Exhibit 2.3
Christopher R. Kaup, Esq.
State Bar No. 014820
TIFFARY & BOSCO, P.A.
FIFTH FLOOR VIAD TOWER
1850 NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004-4546
TELEPHONE: (602) 255-6000
FACSIMILE: (602) 255-0103
Attorneys for Debtors and
Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
In re: |
| Case No. 01-11843-ECF CGC and
| 01-11844-ECF-CGC
E-BIZ ENTERPRISES, INC., |
a Nevada corporation, | Chapter 11 Proceedings
|
Debtor. | DISCLOSURE STATEMENT FOR
- -------------------------------------------| AMENDED JOINT PLAN OF
| REORGANIZATION DATED
In re: | JANUARY 4, 2002
JONES BUSINESS SYSTEMS, INC., |
a Texas corporation, |
|
Debtor. |
- -------------------------------------------|
EBIZ Enterprises, Inc. ("EBIZ") and Jones Business Systems, Inc. ("JBSI"),
the Debtors and Debtors-in-Possession in the above-captioned Bankruptcy Case
(collectively, the "Debtors"), have prepared this Disclosure Statement to assist
them with the solicitation of acceptances of their Plan of Reorganization (the
"Plan"). Capitalized terms in this Disclosure Statement have the same meaning as
in the Plan, attached hereto.
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LIST OF EXHIBITS
1. Exhibit "1" Joint Plan of Reorganization
2. Exhibit "2" Debtors' Financial Reports
3. Exhibit "3" Liquidation Analysis
4. Exhibit "4" Assumption of Executory Contracts and Leases
5. Exhibit "5" Rejection of Executory Contracts and Leases
6. Exhibit "6" Projections of Operations
7. Exhibit "7" Qualifications of Officers and Directors
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ARTICLE I.
DEADLINE FOR RECEIPT OF BALLOTS
INSTRUCTIONS AND EXPLANATIONS CONCERNING VOTING ON THIS CHAPTER 11 PLAN OF
REORGANIZATION ARE SET FORTH IN SUBSEQUENT SECTIONS OF THIS DISCLOSURE
STATEMENT. PLEASE REVIEW THOSE SECTIONS CAREFULLY AND NOTE THAT ALL BALLOTS MUST
BE RECEIVED BY ___ THE DAY OF ____________, 2002, OR THEY MAY NOT BE COUNTED. AS
DELAYS IN THE DELIVERY OF MAIL CAN OCCUR, THE DEBTORS URGE YOU TO MAIL OR
DELIVER YOUR BALLOTS AS DIRECTED WELL IN ADVANCE OF THE DEADLINE.
VOTING ON THIS CHAPTER 11 PLAN WILL AFFECT YOUR RIGHTS AND THE EXPENSES
INCURRED TO ADMINISTER THIS CASE. IN PARTICULAR, THE DEBTORS MAY BE ABLE TO
REDUCE THE ADDITIONAL ATTORNEYS' FEES AND COSTS THEY MIGHT HAVE TO INCUR TO
OBTAIN CONFIRMATION OF THEIR PLAN IF THE PLAN IS ACCEPTED BY ALL CLASSES OF
CLAIMS AND INTERESTS CREATED BY THE PLAN. THE DEBTORS REQUEST, THEREFORE, THAT
YOU VOTE IF YOU ARE ENTITLED TO DO SO AND THAT YOU TAKE STEPS TO INSURE THAT
YOUR BALLOT IS RECEIVED IN TIME TO BE COUNTED.
ARTICLE II.
DEADLINE FOR FILING PROOFS OF CLAIM ARISING
FROM REJECTION OF UNEXPIRED LEASES AND EXECUTORY CONTRACTS
The Plan provides for the rejection, as permitted by Section 365 of the
Bankruptcy Code, of certain unexpired leases and contracts which the Debtors
have identified as "executory contracts." Those leases and contracts are
identified in Article VIII(E) of this Disclosure Statement, which also sets a
deadline for filing proof of all claims which might arise as the result of the
rejection.
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If you have a contract with the Debtors, review the identified provision of
this Disclosure Statement and TIMELY FILE A PROOF OF ANY CLAIM TO WHICH YOU MAY
BE ENTITLED WITH THE CLERK OF THE BANKRUPTCY COURT AT THE FOLLOWING ADDRESS OR
YOUR CLAIM WILL LIKELY BE FOREVER BARRED:
Clerk, U.S. Bankruptcy Court
2929 North Central Avenue
Ninth Floor
Phoenix, AZ 85004
ARTICLE III.
DATE AND TIME OF HEARING ON
CONFIRMATION OF THE PLAN
A copy of the Plan is attached as EXHIBIT "1" to this Disclosure Statement.
A Hearing on Confirmation of the Plan will be held before the Honorable Charles
G. Case, United States Bankruptcy Judge, commencing at _____ o'clock ____.m. on
_______________ in Courtroom No. __, at the United States Bankruptcy Court,
United States Courthouse, 2929 North Central Avenue, Phoenix, Arizona. The
Hearing may be continued from time to time without further written notice.
ARTICLE IV.
INTRODUCTION TO THE DISCLOSURE STATEMENT
Unless otherwise defined, the terms used in this Disclosure Statement have
the same meanings as those terms have in the Bankruptcy Code, 11 U.S.C. ss. ss.
101, et seq. (the "Code"), or as those terms have, in the Federal Rules of
Bankruptcy Procedure, promulgated pursuant to 28 U.S.C. ss. 2075 or in the Plan.
This Disclosure Statement is being submitted by the Debtors. The Debtors
have promulgated this Disclosure Statement in accordance with Section 1125 of
the Code for the purpose of soliciting acceptances of the Plan from holders of
impaired claims and equity interests. This Disclosure Statement has been
compiled to incorporate "adequate information" to enable creditors and
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stockholders ("Equity Interest Holders") to make an informed judgment as to
whether they should vote to accept or reject the Plan.
The Bankruptcy Court approved this Disclosure Statement on
__________________ as containing information of a kind, and in sufficient
detail, adequate to enable a hypothetical, reasonable investor typical of each
of the classes of claims and interests being solicited to make an informed
judgment whether to vote to accept or reject the Plan.
ARTICLE V.
DISCLAIMERS AND WARNINGS
THE BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT CONSTITUTES
NEITHER A CERTIFICATION THAT THE FACTUAL INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT IS ACCURATE NOR AN ENDORSEMENT OF THE PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PROMULGATED BY THE DEBTORS IN AN EFFORT
TO SOLICIT CREDITORS AND EQUITY INTEREST HOLDERS TO VOTE TO ACCEPT THE PLAN. THE
SOLICITATION IS A SOLICITATION BY THE DEBTORS ONLY. IT IS NOT A SOLICITATION BY
THE ATTORNEYS OR ACCOUNTANTS FOR THE DEBTORS AND THE REPRESENTATIONS MADE HEREIN
ARE ONLY THOSE OF THE DEBTORS AND NOT OF THEIR ATTORNEYS OR ACCOUNTANTS.
THIS DISCLOSURE STATEMENT IS NOT THE PLAN (SEE SUMMARY OF THE PLAN HEREIN).
THIS DISCLOSURE STATEMENT AND THE COMPLETE COPY OF THE PLAN, WHICH IS ATTACHED,
SHOULD BOTH BE READ IN THEIR ENTIRETY. FOR THE CONVENIENCE OF CREDITORS AND
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EQUITY INTEREST HOLDERS, THE PLAN IS SUMMARIZED IN THIS DISCLOSURE STATEMENT,
BUT THE PLAN ITSELF AND NOT THE PLAN SUMMARY IS CONTROLLING IN THE EVENT OF ANY
INCONSISTENCY BETWEEN THE TWO.
CERTAIN MATERIALS CONTAINED IN THIS DISCLOSURE STATEMENT ARE TAKEN DIRECTLY
FROM OTHER, READILY ACCESSIBLE DOCUMENTS OR ARE DIGESTS OF DOCUMENTS. WHILE
EFFORTS HAVE BEEN MADE TO CONVEY ACCURATELY THE CONTENTS OF SUCH DOCUMENTS, YOU
ARE URGED TO EXAMINE THE DOCUMENTS THEMSELVES AND TO USE THE DESCRIPTIONS OF
DOCUMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ONLY AFTER HAVING CONDUCTED
SUCH AN EXAMINATION.
NO REPRESENTATIONS OR ASSURANCES CONCERNING THE DEBTORS, INCLUDING, WITHOUT
LIMITATION, THEIR FUTURE BUSINESS OPERATIONS, THE VALUE OF THEIR PROPERTY, OR
THE VALUE OF SECURITIES TO BE ISSUED PURSUANT TO THE PLAN ARE AUTHORIZED BY THE
DEBTORS OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. IN ARRIVING AT
YOUR DECISION TO ACCEPT OR REJECT THE PLAN, YOU SHOULD NOT RELY UPON ANY
REPRESENTATIONS OR INDUCEMENT MADE TO SECURE YOUR ACCEPTANCE OF THE PLAN WHICH
ARE OTHER THAN THOSE CONTAINED IN THIS DISCLOSURE STATEMENT. SUCH ADDITIONAL
REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED TO COUNSEL FOR THE DEBTORS,
WHO, IN TURN, SHALL DELIVER SUCH INFORMATION TO THE COURT FOR SUCH ACTION AS MAY
BE APPROPRIATE.
EFFORTS HAVE BEEN MADE TO PREPARE ALL UNAUDITED FINANCIAL STATEMENTS WHICH
MAY BE CONTAINED IN THIS DISCLOSURE STATEMENT IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. HOWEVER, AS TO ALL FINANCIAL STATEMENTS, THE
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DEBTORS ARE UNABLE TO WARRANT OR REPRESENT THE ACCURACY OF THE INFORMATION
CONTAINED IN THOSE STATEMENTS TO BE WITHOUT ERROR.
THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT
BEEN SUBJECTED TO AN EXAMINATION BY INDEPENDENT, CERTIFIED PUBLIC ACCOUNTANTS.
THE DEBTORS HAVE KEPT RECORDS SUBSEQUENT TO THE FILING OF THE PETITION
COMMENCING THIS CASE AND THE DEBTORS HAVE FILED MONTHLY FINANCIAL REPORTS WITH
THE COURT SINCE THAT DATE. COPIES OF THE DEBTORS' AUDITED FINANCIAL REPORTS FOR
2000-2001, THE LAST YEAR FOR WHICH SUCH AUDITED REPORTS ARE AVAILABLE, ARE
ATTACHED AS EXHIBIT "2."
THE LIQUIDATION ANALYSIS CONTAINED IN THIS DISCLOSURE STATEMENT ATTACHED AS
EXHIBIT "3" WAS NEITHER COMPILED BY INDEPENDENT, CERTIFIED PUBLIC ACCOUNTANTS
NOR SUBJECTED TO AN AUDIT OR EXAMINATION BY INDEPENDENT, CERTIFIED PUBLIC
ACCOUNTANTS.
THE SECURITIES OF THE REORGANIZED DEBTOR HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR WITH ANY GOVERNMENTAL AGENCY UNDER THE
LAWS OF ANY STATE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE'S GOVERNMENTAL AGENCY HAS APPROVED OR DISAPPROVED SUCH SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THE FACTUAL INFORMATION CONTAINED IN
THIS DISCLOSURE STATEMENT.
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IF YOU ARE ENTITLED TO VOTE ON THE PLAN, YOU SHOULD DO SO. UNDER THE CODE,
DETERMINING THE OUTCOME OF BALLOTING ON THE PLAN REQUIRES A CALCULATION WHICH
CONSIDERS THE VOTES OF THOSE CREDITORS AND EQUITY INTEREST HOLDERS WHO ACTUALLY
VOTED ON THE PLAN. YOUR RIGHTS MAY BE AFFECTED EVEN IF YOU DO NOT VOTE ON THE
PLAN. YOUR OPPORTUNITY TO HAVE THE OUTCOME YOU DESIRE WILL LIKELY BE ENHANCED IF
YOU VOTE.
NOTHING IN THIS DISCLOSURE STATEMENT OR THE PLAN LIMITS DEBTORS' RIGHTS TO
OBJECT TO ANY PROOFS OF CLAIM OR INTERESTS FILED IN THIS CASE.
THE PLAN CONTEMPLATES THE ISSUANCE OF SECURITIES TO CREDITORS IN COMPLETE
OR PARTIAL SATISFACTION OF THEIR CLAIMS. THE DEBTORS AND THEIR REPRESENTATIVES
MAKE NO REPRESENTATIONS AS TO WHETHER ANY SECURITIES ISSUED PURSUANT TO THE
PLAN, ONCE PLACED IN THE HANDS OF RECIPIENTS UNDER THE PLAN, MAY BE FREELY
TRADED.
IT IS ADVISABLE FOR EACH RECIPIENT OF SECURITIES ISSUED PURSUANT TO THE
PLAN TO CONSULT INDEPENDENT COUNSEL PRIOR TO SELLING THOSE SECURITIES. ALL
CREDITORS AND EQUITY INTEREST HOLDERS ARE ALSO URGED TO CONSULT COUNSEL
REGARDING TAX CONSEQUENCES OF THE PLAN AND, IN PARTICULAR, ANY TAX CONSEQUENCES
OF RECEIVING SECURITIES UNDER THE PLAN.
BECAUSE THE DEBTORS DO NOT EXPRESS ANY OPINION AS TO THE TAX CONSEQUENCES
OF THE PLAN, IN NO EVENT WILL THE DEBTORS, THEIR PRINCIPALS OR THE PROFESSIONAL
ADVISORS THEY HAVE ENGAGED, BE LIABLE IF, FOR ANY REASON, THE TAX CONSEQUENCES
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OF THE PLAN ARE NOT AS ANTICIPATED BY CREDITORS AND EQUITY INTEREST HOLDERS.
CREDITORS AND EQUITY INTEREST HOLDERS MUST LOOK SOLELY TO AND RELY SOLELY UPON
THEIR OWN ADVISORS AS TO THE TAX CONSEQUENCES OF THE PLAN.
ARTICLE VI.
VOTING
A. ENTITIES ENTITLED TO VOTE AND ADMONITION TO VOTE IF ELIGIBLE.
Only creditors and equity interest holders whose claims and interests have
been both allowed for purposes of voting and are "impaired" by the Plan are
entitled to vote on the Plan. For a claim to be allowed for voting purposes, the
claim must be listed in the Debtors' Chapter 11 Schedules AND must NOT be listed
as "disputed," "contingent" or "unliquidated." If a claim is listed but shown as
"disputed," "contingent" or "unliquidated," the holder of the claim will not be
entitled to vote absent the timely filing of a Proof of Claim.
If a claim is not listed or is listed as "disputed," "contingent," or
"unliquidated," the holder of the claim must file a Proof of Claim on or before
the bar date set by the Court (or the Debtors must file a Proof of Claim for
that creditor as permitted by the Federal Rules of Bankruptcy Procedure) for
that creditor to be entitled to vote. Moreover, no holder of a claim will be
entitled to vote if any party in interest objects to that claim before balloting
on the Plan or any Amended Plan occurs, unless the Court enters a specific order
allowing the claim for voting purposes.
For an equity interest to be allowed, the equity interest holder's asserted
interest must appear in the Debtors' Schedules, or the holder of the equity
interest must file a proof of interest before the bar date set by the Court (or
the Debtors must do so for the interest holder as permitted by the Federal Rules
of Bankruptcy Procedure), and the equity interest holder must be a record holder
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of the Debtors' securities on the date the Order approving this Disclosure
Statement is entered on the Court's docket. In addition, no entity claiming to
hold an equity interest may vote if any party in interest has objected to the
allowance of the asserted interest prior to voting on the Plan or any Amended
Plan, unless the Court enters an Order allowing the interest for voting
purposes.
In addition to the foregoing criteria for voting eligibility, only
creditors and equity interest holders whose claims or interests are "impaired"
by the Plan (i.e., those whose claims or interests are altered or who will not
receive the allowed amount of their claims in cash pursuant to the original
terms of their agreements) are entitled to vote to accept or reject the Plan.
Holders of claims or interests which are not "impaired" are deemed to have
accepted the Plan as a matter of law.
If the claim or interest you hold has been classified in one of the
impaired classes of claims or interests created by the Plan, it is important
that you vote. In addition, if you hold more than one claim or interest
classified as "impaired" under the Plan, it is important that you vote with
respect to EACH such claim or interest. IF YOU FAIL TO VOTE, YOUR RIGHTS MAY BE
JEOPARDIZED.
B. VOTING INSTRUCTIONS.
After carefully reviewing this Disclosure Statement and its exhibits, vote
to accept or reject the Plan on the enclosed ballot (or ballots) and mail or
deliver it (or them) to the address identified below so that your ballot (or
ballots) is (are) RECEIVED BY THE BAR DATE SPECIFIED.
All ballots must be signed and received prior to _______________. Mail or
deliver original ballots to:
Clerk
U.S. Bankruptcy Court
District of Arizona
2929 N. Central Avenue
Phoenix, Arizona 85004
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Also, mail or deliver copies of all ballots to the attorneys for the Debtors at
the following address:
Christopher R. Kaup, Esq. (014820)
TIFFANY & BOSCO, P.A.
1850 North Central Avenue
Fifth Floor
Phoenix, Arizona, 85004
AS MAIL DELAYS MAY OCCUR, IT IS IMPORTANT THAT THE BALLOT OR BALLOTS BE
MAILED OR DELIVERED WELL IN ADVANCE OF THE BAR DATE SPECIFIED. BALLOTS RECEIVED
AFTER THIS DATE MAY NOT BE COUNTED.
Each creditor entitled to vote is to receive a ballot for each separately
classified, impaired claim held. Each equity interest holder entitled to vote is
also to receive a ballot.
If you do not receive the required number of ballots, with your copy of the
Court-approved Disclosure Statement, notify attorneys for the Debtors
immediately at the address noted above. IT IS IMPORTANT FOR YOU TO CAST ALL
BALLOTS WHICH YOU ARE ENTITLED TO VOTE.
C. THE RESULTS OF BALLOTING ON THE PLAN ARE DETERMINED BY CLASS.
In general, a class of claims accepts the Plan if the creditors who vote to
accept the Plan hold at least two-thirds (2/3) in dollar amount and constitute
more than one-half (1/2) in number of the allowed claims in the class ACTUALLY
VOTING on the Plan. In general, a class of equity interests accepts the Plan if
it is accepted by those who hold at least two-thirds (2/3) of the allowed
interests in the class ACTUALLY VOTING on the Plan.
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D. CONFIRMATION BASED UPON ACCEPTANCE OF THE PLAN BY ALL IMPAIRED CLASSES.
If each class of impaired claims and interests accept the Plan and the Plan
is confirmed, the Plan will bind all holders of claims and interests, including
those who did not vote and those who voted to reject the Plan.
THE DEBTORS RECOMMEND THAT ALL THOSE ENTITLED TO VOTE CAST THEIR BALLOTS TO
ACCEPT THE PLAN.
The Plan may also be confirmed if all impaired classes do not accept it, so
long as the Plan is accepted by at least one class of impaired claims.
Confirmation over the objections of one or more classes of claims or interests
is called "cramdown."
E. CONFIRMATION OVER THE OBJECTIONS OF ONE OR MORE IMPAIRED CLASS.
If the Plan is rejected by one or more impaired classes of claims or
interests, the Plan or modification thereof may still be confirmed by the Court
at the request of the Debtors. To grant such a request, the Court must find,
among other things, that the Plan does not "discriminate unfairly" and is "fair
and equitable" with respect to each rejecting, impaired class of claims or
interests.
The phrases "discriminate unfairly" and "fair and equitable" are defined by
Section 1129 of the Code and the case law interpreting that statute. In other
words, those phrases are "terms of art" denoting specific statutory criteria for
confirmation which the Debtors' Plan must satisfy to be confirmed by the Court
if any impaired class of claims or equity interests rejects the Plan.
The Plan does satisfy the statutory criteria required by Section 1129 of
the Code, and the Debtors intend to request Confirmation of the Plan in the
event it is rejected by any impaired class.
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F. CONSEQUENCES IF THE PLAN IS NOT CONFIRMED.
If the Plan, or any modification thereof, is not accepted by one or more
impaired classes of claims or interests or is not confirmed by the Court for
other reasons, the Debtors will have no choice but to proceed to foreclose on
their collateral. This forced liquidation of the Debtors' assets under less than
favorable conditions will yield no recovery to the unsecured creditors.
ARTICLE VII.
DESCRIPTION OF THE DEBTORS AND THEIR OPERATIONS
A. HISTORY AND BACKGROUND.
1. OVERVIEW AND BUSINESS DEVELOPMENT.
(a) ORGANIZATIONAL STRUCTURE. EBIZ is a Nevada corporation
incorporated in June 1998. Its predecessor, Genras, Inc., was incorporated in
Arizona in May 1995. On June 1, 1998, Vinculum Incorporated, a then
non-operating company with an estimated 700 shareholders, acquired all the
operating assets and liabilities of Genras for 5,000,000 shares of Vinculum
common stock. Prior to the acquisition, Genras had no relationship with
Vinculum. Vinculum was incorporated in Colorado in May 1984 as VDG Capital
Corporation and changed its name to Vinculum Incorporated in December 1994.
Immediately following the acquisition of the Genras assets, the former Genras
stockholders held approximately 87% of the outstanding shares of Vinculum's
common stock. For financial accounting purposes, the acquisition was treated as
a recapitalization with Genras as the acquirer.
EBIZ was originally incorporated as a wholly owned subsidiary of Vinculum
with the name Vinculum Incorporated. Its name was changed to CPU MicroMart, Inc.
in June 1998 and later changed to EBIZ Enterprises, Inc. in May 1999. In August
1998, Vinculum merged into EBIZ solely to change its domicile to Nevada.
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The Debtors were and are a developer and provider of Linux-based solutions,
computer systems, software and accessories for the business computer market.
They have developed and operate Linux-centric Websites that provide vendor
neutral marketing and sales channels for providers of Linux products and
services, information and technical support. The Debtors also manufacture and
market proprietary Linux-based systems. Their products are sold directly to end
users through their Websites and to corporate customers and Value Added
Resellers (VARs) through their own sales force.
During the second quarter of fiscal 2000, EBIZ decided to concentrate its
strategic focus on the Linux segment of the market which management believed and
still believe has much stronger growth opportunities than the low price, high
volume, conventional Windows-based computing systems market. At the same time,
EBIZ began to restructure its organization to facilitate the implementation of
the expansion of Linux marketing, Website development and product development
programs and implemented a growth-through-acquisition strategy.
During the last year, EBIZ made several acquisitions that were targeted to
strengthen and support the move into the Linux market.
(b) CORPORATE TRANSACTIONS CALDERA SYSTEMS, INC. On September 15,
2000, EBIZ entered into a Purchase and Sale Agreement with Caldera Systems, Inc.
("Caldera") for the acquisition of all of the intellectual property, technology
and certain specified assets related to Caldera's proprietary marketing
distribution concept known as Electronic Linux Marketplace. EBIZ paid to Caldera
one million shares of its common stock for the Electronic Linux Marketplace
assets, which were transferred into a wholly owned subsidiary, partnerAxis, Inc.
("partnerAxis"). As part of the transaction, Caldera purchased $3 million of
EBIZ common stock in a private transaction. The $3 million proceeds received
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from Caldera were used to fund partnerAxis, a Web-based B2B entity providing
knowledge exchange, Linux product sales, advertising, membership and channel
development, all within the Linux marketplace.
On April 16, 2001, EBIZ completed the sale of partnerAxis to BySynergy, LLC
("BySynergy"), pursuant to a Stock Purchase Agreement dated April 13, 2001. The
major factors leading to the decision to sell partnerAxis were the costs
necessary to operate the subsidiary, approximately $500,000 during the quarter
ending March 31, 2001. The disposition relieved the requirement of raising the
additional capital necessary to fund the continuing development of partnerAxis
until it could begin to produce revenues. But most importantly, the disposition
allowed the Debtors to focus primarily on their core business of supplying
computing solutions to our corporate and channel accounts nationwide.
(c) ACQUISITION OF LINUXMALL.COM, INC. On October 5, 2000, EBIZ
completed the acquisition of LinuxMall.com, Inc. ("LINUXMALL") by the merger of
LinuxMall into a newly formed and wholly owned subsidiary . The price paid was
$14.7 million comprised of common stock, options and Warrants. As one of the
original Linux companies founded in the early 1990s, LinuxMall had developed
great appeal with the on-line Linux community and had successfully marketed and
sold Linux accessories through its websites. Those facts further reinforced
LinuxMall's stature within the Linux community of program developers. EBIZ
believed that the LinuxMall acquisition would elevate its position as a leader
in the Linux community, would supply the needed elements to become the leading
solutions provider in the open-source marketplace and provide the capabilities
to offer the most comprehensive selection of Linux products, solutions, support,
information and services.
(d) ACQUISITION OF JONES BUSINESS SYSTEMS, INC. On January 4, 2001,
EBIZ completed the acquisition of JBSI by the merger of JBSI into a newly formed
wholly owned subsidiary. Under terms of the transaction, EBIZ paid $7.8 million
for JBSI, comprised of common stock and options. JBSI is a national solutions
integrator, white box system builder and service provider. JBSI manufactures the
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Terian product line of built-to-order computing solutions for its reseller and
enterprise partners. Terian systems combine the latest Intel hardware technology
with built-to-order flexibility and reliability. JBSI supplies computing
products and services to its reseller and enterprise partners nationwide in the
Linux, UNIX and Windows 2000 marketplaces and is one of the nation's top
distributors of Informix (Nasdaq: IFMX), SCO (Nasdaq: SCOC), Data General
(Nasdaq: DATA) and Acer products.
The acquisition strengthened EBIZ's position in the expanding market for
specialized servers, also known as appliance servers. Specialized servers are a
new generation of single-purpose computer equipment created as a result of rapid
Internet growth and the evolution to a thin client architecture. Specialized
servers, including Web-hosting and database-hosting devices, are used
extensively by application service providers (ASPs) and Internet Service
Providers (ISPs). The acquisition of JBSI was anticipated to establish the
company as a primary beneficiary of the migration from Unix to Linux. JBSI had
longstanding relationships with many UNIX VARs offering an existing client base
for the Debtors' Linux solutions. The Debtors' believed that the acquisition
would turn that migration path into a superhighway and dramatically increase the
number of VARs providing Linux solutions. Moreover, JBSI had been building and
supplying white boxes, products and services to the UNIX community since 1991
and, anticipating the rapid growth of the Linux and UNIX marketplaces, JBSI
built in-house systems and facilities to handle sales volume of more than $200
million per year.
The Debtors employ an integrated business strategy that utilizes their
Internet Websites intended to appeal to a specific vertical market audience.
LinuxMall.com, Ebizmart.com, and Ebizenterprises.com are a core element of the
Debtors' Linux strategy. The Debtors anticipate these sites will become leading
destinations to the Linux user market, providing community resources and
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services, such as free e-mail, Linux directory, links to numerous Linux-based
sites and technology expertise. These sites are intended to provide "EVERYTHING
LINUX" and offer the largest selection available of Linux-compatible technical
products and related items
The Debtors are focusing their business on utilization of the Linux
operating system and away from some of their prior fulfillment distribution
strategies. The Debtors believe that their gross margins will increase and
operating expenses will stabilize because of this targeted focus on Linux based
products.
2. DESCRIPTION OF BUSINESS AND THE LINUX AND UNIX MARKET OPPORTUNITY.
(a) OVERVIEW. Linux is a free Unix-type-computer operating system
originally created by Linus Torvalds at the University of Helsinki in Finland.
He began his work in 1991 when he released Version 0.02 and worked steadily
until 1994 when Version 1.0 of the Linux Kernel was released.
Linux is developed under the GNU General Public License, and its source
code is freely available to everyone. However, companies and developers may
charge for the system and adaptations as long as the source code remains
available. Linux may be used for a wide variety of purposes, including
networking, software development, and as an end-user platform. Linux systems are
considered a viable, low-cost alternative to other more expensive operating
systems.
Due to the functionality and availability of the Linux system, it has
become popular worldwide. A vast number of software programmers of the Linux
system have taken the Linux source code and adapted it to meet their individual
needs. At this time, there are numerous ongoing projects for porting Linux to
various hardware configurations and purposes.
(b) THE RAPIDLY GROWING LINUX MARKET. The Linux operating system is
growing beyond the early adopter phase and reaching the mainstream business
market. Active Linux users worldwide are estimated to be in excess of
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10,000,000. Numerous hardware and software manufacturers have announced and have
deployed Linux-based solutions.
In a 1999 bulletin titled, LINUX OPERATING SYSTEM MARKET OVERVIEW, IDC, a
technology industry research firm, presented its first-ever forecast for Linux.
Through 2003, total Linux commercial product shipments are predicted to grow
faster than the total shipments of all other client or server operating
environments monitored by IDC. IDC estimates Linux commercial shipments will
increase at a compound annual growth rate ("CAGR") of 25% from 1999 through
2003. This growth rate estimate may be compared to an estimated 10% CAGR for all
other operating environments combined and a 12% CAGR for all other server
operating environments combined. IDC reports on only commercial shipments of
Linux and is unable to track systems downloaded from the Internet at no charge.
Linux has been used in academic and research environments since its
inception for applications such as e-mail, Web servers, bulletin boards and
research projects. In 1999, IDC expects more application vendors to port their
offerings to Linux and hardware vendors to continue to expand their available
product lines running Linux for server-side endeavors. Further, IDC believes
that some desktop initiatives, including an improved graphical user interface
and increased desktop application availability, have the ability to trigger
interest in Linux as a desktop operating system by 2003.
Linux servers are expected to have a larger impact on the worldwide server
appliance market, according to Dataquest Inc., a unit of Gartner Group, Inc., in
a July 1999 report. Dataquest estimates that by 2003, Linux servers will account
for approximately 24% of worldwide server appliance revenue, or $3.8 billion,
and 14% of server appliance shipments, or 1.1 million units. Linux based
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operating systems are now the most commonly used operating system for Websites,
representing approximately 33% of all installations, according to the April 2000
Netcraft Web Server Survey.
Moreover, there has been a convergence of the Linux and Unix markets as
many traditional Unix users are recognizing the advantages of Linux.
Significantly, this factor has opened Linux to a new audience of Unix users that
are seeking what Linux offers. JBSI has many longstanding relationships with
Unix customers that are expeccted to embrace Linux for many of their future
needs.
The Debtors' selection of products and solutions will continue to cover
both the Linux and the Unix markets. As a result, the Linux-Unix convergence
fits neatly into the product mix Debtors intend to offer clients and prospects.
Debtors intend to proceed postconfirmation to concentrate the business of the
Reorganized Debtor in the Linux and Unix markets.
(c) TARGET MARKETS. As the Linux-Unix operating system moves into the
mainstream, Debtors intend to concentrate their marketing effects on Information
Technology ("IT") professionals, computer industry value added reselers
("VARs"), educational and governmental users and Linux enthusiasts. Persons in
this target market include chief information officers, network/system
administrators, Web developers and managers, programmers, software and hardware
engineers, as well as hobbyists and individuals seeking affordable Internet
access. The Debtors will also focus on large corporations seeking to establish
Linux in the consumer market through Internet access appliances and software
development.
3. BUSINESS OBJECTIVES AND STRATEGIES.
The Debtors' objective is to deliver Linux-Unix solutions through channel
partners who in turn focus on the corporate business marketplace. In order to
achieve this objective, the Debtors will utilize two primary delivery channels
in which they will have strong presence and positioning. These channels are:
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* DIRECT SALES. The largest source of revenue and growth is expected to
be through the Debtors' own internal direct sales force. The sales
force sells fully integrated Linux-Unix solutions to the corporate
business environment - primarily through VARs.
* E-COMMERCE. The Debtors' flagship Websites are LinuxMall.com and
Ebizmart.com. These sites provide marketing and distribution
opportunities for providers of Linux-Unix products and services and
advertisers to Linux users. They also serve the Linux-Unix user,
providing a broad selection of products and merchandise, as well as
technical support and community information. These Websites are
intended to be the home of the largest selection anywhere of
Linux-compatible technical products and related items, including
servers, desktop and notebook computer systems, communications and
networking products, hardware, components, peripherals and software
applications, games and utilities, and apparel and specialty
merchandise.
The Debtors' strategic objectives are to:
* Maintain their comprehensive Websites that combine product marketing
with Linux-Unix community interests, such as news, resources, links
pre- and post-sales technical support, hardware service and customer
service;
* Utilize their Linux-Unix product development expertise to create
unique product lines for bundling into delivered solutions;
* Generate revenue through product sales, as well as through technical
support, service and training opportunities, customer services,
Internet advertising, marketing and Web links;
* Expand sales, marketing, production and distribution of their branded
product lines; and
* Establish the Debtors as active members of the Linux-Unix community
known to aggressively support the open source development initiative.
The Debtors' technology facility and sales and marketing expertise
differentiate their operations by allowing them to provide true merchant
qualities and capabilities, such as conducting their own purchasing,
merchandising, order fulfillment, supply-chain management, vendor marketing
opportunities and product technical support functions.
The Debtors' e-commerce Websites also offer targeted audiences relevant
content, services and a quality Linux-Unix and open source buying experience.
The key elements to implement the Debtors' business plan include:
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* PROVIDING A MEANINGFUL VIRTUAL COMMUNITY DESTINATION ON THE INTERNET
WITH THEIR WEBSITES. By providing the broadest spectrum of Linux-Unix
solutions to serve the needs of the Linux-Unix and business community,
they believe they will provide common interest Internet destination
points which will be a source for news and information, as well as
providing an opportunity for product purchases.
* ENSURING A SECURE AND CONVENIENT ON-LINE BUYING EXPERIENCE. The
Debtors' e-commerce sites feature secure buying facilities that are
open 24 hours a day, seven days a week. Those Websites may be reached
from the customer's home or office and feature extensive browsing and
search capabilities.
* DELIVERING EXCELLENT CUSTOMER SERVICE. The Debtors intend to provide
the highest level of customer service from ordering to shipping, and
offer pre- and post-sales support via the telephone, e-mail and
online. They also offer online order tracking capabilities.
* DEVELOPING CUSTOMER LOYALTY. The Debtors are focused on developing and
promoting customer loyalty, building repeat purchase relationships
with their customers and maximizing the number of return visits to
their Websites.
* BUILDING BRAND LEADERSHIP POSITIONING. The Debtors are implementing
integrated online and offline marketing strategies to enhance their
brand recognition within the vertical markets they target, which
include advertising, direct online marketing, trade shows and public
relations activities.
4. INFORMATION TECHNOLOGY.
The market in which the Debtors compete is characterized by rapidly
changing technology, evolving industry standards, frequent service and new
product announcements, product enhancements and changing customer demands.
Accordingly, their success depends upon the ability to adapt to rapidly changing
technologies, adapt their services to evolving industry standards, and to
continually improve the performance, reliability and features of their products
and service.
In order to provide a competitive advantage, the Debtors have
implemented a broad array of scaleable site management, search, customer
interaction and distribution services systems that are used to process
customers' orders and payments. These systems use a combination of proprietary
technologies and commercially available licensed technologies. The systems that
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used to process customers' orders and payments are integrated with accounting
and financial reporting systems. In addition, the Debtors have focused their
internal development efforts on creating and enhancing the specialized,
proprietary software that is unique to their business.
The Debtors' systems have been designed on industry standard architectures
to reduce downtime in the event of outages or catastrophic occurrences. Those
systems provide 24-hour, seven-days-a-week availability. The system hardware is
located at the Stafford, Texas facility.
5. PRINCIPAL SUPPLIERS AND STRATEGIC ALLIANCES.
The Debtors' principal suppliers have over the past two years included
Ingram Micro, Inc., Kingston Technology Company, ViewSonic Corporation and
Advanced Microdevices, Inc. As they have moved more into the mainstream Linux
community through both internal growth and acquisitions, other major suppliers
have arisen. These suppliers include Caldera Systems, Inc., Corel Corporation,
Suse, Inc., Walnut Creek, Inc. and Red Hat Software, Inc. As the Debtors produce
and sell more bundled computer systems utilizing the Linux operating system,
they anticipate that suppliers such as 3ware, TurboLinux, Storm Linux and Cobalt
Networks, Inc. will also become significant suppliers to the Reorganized Debtor.
6. COMPETITION.
Several companies, such as Red Hat, Inc., are building business models
around Linux by selling customer service, technical support and applications
with the system. Red Hat has dominated this market by entering into distribution
agreements with large hardware makers, such as IBM and Dell, resulting in it
accounting for approximately 56% of operating systems of all Linux servers
shipped last year, according to IDC, the technology industry research firm.
Several Linux-based Website portals which offer technical news, software
downloads, Website tools, resources, links and services, as well as product
marketing, have been recently developed. The sites highlight the growing
competition in the open-source world, and among Linux operating system
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developers in particular. There are numerous Linux portals offering information,
software, services and resources. The sites that offer some of the same content
or services as the Debtors' sites include justlinux.com, LinuxLinks.com,
LinuxStart.com, Linux.org, linux.com, FirstLinux.com, LinuxToday.com,
Slashdot.org, Freshmeat.com and linuxbandwagon.com. Sites that directly compete
with the Debtors' sites in content, services and products include RedHat.com,
and penguin.com.
7. INTELLECTUAL PROPERTY.
The Debtors rely primarily on trademark and copyright laws to protect their
intellectual property. In their brief history, however, the Debtors have not
developed any significant intellectual property having any real value. They do
have several registered URL domain names, which include the primary Websites
discussed above, as well as others that the Debtors anticipate utilizing in the
future.
8. EMPLOYEES.
The Debtors currently have approximately 40 full-time employees. None of
those employees are covered by collective bargaining agreements.
B. PRINCIPAL SHAREHOLDERS.
The following table sets forth all shareholders known by the Debtors to be
beneficial owners of five percent (5%) or more of the Debtors' outstanding
securities:
BENEFICIAL OWNER PERCENTAGE OF COMMON STOCK
---------------- --------------------------
Tarantella 18.06%
The Canopy Group, Inc. 23.91%
Various shareholders(1) who executed a 59.8%
Shareholder Voting Agreement and Proxy
Hayjour Family Limited Partnership 5%
Mark Bolzern 6.4%
- ----------
(1) The shareholders who are parties to this voting agreement are as follows:
Caldera Systems, Inc., Mark Bolzern, Stephen P. Shadle, Jeffrey I. Rassas,
Debi S. Rassas, Stephen C. Herman, David S. Shaw, Marian Shaw, Bruce
Parsons, Scott Shadle, Nick Futter, Don Young, Dave Colesante, Mike
Colesante, Bomar Shaw Family Trust, LLC, MV3LP, Hayjour Family Limited
Partnership, Kona Investments Limited Partnership, and the Stephen P. and
Roberta G. Shadle Trust.
-23-
C. ASSETS OWNED.
The assets owned by the Debtors on Petition Date and the Debtors' estimate
of the value of those assets at that time are described in the Debtors' Chapter
11 Schedules and Statement of Financial Affairs filed with the Clerk of the
Bankruptcy Court and any subsequently filed Amendments thereto.
The assets the Debtors own as of the date of this Disclosure Statement and
the Debtors' estimate of the current value of those assets are described in the
"Liquidation Analysis" attached as EXHIBIT "3" to this Disclosure Statement.
D. EVENTS LEADING TO FILING OF THE CHAPTER 11 PETITIONS.
As a result of the acquisition of JBSI, EBIZ assumed, by virtue of an
intercorporate guaranty, a revolving line of credit (RLOC) and a term note from
Finova Capital Corporation ("Finova") with an aggregate principal amount of
approximately $4,500,000. Both instruments were secured by liens on all of the
assets, including accounts receivable, of the Debtors.
On April 15, 2001, the Finova RLOC was due to and actually did expire. Due
to its own severe financial problems and its pending bankruptcy case, Finova
made the business decision to exit the financing niche of extending financing
packages as small as the facility with the Debtors. As a result, Finova declined
to extend that facility and the Debtors' access to necessary operating funds was
terminated. In addition, all receivables were utilized by Finova, through a
"lock box" required by the parties' agreements, to pay down the RLOC. The
Debtors, therefore, had no access to cash for operations during a period in
April 2001.
-24-
After some extensive negotiations between the Debtors' management and
representatives of Finova, the RLOC was extended until June 30, 2001. Although
the Debtors engaged in exhaustive efforts to obtain a replacement financing
facility, due to the general economic conditions and the near depression in the
market for financing in the high-tech industry, the Debtors' were unable to
locate an alternative financing package.
Accordingly, on June 30, 2001, the RLOC was terminated permanently. Once
again, Finova deprived the Debtors of any access to cash flow and paid down
approximately $1,500,000 of the balance due under the RLOC, through the
"lock-box," during July and early August 2001. The Debtors' inability to use
their cash and lack of access to any capital during this period severely damaged
the Debtors' operations, including the ability to acquire necessary inventory to
fill pending and future orders.
The Debtors did not file for bankruptcy at that time because its management
believed that the probability of a successful reorganization without the support
of its secured creditors and important vendors and without access to its
receivables was negligible. During July and August, Canopy, the Debtors' second
largest secured creditor and a major investor, and Finova commenced negotiations
for Canopy to acquire the Finova debt position. Canopy and the Debtors also
negotiated a Stipulation for Use of Cash Collateral and concepts for a Plan of
Reorganization. The Debtors also negotiated a postpetition financing agreement
with its key vendor, Caldera Systems, Inc.
In late August 2001, Canopy acquired Finova's first position lien by
purchasing the $2,000,000 balance of the term note and the approximately
$350,000 balance of the RLOC. Canopy reestablished access to collected accounts
receivable at that time, thereby allowing EBIZ cash for operations.
Having provided a stable platform for its reorganization, the Debtors
determined that the only way they could restructure their business operations in
an orderly manner and obtain the time necessary to reacquire a suitable
financing facility to allow for profitable operations was to seek the
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protections provided by the United States Bankruptcy Code. Accordingly, EBIZ and
JBSI filed petitions for relief under Chapter 11 of the Code on September 7,
2001.
E. POSTPETITION DEVELOPMENTS AND OPERATIONS.
1. POSTPETITION MANAGEMENT OF THE DEBTORS.
The Debtors' current management has been reduced to: Mr. Bruce Parsons as
President of EBIZ and CEO of JBSI, and Mr. Mike Colesante as CFO of both
Debtors.
2. POSTPETITION RETENTION OF PROFESSIONALS.
The law firm of Tiffany & Bosco, P.A. and Mr. Christopher R. Kaup, Esq.,
were retained to serve as Counsel for the Debtors and their employment was
approved by the Court on September 13, 2001. The law firm of Snell & Wilmer and
Mr. Steve Pidgeon, Esq., were retained to serve as Special Securities Counsel
for the Debtors, and their employment was approved by the Court on December 12,
2001. The Court has also approved the Debtors' retention of Bickley, Prescott &
Co., P.C., CPAs, as the general accountants for the Debtors and the accounting
firm of Semple & Cooper, P.C., as the Debtors' accountants for the special
limited purpose of assisting in the preparation of reports required to be filed
with the Securities & Exchange Commission.
3. APPOINTMENT OF CREDITORS COMMITTEE.
A single Official Committee of Unsecured Creditors (the "Committee") has
been appointed in this case. The Committee has selected and the Court has
approved the employment of Gallagher & Kennedy, P.C., and Joseph Cotterman,
Esq., as its legal counsel.
4. REDUCTION OF EXPENSES.
The Debtors have taken decisive actions to reduce their operating expenses.
As of April 2001, the Debtors employed 80 persons, and the aggregate amount of
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their monthly expenses was $393,966. The Debtors also maintained their corporate
headquarters in Phoenix, Arizona and the manufacturing facility in Stafford,
Texas.
As of the date of the filing of the Plan and this Disclosure Statement, the
Debtors have terminated the lease of and closed the Phoenix offices, terminated
expensive and unprofitable product lines and employ only 38 persons. As a
result, the aggregate amount of their monthly expenses as of November 2001 was
only $146,156.
5. JOINT ADMINISTRATION.
The Court ordered that the separate bankruptcy estates of EBIZ and JBSI be
jointly administered on September 13, 2001.
6. CASH COLLATERAL STIPULATION WITH CANOPY.
Contemporaneous with the filing of their bankruptcy petitions, the Debtors
filed a Motion to Approve Stipulation to Use Cash Collateral with Canopy. At an
Expedited Hearing on September 13, 2001, the Court approved an Interim Order
approving the cash collateral stipulation with Canopy and authorizing the
Debtors to use that cash collateral. The Court entered a "Final Order" on
September 24, 2001, approving the stipulation with Canopy and authorizing the
use of Canopy's cash collateral by the Debtors. There have been no defaults by
the Debtors under the terms of the stipulation with Canopy.
7. POSTPETITION FINANCING.
Contemporaneous with the filing of their bankruptcy petitions, the Debtors
filed a Motion to Approve Postpetition Financing with their most important
vendor, Caldera Systems. The Court approved the financing transaction with
Caldera, on an interim basis, on September 13, 2001 and, on a permanent basis,
on September 24, 2001.
In addition, the Debtors filed a Motion to Approve Postpetition Financing
from Textron Financial Corporation and Agreement to Provide Letter of Credit and
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Financial Accommodations (the "Textron Financing Motion") on October 31, 2001.
The Court granted the Textron Financing Motion, pursuant to an Order entered in
open Court on November 8, 2001.
Finally, the Debtors filed a Motion to Approve Postpetition Financing from
First Financial Equity Corporation (the "FFEC Financing Motion") on October 30,
2001. The Court granted the FFEC Financing Motion, pursuant to an Order entered
in open Court on November14, 2001.
The Debtors believe the financing facility obtained by virtue of the
Textron Financing Motion, the favorable commercial terms under the agreement
with Caldera and the financing arrangement with First Financial, as well as the
on-going very positive relationship with Canopy, will provide the Debtors with
the necessary financial resources to successfully reorganize their financial
affairs, perform on their duties under the Plan and return to the unsecured
creditors value substantially in excess of the amount they would receive through
a liquidation.
8. PLANS OF REORGANIZATION.
No other Plans have been filed by any party.
ARTICLE VIII.
SUMMARY OF THE PLAN
This part of the Disclosure Statement summarizes the provisions of the
Plan. The Plan, after it has been confirmed, will constitute a contract between
the Debtors and their creditors and stockholders. This Disclosure Statement does
not constitute such a contract. Therefore, if any discrepancies exist between
the Plan and the following summary of the Plan, the Plan will control. It is,
thus, advisable, as mentioned above, to review the Plan carefully for the full
details of the treatment of creditors and Equity Interest Holders.
-28-
CREDITORS AND EQUITY INTEREST HOLDERS ARE URGED TO READ THE PLAN IN FULL.
CREDITORS AND EQUITY INTEREST HOLDERS ARE FURTHER URGED TO CONSULT WITH THEIR
OWN LEGAL COUNSEL TO OBTAIN A COMPLETE UNDERSTANDING OF THE PLAN.
A. OBJECTIVE OF THE REORGANIZATION.
The Plan provides for the reorganization of the Debtors under a
consolidated and simplified corporate structure having cost effective operations
serving existing and new customers with the core competencies and most
profitable products of the Debtors. Members of the FFEC Group holding Allowed
Secured Claims have the right to exchange their Claims into equity, as of the
Effective Date. In addition, The Canopy Group ("Canopy") has the option to
convert up to $1,500.000.00 of its Allowed Secured Claim into shares of the
Reorganized Debtor's Common Stock.
In the event that members of the FFEC Group elect to exchange their Claims
and Canopy elects to convert a portion of its Allowed Secured Claim, all
creditors will necessarily benefit as a result. First, the aggregate amount of
the outstanding secured debt will have been substantially reduced and the
regular monthly debt service obligation of the Reorganized Debtor will be
lowered resulting in better and more reliable operations. Second, as
shareholders of the Reorganized Debtor, the creditors will share in the equity
appreciation and hold an interest in a company with a much stronger balance
sheet.
Holders of Allowed Unsecured Claims will receive payments of cash from the
Reorganized Debtor in amounts substantially greater than if the assets of the
Debtors were liquidated under Chapter 7. In addition, holders of Allowed
Unsecured Claims will receive additional value in the form of shares of New EBIZ
Common Stock and New EBIZ Warrants, which will allow all such persons to
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participate in the anticipated postconfirmation operating success of the
Reorganized Debtor.
Finally, the Plan provides that holders of Allowed Interests shall have the
opportunity to contribute "new value" to the Reorganized Debtor by exercising
New EBIZ Warrants to be issued, under the Plan, to all such holders. All of the
Debtors' Old Common Stock and Old Preferred Stock shall be canceled pursuant to
the Plan. The Debtors believe that this new debt and capital structure will
provide the highest feasible rate of return to all creditors and parties in
interest which can be realistically achieved under current bankruptcy law.
As set forth more fully below and in the Disclosure Statement regarding the
Plan, if the Debtors' assets were liquidated in a case under Chapter 7, the
creditors holding allowed unsecured claims would receive nothing for their
Claims, since all of the Debtors' assets would have less value in the context of
a Chapter 7 case and are fully encumbered by the secured claims of The Canopy
Group, Ingram Micro, Inc., Caldera Systems, Inc., and certain secured equipment
"lessors." The Debtors believe that by continuing their existing business
through the reorganized structure created by operation of the Plan, the
creditors will receive a far greater return than through a liquidation.
B. MANAGEMENT OF THE REORGANIZED DEBTOR.
1. THE BOARD OF DIRECTORS AND CORPORATE OFFICERS.
Notwithstanding the issuance of securities pursuant to the Plan the initial
Board of Directors of the Reorganized Debtor shall consist of those persons
designated below and the additional persons that may be selected by Canopy and
FFEC under the circumstances detailed below. If a Director designated as a
member of the initial Board of Directors is unable to complete his tenure, the
remaining Directors shall elect a new Director.
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NAME OFFICE TO BE HELD REMUNERATION
---- ----------------- ------------
Bruce Parsons President, CEO & Director $120,000 per year
Mike Colesante Chief Financial Officer $120,000 per year
In addition, Canopy shall be entitled to designate to the initial board of
directors of the Reorganized Debtor one director for each $500,000 of its
Secured Claim that Canopy elects to convert into shares of stock of the
Reorganized Debtor as provided below. In the event that Canopy elects to convert
at least $500,000 but less than $1,000,000 of its Secured Claim into shares of
stock of the Reorganized Debtor, Canopy designates Dan Baker as director. In the
event that Canopy elects to convert at least $1,000,000 but less than $1,500,000
of its Secured Claim into shares of stock of the Reorganized Debtor, Canopy
designates Dan Baker and Darcy Mott as initial directors. In the event that
Canopy elects to convert $1,500,000 of its Secured Claim into shares of stock of
the Reorganized Debtor, Canopy designates Dan Baker, Darcy Mott and Ralph Yarro
as initial directors.
In the event that any of Canopy's initial designees resign or are unable
for any reason to act as a director of the Reorganized Debtor, Canopy shall be
entitled to designate an individual to replace such director.
The FFEC Group shall also be entitled to designate to the initial board of
directors of the Reorganized Debtor one director for each $500,000 of the debt
represented by the promissory notes issued by the Debtors to the FFEC Group that
members of the FFEC Group elect to convert into shares of stock of the
Reorganized Debtor as provided below. In the event that members of the FFEC
Group elect to convert at least $500,000 but less than $1,000,000 of their
Secured Claim, if any, into shares of stock of the Reorganized Debtor, the FFEC
Group designates George Fischer as director. In the event that members of the
FFEC Group elect to convert at least $1,000,000 of their Secured Claim, if any,
into shares of stock of the Reorganized Debtor, the FFEC Group designates Steve
Scronic and as initial directors.
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In the event that any of the FFEC Group's initial designees resign or are
unable for any reason to act as a director of the Reorganized Debtor, the FFEC
Group shall be entitled to designate an individual to replace such director.
The directors of the Reorganized Debtor designated by Canopy and the FFEC
Group shall perform their services as directors without remuneration.
Approval of two-thirds of the board of directors of the Reorganized Debtor
shall be required to increase the number of directors from the number of initial
directors appointed and designated; except that, in the event that the number of
initial directors appointed and designated as set forth above is insufficient to
satisfy the statutory minimum number of directors under the governing state law,
the Reorganized Debtor may appoint an additional director or directors in order
that the number of directors satisfies the statutory minimum number of
directors.
Other than the officers of the Debtor listed above, no "insiders" will be
employed by the Reorganized Debtor. However, as set forth above, employees or
agents of Canopy and FFEC, which may be "insiders," may serve as directors of
the Reorganized Debtor for no compensation.
Salaries of any full time employees shall be at the prevailing market rate
for such employees of similar knowledge, education, training and experience in
the locations in which they will be performing their services.
The following officers and directors of the Debtors will receive the
following distribution of New EBIZ Common Stock and New EBIZ Warrants:
OFFICER/DIRECTOR SHARES WARRANTS
---------------- ------ --------
(1) Bruce Parsons 48,000 48,000
(2) Mike Colesante 48,000 48,000
(3) Dave Shaw 42,000 42,000
(4) Jeffrey Rassas 42,000 42,000
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Fifty percent of these Shares and Warrants shall be distributed on the
Effective Date and the remaining Shares and Warrants shall be distributed at the
expiration of the Transition Management Period.
2. QUALIFICATIONS OF DIRECTORS AND OFFICERS.
The persons named to serve as the initial officers and directors of the
Reorganized Debtor have significant experience with the Debtors, their business
operations, and the computer and "high-tech" industry.
A complete description of the qualifications of the persons who will and/or
may serve as the initial officers and directors is attached hereto in EXHIBIT
"7."
3. ADDITIONAL SENIOR MANAGEMENT.
In addition to the officers and directors identified above, three
additional senior level managerial employees of the Debtors have been critical
to the success of the Debtors' reorganization: Mr. Ray Goshorn, Mr. Jeffrey
Perry and Mr. Don Young. Mr. Goshorn, Mr. Perry and Mr. Young have remained with
and provided invaluable services to the Debtors during this Case and have agreed
to continue to provide such services postconfirmation for, at least, the
critical first 90 days after the Effective Date. These three individuals will
also share in the distribution from the Transition Management Pool.
Mr. Don Young has been the Debtors' Director of Technology for years and
will continue in that position postconfirmation. Mr. Young's technical knowledge
and skills have been and will be essential to the Debtors' and Reorganized
Debtors' abilities to remain competitive in the quickly evolving high tech
industry. Mr. Young has forgone other opportunities and a higher level of
compensation in order to assist with the restructuring of the Debtor's
operations and, in lieu of same, will receive the distribution of shares of New
EBIZ Common Stock and New EBIZ Warrants identified below
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Mr. Jeffrey Perry is the in-house General Counsel for the Debtors, and Mr.
Ray Goshorn is the former CFO of the Debtors. As part of the restructuring
efforts of the Debtors, Mr. Perry and Mr. Goshorn accepted significant pay cuts
during the Case and will not be employed by the Debtors after December 31, 2001.
In exchange for their strenuous efforts in assisting with the reorganization of
the Debtors, at a reduced level of compensation, and agreement to forego large
severance packages to which they may be entitled, Mr. Perry and Mr. Goshorn will
accept the shares of New EBIZ Common Stock and New EBIZ Warrants specified
below:
EMPLOYEE/CONSULTANT SHARES WARRANTS
------------------- ------ --------
(1) Don Young 48,000 48,000
(2) Jeff Perry 36,000 36,000
(3) Ray Goshorn 36,000 36,000
Fifty percent of these Shares and Warrants shall be distributed on the Effective
Date, and the remaining Shares and Warrants shall be distributed at the
expiration of the Transition Management Period.
4. COMPENSATION OF DIRECTORS AND OFFICERS.
The prior table shows the initial proposed annual salaries and fees of
those individuals who will be the officers and directors of the Reorganized
Debtor immediately following Confirmation of the Plan. However, payment of such
salaries is subject to the ability of the Reorganized Debtor to make such
payments without endangering the operating ability of the Reorganized Debtor and
ensuring the continued feasibility of the Plan. If New EBIZ is unable to pay any
salaries or fees, such salaries or fees will be deferred and accrue interest at
the rate of 10% per annum.
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The directors of the Reorganized Debtor will also be authorized to approve
reimbursement to its directors for actual expenses incurred, compensation to
directors for attendance at meetings of the board of directors, and the salaries
and fees for corporate officers set forth above following Confirmation of the
Plan. Nevertheless, the Reorganized Debtor's initial corporate board has no
plans to approve any such reimbursement or increased compensation for officers
or directors, other than as described in the Disclosure Statement and the Plan.
5. MEETINGS OF DIRECTORS AND SELECTION OF NEW DIRECTORS.
Following the Effective Date of the Plan, the board of directors of the
Reorganized Debtor shall meet monthly or more frequently for six months. The
initial board of directors shall serve until the next meeting of shareholders
held pursuant to the articles of incorporation and/or bylaws of the Reorganized
Debtor.
C. POSTCONFIRMATION BUSINESS OPERATIONS.
After the Effective Date of the Plan, the Reorganized Debtor will continue
business operations and manage its affairs without the supervision of the Court.
The Reorganized Debtor may enter into agreements to transfer, convey, encumber,
use and lease any and all of its assets, issue securities, and acquire companies
or assets for securities or debt to enhance shareholder value. Attached hereto
as EXHIBIT "6" are projections prepared by the Debtors of the postconfirmation
operations of the Reorganized Debtor.
D. ANTICIPATED POSTCONFIRMATION LITIGATION.
The Debtors are in the process of preparing an analysis of all payments
that may constitute "preferences" potentially avoidable pursuant to 11 U.S.C.
ss.547. All appropriate preference actions will be initiated and prosecuted by
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the Reorganized Debtor. The Debtors do not anticipate any other postconfirmation
litigation before the Court other than possible litigation regarding allowance
of claims.
E. ACCEPTANCE AND REJECTION OF EXECUTORY CONTRACTS.
In accordance with 11 U.S.C. ss.365, the Debtors will assume all executory
contracts and unexpired leases identified in EXHIBIT "4."
Pursuant to 11 U.S.C. ss. 365, the Debtors have rejected or will reject the
executory contracts and leases identified in EXHIBIT "5."
Any person or entity injured by such rejection shall be deemed to hold an
unsecured claim against the Debtors to the extent allowed, and, within ten (10)
days before the initial Hearing on Confirmation of the Plan, must file a Proof
of Claim for any damages resulting therefrom or be forever barred from asserting
any claim.
The Debtors reserve the right to apply to the Court at any time prior to
Confirmation of the Plan to reject any and all other contracts which are
executory.
F. DESCRIPTIONS OF SECURITIES TO BE ISSUED IN SATISFACTION OF CLAIMS.
1. ATTRIBUTES OF SECURITIES.
(a) NEW EBIZ COMMON STOCK: Each share of New EBIZ Common Stock shall
be fully paid, non-assessable and entitled to one vote per share; and
(b) NEW EBIZ WARRANTS: Each New EBIZ Warrant shall be transferable and
shall provide the right to purchase newly issued New EBIZ Common Stock. Each New
EBIZ Warrant shall allow the holder to purchase one share of New EBIZ Common
Stock for $0.65 per share, expiring on the date that is sixty (60) days after
the Effective Date.
(c) CANOPY/FFEC WARRANTS: Each Canopy/FFEC Warrant shall be
transferable and shall provide the right to purchase newly issued New EBIZ
Common Stock. Each Canopy/FFEC Warrant shall allow the holder to purchase one
share of New EBIZ Common Stock for $0.65 per share, expiring on the date that is
three years after the Effective Date.
2. DISTRIBUTION OF SECURITIES.
EBIZ shall issue shares of New EBIZ Common Stock in the Reorganized Debtor
and certificates representing the New EBIZ Warrants and the Canopy/FFEC Warrants
in different ratios to each Class of Claims. EBIZ shall place such securities
into Securities Pool A, Securities Pool B and Securities Pool C on or before the
Effective Date. These securities pools exist for conceptual and not for
substantive purposes. SUCH SECURITIES SHALL NOT BE DEEMED TO BE ISSUED AND
OUTSTANDING UNTIL ACTUALLY DISTRIBUTED BY THE REORGANIZED DEBTOR TO THE
CREDITORS OR EQUITY SECURITY HOLDERS ENTITLED TO RECEIVE SUCH DISTRIBUTION.
Holders of Allowed Claims and Allowed Interests in each Class shall receive
a different percentage of securities from Securities Pool A, Securities Pool B
or Securities Pool C, depending upon the Class in which such creditors or
interest holders are placed under the Plan. Upon the issuance or distribution of
such shares or the shares underlying the warrants at the time the warrants are
exercised, such shares will be deemed fully paid and non-assessable and shall be
entitled to one vote each.
Debtors' best estimates on the number and percentage of securities to be
distributed to each Class are based, in part, upon the dollar amounts of Claims
the Debtors believe to be in those Classes. The number of shares of New EBIZ
Common Stock to be placed into each Securities Pool shall equal the number of
such shares which the Plan requires be issued and distributed to the persons in
each such Class on the Effective Date. Debtors shall place additional shares of
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such stock into the relevant Securities Pool, on or before the Effective Date,
upon being informed that any creditor in any Class has exercised any of the
rights provided by the Plan to exchange or convert that creditor's Claim for
equity in the Reorganized Debtor or has exercised or intends to exercise any of
the New EBIZ Warrants or Canopy/FFEC Warrants held by that creditor. The Debtors
estimate the distribution to the different Classes in the following ratios:
a. NEW EBIZ COMMON STOCK. 440,000 shares from Securities Pool A are to
be distributed to holders of Allowed Unsecured Claims and, from Securities Pool
C: (i) upon the exercise by members of the FFEC Group of the rights to exchange
debt for equity granted to them under the Plan, up to 2,200,000 shares are to be
distributed to those creditors, (ii) 300,000 shares are to be distributed to the
Transition Management Team, and (iii) 2,538,462 shares are to be distributed to
Canopy; however, only upon the exercise of the rights to convert debt into
equity granted to Canopy under the Plan.
b. NEW EBIZ WARRANTS.
(i) 440,000 New EBIZ Warrants shall be deposited into Securities
Pool A and be distributed, on a PRO RATA basis to holders of Allowed Unsecured
Claims.
(ii) 3,728,185 New EBIZ Warrants shall be deposited into
Securities Pool B and be distributed to holders of Allowed Equity Security
Interests in order to facilitate the contribution of new value by such persons
to the Reorganized Debtor.
(iii) 300,000 New EBIZ Warrants shall be deposited into
Securities Pool C for distribution to the Transition Management Team.
c. CANOPY/FFEC WARRANTS: 253,846 Canopy/FFEC Warrants shall be
distributed to Canopy; and up to 220,000 Canopy/FFEC Warrants are to be
distributed to FFEC depending upon the aggregate amount of the Secured Claims
held by the FFEC Group.
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d. SECURITIES POOL A: Securities Pool A shall consist of the following
securities: (1) New EBIZ Common Stock: 440,000 shares of New EBIZ Common Stock,
which shall be issued and distributed on a PRO RATA basis to holders of Allowed
Unsecured Claims on the Effective Date and, if any holder of an Allowed
Unsecured Claim has informed the Debtors or Reorganized Debtor that he or she
intends to exercise any New EBIZ Warrants issued or to be issued to him or her
under the Plan, such additional shares of New EBIZ Common Stock that are
necessary for the Reorganized Debtor to fulfill its obligations under those
warrants. Any shares which are to be issued to any holder of an Allowed
Unsecured Claim upon the exercise of any New EBIZ Warrant shall only be
distributed upon payment in full of the exercise price of each such Warrant held
by each creditor; and (2) New EBIZ Warrants: 440,000 New EBIZ Warrants, which
shall be issued and distributed on a PRO RATA basis to holders of Allowed
Unsecured Claims on the Effective Date.
e. SECURITIES POOL B: Securities Pool B shall consist of the following
securities:
(i) New EBIZ Warrants: 3,728,185 New EBIZ Warrants, which shall
be issued and distributed on the Effective Date to all holders of Allowed
Interests on a PRO RATA basis; and
(ii) New EBIZ Common Stock: if any holder of an Equity Security
Interest has informed the Debtors or Reorganized Debtor that he intends to
exercise any New EBIZ Warrants issued or to be issued to him or her under the
Plan, the number of shares of New EBIZ Common Stock that are necessary for the
Reorganized Debtor to fulfill its obligations under those warrants. Any shares
which are to be issued to any holder of an Allowed Interest upon the exercise of
any New EBIZ Warrant shall only be distributed upon payment in full of the
exercise price of each such warrant held by each creditor;
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f. SECURITIES POOL C: Securities Pool C shall consist of the
following securities: (1) New EBIZ Common Stock: (i) Up to 2,200,000 shares of
New EBIZ Common Stock which shall be issued and distributed, on a PRO RATA
basis, to each member of the FFEC Group, on the Effective Date, only upon the
exercise by each such member of the rights to exchange debt for equity set forth
in the Plan; (ii) 300,000 shares of New EBIZ Common Stock to be issued and
distributed to the Transition Management Team, 50% on the Effective Date with
the remainder to be distributed at the expiration of the Transition Management
Period; and (iii) 2,538,462 shares of New EBIZ Common Stock to be issued and
distributed to Canopy on the Effective Date only upon the exercise by Canopy of
the rights to exchange debt into equity set forth in the Plan; (2) New EBIZ
Warrants: 300,000 New EBIZ Warrant Units to the Transition Management Team, 50%
on the Effective Date with the remainder to be distributed at the expiration of
the Transition Management Period; and (3) Canopy/FFEC Warrants: (i) 253,846
Canopy/FFEC Warrants to Canopy; and (ii) up to 220,000 Canopy/FFEC Warrants to
FFEC.
g. DOCUMENTATION OF WARRANTS. The Reorganized Debtor will
provide to each person entitled to receive New EBIZ Warrants one document
evidencing the aggregate number of warrants to be distributed to that person, if
that person is entitled to receive any New EBIZ Warrants of that Class.
3. DIVIDENDS.
No dividends have ever been paid by the Debtors. The declaration of any
future cash or stock dividends will be made at the discretion of the Reorganized
Debtor's board of directors.
It is anticipated that any income received by the Reorganized Debtor will
be devoted to such entity's future operations. The Debtors do not anticipate the
payment of cash dividends on the Reorganized Debtor's common stock in the
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foreseeable future, and any decision to pay dividends will depend on the
Reorganized Debtor's profitability, funds legally available therefore and other
factors.
4. TRANSFER AGENT.
The registrar and transfer agent for the New EBIZ Common Stock and New EBIZ
Warrants issued pursuant to the Plan will be Computer Share Investor Services.
5. REPORTING.
The Debtors are subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "1934 Act") at this time.
6. RESALE OF COMMON STOCK.
a. RESALES IN GENERAL.
In general, securities issued by a debtor in a Chapter 11 reorganization to
a creditor on account of a claim may be resold by such recipient without further
registration under the 1934 Act or other laws, in reliance on the exemption from
registration provided by the Code. This exemption does not apply to holders who
are deemed "underwriters" with respect to such securities, as the term
"underwriter" is defined in the Code. Securities issued under a plan of
reorganization to new investors do not benefit from a bankruptcy law exemption
from registration.
Section 1145(b)(1) of the Code provides that "except with respect to
ordinary trading transactions," an entity is an "underwriter" if such entity:
(A) purchases a claim against or interest in a debtor with a view to
distribution of any security received in exchange for such claim or interest;
(B) offers to sell securities offered or sold under the Plan for the holders of
such securities (except certain offers to sell fractional interests); (C) offers
to buy securities offered or sold under the Plan from the holders of such
securities if the offer to buy is made with a view to distributing such
securities and the offer to buy if made under an agreement made in connection
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with the Plan, with the consummation of the Plan, or with the offer or sale of
securities under the Plan of reorganization; or (D) is an issuer with respect to
a reorganized debtor's securities, as the term "issuer" is used in Section 2(11)
of the 1933 Act.
In the context of the Plan, an "issuer" under Section 2(11) of the 1933 Act
includes any person directly or indirectly controlling or controlled by the
Debtors or any person under direct or indirect control with the Debtors. Whether
a person is an "issuer" and, therefore, an "underwriter" for purposes of Section
1145(b) of the Code depends upon a number of factors, including the relative
size of the shareholder's equity interest in the Debtors; the distribution and
concentration of other equity interests in the Debtors; whether the person,
either alone or acting in concert with others, has a contractual or other
relationship giving that person power over management policies and decisions;
and whether the person actually has such power notwithstanding the absence of
formal indicia of control.
Because of complex and subjective issues involved in determining issuer and
underwriter status, creditors and equity interest holders are urged to consult
with their attorneys concerning whether they will be able to trade freely any
securities they are to receive under the Plan. NEITHER THE DEBTORS NOR ANY OF
THEIR REPRESENTATIVES MAKE ANY REPRESENTATIONS AS TO WHETHER ANY SECURITIES
ISSUED PURSUANT TO THE PLAN, ONCE PLACED IN THE HANDS OF RECIPIENTS UNDER THE
PLAN, MAY BE FREELY TRADED. Persons who may be underwriters must either register
the securities under the 1933 Act in connection with a resale or use an
applicable exemption from registration.
The Reorganized Debtor is not obligated to register securities issued
pursuant to the Plan or to assist holders of such securities in establishing an
exemption from registration. Accordingly, any entity becoming a holder of such
securities who is determined to be an underwriter may be able to dispose of the
securities only in limited circumstances.
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If the Reorganized Debtor has reason to believe that a recipient of its
securities pursuant to the Plan may be an underwriter, the Reorganized Debtor
may require from such recipient a statement that the recipient is aware of
Section 1145 of the Code and the requirements of the 1933 Act regarding resale
of those securities and that those securities held by such recipient will be
sold in compliance with the 1933 Act.
b. STATE "BLUE SKY" LAWS.
State laws affecting resales of securities issued in connection with
bankruptcy reorganizations may vary. Those who become holders of securities
issued pursuant to the Plan should consult with their attorneys concerning the
applicability of any state law affecting resales of such securities.
c. LISTING AND TRADING.
IT IS ADVISABLE FOR EACH RECIPIENT OF SECURITIES ISSUED PURSUANT TO THE
PLAN TO CONSULT INDEPENDENT COUNSEL PRIOR TO SELLING THOSE SECURITIES. ALL
CREDITORS AND EQUITY HOLDERS ARE ALSO URGED TO CONSULT COUNSEL REGARDING TAX
CONSEQUENCES OF THE PLAN AND, IN PARTICULAR, ANY TAX CONSEQUENCES OF RECEIVING
SECURITIES UNDER THE PLAN.
G. CLASSES DEFINED BY THE PLAN.
1. UNCLASSIFIED CLAIMS.
Unclassified claims include claims for administrative expenses and claims
held by certain governmental entities entitled to priority under 11 U.S.C.
ss.ss. 507(a)(1) & (a)(8) of the Code. The holder of each such claim is entitled
to receive specific treatment under the Debtors' Plan (i.e., payment cash of the
allowed amount of the claim), regardless of whether holders of claims having
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similar priority choose to accept different treatment (e.g., deferred cash
payments over time).
The unclassified claims include all claims for allowed administrative
expenses, which include the fees and costs incurred by the Debtors' counsel in
representing the Debtors in this case and the fees and costs of the Committee's
counsel. The unclassified claims also include allowed claims for certain taxes
entitled to priority in payment under the Code.
The Debtors estimate that unclassified claims will not exceed, at the time
of confirmation, $100,000.00. The Debtors believe no amounts are due and owing
to the IRS or any other taxing authority. Any amount agreed by the parties or
found by the Court to be due to the IRS or other taxing authority and entitled
to priority shall be distributed to that entity by deferred cash payments over a
period not exceeding six years after the date of assessment of such claim having
a value, as of the Effective Date, equal to the allowed amount of such claim.
The holders of unclassified claims, excluding claims entitled to priority under
Section 507(a)(8), must be paid the allowed amounts of their claims in cash on
the Effective Date of the Plan, unless the claim holders agree to different
treatment.
2. CLASSIFIED CLAIMS.
Most claims and equity interests may be classified or aggregated for
purposes of voting and treatment under the Plan, based upon a substantial
similarity among the claims or interests in the Class. If a Class of claims or
interests votes to accept the Plan, a rejection of the Plan by some of the
holders of the claims or interests in the Class will not, by itself, prevent
Confirmation of the Plan.
The Classes of claims and interests provided for in the Plan are as
follows:
Class 1: The Allowed Secured Claim of Canopy.
Class 2: The Allowed Secured Claim of Ingram Micro Inc. ("Ingram").
Class 3: The Allowed Secured Claim of Caldera Systems, Inc. ("Caldera").
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Class 4: The Allowed Secured Claim of Copelco Leasing Corporation/Citicorp
Leasing ("Copelco").
Class 5: The Allowed Secured Claim of Marlin Leasing, Inc.
Class 6: The Allowed Secured Claim of Information Leasing, Inc. ("ILC").
Class 7: The Allowed Secured Claim of ILC [acquired from Finova Loan
Administration, Inc., on September 1, 2001].
Class 8: The Unsecured Claims of the general unsecured creditors of the
Debtors.
Class 9: The Claims of Shadle/Ramsey Group.
Class 10: The Allowed Secured Claims of the FFEC Group.
Class 11: The Allowed Interests.
H. TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS.
1. CLAIM AMOUNTS.
Because certain of the claims against the Debtors are in unknown or
undetermined amounts, the amounts of claims specified in the Plan reflect only
the Debtors' best estimate as of the date hereof. A list of creditors and claim
amounts are included in the Schedules and Statement of Affairs filed by the
Debtors in this case on September 7, 2001. The Debtors reserve the right to
object to any claim and equity security interests noted in the Schedules and
Statement of Affairs, or any other claim asserted against the Debtors, either
prior to or following confirmation. Objections to claims must be filed within
sixty (60) days following the Effective Date of the Plan.
The Debtors shall distribute all securities to Holders of Allowed Claims
and Holders of Allowed Interests, pursuant to the terms of the Plan, on the
Effective Date. In calculating the number of units to be distributed pursuant to
the formulae set forth below, the number of such units to be distributed to each
Holder of an Allowed Claim or Allowed Interest shall be rounded down to the next
whole number.
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(a) CLASS 1: Canopy holds a Secured Claim in the aggregate principal
amount of $4,402,336.00. This claim is secured by a first position security
interest in all of the assets of the JBSI Bankruptcy Estate and a second
position lien in all of the assets of the EBIZ Bankruptcy Estate. Following the
Effective Date until it has received payment in full, Canopy shall retain its
lien in all such property and the aggregate amount of principal due to Canopy
shall bear interest at the rate of 8% PER ANNUM.
Payments to Canopy shall be made in the following manner and according to
the following terms:
(i) Pursuant to the terms of the Cash Collateral Stipulation
between Canopy and the Debtors, from the date of that Stipulation through
December 31, 2001, Canopy was permitted to and did withhold and apply to the
principal balance and interest due to Canopy five percent (5%) of the amount of
each receivable belonging to the Reorganized Debtor which is received by Canopy
under the "lockbox" arrangement referenced in the Cash Collateral Stipulation
and the Canopy Agreements;
(ii) Thereafter, the Reorganized Debtor shall make regular
monthly payments to Canopy of interest only, beginning on January 1, 2002 and
continuing through June of 2002; and
(iii) Thereafter, the Reorganized Debtor shall make regular
monthly payments of principal and interest in the amount of $53,030.00 to Canopy
beginning on July 1, 2002 and continuing thereafter for a period of five years
with a final balloon payment in the amount of all remaining principal, interest
and other charges then due to Canopy on July 1, 2007.
In addition, Canopy shall have the right to convert a portion of its
Secured Claim in an amount which shall not exceed $1,500,000.00 into shares of
stock of the Reorganized Debtor. The conversion rates for Canopy's debt shall be
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as follows: $0.50 per share for the first $500,000 of debt converted into stock
in the Reorganized Debtor and $0.65 for any remaining debt so converted. Canopy
shall be required to exercise its conversion rights on or before that date which
is 30 days after the Effective Date by sending to the Reorganized Debtor a
written notice stating the dollar amount of its Secured Claim that Canopy has
elected to convert into stock.
(b) CLASS 2: Ingram holds a Secured Claim in the aggregate principal
amount of $88,042.00. This claim is secured by a first position security
interest in all of the assets of the EBIZ Bankruptcy Estate. Following the
Effective Date until it has received payment in full, Ingram shall retain its
lien in all such property and the aggregate amount of principal due to Ingram
shall bear interest at the rate of 8% PER ANNUM, with accrual of such interest
commencing as of the Petition Date.
Payments to Ingram shall be made in the following manner and according to
the following terms: (i) payments of interest only beginning on July 1, 2002;
(ii) equal payments of principal and interest in the amount of $1,454.77
beginning on January 1, 2003 and continuing thereafter for a period of five
years with a final balloon payment of all remaining principal and interest due
on January 1, 2008.
(c) CLASS 3: Caldera holds a Secured Claim in the aggregate principal
amount of $535,000.00. This claim is secured by a third position security
interest in all of the assets of the EBIZ Bankruptcy Estate and a second
position security interest in all of the assets of the JBSI Bankruptcy Estate.
Following the Effective Date until it has received payment in full, Caldera
shall retain its lien in all such property and the aggregate amount of principal
due to Caldera shall bear interest at the rate of 8% PER ANNUM, with accrual of
such interest commencing as of the Effective Date.
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Payments to Caldera shall be made in the following manner and according to
the following terms: (i) payments of interest only beginning on July 1, 2002;
(ii) equal payments of principal and interest in the amount of $8,338.62
beginning on January 1, 2003 and continuing thereafter for a period of five
years with a final balloon payment of all remaining principal and interest due
on January 1, 2008.
(d) CLASS 4: Copelco holds a Secured Claim in the aggregate principal
amount of $295,995.62. This claim is secured by a security interest in office
furniture, a computer system network and a Konica copy printer and controller,
property which is essential for the Debtors' operations, by virtue of three
"financing" or "capitalized" leases with JBSI. Following the Effective Date,
until it has received payment in full, Copelco shall retain its lien in all such
property. Since the value of its collateral is less than the amount of its
Secured Claim, Copelco has agreed to accept $65,000.00 (the "Discounted
Balance") in full satisfaction of its Secured Claim.
Payments to Copelco shall be made in the following manner and according
to the following terms: regular monthly payments in the amount of $2,708.00
beginning on March 1, 2002 until the Discounted Balance is paid in full. Upon
payment in full of the Discounted Balance, all liens, security interests or
other claims of Copelco in or to the equipment serving as its collateral shall
terminate and be released, and the Reorganized Debtor shall own that property
free and clear of all such liens or claims of Copelco.
(e) CLASS 5: Marlin Leasing holds a Secured Claim in the aggregate
principal amount of $24,400.00. This claim is secured by a security interest in
pallet racks, equipment that is essential for the Debtors' operations, by virtue
of a "financing" or "capitalized" lease with JBSI. Following the Effective Date,
until it has received payment in full, Marlin Leasing shall retain its lien in
all such property. Since the value of its collateral is less than the amount of
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its Secured Claim, Marlin Leasing has agreed to accept $13,500.00 (the
"Discounted Balance") in full satisfaction of its Secured Claim.
Payments to Marlin Leasing shall be made in the following manner and
according to the following terms: regular monthly payments in the amount of
$562.50 beginning on March 1, 2002 until the Discounted Balance is paid in full.
Upon payment in full of the Discounted Balance, all liens, security interests or
other claims of Marlin Leasing in or to the equipment serving as its collateral
shall terminate and be released, and the Reorganized Debtor shall own that
property free and clear of all such liens or claims of Marlin Leasing.
(f) CLASS 6: ILC holds a Secured Claim in the aggregate principal
amount of $8,398.93. This claim is secured by a security interest in computer
systems and software, equipment that is essential for the Debtors' operations,
by virtue of a "financing" or "capitalized" lease with JBSI. Following the
Effective Date, until it has received payment in full, ILC shall retain its lien
in all such property. Since the value of its collateral is less than the amount
of its Secured Claim ILC has agreed to accept $1,550.00 (the "Discounted
Balance") in full satisfaction of its Secured Claim.
Payments to ILC have been and shall be made in the following manner and
according to the following terms: a monthly payment in the amount of $775.00 on
December 1, 2001 and a final payment in the amount of $775.00 on January 1,
2002. Upon payment in full of the Discounted Balance, all liens, security
interests or other claims of ILC in or to the equipment serving as its
collateral shall terminate and be released and the Reorganized Debtor shall own
that property free and clear of all such liens or claims of ILC.
(g) CLASS 7: ILC holds an additional Secured Claim in the aggregate
principal amount of $82,006.40 acquired from Finova Loan Administration, Inc.,
on December 1, 2001. This claim is secured by a security interest in modular
office furniture, property that is essential for the Debtors' operations, by
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virtue of a "financing" or "capitalized" lease with JBSI. Following the
Effective Date, until it has received payment in full, ILC shall retain its lien
in all such property. Since the value of its collateral is less than the amount
of its Secured Claim, ILC has agreed to accept $22,000.00 (the "Discounted
Balance") in full satisfaction of its Secured Claim.
Payments to ILC shall be made in the following manner and according to the
following terms: regular monthly payments in the amount of $916.67 beginning on
December 5, 2001 until the Discounted Balance is paid in full. Upon payment in
full of the Discounted Balance, all liens, security interests or other claims of
ILC in or to the equipment serving as its collateral shall terminate and be
released and the Reorganized Debtor shall own that property free and clear of
all such liens or claims of ILC.
(h) CLASS 8: Unsecured creditors holding Allowed Class 8 Claims shall
receive biannual cash payments over a period of two years from the Reorganized
Debtor in an amount equal to five percent (5%) of the aggregate amount of
Allowed Unsecured Claims, plus New E-BIZ Stock and New EBIZ Warrants.
More specifically, each creditor in this Class shall receive, in full
satisfaction of its claim, the following: (1) four equal biannual payments from
the Cash Pool equal to that creditor's PRO RATA portion of the Cash Pool,
beginning on the date which is six months after the Effective Date; and (2) that
holder's PRO RATA share of Securities Pool A on the Effective Date. The
Reorganized Debtor shall issue such additional shares of the Reorganized Debtor
to the Class 8 holders of claims so that each holder shall have at least one
share of any security.
It is not possible, at this time, to determine the value of the securities
to be distributed to the holders of allowed claims in this or any other class.
The number of shares and warrants which each creditor in this class will receive
will be dependent upon the aggregate amount of Allowed Claims. Since that amount
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is not known as of the date of the filing of the Plan, it is not possible to
specify the exact number of shares which creditors will receive on account of
each $1,000.00 of unsecured claims.
The aggregate amount of nonpriority unsecured claims, as stated in the
Debtors' Schedules, is $5,353,777.00. For purposes of estimation and
illustration only: Assuming that all such claims remain as, or are determined to
be, Allowed Claims, creditors in this Class would be entitled to receive 82
shares of New EBIZ Common Stock and 82 New EBIZ Warrants for each $1,000.00 of
debt.
On or before the date that is 30 days after the Effective Date, New EBIZ
shall set up a bank account at Southwest Bank of Texas (the "Cash Pool
Account"). Thereafter, the Reorganized Debtor shall make periodic deposits of
cash into the Cash Pool Account, which shall equal the amount of each biannual
payment to members of Class 8 required by the terms of the Plan, and shall
distribute the balance of the Cash Pool to holders of Allowed Unsecured Claims
in the amounts and on the dates required by the Plan.
(i) CLASS 9: Each member of the Shadle/Ramsey Group and each of the
JBSI Shareholders hold a disputed Unsecured Claim. Rather than participate in
costly claims litigation with the Debtors or the Reorganized Debtor, the
Shadle/Ramsey Group has agreed to treatment under Class 8 and, instead, accept,
in full satisfaction of their claims, distribution of only the shares of stock
held by JBSI in Vericenter. Since Vericenter is a closely held private
corporation with significant financial difficulties and JBSI only owns a
noncontrolling minority interest in Vericenter, the Debtors believe that the
value of the shares of Vericenter stock held by JBSI is zero. No member of the
Shadle/Ramsey Group will be treated as a creditor under Class 8 or receive any
portion of the cash or stock distributions provided to holders of Allowed
Unsecured Claims.
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(j) CLASS 10: Each member of the FFEC Group shall have the right to:
(a) Receive payments from the Reorganized Debtor, pursuant to the
terms of the promissory notes issued by the Debtors to the FFEC Group under
Section 364 of the Code (the "364 Notes"). All members of the FFEC Group who
elect to receive payments pursuant to their 364 Notes shall retain their lien
securing their claims until such time as all amounts due under those notes have
been paid in full; or
(b) Exchange all or a portion of the secured debt represented by
such notes for shares of New EBIZ Common Stock at the price of $0.50 for each
such share of stock (two shares of New EBIZ Common Stock for each dollar of
secured claim). Any member of the FFEC Group desiring to exchange any portion of
her or his Allowed Secured Claim for New EBIZ Common Stock shall be required to
do so in the following manner: (i) marking the appropriate box on the ballot
accepting or rejecting the Plan and indicating the amount of her or his Claim
which she or he elects to exchange for such stock; or (ii) sending the Debtors a
written notice of her or his decision to make that exchange and specifying the
amount of her or his Claim which she or he elects to exchange for such stock on
or before the date which is 30 days after the Effective Date. The amount of the
promissory note held by each member of the FFEC Group electing to exchange all
or a portion of her or his Allowed Secured Claim for shares of new EBIZ Common
Stock shall be immediately reduced by the dollar amount that she or he has
elected to exchange.
(c) Exchange all or a portion of the secured debt represented by
such notes for new secured promissory notes (the "New Notes") to be issued under
this Plan, pursuant to 11 U.S.C. ss.1145, and which shall provide as follows:
(i) All principal and accrued interest shall be due under each New Note on the
date which is seven years after the Effective Date (the "New Note Maturity
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Date"); (ii) interest shall accrue at the rate of 6% PER ANNUM beginning on the
date that any such creditor elects to exchange her or his 364 Note for a New
Note and continuing thereafter until the date that is twenty-four 24 months
after the Effective Date; thereafter interest shall accrue at the rate of 5% PER
ANNUM until the date which is 36 months after the Effective Date; thereafter
interest shall accrue at the rate of 4% PER ANNUM until the New Note Maturity
Date; (iii) the Reorganized Debtor shall make quarterly payments of interest
only to each holder of a New Note until the Note Maturity Date; (iv) each holder
of a New Note shall have the right to convert the amount of that New Note into
shares of New EBIZ Common Stock at the conversion price of $0.50 for each such
share of stock for 24 months after the Effective Date; thereafter, the holders
of New Notes will have no further conversion rights under the New Notes; (v) All
amounts due under all New Notes shall automatically convert into shares of New
EBIZ Common Stock at the conversion price of $0.50 for each such share of stock,
during the period from the Effective Date to the date that is 24 months
thereafter, if the average of the trading session ending market prices for the
Reorganized Debtor's common stock for 30 consecutive market days is equal to or
greater than $2.50 per share; (vi) The amounts due under the New Notes shall be
secured by all of the asset of the Reorganized Debtor to the same extent and
with the same priority the liens securing the 364 Notes; (vii) All amounts due
under the New Notes shall be subordinated to any new debt financing obtained by
the Reorganized Debtor with a factoring company or an asset based lender on
ordinary commercial terms.
Any member of the FFEC Group desiring to exchange her or his Allowed
Secured Claim for a New Note shall be required to do so in the following manner:
(i) marking the appropriate box on the ballot accepting or rejecting the Plan;
or (ii) sending the Debtors a written notice of her or his decision to make that
exchange on or before the date which is 30 days after the Effective Date.
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In addition, in the event that the aggregate amount of Secured Claims held
by the FFEC Group is equal to or greater than $300,000.00, FFEC, as the agent
for the FFEC Group, shall receive a distribution from Securities Pool C of that
number of Canopy/FFEC Warrants equal to the aggregate amount of the Secured
Claims held by the FFEC Group divided by five; that is, FFEC shall receive one
such warrant for each five dollars of Secured Claims held by the FFEC Group.
(k) CLASS 11: Class 11 shall consist of all holders of Allowed Equity
Interests in the Debtors. All of the Old Common Stock and Old Preferred Stock of
Debtors shall be canceled by operation of the Plan and the Equity Interest
Holders shall retain none of their Old Common Stock, Old Preferred Stock or
other interests in the Debtors.
Each holder of an Allowed Class 11 Equity Interest shall, however,
have the right to contribute "new value" to the Reorganized Debtor. Accordingly,
in order to facilitate the contribution of new value, each person holding an
Allowed Equity Interest shall receive that holder's PRO RATA portion of the New
EBIZ Warrant Units in Securities Pool B and may pay to the Reorganized Debtor a
dollar amount necessary to exercise the rights associated with such Warrants and
receive New EBIZ Common Stock.
2. DISPUTED CLAIMS. The Debtors or the Reorganized Debtor and their
attorneys may file on or before sixty (60) days after the Effective Date of the
Plan: (a) an objection to any claim; (b) a motion to determine the extent,
priority, or amount of any secured or other claim; or (c) a complaint to
determine the validity, priority or extent of any lien or other interest in
property of the Debtors' estates.
Copies of responsive pleadings or memoranda to all such objections,
motions, or complaints must be served upon the Reorganized Debtor's attorneys:
CHRISTOPHER R. KAUP, ESQ. OF TIFFANY & BOSCO, P.A., 1850 NORTH CENTRAL AVENUE,
FIFTH FLOOR, PHOENIX, ARIZONA, 85004, FACSIMILE: 602-255-0103.
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Where objections are made to any claim or to any motions or proceedings
filed in regard to any lien, claim, or privilege, any payments or distributions
of securities that are due in accordance with the Plan shall be held in trust by
the Reorganized Debtor, subject to the Court's jurisdiction, in an
interest-bearing or escrow account or accounts in Phoenix, Arizona, which
account or accounts shall be federally insured (in the event of a distribution
of a cash payment) and segregated unless otherwise stated herein or, in the
alternative, one or more of the following will be provided:
(a) A letter of credit or other bond; or
(b) Certificates of deposit or other security satisfactory to the Court to
assure the payment of the claim.
Within 30 days after entry of a final, non-appealable order resolving any
disputed claim, lien or privilege, any payment, including accrued interest, or
securities found or agreed to be due shall be distributed to the claimant
(subject to the terms of the Plan) or any other entity entitled to distribution
in accordance with the Court's Order.
3. PENALTY CLAIMS. No creditor, whether secured, unsecured, priority, or
nonpriority, shall be entitled to any fine, penalty, exemplary or punitive
damages, late charges, default interest, or any other monetary charge relating
to or arising from any act or omission by the Debtors, and any claim for such
sums shall be deemed disallowed, whether or not a specific objection to the
allowance of such sums is filed. Creditors with Allowed Secured Claims shall be
entitled to reasonable attorneys' fees and interest at a non-default rate,
subject to the limitations of Section 506 of the Code.
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I. GENERAL PROVISIONS CONCERNING THE CONSEQUENCES OF CONFIRMATION.
1. OWNERSHIP OF THE DEBTORS' ASSETS.
As of the Effective Date of the Plan, the Reorganized Debtor shall retain
and be vested with ownership of all property of the Debtors' Chapter 11 Estate,
as defined in 11 U.S.C. ss.541. Such property shall be transferred to the
Reorganized Debtor in the manner described in Article X below. Upon such
transfer, the Reorganized Debtor shall own all such property free and clear of
all liens, claims and interests of any person or entity, except as specifically
provided in the Plan or the Confirmation Order.
2. RETAINED RIGHT TO ENFORCE CAUSES OF ACTION.
Nothing contained in this Disclosure Statement or in the Plan shall prevent
the Debtors from enforcing any causes of action they may possess prior to
Confirmation of the Plan or the Reorganized Debtor from enforcing any cause of
action, including any avoidance actions that may exist by operation of 11 U.S.C.
ss.ss.542 through 551, and it acquires as the result of Confirmation of the
Plan.
3. CONTINUATION AND TERMINATION OF SECURITY INTERESTS.
Unless otherwise provided in the Plan or in the Confirmation Order, all
creditors possessing Allowed Secured Claims shall retain their liens on property
serving as collateral which the Reorganized Debtor acquires to secure payment of
all cash or other property to be distributed to them pursuant to the terms of
the Plan. Such liens on the Reorganized Debtor's property shall be deemed
relinquished and reconveyed to the Reorganized Debtor upon the payment to the
holders of such liens of all money or property due to them on account of their
Allowed Secured Claims according to the terms of the Plan.
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Moreover, once any lien is deemed relinquished and reconveyed to the
Reorganized Debtor, pursuant to the terms of the Plan, the creditor who had
claimed such lien shall immediately deliver to the Reorganized Debtor all
documents, properly signed and notarized, needed to document the release of the
lien according to any applicable state or federal law. If the required
documentation is not supplied within one week after demand therefore has been
made, the Reorganized Debtor may seek an order from the Court enforcing the lien
release provisions of the Plan or entry of an order declaring the lien to be
released or void. That creditor shall be liable for and pay the reasonable
attorneys' fees and costs incurred by the Reorganized Debtor in obtaining such
an order.
Except as stated previously in this subsection, all security interests and
liens of any kind in any property the Reorganized Debtor acquires under the Plan
shall terminate and shall be deemed to have terminated upon the Effective Date
of the Plan.
4. INSURANCE.
The Reorganized Debtor shall maintain insurance on tangible personal and
real property in an amount not less than the fair market value of that property
and shall keep its property in good repair, reasonable wear and tear excepted.
5. SATISFACTION OF CLAIMS.
All classes of Allowed Claims and Allowed Interests shall receive the
distributions set forth in this Disclosure Statement on account of and in
complete satisfaction of those Allowed Claims and Interests. Without limiting
the foregoing, upon the Effective Date of the Plan, each holder (and each
successor of a holder) of an Allowed Claim or an Allowed Interest shall be
deemed to have waived, relinquished and released any and all of its rights and
claims against the Debtors and the Reorganized Debtor, except as provided in the
Plan or the Confirmation Order.
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6. UNCLAIMED DISTRIBUTIONS.
All distributions of money or securities under the Plan which are returned
by the Post Office undelivered or which cannot be delivered due to the
distributee's failure to provide the Reorganized Debtor with a current address
will be retained by the Reorganized Debtor in trust in a federally insured bank
(in the event of a distribution of a cash payment) or in an escrow account (in
the event of a distribution of securities) for the distributee. After the
expiration of six (6) months from the date of the first attempted distribution,
any unclaimed monies, securities and all future distributions will vest in the
Reorganized Debtor, free of any claim of the distributee.
7. BINDING NATURE OF THE PLAN.
Upon the entry of the Confirmation Order, the Plan shall bind the Debtors,
all entities that are to acquire any property under the Plan, all creditors, and
all equity security holders, whether or not their claims and interests are
impaired under the Plan and whether or not they have accepted the Plan, as
determined by Section 1141(a) of the Code.
This means, in part, that, except as provided by an express order of the
Court or pursuant to the terms of the Plan or the Confirmation Order, all
judicial, administrative or other actions or proceedings pending against the
Debtors or arising out of claims accrued prior to the Confirmation Order shall
be permanently enjoined.
8. TERMINATION OF THE AUTOMATIC STAY AND DISCHARGE.
The automatic stay of Section 362(a) of the Code shall terminate when the
Confirmation Order becomes non-appealable. Pursuant to 11 U.S.C. ss. 1141(a),
the entry of the Confirmation Order shall permanently bar the filing and
asserting of any claims against the Debtors and the Reorganized Debtor which
arose or relate to the period of time prior to the date of entry of that Order,
except as provided in the Plan or the Confirmation Order.
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ARTICLE IX.
RISK FACTORS ASSOCIATED WITH
CONFIRMATION OF THE PLAN
Voting to accept the Plan will, for most of those affected by the Plan,
constitute a decision to make an investment. All investment decisions entail
elements of risk.
The Debtors have attempted to identify some of the "risk factors"
associated with Confirmation of the Plan. The Debtors and the professionals
employed by the Debtors do not represent that the following list of "risk
factors" is exhaustive.
In considering the "risk factors" associated with Confirmation of the Plan,
keep in mind that the Debtor and the Debtors believe that confirmation will
result in a greater financial return to creditors and equity interest holders
than will occur if the Plan is not confirmed.
A. OBSERVATIONS CONCERNING THE SECURITIES TO BE ISSUED PURSUANT TO THE PLAN.
All securities to be distributed under the Plan are highly speculative, and
investment therein involves a high degree of risk. In analyzing the Plan,
holders of claims and interests in the Debtors should carefully consider the
following factors, among others, and the information set forth elsewhere in this
Disclosure Statement in deciding whether to accept or reject the Plan.
1. ARBITRARY PRICE.
The initial valuation placed upon all securities to be distributed pursuant
to the Plan was determined arbitrarily by the Debtors.
2. MARKET.
It is expected that a public trading market for any of the securities to be
issued under the Plan could, but may not, develop at all after distribution.
A public trading market for the stock of an issuer, including the
Reorganized Debtor, having desirable characteristics of depth, liquidity and
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orderliness, also depends upon the presence in the marketplace of both willing
buyers and willing sellers of the stock at any given time.
The presence in the marketplace of a sufficient number of buyers and
sellers at any given time is dependent upon the individual decisions of the
stockholders, over which neither the Reorganized Debtor nor any market maker has
any control. Accordingly, there can be no assurance, whatsoever, that an
established and liquid market for any securities to be issued pursuant to the
Plan will develop or that recipients will be able to dispose of their
securities. Furthermore, neither the Debtors nor any independent professional or
professional associated with the Debtors make any representation as to whether a
market for the securities issued under the Plan will develop and, if it does,
what market price for those securities may prevail.
3. IMPEDIMENTS TO TRANSFER.
The securities to be issued under the Plan will be issued without
registration under the 1933 Act or any state securities laws, in reliance, in
case of shares issued to creditors, upon the exemption from federal and state
registration provided by 11 U.S.C. ss.1145(a)(1).
B. TAX CONSEQUENCES.
The Debtors have not obtained a tax opinion at this time and therefore
express no opinion as to the tax consequences of confirmation or implementation
of the Plan to the holder of any claim or interest. BECAUSE NO PROPONENT OF THE
PLAN EXPRESSES ANY OPINION AS TO THE TAX CONSEQUENCES OF THE PLAN, IN NO EVENT
WILL THE DEBTORS OR THEIR PRINCIPALS OR THEIR PROFESSIONAL ADVISORS, BE LIABLE
IF, FOR ANY REASON, THE TAX CONSEQUENCES OF THE PLAN ARE NOT AS ANTICIPATED BY
CREDITORS AND EQUITY INTEREST HOLDERS. THE DEBTORS' CREDITORS AND EQUITY
INTEREST HOLDERS MUST LOOK SOLELY TO AND RELY SOLELY UPON THEIR OWN ADVISORS AS
TO THE TAX CONSEQUENCES OF THE PLAN.
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C. NO SUCCESSFUL OPERATING HISTORY.
Neither the Debtors nor any professional retained by the Debtors gives any
assurances that the Reorganized Debtor will be able to achieve or maintain
profitable operations at any time in the future.
D. NO OPERATING CAPITAL.
The Debtors have virtually no operating capital. Other than funds which may
be advanced by Textron, Canopy or the FFEC Group, any need for funds will have
to achieved through cash flow of the Reorganized Debtor, by liquidation of
certain of the property owned by the Reorganized Debtor or through the raising
of additional capital. Even if the Reorganized Debtor obtains additional
capital, there are no assurances the sums received will be sufficient to satisfy
its needs or that such sums will be available on satisfactory terms, if at all.
It will be difficult for the Reorganized Debtor to obtain credit from banks
or other financial institutions. If the Reorganized Debtor is not able to obtain
needed working capital or credit, the Reorganized Debtor may fail as a business
enterprise.
E. DIFFICULTIES ATTRACTING AND RETAINING QUALIFIED PERSONNEL.
The Reorganized Debtor's ability to achieve profitable operations in any
business that it may enter is also dependent upon its ability to attract and
retain qualified personnel. No assurances can be given that the Reorganized
Debtor will be able to attract or retain such qualified personnel.
F. DILUTION OF STOCK INTERESTS IN THE REORGANIZED DEBTOR.
Shareholders in the Reorganized Debtor could experience further substantial
dilution upon the exercise of Warrants and stock options in the future.
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ARTICLE X.
IMPLEMENTATION OF THE PLAN
The Plan will be implemented, in part, as follows:
1. On the Effective Date, New EBIZ shall become the Reorganized Debtor.
2. The Board of Directors of the Reorganized Debtor shall oversee
implementation of the Plan and be fully empowered to act for the Debtors to
implement the Plan.
3. The Board of Directors of the Reorganized Debtor shall take the
necessary actions to:
(a) Transfer all of the assets of JBSI to New EBIZ;
(b) Form, deposit funds into and distribute funds from the Cash Pool,
pursuant to the terms of the Plan;
(c) Form Securities Pool A, Securities Pool B and Securities Pool C,
pursuant to the provisions of the Plan and then distribute all the New EBIZ
Common Stock, the New EBIZ Warrant Units, Securities Pool A, Securities Pool B
and Securities Pool C and any other securities in satisfaction of all claims by
creditors against the Debtors pursuant to the terms of the Plan; and
(d) After all such implementation actions have been completed, JBSI
shall have no remaining assets and no remaining liabilities and shall be
formally dissolved in accordance with Texas law.
5. The Articles of Incorporation and the Bylaws of the Reorganized Debtor
shall be deemed to be amended in every way necessary to comply with and
effectuate the terms and conditions of the Plan.
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6. The Board of Directors of the Reorganized Debtor shall have all of the
powers granted any board of directors by the Nevada statutes and any other
applicable state or federal laws.
7. The Board of Directors of the Reorganized Debtor shall have the power to
amend the Articles of Incorporation and the Bylaws in any manner necessary to
carry out the provisions of the Plan. The Board of Directors shall be entitled
to use and exercise all pertinent provisions of state and federal law.
8. To implement the issuance of the securities provided for in the Plan,
the Board of Directors of the Reorganized Debtor shall take all necessary steps
required by the Code, Federal and state laws and, in order to perform such
implementation in a cost effective manner, the Board of Directors shall have the
authority to vary, alter or revise any of the steps outlined above so long as
such change does not negatively affect any of the distributions provided for by
the Plan.
9. The Board of Directors of the Reorganized Debtor shall have the
authority to make provision for payment of cash and/or distribution of
securities to creditors as required hereby on the Effective Date of the Plan or
as otherwise provided herein.
10. The Reorganized Debtor shall have the right to distribute any
securities directly into an account at any insured and registered broker-dealer
and shall notify all persons entitled to receive such securities under the terms
of the Plan that the securities are available for distribution into their
respective individual accounts at the broker-deal of their selection. In the
event that the Reorganized Debtor is not notified of or not otherwise aware of
the existence of an account for a particular recipient of securities under the
Plan, the Reorganized Debtor is further empowered to place any such securities
into an escrow account with a registered broker dealer and then the Reorganized
Debtor shall be further empowered to act as the escrow agent to hold but not
vote, sell nor determine the disposition of any such securities. Any shareholder
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that desires to have physical possession of certificates shall pay the standard
price to the Transfer Agent for the issuance of each such certificate. The
Reorganized Debtor may assist creditors in opening broker-dealer accounts in any
reasonable way to receive any securities.
ARTICLE XI.
ALTERNATIVES TO THE PLAN
An analysis of what creditors and equity interest holders would receive if
the Debtors' assets were liquidated in a case under Chapter 7 of the Code is
attached as EXHIBIT "3." The Debtors have provided a separate analysis of the
liquidation of each Bankruptcy Estate and a "Consolidated" Liquidation Analysis.
As illustrated in that Exhibit, under any liquidation scenario, both unsecured
creditors and equity interest holders would receive no distribution in a Chapter
7 liquidation of the Debtors' assets. Under the Plan, each unsecured creditor
holding an Allowed Claim will receive cash payments equal to that creditor's PRO
RATA portion of the Cash Pool, calculated and paid in the manner set forth
above, and that creditor's PRO RATA share of the securities in Securities Pool
A.
In a Chapter 7 liquidation, the assets of the Debtors subject to liens
would be used first to pay secured creditors. If any excess remained thereafter,
it would be applied first to satisfy the administrative burden of the Chapter 11
case. After payment of those claims, there would be no payout to unsecured
creditors, and nothing would be left for equity interest holders. In fact, the
full value of all of the Debtors' assets are subject to the liens of Canopy,
Ingram, Caldera and the FFEC Group. In a Chapter 7 liquidation, unsecured
creditors would receive nothing.
The Debtors have identified no viable alternatives to the Plan other than
liquidation of its assets under Chapter 7 of the Code or dismissal of its
Chapter 11 case. Dismissal would leave the Debtors' secured creditors free to
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enforce their liens under applicable state and non-bankruptcy federal law.
Unsecured creditors would receive nothing in such situation.
ARTICLE XII.
MODIFICATION OF THE PLAN
Prior to the entry of the Confirmation Order, the Debtors may propose
amendments or modifications to the Plan in accordance with ss. 1127(a) of the
Code. After confirmation, the Reorganized Debtor may amend the Plan in the
manner provided by Section 1127(b) of the Code.
The Court may, at any time, so long as it does not materially or adversely
affect the interests of creditors and equity interest holders, remedy defects
and omissions or reconcile any inconsistencies in the Plan or in the order
confirming the Plan as may be appropriate to effectuate the Plan.
ARTICLE XIII.
REMEDIES FOR DEFAULTS BY THE REORGANIZED DEBTOR
If the Reorganized Debtor fails to comply with the terms of the Plan, the
holders of claims in any class materially harmed thereby may proceed against the
Reorganized Debtor and its property to enforce the Plan, taking any action
permissible under applicable federal or state law, in any court of competent
jurisdiction.
With respect to holders of liens on the Reorganized Debtor's property, such
creditors may act in accordance with any applicable and existing mortgage, deed
of trust, security agreement, or other instrument evidencing a lien or
encumbrance on their collateral if and only if permission from the Court is
first obtained.
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ARTICLE XIV.
RETENTION OF BANKRUPTCY COURT JURISDICTION
Following Confirmation of the Plan, the Court shall retain, without
limitation, jurisdiction for the following purposes and to provide any relief
the Reorganized Debtor may require to effectuate the Plan or any modification of
the Plan:
1. Deciding the proper classification of any claim, determining the proper
allowance for purposes of distribution of claims estimated for purposes of
voting, and resolving objections to claims;
2. Resolving all disputes regarding title to assets of the Reorganized
Debtor and all disputes arising under the Code;
3. Correcting of any defect, curing any omission, or reconciling any
inconsistency between the Plan and the order confirming the Plan as may be
appropriate to effectuate the purposes and intent of the Plan;
4. Modifying the Plan after confirmation;
5. Enforcing and interpreting the terms and conditions of the Plan, any
securities issued under the Plan, or any other documentation effectuating the
Plan;
6. Entering any order required to enforce the rights and powers of the
Reorganized Debtor;
7. Determining any claim entitled to priority under Section 507 of the
Code;
8. Resolve any claims or causes of action, including any avoidance actions
arising under 11 U.S.C. ss.ss. 542 through 551, against any creditors or equity
interest holders, held by the Debtors, the Reorganized Debtor or any creditors
of the Debtors; and
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9. Entering any order required to close the Debtors' case.
ARTICLE XV.
RECOMMENDATION OF DEBTORS
The Debtors recommend that all creditors and equity interest holders
entitled to do so vote to accept the Plan because the Plan provides, in the view
of the Debtors, the best presently available alternative for a financial return.
If the Plan is not approved, the Debtors would continue to seek other
rehabilitative alternatives, but a liquidation having the consequences discussed
previously very likely would ensue.
If all impaired classes of claims and equity interests vote to accept the
Plan, the Debtors could save substantial resources that it might otherwise have
to use to obtain confirmation over the objection of an impaired class. For this
and the other reasons noted, the Debtors urge you to vote to accept the Plan.
DATED this 24th day of January, 2002.
TIFFANY & BOSCO, P.A.
/s/ C.K. #014820
-------------------------------
Christopher R. Kaup, Esq.
Fifth Floor Viad Tower
1850 North Central Avenue
Phoenix, Arizona 85004-4546
Attorneys for Debtors
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EBIZ ENTERPRISES, INC. JONES BUSINESS SYSTEMS, INC.
By: /s/ Bruce Parsons By: /s/ Bruce Parsons
------------------------------- -------------------------------------
Bruce Parsons Bruce Parsons
Its President and CEO Its Chief Executive Officer
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