, except as otherwise provided in the Plan or in the Confirmation Order.
Regardless of whether any property has been distributed or retained pursuant to
the Plan on account of such Claims, upon the Consummation Date, the Debtor will
be deemed discharged and released under Section 1141(d)(1)(A) of the Bankruptcy
Code from any and all Claims, including, but not limited to, demands and
liabilities that arose before the Confirmation Date, any liability (including
withdrawal liability) to the extent such Claims relate to services performed by
employees of the Debtor prior to the Petition Date and that arises from a
termination of employment or a termination of any employee or retiree benefit
program regardless of whether such termination occurred prior to or after the
Confirmation Date, and all debts of the kind specified in Sections 502(g),
502(h) or 502(i) of the Bankruptcy Code, whether or not (a) a proof of Claim
based upon such debt is filed or deemed filed under Section 501 of the
Bankruptcy Code, (b) a Claim based upon such debt is Allowed under Section 502
of the Bankruptcy Code, or (c) the holder of a Claim based upon such debt
accepted the Plan. The Confirmation Order shall be a judicial determination of
discharge of all liabilities of the Debtor, subject to the Consummation Date
occurring.
3. PERMANENT INJUNCTION
Except as otherwise expressly provided in the Plan or the Confirmation
Order, all entities who have held, hold or may hold Claims against, or Interests
in, the Debtor will be permanently enjoined, on and after the Consummation Date,
from (i) commencing or continuing in any manner any action or other proceeding
of any kind with respect to any such Claim or Interest, (ii) the enforcement,
attachment, collection, or recovery by any manner or means of any judgment,
award, decree or order against the Debtor on account of any such Claim or
Interest, (iii) creating, perfecting, or enforcing any encumbrance of any kind
against the Debtor or against the property or interests in property of the
Debtor on account of any such Claim or Interest, and (iv) asserting any right of
setoff, subrogation, or recoupment of any kind against any obligation due from
the Debtor or against the property or interests in property of the Debtor on
account of any such Claim or Interest. The foregoing injunction will extend to
successors of the Debtor (including, without limitation, the Reorganized Debtor)
and their respective properties and interests in property.
4. RELEASES
The valuable consideration provided for in the Plan is in full
satisfaction, settlement, release and discharge of all Claims against and
Interests in the Debtor and its Estate. Effective as of the Confirmation Date,
but subject to the occurrence of the Consummation Date, and except as otherwise
provided in the Plan or the Confirmation Order, (i) the Debtor will be deemed to
have released the officers and directors of the Debtor serving as of the
Consummation Date, and (ii) all holders of Allowed Class 5 Senior Note Claims
and Allowed Class 6 Equity Securities Interests will be deemed to have released
the Debtor, its Estate, and, to the extent permitted by applicable law, the
officers and directors of the Debtor serving as of the Consummation Date, from
all Claims, obligations, rights, causes of action or liabilities which any such
Person is, or may be, entitled to assert, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, based in whole or in part upon any
act or omission, transaction, or occurrence taking place on or before the
Consummation Date in any way relating to the Debtor, this Chapter 11 Case, or
the Plan.
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VIII. CERTAIN FACTORS TO BE CONSIDERED
Holders of Impaired Claims and Interests who are entitled to vote on
the Plan should carefully consider the following factors, as well as the other
information set forth in this Disclosure Statement (and the documents delivered
together herewith and/or incorporated by reference), before deciding whether to
vote to accept or to reject the Plan. This information, however, should not be
regarded as the only risks involved in connection with the Plan and its
implementation.
A. GENERAL CONDITIONS
The formulation of a reorganization plan is the principal purpose of a
Chapter 11 case. The Plan sets forth the means for satisfying the holders of
Claims against, or Interests in, Eagle. Reorganization of Eagle's business and
operations under the proposed Plan also avoids the potentially adverse impact of
a liquidation on Eagle's employees, and many of its customers, trade vendors,
suppliers of goods and services and lessors.
B. MAINTENANCE OF OPERATIONS AND POSTPETITION FINANCING
The Debtor believes that commencement of the Chapter 11 Case should not
materially adversely affect its relationships with its trade vendors, provided
that the Debtor can demonstrate (i) sufficient liquidity to continue to operate
its businesses and (ii) a likelihood of success for the Plan in a reasonably
short time frame. The Debtor further believes that, together, its operating
revenues and the proceeds of the DIP Facility will provide sufficient funds to
finance its operations following the commencement of the Chapter 11 Case.
Although the Debtor believes that it will have sufficient funds to meet its
postpetition obligations and its obligations under the Plan, the failure of the
Debtor to obtain sufficient funds to meet these obligations would pose serious
risks to the Debtor's continued viability, and could preclude consummation of
the Plan or any other recapitalization or reorganization.
As described elsewhere in this Disclosure Statement, the Debtor has
reached an agreement with Congress for a DIP Facility in the aggregate principal
amount of $50 million. SEE "Financing During the Chapter 11 Case -- The DIP
Facility." Congress also has committed to provide exit financing, conditioned
upon confirmation and consummation of the Plan. The Debtor's inability to obtain
confirmation of the Plan thus would jeopardize its continued access to a working
capital credit line. Finally, it is possible that despite the Debtor's strong
belief otherwise, the commencement of the Chapter 11 Case could materially
adversely affect the relationships between the Debtor and the trade vendors. If
such relationships were materially adversely affected, the working capital
available to the Debtor could be rapidly depleted. This depletion, in turn,
could adversely affect the Debtor's ability to obtain confirmation of the Plan.
C. COMPETITION
The retail supermarket business is highly competitive. The Debtor
competes directly with national, regional and local chains as well as
independent supermarkets, warehouse stores, membership warehouse clubs,
supercenters, limited assortment stores, discount drug stores and convenience
stores. The Debtor also competes with local food stores, specialty food stores
(including bakeries, fish markets and butcher shops), restaurants and fast food
chains. The principal competitive factors include store location, price,
service, convenience, product quality and variety. The number and type of
competitors vary by location, and the Debtor's competitive position varies
according to the individual markets in which the Debtor operates.
The Debtor's principal competitors operate under the trade names of
Cub, Dominicks, Hy-Vee, Jewel Osco, Kmart, Kroger, Shop-N-Save, Target and
Wal-Mart (Supercenters and Sam's Clubs). The Debtor's management believes that
its principal competitive advantages are its value perception, the attractive
Eagle Country Market store format, concentration in certain markets and
expansion of service and product offerings. The Debtor is, and will continue to
be, at a competitive disadvantage to some of its competitors because it has
unionized associates. In addition, supercenters continue to open in markets
served by the Debtor. Not only does this format add new grocery square footage
to the market, but it offers traditional grocery products at low prices to
attract customers to the location with the intent to draw them to the general
merchandise side of the store. These new competitors operate at a significant
cost advantage to supermarkets by using mostly part-time, non-union employees.
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D. CERTAIN BANKRUPTCY CONSIDERATIONS
1. FAILURE TO CONFIRM THE PLAN
Even if all of the Classes entitled to vote on the Plan vote to accept
the Plan, the Court, which, as a court of equity may exercise substantial
discretion, may choose not to confirm the Plan. Section 1129 of the Bankruptcy
Code requires, among other things, a showing that confirmation of the Plan will
not be followed by liquidation or the need for further financial reorganization
of the Debtor (SEE "Confirmation of the Plan -- Feasibility"), and that the
value of distributions to dissenting holders of Claims and Interests may not be
less than the value such holders would receive if the Debtor were liquidated
under Chapter 7 of the Bankruptcy Code (SEE "Confirmation of the Plan -- Best
Interests Test"). Although the Debtor believes that the Plan will meet such
tests, there can be no assurance that the Court will reach the same conclusion.
2. FAILURE TO CONSUMMATE THE PLAN
Consummation of the Plan is conditioned upon, among other things, (a)
entry of the Confirmation Order and an order (which may be the Confirmation
Order) approving the assumption and assignment of all executory contracts and
unexpired leases (other than those specifically rejected by the Debtor ) to the
Reorganized Debtor or its assignees and, (b) the negotiation and execution of
(i) the New Senior Notes Indenture, and (ii) the definitive agreement governing
the New Senior Secured Facility. As of the date of this Disclosure Statement,
there can be no assurance that any or all of the foregoing conditions will be
met (or waived) or that the other conditions to consummation, if any, will be
satisfied. Accordingly, even if the Plan is confirmed by the Court, there can be
no assurance that the Plan will be consummated.
E. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS
The Projections set forth in Exhibit E hereto cover the Debtor's
operations through the period ending May 1, 2002. These Projections are based on
numerous assumptions that are an integral part of the Projections, including
confirmation and consummation of the Plan in accordance with its terms, the
anticipated future performance of the Reorganized Debtor, industry performance,
general business and economic conditions, competition, adequate financing,
absence of material contingent or unliquidated litigation or other similar
claims, and other matters, many of which are beyond the control of the
Reorganized Debtor and some or all of which may not materialize. In addition,
unanticipated events and circumstances occurring subsequent to the date of this
Disclosure Statement may affect the actual financial results of the Reorganized
Debtor's operations. These variations may be material and may adversely affect
the ability of the Reorganized Debtor to pay the obligations owing to certain
holders of Claims entitled to distributions under the Plan and other
post-Consummation Date indebtedness. Because the actual results achieved
throughout the periods covered by the Projections may vary from the projected
results, the Projections should not be relied upon as a guaranty,
representation, or other assurance of the actual results that will occur.
F. RISKS ASSOCIATED WITH NEW SENIOR SECURED FACILITY
The Debtor's operations are dependent on the availability and cost of
working capital financing and may be adversely affected by any shortage or
increased cost of such financing. It is anticipated that the New Senior Secured
Facility will provide credit availability of up to $50 million. That Facility
will be secured by a first priority lien on the Debtor's inventory, subject only
to the contractual subordination to SuperValu in such inventory. The Debtor
anticipates that the New Senior Secured Facility would be used to (a) fund the
Plan and (b) provide working capital. The maturity of the New Senior Secured
Facility is contemplated as April 15, 2002 and it is expected to contain
substantially the same terms and conditions as the Revolving Credit Facility.
The parties continue to negotiate the terms of the New Senior Secured Facility,
and there can be no assurances that the terms of such a Facility will not differ
materially from the terms described herein.
The Debtors believe that substantially all of their needs for funds
necessary to consummate the Plan and for post-Consummation Date working capital
financing will be met by projected operating cash flow and the New Senior
Secured Facility. The proposed New Senior Secured Facility may contain certain
conditions and covenants that the Debtor may not be able to meet, however. If
the Debtor requires working capital greater than that provided by the New Senior
Secured Facility, it may be required either to (a) seek to increase the
availability under the New Senior Secured Facility, (b) obtain other sources of
financing or (c) curtail operations. Some of the factors which may affect the
amount of financing required to consummate the Plan include, without limitation,
a delay in consummating the Plan and the Debtor's ability to reject leases and
limit claims against the estate. The Debtor believes that the recapitalization
to be accomplished through the Plan will facilitate the Debtor's ability to
obtain
36
additional or replacement working capital financing. No assurance can be given,
however, that any additional replacement financing will be available on terms
that are favorable or acceptable to the Debtor. Moreover, there can be no
assurance that the Debtor will be able to obtain an acceptable credit facility
upon expiration of the New Senior Secured Facility.
G. PAYMENT OF NEW SENIOR NOTES
There can be no assurance that Eagle will generate sufficient cash from
operations after the Consummation Date in order to enable Eagle to satisfy the
New Senior Notes at maturity and, thus, the payment on such Notes at maturity
may be dependent upon the ability of Reorganized Eagle to refinance the
indebtedness under the New Senior Notes or to raise sufficient equity capital to
make such payment.
H. INSTITUTIONAL HOLDERS LOCK-UP AGREEMENTS
The Plan is structured to implement the terms agreed to between the
Debtor and certain Institutional Holders memorialized in the Lock-Up Agreements.
Pursuant to the Lock-Up Agreements the holders of in excess of twenty-nine
percent (29%) in the amount of Senior Note Claims have agreed, subject to the
terms of the Lock-up Agreements, to vote for the Plan. Although the Debtor is in
compliance with the Lock-up Agreements, any significant delay in the Chapter 11
process will [permit] the Institutional Holdings to withdraw their support for
the Plan, and under such circumstances, acceptance of the Plan by Class 5 would
be less likely. Accordingly, there can be no assurance that the Debtor's Plan
will gain the favorable vote of Class 6.
I. UNIMPAIRED CLAIMS
The Plan provides that the only claims against the Debtor that are
Impaired are the claims set forth in Classes 4, 5 and 6. All other claims
against the Debtor are being left Unimpaired under the Plan. The Unimpaired
Claims include, but are not limited to, certain claims of employees for
severance/retirement obligations, contingent liabilities relating to
indemnification, certain indemnification claims of current and former directors
and officers assumed pursuant to the Plan, certain litigation claims, certain
claims arising out of services rendered and goods sold and certain other
contingent and unliquidated obligations. To the extent that such claims are
required to be reflected on financial statements, the Debtor believes that its
financial statements and projected financial statements properly reflect these
claims in accordance with generally accepted accounting principles. However, the
actual amount of such claims may materially differ from those set forth in the
financial statements and projections. Moreover, many Unimpaired Claims are of an
off-balance sheet nature and the Debtor's liability as to such claims cannot be
and has not been estimated. Further, there are likely to be Unimpaired Claims
that exist which the Debtor is not aware of at this time. The Debtor is taking
no action in the Chapter 11 Case to estimate, disallow, liquidate or otherwise
cap or quantify any Unimpaired Claims except with respect to those claims
arising in connection with the rejection of certain nonresidential real property
leases. The liability of the Debtor as to the Unimpaired Claims after their
emergence from Chapter 11 will not have been reduced or otherwise affected by
the Chapter 11 Case or the Plan. There can be no assurance that the Debtor's
financial position and results of operations after emergence from Chapter 11
pursuant to the Plan could not be materially and adversely affected by the
Unimpaired Claims.
J. DIVIDENDS
The Debtor does not anticipate that any dividends will be paid with
respect to the Common Stock in the near term.
K. AFFILIATE STATUS
To the extend that persons deemed to be "underwriters" receive New
Securities issued pursuant to the Plan, such persons do not receive the
exemption from the securities laws under section 1145 of the Bankruptcy Code.
Whether or not any particular person would be deemed to be an "underwriter" with
respect to any security to be issued pursuant to the Plan would depend upon
various facts and circumstances applicable to that person. Accordingly, the
Debtor expresses no view as to whether any person would be an "underwriter" with
respect to any security to be issued pursuant to the Plan. Given the complex,
subjective nature of the question of whether a particular person may be an
underwriter, the Debtor makes no representations concerning the right of any
person to trade in the New Securities to be transferred pursuant to the Plan.
The Debtor recommends that holders of Claims receiving New Securities pursuant
to the Plan consult their own counsel concerning whether they may freely trade
such securities.
37
Persons that are "affiliates" of the Reorganized Debtor but not
otherwise "underwriters" within the meaning of section 1145(b) of the Bankruptcy
Code, may be able to sell the New Securities without registration, pursuant to
the exemption from registration provided by Rule 144 under the Securities Act.
Rule 144 permits "affiliates" of the issuer to sell, within any three-month
period, the greater of one percent (1%) of the share or other units of the class
outstanding, or the average weekly trading volume in such securities on all
national securities exchanges or automated quotation systems, during the four
calendar weeks preceding the date on which notice of such sale was filed
pursuant to Rule 144, subject to the satisfaction of certain other requirements
of Rule 144 regarding the manner of sale, notice requirements and the
availability of current public information regarding the issuer.
L. CERTAIN LITIGATION RISKS
As set forth in Article IV.H "Lucky Notice of Indemnification" and
Article V.B.2(c), Lucky has notified the Debtors that it has an unliquidated
indemnification claim against the Debtor as a result of the Debtor's rejection
of certain nonresidential real property leases. Although the Debtor believes
that valid defenses exist to the indemnification claim asserted by Lucky, if the
Debtor is unsuccessful in defending against Lucky's indemnification claim, which
claim Lucky has asserted could have a material and adverse effect on the
aggregate amount of Class 3 General Unsecured Claims or the post-consummation
operations of the Debtor.
M. CERTAIN TAX CONSIDERATIONS
THERE ARE A NUMBER OF MATERIAL INCOME TAX CONSIDERATIONS, RISKS AND
UNCERTAINTIES ASSOCIATED WITH CONSUMMATION OF THE PLAN. INTERESTED PARTIES
SHOULD READ CAREFULLY THE DISCUSSION SET FORTH IN THE SECTION OF THIS DISCLOSURE
STATEMENT, ENTITLED "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN" FOR A
DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES AND RISKS FOR HOLDERS
OF CLAIMS AND INTERESTS RESULTING FROM THE TRANSACTIONS OCCURRING IN CONNECTION
WITH THE PLAN.
IX. SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
On the Distribution Date or as soon thereafter as practicable, the
Reorganized Debtor will issue (i) the New Senior Notes and (ii) 10,939,048
shares of previously authorized, but unissued, Common Stock (referred to
collectively in the Plan as the "New Securities"). The New Securities will be
issued for distribution to the Indenture Trustee, for the ratable benefit of all
holders of Allowed Class 5 Senior Notes Claims, in accordance with Article VI of
the Plan.
The following discussion summarizes the material provisions of the New
Senior Notes and Common Stock, including references, where applicable, to the
Amended Eagle Certificate of Incorporation and By-laws. This summary does not
purport to be complete and is qualified in its entirety by reference to the full
text of the New Senior Notes Indenture and Amended Eagle Certificate of
Incorporation and By-laws.
A. DESCRIPTION OF NEW SENIOR NOTES
The principal terms of the New Senior Notes are set forth below. The
following summary is qualified by reference to, and may be modified by, the form
of New Senior Notes Indenture that will be included in the Plan Supplement as
Exhibit C to the Plan.
ISSUER: Eagle Food Centers, Inc. (the "Issuer")
SECURITY: 11% Senior Notes
MATURITY: April 15, 2005
INTEREST RATE: 11% per annum
REDUCTION IN PRINCIPAL AMOUNT: $15 million in the aggregate (relative
to the existing Senior Notes)
38
OPTIONAL REDEMPTION: The Issuer may, at its option, redeem all or
a portion of the New Senior Notes at a
redemption price of 100% of the principal
amount plus accrued interest to the
applicable redemption date
COVENANTS: Substantially similar to covenants in
existing Senior Notes, EXCEPT that the
Issuer may complete sale-leaseback
transactions with its existing owned stores
and any new stores opened by the Issuer;
PROVIDED, HOWEVER, that at least 25% of the
proceeds of any sale-leaseback transaction
must be used to reduce the principal amount
outstanding of New Senior Notes
INTEREST PAYMENT: On the Distribution Date, or as soon
thereafter as practicable, the Issuer shall
make, as contemplated by this Agreement, a
cash payment to the Noteholders for the
accrued and unpaid interest under Old
Indenture
CONSENT PAYMENT: None
EQUITY PARTICIPATION: Up to 15% of the fully-diluted Common Stock
of the Issuer, subject to the following
conditions:
- If the Issuer is sold or the Senior
Notes are redeemed prior to October
15, 2001, the Issuer will be
entitled to the return of 2/3 of
the Common Stock previously
distributed to the Indenture
Trustee for the benefit of the
Senior Note holders
- If the Issuer is sold or the Senior
Notes are redeemed prior to October
15, 2002, the Issuer will be
entitled to the return of 1/3 of
the Common Stock previously
distributed to the Indenture
Trustee for the benefit of the
Senior Note holders
- If the Issuer is not sold and the
Senior Notes are not redeemed prior
to October 15, 2002, the Issuer
will not be entitled to the return
of any portion of the Common Stock
previously distributed to the
Indenture Trustee for the benefit
of the Senior Note holders
RATING: Within 30 days of the Consummation Date, the
Issuer will use its best efforts to cause
the New Senior Notes to be rated either by
Moody's Investor Service, Inc. or Standard
and Poors.
OTHER CONDITIONS: Issuer to pay all professional fees incurred
by Senior Note holders
B. RESALE OF NEW SECURITIES OF THE REORGANIZED DEBTOR
1. REGISTRATION OF SECURITIES
Under Section 1145(a) of the Bankruptcy Code, the issuance of the New
Senior Notes and Common Stock to be distributed under the Plan in exchange for
the Allowed Class 5 Senior Note Claims against the Debtor and the subsequent
resale of such securities by entities that are not "underwriters" (as defined in
Section 1145(b) of the Bankruptcy Code) are not subject to the registration
requirements of Section 5 of the Securities Act of 1933. BECAUSE OF THE COMPLEX,
SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR HOLDER MAY BE AN
UNDERWRITER, THE DEBTOR MAKES NO REPRESENTATION CONCERNING THE ABILITY OF ANY
PERSON TO DISPOSE OF THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN.
Section 1145(b)(1) of the Bankruptcy Code provides:
(b) (1) EXCEPT AS PROVIDED IN PARAGRAPH (2) OF THIS SUBSECTION AND EXCEPT
WITH RESPECT TO ORDINARY TRADING TRANSACTIONS OF AN ENTITY THAT IS NOT
AN ISSUER, AN ENTITY IS AN UNDERWRITER UNDER SECTION 2(11) OF THE
SECURITIES ACT OF 1933, IF SUCH ENTITY --
39
(A) PURCHASES A CLAIM AGAINST, INTEREST IN, OR CLAIM FOR AN
ADMINISTRATIVE EXPENSE IN THE CASE CONCERNING, THE DEBTOR, IF SUCH
PURCHASE IS WITH A VIEW TO DISTRIBUTION OF ANY SECURITY RECEIVED
OR TO BE RECEIVED IN EXCHANGE FOR SUCH A CLAIM OR INTEREST;
(B) OFFERS TO SELL SECURITIES OFFERED OR SOLD UNDER THE PLAN FOR THE
HOLDERS OF SUCH SECURITIES;
(C) OFFERS TO BUY SECURITIES OFFERED OR SOLD UNDER THE PLAN FROM THE
HOLDERS OF SUCH SECURITIES, IF SUCH OFFER TO BUY IS --
(I) WITH A VIEW TO DISTRIBUTION OF SUCH SECURITIES; AND
(II)UNDER AN AGREEMENT MADE IN CONNECTION WITH THE PLAN, WITH THE
CONSUMMATION OF THE PLAN, OR WITH THE OFFER OR SALE OF
SECURITIES UNDER THE PLAN; OR
(D) IS AN ISSUER, AS USED IN SUCH SECTION 2(11), WITH RESPECT TO SUCH
SECURITIES.
(2) AN ENTITY IS NOT AN UNDERWRITER UNDER SECTION 2(11) OF THE SECURITIES
ACT OF 1933 OR UNDER PARAGRAPH (1) OF THIS SUBSECTION WITH RESPECT TO
AN AGREEMENT THAT PROVIDES ONLY FOR --
(A) (I) THE MATCHING OR COMBINING OF FRACTIONAL INTERESTS IN
SECURITIES OFFERED OR SOLD UNDER THE PLAN INTO WHOLE
INTERESTS, OR
(II)THE PURCHASE OR SALE OF SUCH FRACTIONAL INTERESTS FROM OR TO
ENTITIES RECEIVING SUCH FRACTIONAL INTERESTS UNDER THE PLAN;
OR
(B) THE PURCHASE OR SALE FOR SUCH ENTITIES OF SUCH FRACTIONAL OR WHOLE
INTERESTS AS ARE NECESSARY TO ADJUST FOR ANY REMAINING FRACTIONAL
INTERESTS AFTER SUCH MATCHING.
(3) AN ENTITY OTHER THAN AN ENTITY OF THE KIND SPECIFIED IN PARAGRAPH (1)
OF THIS SUBSECTION IS NOT AN UNDERWRITER UNDER SECTION 2(11) OF THE
SECURITIES ACT OF 1933 WITH RESPECT TO ANY SECURITIES OFFERED OR SOLD
TO SUCH ENTITY IN THE MANNER SPECIFIED IN SUBSECTION (A)(1) OF THIS
SECTION.
(c) AN OFFER OR SALE OF SECURITIES OF THE KIND AND IN THE MANNER SPECIFIED
UNDER SUBSECTION (A)(1) OF THIS SECTION IS DEEMED TO BE A PUBLIC
OFFERING.
(d) THE TRUST INDENTURE ACT OF 1939 DOES NOT APPLY TO A NOTE ISSUED UNDER
THE PLAN THAT MATURES NOT LATER THAN ONE YEAR AFTER EFFECTIVE DATE OF
THE PLAN.
The Debtor has no present intention to register under section 12 of the
Securities Exchange Act of 1934 the New Senior Notes to be distributed to
holders of Allowed Class 5 Senior Note Claims on account of and in exchange for
such Claims. The Common Stock to be distributed to the holders of such Claims is
registered under section 12 of the Securities Exchange Act of 1934.
2. LACK OF ESTABLISHED MARKET FOR NEW SENIOR NOTES
There may be certain restrictions on the ability of holders of New
Senior Notes to sell, transfer, or otherwise freely dispose of such New Senior
Notes received under the Plan if the holders are "issuers" or "dealers" under
sections 2(11) and 2(12), respectively, of the Securities Act of 1933, or
"underwriters," as defined in Section 1145(b) of the Bankruptcy Code. Moreover,
the New Senior Notes will be issued under the Plan to holders of Allowed Class 5
Senior Note Claims, some of whom may prefer to liquidate their investment rather
than hold such securities on a long-term basis. Accordingly, the market for the
New Senior Notes may be volatile, at least for an initial period after the
Distribution Date, and indeed may be depressed for a period of time immediately
following the Distribution Date until the market has had time to absorb these
sales and to observe the post-Consummation Date performance of the Reorganized
Debtor.
40
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN ANTICIPATED FEDERAL INCOME
TAX CONSEQUENCES OF THE TRANSACTIONS PROPOSED IN THE PLAN TO THE DEBTOR AND TO
THE CREDITORS AND SHAREHOLDERS AND HOLDERS OF OTHER EQUITY SECURITIES OF THE
DEBTOR. THIS SUMMARY IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS BASED ON
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "IRC"), THE TREASURY
REGULATIONS PROMULGATED THEREUNDER, JUDICIAL AUTHORITY AND CURRENT
ADMINISTRATIVE RULINGS AND PRACTICE, ALL AS IN EFFECT AS OF THE DATE HEREOF AND
ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT THAT COULD
ADVERSELY AFFECT THE DEBTOR, ITS CREDITORS AND ITS EQUITY SECURITY HOLDERS.
THE SUMMARY DOES NOT ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF A CLAIM IN LIGHT OF ITS
PARTICULAR FACTS AND CIRCUMSTANCES OR TO CERTAIN TYPES OF HOLDERS OF CLAIMS OR
INTERESTS SUBJECT TO SPECIAL TREATMENT UNDER THE IRC (FOR EXAMPLE, FOREIGNERS,
FINANCIAL INSTITUTIONS, BROKER-DEALERS, LIFE INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS AND OTHER HOLDERS WHOSE CLAIMS OR INTERESTS ARE NOT HELD AS
CAPITAL ASSETS INCLUDING HOLDERS OF EQUITY SECURITIES RECEIVED IN CONNECTION
WITH THE PERFORMANCE OF SERVICES) AND ALSO DOES NOT DISCUSS ANY ASPECTS OF
STATE, LOCAL, OR FOREIGN TAXATION. ALSO, THIS SUMMARY DOES NOT ADDRESS THE
FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 4 CLAIMS.
IN ADDITION, A SUBSTANTIAL AMOUNT OF TIME MAY ELAPSE BETWEEN THE
CONFIRMATION DATE AND THE RECEIPT OF A FINAL DISTRIBUTION UNDER THE PLAN. EVENTS
SUBSEQUENT TO THE DATE OF THIS DISCLOSURE STATEMENT, SUCH AS THE ENACTMENT OF
ADDITIONAL TAX LEGISLATION, COURT DECISIONS OR ADMINISTRATIVE CHANGES, COULD
AFFECT THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND THE TRANSACTIONS
CONTEMPLATED THEREUNDER. NO RULING WILL BE SOUGHT FROM THE INTERNAL REVENUE
SERVICE (THE "SERVICE") WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN AND
NO OPINION OF COUNSEL HAS HERETOFORE BEEN OBTAINED BY THE DEBTOR WITH RESPECT
THERETO. ACCORDINGLY, EACH HOLDER OF A CLAIM OR INTEREST IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE PLAN.
A. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTOR
1. CANCELLATION OF INDEBTEDNESS INCOME
A taxpayer generally must include in gross income the amount of any
discharged indebtedness realized during the taxable year, except to the extent
payment of such indebtedness would have given rise to a deduction. Such amounts,
however, are not included in income where the discharge of indebtedness is
accomplished pursuant to a plan approved by the court in a case under the
Bankruptcy Code. Instead, the amount of discharged indebtedness that would
otherwise have been required to be included in income will generally be applied
to reduce certain tax attributes of the taxpayer in the following order: net
operating loss carryovers ("NOLs"), general business credit carryovers, capital
loss carryovers, the taxpayer's basis in property and foreign tax credit
carryovers.
Under the Plan, satisfaction of the Claims would give rise to discharge
of indebtedness income to the Reorganized Debtor in an amount equal to the
difference between (i) the sum of the adjusted issue prices of those Claims that
constitute securities for federal income tax purposes and the amount of those
Claims that do not so constitute securities and (ii) the sum of (a) the amount
of Cash, if any, paid by the Reorganized Debtor in partial satisfaction of such
Claims and (b) the issue price of any debt instrument and the fair market value
of stock and other consideration issued in satisfaction of such Claims, except
to the extent that the discharged Claims would have given rise to a deduction
had they been paid in full and a deduction for such amounts has not already been
claimed.
The Debtor estimates that as of June 1, 2000, the amount of its
indebtedness that would be impaired under the Plan is approximately $107.5
million, and that the aggregate amount of consideration to be issued in
satisfaction of such indebtedness is approximately $107.5 million as determined
for federal income tax purposes based on the projected recoveries under the
Plan,
41
resulting in no discharge of indebtedness. The foregoing dollar figures assume
that the fair market value of the Common Stock to be received by the holders of
Senior Note Claims is $1.5 million and the issue price (I.E., the fair market
value on the Consummation Date) of the New Senior Notes (provided that public
trading occurs on an "established securities market") is $83.5 million. To the
extent the fair market value of such Common Stock and the issue price of the New
Senior Notes differs from $1.5 million and $83.5 million, respectively, the
foregoing dollar figures must be adjusted accordingly. In addition, the
appropriate valuation of the consideration to be paid, is subject to both legal
and factual uncertainty (including issues relating to the proper classification
of the securities to be issued, whether or not they are publicly traded and
other factors discussed), and thus the amount of discharge of indebtedness could
differ substantially from the amounts set forth above.
Because the discharge, if any, will be accomplished pursuant to a plan
approved by a court in a case under the Bankruptcy Code and affects certain
accruals which have not been deducted in computing taxable income, the
Reorganized Debtor would not be required to recognize income in respect of such
discharge. Instead, the amount of such discharge (less the amount of discharged
accruals which have not been deducted in computing taxable income), if any,
would reduce tax attributes existing after the determination of the Reorganized
Debtor's taxable income for the taxable year in which the discharge occurs.
2. AMOUNT AND UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS
(a) General Limitation on Utilization of NOLs Following
an Ownership Change
Based on its tax returns as filed and its estimates for its fiscal year
ended January 31, 2000 the Debtor believes that, as of January 31, 2000, it had
approximately $28.6 million of NOLs on a consolidated federal income tax basis
("Consolidated NOLs"), all of which are separately allocable to the Debtor. The
Debtor estimates that following consummation of the Plan (and application of the
discharge of indebtedness rules discussed above), it will have Consolidated NOLs
of approximately $27.4 million, all of which will be separately allocable to the
Reorganized Debtor.
In general, a corporation is permitted to carry forward an unutilized
net operating loss for 15 years (20 years for such losses incurred in taxable
years beginning after August 5, 1997) following the year in which the net
operating loss is incurred and may use such NOLs to offset taxable income
recognized in years prior to expiration of the NOLs. The expirations of the
Debtor's NOL carryforwards occur in fiscal years 2010 through 2019.
The Debtor does not expect that as a result of the issuance of Common
Stock to holders of Allowed Class 5 Senior Note Claims pursuant to the Plan, the
Debtor or any of its consolidated Subsidiaries will experience an "ownership
change" as defined in Section 382(g) of the Tax Code. In general, an ownership
change for these purposes occurs when the total percentage of stock (determined
on the basis of value) of a corporation owned by one or more "5% shareholders"
of the corporation has increased by more than 50 percentage points of the total
amount of stock in the corporation over the lowest total of the percentage of
such stock that was owned by such "5% shareholders" at any time during the
applicable testing period. For these purposes, certain "public groups" of
less-than 5% shareholders are treated as a single 5% shareholder. The testing
period is generally the shorter of (i) three years or (ii) the period of time
since the corporation's most recent prior ownership change.
Section 382 of the Tax Code generally restricts a corporation's
utilization of its NOLs after the corporation undergoes an ownership change by
limiting the amount of income earned by the corporation after the ownership
change that may be offset by the NOLs that arose prior to the ownership change
to an annual amount equal to the equity value of the corporation on the Change
Date multiplied by the "long term tax-exempt rate," currently 5.73% (the
"Section 382 Limitation"). Where the general Section 382 Limitation applies, if
the loss corporation does not continue its pre-ownership-change business
enterprise for two years following the Change Date, its Section 382 Limitation
will be zero (the "Continuity of Business Requirement").
(b) The Bankruptcy Exception
Notwithstanding an ownership change under Section 382(g) of the Tax
Code, the Section 382 Limitation does not apply (unless the corporation elects
for it to apply), where (i) immediately before the ownership change the
corporation is under the jurisdiction of a court pursuant to Chapter 11 of the
Bankruptcy Code, (ii) such ownership change results from the court-approved plan
of reorganization and (iii) the post-reorganization stock ownership of the
corporation satisfies certain conditions (the "Bankruptcy Exception"). The stock
ownership condition requires that the stockholders and certain creditors of the
corporation (described below), determined immediately before the ownership
change, own (after such ownership change and as a result of being stockholders
or creditors immediately before such change) in the aggregate, stock of the
corporation having 50% or more
42
of both the value and voting power of the total outstanding stock of the
reorganized corporation. For purposes of the Bankruptcy Exception, stock
received by creditors in satisfaction of their debt claims against the
corporation will only be counted to the extent such creditors received such
stock in satisfaction of (i) indebtedness held by such creditors for at least 18
months before the filing of the Chapter 11 petition with respect to the
corporation or (ii) indebtedness which arose in the ordinary course of the trade
or business of the corporation and which at all times has been held by such
creditors. For purposes of determining whether the post-reorganization stock
ownership requirements are met, the Reorganized Debtor generally must determine
whether a creditor who becomes a 5% shareholder as a result of the
reorganization held the debt for the requisite 18 months prior to the
commencement of the Chapter 11 Case, and may rely on a written statement of the
creditor, signed under penalties of perjury, to that effect. In general, absent
actual knowledge to the contrary, the Reorganized Debtor may presume that a
creditor that is not a 5% shareholder immediately after the ownership change
held the debt for the 18-month period.
As stated above, the Debtor does not expect that an ownership change
will occur as a result of the confirmation of the Plan by the Court. In the
event that such an ownership change were to occur, the Reorganized Debtor will
evaluate whether to make the election to have the Section 382 Limitation apply
in lieu of the Bankruptcy Exception, in the event that the post-Consummation
Date stock ownership and other requirements of the Bankruptcy Exception should
be met.
(c) Reduction in NOLs Required by Bankruptcy Exception
As stated above, in the event that an ownership change were to occur as
a result of the confirmation of the Plan, the Reorganized Debtor's NOLs would
not be subject to the Section 382 Limitation if the Bankruptcy Exception
applies, but its NOLs nevertheless would be reduced by any interest deductions
taken by the Debtor during the taxable year in which the Consummation Date
occurs, on or before such date, and the three preceding taxable years with
respect to indebtedness that was converted into, or exchanged for, stock
pursuant to the Plan.
(d) Risks of a Second Section 382(g) Ownership Change
The Reorganized Debtor's NOLs and other tax attributes would be
eliminated in their entirety if a second ownership change were to occur during
the two-year period following an ownership change if such a change were to occur
on the Consummation Date and the Bankruptcy Exception were to prevent the
Section 382 Limitation from applying to the Reorganized Debtor . Additionally,
an ownership change that occurs after the two-year period following the
Consummation Date would subject the Reorganized Debtor's utilization of its and
its consolidated group's pre-Consummation Date NOLs to the general Section 382
Limitation, and could impair or essentially eliminate the use of NOLs and other
tax attributes existing at the time of such second ownership change. There are
no restrictions on the transferability of Common Stock to avoid an ownership
change within the two years following the Consummation Date. Accordingly,
holders of Claims should not depend upon the continued existence or utilization
of the Debtor's Consolidated NOLs following consummation of the Plan.
3. DEDUCTIONS OF ACCRUED INTEREST AND ORIGINAL ISSUE DISCOUNT BY
THE REORGANIZED DEBTOR
To the extent a portion of the consideration issued to creditors
pursuant to the Plan is attributable to accrued and unpaid interest on their
Claims, the Reorganized Debtor would be entitled to interest deductions in the
amount of such accrued interest, to the extent the Debtor has not already
deducted such amounts. Although the amount of consideration allocable to accrued
interest where creditors are receiving less than the full principal amount of
their claims is unclear under present law, the Debtor intends to allocate the
full amount of the consideration transferred to creditors pursuant to the Plan
first to the principal amount of such creditors' Claims and only thereafter to
accrued interest on such creditors' Claims. The applicable high yield discount
obligation ("AHYDO") rules of sections 163(e)(5) and 163(i) of the Tax Code are
not expected to affect the Reorganized Debtor's ability to deduct interest
payments made on the New Senior Notes. If the AHYDO were to apply, the
Reorganized Debtor would not be entitled to deduct a portion of the original
issue discount accruing on the New Senior Notes and would be allowed to deduct
the remainder of the original issue discount only when paid. The AHYDO rules
apply to debt instruments that have a term of more than five years, have a yield
to maturity that equals or exceeds five percentage points over the "applicable
federal rate" and have "significant original issue discount." Because the amount
of original issue discount, if any, and the yield to maturity will be determined
at the time that a New Senior Note is issued, it is not possible to determine
the precise effect of the AHYDO rules were those rules to apply. However, the
Debtor does not believe that the AHYDO rules should materially adversely affect
the Reorganized Debtor. Moreover, if the AHYDO rules were to apply to a New
Senior Note, a corporate holder would be treated as receiving dividend income
(to the extent of the Reorganized Debtor's current and accumulated earnings and
profits) solely for
43
purposes of the dividends received deduction, with respect to that portion of
the original issue discount for which the Reorganized Debtor is denied a
deduction.
4. TAX CLASSIFICATION OF THE NEW SENIOR NOTES
The Debtor intends to take the position that the New Senior Notes are
debt for Federal income tax purposes. Accordingly, the Debtor intends to (i)
measure its discharge of indebtedness income with respect to the Senior Note
Claims by reference to the issue price of the New Senior Notes and (ii) deduct
as interest and report to holders as interest original issue discount as it
accrues on the New Senior Notes (except to the extent the AHYDO rules, as
discussed above, were to apply). The Debtor expects that the New Senior Notes
will be "traded on an established securities market" within the meaning of
Section 1273 of the Tax Code and applicable Treasury Regulations, and
accordingly, that their "issue price" will be their fair market value determined
as of the Consummation Date.
5. ALTERNATIVE MINIMUM TAX
For purposes of computing the Reorganized Debtor's regular tax
liability, all of the taxable income recognized in a taxable year generally may
be offset by the carryover of NOLs (to the extent permitted under the Tax Code).
Although all of the Reorganized Debtor's regular tax liability for a given year
may be reduced to zero by virtue of its NOLs, in any given year, the Reorganized
Debtor may be subject to the alternative minimum tax ("AMT"). The AMT imposes a
tax equal to the amount by which 20% of a corporation's alternative minimum
taxable income ("AMTI") exceeds the corporation's regular tax liability. AMTI is
calculated pursuant to specific rules in the Tax Code which eliminate or limit
the availability of certain tax deductions and which include as income certain
amounts not generally included in computing regular tax liability. Of particular
importance to the Reorganized Debtor is that in calculating AMTI, only 90% of a
corporation's AMTI may be offset by net operating loss carryovers (as computed
for these purposes). Thus, in any year for which the Reorganized Debtor may be
subject to the AMT, any AMTI recognized would be taxable at an effective rate of
2% (I.E., 10% of the 20% AMT tax rate), even if the Reorganized had sufficient
AMTI NOLs otherwise to completely eliminate its AMTI.
B. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS
1. CLASS 1 CLAIMS: OTHER PRIORITY CLAIMS; CLASS 2 CLAIMS: OTHER
SECURED CLAIMS; CLASS 3 CLAIMS: GENERAL UNSECURED CLAIMS
On the exchange of its Claim for cash or property, each holder of a
Class 1, 2, or 3 Claim will recognize gain or loss measured by the difference
between the amount realized on the exchange and its tax basis in such Claim. The
amount realized will be equal to the aggregate fair market value of the cash
and/or property received to the extent not allocable to interest. (SEE "Federal
Income Tax Consequences to the Debtor -- Deductions of Accrued Interest and
Original Issue Discount by the Reorganized Debtor.") The character and taxation
of any recognized gain or loss will depend on the status of the creditor, the
nature of the Claim in its hands and its holding period. To the extent a
creditor receives property constituting a new obligation which, under section
1001 of the IRC and the Treasury Regulations thereunder, does not differ
materially in kind or extent from such creditor's Claim, such new obligation
should be treated as a continuation of such Claim. As a result, to the extent
such new obligation is treated as a continuation of such Claim, there should be
no federal income tax consequences to such creditor. Each creditor should
consult with its own tax advisors regarding the consequences to it of receiving
cash or property, including a new obligation, in exchange in whole or in part
for its Claim.
2. CLASS 5 CLAIMS: SENIOR NOTE CLAIMS
(a) General
The federal income tax consequences of the implementation of the Plan
to a Class 5 creditor receiving the Class 5 Cash, New Senior Notes and Common
Stock under the Plan will depend primarily on a number of factors, including
whether the exchanged Senior Note Claim is an obligation that constitutes a
"security" for federal income tax purposes (a "Tax Security"), and, if a Senior
Note Claim constitutes a Tax Security, on whether the New Senior Notes
constitute Tax Securities and whether any of the Senior Note Claims, or the New
Senior Notes are considered traded on an established securities market
("publicly traded") for purposes of the original issue discount rules. The term
"security" is not defined in the Tax Code or the Treasury Regulations. Whether a
Senior Note Claim constitutes a Tax Security is based on the facts and
circumstances surrounding the
44
origin and nature of the Senior Note Claim, and its respective maturity date.
Generally, stock, and bonds or debentures with an original term of at least ten
years, have been considered to be Tax Securities. In contrast, instruments with
terms of five years or less rarely qualify as Tax Securities. The Debtor
believes that it is likely, although not entirely free from doubt, that the
Senior Notes should be treated as Tax Securities, and intends to take the
position that the New Senior Notes are Tax Securities for federal income tax
purposes.
The exchange of Senior Note Claims for Class 5 Cash, New Senior Notes
and Common Stock should constitute a recapitalization pursuant to a plan of
reorganization within the meaning of Section 368(a)(1)(E) of the Tax Code.
Accordingly, under current law (i) no gain (except as discussed below) or loss
should be recognized by holders of Senior Note Claims pursuant to the Plan, (ii)
except to the extent, if any, such Class 5 Cash or securities are treated as
received in satisfaction of interest accrued on such creditor's Claim after the
beginning of such creditor's holding period ("accrued interest") (SEE "Accrued
Interest on Senior Note Claims," below), holders of Senior Note Claims should
allocate their respective basis in such Claims as follows: (x) decrease such
basis by the amount of Class 5 Cash received (other than the amount of Class 5
Cash attributable to accrued interest), (y) increase such basis by the amount of
gain, if any, to be recognized as described below and (z) allocate such basis as
adjusted among the New Senior Notes and Common Stock received based on the
relative fair market value of such securities, and (iii) holders of Senior Note
Claims should have tax holding periods for the New Senior Notes and Common Stock
received in exchange for their Claims (except to the extent such securities are
attributable to accrued interest) that include their respective tax holding
periods for such Claims. The holders of Senior Notes Claims generally would
recognize gain with respect to the exchange equal to the lesser of (X) their
realized gain on the exchange (I.E., the sum of the Class 5 Cash received plus
the fair market value of the Common Stock received PLUS the issue price of the
New Senior Notes received (except to the extent such Class 5 Cash or securities
are attributable to accrued interest), LESS the holder's tax basis in such
Claims) and (Y) the Class 5 Cash received (except to the extent such Class 5
Cash are attributable to accrued interest). Although there can be no assurance,
the Debtor intends to take the position that all the Common Stock (including
Common Stock held by the Indenture Trustee) will be treated as received by the
holders of Senior Note Claims in the recapitalization.
(b) Accrued Interest on Senior Note Claims
As discussed above, the manner in which consideration is to be
allocated between accrued unpaid interest and principal of the Senior Note
Claims for federal income tax purposes is unclear under present law. Although
there can be no assurance with respect to the issue, the Debtor intends to take
the position that $5.5 of the consideration distributed to holders of Senior
Note Claims pursuant to the Plan is allocable to accrued and unpaid interest on
the Senior Note Claims. SEE "Federal Income Tax Consequences to The Debtor --
Deduction of Accrued Interest and Original Issue Discount by The Reorganized
Debtor," above.
A holder of a Senior Note Claim that previously included in income
accrued but unpaid interest attributable to its Senior Note Claim should
recognize an ordinary loss to the extent that such previously included accrued
interest exceeds the amount of consideration received by the holder that is
attributable to accrued interest for federal income tax purposes. To the extent
a holder of a Senior Note Claim did not previously include in income accrued but
unpaid interest attributable to its Senior Note Claim, any portion of the
consideration received that is allocable to accrued but unpaid interest should
be recognized as ordinary income, regardless of whether the holder realizes an
overall gain or loss upon the surrender of its Claim or whether such gain or
loss is recognized.
Notwithstanding the general discussion above, the basis of a holder of
a Senior Note Claim in New Senior Notes or Common Stock, as the case may be,
treated as received in satisfaction of accrued interest on the Senior Note
Claims, if any, should be equal to the amount of interest income treated as
satisfied by the receipt of such instruments. Additionally, a creditor's tax
holding period in such stock or notes, as the case may be, should begin on the
day following the date on which it has a right to receive such securities. To
the extent a creditor is treated as receiving stock or new securities in
exchange for accrued interest on its Claim, absent an express allocation, it is
unclear which of the Common Stock or New Senior Notes, as the case may be, would
be treated as satisfying any such accrued interest.
(c) Accrual of Interest on the New Senior Notes
As discussed above, it is not clear whether all the Common Stock held
by the Indenture Trustee will be treated as received by the holders of Senior
Note Claims. If the Common Stock held by the Indenture Trustee is treated as
having been received by the holders of Senior Note Claims at the confirmation of
the Plan, the New Senior Notes will not be treated as debt instruments subject
to the special regulations governing contingent payment debt instruments.
45
The New Senior Notes should be treated as issued with original issue
discount to the extent their "stated redemption price at maturity" exceeds their
"issue price" by more than a de minimis amount. An instrument's stated
redemption price at maturity includes all payments required to be made over the
term of the instrument other than payments of "qualified stated interest"
(defined generally as interest that is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate that appropriately takes into account the length of periods
between payments). Payments of interest on the New Senior Notes should
constitute qualified stated interest. Accordingly, the stated redemption price
at maturity of the New Senior Notes should equal their stated principal amount.
In addition, all interest on the New Senior Notes will be accounted for under
the method of accounting normally utilized by a holder of a Senior Note Claim to
compute its taxable income.
The determination of the "issue price" of the New Senior Notes depends
on whether either the Senior Note Claims or the New Senior Notes are "traded on
an established securities market" for purposes of the original issue discount
rules. Although the matter is not free from doubt, the Debtor believes that the
issue price of the New Senior Notes would be determined by reference to the
rules applicable to debt that is traded on an established securities market or
is issued in exchange for property traded on an established securities market.
Accordingly, the issue price of the New Senior Notes generally would be their
fair market value immediately following their issuance.
A holder of New Senior Notes would be required to include such original
issue discount, if any, in taxable income as it accrues using a constant yield
to maturity method, by allocating to each day during the taxable year in which
the holder holds the New Senior Note a PRO RATA portion of the original issue
discount on such debt instrument which is attributable to the "accrual period"
in which such day is included. The amount of the original issue discount which
is attributable to each full accrual period will be (x) the product of the
"adjusted issue price" at the beginning of such accrual period multiplied by the
"yield to maturity" of the debt instrument less (y) the amount of any qualified
stated interest allocable to the accrual period. The adjusted issue price is the
issue price of a debt instrument increased by the accrued original issue
discount for all prior accrual periods and decreased by certain payments (other
than payments of qualified stated interest) made by the issuer to the holder.
The yield to maturity is the discount rate, which when applied to all payments
under a debt instrument (including payments of qualified stated interest)
results in a present value equal to the issue price. As a consequence, if the
New Senior Notes are issued with original issue discount, a holder of New Senior
Notes generally would be required to include amounts of original issue discount
in its taxable income in advance of the receipt of cash attributable thereto.
The Debtor may determine that the New Senior Notes are to be treated as
debt instruments subject to the regulations governing contingent payments
because under certain circumstances the Common Stock held by the Indenture
Trustee may be returned to the Reorganized Debtor and not ultimately distributed
to the holders of Senior Note Claims. Under the regulations governing contingent
payments, interest accruals on the New Senior Notes would be computed by setting
up a projected payment schedule as of the issue date based on the hypothetical
yield of a comparable fixed rate debt instrument of the Reorganized Debtor (a
debt instrument without any contingent payments) and applying the original issue
discount rules according to that payment schedule. The payment schedule
generally consists of all fixed payments on the debt and a projected amount for
each contingent payment. If the actual amount of a contingent payment is not
equal to the projected amount, appropriate adjustments are made to reflect the
difference. The Debtor will provide such a projected payment schedule and the
associated comparable fixed rate yield in the event that it determines that the
regulations governing contingent payments apply to the New Senior Notes. The tax
basis of Common Stock received as a contingent payment will be the fair market
value of such stock on its date of receipt.
(d) Sale, Exchange or Redemption of Common Stock and New
Senior Notes
The sale or exchange of Common Stock generally should result in capital
gain or loss equal to the difference between the amount realized and the
holder's tax basis in such Common Stock. Depending upon the circumstances, a
redemption by the Reorganized Debtor of Common Stock may result in capital gain
or loss to the holder of such stock, or may be treated as a dividend, generally
taxable as ordinary income to the holder to the extent of the Reorganized
Debtor's earnings and profits at the time of the redemption. Although the issue
is not free from doubt, if the New Senior Notes are not treated as debt
instruments subject to the regulations governing contingent payments, a holder
of a New Senior Note should add its tax basis in shares of Common Stock that are
returned to the Reorganized Debtor by the Indenture to Trustee the tax basis of
the Common Stock actually received by such holder.
In general, if the New Senior Notes are not treated as debt instruments
subject to the regulations governing contingent payments, the sale, exchange or
redemption of the New Senior Notes would result in capital gain or loss equal to
the difference between the amount realized and the holder's tax basis in such
New Senior Notes. If subject to the regulations governing
46
contingent payments, any gain on the sale, exchange or redemption of the New
Senior Notes will be ordinary interest income. Any loss will be ordinary loss to
the extent of the interest previously included in income with respect to the New
Senior Note and, thereafter, capital loss.
If, contrary to the Debtor's intended reporting position, the New
Senior Notes are classified as equity, the sale or exchange of the New Senior
Notes generally should result in capital gain or loss equal to the difference
between the amount realized and the holder's tax basis in such New Senior Notes.
Depending upon the circumstances, a redemption by the Reorganized Debtor of New
Senior Notes may result in capital gain or loss to the holder of such notes, or
may be treated as a dividend, generally taxable as ordinary income to the holder
to the extent of the Reorganized Debtor's earnings and profits at the time of
the redemption.
XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtor believes that the Plan affords holders of Claims against and
Interests in the Debtor the potential for the greatest realization on the
Debtor's assets and, therefore, is in the best interests of such holders. If,
however, the Plan is not confirmed and consummated, the theoretical alternatives
include: (a) formulation of an alternative plan or plans of reorganization, or
(b) liquidation of the Debtor under Chapter 7 or 11 of the Bankruptcy Code.
A. ALTERNATIVE PLAN(S)
If the Plan is not confirmed, the Debtor (or, if the Debtor's exclusive
periods in which to file and solicit acceptances of a reorganization plan have
expired, any other party-in-interest) could attempt to formulate and propose a
different plan or plans of reorganization. Such a plan or plan(s) might involve
either a reorganization and continuation of the Debtor's businesses or an
orderly liquidation of assets.
With respect to an alternative plan, the Debtor has explored various
other alternatives in connection with the negotiation process involved in the
formulation and development of the Plan. The Debtor believes that the Plan, as
described herein, is the result of extensive negotiations between the Debtor and
various creditor constituencies, enables Creditors and Interest holders to
realize the greatest possible value under the circumstances, and, that as
compared to any alternative plan of reorganization, the Plan has the greatest
chance to be confirmed and consummated.
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If no plan is confirmed, the Chapter 11 Case may be converted to a case
under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be
elected or appointed to liquidate the Debtor's assets for distribution to
creditors in accordance with the priorities specified by the Bankruptcy Code. It
is impossible to predict precisely how the proceeds of the liquidation would be
distributed to the respective holders of Claims against or Interests in the
Debtors.
The Debtor believes that in a liquidation under Chapter 7, before
creditors received any distribution, additional administrative expenses involved
in the appointment of a trustee or trustees and attorneys, accountants and other
professionals to assist such trustees would cause a substantial diminution in
the value of the Debtor's Estate. The assets available for distribution to
creditors would be reduced by such additional expenses and by Claims, some of
which would be entitled to priority, which would arise by reason of the
liquidation and from the rejection of leases and other executory contracts in
connection with the cessation of operations and the failure to realize the
greater going concern value of the Debtor's assets.
The Debtor also could be liquidated pursuant to the provisions of a
Chapter 11 plan of liquidation. In a liquidation under Chapter 11, the Debtor's
assets could be sold in an orderly fashion over a more extended period of time
than in a liquidation under Chapter 7. Thus, a Chapter 11 liquidation might
result in larger recoveries than in a Chapter 7 liquidation, but the delay in
distributions could result in lower present values received and higher
administrative costs. Because a trustee is not required in a Chapter 11 case,
expenses for professional fees could be lower than in a Chapter 7 case, in which
a trustee must be appointed. Any distribution to the holders of Claims or
Interests under a Chapter 11 liquidation plan probably would be delayed
substantially.
Although preferable to a Chapter 7 liquidation, the Debtor believes
that any alternative liquidation under Chapter 11 is a much less attractive
alternative than the Plan to holders of Claims against and Interests in the
Debtor, because the greater
47
return the Debtor anticipates is provided by the Plan. THE DEBTOR BELIEVES THAT
THE PLAN AFFORDS SUBSTANTIALLY GREATER BENEFITS TO CREDITORS, INTEREST HOLDERS,
AND EMPLOYEES THAN WOULD ANY OTHER REASONABLY CONFIRMABLE REORGANIZATION PLAN OR
LIQUIDATION UNDER ANY CHAPTER OF THE BANKRUPTCY CODE.
The Liquidation Analysis prepared by Debtor is premised upon a
liquidation in a Chapter 7 case and is annexed to this Disclosure Statement as
Exhibit D. In the analysis, the Debtor has taken into account the nature,
status, and underlying value of its assets, the ultimate realizable value of
such assets, and the extent to which the assets are subject to liens and
security interests. Based on this analysis, it is likely that a liquidation of
the Debtor's assets would produce less value for distribution to creditors than
that recoverable in each instance under the Plan. In the opinion of the Debtor,
the recoveries projected to be available in liquidation are not likely to afford
holders of Claims and Interests as great a realization potential as does the
Plan
XII. VOTING REQUIREMENTS
On April 17, 2000, the Court signed an order (the "Disclosure Statement
Order") approving this Disclosure Statement, setting voting procedures,
scheduling the hearing on confirmation of the Plan, and approving the notice of
the confirmation hearing and certain related matters (the "Confirmation Hearing
Notice"). A copy of the Confirmation Hearing Notice is enclosed with this
Disclosure Statement. It sets forth in detail, among other things, procedures
governing voting deadlines and objection deadlines. The Confirmation Hearing
Notice and the instructions attached to the Ballot, if any, accompanying this
Disclosure Statement should be read in connection with this section of this
Disclosure Statement.
If you have any questions about the Voting procedure for voting your
Claim or the packet of material you received, please contact the Voting Agent:
Logan & Company, Inc.
546 Valley Road
Upper Montclair, New Jersey 07043
Att'n: Kate Logan
Telephone: (973) 509-3190
Att'n: Eagle Food Centers, Inc.
If you wish to obtain an additional copy of the Plan, the Disclosure
Statement, or any exhibits to such documents, at your own expense, unless
otherwise specifically required by Fed. R. Bankr. P. 3017(d), please contact the
Voting Agent.
A. SPECIAL NOTE FOR HOLDERS OF SECURITIES
The record date for determining which holders of Senior Notes and
Common Stock (together, "Securities") are entitled to vote on the Plan is April
12, 2000. The Indenture Trustee for the Senior Notes WILL NOT vote on behalf of
the holders of such Senior Notes. Holders must submit their own Ballots.
1. BENEFICIAL OWNERS OF SECURITIES
(a) Any beneficial owner holding Securities as record
holder in its own name should vote on the Plan by
completing and signing the enclosed Ballot and
returning it directly to the Voting Agent on or
before the Voting Deadline using the enclosed
self-addressed, stamped envelope.
(b) Any beneficial owner holding Securities in "street
name" through a brokerage firm, bank, trust company,
agent, proxy intermediary, or other nominee (a
"Nominee") should vote on the Plan by one of the
following two methods:
(1) Complete and sign the enclosed beneficial
owner Ballot. Return the Ballot to your
Nominee as promptly as possible and in
sufficient time to allow such Nominee to
process the Ballot and return it to the
Voting Agent by the Voting Deadline. If no
self-addressed, stamped envelope was
enclosed for this purpose, contact the
Voting Agent for instructions; or
48
(2) Complete and sign the Pre-Validated Ballot
(as defined below) provided to you by your
Nominee. Return the Pre-Validated Ballot to
the Voting Agent by the Voting Deadline
using the return envelope provided in the
Solicitation Package.
Any Ballot returned to a Nominee by a beneficial owner will not be
counted for purposes of acceptance or rejection of the Plan until such Nominee
properly completes and delivers to the Voting Agent a master ballot (the "Master
Ballot") that reflects the vote of such beneficial owner.
If any beneficial owner owns Securities through more than one Nominee,
such beneficial owner may receive multiple mailings containing the Ballots. Each
such beneficial owner should execute a separate Ballot for each block of
Securities that it holds through any particular Nominee and return each Ballot
to the respective Nominee in the return envelope provided therewith. Beneficial
owners who execute multiple Ballots with respect to Securities held through more
than one Nominee must indicate on each Ballot the names of ALL such other
Nominees and the additional amounts of such Securities so held and voted. If a
beneficial owner holds a portion of its Securities through a Nominee and another
portion as a record holder, such owner should follow the procedures described in
subparagraph (a) above to vote the portion held of record and the procedures
described in subparagraph (b) above to vote the portion held through a Nominee
or Nominees.
2. BANKS, BROKERAGES, AND OTHER NOMINEES
An entity (other than a beneficial owner) that is the registered holder
of Securities should vote on behalf of the beneficial owners of such Securities
by (i) immediately distributing a copy of the Disclosure Statement and
accompanying materials, all appropriate Ballots, and self-addressed return
envelopes to all beneficial owners for whom it holds such Securities, (ii)
collecting completed Ballots from its beneficial owners, and (iii) completing a
Master Ballot compiling the votes and other information from the Ballots so
collected, and (iv) transmitting such Master Ballot to the Voting Agent on or
before the Voting Deadline. Such entity may also pre-validate a ballot by
completing all information to be entered on the Ballot (the "Pre-Validated
Ballot") and forwarding the Pre-Validated Ballot to the beneficial owner for
voting. A proxy intermediary acting on behalf of a brokerage firm or bank may
follow the procedures outlined in the preceding sentence to vote on behalf of
such party.
B. FIDUCIARIES AND OTHER REPRESENTATIVES
If a Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or another acting in a fiduciary or
representative capacity, such person should indicate such capacity when signing
and, unless otherwise determined by the Debtor, must submit proper evidence
satisfactory to the Debtor of authority to so act. Authorized signatories should
submit separate Ballots for each beneficial owner for whom they are voting.
UNLESS THE BALLOT OR MASTER BALLOT BEING FURNISHED IS TIMELY SUBMITTED
TO THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE, SUCH BALLOT WILL NOT BE
COUNTED.
C. PARTIES IN INTEREST ENTITLED TO VOTE
Under section 1124 of the Bankruptcy Code, a class of claims or
interests is deemed to be "impaired" under a plan unless (i) the plan leaves
unaltered the legal, equitable, and contractual rights to which such claim or
interest entitles the holder thereof or (ii) notwithstanding any legal right to
an accelerated payment of such claim or interest, the plan cures all existing
defaults (other than defaults resulting from the occurrence of events of
bankruptcy) and reinstates the maturity of such claim or interest as it existed
before the default.
In general, a holder of a claim or interest may vote to accept or to
reject a plan if (i) the claim or interest is "allowed," which means generally
that no party in interest has objected to such claim or interest, and (ii) the
claim or interest is impaired by the Plan. If, however, the holder of an
impaired claim or interest will not receive or retain any distribution under the
plan in respect of such claim or interest, the Bankruptcy Code deems such holder
to have rejected the plan, and, accordingly, holders of such claims and
interests do not actually vote on the Plan. If a claim or interest is not
impaired by the Plan, the Bankruptcy Code deems the holder of such claim or
interest to have accepted the plan and, accordingly, holders of such claims and
interests do not actually vote on the Plan.
49
Any Claim as to which an objection has been timely filed and has not
been withdrawn or dismissed is not entitled to vote, unless the Court, pursuant
to Fed. R. Bankr. P. 3018(a), upon application of the holder of the Claim with
respect to which there has been objection, temporarily allows the Claim in an
amount that the Court deems proper for the purpose of accepting or rejecting the
Plan. The procedures for seeking such temporary allowance are set forth in the
Disclosure Statement Order. The Disclosure Statement Order also sets forth
assumptions and procedures for tabulating Ballots that are not completed fully
or correctly.
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.
D. CLASSES IMPAIRED UNDER THE PLAN
The following Classes of Claims and Interests are Impaired under the
Plan and are entitled to vote on the Plan: Class 4 Lender Secured Claims; Class
5 Senior Note Claims; and Class 6 Equity Securities Interests. All other Classes
of Claims are not Impaired under the Plan, are deemed, under section 1126(f) of
the Bankruptcy Code, to have accepted the Plan, and accordingly are not entitled
to vote to accept or reject the Plan. Acceptances of the Plan are being
solicited only from those who hold Claims or Interests in an Impaired Class
whose members will receive a distribution under the Plan.
PLEASE SEE THE ATTACHED DISCLOSURE STATEMENT ORDER
FOR OTHER PROVISIONS CONCERNING SOLICITATION AND VOTING
XIII. FINANCIAL ADVISORS; VOTING AGENT
Pursuant to a letter agreement dated as of July 9, 1999 and amended
February 25, 2000 (the "Engagement Letter"), the Debtor engaged Jefferies to act
as the Debtor's financial advisor in connection with the restructuring of
certain of the Debtor's debt and equity securities, including the Chapter 11
Case and the Plan. In consideration of the services rendered by Jefferies as
exclusive financial advisor for the Debtor, the Debtor will pay or cause to be
paid to Jefferies in cash a fee that is not less than 1.3% of the face amount of
the Old Securities (as that term is defined in the Engagement Letter) being
restructured. Pursuant to the Engagement Letter, if the pre-negotiated Plan is
confirmed and consummated, the fees payable to Jefferies are deemed to have been
earned upon the earlier to occur of (i) approval of the Debtor's board of
directors of the Debtor's Chapter 11 filing or (ii) the date on which holders of
at least 10% of the Senior Notes have agreed to vote in favor of the Plan. In
any event, Jefferies agreed to provide such additional services as are
reasonably necessary (including testimony) to confirm and consummate the
pre-negotiated plan for a period not to exceed four months from the date of the
filing of the Debtor's Chapter 11 petition without charge. Accordingly, the
Debtor did not seek to retain Jefferies, but will pay Jefferies $1.3 million
pursuant to the Engagement Letter upon consummation of the Plan.
The Debtor also retained Logan & Company, Inc. to serve as the Voting
Agent in connection with the Solicitation of votes to accept or reject the Plan.
The Debtor will pay the Voting Agent reasonable and customary compensation for
its services in connection with the Solicitation, plus reimbursement for its
reasonable out-of-pocket disbursements. Brokers, dealers, commercial banks,
trust companies and other Nominees will be reimbursed by the Debtor for
customary mailing and handling expenses incurred by them in forwarding materials
to their customers, but will not otherwise be compensated for their services.
The Debtor also will pay any other fees and expenses attributable to the
Solicitation.
50
XIV. CONCLUSION AND RECOMMENDATION
The Debtor believes that confirmation and implementation of
the Plan is preferable to any of the alternatives described above because it
will result in the greatest recoveries to holders of Claims against and
Interests in the Debtor. Other alternatives would involve significant delay,
uncertainty and substantial additional administrative costs. Consequently, the
Debtor urges all holders of Impaired Claims and Interests to vote to accept the
Plan and to evidence their acceptance by duly completing and returning their
Ballots so that they will be received on or before 5:00 p.m., Eastern Time, on
May 12, 2000.
Dated: Wilmington, Delaware
April 17, 2000
EAGLE FOOD CENTERS, INC.
By: /s/ S. PATRIC PLUMLEY
-------------------------------
Name: S. Patric Plumley
Title: Chief Financial Officer
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
Attorneys for Eagle Food Centers, Inc.
Jay M. Goffman
Lawrence V. Gelber
Cheri L. Hoff
Four Times Square
New York, New York 10036-6522
(212) 735-3000
-and-
/s/ GREGG M. GALARDI
- ----------------------------------------
Gregg M. Galardi (I.D. No. 2991)
David R. Hurst (I.D. No. 3743)
Patricia A. Widdoss (I.D. No. 3786)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
(302) 651-3000
51
EXHIBIT A
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
FIRST AMENDED REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
ATTACHED TO THIS REPORT AS EXHIBIT 2.1
EXHIBIT B
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
DISCLOSURE STATEMENT ORDER
EXHIBIT C
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
LIST OF PROPERTIES
Store Number Properties
003 317 North Naperville Rd., Bolingbrook, IL 60440
034 1176 South Randall Road, Geneva, IL 60134
071 2300 Illinois Route 59, Plainfiel, IL 60544
242 1729 West Golf Road, Mount Prospect, IL 60056
244 2939 16th Avenue S.W., Cedar Rapids, IA 52404
247 625 West Golf Road, Hoffman Estates. IL 60172
256 120 North Parkway Drive, Pekin, IL 61554
292 1221 East Sibley Blvd., Dolton, IL 60119
308 4411 North Cumberland, Norridge, IL 60656
952 435 34th Avenue, Rock Island, IL 61201
952A 437 34th Avenue, Rock Island, IL 61201
078 819 Bloomington Road, Champaign, IL 61820
087 JFK Drive, Rte. #25, Carpentersville, IL 60110
088 1508 North Cunningham Avenue, Urbana, IL 61801
106 8115 North Knoxville Road, Peoria, IL 61615
121 5960 Highway #6, Portage, IN 46368
287 5824 Council Street N.E., Cedar Rapids, IA 52402
294 1141 South Milwaukee Avenue, Libertyville, IL 60048
310 8630 South Harlem Avenue, Bridgeview, IL 60455
324 15102 Lgrange Road, Orlando Park, IL 60462
329 2213 2nd Street, Coalville, IA 52241
331B, G 8901 Milwaukee Avenue, Niles, IL 60648
021 U.S. Hwy. 20 West Freeport, IL 61032
029 Hwy. #132, Box 356, Lindenhurst, IL 60046
066 350 McHenry Road, Buffalo Grove, IL 60089
Store Number Properties
079 1055 West 37th Avenue, Hobart, IN 46342
282 3527 West Harmon Hwy., Bellevue, IL 61604
319 230 West First Street, Cedar Falls, IA 50613
014 2015 63rd Street, Downers Grove, IL 60516 I
146 2390 West Station Street, Kankakee, IL 60901
285 2850 11th Street, Bettenford, IA 52722
286 125 South Soangetaha Road, Galesburg, IL 61401
006 5175 East Riverside Blvd., Rockford, IL 61114
019 901 Meacham Road, Elk Grove Village, IL 60007
022 4050 W. 113th Street, Country Club Hills, IL 60478
023 8631 West 95th Street, Hickory Hills, IL 60457
027 1815 Lincolnway, Clinton, IA 52732
084 1011 E. U.S. Highway #20, Michigan City, IN 46360
085 3635 U.S. Route #36 East, Decatur, IL 62521
133B, G 106 19th Avenue, Moline, IL 61265
145 400 Rollins Road, Round Lake Beach, IL 60073
246 1401 West Glen Avenue, Peoria, IL 61614
261 306 South McClean Boulevard, Elgin, IL 60123
262 1520 Theodore, Crest Hill, IL 60435
291 805 West 57th Avenue, Merrillville, IN 46410
296 2500 East Washington Street, East Peoria, IL 61611
303 1120 North 6th Street, Monmouth, IL 61462
304 1501 North Bowman Avenue, Danville, IL 61832
323 2711 Sangamon Avenue, Springfield, IL 62702
326 3015 North Calumet Avenue, Valparaiso, IN 46383
EXHIBIT D
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
LIQUIDATION ANALYSIS
EAGLE FOOD CENTERS, INC.
Liquidation Analysis
as of March 4, 2000
(in thousands)
This liquidation analysis (the "Analysis") has been prepared assuming that the
Debtor's chapter 11 case would be converted on March 4, 2000 (the "Conversion
Date"), and that the Debtor's remaining assets would be liquidated within six
months of the Conversion Date, at which time the chapter 7 trustee would make a
distribution of the available proceeds in accordance with the absolute priority
rules of the Bankruptcy Code. Finally, the Analysis assumes that any avoidance
actions filed by the chapter 7 trustee would be unsuccessful, that all attempts
to surcharge or subordinate the interest and/or collateral of the secure
creditors would be unsuccessful, and that there would not be any substantial
recovery on account of pending litigation with respect to litigation claims
known by Eagle Food Centers, Inc. There can be no assurance that the assumptions
disclosed herein would actually occur and neither Eagle Food Centers, Inc. nor
its principal advisors make any representation or warranty that the actual
results would or would not approximate the assumptions contained herein.
EAGLE FOOD CENTERS, INC.
Liquidation Analysis
as of March 4,2000
(in thousands)
Range of
Balance Estimated
Note Sheet Recoveries
References Amounts (unaudited)
---------- ------- -----------
From To
I. Liquidation Value of Assets:
Cash and Equivalents 1 $ 15.4 $ 15.4 $ 15.4
Receivables 2 13.4 10.7 10.7
Inventories 3 72.3 40.1 54.1
Prepaid Expenses 4 2.9 2.6 2.6
Property & Equipment 5 93.0 30.0 63.0
Deferred Debt Issuance Cost 6 0.6 0.0 0.0
Other Assets 7 15.0 0.0 0.0
------------ - ---------- ---------- ----------
Gross Proceeds $ 98.8 $ 145.8
Costs Associated with Liquidation: 8
Administration $ 4.0 $ 6.0
Chapter 7 Professional Fees 1.2 1.8
Chapter 7 Trustee 3.0 4.4
---------- ----------
Total Costs of Liquidation 8.2 12.2
Net Estimated Liquidation Proceeds Available for
Distribution $ 90.6 $ 133.6
II. Recoveries by DIP Lender Banks 9
DIP Facility Borrowings $ 0.0 $ 0.0
Total DIP Lender Claims 0.0 0.0
III. Secured Creditor Claims 10
Congress Financial $ 2.0 $ 2.0
SuperValu Holdings 0.5 0.5
Navistar 0.8 0.8
---------- ----------
Total Secured Claims $ 3.3 $ 3.3
Proceeds Available for Secured Creditors 90.6 133.6
Percentage Recovery 100% 100%
Range of
Balance Estimated
Note Sheet Recoveries
References Amounts (unaudited)
---------- ------- -----------
From To
IV. Recoveries by Chapter 11 Administrative Claimants 11
Trade Payables and Accrued Expenses $ 29.2 $ 29.2
Employee Related Costs 14.0 14.0
Professional Fees 1.0 1.0
---------- ----------
Total Chapter 11 Administrative Claims $ 44.2 $ 44.2
Proceeds Available for Chapter 11 Administrative Claims $ 87.3 $ 130.3
Percentage Recovery 100% 100%
V. Recoveries by Chapter 11 Tax Claimant 12
Tax Claims $ 1.4 $ 1.4
Proceeds Available for Chapter 11 Tax Claims $ 43.1 $ 86.1
Percentage Recovery 100% 100%
VI. Recoveries by Unsecured Creditors 13
Executory Contract Rejection Claims $ 15.0 $ 150.0
Senior Subordinated Notes 103.4 103.4
Other Unsecured Liabilities 9.3 9.3
---------- ----------
Total Unsecured Creditors' Claims $ 132.7 $ 262.7
Proceeds Available for Unsecured Creditors $ 41.7 $ 84.7
Percentage Recovery 16% 64%
VII. Recoveries to Equity Security Holders 14
Proceeds Available $ 0.0 -
Percentage Recovery 0%
EAGLE FOOD CENTERS, INC.
NOTE REFERENCES TO LIQUIDATION ANALYSIS
as of Match 4, 2000
On February 29, 2000, Eagle Food Canters. Inc. ('"Eagle" or the "Debtor"), filed
a voluntary petition for relief under Chapter 11 of the United Starts Bankruptcy
Code (the "Code"). Under the provisions of the Code, the Debtor is operating its
business as a debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the District of Delaware (the "Court"). Claims of
creditors as of the date of the filing are subject to settlement under the
amended plan of reorganization (the "Plan") which was filed by the Debtor. The
Plan will require confirmation by the Court.
The accompanying compilation of net liquidation proceeds has been prepared to
estimate the recovery percentage that the Debtor expects creditors would
receive if a liquidation were to occur. The compilation sets forth conditions
known to exist as of March 4, 2000, and does not give consideration to the
potential effect of ongoing operations that have occurred subsequent to March 4,
2000. The costs of preservation, collection and disposal of the Debtor's
remaining assets are estimated to be incurred for no longer than 6 months after
the Conversion Date and to decrease over time.
The Analysis is based upon assumptions concerning events that might occur if the
Debtor were liquidated, with all parties in interest agreeing to expedient
liquidation. The assumptions disclosed herein are significant and are key
factors upon which the liquidation results depend. Some assumptions inevitably
will not materialize and unanticipated events and circumstances may occur.
Therefore, the actual results achieved may vary significantly from the estimated
outcome. An estimate of liquidation values has been presented to account for
varying assumptions.
In estimating liquidation values, and unless otherwise stated, the Debtor
assumed that on the Conversion Date it would close all stores and begin the
process of an orderly liquidation of its property, including the equipment,
fixtures and inventory at its stores and warehouse. Additionally, the Debtor
assumed that all leases of nonresidential real property would be rejected and
that the Debtor would be liable to pay rejection damages on the leases in the
full amount of the "cap" set forth in Section 502(b)(6) of the Bankruptcy Code.
Thus, to the extent that the Debtor were able to sell, assume and assign
nonresidential real property leases, the proceeds of such sales would increase
the amount of proceeds available for distribution to creditors and reduce the
aggregate amount of general unsecured claims.
The following note references relate to the liquidation values available for
creditors:
1. "Cash and Equivalents" represents the amounts of cash remaining as of the
Conversion Date pursuant to the Debtor's financial records. The cash balance as
of March 4, 2000 ($15.4 million) reflects the cash balance that would exist
after deducting the amount of outstanding checks ($11.2 million).
2. "Receivables" consist primarily of vendor debt balances resulting from
merchandise returns, chargebacks and other account payable receivables, reduced
for estimated uncollectibles.
3. "Inventories" consists of a physical count of perishable inventories, book
inventories for nonperishable inventories and perpetual inventory for warehouse
inventory. The liquidation value of $40.1 million the Inventories assume a
50% recovery with respect to store level inventories, 75% recovery with
respect to warehouse inventories and a 25% recovery with respect to supplies
and parts inventories. The liquidation value of $54.1 million assumes that the
Debtor will be able to sell, assume and assign certain leases and in connection
therewith realize a 75% recovery on store level inventories.
4. "Prepaid Expenses" consist primarily of prepaid monthly rents and insurance.
Additionally, this asset category includes certain other prepaid operating
expenses. Those prepaid expenses would be utilized during the liquidation period
and, thus, are estimated to have a 90% value in a liquidation.
5. "Property and Equipment" consists primarily of the distribution center land
and building, leasehold improvements, equipment at the stores and warehouse,
office furniture, personal computer, tractors and trailers. The low liquidation
value of S30 million assumes no recovery on leasehold interests and a low ($10
million) recovery on equipment. The high liquidation value reflects an $8
million recovery from the sale of leasehold interests and a $35 million recovery
on equipment. In both situations, the Debtor assumes a 70% recovery on its owned
land and buildings.
6. "Deferred Debt Issuance Cost" consists of deferred refinancing and
restructuring costs. These assets are expected to have no value upon
liquidation.
7. "Other Assets" consists of costs associated with installing various software
packages. These assets are expected to have no value upon liquidation.
8. "Costs Associated with Liquidation" includes corporate and other
administration costs associated with liquidating the Debtor's estate. The
liquidation of the Debtor's inventory, property, equipment and leasehold
interests would require a time frame of a least 3 and 6 months and possibly more
depending upon the sale of its leasehold interests. Costs are based upon a
reduction in the corporate administration workforce, which is expected to
decrease significantly in the first two months and gradually thereafter. The
estimate for chapter 7 professionals, retained by the chapter 7 trustee, is
assumed to be approximately $200,000 to $300,000 par month. The chapter 7
trustee fees were estimated to be 3% of the Gross Proceeds.
9. The Debtor bas assumed that there will be no borrowings under the DIP
Facility. Outstanding professional fees relating to the chapter 11 proceedings
have bean included a administrative expense claims.
10. The Debtor has assumed all secured claims would be paid in full provided
because the Debtor expects that the proceeds realized from the sale of the
secured creditor's respective collateral, the inventory and tractors and
trailers exceed the outstanding balances owed.
11. The Debtor has assumed that the Chapter 11 Administrative Claims would be
paid in full provided that proceeds realized from asset sales are as expected.
12. The Debtor's estimate of tax claims in the amount of $1.4 million reflects
accrued tax liabilities, most of which are priority tax claims under Section
507(b)(8) of the Bankruptcy Code and the balance being tax claims entitled to
administrative expense status. In the event of a liquidation, the Debtor
believes there would be sufficient proceeds to pay priority tax claims and
administrative tax claims in full and, thus, the liquidation analysis does not
distinguish between administrative and priority tax claims.
13. In the event of a liquidation, the Debtor believes there would be some
recovery to the unsecured creditors, but the range of such recoveries varies
greatly depending upon the Debtor's ability to sell its leasehold interests, the
size of the lease rejection claims asserted against the Debtor and the amount,
if any, that must be paid to Lucky Stores, Inc. ("Lucky") on its indemnification
claim. In that regard, the range of the Executory Contract Rejection Claims ($15
million), represents the exposure to the Debtor, under Section 502(b)(6) of the
Bankruptcy Code, assuming that (i) all of the 51 nonresidential real property
leases that the Debtor has identified as potential rejections are rejected on
the Conversion Date (ii) the remaining 64 stores are sold assumed and assigned
and (iii) that Lucky has no indemnification claim. This value does not reflect
the aggregate actual damages of landlords arising from the rejection of their
leases, which damages may be less as a result of a landlord's mitigation of
damages. Nor does the estimate of $15 million take into account that certain of
the 51 leases are or will be sold assumed and assigned. The high end of the
Executory Contract Rejection Claims ($150 million) on the other hand assumes
that: (i) none of the 115 nonresidential real property leases are sold. assumed
and assigned, (ii) Lucky has an indemnification claim that is not capped under
Section 502(b)(6) of the Bankruptcy Code and (iii) landlords and Lucky are
unable to mitigate lease rejection damages.
14. In the event of a liquidation, the Debtor believes that there will be no
value to distribute to Equity Security Holders.
EXHIBIT E
TO
DISCLOSURE STATEMENT WITH RESPECT TO FIRST AMENDED
REORGANIZATION PLAN OF EAGLE FOOD CENTERS, INC.
FINANCIAL PROJECTIONS
PROJECTED FINANCIAL STATEMENTS
Eagle believes that the Plan meets the Bankruptcy Code's feasibility
requirement that plan confirmation is not likely to be followed by a
liquidation, or the need for further financial reorganization of Eagle or any
successor under the Plan unless such liquidation is proposed in the Plan. In
connection with the development of the Plan, and for the purpose of determining
whether the Plan satisfies this feasibility standard, Eagle analyzed its ability
to satisfy its financial obligations while maintaining sufficient liquidity and
capital resources. In this regard, the management of Eagle developed and
periodically refined its business plan and prepared financial projections (the
"Projections") for the remainder of fiscal year 2000 and for
fiscal years 2001 and 2002 (the "Projection Period").
Eagle does not, as a matter of course publish its business plans and
strategies or make projections of its anticipated financial position or results
of operations. Accordingly, Eagle does not anticipate that it will, and
disclaims any obligation to, furnish updated business plans or projections to
holders of Claims or Interests after the Consummation Date, or to include such
information in documents required to be filed with the Securities and Exchange
Commission or otherwise make such information public.
ALTHOUGH EVERY EFFORT WAS MADE TO BE ACCURATE, THE PROJECTIONS WERE NOT
PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, THE FINANCIAL ACCOUNTING
STAN DARDS BOARD, OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION REGARDING PROJECTIONS. FURTHERMORE THE PROJECTIONS HAVE NOT BEEN
AUDITED OR RE VIEWED BY REORGANIZED EAGLE'S INDEPENDENT CERTIFIED ACCOUNTANTS.
WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A
VARITY OF ASSUMPTIONS, WHICH MAY NOT BE REALIZED, AND ARE SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES WHICH ARE
BEYOND THE CONTROL OF EAGLE. CONSEQUENTLY THE PROJECTIONS SHOULD NOT BE REGARDED
AS A REPRESENTATION OR WAR RANTY BY REORGANIZED EAGLE, OR ANY OTHER PERSON, THAT
THE PROJECTIONS WILL BE REAL IZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
PRESENTED IN THE PROJECTIONS. HOLDERS OF CLAIMS AND INTERESTS MUST MAKE THEIR
OWN DETERMINATIONS AS TO THE REASON ABLENESS OF SUCH ASSUMPTIONS AND THE
RELIABILITY OF THE PROJECTIONS IN REACHING THEIR DETERMINATIONS OF WHETHER TO
ACCEPT OR REJECT THE PLAN.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995: All forward-looking statements made by Eagle involve material risks
and uncertainties and are subject to change based on factors beyond Eagle's
control. Accordingly, Eagle's future performance and financial results may
differ materially from those expressed or implied in any such forward-looking
statements. Such factors include, but are not limited to, those described in
Eagle's Disclosure Statement. Eagle does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
PROJECTION ASSUMPTIONS
The Projections are also based on additional operating assumptions,
some of which are outlined below. Management can make no assurance that the
operating and financial results as presented herein will be realized. Actual
results may be significantly different from the Projections.
The Projections reflect Eagle operating 64 stores as of the
consummation of the plan of reorganization, after the closing or sale of 20
underperforming stores. The Company continues to analyze the operating
performance of remaining stores, and no assurance can be given that additional
stores will not be closed prior to the consummation of a plan of reorganization
or during the remainder of the Projections.
Income Statement Assumptions
EBITDA. Based on internally generated store-by-store projections, Eagle
believes their remaining 64 stores, together with their current corporate
infrastructure, are capable of generating an aggregate EBITDA of $36.2 million,
based on current market conditions. Management expects the 64 stores to generate
approximately $9.1 million of EBITDA per quarter, or $36.2 million annualized,
beginning in the fourth quarter of fiscal 2000 and remain relatively constant
through the last quarter of fiscal 2001. Thereafter, EBITDA is projected to grow
5% per annum based on internal growth, realizing the benefit of remodeling
certain stores, and the opening of 2 stores in both fiscal 2001 and fiscal 2002.
Eagle incurred
$3.8 million of non-recurring costs resulting from the restructuring (including
inventory liquidation costs) in the first quarter of fiscal 2000, all of which
have been excluded from EBITDA, due to their non-recurring nature.
Eagle's projected EBITDA is reliant on the increase in certain
expenses, which are certain, being offset by the realization of certain cost
savings. Expenses will increase in the projected years as compared to fiscal
1999 as a result of (i) the elimination of a holiday from paying certain
employee related benefits of approximately $4.8 million in 1999 due to the
over-funded pension obligations and (ii) a slight increase in wage related
expenses during fiscal 2000. Expenses are expected to decrease as a result of
(i) certain advertising related savings, (ii) the savings of labor related costs
due to improved scheduling at the store level (iii) and a slight improvement in
gross margin.
RESTRUCTURING COSTS. Eagle is projected to incur $23.9 million of
non-recurring costs and $2.4 million of non- recurring income as a result of the
Chapter 11 Case. This includes the following:
Court obligation related to lease rejections..................... $18.8 million
Severance and accrued benefits related to store closures......... $1.2 million
Gain on sale of equipment........................................ $(2.4) million
Professional fees and expenses................................... $3.7 million
Other restructuring costs........................................ $0.2 million
Total................................. $21.5 million
Eagle expensed $11.3 million of restructuring costs in the first
quarter of fiscal 2000, and expects to incur net restructuring costs of $1.0
million in the third quarter of 2000. These amounts, when added to the $9.2
million already accrued for lease rejection costs, total $21.5 million of net
costs related to the restructuring.
INTEREST EXPENSE. Interest expense is projected based on the projected
levels of debt, including the Senior Notes, capital lease obligations and credit
facility. Interest on the Senior Notes is projected to accrue at 8 5/8% through
the end of the second quarter of fiscal 2000 and at the agreed upon interest
rate of 11.0% thereafter. The interest rate on the capital lease obligations and
credit facility are both projected to be 9.0%.
INCOME TAX EXPENSE. The Company is not projected to incur any tax
expense for the period of the projections as a result of tax loss carryforwards.
CASH FLOW STATEMENT ASSUMPTIONS
CAPITAL EXPENDITURES. Capital expenditures are projected to be $11.2
million, $24.8 million and $23.0 million in fiscal 2000, fiscal 2001 and fiscal
2002, respectively. The entire amount of capital expenditures in fiscal 2000,
and more than $10.0 million of the expenditures in fiscal 2001 and fiscal 2002,
are related to the remodeling, refurbishment and maintenance of Eagle's 64
remaining stores. The remaining capital expenditures in fiscal 2001 and fiscal
2002 reflect costs associated with the opening of two new stores in each year.
The capital expenditures are not shown net of proceeds of $7 million in each of
fiscal years 2001 and 2002 which Eagle expects to receive as a result of one
sale-leaseback transaction capitalized each year.
CHANGES IN WORKING CAPITAL. Changes in working capital is projected to
be a source of $4.0 million of cash in the second quarter of fiscal 2000,
reflecting the proceeds expected to be received from selling inventory in the
stores closed, net of the reduction in accounts payable related to such stores.
Working capital is projected to be a $4.0 million use of cash in the third
quarter of fiscal 2000 as a result of the build up of seasonal inventory which
is offset by a $4.0 million source of cash in the fourth quarter of fiscal 2000
as a result of declining inventory requirements after the holiday season.
Changes in working capital are projected to be a relatively small use of cash in
fiscal 2001 and fiscal 2002 as a requirement from the new stores being opened in
those years.
SALE PROCEEDS. Eagle realized approximately $2.4 million in value in
the first quarter of fiscal 2000, is in the process of realizing $2.0 million of
value in the second quarter of fiscal 2000 and expects to realize an additional
$0.8 million in the third quarter of fiscal 2000, from the sale or other
disposition of land, buildings, and equipment related primarily to stores which
will be closed in connection with the Chapter 11 Case.
CHANGE IN CLOSED STORE RESERVE. The change in closed store reserve
reflects the accrual of expenses related to lease rejections in the first
quarter of fiscal 2000. Beginning in the third quarter of fiscal 2000, Eagle
expects to begin paying obligations resulting from rejecting leases on closed
stores. Eagle expects to pay the costs associated with closing stores in
bankruptcy in the amounts of $10.0 million in the third quarter of fiscal 2000,
$4.0 million in the fourth quarter of fiscal 2000, $2.0 million in fiscal 2001,
$2.0 million in fiscal 2002 and the remainder thereafter.
CHANGE IN ACCRUED INTEREST. Interest on the Senior Notes is projected
to accrue through the end of the second quarter of fiscal 2000, and thereby be a
source of cash. Accrued interest is assumed to decrease, and as a result be a
use of cash, in the third quarter of fiscal 2000 resulting from the payment of
accrued interest on the Senior Notes which had accrued from October 15, 1999.
BALANCE SHEET ASSUMPTIONS
CASH AND EQUIVALENTS. Cash and equivalents are projected to decrease to
$0.3 million by the end of the third quarter of fiscal 2000, and not increase
above this amount until the credit facility is paid off in fiscal 2002.
SENIOR NOTES. The $15.0 million decrease in Senior Notes in the third
quarter of fiscal 2000 reflects the reduction in principal agreed upon as part
of the Chapter 11 Case.
CAPITAL LEASE OBLIGATIONS. Capital lease obligations are increased by
$7.0 million in both fiscal 2001 and fiscal 2002 as a result of expected
sale-leaseback transactions expected to occur as a result of the construction of
two new stores in each fiscal year, and the capitalization of one new store in
each fiscal year.
REVOLVING CREDIT FACILITY. The Revolving Credit Facility is projected
to (i) increase in any given period to fund any net cash needs created by the
sum of cash flow from operations, investing and financing activities, and (ii)
is projected to decrease in any given period by the amount of excess cash
created by the sum of cash flow from operations, investing and financing
activities.
SUMMARY INCOME STATEMENT INFORMATION
($ IN MILLIONS)
QUARTER ENDED, FISCAL YEARS
----------------------------------------------------- ----------------------------------
5/1/00 7/31/00 10/30/00 1/30/01 2000 2001 2002
------------ ------------ ------------- ----------- ----------- ---------- -----------
EBITDA.................................. $ 6.8 $ 7.5 $ 8.7 $ 9.1 $ 32.1 $ 36.2 $ 38.0
INVENTORY LIQUIDATION AND OTHER COSTS... 3.8 - - - 3.8 - -
RESTRUCTURING........................... 11.3 - 1.0 - 12.3 - -
DEPRECIATION EXPENSE.................... 5.0 4.2 4.2 4.2 17.6 19.0 20.0
INTEREST EXPENSE........................ 3.3 3.0 3.4 3.3 12.9 12.8 13.2
INCOME TAX EXPENSE...................... - - - - - - -
------------ ------------ ------------- ----------- ----------- ---------- -----------
NET INCOME..................... $ (16.5) $ 0.3 $ 0.1 $ 1.5 $ (14.5) $ 4.4 $ 4.8
============ ============ ============= =========== =========== ========== ===========
SUMMARY CASH FLOW INFORMATION
($ IN MILLIONS)
QUARTER ENDED, FISCAL YEARS
---------------------------------------- -----------------------------
5/1/00 7/31/00 10/30/00 1/30/01 2000 2001 2002
------- ------- ------- ------- ------- ------- -------
Cash flow from operations (1) .................... $ (11.6) $ 2.5 $ 4.3 $ 5.7 $ 1.0 $ 23.4 $ 24.8
CAPITAL EXPENDITURES ............................. (2.2) (3.1) (3.4) (2.5) (11.2) (24.8) (23.0)
CHANGES IN WORKING CAPITAL ....................... -- 4.0 (4.0) 4.0 4.0 (1.6) (1.6)
PURCHASE OF MARKETABLE SECURITIES ................ (1.0) -- -- -- (1.0) -- --
SALE PROCEEDS .................................... 2.4 2.0 0.8 -- 5.2 -- --
CHANGES IN REST. EXPENSE RESERVE ................. 0.3 (0.3) -- -- -- -- --
CHANGES IN CLOSED STORE RESERVE .................. 8.7 -- (10.0) (4.0) (5.3) (2.0) (2.0)
CHANGE IN ACCRUED INTEREST ....................... 2.2 2.2 (6.4) 2.3 0.2 -- --
INCREASE (DECREASE) IN SENIOR NOTES .............. -- -- (15.0) -- (15.0) -- --
INCREASE (DECREASE) IN CAPITAL LEASES ............ -- -- -- -- -- 7.0 7.0
INCREASE (DECREASE) IN CREDIT FACILITY ........... 2.0 -- 7.4 (5.6) 3.8 (2.1) (1.7)
------- ------- ------- ------- ------- ------- -------
TOTAL CASH FLOW ......................... $ 0.8 $ 7.3 $ (26.3) $ -- $ (18.3) $ -- $ 3.5
======= ======= ======= ======= ======= ======= =======
- ----------
(1) DEFINED AS NET INCOME PLUS DEPRECIATION AND AMORTIZATION AND GAIN ON SALE OF
ASSETS.
SUMMARY BALANCE SHEET INFORMATION
($ IN MILLIONS)
At At At At At At At At
1/30/00 5/1/00 7/31/00 10/30/00 1/30/01 1/30/01 1/30/02 1/30/03
------- ------ ------- -------- ------- ------- ------- -------
Cash & equivalents ......... $ 18.6 $ 19.3 $ 26.6 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 3.8
Senior notes ............... $100.0 $100.0 $100.0 $ 85.0 $ 85.0 $ 85.0 $ 85.0 $ 85.0
Capital leases ............. 42.9 34.5 34.5 34.5 34.5 34.5 41.5 48.5
Credit facility ............ -- 2.0 2.0 9.4 3.8 3.8 1.7 --
------ ------ ------ ------ ------ ------ ------ ------
Total debt ............ $142.9 $136.5 $136.6 $128.9 $123.3 $123.3 $128.3 $133.5
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