1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
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In re :
Chapter 11 Case No.
FINE HOST CORPORATION, : 99 - 20 (PJW)
:
Debtor.
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SECOND AMENDED PLAN OF REORGANIZATION
FOR DEBTOR PURSUANT TO CHAPTER 11
OF THE UNITED STATES BANKRUPTCY CODE
WEIL, GOTSHAL & MANGES LLP RICHARDS, LAYTON & FINGER, P.A.
767 Fifth Avenue One Rodney Square
New York, New York 10153 Wilmington, Delaware 19899
(212) 310-8000 (302) 658-6541
Attorneys for Debtor and Attorneys for Debtor and
Debtor in Possession Debtor in Possession
2
Fine Host Corporation hereby proposes the following plan of
reorganization pursuant to sections 1121(a) and (c) and 1123 of the Bankruptcy
Code.
Article I
DEFINITIONS
As used in the Plan, the following terms shall have the
respective meanings specified below and be equally applicable to the singular
and plural of terms defined:
1.1 Acquisition Debt Claim: Any Claim of a holder of a General Unsecured Claim
for indebtedness arising from or related to the acquisition by the Debtor or an
Affiliate of the capital stock, assets or business operations of an Entity.
1.2 Ad Hoc Committee: The informal committee of holders of Subordinated Note
Claims formed prior to the Petition Date in connection with the negotiation and
preparation of the Plan.
1.3 Administrative Expense Claim: Any Claim constituting a cost or expense of
administration of the Chapter 11 Case asserted under section 503(b) of the
Bankruptcy Code, including, without limitation, any actual and necessary costs
and expenses of preserving the estate of the Debtor, any actual and necessary
costs and expenses of operating the businesses of the Debtor in Possession, any
indebtedness or obligations incurred or assumed by the Debtor in Possession in
connection with the conduct of its businesses or for the acquisition or lease of
property or the procurement or rendition of services, any costs and expenses of
the Debtor in Possession for the management, maintenance, preservation, sale or
other disposition of any assets, the administration and implementation of the
Plan, the administration, prosecution or defense of Claims by or against the
Debtor and for distributions under the Plan, any Claims for compensation and
reimbursement of expenses arising during the period from and after the Petition
Date and prior to the Effective Date or otherwise in accordance with the
provisions of the Plan, fees and expenses of the Subordinated Notes Trustee
arising during the period from and after the Petition Date and prior to the
Effective Date, and any fees or charges assessed against the Debtor's estate
under section 1930, chapter 123, Title 28, United States Code.
1.4 Affiliate: Any Entity that is an "affiliate" of the Debtor within the
meaning of section 101(2) of the Bankruptcy Code.
1.5 Allowed Administrative Expense Claim: An Administrative Expense Claim,
to the extent it is or has become an Allowed Claim.
1.6 Allowed Claim/Allowed Equity Interest: Any Claim against or Equity Interest
in the Debtor, (a) (i) proof of which was filed on or before the date designated
by the Bankruptcy Court as the last date for filing proofs of claim against or
equity interests in the Debtor, (ii) if no proof of Claim or Equity Interest has
been timely filed, which has been or hereafter is listed by the Debtor in its
Schedules as liquidated in amount and not disputed or contingent or (iii) any
Equity Interest registered in the stock register maintained by or on behalf of
the Debtor as of the Record Date and, in each such case in clauses (i), (ii) and
(iii) above, a Claim or Equity Interest as to which no objection to the
allowance thereof has been interposed within the applicable period of limitation
fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or a Final Order,
or as to which an objection has been interposed and such Claim or Equity
Interest has been allowed in whole or in part by a Final Order or (b) in the
case of Subordinated Note Claims, allowed pursuant to the terms of Section 6.1
hereof. For purposes of determining the amount of an "Allowed Claim", there
shall be deducted therefrom an amount equal to the amount of any claim which the
Debtor may hold against the holder thereof, to the extent such claim may be set
off pursuant to section 553 of the Bankruptcy Code.
1.7 Allowed Debenture Rescission Claim: A Debenture Rescission Claim, to
the extent it is or has become an Allowed Claim.
1.8 Allowed Fine Host Equity Interest: A Fine Host Equity Interest, to the
extent it is or has become an Allowed Equity Interest.
1.9 Allowed General Unsecured Claim: A General Unsecured Claim, to the
extent it is or has become an Allowed Claim.
1.10 Allowed Priority Non-Tax Claim: A Priority Non-Tax Claim, to the
extent it is or has become an Allowed Claim.
1.11 Allowed Priority Tax Claim: A Priority Tax Claim, to the extent it is
or has become an Allowed Claim.
1.12 Allowed Secured Claim: A Secured Claim, to the extent it is or has
become an Allowed Claim.
1.13 Allowed Statutorily Subordinated Claim: A Statutorily Subordinated
Claim, to the extent it is or has become an Allowed Claim.
1.14 Allowed Subordinated Note Claim: A Subordinated Note Claim, to the
extent it is or has become an Allowed Claim.
1.15 Allowed Unsecured Claim: An Unsecured Claim, to the extent it is or
has become an Allowed Claim.
1.16 Amended Bylaws of Reorganized Fine Host: The amended bylaws of Reorganized
Fine Host, which amended bylaws shall be in substantially the form included in
the Plan Supplement.
1.17 Amended and Restated Certificate of Incorporation of Reorganized Fine Host:
The Certificate of Incorporation of Reorganized Fine Host, as amended, which
certificate of incorporation shall be in substantially the form included in the
Plan Supplement.
1.18 Available Cash: An amount equal to the Debtor's actual Cash on hand and
Cash Equivalents on the Effective Date minus (a) the amount of Cash necessary to
satisfy, whether on the Effective Date or thereafter, (i) the amount of all
Allowed Administrative Expense Claims, (ii) the amount of all Allowed Priority
Tax Claims not otherwise extended in accordance with section 1129(a)(9)(C) of
the Bankruptcy Code, (iii) the amount of all Allowed Priority Non-Tax Claims,
(iv) the amount of all Allowed Secured Claims to be satisfied in Cash under the
Plan and (v) the amount of all Allowed General Unsecured Claims, other than
Allowed General Unsecured Claims relating to that portion of Acquisition Debt
Claims which become due and payable in the ordinary course after the Effective
Date, and (b) One Million Dollars ($1,000,000.00) necessary to fund the
Litigation Trust. In determining the exact amount of Available Cash, the Debtor
shall, on the Effective Date, reasonably and in good faith estimate the amounts
necessary to satisfy the Claims set forth in clauses (i), (ii), (iii), (iv) and
(v) above.
1.19 Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended, and as
codified in Title 11, United States Code, as applicable to the Chapter 11 Case.
1.20 Bankruptcy Court: The United States Bankruptcy Court for the District of
Delaware or such other court having jurisdiction over the Chapter 11 Case.
1.21 Bankruptcy Rules: The Federal Rules of Bankruptcy Procedure, as promulgated
by the United States Supreme Court under section 2075 of Title 28 of the United
States Code, and any Local Rules of the Bankruptcy Court, as amended.
1.22 Business Day: A day other than a Saturday, a Sunday or any other day on
which commercial banks in Greenwich, Connecticut are required or authorized to
close.
1.23 Cash: Lawful currency of the United States of America.
1.24 Cash Equivalents: Equivalents of Cash in the form of readily marketable
securities or instruments issued by a person other than the Debtor or an
Affiliate, including, without limitation, readily marketable direct obligations
of, or obligations guaranteed by, the United States of America, commercial paper
of domestic corporations carrying a Moody's Rating of "A" or better, or
equivalent rating of any other nationally recognized rating service, or
interest-bearing certificates of deposit or other similar obligations of
domestic banks or other financial institutions having a shareholders' equity or
equivalent capital of not less than Two Hundred Million Dollars ($200,000,000),
having maturities of not more than one (1) year, at the then best generally
available rates of interest for like amounts and like periods.
1.25 Chapter 11 Case: The case commenced under chapter 11 of the Bankruptcy
Code by the Debtor on the
Petition Date.
1.26 Claim: Any right to payment from the Debtor, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, known
or unknown; or any right to an equitable remedy for breach of performance if
such breach gives rise to a right of payment from the Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
1.27 Class: A category of holders of Claims or Equity Interests as set
forth in Article IV of the Plan.
1.28 Class Action: The litigation, styled In re: Fine Host
Corporation,Securities Litigation, pending before the United States District
Court for the District of Connecticut, Civil Action No. 3:97-CV-2619 (JCH).
1.29 Collateral: Any property or interest in property of the estate of the
Debtor that is subject to an unavoidable Lien to secure the payment or
performance of a Claim.
1.30 Confirmation Hearing: The hearing to consider confirmation of the Plan in
accordance with section 1129 of the Bankruptcy Code, as the same may be
adjourned from time to time.
1.31 Confirmation Date: The date upon which the Clerk of the Bankruptcy
Court enters the Confirmation Order.
1.32 Confirmation Order: The order of the Bankruptcy Court confirming the Plan
in accordance with the provisions of chapter 11 of the Bankruptcy Code.
1.33 Creditor: Any person that has a Claim against the Debtor that arose or is
deemed to have arisen on or before the Petition Date, including, without
limitation, a Claim against the Debtor's estate of a kind specified in sections
502(g), 502(h) or 502(i) of the Bankruptcy Code.
1.34 Creditor Cash: The amount of Fine Host's Cash equal to the sum of (a) the
first Forty-Five Million Dollars ($45,000,000.00) of Available Cash, (b) fifty
percent (50%) of the amount of Available Cash in excess of Sixty Million Dollars
($60,000,000.00) but less than Seventy Million Dollars ($70,000,000.00), and (c)
one hundred percent (100%) of the amount of Available Cash, if any, in excess of
Seventy Million Dollars ($70,000,000.00).
1.35 Debtor: Fine Host Corporation, a Delaware corporation.
1.36 Debtor in Possession: The Debtor as a debtor in possession pursuant to
sections 1107(a) and 1108 of the
Bankruptcy Code.
1.37 Debenture Rescission Claim: Any Claim of a holder or former holder of a
Subordinated Note for rescission, damages or diminution in value, if any,
including, without limitation, any claims by any such holder arising from or
relating to the disclosure of the Debtor's alleged accounting irregularities
and, to the extent not assumed in accordance with the provisions of Section 17.4
of the Plan, any Claim of any other Entity for reimbursement, contribution or
indemnification in connection with any of the foregoing.
1.38 Disclosure Statement: The disclosure statement related to the Plan and
approved by the Bankruptcy Court in accordance with section 1125 of the
Bankruptcy Code.
1.39 Disputed Claim; Disputed Equity Interest: Any Claim against or Equity
Interest in the Debtor, to the extent the allowance of which is the subject of a
timely objection or request for estimation in accordance with the Plan, the
Bankruptcy Code, the Bankruptcy Rules or the Confirmation Order, or is otherwise
disputed by the Debtor in accordance with applicable law, which objection,
request for estimation or dispute has not been withdrawn or determined by a
Final Order.
1.40 Disputed Claim Amount: The lesser of (a) the amount of a Disputed Claim as
filed with the Bankruptcy Court and (b) if the Bankruptcy Court has estimated
such Disputed Claim pursuant to section 502(c) of the Bankruptcy Code, the
amount of a Disputed Claim as estimated by the Bankruptcy Court; provided,
however, that nothing contained in the Plan is intended to or shall affect any
Person's or Entity's rights under section 502(j) of the Bankruptcy Code.
1.41 Effective Date: The first Business Day following the satisfaction of the
conditions precedent specified in Section 18.1 of the Plan, unless otherwise
waived as provided in Section 18.2 of the Plan.
1.42 Entity: An individual, a corporation, a general partnership, a limited
partnership, a limited liability company, a limited liability partnership, an
association, a joint stock company, a joint venture, an estate, a trust, an
unincorporated organization, a government or any subdivision thereof or any
other entity.
1.43 Equity Interest: Any equity interest in the Debtor represented by duly
authorized, validly issued and outstanding shares of stock or any interest or
right to convert into such an equity interest or acquire any equity interest
which was in existence immediately prior to the Petition Date, including,
without limitation, any Fine Host Equity Interest.
1.44 Equity Interest Percentage: Forty percent (40%), the percentage that the
assumed value of Allowed Equity Interests bears to the sum of the assumed value
of Allowed Equity Interests plus the assumed value of Allowed Statutorily
Subordinated Claims in Class 6, or such other percentage as may be established
by the Bankruptcy Court at the Confirmation Hearing.
1.45 Final Distribution Date: A date selected by Reorganized Fine Host, in its
sole and absolute discretion, which date shall be (i) on or after the Initial
Distribution Date and following the resolution of all Disputed Claims and/or
Disputed Equity Interests with respect to an applicable Class by Final Order;
provided, however, that in no event, shall such date be later than thirty (30)
days following entry of such Final Order, or (ii) such later date as the
Bankruptcy Court may establish, upon request by Reorganized Fine Host, for cause
shown.
1.46 Final Order: An order of the Bankruptcy Court as to which the time to
appeal, petition for certiorari or move for reargument or rehearing has expired
and as to which no appeal, petition for certiorari or other proceedings for
reargument or rehearing shall then be pending; and if an appeal, writ of
certiorari, reargument or rehearing thereof has been sought, such order shall
have been affirmed by the highest court to which such order was appealed, or
certiorari shall have been denied or reargument or rehearing shall have been
denied or resulted in no modification of such order, and the time to take any
further appeal, petition for certiorari or move for reargument or rehearing
shall have expired; provided, however, that the possibility that a motion under
Rule 59 or Rule 60 of the Federal Rules of Civil Procedure or any analogous rule
under the Bankruptcy Rules, may be but has not then been filed with respect to
such order, shall not cause such order not to be a Final Order.
1.47 Fine Host Equity Interest: A common Equity Interest in the Debtor
represented by (i) one of the 9,047,970 issued and outstanding shares of common
stock of the Debtor and (ii) any Stock Option or other right arising from or
related to the Stock Option Plans.
1.48 General Unsecured Claim: An Unsecured Claim, other than a Subordinated
Note Claim, a Debenture Rescission Claim or a Statutorily Subordinated Claim.
1.49 Initial Distribution Date: A date on or after an Effective Date that is
selected by Reorganized Fine Host in its sole and absolute discretion but, in
any event, is within ten (10) days after the Effective Date, or such later date
as the Bankruptcy Court may establish, upon request by Reorganized Fine Host,
for cause shown.
1.50 IRC: The Internal Revenue Code of 1986, as amended from time to time.
1.51 IRS: The Internal Revenue Service, an agency of the United States
Department of Treasury.
1.52 Lien: Any charge against or interest in property to secure payment of a
debt or performance of an obligation.
1.53 Litigation Trust: The trust to be created on the Effective Date in
accordance with the provisions of Article XVI hereof and the Litigation Trust
Agreement for the benefit of holders of Allowed Debenture Rescission Claims,
Allowed Statutorily Subordinated Claims and Allowed Equity Interests, in
connection with the Litigation Trust Claims.
1.54 Litigation Trustee: The Entity to be appointed by the Litigation Trust
Board to administer the Litigation Trust in accordance with the terms and
provisions of Article XVI hereof and the Litigation Trust Agreement.
1.55 Litigation Trust Agreement: The Trust Agreement, substantially in the form
included in the Plan Supplement, pursuant to which the Litigation Trustee shall
pursue the Litigation Trust Claims and distribute the proceeds thereof, if any.
1.56 Litigation Trust Board: The three Persons appointed prior to the Effective
Date by the Bankruptcy Court, upon nomination by the Ad Hoc Committee, or any
replacements thereafter selected in accordance with the provisions of the
Litigation Trust Agreement, who shall determine in accordance with the
Litigation Trust Agreement whether to prosecute, compromise and settle or
discontinue any Litigation Trust Claims.
1.57 Litigation Trust Claims: Those claims and causes of action of the Debtor
arising from or related to the alleged accounting irregularities which
necessitated a restatement of the Debtor's financial statements for fiscal years
1994 through 1997; provided, however, that , under no circumstances, shall such
claims and causes of action include any claims waived and released in accordance
with the provisions of Section 19.6 of the Plan.
1.58 Litigation Trust Interests: Those beneficial interests in the Litigation
Trust to be deemed to be distributed to holders of Allowed Debenture Rescission
Claims, Allowed Statutorily Subordinated Claims and Allowed Equity Interests
pursuant to the terms and conditions of Sections 8.1, 8.3, 9.2 and 9.3 of the
Plan.
1.59 Management Options: The options to be issued to Reorganized Fine Host
Senior Managers to purchase up to thirteen percent (13%) of the Reorganized Fine
Host Common Stock on a fully diluted basis, all in accordance with the terms and
conditions set forth on Exhibit "A" hereto.
1.60 New Securities: Reorganized Fine Host Common Stock and New Warrants.
1.61 New Warrants: The warrants to be issued to holders of Allowed Debenture
Rescission Claims, Allowed Statutorily Subordinated Claims and Allowed Equity
Interests to purchase an aggregate One Million (1,000,000) shares of Reorganized
Fine Host Common Stock, subject to dilution on account of the Management
Options, all in accordance with the terms and conditions summarized on Exhibit
"B" hereto, and as provided in the New Warrant Agreement.
1.62 New Warrant Agreement: The New Warrant Agreement, substantially in the form
included in the Plan Supplement, governing the issuance and exercise of the New
Warrants.
1.63 Person: An individual or Entity.
1.64 Petition Date: January 7, 1999, the date on which Fine Host filed its
voluntary petition for relief commencing the Chapter 11 Case.
1.65 Plan: This Second Amended Plan of Reorganization for Debtor Pursuant to
Chapter 11 of the United States Bankruptcy Code, including, without limitation,
the exhibits and schedules hereto and the Plan Supplement, either in its present
form or as the same may be amended, modified or supplemented from time to time
in accordance with the terms and provisions hereof.
1.66 Plan Supplement: A separate volume, to be filed with the Clerk of the
Bankruptcy Court, containing, among other things, forms of the Amended Bylaws of
Reorganized Fine Host, Amended and Restated Certificate of Incorporation of
Reorganized Fine Host, Reorganized Fine Host Credit Agreement, the New Warrant
Agreement, the Litigation Trust Agreement and the definitive documentation for
the Management Options, all in form and substance reasonably satisfactory to the
Debtor and the Ad Hoc Committee. The Plan Supplement (containing drafts or final
versions of the foregoing documents) shall be filed with the Clerk of the
Bankruptcy Court as early as practicable (but in no event later than ten (10)
days) prior to the commencement of the hearing to consider confirmation of the
Plan, or on such other date as the Bankruptcy Court may establish.
1.67 Priority Non-Tax Claim: Any Claim against the Debtor, other than an
Administrative Expense Claim or a Priority Tax Claim, entitled to priority in
payment under section 507(a) of the Bankruptcy Code, but only to the extent
entitled to such priority.
1.68 Priority Tax Claim: Any Claim against the Debtor entitled to priority
in payment under section 507(a)(8) of the Bankruptcy Code.
1.69 Pro Rata Share: With respect to Allowed Claims and Allowed Equity Interests
within the same Class or sub-Class, the proportion that an Allowed Claim or
Allowed Equity Interest bears to the sum of (a) all Allowed Claims and/or
Allowed Equity Interests, as the case may be, within such Class or sub-Class,
and (b) all Disputed Claim Amounts and/or Disputed Equity Interest Amounts, as
the case may be, within such Class or sub-Class.
1.70 Record Date: The date to be established by the Bankruptcy Court in the
Confirmation Order for the purpose of determining the holders of Allowed Claims
and Allowed Equity Interests to receive distributions pursuant to the Plan.
1.71 Reorganized Fine Host: The Debtor, from and after the Effective Date.
1.72 Reorganized Fine Host Common Stock: The common stock of Reorganized Fine
Host from and after the Effective Date, having a par value of $.05 per share, of
which Twenty Million (20,000,000) shares shall be authorized and of which Ten
Million (10,000,000) shares shall be issued to holders of Allowed Claims and
Allowed Equity Interests pursuant to the terms of the Plan.
1.73 Reorganized Fine Host Credit Agreement: The Credit Agreement, if any,
between Reorganized Fine Host and the Reorganized Fine Host Lender,
substantially in the form included in the Plan Supplement, pursuant to which the
Reorganized Fine Host Lender shall have agreed to provide financing to
Reorganized Fine Host on terms and conditions satisfactory to the Debtor.
1.74 Reorganized Fine Host Lender: One or more financial institutions
acceptable to the Debtor.
1.75 Reorganized Fine Host Senior Managers: The employees of Reorganized
Fine Host listed on Exhibit "A" hereto.
1.76 Schedules: The respective schedules of assets and liabilities and the
statements of financial affairs filed by the Debtor under section 521 of the
Bankruptcy Code and the Official Bankruptcy Forms of the Bankruptcy Rules as
such schedules and statements have been or may be supplemented or amended.
1.77 Secured Claim: A Claim against the Debtor that is secured by a Lien on
Collateral or that is subject to setoff under section 553 of the Bankruptcy
Code, to the extent of the value of the Collateral or to the extent of the
amount subject to setoff, as applicable, as determined in accordance with
section 506(a) of the Bankruptcy Code.
1.78 Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
1.79 Statutorily Subordinated Claim Percentage: Sixty percent (60%), the
percentage that the assumed value of Allowed Statutorily Subordinated Claims
bears to the sum of the assumed value of Allowed Statutorily Subordinated Claims
plus the assumed value of Allowed Equity Interests in Class 6, or such other
percentage as may be established by the Bankruptcy Court at the Confirmation
Hearing.
1.80 Statutorily Subordinated Claims: Any Claim that is subject to subordination
under section 510(b) of the Bankruptcy Code, including, without limitation, any
and all Claims of a holder or former holder of an equity interest in the Debtor
for rescission, damages, or diminution in value, if any, arising from or
relating to the disclosure of the Debtor's alleged accounting irregularities
(including any and all Claims asserted or which could have been asserted against
the Debtor in the Class Action) and including, to the extent not assumed in
accordance with the provisions of Section 17.4 of the Plan, any Claim of any
Entity for reimbursement, indemnity or contribution in connection with any of
the foregoing; provided, however, that, notwithstanding the foregoing,
Statutorily Subordinated Claims shall not include Debenture Rescission Claims.
1.81 Stock Option: An option to purchase Fine Host Equity Interests or any other
interest granted pursuant to the Stock Option Plans.
1.82 Stock Option Plans: The Stock Option Plans, dated as of November 1, 1994,
and March 26, 1996, each as amended and restated, established by the Debtor for
the benefit of the Debtor's employees and non-employee directors, respectively.
1.83 Subordinated Note Claim: Any Claim based upon or evidenced by a
Subordinated Note; provided, however, that Subordinated Note Claim shall not
include any Debenture Rescission Claims.
1.84 Subordinated Notes: The 5% Convertible Subordinated Notes due 2004 executed
and delivered by the Debtor pursuant to the Subordinated Notes Indenture in the
aggregate original principal amount of One Hundred Seventy-Five Million Dollars
($175,000,000.00).
1.85 Subordinated Notes Indenture: That certain Indenture, dated as of October
27, 1997, between the Debtor, as Issuer, and Subordinated Notes Trustee, as
Trustee, pursuant to which the Subordinated Notes were issued.
1.86 Subordinated Notes Trustee: Marine Midland Bank, as Successor Trustee
under the Subordinated Notes Indenture, or its successor in interest.
1.87 Unsecured Claim: Any Claim against the Debtor, other than an
Administrative Expense Claim, a Priority Non-Tax Claim, a Priority Tax Claim,
or a Secured Claim.
1.88 Other Definitions: Unless the context otherwise requires, any capitalized
term used and not defined herein or elsewhere in the Plan but that is defined in
the Bankruptcy Code shall have the meaning assigned to that term in the
Bankruptcy Code. Unless otherwise specified, all section, schedule or exhibit
references in the Plan are to the respective section in, article of, or schedule
or exhibit to, the Plan, as the same may be amended, waived, or modified from
time to time. The words "herein," "hereof," "hereto," "hereunder," and other
words of similar import refer to the Plan as a whole and not to any particular
section, subsection, or clause contained in the Plan.
Article II
PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
2.1 Administrative Expense Claims: On the later to occur of (a) the Effective
Date and (b) the date on which such an Administrative Expense Claim shall become
an Allowed Claim, Reorganized Fine Host shall (i) pay to each holder of an
Allowed Administrative Expense Claim, in Cash, the full amount of such Allowed
Administrative Expense Claim, or (ii) satisfy and discharge such Allowed
Administrative Expense Claim in accordance with such other terms as may be
agreed upon by and between the holder thereof and the Debtor or Reorganized Fine
Host, as the case may be; provided, however, that Allowed Administrative Expense
Claims representing liabilities or obligations incurred or assumed by the Debtor
in Possession in the ordinary course of business or liabilities arising under
loans made or advances extended to the Debtor in Possession, whether or not
incurred in the ordinary course of business, shall be assumed and paid by
Reorganized Fine Host in accordance with the terms and conditions of the
particular transaction and any agreements relating thereto.
2.2 Compensation and Reimbursement Claims: All Persons or Entities that are
awarded compensation or reimbursement of expenses by the Bankruptcy Court in
accordance with section 330 or 331 of the Bankruptcy Code or entitled to the
priorities established pursuant to section 503(b)(2), 503(b)(3), 503(b)(4) or
503(b)(5) of the Bankruptcy Code, shall be paid in full, in Cash, the amounts
allowed by the Bankruptcy Court (a) on or as soon as reasonably practicable
following the later to occur of (i) the Effective Date and (ii) the date upon
which the Bankruptcy Court order allowing such Claim becomes a Final Order or
(b) upon such other terms as may be mutually agreed upon between such holder of
an Allowed Administrative Expense Claim and the Debtor.
2.3 Payment of Priority Tax Claims: Each holder of an Allowed Priority Tax Claim
shall be paid the full amount of such Allowed Priority Tax Claim. At the sole
option and discretion of Reorganized Fine Host, which option shall be exercised
on or prior to the Effective Date, such payment shall be made (a) in full, in
Cash, on the Effective Date, (b) in accordance with section 1129(a)(9)(c) of the
Bankruptcy Code, in full, in Cash, in up to twenty-four (24) equal quarterly
installments, commencing on the first (1st) Business Day following the date of
assessment of such Allowed Priority Tax Claim, together with interest accrued
thereon at a rate to be determined by the Bankruptcy Court, or (c) by mutual
agreement of the holder of such Allowed Priority Tax Claim and Reorganized Fine
Host.
Article III
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims and Equity Interests are classified as follows:
3.1 Class 1 - Priority Non-Tax Claims
3.2 Class 2 - Secured Claims
3.3 Class 3 - Subordinated Note Claims
3.4 Class 4 - General Unsecured Claims
3.5 Class 5 - Debenture Rescission Claims
3.6 Class 6 - 6A - Statutorily Subordinated Claims
- 6B - Equity Interests
Article IV
PROVISIONS FOR TREATMENT OF PRIORITY NON-TAX CLAIMS (CLASS 1)
4.1 Treatment of Allowed Priority Non-Tax Claims: On the Effective Date,
Reorganized Fine Host shall pay to each holder of an Allowed Priority Non-Tax
Claim, in Cash, the full amount of such Allowed Priority Non-Tax Claim, unless
the holder of such Allowed Priority Non-Tax Claim and Reorganized Fine Host
agree to a different treatment thereof.
Article V
PROVISIONS FOR TREATMENT OF SECURED CLAIMS (CLASS 2)
5.1 Treatment of Secured Claims: On the Effective Date, each holder of an
Allowed Secured Claim shall receive one of the following distributions: (a) the
payment of such holder's Allowed Secured Claim in full, in Cash; (b) the sale or
disposition proceeds of the property securing any Allowed Secured Claim to the
extent of the value of their respective interests in such property; (c) the
surrender to the holder or holders of any Allowed Secured Claim of the property
securing such Claim; or (d) such other distributions as shall be necessary to
satisfy the requirements of chapter 11 of the Bankruptcy Code. The manner and
treatment of each Allowed Secured Claim shall be determined by the Debtor, in
its sole and absolute discretion, on or before the Confirmation Date, and upon
notice to each Secured Creditor.
Article VI
PROVISIONS FOR ALLOWANCE AND TREATMENT OF SUBORDINATED NOTE CLAIMS (CLASS 3)
6.1 Allowance of Subordinated Note Claims: On the Effective Date, the
Subordinated Note Claims shall be deemed allowed in the aggregate amount of One
Hundred Seventy-Five Million Dollars ($175,000,000.00) plus accrued and unpaid
interest relating to the period up to but not including the Petition Date.
6.2 Treatment of Subordinated Note Claims: On the Initial Distribution Date,
each holder of an Allowed Subordinated Note Claim shall be entitled to receive
such holder's Pro Rata Share of:
(a) the Creditor Cash; and
(b) 9,600,000 shares of Reorganized Fine Host Common Stock.
6.3 Cancellation of Subordinated Notes: As of the Initial Distribution Date, all
notes, agreements, and other documents evidencing the Subordinated Notes and the
rights of the holders thereof, including, without limitation, the Subordinated
Notes and the Subordinated Notes Indenture, shall be cancelled and deemed null
and void and of no further force and effect, and the holders thereof shall have
no rights, and such instruments shall evidence no rights, except the right to
receive the distributions provided herein. Notwithstanding the foregoing, such
cancellation shall not impair the rights and duties under the Subordinated Notes
Indenture as between the Subordinated Notes Trustee and the beneficiaries of the
trust created thereby or as between the Debtor and the Subordinated Notes
Trustee with respect to fees and expenses incurred pursuant to the Subordinated
Notes Indenture.
6.4 Record Date for Subordinated Notes: As at the close of business on the
Record Date, the transfer ledgers for the Subordinated Notes shall be closed,
and there shall be no further changes in the record holders of any Subordinated
Notes. Distributions with respect to the Subordinated Notes shall be made to the
Subordinated Notes Trustee for payment to the record holders of any Subordinated
Notes as reflected on the transfer ledgers for the Subordinated Notes as at the
close of business on the Record Date. The Debtor or Reorganized Fine Host, as
the case may be, and the Subordinated Notes Trustee shall have no obligation to
recognize any transfer of the Subordinated Notes that is not recorded on the
transfer ledgers for the Subordinated Notes as of the close of business on the
Record Date. The Debtor and Reorganized Fine Host, as the case may be, and the
Subordinated Notes Trustee shall be entitled instead to recognize and deal with,
for all purposes hereunder, only those record holders stated on the transfer
ledgers of the Subordinated Notes Trustee as of the close of business on the
Record Date.
6.5 Unclaimed Distributions: On or about the second (2nd) and third (3rd)
anniversaries of the Effective Date, Reorganized Fine Host shall file a list
with the Bankruptcy Court setting forth the names of those Entities which have
not claimed distributions held by the Subordinated Notes Trustee for and on
their behalf as of such date. On the first (1st) Business Day after the fourth
(4th) anniversary of the Effective Date, all monies or other property held for
distribution by the Subordinated Notes Trustee shall be returned to Reorganized
Fine Host by the Subordinated Notes Trustee, free and clear of any claim or
interest of any nature whatsoever, including, without limitation, escheat rights
of any governmental unit under applicable law.
6.6 Compensation of the Subordinated Notes Trustee: The Subordinated Notes
Trustee shall be compensated by Reorganized Fine Host for services rendered
during the period up to and including the Initial Distribution Date, including
the reasonable compensation, disbursements, and expenses of the agents and legal
counsel of the Subordinated Notes Trustee in connection with the performance of
its duties under this Article VI upon presentation of invoices to the Debtor,
and shall be indemnified by Reorganized Fine Host for any loss, liability, or
expense incurred by the Subordinated Notes Trustee in connection with the
performance of such duties to the same extent and in the same manner as provided
in the Subordinated Notes Indenture. Upon payment, in full, of the fees and
expenses of the Subordinated Notes Trustee, the liens of the Subordinated Notes
Trustee on the distributions to holders of Allowed Subordinated Note Claims
shall be released and extinguished.
6.7 Allocation of Distributions: Any distributions received by a holder of an
Allowed Subordinated Note Claim shall be allocated first to the principal
portion of such Claim to the extent thereof, and thereafter, to the portion of
such Claim, if any, representing accrued interest.
6.8 Change of Control Provision: Notwithstanding anything contained herein or in
the Subordinated Notes Indenture to the contrary, the transactions to be
consummated in accordance with Article VI of the Plan shall not create, nor deem
to create, any claim on the part of a holder of an Allowed Subordinated Note
Claim in accordance with Article XI of the Subordinated Notes Indenture.
Article VII
PROVISIONS FOR TREATMENT OF GENERAL UNSECURED CLAIMS (CLASS 4)
7.1 Treatment of Allowed General Unsecured Claims: On the Effective Date, each
holder of an Allowed General Unsecured Claim, including, without limitation,
General Unsecured Claims arising from or relating to trade/vendor indebtedness
and acquisition debt claims shall, at the sole election of the Debtor, (a)
receive distributions, in Cash, in the full amount of such Allowed General
Unsecured Claim, (b) have such Allowed General Unsecured Claim treated in
accordance with its terms in the ordinary course of business or (c) receive such
treatment to otherwise render such Allowed General Unsecured Claim unimpaired.
Article VIII
PROVISIONS FOR TREATMENT OF DEBENTURE RESCISSION CLAIMS (CLASS 5)
8.1 Treatment of Allowed Debenture Rescission Claims.
(a) Initial Distribution: On the Initial Distribution Date, and provided
acceptance of the Plan by holders within Class 3 of the Plan, each holder of an
Allowed Debenture Rescission Claim shall be entitled to receive such holder's
Pro Rata Share of Litigation Trust Interests, representing seventy-five percent
(75%) of the Litigation Trust, in accordance with Section 16.4 of the Plan.
(b) Final Distribution: On the Final Distribution Date, and provided acceptance
of the Plan by holders within Class 3 of the Plan, each holder of an Allowed
Debenture Rescission Claim shall be entitled to receive such holder's Pro Rata
Share of:
(i) 300,000 shares of Reorganized Fine Host Common Stock; and
(ii) New Warrants to purchase 750,000 shares of Reorganized Fine Host Common
Stock, subject to dilution on account of the Management Options.
8.2 Limitation on Recovery: Notwithstanding anything contained herein to the
contrary, including, without limitation, the distributions to be made in
accordance with Section 8.1 hereof, in the event that the sum of (a) the value
attributable to the Reorganized Fine Host Common Stock and the New Warrants to
be distributed to each holder of an Allowed Debenture Rescission Claim, as
provided in the Disclosure Statement or as otherwise determined by the
Bankruptcy Court, and (b) the distributions from the Litigation Trust to such
holder are equal to one hundred percent (100%) of such holder's Allowed
Debenture Rescission Claim, then, the Litigation Trust Interests attributable to
such holder shall be deemed redistributed to holders of Allowed Statutorily
Subordinated Claims and Allowed Equity Interests in Class 6 on the same ratable
basis as the distributions are allocated between Classes 6A and 6B in accordance
with the provisions of Article IX of the Plan.
8.3 Subordinated Note Claim Distributions: Notwithstanding the distributions to
be made pursuant to Section 6.2 hereof, each holder of an Allowed Subordinated
Note Claim which also holds an Allowed Debenture Rescission Claim may
participate in the distributions to be made pursuant to Section 8.1 hereof based
upon a Claim equal to the total amount of such holder's Allowed Subordinated
Note Claim less the value of the consideration received on account of such
Allowed Subordinated Note Claim pursuant to Article VI of the Plan, with the
shares of Reorganized Fine Host Common Stock distributed pursuant to Article VI
to be valued as provided in the Disclosure Statement or as otherwise determined
by the Bankruptcy Court.
8.4 No Distribution: Notwithstanding anything contained in the Plan to the
contrary, in the event that Class 3 does not accept the Plan, no distribution of
any kind shall be made to holders of Allowed Debenture Rescission Claims and,
consistent therewith, the Litigation Trust shall not be created.
Article IX
PROVISIONS FOR TREATMENT OF STATUTORILY SUBORDINATED
CLAIMS (CLASS 6A) AND EQUITY INTERESTS (CLASS 6B)
9.1 Cancellation of Existing Equity Interests: On the Effective Date, all Equity
Interests shall be deemed extinguished and the certificates and all other
documents representing such Equity Interests, including, without limitation,
Fine Host Equity Interests and Stock Options, shall be deemed cancelled and of
no force and effect.
9.2 Treatment of Allowed Statutorily Subordinated Claims (Class 6A):
(a) Initial Distribution: On the Initial Distribution Date, and provided
acceptance of the Plan by holders within Classes 3 and 5 of the Plan, each
holder of an Allowed Statutorily Subordinated Claim shall be entitled to receive
a distribution equal to such holder's Pro Rata Share of the Statutorily
Subordinated Claim Percentage of (i) Litigation Trust Interests representing
twenty-five percent (25%) of the Litigation Trust and (ii) such additional
Litigation Trust Interests, if any, as provided in Section 8.2 of the Plan.
(b) Final Distribution: On the Final Distribution Date, and provided acceptance
of the Plan by holders within Classes 3 and 5 of the Plan, each holder of an
Allowed Statutorily Subordinated Claim shall be entitled to receive a
distribution equal to such holder's Pro Rata Share of the Statutorily
Subordinated Claim Percentage of:
(i) 100,000 shares of Reorganized Fine Host Common Stock; and
(ii) New Warrants to purchase 250,000 shares of Reorganized Fine Host Common
Stock, subject to dilution on account of the Management Options.
9.3 Treatment of Allowed Equity Interests (Class 6B):
(a) Initial Distribution: On the Initial Distribution Date, and provided
acceptance of the Plan by holders within Classes 3 and 5 of the Plan, each
holder of an Allowed Equity Interest shall be entitled to receive a distribution
equal to such holder's Pro Rata Share of the Equity Interest Percentage of (i)
Litigation Trust Interests representing twenty-five percent (25%) of the
Litigation Trust and (ii) such additional Litigation Trust Interests, if any, as
provided in Section 8.2 of the Plan.
(b) Final Distribution: On the Final Distribution Date, and provided acceptance
of the Plan by holders within Classes 3 and 5 of the Plan, each holder of an
Allowed Equity Interest shall be entitled to receive a distribution equal to
such holder's Pro Rata Share of the Equity Interest Percentage of:
(i) 100,000 shares of Reorganized Fine Host Common Stock; and
(ii) New Warrants to purchase 250,000 shares of Reorganized Fine Host Common
Stock, subject to dilution on account of the Management Options.
9.4 No Distribution: Notwithstanding anything contained in the Plan to the
contrary, in the event that either Class 3 or Class 5 does not accept the Plan,
no distribution of any kind shall be made to holders of Allowed Statutorily
Subordinated Claims or Allowed Equity Interests and the amount of Litigation
Trust Interests, if any, to be distributed to holders of Allowed Debenture
Rescission Claims pursuant to Article VIII of the Plan shall be increased to one
hundred percent (100%).
Article X
PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS UNDER THE PLAN
10.1 Objections to Claims; Prosecution of Disputed Claims: The Debtor or
Reorganized Fine Host shall object to the allowance of Claims or Equity
Interests filed with the Bankruptcy Court with respect to which it disputes
liability or allowance in whole or in part. All objections shall be litigated to
Final Order; provided, however, that Reorganized Fine Host (within such
parameters as may be established by the Board of Directors of Reorganized Fine
Host) shall have the authority to file, settle, compromise or withdraw any
objections to Claims or Equity Interests, without approval of the Bankruptcy
Court. Unless otherwise ordered by the Bankruptcy Court, the Debtor or
Reorganized Fine Host shall file and serve all objections to Claims or Equity
Interests as soon as practicable, but in no event later than the Effective Date
or such later date as may be approved by the Bankruptcy Court in the
Confirmation Order.
10.2 Estimation of Claims: The Debtor or Reorganized Fine Host may at any time
request that the Bankruptcy Court estimate any contingent or Disputed Claim
pursuant to section 502(c) of the Bankruptcy Code regardless of whether the
Debtor or Reorganized Fine Host previously has objected to such Claim or whether
the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court
will retain jurisdiction to estimate any Claim at any time during litigation
concerning any objection to any Claim, including, without limitation, during the
pendency of any appeal relating to any such objection. Subject to the provisions
of section 502(j) of the Bankruptcy Code, in the event that the Bankruptcy Court
estimates any contingent or Disputed Claim, the amount so estimated shall
constitute the allowed amount of such Claim. If the estimated amount constitutes
a maximum limitation on the amount of such Claim, the Debtor or Reorganized Fine
Host may pursue supplementary proceedings to object to the allowance of such
Claim. All of the aforementioned objection, estimation and resolution procedures
are intended to be cumulative and not necessarily exclusive of one another.
Claims may be estimated and subsequently compromised, settled, withdrawn or
resolved by any mechanism approved by the Bankruptcy Court.
10.3 Payments and Distributions on Disputed Claims and Disputed Equity
Interests: At such time as a Disputed Claim or Disputed Equity Interest becomes,
in whole or in part, an Allowed Claim or an Allowed Equity Interest, Reorganized
Fine Host shall distribute to the holder thereof the distributions, if any, to
which such holder is then entitled under the Plan. Such distribution, if any,
shall be made as soon as practicable after the date that the order or judgment
of the Bankruptcy Court allowing such Disputed Claim or Disputed Equity Interest
becomes a Final Order but in no event more than thirty (30) days thereafter. No
interest shall be paid on Disputed Claims or Disputed Equity Interests that
later become Allowed or with respect to any distribution to such holder. In the
event that dividend distributions have been made with respect to the Reorganized
Fine Host Common Stock distributable to a holder of a Disputed Claim or Disputed
Equity Interest that later becomes Allowed, such holder shall be entitled to
receive such previously distributed dividends, without any interest with respect
thereto. No distribution shall be made with respect to all or any portion of any
Disputed Claim or Disputed Equity Interest pending the entire resolution thereof
in the manner prescribed in Section 10.1 hereof. Distributions from the
Litigation Trust with respect to Disputed Claims or Disputed Equity Interests
that later become Allowed shall be made in accordance with the provisions of
Section 16.14 of the Plan.
Article XI
RIGHTS OF ACTION
11.1 Rights of Action: Any rights, claims, or causes of action accruing to the
Debtor or Debtor in Possession pursuant to the Bankruptcy Code or pursuant to
any statute or legal theory, including, without express or implied limitation,
any avoidance or recovery actions under sections 544, 545, 548, 549, 550, 551,
and 553 of the Bankruptcy Code and any rights to, claims, or causes of action
for recovery under any policies of insurance issued to or on behalf of any of
the Debtor or Debtor in Possession shall remain assets of the Debtor's estate
and, on the Effective Date, shall be transferred to Reorganized Fine Host.
Reorganized Fine Host shall be deemed the appointed representative to, and may,
pursue, litigate, and compromise and settle any such rights, claims, or causes
of action, as appropriate, in accordance with what is in the best interests of
and for the benefit of Reorganized Fine Host. The foregoing shall not apply to
the Litigation Trust Claims.
11.2 Preference Actions: On the Effective Date, the Debtor shall be deemed to
waive the right to prosecute any recovery action under section 547 of the
Bankruptcy Code that belongs to the Debtor or Debtor in Possession.
Article XII
ACCEPTANCE OR REJECTION OF PLAN; EFFECT OF REJECTION BY ONE
OR MORE CLASSES OF CLAIMS
12.1 Impaired Classes to Vote: Each holder of a Claim in an impaired Class shall
be entitled to vote separately to accept or reject the Plan.
12.2 Acceptance by Class of Creditors: An impaired Class of Creditors shall have
accepted the Plan if the Plan is accepted by at least two-thirds (2/3) in dollar
amount and more than one-half (1/2) in number of the Allowed Claims of such
Class that have voted to accept or reject the Plan.
12.3 Deemed Rejection by Class 6: Class 6 shall be deemed to have rejected the
Plan in accordance with section 1126 of the Bankruptcy Code.
12.4 Cramdown: In the event that any impaired Class of Claims or Equity
Interests shall fail to accept the Plan in accordance with section 1129(a) of
the Bankruptcy Code, the Debtor reserves the right to request that the
Bankruptcy Court confirm the Plan in accordance with section 1129(b) of the
Bankruptcy Code or amend the Plan.
Article XIII
IDENTIFICATION OF CLAIMS AND EQUITY INTERESTS IMPAIRED
AND NOT IMPAIRED BY THE PLAN
13.1 Impaired and Unimpaired Classes: Claims in Classes 1, 2 and 4 of the Plan
are not impaired under the Plan. Claims and Equity Interests in Classes 3, 5, 6A
and 6B are impaired under the Plan.
13.2 Impaired Classes to Vote on Plan: The Claims included in Classes 3 and 5 of
the Plan are impaired and are therefore entitled to vote to accept or reject the
Plan. Sub-Classes 6A and 6B shall not vote with respect to acceptance of the
Plan and shall be deemed to have rejected the Plan in accordance with section
1126 of the Bankruptcy Code.
13.3 Controversy Concerning Impairment: In the event of a controversy as to
whether any Class of Claims or Equity Interests is impaired under the Plan, the
Bankruptcy Court shall, after notice and a hearing, determine such controversy.
Article XIV
PROVISIONS REGARDING DISTRIBUTIONS
14.1 Timeliness of Payments: Any payments or distributions to be made by the
Debtor pursuant to the Plan shall be deemed to be timely made if made within
twenty (20) days after the dates specified in the Plan. Whenever any
distribution to be made under this Plan shall be due on a day other than a
Business Day, such distribution shall instead be made, without interest, on the
immediately succeeding Business Day, but shall be deemed to have been made on
the date due. A distribution will be allocated to the principal amount of a
Claim first and then, to the extent the distribution exceeds the principal
amount of the Claim, to any portion of the Claim representing accrued but unpaid
interest.
14.2 Distributions by Reorganized Fine Host: Except with respect to
distributions to be made by the Litigation Trustee pursuant to Section 16.8
hereof and the Litigation Trust Agreement, all distributions under the Plan
shall be made by Reorganized Fine Host.
14.3 Manner of Payment under the Plan: Unless the Entity receiving a payment
agrees otherwise, any payment in cash to be made by the Debtor or Reorganized
Fine Host shall be made, at the election of the Debtor or the Reorganized Fine
Host (as the case may be), by check drawn on a domestic bank or by wire transfer
from a domestic bank.
14.4 Fractional Securities: No fractional shares of Reorganized Fine Host Common
Stock or New Warrants to purchase fractional shares shall be issued. Fractional
shares of Reorganized Fine Host Common Stock and fractional New Warrants shall
be rounded to the next greater or next lower number of shares in accordance with
the following method: (a) fractions of one-half (1/2) or greater shall be
rounded to the next higher whole number, and (b) fractions of less than one-half
(1/2) shall be rounded to the next lower whole number. The total number of
shares or interests of Reorganized Fine Host Common Stock and/or New Warrants to
be distributed to a Class hereunder shall be adjusted as necessary to account
for the rounding provided for in this Section 14.4. In the event that, as a
result of such rounding, a holder of a Claim or Equity Interests would receive
no distribution pursuant to the Plan, such holder shall receive Cash in lieu of
the fractional shares of Reorganized Fine Host Common Stock or New Warrants to
purchase fractional shares such holder was entitled to receive.
14.5 Delivery of Distributions: Except as provided in Article VI of the Plan,
and subject to the provisions of Rule 9010 of the Bankruptcy Rules,
distributions and deliveries to holders of Allowed Claims shall be made at the
address of each such holder as set forth on the Schedules filed with the
Bankruptcy Court unless superseded by the address set forth on proofs of claim
filed by such holders, or at the last known address of such a holder if no proof
of claim is filed or if the Debtor has been notified in writing of a change of
address. Distribution to holders of Allowed Equity Interests shall be made at
the addresses set forth on the transfer ledger for Fine Host common stock as of
the Record Date.
14.6 Undeliverable Distributions:
(a) Holding of Undeliverable Distributions: If any distribution to any holder is
returned to Reorganized Fine Host as undeliverable, no further distributions
shall be made to such holder unless and until Reorganized Fine Host is notified,
in writing, of such holder's then-current address. Undeliverable distributions
shall remain in the possession of Reorganized Fine Host until such time as a
distribution becomes deliverable. All Persons ultimately receiving undeliverable
Cash, or dividends distributed with respect to Reorganized Fine Host Common
Stock shall not be entitled to any interest or other accruals of any kind.
Nothing contained in the Plan shall require Reorganized Fine Host to attempt to
locate any holder of an Allowed Claim or an Allowed Equity Interest.
(b) Failure to Claim Undeliverable Distributions: On or about the second (2nd)
and third (3rd) anniversaries of the Effective Date, Reorganized Fine Host shall
file a list with the Bankruptcy Court setting forth the names of those Entities
for which distributions have been made hereunder and have been returned as
undeliverable as of the date thereof. Any holder of an Allowed Claim or an
Allowed Equity Interest that does not assert its rights pursuant to the Plan to
receive a distribution within four (4) years from and after the Effective Date
shall have its Claim or Equity Interest for such undeliverable distribution
discharged and shall be forever barred from asserting any such Claim or Equity
Interest against Reorganized Fine Host or its property. In such case, any
consideration held for distribution on account of such Claim or Equity Interest
shall revert to Reorganized Fine Host.
14.7 Compliance with Tax Requirements: To the extent applicable, Reorganized
Fine Host shall comply with all tax withholding and reporting requirements
imposed on it by any governmental unit, and all distributions pursuant to the
Plan shall be subject to such withholding and reporting requirements.
14.8 Time Bar to Cash Payments: Checks issued by Reorganized Fine Host on
account of Allowed Claims shall be null and void if not negotiated within ninety
(90) days from and after the date of issuance thereof. Requests for reissuance
of any check shall be made directly to Reorganized Fine Host by the holder of
the Allowed Claim with respect to which such check originally was issued. Any
claim in respect of such a voided check shall be made on or before the later of
(a) the second (2nd) anniversary of the Effective Date or (b) ninety (90) days
after the date of issuance of such check, if such check represents a final
distribution hereunder on account of such Claim. After such date, all Claims in
respect of voided checks shall be discharged and forever barred and Reorganized
Fine Host shall retain all moneys related thereto.
14.9 Distributions After Effective Date: Distributions made after the Effective
Date to holders of Claims and Equity Interests that are not Allowed Claims or
Allowed Equity Interests as of the Effective Date but which later become Allowed
Claims shall be deemed to have been made on the Effective Date.
14.10 Set-Offs: Reorganized Fine Host may, pursuant to section 553 of the
Bankruptcy Code or applicable nonbankruptcy law, set off against any Allowed
Claim or Allowed Equity Interest and the distributions to be made pursuant to
the Plan on account thereof (before any distribution is made on account of such
Claim), the claims, rights and causes of action of any nature that the Debtor or
Reorganized Fine Host may hold against the holder of such Allowed Claim or
Allowed Equity Interest; provided, however, that neither the failure to effect
such a set-off nor the allowance of any Claim or Equity Interest hereunder shall
constitute a waiver or release by the Debtor or Reorganized Fine Host of any
such claims, rights and causes of action that the Debtor or Reorganized Fine
Host may possess against such holder; and, provided, further, that nothing
contained herein is intended to limit the rights of any Creditor or holder of an
Equity Interest to effectuate a setoff prior to the Effective Date in accordance
with the provisions of sections 362 and 553 of the Bankruptcy Code.
14.11 Surrender and Cancellation of Instruments: Except as Reorganized Fine Host
otherwise may agree, (a) each holder of a promissory note or other instrument
evidencing a Claim, including, without limitation, a Subordinated Note, shall
surrender such promissory note or instrument to Reorganized Fine Host, (b) no
distribution hereunder shall be made to or on behalf of any holder of such a
Claim unless and until such promissory note or instrument is received or the
unavailability of such note or instrument is reasonably established to the
satisfaction of Reorganized Fine Host and (c) in accordance with section 1143 of
the Bankruptcy Code, any such holder of such a Claim that fails to (i) surrender
or cause to be surrendered such promissory note or instrument or to execute and
deliver an affidavit of loss and indemnity reasonably satisfactory to
Reorganized Fine Host and (ii) in the event that Reorganized Fine Host requests,
furnish a bond in form and substance (including amount) reasonably satisfactory
to Reorganized Fine Host, within two (2) years from and after the Effective Date
shall be deemed to have forfeited all rights, claims and interests and shall not
participate in any distribution hereunder. Surrender of the global certificates
held by the Depository Trust Company in the name of Cede & Co., Inc. to the
Subordinated Notes Trustee shall constitute surrender of the instrument
evidencing the Subordinated Notes.
14.12 Termination of Subordination Rights and Settlement of Related Claims and
Controversies: The classification and manner of satisfying all Claims and Equity
Interests under the Plan take into consideration all contractual, legal and
equitable subordination rights, whether arising under general principles of
equitable subordination, sections 510(b) and (c) of the Bankruptcy Code or
otherwise, that a holder of a Claim or Equity Interest may have against other
Claim or Equity Interest holders with respect to any distribution made pursuant
to the Plan. On the Effective Date, all contractual, legal or equitable
subordination rights that a holder of a Claim or Equity Interest may have with
respect to any distribution to be made pursuant to the Plan shall be discharged
and terminated, and all actions related to the enforcement of such subordination
rights shall be permanently enjoined and distributions pursuant to the Plan
shall not be subject to payment to a beneficiary of such terminated
subordination rights, or to levy, garnishment, attachment or other legal process
by any beneficiary of such terminated subordination rights. Pursuant to
Bankruptcy Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the provisions of this Section 14.12 shall
constitute a good faith compromise and settlement of all claims or controversies
relating to the termination of all contractual, legal and equitable
subordination rights that a holder of a Claim or Equity Interest may have with
respect to any Allowed Claim or Allowed Equity Interest, or any distribution to
be made on account of an Allowed Claim or an Allowed Equity Interest. The entry
of the Confirmation Order shall constitute the Bankruptcy Court's approval of
the compromise or settlement of all such claims or controversies and the
Bankruptcy Court's finding that such compromise or settlement is in the best
interests of the Debtor, Reorganized Fine Host, and their respective property
and holders of Claims and Equity Interests and is fair, equitable and
reasonable.
Article XV
COMMITTEES
15.1 Creditors' Committee Composition and Term: From the Confirmation Date up to
and including the Effective Date, the members of the Creditors' Committee, if
any, appointed pursuant to section 1102 of the Bankruptcy Code, and their duly
appointed successors, shall continue to serve. Upon the disallowance by Final
Order of the Claim held by a Creditor that is a member of the Creditors'
Committee, such membership shall terminate and no replacement shall be
appointed. Upon the resignation, death or disability of a member of the
Creditors' Committee, the Creditor having appointed such member shall have the
right to designate a replacement. In the event such Creditor shall fail to
designate a replacement, no other replacement may be appointed to the Creditors'
Committee. Members of the Creditors' Committee shall serve without compensation
but shall be entitled to reimbursement of their reasonable out-of-pocket
expenses which are attributable to their attendance at Creditors' Committee
meetings. The Creditors' Committee shall be entitled to retain legal counsel and
such other professionals as may be authorized by the Bankruptcy Court, the fees
and expenses of which shall be entitled to payment as Administrative Expense
Claims. On the Effective Date, the Creditors' Committee shall be dissolved and
the members thereof and the professionals retained by the Creditors' Committee
in accordance with section 1103 of the Bankruptcy Code shall be released and
discharged from their respective fiduciary obligations.
15.2 Ad Hoc Committee Term and Fees: In the event not otherwise disbanded prior
to the Effective Date, on the Effective Date, the Ad Hoc Committee shall be
dissolved. On the later to occur of (i) the Effective Date and (ii) entry of an
order of the Bankruptcy Court allowing and authorizing the payment thereof,
Reorganized Fine Host shall pay the reasonable fees and expenses of the Ad Hoc
Committee's professionals incurred from and after the Petition Date.
Article XVI
THE LITIGATION TRUST
16.1 Establishment of the Trust: On the Effective Date, the Debtor, on its own
behalf and on behalf of holders of Allowed Claims and Allowed Equity Interests
in Classes 5, 6A and 6B shall execute the Litigation Trust Agreement and shall
take all other steps necessary to establish the Litigation Trust. On the
Effective Date, and in accordance with and pursuant to the terms of Section 16.4
of the Plan, the Debtor shall transfer to the Litigation Trust all of its right,
title, and interest in the Litigation Trust Claims. In connection with the
above-described rights and causes of action, any attorney-client privilege,
work-product privilege, or other privilege or immunity attaching to any
documents or communications (whether written or oral) transferred to the
Litigation Trust shall vest in the Litigation Trustee and its representatives,
and the Debtor and the Litigation Trustee are authorized to take all necessary
actions to effectuate the transfer of such privileges.
16.2 Purpose of the Litigation Trust: The Litigation Trust shall be established
for the sole purpose of liquidating its assets, in accordance with Treasury
Regulation Section 301.7701-4(d), with no objective to continue or engage in the
conduct of a trade or business.
16.3 Funding Expenses of the Litigation Trust: In accordance with the Litigation
Trust Agreement and any agreements entered into in connection therewith, on the
Effective Date, the Debtor shall transfer One Million Dollars ($1,000,000.00) to
the Litigation Trust. The Debtor and Reorganized Fine Host shall have no further
obligation to provide any funding with respect to the Litigation Trust.
16.4 Transfer of Assets:
(a) The transfer of the Litigation Trust Claims to the Litigation Trust shall be
made, as provided herein, for the benefit of the holders of Allowed Claims and
Allowed Equity Interests in Classes 5, 6A and 6B, in each case, only to the
extent such holders in such Classes are entitled to distributions under the
Plan. In this regard, in partial satisfaction of Allowed Claims and Allowed
Equity Interests in Classes 5, 6A and 6B, the Litigation Trust Claims will be
transferred to such holders of Allowed Claims and Allowed Equity Interests, to
be held by the Debtor on their behalf. Immediately thereafter, on behalf of the
holders of Allowed Claims and Allowed Equity Interests in Classes 5, 6A and 6B,
respectively, the Debtor shall transfer such Litigation Trust Claims to the
Litigation Trust in exchange for Litigation Trust Interests for the benefit of
holders of Allowed Claims and Allowed Equity Interests in Classes 5, 6A and 6B,
respectively, in accordance with the Plan. Upon the transfer of the Litigation
Trust Claims, the Debtor shall have no interest in or with respect to the
Litigation Trust Claims or the Litigation Trust.
(b) For all federal income tax purposes, all parties (including, without
limitation, the Debtor, the Litigation Trustee and the beneficiaries of the
Litigation Trust) shall treat the transfer of assets to the Litigation Trust in
accordance with the terms of the Plan, as a transfer to the holders of Allowed
Claims and Allowed Equity Interests in Classes 5, 6A and 6B, respectively,
followed by a transfer by such holders to the Litigation Trust and the
beneficiaries of the Litigation Trust shall be treated as the grantors and
owners thereof.
16.5 Valuation of Assets: As soon as possible after the Effective Date, but in
no event later than thirty (30) days thereafter, the Litigation Trust Board
shall inform, in writing, the Litigation Trustee of the value of the assets
transferred to the Litigation Trust, based on the good faith determination of
the Litigation Trust Board, and the Litigation Trustee shall apprise, in
writing, the beneficiaries of the Litigation Trust of such valuation. The
valuation shall be used consistently by all parties (including the Debtor, the
Litigation Trustee and the beneficiaries of the Litigation Trust) for all
federal income tax purposes.
16.6 Liquidation of Assets; Responsibilities of Litigation Trustee:
(a) The Litigation Trustee, upon direction by the Litigation Trust Board and the
exercise of their collective reasonable business judgment, shall, in an
expeditious but orderly manner, liquidate and convert to Cash the assets of the
Litigation Trust, make timely distributions and not unduly prolong the duration
of the Litigation Trust. The liquidation of the Litigation Trust Claims may be
accomplished either through the prosecution, compromise and settlement,
abandonment or dismissal of any or all claims, rights or causes of action, or
otherwise. The Litigation Trustee, upon direction by the Litigation Trust Board,
shall have the absolute right to pursue or not to pursue any and all claims,
rights, or causes of action, as it determines is in the best interests of the
beneficiaries of the Litigation Trust, including, without limitation, taking
into account the indemnification and contribution obligations of Reorganized
Fine Host and the diminution in value of Reorganized Fine Host, and consistent
with the purposes of the Litigation Trust, and shall have no liability for the
outcome of its decision. The Litigation Trustee may incur any reasonable and
necessary expenses in liquidating and converting the assets to Cash.
(b) The Litigation Trustee shall be named in the Confirmation Order or in the
Litigation Trust Agreement and shall have the power (i) to prosecute for the
benefit of the Litigation Trust all claims, rights and causes of action
transferred to the Litigation Trust (whether such suits are brought in the name
of the Litigation Trust or otherwise), and (ii) to otherwise perform the
functions and take the actions provided for or permitted herein or in any other
agreement executed by the Litigation Trustee pursuant to the Plan. Any and all
proceeds generated from such claims, rights, and causes of action shall be the
property of the Litigation Trust.
16.7 Investment Powers: The right and power of the Litigation Trustee to invest
assets transferred to the Litigation Trust, the proceeds thereof, or any income
earned by the Litigation Trust, shall be limited to the right and power to
invest such assets (pending periodic distributions in accordance with Section
16.8 of the Plan) in Cash Equivalents; provided, however, that (a) the scope of
any such permissible investments shall be limited to include only those
investments, or shall be expanded to include any additional investments, as the
case may be, that a liquidating trust, within the meaning of Treasury Regulation
Section 301.7701-4(d) may be permitted to hold, pursuant to the Treasury
Regulations, or any modification in the IRS guidelines, whether set forth in IRS
rulings, other IRS pronouncements or otherwise, and (b) the Litigation Trustee
may expend the assets of the Litigation Trust (i) as reasonably necessary to
meet contingent liabilities and to maintain the value of the assets of the
Litigation Trust during liquidation, (ii) to pay reasonable administrative
expenses (including, but not limited to, any taxes imposed on the Litigation
Trust or fees and expenses in connection with litigation), and (iii) to satisfy
other liabilities incurred or assumed by the Litigation Trust (or to which the
assets are otherwise subject) in accordance with the Plan or the Litigation
Trust Agreement; and provided, further, that, under no circumstances, shall the
Litigation Trust segregate the assets of the Litigation Trust on the basis of
classification of the holders of Litigation Trust Interests, other than with
respect to distributions to be made on account of Disputed Claims and Disputed
Equity Interests in accordance with the provisions hereof.
16.8 Annual Distribution; Withholding: The Litigation Trustee shall distribute
at least annually to the holders of Litigation Trust Interests all net cash
income plus all net cash proceeds from the liquidation of assets (including as
Cash for this purpose, all Cash Equivalents); provided, however, that the
Litigation Trust may retain such amounts (i) as are reasonably necessary to meet
contingent liabilities and to maintain the value of the assets of the Litigation
Trust during liquidation, (ii) to pay reasonable administrative expenses
(including any taxes imposed on the Litigation Trust or in respect of the assets
of the Litigation Trust or the escrow created in accordance with Section 16.14
hereof), and (iii) to satisfy other liabilities incurred or assumed by the
Litigation Trust (or to which the assets are otherwise subject) in accordance
with the Plan or the Litigation Trust Agreement. All such distributions shall be
pro rata based on the number of Litigation Trust Interests held by a holder
compared with the aggregate number of Litigation Trust Interests outstanding,
subject to the terms of the Plan and the Litigation Trust Agreement; provided,
further, that of the net amount distributable, the Litigation Trustee shall
transfer to an escrow, in accordance with Section 16.14 hereof, such amounts as
would be distributable in respect of Disputed Claims and Disputed Equity
Interests (treating such Claims and Equity Interests, for this purpose, as if
they were Allowed Claims and Equity Interests). The Litigation Trustee may
withhold from amounts distributable to any Person any and all amounts,
determined in the Litigation Trustee's reasonable sole discretion, to be
required by any law, regulation, rule, ruling, directive or other governmental
requirement.
16.9 Reporting Duties:
(a) Federal Income Tax: Subject to definitive guidance from the IRS or a court
of competent jurisdiction to the contrary (including the receipt by the
Litigation Trustee of a private letter ruling if the Litigation Trustee so
requests one, or the receipt of an adverse determination by the IRS upon audit
if not contested by the Litigation Trustee), and except as provided in Section
16.9(d) hereof, the Litigation Trustee shall file returns for the Litigation
Trust as a grantor trust pursuant to Treasury Regulation Section 1.671-4(a). The
Litigation Trustee shall also annually send to each holder of a Litigation Trust
Interest a separate statement setting forth the holder's share of items of
income, gain, loss, deduction or credit and will instruct all such holders to
report such items on their federal income tax returns.
(b) Allocations of Litigation Trust Taxable Income: Subject to the provisions of
Section 16.9(d) hereof, allocations of Litigation Trust taxable income shall be
determined by reference to the manner in which an amount of cash equal to such
taxable income would be distributed (without regard to any restrictions on
distributions described herein) if, immediately prior to such deemed
distribution, the Litigation Trust had distributed all of its other assets
(valued for this purpose at their tax book value) to the holders of the
Litigation Trust Interests (treating any holder of a Disputed Claim or a
Disputed Equity Interest, for this purpose, as a current holder of a Litigation
Trust Interest entitled to distributions), taking into account all prior and
concurrent distributions from the Litigation Trust (including all distributions
held in escrow pending the resolution of Disputed Claims and Disputed Equity
Interests). Similarly, taxable loss of the Litigation Trust will be allocated by
reference to the manner in which an economic loss would be borne immediately
after a liquidating distribution of the remaining Liquidation Trust Claims. The
tax book value of the Litigation Trust Claims for this purpose shall equal their
fair market value on the Effective Date or, if later, the date such assets were
acquired by the Litigation Trust, adjusted in either case in accordance with tax
accounting principles prescribed by the IRC, the regulations and other
applicable administrative and judicial authorities and pronouncements.
(c) Other: The Litigation Trustee shall file (or cause to be filed) any other
statements, returns or disclosures relating to the Litigation Trust, including,
without limitation, all statements, returns and disclosures relating to the
escrow to be established pursuant to Section 16.14 hereof, that are required by
any governmental unit.
(d) Alternative Tax Reporting If No Distribution to Class 6. In the event that
all Litigation Trust Interests are distributable to holders of Allowed Debenture
Rescission Claims, and notwithstanding anything contained in this Article XVI to
the contrary, the Litigation Trust (inclusive of the escrow to be established
pursuant to Section 16.14 hereof) shall be treated as a "qualified settlement
fund" within the meaning of Treasury Regulation Section 1.468B-1 (and shall be
governed by the Treasury Regulations relating thereto), subject to definitive
guidance from the IRS or a court of competent jurisdiction to the contrary. If,
in such instance, the Litigation Trust is determined by the IRS or a court of
competent jurisdiction not be a "qualified settlement fund", the other
provisions of this Section 16.9 shall apply unaffected by the preceding
sentence, and the Litigation Trustee shall so notify in writing all relevant
parties (including, without limitation, Reorganized Fine Host and all holders of
Allowed Debenture Rescission Claims).
16.10 Trust Implementation: On the Effective Date, the Litigation Trust will be
established and become effective for the benefit of Allowed Claims and Allowed
Equity Interests in Classes 5, 6A and 6B. The Litigation Trust Agreement shall
be filed in the Plan Supplement and shall contain provisions customary to trust
agreements utilized in comparable circumstances, including, but not limited to,
any and all provisions necessary to ensure the continued treatment of the
Litigation Trust as a grantor trust for federal income tax purposes. All parties
(including the Debtor, the Litigation Trustee and holders of Allowed Claims and
Allowed Equity Interests in Classes 5, 6A and 6B) shall execute any documents or
other instruments as necessary to cause title to the applicable assets to be
transferred to the Litigation Trust.
16.11 Registry of Beneficial Interests: The Litigation Trustee shall maintain a
registry of the holders of Litigation Trust Interests.
16.12 Termination: The Litigation Trust will terminate no later than the fifth
(5th) anniversary of the Effective Date; provided, however, that, on or prior to
the date six (6) months prior to such termination, the Bankruptcy Court, upon
motion by a party in interest, may extend the term of the Litigation Trust if it
is necessary to the liquidation of the Litigation Trust Claims. Notwithstanding
the foregoing, multiple extensions can be obtained so long as Bankruptcy Court
approval is obtained at least six (6) months prior to the expiration of each
extended term; provided, however, that the aggregate of all such extensions
shall not exceed three (3) years, unless the Litigation Trustee receives a
favorable ruling from the IRS that any further extension would not adversely
affect the status of the Litigation Trust as a grantor trust for federal income
tax purposes.
16.13 Net Litigation Trust Recovery/Affirmative Obligations:
(a) Net Judgment: Notwithstanding anything contained herein to the contrary, in
the event that a defendant in a litigation brought by the Litigation Trustee for
and on behalf of the Litigation Trust is required by a Final Order to make
payment to the Litigation Trust (the "Judgment Amount") or has a right of setoff
under section 553 of the Bankruptcy Code or applicable non-bankruptcy law, has a
claim for contribution or reimbursement or has incurred costs and expenses (the
"Defense Costs", and together with the Judgment Amount, the "Indemnified/
Contribution Amount") which would give rise to an enforceable claim against Fine
Host or Reorganized Fine Host, as the case may be, (i) such defendant shall be
obligated to pay only the excess, if any, of the amount of the Judgment Amount
over the Indemnified/Contribution Amount, (ii) none of the Litigation Trust, the
holders or beneficiaries of the Litigation Trust Interests shall be entitled to
assert a claim against the Debtor or Reorganized Fine Host with respect to the
Indemnified/Contribution Amount, and (iii) the Debtor and Reorganized Fine Host
shall have no liability with respect to such Indemnified/Contribution Amount.
(b) Affirmative Obligations: Notwithstanding anything contained herein to the
contrary, in the event that a defendant in a litigation brought by the
Litigation Trustee for and on behalf of the Litigation Trust (1) has a right of
setoff under section 553 of the Bankruptcy Code or applicable non-bankruptcy
law, has a claim for contribution or reimbursement or has incurred Defense Costs
which would give rise to an enforceable claim against Fine Host or Reorganized
Fine Host, as the case may be, and (2) the amount of the Defense Costs are in
excess of the Judgment Amount, if any, (i) the Judgment Amount shall be offset
against the Defense Costs and shall not be paid to the Litigation Trust by such
defendant, (ii) the Litigation Trust shall reimburse Reorganized Fine Host
immediately for the payment of the difference between the Defense Costs and any
Judgment Amount, (iii), none of the Litigation Trust, the holders or
beneficiaries of the Litigation Trust Interests shall be entitled to assert a
claim against the Debtor or Reorganized Fine Host with respect to the
Indemnified/Contribution Amount, and (iv) the Debtor and Reorganized Fine Host
shall have no liability with respect to such Indemnified/Contribution Amount.
16.14 Escrow on Account of Disputed Claims and Disputed Equity Interests:
(a) General: The Litigation Trustee shall maintain, in accordance with the
Litigation Trustee's powers and responsibilities under this Article XVI and the
Litigation Trust Agreement, an escrow of any distributable amounts required to
be set aside on account of Disputed Claims and Disputed Equity Interests
pursuant to Section 16.8. Such amounts (net of any expenses, including any
taxes, of the escrow relating thereto) shall be distributed, as provided herein,
as such Disputed Claims or Disputed Equity Interests are resolved by Final
Order, and shall be distributable in respect of such Litigation Trust Interests
as such amounts would have been distributable had the Disputed Claims or
Disputed Equity Interests been Allowed Claims and Equity Interests as of the
Effective Date. There shall be distributed together with such amounts any net
earnings of the escrow related thereto. Distributions from the escrow shall be
made at least annually concurrent with other distributions from the Litigation
Trust.
(b) Taxable Income of Litigation Trust Allocable to Disputed Claims and Disputed
Equity Interests: As more fully set forth in Section 16.14(c), the escrow shall
be responsible for payment of certain taxes attributable to the taxable income
of the Litigation Trust allocable to Litigation Trust Interests relating to such
Disputed Claims and Disputed Equity Interests. In the event, and to the extent
the escrow has insufficient funds to pay such taxes (or no escrow has been
established at such time due to the absence of any distributable proceeds
pursuant to Section 16.8), such taxes shall be borne by the Litigation Trust and
either (i) reimbursed by the escrow from any subsequent amounts transferred by
the Litigation Trustee to the escrow pursuant to Section 16.8 hereof in respect
of such Disputed Claims and Disputed Equity Interests or (ii) to the extent such
Claims and Equity Interests have subsequently been resolved, may be deducted
from any increased amounts distributable by the Litigation Trust as a result of
the resolutions of such Claims and Equity Interests on a fair and equitable
basis.
(c) Tax Treatment of Escrow: Subject to definitive guidance from the IRS or a
court of competent jurisdiction to the contrary (including the receipt by the
Litigation Trustee of a private letter ruling if the Litigation Trustee so
requests one, or the receipt of an adverse determination by the IRS upon audit
if not contested by the Litigation Trustee), and except as otherwise provided in
Section 16.9(d) hereof, the Litigation Trustee shall (i) treat the escrow as a
discreet trust for federal income tax purposes, consisting of separate and
independent shares to be established in respect of each Disputed Claim or
Disputed Equity Interest, in accordance with the trust provisions of the IRC
(Sections 641 et seq.), (ii) treat as taxable income or loss of the escrow with
respect to any given taxable year the portion of the taxable income or loss of
the Litigation Trust that would have been allocated to the holders of Disputed
Claims and Disputed Equity Interests had such Claims and Equity Interests been
Allowed on the Effective Date (but only for the portion of the taxable year with
respect to which such Claims or Equity Interests are unresolved), (iii) treat as
a distribution from the escrow any increased amounts distributed by the
Litigation Trust as a result of any Disputed Claims or Disputed Equity Interests
resolved earlier in the taxable year, to the extent such distributions relate to
taxable income or loss of the escrow determined in accordance with the
provisions hereof, and (iv) to the extent permitted by applicable law, shall
report consistent with the foregoing for state and local income tax purposes.
All holders of Allowed Claims and Allowed Equity Interests in Classes 5, 6A and
6B shall report, for tax purposes, consistent with the foregoing.
16.15 Non-Transferability: Upon issuance thereof, the Litigation Trust Interests
shall be non-transferable.
Article XVII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
17.1 Assumption of Executory Contracts and Unexpired Leases: Any executory
contracts or unexpired leases which have not expired by their own terms on or
prior to the Effective Date, which have not been assumed and assigned or
rejected with the approval of the Bankruptcy Court, or which are not the subject
of a motion to reject the same pending as of the Effective Date or the subject
of Section 17.3 hereof shall be deemed assumed by the Debtor in Possession on
the Effective Date and the entry of the Confirmation Order by the Bankruptcy
Court shall constitute approval of such assumptions pursuant to sections 365(a)
and 1123 of the Bankruptcy Code.
17.2 Cure of Defaults for Assumed Executory Contracts and Unexpired Leases: Any
monetary amounts required as cure payments on each executory contract and
unexpired lease to be assumed pursuant to the Plan shall be satisfied, pursuant
to section 365(b)(1) of the Bankruptcy Code, by payment of the cure amount in
Cash on the Effective Date or upon such other terms and dates as the parties to
such executory contracts or unexpired leases otherwise may agree. In the event
of a dispute regarding (a) the amount of any cure payment, (b) the ability of
the Debtor or any assignee to provide "adequate assurance of future performance"
(within the meaning of section 365 of the Bankruptcy Code) under the contract or
lease to be assumed or (c) any other matter pertaining to assumption, the cure
payments required by section 365(b)(1) of the Bankruptcy Code shall be made
following the entry of a Final Order resolving such dispute.
17.3 Rejection Damage Claims: Not later than ten (10) days prior to the
Confirmation Date, the Debtor shall file with the Bankruptcy Court a list of
executory contracts and unexpired leases to be rejected by the Debtor pursuant
to the Plan as of the Effective Date, and such executory contracts and unexpired
leases shall be deemed rejected as of the Effective Date. If the rejection of an
executory contract or unexpired lease by the Debtor results in damages to the
other party or parties to such contract or lease, any claim for such damages, if
not heretofore evidenced by a filed proof of claim, shall be forever barred and
shall not be enforceable against the Debtor, or its properties or agents,
successors, or assigns, unless a proof of claim is filed with the Bankruptcy
Court and served upon counsel for the Debtor on or before fifteen (15) days
after the later of (a) the Confirmation Date and (b) the date of entry of an
order by the Bankruptcy Court authorizing rejection of a particular executory
contract or lease. Unless otherwise ordered by the Bankruptcy Court or provided
in the Plan, all such Claims for which proofs of claim are timely filed will be
treated as General Unsecured Claims subject to the provisions of the Plan.
17.4 Indemnification and Reimbursement Obligations: For purposes of the Plan,
the obligations of the Debtor to indemnify and reimburse its directors or
officers that were directors or officers, respectively, on or before the
Petition Date or who became directors or officers after the Petition Date
against and for any obligations pursuant to articles of incorporation, codes of
regulations, bylaws, applicable state law, or specific agreement, or any
combination of the foregoing, shall survive confirmation of the Plan, remain
unaffected thereby, and not be discharged in accordance with section 1141 of the
Bankruptcy Code, irrespective of whether indemnification or reimbursement is
owed in connection with an event occurring before, on, or after the Petition
Date; provided, however, that, notwithstanding the foregoing, such obligations
shall not be extended to any directors or officers (a) whose term in all such
capacities expired or was terminated prior to the Petition Date or (b) whose
reimbursement or indemnity request relates to a claim which is not waived or
released by reason of clauses (iii), (iv) and (v) of the proviso contained in
Section 19.6 hereof.
17.5 Compensation and Benefit Programs: All employment agreements, employment
and severance policies and all compensation and benefit plans, policies and
programs of the Debtor applicable to its present and former employees, officers,
and directors, including, without express or implied limitation, all savings
plans, retirement plans, health care plans, disability plans, severance benefit
plans, incentive plans, and life, accidental death, and dismemberment insurance
plans, shall be deemed to be, and shall be treated as though they are, executory
contracts that are deemed assumed under the Plan, and the Debtor's obligations
under such plans, policies, and programs shall be deemed assumed pursuant to
section 365(a) of the Bankruptcy Code, survive confirmation of the Plan, remain
unaffected thereby, and not be discharged in accordance with section 1141 of the
Bankruptcy Code. Any defaults existing under any of such plans, policies, and
programs shall be cured promptly after they become known by the Debtor.
Notwithstanding the foregoing, on the Effective Date, as provided in Article IX
of the Plan, the Stock Option Plans will be deemed terminated, cancelled, and of
no further force and effect, and the participants thereunder shall have no
further rights thereunder.
Article XVIII
CONDITIONS PRECEDENT TO EFFECTIVE DATE OF THE PLAN
18.1 Conditions Precedent to Effective Date of the Plan: The "effective date of
the plan," as used in section 1129 of the Bankruptcy Code, shall not occur, and
the Plan shall be of no force and effect, until the Effective Date. The
occurrence of the Effective Date is subject to satisfaction of the following
conditions precedent:
(a) Entry of the Confirmation Order: The Clerk of the Bankruptcy Court shall
have entered the Confirmation Order, in form and substance satisfactory to the
Debtor and the Ad Hoc Committee, and the Confirmation Order shall have become a
Final Order and be in full force and effect.
(b) Execution of Documents; Other Actions: All other actions and documents
necessary to implement the Plan shall have been effected or executed.
(c) Available Cash: The amount of Available Cash shall be equal to or
greater than Sixty Million Dollars ($60,000,000.00)
18.2 Waiver of Conditions Precedent: Each of the conditions precedent in Section
18.1, may be waived, in whole or in part, by the Debtor and the Ad Hoc Committee
in their sole discretion. Any such waiver of a condition precedent may be
effected at any time, without notice or leave or order of the Bankruptcy Court
and without any formal action.
Article XIX
EFFECT OF CONFIRMATION
19.1 Reorganized Fine Host Authority:
(a) General Authority: During the period from the Confirmation Date up to but
not including the Effective Date, the Bankruptcy Court shall retain custody and
jurisdiction of the Debtor, its property and its operations. On the Effective
Date, Reorganized Fine Host, its property and its operations shall be released
from the custody and jurisdiction of the Bankruptcy Court.
(b) Compromise and Settlement of Certain Class of Controversies: From and after
the Confirmation Date, all controversies pending before any court other than the
Bankruptcy Court shall constitute a class of controversies under Rule 9019(b) of
the Bankruptcy Rules and Reorganized Fine Host may compromise or settle any
controversy in such class without further approval by the Bankruptcy Court.
19.2 Title to Assets; Discharge of Liabilities: Except as otherwise provided by
the Plan, on the Effective Date, title to all assets and properties encompassed
by the Plan shall vest in Reorganized Fine Host in accordance with section 1141
of the Bankruptcy Code, and the Confirmation Order shall be a judicial
determination of discharge of the Debtor's liabilities except as provided in the
Plan.
19.3 Discharge of Debtor: The rights afforded in the Plan and the treatment of
all holders of Claims or Equity Interests herein shall be in exchange for and in
complete satisfaction, discharge and release of all Claims and Equity Interests
of any nature whatsoever, known or unknown, including any interest accrued or
expenses incurred thereon from and after the Petition Date against the Debtor
and Debtor in Possession, or any of their estate, properties, assets or
interests in property. Except as otherwise provided herein, upon the Effective
Date, all Claims against and Equity Interests in the Debtor and Debtor in
Possession, shall be satisfied, discharged and released in full. All Persons and
Entities shall be precluded from asserting against the Debtor, Debtor-in
Possession, their successors or assigns, including, without limitation,
Reorganized Fine Host, their agents and employees, or their respective assets
properties or interests in property, any other or further Claims based upon any
act or omission, transaction or other activity of any kind or nature that
occurred prior to the Confirmation Date, whether or not the facts or legal bases
therefor were known or existed prior to the Confirmation Date.
19.4 Injunction: Except as otherwise expressly provided in the Plan, all Persons
or Entities who have held, hold or may hold Claims or Equity Interests are
permanently enjoined, from and after the Effective Date, from (a) commencing or
continuing in any manner any action or other proceeding of any kind on any such
Claim or Equity Interest against the Debtor or Reorganized Fine Host, (b) the
enforcement, attachment, collection or recovery by any manner or means of any
judgment, award, decree or order against the Debtor or Reorganized Fine Host,
(c) creating, perfecting, or enforcing any encumbrance of any kind against the
Debtor or Reorganized Fine Host or against the property or interests in property
of the Debtor or Reorganized Fine Host, and (d) asserting any right of setoff,
subrogation or recoupment of any kind against any obligation due from the Debtor
or Reorganized Fine Host or against the property or interests in property of the
Debtor or Reorganized Fine Host, with respect to any such Claim or Equity
Interest; provided, however, that such injunction shall not preclude the United
States of America of any of its police or regulatory agencies from enforcing
their police or regulatory powers; and, provided, further, that, except in
connection with a properly filed proof of claim, the foregoing proviso does not
permit the United States of America or any of its police or regulatory agencies
from obtaining any monetary recovery from Fine Host or Reorganized Fine Host or
their respective property or interests in property with respect to any such
Claim or Equity Interest, including, without limitation, any monetary claim or
penalty in furtherance of a police or regulatory power. The Confirmation Order
shall contain an injunctive provision similar to this Section 19.4.
19.5 Term of Existing Injunctions or Stays: Unless otherwise provided, all
injunctions or stays provided for in the Chapter 11 Case pursuant to sections
105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the
Confirmation Date, shall remain in full force and effect until the Effective
Date.
19.6 Limited Release of Directors, Officers and Employees: As of the Effective
Date, the Debtor shall be deemed to have waived and released its present and
former directors, officers, employees, consultants and agents who were
directors, officers, employees, consultants or agents, respectively, at any time
during the Chapter 11 Case and on or before the Petition Date, from any and all
claims of the Debtor, including, without limitation, claims which the Debtor or
Debtor in Possession otherwise has legal power to assert, compromise or settle
in connection with the Chapter 11 Case, arising on or prior to the Effective
Date; provided, however, that this provision shall not operate as a waiver or
release of any claim (i) with respect to any loan, advance or similar payment by
the Debtor to any such person, (ii) with respect to any contractual obligation
owed by such person to the Debtor, (iii) relating to such person's fraud or
gross negligence, (iv) to the extent based upon or attributable to such person
gaining in fact a personal profit to which such person was not legally entitled,
including, without limitation, profits made from the purchase or sale of equity
securities of the Debtor which are recoverable by the Debtor pursuant to section
16(b) of the Securities Exchange Act of 1934, as amended, or (v) relating to
such person's breach of fiduciary duty, other than those claims against which
such directors, officers and employees were or are protected by the provisions
of the (a) Restated By-Laws of Fine Host Corporation, (b) Restated Certificate
of Incorporation of Fine Host Corporation or (c) applicable law.
19.7 Exculpation: Neither the Debtor, Reorganized Fine Host, the Litigation
Trustee, the Litigation Trustee Board, the Ad Hoc Committee, the Subordinated
Notes Trustee, nor any of their respective directors, officers, employees,
members, attorneys, consultants, advisors and agents (acting in such capacity),
shall have or incur any liability to any Entity for any act taken or omitted to
be taken in the formulation, preparation, dissemination, implementation,
confirmation or approval of the Plan, the Disclosure Statement related thereto
or any contract, instrument, release or other agreement or document provided for
or contemplated in connection with the consummation of the transactions set
forth in the Plan; provided, however, that the foregoing provisions of this
Section 19.7 shall not affect the liability of any Entity that otherwise would
result from any such act or omission to the extent that such act or omission is
determined in a Final Order to have constituted gross negligence, willful
misconduct or breach of fiduciary duty. Any of the foregoing parties in all
respects shall be entitled to rely upon the advice of counsel with respect to
their duties and responsibilities under the Plan.
19.8 Injunction: Except as provided in the Plan, as of the Effective Date, all
non-Debtor entities are permanently enjoined from commencing or continuing in
any manner, any action or proceeding, whether directly, derivatively, on account
of or respecting any claim, debt, right or cause of action of the Debtor or
Reorganized Fine Host which the Debtor or Reorganized Fine Host, as the case may
be, retain sole and exclusive authority to pursue in accordance with Section
11.1 of the Plan or which has been released pursuant to the Plan.
Article XX
RETENTION OF JURISDICTION
20.1 Retention of Jurisdiction: The Bankruptcy Court shall retain and have
exclusive jurisdiction over any matter (a) arising under the Bankruptcy Code,
(b) arising in or related to the Chapter 11 Case or the Plan, or (c) that
relates to the following:
(a) to resolve any matters related to the assumption, assumption and assignment
or rejection of any executory contract or unexpired lease to which the Debtor is
a party or with respect to which the Debtor may be liable and to hear, determine
and, if necessary, liquidate, any Claims arising therefrom, including those
matters related to the amendment after the Effective Date of the Plan (pursuant
to Section 21.1 of the Plan), to add any executory contracts or unexpired leases
to the list of executory contracts and unexpired leases to be rejected;
(b) to enter such orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments, releases,
and other agreements or documents created in connection with the Plan;
(c) to determine any and all motions, adversary proceedings, applications and
contested or litigated matters that may be pending on the Effective Date or
that, pursuant to the Plan, may be instituted by Reorganized Fine Host after the
Effective Date;
(d) to ensure that distributions to holders of Allowed Claims and Allowed Equity
Interests are accomplished as provided herein;
(e) to hear and determine any timely objections to Administrative Expense Claims
or to proofs of Claim and Equity Interests filed, both before and after the
Confirmation Date, including any objections to the classification of any Claim
or Equity Interest, and to allow, disallow, determine, liquidate, classify,
estimate or establish the priority of or secured or unsecured status of any
Claim, in whole or in part;
(f) to enter and implement such orders as may be appropriate in the event the
Confirmation Order is for any reason stayed, revoked, modified, reversed or
vacated;
(g) to issue such orders in aide of execution of the Plan, to the extent
authorized by section 1142 of the Bankruptcy Code, including, without
limitation, any order in accordance with Section 16.12 hereof;
(h) to consider any modifications of the Plan, to cure any defect or omission,
or reconcile any inconsistency in any order of the Bankruptcy Court, including
the Confirmation Order;
(i) to hear and determine all applications for awards of compensation for
services rendered and reimbursement of expenses incurred prior to the Effective
Date;
(j) to hear and determine disputes arising in connection with or relating to the
Plan or the interpretation, implementation, or enforcement of the Plan or the
extent of any Entity's obligations incurred in connection with or released under
the Plan;
(k) to issue injunctions, enter and implement other orders or take such other
actions as may be necessary or appropriate to restrain interference by any
Entity with consummation or enforcement of the Plan;
(l) to determine any other matters that may arise in connection with or are
related to the Plan, the Disclosure Statement, the Confirmation Order or any
contract, instrument, release or other agreement or document created in
connection with the Plan or the Disclosure Statement;
(m) to hear and determine matters concerning state, local and federal taxes in
accordance with sections 346, 505, and 1146 of the Bankruptcy Code;
(n) to hear any other matter or for any purpose specified in the Confirmation
Order that is not inconsistent with the Bankruptcy Code; and
(o) to enter a final decree closing the Chapter 11 Case.
Article XXI
MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE PLAN
21.1 Modification of Plan: Fine Host reserves the right, in accordance with the
Bankruptcy Code and the Bankruptcy Rules, to amend or modify the Plan at any
time prior to the entry of the Confirmation Order. After the entry of the
Confirmation Order, Fine Host may, upon order of the Bankruptcy Court, amend or
modify the Plan, in accordance with section 1127(b) of the Bankruptcy Code, or
remedy any defect or omission or reconcile any inconsistency in the Plan in such
manner as may be necessary to carry out the purpose and intent of the Plan. A
holder of a Claim or Equity Interest that has accepted the Plan shall be deemed
to have accepted the Plan as modified if the proposed modification does not
materially and adversely change the treatment of the Claim or Equity Interest of
such holder.
21.2 Revocation or Withdrawal:
(a) The Plan may be revoked or withdrawn prior to the Confirmation Date by Fine
Host.
(b) If the Plan is revoked or withdrawn prior to the Confirmation Date, then the
Plan shall be deemed null and void. In such event, nothing contained herein
shall be deemed to constitute a waiver or release of any claims by the Debtor or
any other Entity or to prejudice in any manner the rights of the Debtor or any
other Entity in any further proceedings involving the Debtor.
Article XXII
PROVISIONS FOR MANAGEMENT AND FINANCING
22.1 Directors: As of the Effective Date, the directors of Reorganized Fine Host
shall be such Persons as the Ad Hoc Committee shall designate on or prior to the
Confirmation Date. Thereafter, the terms and manner of selection of the
directors of Reorganized Fine Host shall be as provided in the Amended and
Restated Certificate of Incorporation of Reorganized Fine Host and the Amended
Bylaws of Reorganized Fine Host, as the same may be amended.
22.2 Employment Contracts: On or before the Effective Date, Reorganized Fine
Host shall enter into employment contracts with those individuals having the
principal term set forth in Exhibit "A" hereto, and upon such terms as to which
the Debtor and the Ad Hoc Committee (or, after the Effective Date, the
Reorganized Fine Host Board of Directors) may agree. Such contracts shall
automatically become effective on the Effective Date.
22.3 Reorganized Fine Host Stock Options: On the Effective Date, the Reorganized
Fine Host Senior Managers set forth on Exhibit "A" hereto shall automatically
receive Management Options to purchase eight percent (8%) of Reorganized Fine
Host Common Stock (on a fully-diluted basis) having the principal terms set
forth on Exhibit "A" hereto. On the Effective Date, Management Options to
purchase five percent (5%) of Reorganized Fine Host Common Stock shall be
reserved for future grants by the Reorganized Fine Host Board of Directors. The
definitive documentation for the Management Options will be set forth in the
Plan Supplement.
22.4 Reorganized Fine Host Credit Agreement: On the Effective Date, and solely
to the extent determined by the Debtor to be in the best interests of
Reorganized Fine Host, Reorganized Fine Host shall be authorized to execute and
deliver the Reorganized Fine Host Credit Agreement, without any further order of
the Bankruptcy Court.
Article XXIII
ARTICLES OF INCORPORATION AND BY-LAWS OF THE DEBTOR; CORPORATE ACTION
23.1 Amendment of Articles of Incorporation and By-Laws: The articles of
incorporation and by-laws of the Debtor shall be amended as of the Effective
Date to read substantially as set forth in the Amended and Restated Certificate
of Incorporation of Reorganized Fine Host and Amended Bylaws of Reorganized Fine
Host.
23.2 Corporate Action: On the Effective Date, the adoption of the Amended and
Restated Certificate of Incorporation of Reorganized Fine Host and Amended
Bylaws of Reorganized Fine Host shall be authorized and approved in all
respects, in each case without further action under applicable law, regulation,
order, or rule, including, without limitation, any action by the stockholders of
the Debtor or Reorganized Fine Host. On the Effective Date, the cancellation of
all Fine Host Equity Interests, the issuance of the Reorganized Fine Host Common
Stock, the issuance of the New Warrants, the approval and effectiveness of the
Management Options, employment agreements, severance, and other benefits, and
other matters provided under the Plan involving the corporate structure of
Reorganized Fine Host or corporate action by Reorganized Fine Host shall be
deemed to have occurred, be authorized, and shall be in effect from and after
the Effective Date without requiring further action under applicable law,
regulation, order, or rule, including, without limitation, any action by the
stockholders of the Debtor or Reorganized Fine Host.
Article XXIV
MISCELLANEOUS PROVISIONS
24.1 Payment of Statutory Fees: All fees payable pursuant to section 1930 of
title 28 of the United States Code, as determined by the Bankruptcy Court at the
Confirmation Hearing, shall be paid on the Effective Date.
24.2 Retiree Benefits: From and after the Effective Date, pursuant to section
1129(a)(13) of the Bankruptcy Code, Reorganized Fine Host shall continue to pay
all retiree benefits (within the meaning of section 1114 of the Bankruptcy
Code), at the level established in accordance with subsection (e)(1)(B) or (g)
of section 1114 of the Bankruptcy Code, at any time prior to the Confirmation
Date, and for the duration of the period during which the Debtor has obligated
itself to provide such benefits.
24.3 Post-Effective Date Fees and Expenses: From and after the Effective Date,
Reorganized Fine Host shall, in the ordinary course of business and without the
necessity for any approval by the Bankruptcy Court, pay the reasonable
professional fees and expenses incurred by Reorganized Fine Host related to
implementation and consummation of the Plan.
24.4 Severability: If, prior to the Confirmation Date, any term or provision of
the Plan is held by the Bankruptcy Court to be invalid, void or unenforceable,
the Bankruptcy Court shall, with the consent of the Debtor, have the power to
alter and interpret such term or provision to make it valid or enforceable to
the maximum extent practicable, consistent with the original purpose of the term
or provision held to be invalid, void or unenforceable, and such term or
provision shall then be applicable as altered or interpreted. Notwithstanding
any such holding, alteration or interpretation, the remainder of the terms and
provisions of the Plan shall remain in full force and effect and shall in no way
be affected, impaired or invalidated by such holding, alteration or
interpretation. The Confirmation Order shall constitute a judicial determination
and shall provide that each term and provision of the Plan, as it may have been
altered or interpreted in accordance with the foregoing, is valid and
enforceable pursuant to its terms.
24.5 Governing Law: Except to the extent that the Bankruptcy Code or other
federal law is applicable, or to the extent that an Exhibit hereto or document
contained in the Plan Supplement provides otherwise, the rights, duties and
obligations arising under this Plan shall be governed by, and construed and
enforced in accordance with, the Bankruptcy Code and, to the extent not
inconsistent therewith, the laws of the State of Delaware, without giving effect
to principles of conflicts of laws.
24.6 Notices: All notices, requests, and demands to or upon the Debtor or
Reorganized Fine Host to be effective shall be in writing, including by
facsimile transmission, and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when actually delivered or, in the
case of notice by facsimile transmission, when received and telephonically
confirmed, addressed as follows:
Fine Host Corporation
3 Greenwich Office Park
Greenwich, CT 06831
Attention: General Counsel
Telecopier: (203) 629-5089
Telephonic Confirmation: (203) 629-4320
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen Karotkin, Esq.
Brian S. Rosen, Esq.
Telecopier: (212) 310-8007
Telephonic Confirmation: (212) 310-8888
-and-
Richards, Layton & Finger, P.A.
One Rodney Square
Wilmington, Delaware 19899
Attention: Thomas L. Ambro, Esq.
Mark D. Collins, Esq.
Telecopier: (302) 658-6548
Telephonic Confirmation: (302) 658-6541
-and-
c/o Kasowitz, Benson, Torres & Friedman LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: David M. Friedman, Esq.
Telecopier: (212) 506-1800
Telephonic Confirmation: (212) 506-1740
24.7 Closing of Case: Reorganized Fine Host shall, promptly upon the full
administration of the Chapter 11 Case, file with the Bankruptcy Court all
documents required by Bankruptcy Rule 3022 and any applicable order of the
Bankruptcy Court.
24.8 Section Headings: The section headings contained in this Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan.
24.9 Exemption from Transfer Taxes: Pursuant to section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of notes or equity
securities under the Plan, the creation of any mortgage, deed of trust, or other
security interest, the making or assignment of any lease or sublease, or the
making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan, shall not be subject to any
stamp, real estate transfer, mortgage recording or other similar tax.
24.10 Effectuating Documents and Further Transactions: Each of the officers of
the Debtor and Reorganized Fine Host is authorized, in accordance with his or
her authority under the resolutions of the Board of Directors, to execute,
deliver, file, or record such contracts, instruments, releases, indentures, and
other agreements or documents and take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan.
Dated: Greenwich, Connecticut
March 17, 1999
FINE HOST CORPORATION
By: /s/ William D. Forrest
-----------------------
Name: William D. Forrest
Title: President and Chief
Executive Officer
EXHIBIT A - Management Issues
A. List of Reorganized Fine Host Senior Managers - Such individuals who may be
designated by the Debtor on or prior to the Confirmation Date.
B. The Management Options shall vest in four (4) tranches on each of the
Effective Date and the first three
(3) anniversaries thereof, as follows:
Effective Date - 3 1/3 %
First Anniversary - 3 1/3 %
Second Anniversary - 3 1/3 %
Third Anniversary - 3 %
C. The Management Options shall be exercisable for a period of seven (7) years
from the date of vesting for each and carry a strike price equal to (a) for
the first tranche, Ten Dollars ($10.00) per share of Reorganized Fine Host
Common Stock, (b) for the second tranche, Eleven Dollars ($11.00) per share
of Reorganized Fine Host Common Stock, (c) for the third tranche, Twelve
Dollars ($12.00) per share of Reorganized Fine Host Common Stock, and (d)
for the fourth tranche, Thirteen Dollars ($13.00) per share of Reorganized
Fine Host Common Stock.
D. Notwithstanding the provisions of the Plan and paragraphs B and C above,
(i) Management Options to purchase up to eight percent (8%) of Reorganized Fine
Host Common Stock shall be distributed to the Reorganized Fine Host Senior
Managers set forth above on the Effective Date and allocated prior thereto in
accordance with the sole and absolute discretion of the Debtor's Board of
Directors and (ii) Management Options to purchase up to five percent (5%) of
Reorganized Fine Host Common Stock shall be reserved for future distribution to,
among others, Reorganized Fine Host's President and Chief Executive Officer and
be granted and allocated in the sole and absolute discretion of Reorganized Fine
Host's Board of Directors. Notwithstanding the timing of distribution, the
Management Options to be distributed by the Debtor's Board of Directors and
Reorganized Fine Host's Board of Directors, respectively, shall be allocated, on
a pro rata basis, across each of the four (4) tranches set forth above.
EXHIBIT B - new warrants
A. Warrants to purchase up to 1,000,000 shares of Reorganized Fine Host
Common Stock, subject to dilution for the Management Options and
post-Effective Date chief executive officer compensation.
B. The New Warrants shall be exercisable for a period of two (2) years
from the Effective Date, at an exercise price equal to (a) the
outstanding principal amount of the Subordinated Notes (together with
all accrued and unpaid interest relating to the period up to but not
including the Petition Date) minus the aggregate amount of Creditor
Cash distributed to the holders of Allowed Subordinated Note Claims,
divided by (b) the number of shares of Reorganized Fine Host Common
Stock issued on the Effective Date pursuant to the Plan.
TABLE OF CONTENTS
(continued)
vii
TABLE OF CONTENTS
Page
i
Article I DEFINITIONS................................................................................1
1.1 Acquisition Debt Claim.........................................................................1
1.2 Ad Hoc Committee...............................................................................1
1.3 Administrative Expense Claim...................................................................1
1.4 Affiliate......................................................................................1
1.5 Allowed Administrative Expense Claim...........................................................1
1.6 Allowed Claim/Allowed Equity Interest..........................................................1
1.7 Allowed Debenture Rescission Claim.............................................................1
1.8 Allowed Fine Host Equity Interest..............................................................2
1.9 Allowed General Unsecured Claim................................................................2
1.10 Allowed Priority Non-Tax Claim.................................................................2
1.11 Allowed Priority Tax Claim.....................................................................2
1.12 Allowed Secured Claim..........................................................................2
1.13 Allowed Statutorily Subordinated Claim.........................................................2
1.14 Allowed Subordinated Note Claim................................................................2
1.15 Allowed Unsecured Claim........................................................................2
1.16 Amended Bylaws of Reorganized Fine Host........................................................2
1.17 Amended and Restated Certificate of Incorporation of Reorganized Fine Host.....................2
1.18 Available Cash.................................................................................2
1.19 Bankruptcy Code................................................................................2
1.20 Bankruptcy Court...............................................................................2
1.21 Bankruptcy Rules...............................................................................2
1.22 Business Day...................................................................................2
1.23 Cash...........................................................................................3
1.24 Cash Equivalents...............................................................................3
1.25 Chapter 11 Case................................................................................3
1.26 Claim..........................................................................................3
1.27 Class..........................................................................................3
1.28 Class Action...................................................................................3
1.29 Collateral.....................................................................................3
1.30 Confirmation Hearing...........................................................................3
1.31 Confirmation Date..............................................................................3
1.32 Confirmation Order.............................................................................3
1.33 Creditor.......................................................................................3
1.34 Creditor Cash..................................................................................3
1.35 Debtor.........................................................................................3
1.36 Debtor in Possession...........................................................................3
1.37 Debenture Rescission Claim.....................................................................4
1.38 Disclosure Statement...........................................................................4
1.39 Disputed Claim; Disputed Equity Interest.......................................................4
1.40 Disputed Claim Amount..........................................................................4
1.41 Effective Date.................................................................................4
1.42 Entity.........................................................................................4
1.43 Equity Interest................................................................................4
1.44 Equity Interest Percentage.....................................................................4
1.45 Final Distribution Date........................................................................4
1.46 Final Order....................................................................................4
1.47 Fine Host Equity Interest......................................................................5
1.48 General Unsecured Claim........................................................................5
1.49 Initial Distribution Date......................................................................5
1.50 IRC............................................................................................5
1.51 IRS............................................................................................5
1.52 Lien...........................................................................................5
1.53 Litigation Trust...............................................................................5
1.54 Litigation Trustee.............................................................................5
1.55 Litigation Trust Agreement.....................................................................5
1.56 Litigation Trust Board.........................................................................5
1.57 Litigation Trust Claims........................................................................5
1.58 Litigation Trust Interests.....................................................................5
1.59 Management Options.............................................................................5
1.60 New Securities.................................................................................5
1.61 New Warrants...................................................................................5
1.62 New Warrant Agreement..........................................................................6
1.63 Person.........................................................................................6
1.64 Petition Date..................................................................................6
1.65 Plan...........................................................................................6
1.66 Plan Supplement................................................................................6
1.67 Priority Non-Tax Claim.........................................................................6
1.68 Priority Tax Claim.............................................................................6
1.69 Pro Rata Share.................................................................................6
1.70 Record Date....................................................................................6
1.71 Reorganized Fine Host..........................................................................6
1.72 Reorganized Fine Host Common Stock.............................................................6
1.73 Reorganized Fine Host Credit Agreement.........................................................6
1.74 Reorganized Fine Host Lender...................................................................7
1.75 Reorganized Fine Host Senior Managers..........................................................7
1.76 Schedules......................................................................................7
1.77 Secured Claim..................................................................................7
1.78 Securities Act.................................................................................7
1.79 Statutorily Subordinated Claim Percentage......................................................7
1.80 Statutorily Subordinated Claims................................................................7
1.81 Stock Option...................................................................................7
1.82 Stock Option Plans.............................................................................7
1.83 Subordinated Note Claim........................................................................7
1.84 Subordinated Notes.............................................................................7
1.85 Subordinated Notes Indenture...................................................................7
1.86 Subordinated Notes Trustee.....................................................................7
1.87 Unsecured Claim................................................................................7
1.88 Other Definitions..............................................................................8
Article II PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND PRIORITY TAX CLAIMS............8
2.1 Administrative Expense Claims..................................................................8
2.2 Compensation and Reimbursement Claims..........................................................8
2.3 Payment of Priority Tax Claims.................................................................8
Article III CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS..............................................8
Article IV PROVISIONS FOR TREATMENT OF PRIORITY NON-TAX CLAIMS (CLASS1)...............................9
4.1 Treatment of Allowed Priority Non-Tax Claims...................................................9
Article V PROVISIONS FOR TREATMENT OF SECURED CLAIMS (CLASS 2).......................................9
5.1 Treatment of Secured Claims....................................................................9
Article VI PROVISIONS FOR ALLOWANCE AND TREATMENT OF SUBORDINATED NOTE CLAIMS (CLASS 3)...............9
6.1 Allowance of Subordinated Note Claims..........................................................9
6.2 Treatment of Subordinated Note Claims..........................................................9
6.3 Cancellation of Subordinated Notes.............................................................9
6.4 Record Date for Subordinated Notes.............................................................9
6.5 Unclaimed Distributions.......................................................................10
6.6 Compensation of the Subordinated Notes Trustee................................................10
6.7 Allocation of Distributions...................................................................10
6.8 Change of Control Provision...................................................................10
Article VII PROVISIONS FOR TREATMENT OF GENERAL UNSECURED CLAIMS (CLASS4).............................10
7.1 Treatment of Allowed General Unsecured Claims.................................................10
Article VIII PROVISIONS FOR TREATMENT OF DEBENTURE RESCISSION CLAIMS (CLASS5)..........................10
8.1 Treatment of Allowed Debenture Rescission Claims..............................................10
8.2 Limitation on Recovery........................................................................11
8.3 Subordinated Note Claim Distributions.........................................................11
8.4 No Distribution...............................................................................11
Article IX PROVISIONS FOR TREATMENT OF STATUTORILY SUBORDINATED CLAIMS (CLASS 6A) AND EQUITY
INTERESTS (CLASS 6B)......................................................................11
9.1 Cancellation of Existing Equity Interests.....................................................11
9.2 Treatment of Allowed Statutorily Subordinated Claims (Class6A)................................11
9.3 Treatment of Allowed Equity Interests (Class 6B)..............................................12
9.4 No Distribution...............................................................................12
Article X PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS UNDER THE PLAN................................12
10.1 Objections to Claims; Prosecution of Disputed Claims..........................................12
10.2 Estimation of Claims..........................................................................12
10.3 Payments and Distributions on Disputed Claims and Disputed Equity Interests...................12
Article XI RIGHTS OF ACTION..........................................................................13
11.1 Rights of Action..............................................................................13
11.2 Preference Actions............................................................................13
Article XII ACCEPTANCE OR REJECTION OF PLAN; EFFECT OF REJECTION BY ONE OR MORE CLASSES OF
CLAIMS....................................................................................13
12.1 Impaired Classes to Vote......................................................................13
12.2 Acceptance by Class of Creditors..............................................................13
12.3 Deemed Rejection by Class 6...................................................................13
12.4 Cramdown......................................................................................13
Article XIII IDENTIFICATION OF CLAIMS AND EQUITY INTERESTS IMPAIRED AND NOT IMPAIRED BY THE PLAN.......14
13.1 Impaired and Unimpaired Classes...............................................................14
13.2 Impaired Classes to Vote on Plan..............................................................14
13.3 Controversy Concerning Impairment.............................................................14
Article XIV PROVISIONS REGARDING DISTRIBUTIONS........................................................14
14.1 Timeliness of Payments........................................................................14
14.2 Distributions by Reorganized Fine Host........................................................14
14.3 Manner of Payment under the Plan..............................................................14
14.4 Fractional Securities.........................................................................14
14.5 Delivery of Distributions.....................................................................14
14.6 Undeliverable Distributions...................................................................15
14.7 Compliance with Tax Requirements..............................................................15
14.8 Time Bar to Cash Payments.....................................................................15
14.9 Distributions After Effective Date............................................................15
14.10 Set-Offs......................................................................................15
14.11 Surrender and Cancellation of Instruments.....................................................15
14.12 Termination of Subordination Rights and Settlement of Related Claims and Controversies........16
Article XV COMMITTEES................................................................................16
15.1 Creditors' Committee Composition and Term.....................................................16
15.2 Ad Hoc Committee Term and Fees................................................................16
Article XVI THE LITIGATION TRUST......................................................................17
16.1 Establishment of the Trust....................................................................17
16.2 Purpose of the Litigation Trust...............................................................17
16.3 Funding Expenses of the Litigation Trust......................................................17
16.4 Transfer of Assets............................................................................17
16.5 Valuation of Assets...........................................................................17
16.6 Liquidation of Assets; Responsibilities of Litigation Trustee.................................17
16.7 Investment Powers.............................................................................18
16.8 Annual Distribution; Withholding..............................................................18
16.9 Reporting Duties..............................................................................18
16.10 Trust Implementation..........................................................................19
16.11 Registry of Beneficial Interests..............................................................19
16.12 Termination...................................................................................19
16.13 Net Litigation Trust Recovery/Affirmative Obligations.........................................20
16.14 Escrow on Account of Disputed Claims and Disputed Equity Interests............................20
16.15 Non-Transferability...........................................................................21
Article XVII EXECUTORY CONTRACTS AND UNEXPIRED LEASES..................................................21
17.1 Assumption of Executory Contracts and Unexpired Leases........................................21
17.2 Cure of Defaults for Assumed Executory Contracts and Unexpired Leases.........................21
17.3 Rejection Damage Claims.......................................................................21
17.4 Indemnification and Reimbursement Obligations.................................................21
17.5 Compensation and Benefit Programs.............................................................22
Article XVIII CONDITIONS PRECEDENT TO EFFECTIVE DATE OF THE PLAN........................................22
18.1 Conditions Precedent to Effective Date of the Plan............................................22
18.2 Waiver of Conditions Precedent................................................................22
Article XIX EFFECT OF CONFIRMATION....................................................................22
19.1 Reorganized Fine Host Authority...............................................................22
19.2 Title to Assets; Discharge of Liabilities.....................................................23
19.3 Discharge of Debtor...........................................................................23
19.4 Injunction....................................................................................23
19.5 Term of Existing Injunctions or Stays.........................................................23
19.6 Limited Release of Directors, Officers and Employees..........................................23
19.7 Exculpation...................................................................................23
19.8 Injunction....................................................................................24
Article XX RETENTION OF JURISDICTION.................................................................24
20.1 Retention of Jurisdiction.....................................................................24
Article XXI MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE PLAN.......................................25
21.1 Modification of Plan..........................................................................25
21.2 Revocation or Withdrawal......................................................................25
Article XXII PROVISIONS FOR MANAGEMENT AND FINANCING...................................................25
22.1 Directors.....................................................................................25
22.2 Employment Contracts..........................................................................26
22.3 Reorganized Fine Host Stock Options...........................................................26
22.4 Reorganized Fine Host Credit Agreement........................................................26
Article XXIII ARTICLES OF INCORPORATION AND BY-LAWS OF THE DEBTOR; CORPORATE ACTION.....................26
23.1 Amendment of Articles of Incorporation and By-Laws............................................26
23.2 Corporate Action..............................................................................26
Article XXIV MISCELLANEOUS PROVISIONS..................................................................26
24.1 Payment of Statutory Fees.....................................................................26
24.2 Retiree Benefits..............................................................................26
24.3 Post-Effective Date Fees and Expenses.........................................................26
24.4 Severability..................................................................................27
24.5 Governing Law.................................................................................27
24.6 Notices.......................................................................................27
24.7 Closing of Case...............................................................................28
24.8 Section Headings..............................................................................28
24.9 Exemption from Transfer Taxes.................................................................28
24.10 Effectuating Documents and Further Transactions...............................................28
EXHIBIT A - Management Issues....................................................................................1
EXHIBIT B - new warrants.........................................................................................2
1
I.
INTRODUCTION
A. General
Fine Host Corporation, as debtor and debtor in possession ("Fine Host" or
the "Debtor"), submits this Second Amended Disclosure Statement, dated March 17,
1999 (the "Disclosure Statement"), in connection with the solicitation of
acceptances and rejections with respect to the Second Amended Plan of
Reorganization for Debtor Pursuant to Chapter 11 of the United States Bankruptcy
Code, dated March 17, 1999 (the "Plan"), a copy of which is annexed hereto as
Exhibit "A". Unless otherwise defined herein, capitalized terms used herein
shall have the same meanings ascribed to them in the Plan.
The purpose of this Disclosure Statement is to set forth information (1)
regarding the history of Fine Host, its business and the Chapter 11 Case, (2)
concerning the Plan and alternatives to the Plan, (3) advising Creditors and the
holders of Equity Interests of their rights under the Plan, (4) assisting
Creditors in making an informed judgment regarding whether they should vote to
accept or reject the Plan, and (5) assisting the Bankruptcy Court in determining
whether the Plan complies with the provisions of Chapter 11 of the Bankruptcy
Code and should be confirmed.
By order, dated March __, 1999 (the "Disclosure Order"), a copy of which
(without exhibits) is annexed hereto as Exhibit "B", the Bankruptcy Court
approved this Disclosure Statement as containing "adequate information" in
accordance with section 1125 of the Bankruptcy Code, to enable a hypothetical,
reasonable investor typical of holders of Claims against Fine Host to make an
informed judgment as to whether to accept or reject the Plan, and authorized its
use in connection with the solicitation of votes with respect to the Plan.
APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A
DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN.
No solicitation of votes may be made except pursuant to this Disclosure
Statement and section 1125 of the Bankruptcy Code. In voting on the Plan,
Creditors should not rely on any information relating to Fine Host and its
business, other than that contained in this Disclosure Statement, the Plan and
all exhibits hereto and thereto.
THIS DISCLOSURE STATEMENT IS NOT INTENDED TO REPLACE CAREFUL AND DETAILED
REVIEW AND ANALYSIS OF THE PLAN BY EACH HOLDER OF A CLAIM OR EQUITY INTEREST. IT
IS INTENDED TO AID AND SUPPLEMENT THAT REVIEW. THE DESCRIPTION OF THE PLAN IS A
SUMMARY ONLY. CREDITORS, HOLDERS OF EQUITY INTERESTS AND OTHER PARTIES IN
INTEREST ARE CAUTIONED TO REVIEW THE PLAN AND ANY RELATED ATTACHMENTS FOR A FULL
UNDERSTANDING OF THE PLAN'S PROVISIONS. THIS DISCLOSURE STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
Pursuant to the provisions of the Bankruptcy Code, only classes of claims
or equity interests which are (i) "impaired" by a plan of reorganization and
(ii) entitled to receive a distribution under such a plan are entitled to vote
on the plan. Only Classes 3 and 5 are impaired by and entitled to receive a
distribution under the Plan, and the holders of Claims in those Classes are the
only Entities entitled to vote to accept or reject the Plan. Class 6 is impaired
and is deemed to have rejected the Plan in accordance with section 1126 of the
Bankruptcy Code. Classes 1, 2 and 4 are unimpaired by the Plan and the holders
thereof are conclusively presumed to have accepted the Plan.
HOLDERS OF CLAIMS IN CLASS 5 WILL NOT RECEIVE ANY DISTRIBUTION UNDER THE
PLAN UNLESS THE REQUISITE MAJORITIES OF HOLDERS OF CLAIMS IN CLASS 3 VOTE TO
ACCEPT THE PLAN. HOLDERS OF CLAIMS AND EQUITY INTERESTS IN CLASS 6 WILL NOT
RECEIVE ANY DISTRIBUTION UNDER THE PLAN UNLESS THE REQUISITE MAJORITIES OF
HOLDERS OF CLAIMS IN BOTH CLASS 3 AND CLASS 5 VOTE TO ACCEPT THE PLAN.
THE RECORD DATE FOR DETERMINING THE HOLDERS OF CERTAIN CLAIMS AND EQUITY
INTERESTS THAT MAY VOTE ON THE PLAN IS MARCH 17, 1999 (the "Voting Record
Date").
In certain instances, accompanying this Disclosure Statement
are a ballot ("Ballot") for casting your vote(s) on the Plan and a pre-addressed
envelope for the return of the Ballot. BALLOTS FOR ACCEPTANCE OR REJECTION OF
THE PLAN ARE BEING PROVIDED ONLY TO HOLDERS OF CLAIMS IN CLASSES 3 AND 5 BECAUSE
THEY ARE THE ONLY HOLDERS OF CLAIMS THAT MAY VOTE TO ACCEPT OR REJECT THE PLAN.
If you are the holder of a Claim in Classes 3 and 5 and did not receive a
Ballot, received a damaged or illegible Ballot, or lost your Ballot, or if you
are a party in interest and have any questions concerning the Disclosure
Statement, any of the Exhibits hereto, the Plan or the voting procedures in
respect thereof, please call:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ms. Kathleen Lee
The terms of the Plan have been developed in the course of
negotiations with an informal committee of Holders of Fine Host's 5% Convertible
Subordinated Notes due 2004 (the "Ad Hoc Committee"). See Section V.A. below,
"The Plan of Reorganization -- Introduction." The Ad Hoc Committee consists of
Angelo, Gordon & Co. LLP, Salomon Brothers Asset Management, Inc., Franklin
Mutual Advisers, Inc., Oaktree Capital Management and Bear, Stearns & Co., Inc.,
which entities collectively hold or manage approximately $161 million, or 92%,
of the $175 million in total principal amount outstanding of Fine Host's 5%
Convertible Subordinated Notes due 2004 (the "Subordinated Notes") and have
agreed to vote or use reasonable best efforts to cause to be voted such
Subordinated Notes to accept the Plan.
THE BOARD OF DIRECTORS OF FINE HOST HAS UNANIMOUSLY APPROVED
THE TERMS OF THE PLAN AND RECOMMENDS THAT THE HOLDERS OF CLAIMS IN ALL SOLICITED
CLASSES VOTE TO ACCEPT THE PLAN.
THE MEMBERS OF THE AD HOC COMMITTEE HAVE UNANIMOUSLY APPROVED
THE PLAN AND HAVE AGREED TO VOTE TO ACCEPT THE PLAN AND RECOMMEND THAT THE OTHER
HOLDERS OF SUBORDINATED NOTES VOTE TO ACCEPT THE PLAN.
After carefully reviewing this Disclosure Statement and the
Exhibits attached hereto, please indicate your vote with respect to the Plan on
the enclosed Ballot and return it in the envelope provided. Voting procedures
and requirements are explained in greater detail elsewhere in this Disclosure
Statement.
PLEASE VOTE AND RETURN YOUR BALLOT TO:
PricewaterhouseCoopers LLP
P.O. Box 958, Times Square Station
New York, New York 10108
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 5:00 P.M. (NEW YORK CITY
TIME) ON MAY 7, 1999. ANY EXECUTED BALLOTS WHICH ARE TIMELY RECEIVED BUT WHICH
DO NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO
CONSTITUTE AN ACCEPTANCE OF THE PLAN.
Fine Host believes that prompt confirmation and implementation
of the Plan is in the best interests of Fine Host, all Creditors and holders of
Equity Interests and Fine Host's chapter 11 estate.
In accordance with the Disclosure Order and section 1128 of
the Bankruptcy Code, the Bankruptcy Court has fixed May 18, 1999, at 9:30 a.m.
(New York City Time), in the United States Court House, Sixth Floor, Courtroom
of Chief Bankruptcy Judge Peter J. Walsh, 824 North Market Street, Wilmington,
Delaware 19801, as the date, time and place of the hearing to consider
confirmation of the Plan, and May 7, 1999, as the last date for filing
objections to confirmation of the Plan. The hearing on confirmation of the Plan
may be adjourned from time to time without further notice except for the
announcement of the adjourned date and time at the hearing on confirmation or
any adjournment thereof.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE
AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED HEREIN, AND THE DELIVERY OF
THIS DISCLOSURE STATEMENT DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN SINCE SUCH DATE. THIS DISCLOSURE STATEMENT HAS BEEN
PREPARED BY FINE HOST. HOLDERS OF CLAIMS ENTITLED TO VOTE SHOULD READ IT
CAREFULLY AND IN ITS ENTIRETY, AND WHERE POSSIBLE, CONSULT WITH COUNSEL, PRIOR
TO VOTING ON THE PLAN.
THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN,
WHICH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
PLAN, AND IF ANY INCONSISTENCY EXISTS BETWEEN THE TERMS AND PROVISIONS OF THE
PLAN AND THIS DISCLOSURE STATEMENT, THE TERMS AND PROVISIONS OF THE PLAN ARE
CONTROLLING. CERTAIN OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT
ARE FORWARD LOOKING PROJECTIONS AND FORECASTS, BASED UPON CERTAIN ESTIMATES AND
ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE
OF ACTUAL OUTCOMES.1 ALL HOLDERS OF CLAIMS ENTITLED TO VOTE SHOULD READ
CAREFULLY AND CONSIDER FULLY ARTICLE VI BELOW, ENTITLED "CERTAIN FACTORS TO BE
CONSIDERED," BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
II.
OVERVIEW OF PLAN
The following is a brief overview of the material provisions
of the Plan and is qualified in its entirety by reference to the full text of
the Plan. For a more detailed description of the terms and provisions of the
Plan, see Article V below, The Plan of Reorganization. The Plan is a plan of
reorganization for Fine Host and not for any of its Subsidiaries or affiliates.
The Plan represents the product of negotiations between Fine Host and the Ad Hoc
Committee and is supported by the members of the Ad Hoc Committee.
The Plan will pay in full or reinstate approximately $11
million of General Unsecured Claims,2 distribute the Creditor Cash and
approximately 96% of Reorganized Fine Host Common Stock to holders of
Subordinated Note Claims and distribute, inter alia, Reorganized Fine Host
Common Stock and New Warrants to purchase shares of such stock to holders of
certain litigation Claims and holders or deemed holders of Equity Interests.
PURSUANT TO THE PLAN, ALL EXISTING EQUITY INTERESTS IN FINE HOST (INCLUDING ALL
ISSUED AND OUTSTANDING COMMON STOCK OF FINE HOST) WILL BE EXTINGUISHED AND
CANCELLED.
Specifically, Reorganized Fine Host will distribute the shares of
Reorganized Fine Host Common Stock and New Warrants as follows:
3
Percent of New Warrants
Outstanding to Purchase
Reorganized Fine Reorganized Fine
Host Common Stock Host Common
to be Stock in the
Class of Claims or Equity Interests Distributed to Class Following Percents
Subordinated Note Claims (Class 3) 96% 0%
Debenture Rescission Claims (Class 5) 3% 7.5%
Statutorily Subordinated Claims/ (Class 6) 1% 2.5%
Equity Interests
The Plan also provides for the distribution to holders of Allowed Claims and
Allowed Equity Interests in Class 5 and Class 6 of beneficial interests in a
Litigation Trust to be established pursuant to the Plan.
No distributions will be made to Class 5 under the Plan if
Class 3 does not accept the Plan. No distributions will be made to Class 6 under
the Plan if either Class 3 or Class 5 does not accept the Plan.
For a discussion of the projected financial statements of
Reorganized Fine Host, see Article IX below, Projections.
The Plan provides for the classification and treatment of
Claims against and Equity Interests in Fine Host. The Plan designates five (5)
Classes of Claims and one (1) Class of Equity Interests, which classify all
Claims against and Equity Interests in Fine Host. These classes take into
account the differing nature and priority under the Bankruptcy Code of the
various Claims and Equity Interests. Please note that pursuant to the provisions
of section 510(b) of the Bankruptcy Code, Statutorily Subordinated Claims are
treated the same as Equity Interests under the Plan.
The Plan also provides generally for payment in full, in Cash,
of all Allowed Administrative Expense Claims, Allowed Priority Tax Claims and
Allowed Priority Non-Tax Claims.
A. Summary of Classification and Treatment of Claims and Equity Interests
Under the Plan
The following chart4 summarizes distributions to holders of
Allowed Claims and Allowed Equity Interests under the Plan. The recoveries set
forth below are projected recoveries based upon assumptions described in Article
XI below, Reorganization Value. Values for recoveries under the Plan assume that
Reorganized Fine Host Common Stock that will be issued and outstanding after
giving effect to all distributions under the Plan, but prior to the exercise of
Management Options or the New Warrants discussed below, see Section IV.E.2
below, The Plan of Reorganization -- Securities to Be Issued Pursuant to the
Plan -- Reorganized Fine Host Management Stock Options and The Plan of
Reorganization -- Securities to Be Issued Pursuant to the Plan -- New Warrants,
will have an aggregate reorganization value5 ranging from $95 million to $130
million. For purposes of illustrating the estimated percentage recovery for each
Class in the chart below, (a) the value of Reorganized Fine Host Common Stock to
be issued and outstanding, after giving effect to all distributions under the
Plan and the reinstatement of debt claims of approximately $5.5 million, was
assumed to be $107 million, and (b) the value of the New Warrants was assumed to
be $2.94 million. It is anticipated that approximately 10,000,000 (ten million)
shares of Reorganized Fine Host Common Stock will be issued and outstanding
after giving effect to all distributions under the Plan. It also is anticipated
that New Warrants to purchase 1,000,000 shares of Reorganized Fine Host Common
Stock will be issued and outstanding after giving effect to all distributions
under the Plan.
THERE CAN BE NO ASSURANCE THAT THE SHARES OF REORGANIZED FINE
HOST COMMON STOCK TO BE ISSUED IN ACCORDANCE WITH THE PLAN WILL ACTUALLY TRADE
AT A PRICE PER SHARE WITHIN THESE IMPUTED ESTIMATED RANGES OF REORGANIZATION
VALUE OR THAT ANY TRADING MARKET FOR REORGANIZED FINE HOST COMMON STOCK WILL
DEVELOP OR, IF DEVELOPED, THAT IT WOULD BE SUSTAINED. THERE ALSO CAN BE NO
ASSURANCE THAT THE NEW WARRANTS WILL HAVE A VALUE CONSISTENT WITH THAT SET FORTH
ABOVE. SEE SECTION VI.C., CERTAIN FACTORS TO BE CONSIDERED -- LACK OF TRADING
MARKET.
THE ASSUMED RANGE OF THE REORGANIZATION VALUE AS OF AN ASSUMED
EFFECTIVE DATE OF APRIL 30, 1999, REFLECTS WORK PERFORMED BY BT ALEX. BROWN ON
THE BASIS OF INFORMATION IN RESPECT OF THE BUSINESS AND ASSETS OF FINE HOST
AVAILABLE TO BT ALEX. BROWN AS OF JANUARY 9, 1999. NEITHER BT ALEX. BROWN NOR
FINE HOST HAS UPDATED THE ESTIMATED RANGE OF THE REORGANIZATION VALUE TO REFLECT
INFORMATION AVAILABLE TO FINE HOST OR BT ALEX. BROWN SUBSEQUENT TO JANUARY 9,
1999. HOWEVER, BT ALEX. BROWN SUBSEQUENTLY REVIEWED THE RANGE OF THE
REORGANIZATION VALUE BASED ON ADDITIONAL INFORMATION IN RESPECT OF THE BUSINESS
AND ASSETS OF FINE HOST AVAILABLE TO BT ALEX. BROWN AS OF FEBRUARY 15, 1999, AND
DETERMINED THAT THE RANGE OF REORGANIZATION VALUE MAY IN FACT BE AT OR BELOW THE
MID-POINT VALUE OF THE RANGE.
THE ABOVE-REFERENCED ASSUMED VALUE OF THE NEW WARRANTS AS OF FEBRUARY 15,
1999, REFLECTS WORK PERFORMED BY BT ALEX. BROWN ON THE BASIS OF INFORMATION IN
RESPECT OF THE BUSINESS AND ASSETS OF FINE HOST AVAILABLE TO BT ALEX. BROWN AS
OF FEBRUARY 15, 1999. NEITHER BT ALEX. BROWN NOR FINE HOST HAS UPDATED THE
ESTIMATED VALUE OF THE NEW WARRANTS TO REFLECT INFORMATION AVAILABLE TO FINE
HOST OR BT ALEX. BROWN SUBSEQUENT TO FEBRUARY 15, 1999. SEE ARTICLE XI,
REORGANIZATION VALUE.
Estimated Aggregate Estimated
Claim/ Treatment of Amount of --------------------
Class Interest Claim/Interest Allowed Claims Percentage Recovery
of Allowed Claims
- ----------
Administrative Expense Payment (a) in full, in Cash, on $14 million 6 100%
Claims the later of the Effective Date
and the date such Claim becomes an Allowed
Claim, or (b) on such other terms to which
the parties agree; provided, however, that
Administrative Expense Claims incurred in
the ordinary course of business will be paid
as such Claims become due and payable in the
ordinary course of business.
Priority Tax Claims At Fine Host's or Reorganized $545,000 100%
Fine Host's option, as
applicable, payment (a) in full, in Cash, on
the later of the Effective Date and the date
such Claim is Allowed, (b) in up to
twenty-four (24)equal quarterly Cash
installments commencing on the first (1st)
Business Day following the date of
assessment of such Allowed Priority Tax
Claim, together with interest thereon at an
annual rate to be established by the
Bankruptcy Court at the Confirmation
Hearing, or (c) upon such other terms as the
parties agree.
1 Priority Non-Tax Claims Unimpaired. Payment (a) in full, $0 100%
----------
in Cash, upon the later of the
Effective Date and the date on
---
which such Claim becomes an
Allowed Claim, or (b) upon such
other terms to which the parties
agree.
2 Secured Claims Unimpaired. At Fine Host's $746,000 100%
----------
option, (a) payment in full, in
Cash; (b) payment of the sale or disposition
proceeds of the property securing any
Allowed Secured Claim to the extent of the
value of the respective interests in such
property; (c) the surrender to the holder or
holders of any Allowed Secured Claim of the
property securing such Claim; or (d) such
other distributions as shall be necessary to
satisfy the requirements of Chapter 11 of
the Bankruptcy Code.
3 Subordinated Note Impaired. On the Initial $175,000,000 7 84.4% 8
--------
Claims Distribution Date, each holder of
an Allowed Subordinated Note Claim shall be
entitled to receive such holder's Pro Rata
Share of: (a) the Creditor Cash; and (b)
9,600,000 shares of Reorganized Fine Host
Common Stock.
4 General Unsecured Unimpaired. At Fine Host's sole $09 100%
----------
Claims election, (a) payment in Cash in
the full amount of such Allowed General
Unsecured Claim, (b) treatment in accordance
with terms in the ordinary course of Fine
Host's business or (c) treatment to
otherwise render such Claim unimpaired.
5 Debenture Rescission Impaired. (a) On the Initial unknown10 unknown9
--------
Claims Distribution Date, and provided
acceptance of the Plan by holders within
Class 3 of the Plan, each holder of an
Allowed Debenture Rescission Claim shall be
entitled to receive such holder's Pro Rata
Share of Litigation Trust Interests
representing seventy-five percent (75%) of
the Litigation Trust in accordance with
Article XVI of the Plan;
(b) On the Final Distribution Date, and
provided acceptance of the Plan by holders
within Class 3 of the Plan, each holder of
an Allowed Debenture Rescission Claim shall
be entitled to receive such holder's Pro
Rata Share of:
(i) 300,000 shares of
Reorganized Fine Host Common
Stock;
(ii) New Warrants to purchase
750,000 shares of Reorganized Fine Host
Common Stock, subject to dilution on account
of the Management Options.
6 6A Statutorily Impaired. (a) On the Initial Not Applicable unknown11
--------
Subordinated Claims Distribution Date, and provided
acceptance of the Plan by holders within
Classes 3 and 5 of the Plan, each holder of
an Allowed Statutorily Subordinated Claim
shall be entitled to receive, in accordance
with Section 16.4 of the Plan, a
distribution equal to such holder's Pro Rata
Share of the Statutorily Subordinated
Percentage of Litigation Trust Interests
representing twenty-five percent (25%) of
the Litigation Trust and such additional
Litigation Trust Interests, if any, as
provided in Section 8.2 of the Plan.
(b) On the Final Distribution Date, and
provided acceptance of the Plan by holders
within Classes 3 and 5 of the Plan, each
holder of an Allowed Statutorily
Subordinated Claim shall be entitled to
receive a distribution equal to such
holder's Pro Rata Share of the Statutorily
Subordinated Percentage of:
(i) 100,000 shares of
Reorganized Fine Host Common
Stock; and
(ii) New Warrants to purchase
250,000 shares of Reorganized Fine Host
Common Stock, subject to dilution on account
of the Management Options.
6B Equity Interests (a) On the Initial Not applicable Unknown12
Distribution Date, and provided
acceptance of the Plan by holders
within Classes 3 and 5 of the
Plan, each holder of an Allowed
Equity Interest shall be entitled
to receive, in accordance with
Section 16.4 of the Plan, a
distribution equal to such
holder's Pro Rata Share of the
Equity Interest Percentage of
Litigation Trust Interests
representing twenty-five percent
(25%) of the Litigation Trust and
such additional Litigation Trust
Interests, if any, as provided in
Section 8.2 of the Plan.
(b) On the Final Distribution Date, and
provided acceptance of the Plan by holders
within Classes 3 and 5 of the Plan each
holder of an Allowed Equity Interest shall
be entitled to receive a distribution equal
to such holder's Pro Rata Share of the
Equity Interest Percentage of:
(i) 100,000 shares of
Reorganized Fine Host Common
Stock; and
(ii) New Warrants to purchase
250,000 shares of Reorganized Fine Host
Common Stock, subject to dilution on account
of the Management Options.
THE TREATMENT AND DISTRIBUTIONS PROVIDED TO HOLDERS OF ALLOWED
CLAIMS AND ALLOWED EQUITY INTERESTS PURSUANT TO THE PLAN ARE IN FULL AND
COMPLETE SATISFACTION OF THE ALLOWED CLAIMS AND ALLOWED EQUITY INTERESTS, AS THE
CASE MAY BE, ON ACCOUNT OF WHICH SUCH TREATMENT IS GIVEN AND DISTRIBUTIONS ARE
MADE.
III.
GENERAL INFORMATION
A. Fine Host's13 Business
Fine Host is a contract food service management company,
providing food and beverage concession, catering and other ancillary services at
approximately 900 facilities located in 43 states, primarily through multi-year
contracts. Beginning in 1993, a significant portion of Fine Host's growth came
from acquisitions. From April 1993 through October 1997, Fine Host acquired
thirteen (13) companies, with ten (10) of those acquisitions being completed in
1996 and 1997. Principally as a result of these acquisitions, Fine Host's sales
volume grew from $39.4 million in 1992 to $260.7 million in 1997. Fine Host
targets six distinct markets within the contract food service industry: the
recreation and leisure market (arenas, stadiums, amphitheaters, civic centers
and other recreational facilities); the convention center market; the education
market (colleges, universities and elementary and secondary schools); the
business dining market (corporate cafeterias, office complexes and manufacturing
plants); the healthcare market (long-term care facilities and hospitals) and the
corrections market (prisons and jails). Fine Host provides a wide array of food
services, ranging from food and beverage concessions such as hot dogs,
sandwiches, soda and beer, to sophisticated catering and fine dining in a formal
setting. At its convention center locations, Fine Host routinely serves banquets
attended by thousands of persons.
Fine Host is the exclusive provider of food and beverage
services at substantially all of the facilities it serves and is responsible for
hiring, training and supervising food service personnel and ordering, receiving,
preparing and serving all items of food and beverage sold. At facilities
serviced by Fine Host, Fine Host's clients are responsible for attracting
patrons on an event-specific basis at recreation and leisure facilities and
convention centers and on a continuing basis at education and corporate dining
facilities. As a result, Fine Host does not incur the expense of marketing to
the broader public, and is able to focus on operations, client satisfaction,
account retention and new account development. Fine Host has developed and
implemented various operating strategies and systems to quickly and efficiently
provide food and beverages to a large number of people in a short period of time
and in a cost-effective manner.
B. Organizational Structure of Fine Host
Fine Host is both an operating company and a holding company.
Fine Host has twenty-three (23) direct and indirect wholly-owned subsidiaries in
corporate form. In addition, Fine Host has less than a 100% ownership interest
in four (4) joint ventures. Certain of Fine Host's subsidiaries are not
operating businesses and may be either dissolved, liquidated or merged into Fine
Host in conjunction with the Plan.
The chart on the following page illustrates the corporate
structure of Fine Host and its non-debtor affiliates, and identifies the
entities which are not operating businesses (denoted by |X|) as of the date of
this Disclosure Statement:
Additional information concerning Fine Host and its
affiliates, and its business, financial condition and results of operations, is
set forth in Fine Host Corporation Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (the "10-K"), a copy of which is annexed hereto as
Exhibit "F", and in Fine Host Corporation Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998 (the "10-Q"), a copy of which is annexed
hereto as Exhibit "G".
C. Description of Business
1. Fine Host's Business
The following is a brief description of the six (6) primary
groups to which Fine Host provides contract food services.
Recreation and Leisure Facilities. Fine Host offers food and
beverage concession and catering services to arenas, stadiums, amphitheaters,
civic centers and other recreational facilities. These facilities typically
select a food service provider on the basis of its ability to generate increased
volume from concession sales while maintaining high quality and attendee
satisfaction. Fine Host believes that, as a result of the growing popularity of
minor league sports, significant opportunities exist at stadiums and arenas at
which minor league baseball and hockey teams play. As of December 31, 1998, Fine
Host provided services to facilities hosting six minor league baseball teams and
ten minor league hockey teams. Fine Host further believes that more major
college athletic programs will seek to outsource food and beverage concession
operations at on-campus stadiums and arenas. Recreation and leisure facilities
served by the Company presently include Pro Player Stadium in Miami, Florida
(home of the Miami Dolphins and Florida Marlins); Sun Devil Stadium in Tempe,
Arizona (home of the Arizona Cardinals); and the Concord Pavilion in Concord,
California. Fine Host also provides concession services at the new stadiums for
the Tampa Bay Buccaneers and the Baltimore Ravens. Fine Host also provides
concession services to recreation and leisure facilities at colleges and
universities including Arizona State University, Boise State University and the
University of Minnesota.
Convention Centers. Food service offered in convention centers
consists primarily of large scale catering and banquet functions held in the
facility's ballroom and banquet halls, catering and concession services to
functions held in meeting rooms, and concession services offered to convention
and trade show attendees. Fine Host believes that its ability to renew
convention center contracts is particularly significant because public
authorities choosing the food service provider put great emphasis on the level
of quality and service offered. These aspects are viewed as critical factors in
the decision-making process of convention organizers and meeting planners when
making site selections. Fine Host believes it is well positioned to gain
incremental sales at existing convention centers which are expanding their
banquet and ballroom capacities, and to obtain additional contracts at newly
constructed convention centers. Major convention center clients include the
Austin Convention Center in Austin, Texas; the Lawrence Convention Center in
Pittsburgh, Pennsylvania; the Oregon Convention Center in Portland, Oregon; and
the Wisconsin Center in Milwaukee, Wisconsin.
Education. Fine Host provides food and beverage concession and
catering services to student cafeterias, food courts, snack bars and clubs at
colleges, universities and elementary and secondary schools. College student
dining habits have changed dramatically in recent years, with students tending
to eat smaller meals throughout the day and evening, often paying with debit
cards in lieu of cash or traditional board plans. In response to these changes,
Fine Host now offers increased quality and choices among food and beverage items
at educational facilities, including recognized brand name foods served in
educational facilities by Fine Host's employees. The Company has contractual
arrangements with Subway Corporation, Pizza Hut, Inc. and Taco Bell Corp. to
offer their products at various dining locations at educational institutions.
Fine Host presently provides dining services to students at colleges and
universities including Alfred University in Alfred, New York; Morris Brown
College in Atlanta, Georgia; Mt. Hood Community College in Gresham, Oregon; and
Xavier University in New Orleans, Louisiana. Fine Host currently provides food
services to secondary schools such as the following school districts: Newark,
New Jersey; Bonneville, Iowa; and Marana, Arizona.
Business Dining. Fine Host provides food and beverage services
to business dining rooms and cafeterias, office complexes and manufacturing
plants. Business dining facilities are increasingly offering upscale, quality
food and beverage items and are often subsidized by employers seeking to shorten
employee meal breaks and increase productivity. Fine Host seeks to capitalize on
this trend by providing high quality food and beverage service at its corporate
client dining locations. Fine Host serves a diversified mix of large corporate
clients, focusing on more upscale office dining. Clients include facilities of
Carnival Cruise Lines, Burger King and Becton Dickinson and Company.
Healthcare. Fine Host provides food and beverage concession
and catering services to hospitals, nursing homes and retirement communities. A
registered dietitian provides guidance in meeting the diverse nutritional needs
at these facilities. Fine Host provides menu planning, recipe development, diet
instructions and nutritional care planning as part of its healthcare food
service operations. Healthcare clients include Alina Health System, Health
Dimensions, the Ebenezer Society and the State of South Dakota.
Corrections. Fine Host provides food and beverage concession
and catering services to prisons, jails and residential facilities. These
facilities range from minimum security correctional facilities to maximum
security state penitentiaries. They also include children's homes, juvenile
detention centers and other residential corrections facilities. Many of these
facilities are accredited by the American Correctional Association. Fine Host
provides food and beverage services at corrections facilities for the State of
Minnesota, the State of South Dakota and Corrections Corporation of America, as
well as numerous county jails.
2. Food Service Contracts
Fine Host generally enters into one of the following types of
contracts: profit and loss contracts ("P&L"), profit sharing contracts and
management fee contracts.
Under P&Ls, Fine Host receives all the revenues and bears all
the expenses of the operation. These operations include rent paid to the client,
typically calculated as a fixed percentage of various categories of sales. While
Fine Host often benefits from greater upside potential with a P&L contract, it
is responsible for all costs of running the food service operation and
consequently bears greater risk than with a management fee or profit sharing
contract. Under profit sharing contracts, Fine Host receives a percentage of
profits earned at the facility plus a fixed fee or percentage of sales as an
administrative fee. Revenues derived under a limited number of management fee
contracts are based upon a fixed minimum fee. Fine Host is reimbursed for all of
its on-site expenses incurred in providing food and beverage services under all
management fee contracts. A number of Fine Host's management fee contracts
provide for an additional incentive fee based on a percentage of sales over a
base threshold level.
Fine Host often provides a capital commitment in its bid to
win a new facility contract. This commitment most frequently takes the form of
an investment in food service equipment and leasehold improvements, which
upgrade the facility itself and can increase the returns to both Fine Host and
the facility owner by generating increased sales. Occasionally, Fine Host makes
loans or advances to the client, the proceeds of which are generally used to
improve an existing facility or to complete a new facility. When Fine Host makes
an investment, loan or advance to a facility under either a management fee or
profit sharing contract, ordinarily the amount of the commitment is repaid to
Fine Host out of the revenues generated by the food service operation in
accordance with an amortization schedule set forth in the contract. P&L
contracts ordinarily do not require the repayment of invested capital to Fine
Host during the contract term. Most of Fine Host's contracts require the client
to reimburse Fine Host for any unamortized invested capital in the event of the
expiration or termination of the contract for any reason, and Fine Host
generally keeps title to the subject assets until such payment is made. Invested
capital that is repaid is usually amortized over a period of time equal to or
greater than the term of the contract. Fine Host believes that its willingness
to make selective investments can provide it with a competitive advantage in
bidding for new contracts. There can be no assurance, however, that any such
investments will enhance returns and not result in losses for Fine Host.
The length of contracts varies depending on the type of
facility, type of contract and financial investment. Contracts for recreation
and leisure facilities typically include the largest capital investment by Fine
Host and generally have a term of three to ten years. Contracts for convention
centers generally have a term of three to five years. Education market contracts
generally have a term of one to five years. Business dining accounts, which
generally require the smallest capital investment by Fine Host, typically have a
shorter term than those in the recreation and leisure, convention center and
education areas, and generally contain a provision allowing either party to
terminate for convenience after a short notice period, typically ranging from 30
to 80 days. Fine Host's remaining contracts including healthcare and corrections
markets generally have a fixed term and in any fiscal year a number of these
contracts either expire or come up for renewal.
D. Fine Host Common Stock
Starting in 1996, Fine Host's common stock had been listed for
trading on the Nasdaq National Market ("Nasdaq") under the trading symbol
"FINE." However, since July 9, 1998, the common stock has no longer been listed
on the Nasdaq National Market and has been traded on the OTC Bulletin Board. On
January 4, 1999, the closing price of Fine Host common stock was $.93. As of
December 31, 1998, approximately 9,047,970 shares of Fine Host's common stock
were issued and outstanding and held by approximately 127 stockholders of
record.
E. Employees
As of December 31, 1998, Fine Host had approximately 3,250
full-time employees and approximately 11,000 employees hired on a part-time or
on an event-by-event basis at its corporate headquarters, outside offices and
various facilities. Approximately 5% of Fine Host's total employees (including
full and part-time) are subject to collective bargaining agreements.
F. Leases
Fine Host currently leases its corporate headquarters in
Greenwich, Connecticut (two locations) pursuant to two leases, one of which
expires in June, 2004 and the other in August, 2008.
Fine Host also maintains accounting processing centers in
Roseville, Minnesota; Miami, Florida; and Nutley, New Jersey. Fine Host leases
the space for each of these facilities.
G. Fine Host's Significant Debt
The significant debt of Fine Host generally consists of
obligations under or pursuant to (i) the Subordinated Notes, (ii) intercompany
indebtedness, and (iii) acquisition debt.
1. The Subordinated Notes
On October 27, 1997, Fine Host issued $175 million of 5%
Convertible Subordinated Notes due 2004 in a private placement under Rule 144A
of the Securities Act of 1933. The Subordinated Notes are unsecured obligations
of Fine Host and are convertible into common stock at a conversion price of
$44.50 per share. The net proceeds of $169.1 million, after deducting discounts
and certain expenses, were used to repay approximately $50.0 million in
outstanding obligations under a then-existing $200 million credit facility. The
remaining proceeds were invested in short-term investments in accordance with
Fine Host's investment policy. In connection with Fine Host's private offering
of the Subordinated Notes, Fine Host had agreed to file a shelf Registration
Statement which would cause the Subordinated Notes to be freely tradable. Fine
Host has not registered the Subordinated Notes but has made all interest
payments with respect thereto prior to the Petition Date. It has been alleged
that the failure of Fine Host to register the Subordinated Notes entitles the
holders of the Subordinated Notes to liquidated damages against Fine Host. All
of the Subordinated Notes are outstanding.
2. Intercompany Indebtedness
Fine Host and its consolidated subsidiaries maintain a
consolidated cash management system under which, among other things, cash is
transferred among the various companies, and records are maintained with respect
to these transfers. As a result, at any given time, there is intercompany
indebtedness owing within the consolidated group. Pursuant to an order of the
Bankruptcy Court, Fine Host was authorized to continue its cash management
system in the same manner as prior to the Petition Date. The intercompany
indebtedness associated with this system will not be affected by the Chapter 11
Case or the Plan.
3. Acquisition Debt
Prior to the Petition Date, Fine Host incurred various payment
obligations to the sellers of certain subsidiaries which it acquired. These
obligations are unsecured and aggregate approximately $4.6 million as at the
Petition Date. Pursuant to an order of the Bankruptcy Court, Fine Host was
authorized to continue to pay these obligations in accordance with their terms.
IV.
FINE HOST'S CHAPTER 11 CASE
A. Events Preceding the Filing of the Chapter 11
As outlined below, certain accounting irregularities which
occurred prior to the Petition Date had certain consequences which necessitated
the implementation of a financial restructuring for Fine Host. This precipitated
negotiations between Fine Host and the Ad Hoc Committee which culminated in a
restructuring proposal, the filing for relief under Chapter 11 of the Bankruptcy
Code, and the Plan.
1. The Accounting Irregularities and Commencement of the Audit Committee
Investigation
On December 12, 1997, Fine Host issued a press release
announcing that the Audit Committee of its Board of Directors (the "Audit
Committee") had instructed Fine Host's auditors to conduct an inquiry into
certain accounting practices, including the capitalization of certain expenses,
and that the auditors advised the Audit Committee on December 12, 1997, based
upon their preliminary inquiry, that certain expenses incurred during 1997 were
incorrectly capitalized rather than expensed in the period in which they were
incurred. Fine Host stated that it believed the amounts would be material and
that earnings for each of the first three quarters of 1997 would need to be
restated.
On December 15, 1997, Fine Host issued a press release
announcing that preliminary indications were that the accounting problems were
not limited to the incorrect capitalization of the expenses and that periods
prior to 1997 would also need to be restated. Fine Host also stated that the
outside directors of Fine Host's Board of Directors (the "Outside Directors")
had terminated the employment of Richard E. Kerley, Chairman of the Board and
Chief Executive Officer, and Nelson A. Barber, Senior Vice President and
Treasurer.
On December 16, 1997, Fine Host retained Buccino & Associates,
Inc. ("Buccino"), a management consulting firm. On that same date, the Outside
Directors retained Price Waterhouse LLP to conduct a forensic review of Fine
Host's accounting practices and Schulte Roth & Zabel to conduct an investigation
and issue a report with respect to the accounting problems.
On December 19, 1997, the Board of Directors held a special
meeting and appointed a Special Committee (the "Special Committee") comprised of
the Outside Directors. The Special Committee was authorized to conduct an
inquiry with respect to all financial, transactional and other matters as it
deemed necessary or appropriate, to retain professionals and to otherwise
exercise all of the powers of the Board of Directors in the management of the
business and affairs of Fine Host. On January 21, 1998, Mr. Kerley resigned as a
director of Fine Host.
On February 6, 1998, Fine Host restated its financial
statements for fiscal years 1994 through 1996, and for the nine months ended
September 24, 1997 (the "Restatement"). The Restatement was necessitated when
Fine Host's management determined that (i) certain overhead expenses had been
improperly capitalized; (ii) insufficient reserves and accruals had been
recorded; (iii) inappropriate charges to acquisition liabilities had been made;
(iv) certain non-performing assets had not been written off; (v) improper
revenue recognition had been used with regard to certain contracts and
agreements; and (vi) adjustments for the settlement of certain terminated
contracts were not recorded. As a result of the Restatement, Fine Host reported
pre-tax losses of approximately $1.6 million for 1994, $4.3 million for 1995,
and $6.3 million for 1996 after the Restatement, compared with net income of
approximately $1.6 million for 1994, $1.3 million for 1995, and $2.5 million for
1996, prior to the Restatement. Fine Host announced that the Restatement
included a cumulative negative adjustment of $2.5 million for years prior to
1994. In addition, for the nine months ended September 24, 1997, the Restatement
reflected an $11.7 million pre-tax loss.
As a result of the announcement of the accounting
irregularities, investigations of Fine Host and other persons were commenced by
the Securities and Exchange Commission. Subsequent to these developments, Fine
Host and various officers and directors were named as defendants in numerous
shareholder and other lawsuits. See Section IV.C. below, Debtor's Chapter 11
Case -- Pending Litigation and Other Legal Proceedings.
On or about May 1, 1998, the Special Committee, by and through
its counsel, Schulte, Roth & Zabel LLP, completed its investigation and prepared
a report in connection therewith. Such report was shared with, among others, the
Lead Plaintiffs in the Class Action, as defined below. Based upon, among other
things, such information, certain officers and directors of Fine Host were
dismissed, without prejudice, from the Class Action.
In view of the losses and the extent of the pending
litigation, it became apparent to Fine Host that it was not in a position to
service its debt obligations and address the litigation on an ongoing basis.
Accordingly, Fine Host determined that a restructuring was critical to
maintaining the value of its business as a going concern.
2. Negotiation of the Restructuring and the Plan
In furtherance of the foregoing, in the Spring of 1998, Fine
Host commenced negotiations with the Ad Hoc Committee with respect to the
principal terms and provisions of a restructuring. The members of the Ad Hoc
Committee are: Angelo, Gordon & Co. LLP, Salomon Brothers Asset Management,
Inc., Franklin Mutual Advisers, Inc., Oaktree Capital Management and Bear,
Stearns & Co., Inc. The Ad Hoc Committee retained Kasowitz, Benson, Torres &
Friedman, LLP, as its attorney, and Chanin, Kirkland, Messina, LLC, as its
financial advisor, in connection with the restructuring. Prior to the Petition
Date, the fees and expenses of the retained professionals of the Ad Hoc
Committee were paid by Fine Host.
Fine Host and the Ad Hoc Committee engaged in several months
of negotiations with respect to a restructuring. These negotiations culminated
in a proposed restructuring, which has been embodied in the Plan. In connection
therewith, Fine Host and the Board of Directors of Fine Host did not consider a
sale of Fine Host or its assets to be in the best interests of creditors and
Fine Host's shareholders and, thus, did not actively engage in marketing the
company or its assets. Similarly, as of the date hereof, none of the Ad Hoc
Committee or its members has made any effort to market Fine Host or its assets
or is party to any understanding or agreement to market and sell Fine Host or
its assets subsequent to the Effective Date.
In connection with the Plan, the members of the Ad Hoc
Committee and Fine Host entered into that certain Agreement Concerning Vote,
dated as of January 6, 1999, which agreement provides for, among other things,
the support by the members of such committee for the Plan. A copy of the
Agreement Concerning Vote is annexed hereto as Exhibit "I".
3. Management
On December 14, 1998, pursuant to an Employment Agreement (the
"Employment Agreement"), dated as of December 14, 1999, between Fine Host and
William D. Forrest, the Fine Host Board of Directors appointed Mr. Forrest
President and Chief Operating Officer of Fine Host and a member of the Board of
Directors. In connection therewith, Gerald P. Buccino was appointed as Chairman
of the Board. Mr. Forrest, who had been actively involved with Fine Host for
about a year as part of Buccino & Associates, assumed the position of Chief
Executive Officer on January 1, 1999, when Mr. Buccino's term as CEO expired.
The Employment Agreement provides that Mr. Forrest shall be compensated based
upon a salary of $400,000 per annum and the term of such employment shall expire
on the earlier to occur of the Effective Date of the Plan and December 14, 1999.
The agreement also provides that Mr. Forrest shall receive supplemental
compensation as follows: (i) $300,000, if the Effective Date occurs on or before
May 5, 1999; (ii) $200,000, if the Effective Date occurs after May 5, 1999 but
on or before June 5, 1999; and (iii) $150,000, if the Effective Date occurs
after June 5, 1999 but prior to January 5, 2000.
B. Events During the Chapter 11 Case
1. Administration of the Chapter 11 Case
On the Petition Date, the Bankruptcy Court entered certain
orders designed to minimize any disruption of Fine Host's business operations
and to facilitate its reorganization. Certain of these Orders are described
below.
oPayment of Debt Incurred in the Ordinary Course of Business and Certain Other
Prepetition Obligations. The principal objective of the Chapter 11 Case is to
restructure the outstanding indebtedness to holders of the Subordinated Notes
and to address the litigation and contingent obligations arising from the
accounting irregularities referred to above. It is essential to the value of
Fine Host's business enterprise that relationships with trade vendors and other
holders of obligations incurred in the ordinary course of business, and
relationships with employees and business consultants, not be disrupted or
impaired. In that connection, the Bankruptcy Court entered certain orders
authorizing Fine Host to pay, in its discretion, all undisputed indebtedness
and obligations (other than the indebtedness or liabilities that are impaired
and to be restructured under the Plan) incurred in the ordinary course of
business in accordance with their terms, and to pay salaries, wages, benefits
and other amounts owed to or with respect to employees and consultants. These
include obligations that were, or may have been, incurred prior to the Petition
Date and include obligations incurred by Fine Host and its affiliates.
oCash Management. The Bankruptcy Court also entered an order authorizing Fine
Host to continue its current cash management system. Such relief allows Fine
Host to continue to fund certain of the day to day obligations of its
subsidiaries and affiliates, such as payroll, vendor obligations, taxes,
employee benefits and insurance, and to allocate and such costs among the
various subsidiaries.
2. Creditors' Committee/Equity Committee
Pursuant to section 1102 of the Bankruptcy Code, the United
States Trustee may appoint a committee of Creditors holding unsecured claims. In
light of the pre-negotiated restructuring embodied in the Plan, the existence
and likely continued functioning of the Ad Hoc Committee, and the entry of the
an order referred to above authorizing Fine Host to pay prepetition liabilities
(with certain exceptions), it is possible that the United States Trustee may
elect, in the exercise of its discretion, not to appoint a statutory committee
of unsecured creditors. As of the date hereof, no creditors' committee has been
appointed in this Chapter 11 Case.
By letter, dated February 11, 1999, counsel for Joel
Kirschbaum, Anthony L. Di Cesare and Stephen C. Perry, affiliates of Kirkland
Investors LLC and alleged holders of Equity Interests in Fine Host
(collectively, "Kirkland"), requested that the United States Trustee appoint a
committee of holders of Equity Interests. Based upon the overwhelming lack of
shareholder equity in Fine Host's chapter 11 estate, by separate correspondence,
counsel for Fine Host and the Ad Hoc Committee expressed their position that the
appointment of such a committee was inappropriate and without merit. By letter,
dated March 1, 1999, the United States Trustee denied Kirkland's request.14 On
March 5, 1999, Kirkland requested that the Bankruptcy Court direct the United
States Trustee to appoint a committee of holders of Equity Interests. In support
therefor, Kirkland challenges the negotiation process and the confirmability of
the Plan in accordance with section 1129 of the Bankruptcy Code. Such motion and
the relief requested therein has been objected to by Fine Host and the matter is
currently being considered by the Bankruptcy Court.
3. Bar Date
In accordance with the provisions of the Bankruptcy Code and
Bankruptcy Rules, Fine Host requested that the Bankruptcy Court enter an order
(the "Bar Date Order") establishing the last date and time by which proofs of
claims (other than Claims already paid pursuant to orders entered by the
Bankruptcy Court, Claims of governmental authorities and Claims for principal
and interest with respect to the Subordinate Notes) against, and proofs of
equity interests (other than equity interests of holders of record of Fine Host
common stock) in, Fine Host must be filed (the "Bar Date"). The Bar Date Order
was entered by the Bankruptcy Court and set February 16, 1999, as the Bar Date.
The Bar Date Order provides that, unless otherwise ordered by the Bankruptcy
Court, claims arising from the rejection of executory contracts and unexpired
leases subsequent to the Bar Date are to be filed no later than thirty (30) days
after the latest to occur of (a) notice of entry of an order approving such
rejection or (b) notice of entry of the Confirmation Order. Notice of the Bar
Date was published in each of The Wall Street Journal (National Edition) and The
New York Times (National Edition) on January 15, 1999.
In response to questions concerning the requirement that
certain entities file proofs of claim on account of Statutorily Subordinated
Claims, upon application of Fine Host, the Bankruptcy Court entered a
Supplemental Order, dated January 29, 1999, approving the mailing of a
supplemental notice of the Bar Date clarifying the requirement that holders of
Statutorily Subordinated Claims file such Claims on or before the Bar Date (the
"Supplemental Notice"). The Supplemental Notice was transmitted to entities
known to Fine Host which may hold Statutorily Subordinated Claims. Supplemental
Notice of the Bar Date was published in each of The Wall Street Journal
(National Edition) and The New York Times (National Edition) on February 3,
1999.
C. Pending Litigation and Other Legal Proceedings
1. Class Actions
Between December 15, 1997 and March 25, 1998, 13 purported
class action lawsuits were filed in the United States District Court for the
District of Connecticut ("District Court") against Fine Host and certain of its
officers and/or directors. The complaints assert various claims against Fine
Host, including claims alleging violations of Sections 10(b) of the Securities
Act of 1934 (the "Exchange Act") and/or violations of Section 11 of the
Securities Act of 1933, as amended (the "Securities Act"), and various rules
promulgated thereunder, as well as fraud and negligent misrepresentation. On
February 13, 1998, the plaintiffs in the actions filed a Motion for
Consolidation and for Appointment as Lead Plaintiffs and for Approval of A
Selection of Lead Counsel. On March 25, 1998, the motion was granted. Lead
Plaintiffs filed a Consolidated Amended Complaint on May 14, 1998 (the "Class
Action")15. On June 29, 1998, Fine Host and certain of the individual defendants
moved to dismiss the claim asserted under Section 11 of the Securities Act. The
other individual defendants moved to dismiss the complaint in its entirety. On
October 22, 1998, the Court granted the motion to dismiss the entire complaint
as to certain individual defendants and denied Fine Host's motion to dismiss the
claim asserted under Section 11 of the Securities Act. On December 9, 1998, the
plaintiffs amended the complaint to add Deloitte & Touche as a defendant. On
March 10, 1999, the plaintiffs further amended the complaint. Fine Host has not
yet answered such amended complaint and by reason of the automatic stay provided
in section 362 of the Bankruptcy Code, the Class Action is stayed as against
Fine Host. As of the date hereof, the District Court has not certified a class
in the Class Action in accordance with Rule 23(b) of the Federal Rules of Civil
Procedure.
The Plan neither is, nor contains, a settlement of the Class
Action. Rather, the Plan merely resolves Fine Host's liability in the Class
Action through the treatment of the Claims in Sub-Class 6A. Under the Plan, Fine
Host will receive a discharge pursuant to section 1141 of the Bankruptcy Code
and have no further or continuing liability in the Class Action. However, the
Class Action will continue as to all of the other defendants.
2. Subordinated Note Action
On or about January 30, 1998, Fine Host was named as a
defendant in an action arising out of the issuance and sale in October 1997 of
the Subordinated Notes (the "Subordinated Note Action," and together with the
Class Action, the "Pending Litigations"). The plaintiffs allegedly purchased
Subordinated Notes in the aggregate principal amount of $7.5 million. The
complaint alleges, among other things, that the Offering Memorandum prepared by
Fine Host in connection with the offering contained materially false
information. The complaint asserts various claims against Fine Host, including
claims alleging violations of Sections 10(b) and 18(a) of the Exchange Act and
various rules promulgated thereunder, as well as fraud and negligent
misrepresentation. The relief sought by plaintiffs includes damages, including
the alleged difference in the value of the Subordinated Notes when purchased and
their actual value, or alternatively rescission of their purchase of the
Subordinated Notes, plus interest, costs and disbursements, attorneys' fees and
punitive damages. On July 10, 1998, Plaintiffs filed a Second Amended Complaint.
On July 29, 1998, the Company moved to dismiss the Section 10(b), fraud and
negligent misrepresentation, counts of the complaint. The other individual
defendants moved to dismiss the complaint in its entirety. On August 7, 1998,
the Judicial Panel on Multidistrict Litigation ordered that the Subordinated
Note Litigation be transferred to the District of Connecticut and, with the
consent of that court, be assigned to the judge presiding over the Class Action.
On October 22, 1998, the court in the District of Connecticut dismissed the
negligent misrepresentation count of the complaint, and otherwise denied the
defendants' motions to dismiss the complaint. On November 30, 1998, the
defendants answered the complaint. This action also is stayed as against Fine
Host by reason of the automatic stay provided in section 362 of the Bankruptcy
Code.
3. Other Legal Proceedings and Investigations
(a) In January 1996, Fine Host was served with a complaint naming it as one of
five defendants in a lawsuit brought by multiple plaintiffs in the New York
State Supreme Court alleging damages arising out of the Woodstock II Festival
held in August, 1994 in Saugerties, New York. The promoter of the festival is
also a defendant. According to the complaint, the plaintiffs were hired by Fine
Host (which had a concession agreement with the promoter of the festival) as
subcontractors of food, beverage and/or merchandise. In their complaint, which
seeks approximately $5.9 million, the plaintiffs allege damages arising
primarily from the failure to provide adequate security and to prevent festival
attendees from bringing food and beverages into the festival. Fine Host and the
promoter have made cross-demands for indemnification against each other under
applicable provisions of their concession agreement. On April 4, 1996, the other
defendants named in the suit answered the complaint and asserted cross-claims
for contribution and indemnification against Fine Host. Thereafter, Fine Host
answered the complaint and asserted a cross-claim for indemnification against
the promoter and a cross-claim for contribution against all of its
co-defendants.
(b) On February 19, 1998, the Securities and Exchange Commission issued a formal
order of investigation into the events relating to the December 12 and December
15, 1997 announcements referred to above.
(c) On or about February 12, 1993, Fine Host sued a former client in the
Jefferson Circuit Court of the Commonwealth of Kentucky for certain amounts owed
by the former client under the food service contract between the parties. The
former client has filed a counterclaim against Fine Host seeking unspecified
damages for alleged tortious interference with a prospective contractual
relationship with another food service provider.
(d) On May 7, 1997, a former employee of Sun West Services, Inc. ("Sun West"), a
subsidiary of Fine Host, filed a case under the Federal False Claims Act, 21
U.S.C. ss 3729-33 against Sun West, Fine Host and certain individual defendants.
The employee, on behalf of the Federal government, alleges that the defendants
submitted false invoices in connection with two school lunch programs in New
Mexico operated by Sun West during the 1995-1996 school year. The case is
currently stayed pending the investigation by the United States Department of
Agriculture ("USDA") of the merits of the claim and the determination whether to
intervene and effectively assume the prosecution of the case. While the
investigation being conducted by the USDA proceeds, the United States District
Court for the District of New Mexico, where the action is pending, has sealed
the file on this matter. Fine Host obtained a court order on December 30, 1998,
authorizing it to disclose the pendency of this matter to the extent required by
the Bankruptcy Code. The complaint does not specify the amount of damages
claimed. Rather, the former employee seeks an award of all damages permitted
under the Federal False Claims Act, including treble damages, a civil penalty of
between $5,000 and $10,000 for each violation of the Act, and attorney's fees.
(e) In September, 1997, Fine Host and its wholly-owned subsidiary, Serv-Rite
Corporation, were named as defendants in a lawsuit brought by a competitor which
Fine Host had been negotiating to acquire. The complaint alleges tortious
interference with contract, breach of contract, misrepresentation and fraud,
misappropriation of trade secrets and RICO violations. The plaintiff alleges
that Fine Host breached the confidentiality agreement it entered into by
allegedly using plaintiff's proprietary information about one of its clients to
bid against the plaintiff in order to obtain the client. After Fine
Host/Serv-Rite was awarded the account, plaintiff commenced the action seeking
$2.5 million in compensatory damages, punitive damages, treble damages and
attorneys' fees.
(f) In July, 1998 an action was commenced against Fine Host in the United States
District Court, Southern District of New York alleging breach of contract
arising out of the Woodstock II Festival. The plaintiff in the action seeks
$200,000 in compensatory damages, punitive damages and attorneys' fees.
(g) In July, 1998, a former employee of Statewide Catering, Inc., a Fine Host
subsidiary, and her spouse sued Fine Host and an individual defendant for
religious discrimination. The complaint seeks $1 million in compensatory
damages, $1 million in punitive damages and $100,000 for loss of services. Fine
Host's employer practices liability insurer has disclaimed coverage (but will
defend) for the claim of the employee's spouse.
(h) In August, 1998, a former owner of Republic Management of Massachusetts,
Inc. ("Republic"), a Fine Host subsidiary, instituted an action in the Trial
Court of Massachusetts against Fine Host, Republic and certain individual
defendants alleging breach of contract, fraudulent inducement, and violation of
Massachusetts wage statutes. The complaint alleges that the defendants failed to
pay plaintiff certain consulting fees, car allowance and other expenses relating
to the consulting agreement he had entered into with Republic.
(i) Fine Host is also involved in certain other legal proceedings incidental to
the normal conduct of its business, including wrongful termination claims,
claims before the Equal Employment Opportunity Commission, and insured claims.
Fine Host does not believe that any liabilities relating to such other legal
proceedings to which it is a party or the matters described in this subsection 3
are likely to be, individually or in the aggregate, material to its consolidated
financial position or its ability to meet its obligations under the Plan.
Each of the foregoing actions has been stayed as against Fine
Host by reason of the automatic stay provided in section 362 of the Bankruptcy
Code.
4. Insurance
Fine Host is the owner of a Directors and Officers Liability
Insurance Policy Including Company Reimbursement, issued by Executive Risk
Specialty Insurance Company, covering claims in the aggregate amount of
$10,000,000 and relating to the period from October 1, 1997 through October 1,
1998, the period covered by the Pending Litigation. The policy, subject to its
terms, conditions and exclusions, provides certain coverage to the officers and
directors of Fine Host and provides for certain reimbursement to Fine Host for
indemnification of directors and officers for claims relating to the period
covered. As of the date hereof, Fine Host and officers and directors covered by
the policy have incurred, and have submitted requests for reimbursement under
the policy for, defense costs in the aggregate amount of approximately
$1,300,000.
V.
THE PLAN OF REORGANIZATION
A. Introduction
Fine Host believes that (a) through the Plan, holders of
Allowed Unsecured Claims and Allowed Equity Interests will obtain a
substantially greater recovery from Fine Host's Chapter 11 estate than the
recovery which otherwise would be obtained if the assets of Fine Host were
liquidated under Chapter 7 of the Bankruptcy Code, (b) the Plan will dispose of
all potential liabilities attendant to the Pending Litigations and (c) the Plan
will give Reorganized Fine Host the opportunity and ability to continue Fine
Host's primary businesses as a viable ongoing enterprise.
Only Allowed Claims, that is Claims which are not (a)
contingent, (b) unliquidated in amount, or (c) subject to objection or
estimation, and, under certain circumstances, Allowed Equity Interests, are
entitled to receive distributions under the Plan.
THE PLAN IS ANNEXED HERETO AS EXHIBIT "A" AND IS AN INTEGRAL
PART OF THIS DISCLOSURE STATEMENT. THE SUMMARY OF THE PLAN SET FORTH BELOW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PLAN. IN THE
EVENT OF ANY INCONSISTENCY BETWEEN THE PROVISIONS OF THE PLAN AND THE SUMMARY
CONTAINED HEREIN, THE TERMS OF THE PLAN SHALL GOVERN.
B. Classification and Treatment of Claims and Equity Interests Under the
Plan
1. Classification
The Plan divides the Claims against, and Equity Interests in, Fine Host
into the following classes:
Unclassified - Administrative Expense Claims
Unclassified - Priority Tax Claims
Class 1 - Priority Non-Tax Claims
Class 2 - Secured Claims
Class 3 - Subordinated Note Claims
Class 4 - General Unsecured Claims
Class 5 - Debenture Rescission Claims
Class 6 - 6A - Statutorily Subordinated Claims
6B - Equity Interests
2. Administrative Expense Claims
Administrative Expense Claims are costs or expenses of
administration of Fine Host's Chapter 11 Case incurred prior to the Effective
Date and Allowed under sections 503(b) and 507(a)(1) of the Bankruptcy Code,
including any actual and necessary costs and expenses of preserving Fine Host's
estate or operating Fine Host's business, indebtedness or obligations incurred
or assumed by Fine Host during the Chapter 11 Case in connection with the
conduct of its business, allowances of compensation and reimbursement of
expenses to the extent Allowed by Final Orders under section 330 or 503(b) of
the Bankruptcy Code, fees of the Subordinated Notes Trustee and fees or charges
assessed against Fine Host's estate under section 1930, chapter 123, title 28,
United States Code.
Fine Host estimates that the Allowed amount of Administrative
Expense Claims as of the Effective Date will aggregate approximately $11 million
(excluding professional fees and expenses referred to below). Generally, the
Plan provides that Allowed Administrative Expense Claims will be paid in full,
in Cash, on the later of the Effective Date or the date on which each such
Administrative Expense Claim is Allowed. Allowed Administrative Expense Claims
representing liabilities incurred in the ordinary course of business by Fine
Host since the Petition Date will be paid in full, in Cash, as they become due
and payable or performed by Reorganized Fine Host in the ordinary course of
business in accordance with the terms and conditions of the particular
transaction and any agreements relating thereto, unless otherwise agreed to by
both parties to each such transaction. The $11 million estimated amount of
Administrative Expense Claims as of the Effective Date is comprised of
liabilities incurred in the ordinary course of business by Fine Host since the
Petition Date and may include amounts owed by affiliates of Fine Host.
All interim and final payments to professionals for
compensation and reimbursement of expenses and all payments to reimburse
expenses of members of the Creditors' Committee, if any, will be made in
accordance with the procedures established by the Bankruptcy Code, the
Bankruptcy Rules and any order of the Bankruptcy Court. The Bankruptcy Court
will review and determine all requests for compensation and reimbursement of
expenses.
Section 503(b) of the Bankruptcy Code also provides for
payment of compensation to creditors and certain other persons and entities who
have made a "substantial contribution" to a reorganization case, and to
attorneys and accountants for such persons and entities. Requests for
compensation, including requests under section 503(b), must be approved by the
Bankruptcy Court after a hearing on notice at which Fine Host and other parties
in interest may participate and, if appropriate, object. As of the date of this
Disclosure Statement, Fine Host has not been apprised of any party's intention
to make a request under section 503(b) of the Bankruptcy Code.
Fine Host estimates that the aggregate amount of compensation
and reimbursement of expenses of professionals that ultimately will be allowed
by the Bankruptcy Court in the Chapter 11 Case (other than any compensation for
substantial contribution pursuant to section 503(b) of the Bankruptcy Code) will
approximate $3 million.
3. Priority Tax Claims
Priority Tax Claims are Allowed Claims of a governmental unit
against Fine Host that are entitled to a certain priority in payment pursuant to
section 507(a)(7) of the Bankruptcy Code. The Plan provides that each Allowed
Priority Tax Claim, at the option and discretion of Fine Host or Reorganized
Fine Host, as the case may be, will be paid (a) in full, in Cash, on or as soon
as reasonably practicable after the later of the Effective Date and the date
such Claim becomes Allowed; (b) on such terms as Fine Host or Reorganized Fine
Host and the holder of such Allowed Claim may agree; or (c) in up to twenty-four
(24) equal quarterly installments commencing on the first (1st) Business Day
following the date of assessment of such Allowed Priority Tax Claim, together
with interest on the unpaid balance of such Allowed Priority Tax Claim at a rate
to be fixed or approved by the Bankruptcy Court at the Confirmation Hearing.
Fine Host estimates that Allowed Priority Tax Claims will
aggregate approximately $545,000.
4. Priority Non-Tax Claims (Class 1) -- Unimpaired
Priority Non-Tax Claims are Unsecured Claims, other than
Administrative Expense Claims and Priority Tax Claims, entitled to a priority in
payment pursuant to section 507 of the Bankruptcy Code.
Class 1 is unimpaired under the Plan, and pursuant to section
1126(f) of the Bankruptcy Code, each holder of an Allowed Priority Non-Tax Claim
is conclusively presumed to have accepted the Plan and may not vote with respect
thereto.
Treatment. Each Allowed Priority Non-Tax Claim will be paid
either (a) in full, in Cash, on the later of the Effective Date and the date
such Claim becomes Allowed, or (b) on such other terms as to which Fine Host and
the holder of such Allowed Priority Non-Tax Claim may agree. Any Priority
Non-Tax Claim not Allowed as of the Effective Date shall be paid in full, in
Cash, as soon as practicable after the date upon which the Bankruptcy Court
order allowing such Claim becomes a Final Order.
Fine Host estimates that there will not be any Allowed
Priority Non-Tax Claims as of the Effective Date.
5. Secured Claims (Class 2) - Unimpaired
A Secured Claim is a Claim against Fine Host that is secured
by a Lien on Collateral or that is subject to setoff under section 553 of the
Bankruptcy Code, to the extent of the value of the Collateral or to the extent
of the amount subject to setoff, as applicable, as determined in accordance with
section 506(a) of the Bankruptcy Code.
Class 2 is unimpaired under the Plan, and pursuant to section
1126(f) of the Bankruptcy Code, each holder of an Allowed Secured Claim is
conclusively presumed to have accepted the Plan and may not vote with respect
thereto.
Treatment. On the Effective Date, each holder of an Allowed
Secured Claim will receive one of the following distributions: (a) payment of
such holder's Allowed Secured Claim in full, in Cash; (b) the sale or
disposition proceeds of the property securing any Allowed Secured Claim to the
extent of the value of their respective interests in such property; (c) the
surrender to the holder or holders of any Allowed Secured Claim of the property
securing such Claim; or (d) such other distributions as shall be necessary to
satisfy the requirements of Chapter 11 of the Bankruptcy Code.
The manner and treatment of each Allowed Secured Claim shall
be determined by Fine Host, in its sole and absolute discretion, on or before
the Confirmation Date, and upon notice to each Secured Creditor.
Fine Host believes that there are Secured Claims in the
approximate aggregate of $746,000.
6. Subordinated Note Claims (Class 3) -- Impaired
Subordinated Note Claims are Claims for the payment of
principal and interest with respect to the Subordinated Notes. On the Effective
Date, the Subordinated Note Claims will be deemed allowed in the aggregate
amount of One Hundred Seventy-Five Million Dollars ($175,000,000.00), plus all
accrued and unpaid interest thereon to, but not including, the Petition Date.
The Subordinated Note Claims include any Claims by the holders of the
Subordinated Notes for liquidated damages in connection with the alleged failure
of Fine Host to register the Subordinated Notes.
Subordinated Note Claims are impaired under the Plan, and
pursuant to section 1126(a) of the Bankruptcy Code, are entitled to vote on the
Plan.
Treatment. On the Initial Distribution Date, each holder of an
Allowed Subordinated Note Claim shall be entitled to receive such holder's Pro
Rata Share of:
(a) the Creditor Cash, which is the amount of Fine Host's Cash equal to the sum
of (1) the first Forty-Five Million Dollars ($45,000,000.00) of Available Cash,
(2) fifty percent (50%) of the amount of Available Cash in excess of Sixty
Million Dollars ($60,000,000.00) and (3) one hundred percent (100%) of the
amount of Available Cash, if any, in excess of Seventy Million Dollars
($70,000,000.00); and
(b) 9,600,000 shares of Reorganized Fine Host Common Stock.
Assuming an Effective Date of April 30, 1999, Fine Host estimates that the
amount of Creditor Cash will be approximately $45 million.
Cancellation of Subordinated Notes: As of the Effective Date,
all notes, agreements, and other documents evidencing the Subordinated Notes and
the rights of the holders thereof, including, without limitation, the
Subordinated Notes and the Subordinated Notes Indenture, will be cancelled and
deemed null and void and of no further force and effect, and the holders thereof
shall have no rights, and such instruments shall evidence no rights, except the
right to receive the distributions provided under the Plan. Notwithstanding the
foregoing, such cancellation will not impair the rights and duties under the
Subordinated Notes Indenture as between the Subordinated Notes Trustee and the
beneficiaries of the trust created thereby or as between Fine Host and the
Subordinated Notes Trustee.
Record Date for Subordinated Notes: As at the close of
business on the Record Date, the transfer ledgers for the Subordinated Notes
will be closed, and there will be no further changes in the record holders of
any Subordinated Notes. Distributions with respect to the Subordinated Notes
will be made to the Subordinated Notes Trustee for payment to the record holders
of any Subordinated Notes as reflected on the transfer ledgers for the
Subordinated Notes as at the close of business on the Record Date. Fine Host or
Reorganized Fine Host, as the case may be, and the Subordinated Notes Trustee
shall have no obligation to recognize any transfer of the Subordinated Notes
that is not recorded on the transfer ledgers for the Subordinated Notes as of
the close of business on the Record Date. Fine Host and Reorganized Fine Host,
as the case may be, and the Subordinated Notes Trustee will be entitled instead
to recognize and deal with, for all purposes hereunder, only those record
holders stated on the transfer ledgers of the Subordinated Notes Trustee as of
the close of business on the Record Date.
Unclaimed Distributions: Within thirty (30) days of the second
and third anniversaries of the Effective Date, Reorganized Fine Host will file
with the Bankruptcy Court a list of known holders of unclaimed distributions. On
the first Business Day after the fourth anniversary of the Effective Date, all
monies or other property still held for distribution by the Subordinated Notes
Trustee will be returned to Reorganized Fine Host by the Subordinated Notes
Trustee, free and clear of any claim or interest of any nature whatsoever,
including, without limitation, escheat rights of any governmental unit under
applicable law.
Compensation of the Subordinated Notes Trustee: The
Subordinated Notes Trustee will be compensated by Reorganized Fine Host for
services rendered during the period up to and including the Initial Distribution
Date, including the reasonable compensation, disbursements, and expenses of the
agents and legal counsel of the Subordinated Notes Trustee in connection with
the performance of its duties described herein upon the presentation of invoices
and shall be indemnified by Reorganized Fine Host for any loss, liability, or
expense incurred by it in connection with the performance of such duties to the
same extent and in the same manner as provided in the Subordinated Notes
Indenture. Upon the payment in full of the fees and expenses of the Subordinated
Notes Trustee, the Subordinated Notes Trustee's lien on the distribution to the
holders of the Subordinated Notes shall be released and extinguished.
Allocation of Distributions: Any distributions received by a
holder of an Allowed Subordinated Note Claim shall be allocated first to the
principal portion of such Claim to the extent thereof, and thereafter, to the
portion of such Claim, if any, representing accrued interest.
7. General Unsecured Claims (Class 4) -- Unimpaired
General Unsecured Claims are Unsecured Claims other than a
Subordinated Note Claim, a Debenture Rescission Claim or a Statutorily
Subordinated Claim.
Class 4 is unimpaired under the Plan, and pursuant to section
1126(f) of the Bankruptcy Code, each holder of an Allowed General Unsecured
Claim is conclusively presumed to have accepted the Plan and may not vote with
respect thereto.
Treatment. On the Effective Date, each holder of an Allowed
General Unsecured Claim, including, without limitation, General Unsecured Claims
arising from or relating to trade/vendor indebtedness and acquisition debt
claims shall, at the sole election of Fine Host and to the extent not previously
paid pursuant to an Order of the Bankruptcy Court, (a) receive distributions, in
Cash, in the full amount of such Allowed General Unsecured Claim, (b) have such
Allowed General Unsecured Claim treated in accordance with its terms in the
ordinary course of business or (c) receive such treatment to otherwise render
such Allowed General Unsecured Claim unimpaired.
Fine Host estimates that Allowed General Unsecured Claims as
of the Petition Date were in the approximate aggregate amount of $11 million.16
Pursuant to an order of the Bankruptcy Court, dated January 7, 1999, all of such
Claims were or are being paid in accordance with their terms during the pendency
of the Chapter 11 Case.
8. Debenture Rescission Claims (Class 5) -- Impaired
Debenture Rescission Claims are any Claims of a holder or
former holder of a Subordinated Note for rescission, damages or diminution in
value, if any, including any Claims by any such Entity arising from or relating
to the disclosure of Fine Host's alleged accounting irregularities, and, to the
extent not assumed in accordance with the provisions of Section 17.4 of the
Plan, any Claim of any Entity for reimbursement, contribution or indemnification
in connection with any of the foregoing.
Debenture Rescission Claims are impaired under the Plan, and
pursuant to section 1126(a) of the Bankruptcy Code, are entitled to vote on the
Plan.
Treatment.
(a) On the Initial Distribution Date, and provided acceptance of the Plan by
holders within Class 3 of the Plan, each holder of an Allowed Debenture
Rescission Claim shall be entitled to receive such holder's Pro Rata Share of
Litigation Trust Interests, representing seventy-five percent (75%) of the
Litigation Trust, in accordance with Article XVI of the Plan. FINE HOST MAKES NO
REPRESENTATION AS TO THE VALUE OF THE LITIGATION TRUST CLAIMS OR WHETHER THERE
WILL BE ANY DISTRIBUTIONS MADE TO HOLDERS OF LITIGATION TRUST INTERESTS.
(b) On the Final Distribution Date and provided acceptance of the Plan by
holders within Class 3 of the Plan, each holder of an Allowed Debenture
Rescission Claim shall be entitled to receive such holder's Pro Rata Share of:
(i) 300,000 shares of Reorganized Fine Host Common Stock; and
(ii) New Warrants to purchase 750,000 shares of
Reorganized Fine Host Common Stock, subject
to dilution on account of the Management
Options.
Limitation on Recovery. Notwithstanding anything contained in
the Plan to the contrary, in the event that the sum of (a) the value
attributable to Reorganized Fine Host Common Stock and the New Warrants to be
distributed to each holder of an Allowed Debenture Rescission Claim, as provided
in the Disclosure Statement or as otherwise determined by the Bankruptcy Court,
and (b) the distributions from the Litigation Trust to such holder are equal to
one hundred percent (100%) of such holder's Allowed Debenture Rescission Claim,
then the Litigation Trust Interests attributable to such holder will be deemed
redistributed to holders of Allowed Statutorily Subordinated Claims and Allowed
Equity Interests in Class 6 on the same ratable basis as the distributions are
allocated between Sub-Classes 6A and 6B in accordance with the provisions of
Article IX of the Plan.
Subordinated Note Claim Distributions: Notwithstanding the
distributions to be made pursuant to Article VI of the Plan to holders of
Allowed Subordinated Note Claims, each holder of an Allowed Subordinated Note
Claim which also holds an Allowed Debenture Rescission Claim may participate in
the distributions to be made to holders of Allowed Debenture Rescission Claims
pursuant to Section 8.1 of the Plan based upon a Claim equal to the total amount
of such holder's Allowed Subordinated Note Claim less the value of the
consideration received on account of such Allowed Subordinated Note Claim
pursuant to Article VI of the Plan, with the shares of Reorganized Fine Host
Common Stock distributed pursuant to Article VI of the Plan to be valued as
provided in the Disclosure Statement or as otherwise determined by the
Bankruptcy Court.
No Right to Distributions. Notwithstanding anything contained
in the Plan to the contrary, in the event that Class 3 (Subordinated Note
Claims) does not accept the Plan, no distribution of any kind will be made to
holders of Allowed Debenture Rescission Claims, and consistent therewith, the
Litigation Trust will not be created.
As of the Bar Date, Debenture Recission Claims in excess of
$175,000,000 were filed with the Bankruptcy Court. As requested, Fine Host has
provided a copy of each proof of claim filed with respect to the Debenture
Recission Claims to the plaintiffs in the Subordinated Note Action. Without the
commencement of a claims reconciliation process, including, without limitation,
determining whether Debenture Recission Claims were validly assigned to holders
of Subordinated Note Claims, Fine Host is unable to estimate what may be the
aggregate amount of Allowed Debenture Rescission Claims.
9. Class 6 - Statutorily Subordinated Claims (Sub-Class 6A) and Equity
Interests (Sub-Class 6B)-- Impaired
- ----------------------------------------------------------------------------
Statutorily Subordinated Claims are any Claims that are
subject to subordination under section 510(b) of the Bankruptcy Code, including,
without limitation, any and all Claims of a holder or former holder of an equity
interest in Fine Host for rescission, damages or diminution in value, if any,
arising from or relating to the disclosure of Fine Host's alleged accounting
irregularities (including any and all Claims asserted or which could have been
asserted against Fine Host in the Class Action) and including, to the extent not
assumed in accordance with the provisions of Section 17.4 of the Plan, any Claim
of any Entity for reimbursement, indemnity or contribution in connection with
any of the foregoing; provided, however, that Statutorily Subordinated Claims
shall not include Debenture Rescission Claims.
Equity Interests are interests in Fine Host represented by (i)
one of the 9,047,970 issued and outstanding shares of common stock of Fine Host,
(ii) any Stock Option or other right arising from or related to the Stock Option
Plans or (iii) any other equity interest in Fine Host.
To the extent that a holder of a Statutorily Subordinated
Claim is a holder of an Equity Interest, such holder will receive distributions
under Sub-Class 6A and Sub-Class 6B. Such distributions shall be based upon such
holder's pro rata share within each sub-class.
Statutorily Subordinated Claims and Equity Interests are
impaired under the Plan and, pursuant to section 1126 of the Bankruptcy Code,
are deemed to have rejected the Plan.
Treatment of Allowed Statutorily Subordinated Claims (Sub-Class 6A):
(a) On the Initial Distribution Date, and provided acceptance of the Plan by
holders within Classes 3 and 5 of the Plan, each holder of an Allowed
Statutorily Subordinated Claim shall be entitled to receive, in accordance with
Section 16.4 of the Plan, a distribution equal to such holder's Pro Rata Share
of the Statutorily Subordinated Claim Percentage of (i) Litigation Trust
Interests representing twenty-five percent (25%) of the Litigation Trust and
(ii) such additional Litigation Trust Interests, if any, as provided in Section
8.2 of the Plan. FINE HOST MAKES NO REPRESENTATION AS TO THE VALUE OF THE
LITIGATION TRUST CLAIMS OR WHETHER THERE WILL BE ANY DISTRIBUTIONS MADE TO
HOLDERS OF LITIGATION TRUST INTERESTS.
(b) On the Final Distribution Date, and provided acceptance of the Plan by
holders within Classes 3 and 5 of the Plan, each holder of an Allowed
Statutorily Subordinated Claim shall be entitled to receive a distribution equal
to such holder's Pro Rata Share of the Statutorily Subordinated Percentage of:
(i) 100,000 shares of Reorganized Fine Host Common Stock; and
(ii) New Warrants to purchase 250,000 shares of
Reorganized Fine Host Common Stock, subject
to dilution on account of the Management
Options.
Treatment of Allowed Equity Interests (Sub-Class 6B):
(a) On the Initial Distribution Date, and provided acceptance of the Plan by
holders within Classes 3 and 5 of the Plan, each holder of an Allowed Equity
Interest shall be entitled to receive, in accordance with Section 16.4 of the
Plan, a distribution equal to such holder's Pro Rata Share of the Equity
Interest Percentage of (i) Litigation Trust Interests representing twenty-five
percent (25%) of the Litigation Trust and (ii) such additional Litigation Trust
Interests, if any, as provided in Section 8.2 of the Plan. FINE HOST MAKES NO
REPRESENTATION AS TO THE VALUE OF THE LITIGATION TRUST CLAIMS OR WHETHER THERE
WILL BE ANY DISTRIBUTIONS MADE TO HOLDERS OF LITIGATION TRUST INTERESTS.
(b) On the Final Distribution Date, and provided acceptance of the Plan by
holders within Classes 3 and 5 of the Plan, each holder of an Allowed Equity
Interest shall be entitled to receive a distribution equal to such holder's Pro
Rata Share of the Equity Interest Percentage of:
(i) 100,000 shares of Reorganized Fine Host Common Stock; and
(ii) New Warrants to purchase 250,000 shares of
Reorganized Fine Host Common Stock, subject
to dilution on account of the Management
Options.
The "Statutorily Subordinated Claim Percentage" and the
"Equity Interest Percentage" are allocations the Debtor has made in its
reasonable judgment to reflect a fair allocation as between Sub-Class 6A and
Sub-Class 6B of the aggregate consideration, if any, to be distributed to Class
6 under the Plan. The Statutorily Subordinated Claim Percentage allocates 60% of
such aggregate consideration to Sub-Class 6A and the Equity Interest Percentage
allocates 40% of such aggregate consideration to Sub-Class 6B. The Debtor has
not attempted to precisely quantify this allocation but believes that it is fair
and reasonable to attribute a slightly higher allocation to Sub-Class 6A based
upon the nature of the claims within such Sub-Class.
Impact of Plan on Holders of Less Than 115 Shares of Fine Host
Common Stock: If an Entity owns less than 115 shares of Fine Host common stock,
pursuant to the operation of Section 14.4 of the Plan, such Entity will not
receive any distribution under the Plan on account of such shares.
Cancellation of Existing Equity Interests: On the Effective
Date, all Equity Interests will be deemed extinguished and the certificates or
other documents representing such Equity Interests, including, without
limitation, Stock Options, will be cancelled and of no force and effect.
No Right to Distributions. Notwithstanding anything contained
in the Plan to the contrary, in the event that either Class 3 (Subordinated Note
Claims) or Class 5 (Debenture Rescission Claims) does not accept the Plan, no
distribution of any kind will be made to holders of Allowed Statutorily
Subordinated Claims and Allowed Equity Interests, and the amount of Litigation
Trust Interests, if any, to be distributed to holders of Allowed Debenture
Rescission Claims pursuant to Article VIII of the Plan shall be increased to
100%.
C. Merger of Corporate Entities
In connection with the consummation of the Plan, Fine Host and
certain of its subsidiaries and/or affiliates may merge. Any such mergers will
not have a material impact on Reorganized Fine Host's operations or the
implementation and execution of the Plan.
D. Reorganized Fine Host Matters
1. Governance and Management of Reorganized Fine Host
On the Effective Date, the management, control and operation
of Reorganized Fine Host will become the general responsibility of the Board of
Directors of Reorganized Fine Host.
2. Board of Directors of Reorganized Fine Host
As of the Effective Date, the Board of Directors of
Reorganized Fine Host shall be such persons as shall be designated by the Ad Hoc
Committee. Thereafter, the terms and manner of selection of the directors of
Reorganized Fine Host will be as provided in the Amended and Restated
Certificate of Incorporation of Reorganized Fine Host and the Amended Bylaws of
Reorganized Fine Host, as the same may be amended. The identity of the initial
members of the Board of Directors of Reorganized Fine Host and the compensation
to be paid to the non-management members of the initial Board of Directors will
be disclosed at, or immediately prior to, the Confirmation Hearing.
3. Management
As of the date hereof, the following individuals serve as the
senior officers and managers of Fine Host and at the listed levels of annualized
compensation:
Name Title Compensation Start of Service
William Forrest President, $400,000.00 12/98 (17)
Chief Executive Officer,
Chief Operating Officer
Richard Hall Senior Vice President, $200,000.00 9/98
Chief Accounting Officer,
Treasurer
Mark Simkess Group President - Education and $185,000.00 3/97
Business Restaurants Division
Chris Verros Group President - Recreation $170,000.00 7/93
and Leisure Division
Perry Rynders Group President - Health and $160,000.00 8/97
Corrections Division
(17) In addition, Mr. Forrest provided services to Fine Host for approximately
one year prior to his appointment as an independent consultant retained by
Buccino & Associates.
While Fine Host does not anticipate that there will be a
change in the above-listed management personnel, there can be no assurance that
such personnel will not be replaced or removed after the Effective Date.
4. Employment Contracts
On or before the Effective Date, Reorganized Fine Host shall
enter into employment contracts with the those individuals set forth in Exhibit
"A" to the Plan and upon such terms as to which Fine Host and the Ad Hoc
Committee (or, after the Effective Date) the Reorganized Fine Host Board of
Directors may agree. Such contracts shall automatically become effective on the
Effective Date.
5. Management Options
APPROVAL OF THE PLAN WILL BE DEEMED AN APPROVAL OR
RATIFICATION, AS THE CASE MAY BE, OF A STOCK OPTION PLAN, SUBSTANTIALLY IN THE
FORM INCLUDED IN THE PLAN SUPPLEMENT (THE "MANAGEMENT OPTION PLAN"), PURSUANT TO
WHICH THE MANAGEMENT OPTIONS WILL BE GRANTED. The principal terms of the
Management Options were negotiated by the Ad Hoc Committee, Fine Host and Gerald
Buccino, as then President and Chief Executive Officer, on behalf of the Board
of Directors of Fine Host and are set forth in Exhibit "A" to the Plan. The
Management Option Plan is intended to provide incentives that will retain and
motivate key employees of Reorganized Fine Host. The Management Option Plan will
be adopted prior to the Effective Date by the Board of Directors of Fine Host,
although no options will be granted until the Effective Date. The Management
Option Plan automatically shall become effective on the Effective Date. Up to an
aggregate of thirteen percent (13%) of the outstanding shares of Reorganized
Fine Host Common Stock on a fully-diluted basis (including the New Warrants)
will be granted under the Management Option Plan.
The Management Options shall vest in four (4) tranches on each
of the Effective Date and the first three anniversaries thereof as follows:
Effective Date - 3 1/3%
First Anniversary - 3 1/3%
Second Anniversary - 3 1/3%
Fourth Anniversary - 3%
The Management Options shall be exercisable for a period of seven (7) years from
the date of vesting for each and carry a strike price equal to (a) for the first
tranche, Ten Dollars ($10.00) per share of Reorganized Fine Host Common Stock,
(b) for the second tranche, Eleven Dollars ($11.00) per share of Reorganized
Fine Host Common Stock, (c) for the third tranche, Twelve Dollars ($12.00) per
share of Reorganized Fine Host Common Stock, and (d) for the fourth tranche,
Thirteen Dollars ($13.00) per share of Reorganized Fine Host Common Stock.
Management Options to purchase up to 8% of Reorganized Fine
Host Common Stock shall be distributed to the Reorganized Fine Host Senior
Managers named on Exhibit "A" to the Plan on the Effective Date and allocated
prior thereto in accordance with the sole and absolute discretion of the
Debtor's Board of Directors. As of the date hereof, no decision has been made as
to the method or amount of allocations. Unless Mr. Forrest is retained by
Reorganized Fine Host and receives Management Options, no current member of the
Board of Directors of Fine Host will receive Management Options. Management
Options to purchase up to 5% of Reorganized Fine Host Common Stock shall be
reserved for future distribution to, among others, Reorganized Fine Host's
President and Chief Executive Officer and be granted and allocated in the sole
and absolute discretion of Reorganized Fine Host's Board of Directors.
Notwithstanding the timing of distribution, the Management Options to be
distributed by the Debtor's Board of Directors and Reorganized Fine Host's Board
of Directors, respectively, shall be allocated, on a pro rata basis, across each
of the four (4) tranches set forth above.
As detailed below, see Reorganization Value below, Fine Host's
financial advisor assumes that the impact on the equity value of Reorganized
Fine Host from the issuance of the Management Options would be minimal. This
assumption is based on, among other reasons, the fact that there is minimal
economic dilution given that the strike price of 75% of the Management Options
is higher than the midpoint value of $10.70 per share (the remaining 25% of the
Management Options have a $10.00 strike price) assumed for Reorganized Fine Host
Common Stock.
Fine Host is not relying on the exemption from the
registration requirements of the federal securities laws set forth in section
1145 of the Bankruptcy Code for the offering and issuance of the Management
Options and the shares of Reorganized Fine Host common stock issued pursuant
thereto. As a result, the offering and issuance of the Management Options and
the shares of Reorganized Fine Host common stock issued pursuant thereto will be
made by Reorganized Fine Host in compliance with federal securities laws.
Federal Tax Consequences of Management Options
THE STATEMENTS IN THE FOLLOWING PARAGRAPHS OF THE PRINCIPAL
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE MANAGEMENT OPTION
PLAN ARE BASED ON STATUTORY AUTHORITY AND JUDICIAL AND ADMINISTRATIVE
INTERPRETATIONS, AS OF THE DATE OF THIS DISCLOSURE STATEMENT, WHICH ARE SUBJECT
TO CHANGE AT ANY TIME (POSSIBLY WITH RETROACTIVE EFFECT). THE LAW IS TECHNICAL
AND COMPLEX AND THE DISCUSSION BELOW REPRESENTS ONLY A GENERAL SUMMARY.
The Management Options granted under the Management Option
Plan will be either "incentive stock options" under Section 422(b) of the IRC or
non- qualified stock options. In this regard, a vote in favor the Plan is
intended to be treated as a vote by the holders of Reorganized Fine Host Common
Stock in favor of the Management Option Plan for purposes of Section 422(b) of
the IRC. There is no assurance, however, that such vote would be so respected,
in which event none of the Management Options would qualify as incentive stock
options. In addition, among other requirements necessary to qualify as an
incentive stock option, a stock option must have an exercise price that is not
less than the fair market value of the underlying stock at the time of grant.
(1) Incentive Stock Options
A deduction will not be allowed to Reorganized Fine Host or
any of its subsidiaries for federal income tax purposes with respect to the
grant or exercise of a Management Option qualifying as an incentive stock option
or the disposition, after the expiration of the applicable holding period (as
specified in Section 422 of the IRC), of the shares of Reorganized Fine Host
Common Stock acquired upon exercise of such Management Option. In the event of a
disposition of such shares prior to the expiration of the applicable holding
period (a "disqualifying disposition"), a federal income tax deduction will be
allowed to Reorganized Fine Host in an amount equal to the ordinary income
included in gross income by the optionee, provided that such amount constitutes
an ordinary and necessary business expense to Reorganized Fine Host and is
reasonable and the limitations of Sections 162(m) and 280G of the IRC (discussed
below) do not apply.
An employee who exercises a Management Option qualifying as an
incentive stock option by delivering shares previously acquired pursuant to the
exercise of a Management Option that qualified as an incentive stock option is
treated as making a disqualifying disposition of such shares if the employee
delivers such shares before the expiration of the applicable holding period with
respect to such shares. Upon the exercise of a Management Option with previously
acquired shares as to which no disqualifying disposition occurs, it would appear
that the employee would not recognize gain or loss with respect to such
previously acquired shares.
(2) Non-Qualified Stock Options ("NQSO")
A NQSO is an option that does not qualify as an "incentive
stock option" under Section 422(b) of the IRC. An individual who receives a NQSO
will not recognize any taxable income upon the grant of such NQSO. Generally,
upon exercise of a NQSO, an individual will be treated as having received
ordinary income in an amount equal to the excess of the fair market value of the
shares of stock at the time of exercise over the exercise price.
The ordinary income recognized with respect to the transfer of
shares of Reorganized Fine Host Common Stock upon exercise of a NQSO under the
Management Option Plan will be subject to both wage withholding and employment
taxes. In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of a NQSO, if an individual may satisfy
the liability in whole or in part by tendering other shares of Reorganized Fine
Host Stock owned by the individual, such shares will be valued at their fair
market value as of the date the tax obligation arises.
A deduction for federal income tax purposes will be allowed to
Reorganized Fine Host or a subsidiary thereof in an amount equal to the ordinary
income included in gross income by the individual in connection with the
exercise of such option, provided that such amount constitutes an ordinary and
necessary business expense and is reasonable and the limitations of Sections
162(m) and 280G of the IRC do not apply.
(3) Change in Control
Upon a "change in control" of Reorganized Fine Host, the then
outstanding options under the Management Option Plan shall become fully
exercisable. In general, if the total amount of payments to optionees that are
contingent upon a "change of control" of Reorganized Fine Host (as determined
for purposes of Section 280G of the IRC), including payments upon the exercise
of options under the Management Option Plan that vest upon a "change of
control," equals or exceeds three times the recipient's "base amount"
(generally, such recipient's average annual compensation for the five years
preceding the change in control), then, subject to certain exceptions, the
payments may be treated as "parachute payments" under the IRC, in which case a
portion of such payments would be nondeductible to Reorganized Fine Host and the
recipient would be subject to a 20% excise tax on such portion of the payments.
No assurance can be given that the Management Options granted under the
Management Option Plan will not be subject to Section 280G of the IRC.
(4) Certain Limitations on Deductibility of Executive Compensation
With certain exceptions, Section 162(m) of the IRC denies a
deduction to publicly held corporations for compensation paid to certain
executive officers in excess of $1 million per executive per taxable year
(including, in some cases, any deduction with respect to the exercise of a NQSO
or the disqualifying disposition of stock purchased pursuant to a Management
Option). One such exception to Section 162(m) of the IRC applies to certain
performance-based compensation. It is unclear whether compensation payable under
the Management Option Plan will qualify for an exception to the Section 162(m)
limitations.
6. Reorganized Fine Host Credit Agreement
On the Effective Date, and solely to the extent determined by
Fine Host to be in the best interests of Reorganized Fine Host, Reorganized Fine
Host will be authorized to execute and deliver the Reorganized Fine Host Credit
Agreement, without any further order of the Bankruptcy Court. Fine Host is
currently in negotiations with several prospective Reorganized Fine Host
Lenders. However, as of the date hereof, Fine Host does not have an agreement
with any lender as to the terms of a Reorganized Fine Host Credit Agreement. The
execution of a Reorganized Fine Host Credit Agreement and the advance of funds
thereunder is not necessary for the consummation of the transactions
contemplated by the Plan.
E. Securities to Be Issued Pursuant to Plan
1. Reorganized Fine Host Common Stock
Pursuant to the Plan, on the Effective Date, 20 million shares
of Reorganized Fine Host Common Stock will be authorized under Reorganized Fine
Host's Certificate of Incorporation. Of such authorized shares, (a) 9,600,000
shares, representing approximately 96% of the issued and outstanding shares of
Reorganized Fine Host Common Stock will be distributed to holders of Allowed
Claims in Class 3; (b) if Creditors in Class 3 vote to accept the Plan, 300,000
shares, representing approximately 3% of the issued and outstanding shares of
Reorganized Fine Host Common Stock will be distributed to holders of Allowed
Claims in Class 5; and (c) if Creditors in both Classes 3 and 5 vote to accept
the Plan, 100,000 shares, representing approximately 1% of the issued and
outstanding shares of Reorganized Fine Host Common Stock will be distributed to
holders of Allowed Claims and Allowed Equity Interests in Class 6. Each share of
Reorganized Fine Host Common Stock will entitle its holder to one vote and
holders of such stock will have the right to participate proportionately in any
dividends distributed by Reorganized Fine Host. All of such shares shall be
subject to dilution by the Management Options and by the exercise of the New
Warrants.
2. New Warrants
Pursuant to the Plan, Reorganized Fine Host will issue (a) if
Creditors in Class 3 vote to accept the Plan, to holders of Allowed Claims in
Class 5, New Warrants to purchase 750,000 shares of Reorganized Fine Host Common
Stock, representing approximately 6.82% of the issued and outstanding shares of
Reorganized Fine Host Common Stock before dilution, at a per share exercise
price (the "Exercise Price") equal to the quotient of (i) $175 million plus
accrued interest minus the Creditor Cash, divided by (ii) the aggregate number
of shares of Reorganized Fine Host Common Stock to be issued to holders of
Allowed Claims and Allowed Equity Interests pursuant to the Plan; and (b) if
Creditors in both Classes 3 and 5 vote to accept the Plan, to holders of Allowed
Claims and Allowed Equity Interests in Class 6, New Warrants to purchase 250,000
shares of Reorganized Fine Host Common Stock, representing approximately 2.27%
of the issued and outstanding shares of Reorganized Fine Host Common Stock
before dilution, at a per share exercise price equal to the Exercise Price. The
New Warrants will expire on the second anniversary of the Effective Date and
will be governed by a Warrant Agreement contained in the Plan Supplement. The
shares which may be purchased pursuant to the exercise of the New Warrants are
subject to dilution by the Management Options.
Based upon the assumed value of Reorganized Fine Host Common
Stock of $10.70, the New Warrants will have no intrinsic value until Reorganized
Fine Host Common Stock appreciates to a per share price of $13.19. The
likelihood of such appreciation cannot be determined at this time and there can
be no assurance that it will occur.
3. Securities Law Matters
In reliance upon an exemption from the registration
requirements of the Securities Act and equivalent state securities laws afforded
by section 1145 of the Bankruptcy Code, Reorganized Fine Host Common Stock and
New Warrants to be issued on the Effective Date as provided in the Plan and
Reorganized Fine Host Common Stock to be issued upon exercise of the New
Warrants will be exempt from the registration requirements of the Securities Act
and equivalent state securities laws. Section 1145 of the Bankruptcy Code
generally exempts from such registration the offer or sale of a debtor's
securities or an affiliate of, or a successor to, Fine Host under a chapter 11
plan if such securities are offered or sold in exchange for a claim against, or
interest in, or an administrative expense claim against, such debtor.
Fine Host believes that the exchange of Reorganized Fine Host
Common Stock and New Warrants for Claims against or interests in Fine Host under
the circumstances provided in the Plan would satisfy the requirements of section
1145(a). Thus, the shares of Reorganized Fine Host Common Stock and the New
Warrants issued pursuant to the Plan on the Effective Date would be deemed to
have been issued in a registered public offering under the Securities Act and,
therefore, could be resold by any holder thereof without registration under the
Securities Act pursuant to the exemption provided by Section 4(1) thereof,
unless the holder is an "underwriter" with respect to such securities, as that
term is defined in section 1145(b)(1) of the Bankruptcy Code (a "statutory
underwriter"). In addition, such securities generally could be resold by the
recipients thereof without registration under state securities or "blue sky"
laws pursuant to various exemptions provided by the respective laws of the
several states. However, recipients of securities issued under the Plan are
advised to consult with their own counsel as to the availability of any such
exemption from registration under state securities laws in any given instance
and as to any applicable requirements or conditions to the availability thereof.
With respect to the Litigation Trust, Fine Host believes that
(i) the Litigation Trust is a "successor" to Fine Host within the meaning of
section 1145(a)(1) of the Bankruptcy Code and (ii) the offer and sale of the
Litigation Trust Interests in the Litigation Trust otherwise satisfies the
requirements of such section (to the extent such interests constitute
"securities" within the meaning of the Securities Act). In connection with prior
cases under the Bankruptcy Code, the staff of the SEC has taken no-action
positions with respect to the nonregistration under the Securities Act of
interests issued under a plan of reorganization by a liquidating entity to
former holders of claims or interests in a debtor, where such entity is subject
to the jurisdiction of a bankruptcy court and is organized to liquidate, within
a reasonable period of time, certain assets of such debtor and to distribute the
proceeds thereof to the holders of such interests. Various theories have been
advanced to justify the related no-action requests, including the view that such
a liquidating entity constitutes a "successor" to the debtor under section
1145(a)(1) of the Bankruptcy Code and that the securities issued by such entity
are exempt from registration under the Securities Act by virtue of such section.
Fine Host believes that the organization of the Litigation Trust and the
issuance of the Litigation Trust Interests pursuant to the Plan is consistent
with the relevant facts set forth in such no-action requests.
In connection with prior cases under the Bankruptcy Code, the
SEC also has taken no-action positions with respect to the nonregistration of a
liquidating entity under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), where certain conditions were met, including (i)
where such liquidating entity (a) existed solely to liquidate its assets and to
distribute the proceeds thereof to its beneficiaries, (b) was prohibited from
conducting a trade or business and from making any investments, except for
temporary investments pending distribution of liquidation proceeds to
beneficiaries, (c) did not hold itself out to be an investment company, but
rather, a liquidating entity in the process of liquidation, (d) was under the
continuing jurisdiction of a bankruptcy court, and (e) terminated on or before
the third anniversary of its effective date, unless extended by of its effective
date, unless extended by the bankruptcy court, and (ii) to the extent beneficial
interests in such entity were transferable, (a) such interests were not listed
on any national securities exchange or the Nasdaq National Market, (b) neither
such entity nor its management engaged the services of any active market maker,
facilitated the development of an active trading market or encouraged others to
do so, placed any advertisements in the media promoting investments in such
entity, or collected or published information about prices at which such
interest might be transferred, (c) an active trading market in such interests
was unlikely to develop, and (d) such entity complied with the registration and
reporting requirements of the Exchange Act. The Litigation Trust will comply
with the registration and reporting requirements of the Exchange Act, and Fine
Host believes that each of the foregoing conditions will be satisfied with
respect to the Litigation Trust.
Section 1145(b) of the Bankruptcy Code defines "underwriter"
for purposes of the Securities Act as one who (a) purchases a claim with a view
to distribution of any security to be received in exchange for the claim, or (b)
offers to sell securities issued under a plan for the holders of such
securities, or (c) offers to buy securities issued under a plan from persons
receiving such securities, if the offer to buy is made with a view to
distribution of such securities, or (d) is an issuer (in this case, Reorganized
Fine Host) of the securities within the meaning of Section 2(11) of the
Securities Act.
The term "issuer" is defined in Section 2(4) of the Securities
Act; however, the reference (contained in section 1145(b)(1)(D) of the
Bankruptcy Code) to Section 2(11) of the Securities Act purports to include as
statutory underwriters all persons who, directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with, an issuer of securities. "Control" (as defined in Rule 405 under the
Securities Act) means the possession, direct or indirect, of the power to direct
or cause the direction of the policies of a person, whether through the
ownership of voting securities, by contract, or otherwise. Accordingly, an
officer or director of a reorganized debtor or its successor, under a plan of
reorganization (i.e., Reorganized Fine Host) may be deemed to be a "control
person" of such debtor or successor, particularly if the management position or
directorship is coupled with ownership of a significant percentage of the
reorganized debtor's or its successor's voting securities. Moreover, the
legislative history of section 1145 of the Bankruptcy Code suggests that a
creditor who owns at least ten (10%) of the securities of a reorganized debtor
is a presumptive "control person" of Fine Host.
To the extent that persons deemed to be "underwriters" receive
Reorganized Fine Host Common Stock or New Warrants pursuant to the Plan, resales
by such persons would not be exempted by section 1145 of the Bankruptcy Code
from registration under the Securities Act or other applicable law. Entities
deemed to be statutory underwriters for purposes of section 1145 of the
Bankruptcy Code may, however, be able to sell securities without registration
pursuant to the resale provisions of Rule 144A and the resale limitations of
Rule 144 under the Securities Act. Each of these provisions as hereafter
described permit the resale of securities received pursuant to the Plan by
statutory underwriters subject to applicable holding period requirements, volume
limitations, notice and manner of sale requirements and certain other
conditions.
Rule 144A provides a non-exclusive safe harbor exemption from
the registration requirements of the Securities Act for resales to certain
"qualified institutional buyers" of securities which are "restricted securities"
within the meaning of the Securities Act, irrespective of whether the seller of
such securities purchased its securities with a view towards reselling such
securities. Under Rule 144A, a "qualified institutional buyer" is defined to
include, among other persons (e.g., "dealers" registered as such pursuant to
Section 15 of the 1934 Act), an entity which purchases securities for its own
account or for the account of another qualified institutional buyer and which
(in the aggregate) owns and invests on a discretionary basis at least $100
million in the securities of unaffiliated issuers. Subject to certain
qualifications, Rule 144A does not exempt the offer or sale of securities which,
at the time of their issuance, were securities of the same class of securities
then listed on a national securities exchange (registered as such pursuant to
Section 6 of the Exchange Act) or quoted in a U.S. automated inter-dealer
quotation system. Because Reorganized Fine Host Common Stock will not, at the
time of issuance under the Plan, be securities then so listed or quoted, holders
of such securities who are deemed to be statutory underwriters under the
Bankruptcy Code or who otherwise may be deemed to be "affiliates" or "control
persons" of Reorganized Fine Host within the meaning of Rule 405 under the
Securities Act should, assuming that all other conditions of Rule 144A are met,
be entitled to avail themselves of the safe harbor resale provisions thereof.
If Rule 144A is unavailable, such holders may, under certain
circumstances, be entitled to resell their securities pursuant to the more
limited safe harbor resale provisions of Rule 144 under the Securities Act.
Generally, Rule 144 provides that if certain conditions are met (e.g., volume
limitations, manner of sale, availability of current information about the
issuer, etc.), specified persons who resell "restricted securities" or who
resell securities which are not restricted but who are "affiliates" of the
issuer of the securities sought to be resold, will not be deemed to be
"underwriters" as defined in Section 2(11) of the Securities Act. Under Rule
144, the aforementioned conditions to resale will no longer apply to restricted
securities sold for the account of a holder who is not an affiliate of the
company at the time of such resale and was not an affiliate of the company
during the three (3) month period preceding such sale, so long as a period of at
least three years have elapsed since the later of (i) the Effective Date and
(ii) the date on which such holder acquired his or its securities from an
affiliate of the company.
Because, as discussed below, Reorganized Fine Host will not,
on the Effective Date, be subject to the periodic reporting and informational
requirements of sections 13 and 15(d) of the Exchange Act, it will undertake in
connection with any proposed resale by a holder of Reorganized Fine Host Common
Stock under Rule 144A, to provide such holder and any prospective purchaser (or
his or its authorized representative) with current business and financial
information prescribed by paragraph (d)(4) of Rule 144A. Similarly, Reorganized
Fine Host will undertake in connection with any proposed resale under Rule 144
(other than pursuant to paragraph (k) of Rule 144) to make available the current
information required by paragraph (c)(2) of Rule 144.
Whether or not any particular person would be deemed to be an
"underwriter" of Reorganized Fine Host Common Stock to be issued pursuant to the
Plan, or an "affiliate" of Reorganized Fine Host, would depend upon various
facts and circumstances applicable to that person. Accordingly, Fine Host
expresses no view as to whether any person would be such an "underwriter" or an
"affiliate".
IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE OF REORGANIZED
FINE HOST, FINE HOST MAKES NO REPRESENTATIONS OR AGREEMENTS CONCERNING THE RIGHT
OF ANY PERSON TO TRADE IN REORGANIZED FINE HOST COMMON STOCK TO BE DISTRIBUTED
PURSUANT TO THE PLAN. ACCORDINGLY, FINE HOST RECOMMENDS THAT POTENTIAL
RECIPIENTS OF SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY
FREELY TRADE SUCH SECURITIES.
Pursuant to the Plan, certificates evidencing shares of
Reorganized Fine Host Common Stock received by holders of five percent (5%) or
more of the outstanding Reorganized Fine Host Common Stock or by holders that
request legended certificates and who certify that they may be deemed to be
underwriters within the meaning of section 1145 of the Bankruptcy Code, will
bear a legend substantially in the form below:
THE [SHARES OF COMMON STOCK] EVIDENCED BY THIS CERTIFICATE
[HAVE] [HAS] NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
Any Entity that would receive legended securities as provided
above may instead receive certificates evidencing Reorganized Fine Host Common
Stock without such legend if, prior to the Effective Date, such Entity delivers
to Reorganized Fine Host (i) an opinion of counsel reasonably satisfactory to
Reorganized Fine Host, to the effect that the shares of Reorganized Fine Host
Common Stock to be received by such Entity are not subject to the restrictions
applicable to "underwriters" under section 1145 of the Bankruptcy Code and may
be sold without registration under the Securities Act, (ii) a certification that
it is not an "underwriter" within the meaning of section 1145 of the Bankruptcy
Code, and (iii), if a registrations rights agreement acceptable to Fine Host has
been or will be executed and delivered on or prior to the Effective Date, a
waiver of the registration rights contained in such registration rights
agreement.
Any holder of a certificate evidencing shares of Reorganized
Fine Host Common Stock bearing such legend may present such certificate to the
transfer agent for the shares of Reorganized Fine Host Common Stock for exchange
for one or more new certificates not bearing such legend or for transfer to a
new holder without such legend at such time as (a) such shares are sold pursuant
to an effective registration statement under the Securities Act or (b) such
holder delivers to Reorganized Fine Host an opinion of counsel reasonably
satisfactory to Reorganized Fine Host to the effect that such shares are no
longer subject to the restrictions applicable to "underwriters" under section
1145 of the Bankruptcy Code and may be sold without registration under the
Securities Act or to the effect that such transfer is exempt from registration
under the Securities Act, in which event the certificate issued to the
transferee shall not bear such legend, unless otherwise specified in such
opinion.
As discussed above, Fine Host's common stock was delisted on
July 9, 1998 and, as of December 31, 1998, Fine Host had less than 300
stockholders of record for such common stock. If, as of the Effective Date,
Reorganized Fine Host also has less than 300 stockholders of record with respect
to Reorganized Fine Host common stock, Reorganized Fine Host will not be a
reporting company and intends to file a Form 15 with the Securities and Exchange
Commission with respect thereto.
F. Summary of Other Provisions of the Plan
1. Conditions Precedent to the Effective Date of the Plan
The "effective date of the plan," as used in section 1129 of
the Bankruptcy Code, shall not occur, and the Plan shall be of no force and
effect, until the Effective Date. The occurrence of the Effective Date is
subject to satisfaction of the following conditions precedent:
(i) Entry of the Confirmation Order: The Clerk of the
Bankruptcy Court shall have entered the Confirmation Order, in form and
substance satisfactory to Fine Host and the Ad Hoc Committee, and the
Confirmation Order shall have become a Final Order and shall be in full
force and effect.
(ii) Execution of Documents, Other Actions: All other
actions and documents necessary to implement the Plan shall have been
effected or executed.
(iii) Available Cash: The amount of Available
Cash shall be equal to or greater than $60,000,000.
Each of the foregoing conditions may be waived, in whole or in
part, by both Fine Host and the Ad Hoc Committee in their sole and absolute
discretion. Any such waiver of a condition precedent may be effected at any
time, without notice or leave or order of the Bankruptcy Court and without any
formal action.
2. Executory Contracts and Unexpired Leases
(a) Assumed if not Rejected:
The Bankruptcy Code authorizes Fine Host, subject to the
approval of the Bankruptcy Court, to assume, assign or reject executory
contracts and unexpired leases. Such assumption, assignment or rejection may be
effected during the Chapter 11 Case or pursuant to a plan of reorganization. All
executory contracts and unexpired leases, other than those executory contracts
and unexpired leases which (a) have expired by their own terms on or prior to
the Effective Date, (b) have been assumed and assigned or rejected pursuant to
prior orders of the Bankruptcy Court, or (c) are not the subject of a motion to
reject same that is pending before the Bankruptcy Court on the Effective Date,
will be deemed assumed by Fine Host on the Effective Date and the entry of the
Confirmation Order by the Bankruptcy Court will constitute approval of such
assumptions pursuant to sections 365(a) and 1123 of the Bankruptcy Code.
Any monetary amounts owed ("Cure Amounts") on the executory
contracts and unexpired leases to be assumed under the Plan shall constitute
Administrative Expense Claims which shall be paid (a) in full, in Cash, on the
later of the Effective Date or the date on which such Administrative Expense
Claim is Allowed, or (b) as otherwise agreed to by the parties. Any objection to
such Cure Amounts or to such assumption must be filed with the Bankruptcy Court
no later than ten (10) days after the Confirmation Date, or such objection will
be forever barred from assertion. In the event of a timely objection to (a) a
Cure Amount, (b) the ability of Fine Host or any assignee to provide "adequate
assurance of future performance" (within the meaning of section 365 of the
Bankruptcy Code) under the contract or lease to be assumed or (c) any other
matter pertaining to assumption, the Cure Amount required by section 365(b)(1)
of the Bankruptcy Code will be paid following the entry of a Final Order
resolving such dispute.
(b) Compensation and Benefit Programs:
All employment agreements, employment and severance practices
and policies and all compensation and benefit plans, policies and programs of
Fine Host applicable to its present and former directors, officers or employees,
including, without limitation, all savings plans, retirement plans, health care
plans, disability plans, severance benefit policies and practices, incentive
plans, and life, accidental death and dismemberment insurance plans, will be
deemed to be, and will be treated as though they are, executory contracts that
are assumed under the Plan, and Fine Host's obligations under such plans,
policies and programs shall be deemed assumed pursuant to section 365 of the
Bankruptcy Code, survive confirmation of the Plan, remain unaffected thereby and
not be discharged in accordance with section 1141 of the Bankruptcy Code. Any
defaults existing under any such plans, policies and programs shall be cured
promptly after they become known by Fine Host. Notwithstanding the foregoing, on
the Effective Date, the Stock Option Plans will be deemed terminated, cancelled,
and of no further force and effect.
(c) Indemnification and Reimbursement Obligations:
For purposes of the Plan, the obligations of Fine Host to
indemnify and reimburse its directors or officers that were directors or
officers, respectively, on or before the Petition Date or who became directors
or officers after the Petition Date against and for any obligations pursuant to
articles of incorporation, codes of regulations, bylaws, applicable state law,
or specific agreement, or any combination of the foregoing will survive
confirmation of the Plan, remain unaffected thereby, and not be discharged in
accordance with section 1141 of the Bankruptcy Code, irrespective of whether
indemnification or reimbursement is owned in connection with an event occurring
before, on, or after the Petition Date; provided, however, that, notwithstanding
the foregoing, such obligations shall not be extended to any directors or
officers (a) whose term in all such capacities expired or was terminated prior
to the Petition Date or (b) whose reimbursement or indemnity request relates to
a claim which is not waived or released by reason of clauses (iii), (iv) and (v)
of the proviso contained in Section 19.6 of the Plan.
3. Provisions Governing Distributions
(a) Requirement for Allowance of Claims or Equity Interests:
No payments or other distributions will be made on account of
any Claim or Equity Interest that is not "Allowed."
"Allowed Claim/Equity Interest" means any Claim against or
Equity Interest in Fine Host, (a) (i) proof of which was filed on or before the
date designated by the Bankruptcy Court as the last date for filing proofs of
claim against or equity interests in Fine Host, (ii) if no proof of Claim or
Equity Interest has been timely filed, which has been or hereafter is listed by
Fine Host in its Schedules as liquidated in amount and not disputed or
contingent or (iii) any Equity Interest registered in the stock register
maintained by or on behalf of Fine Host as of the Record Date and, in each such
case in (i), (ii) and (iii) above, a Claim or Equity Interest as to which no
objection to the allowance thereof has been interposed within the applicable
period of limitation fixed by the Plan, the Bankruptcy Code, the Bankruptcy
Rules or a Final Order, or as to which an objection has been interposed and such
Claim or Equity Interest has been allowed in whole or in part by a Final Order
or (b) in the case of Senior Subordinated Note Claims, allowed pursuant to the
terms of Section 6.1 of the Plan. For purposes of determining the amount of an
"Allowed Claim", there shall be deducted therefrom an amount equal to the amount
of any claim which Fine Host may hold against the holder thereof, to the extent
such claim may be set off pursuant to section 553 of the Bankruptcy Code. Unless
otherwise specified in the Plan or by order of the Bankruptcy Court, "Allowed
Claim" shall not for purposes of computation of distributions under the Plan,
include interest on such Claim from the Petition Date, except as provided in
section 506(b) of the Bankruptcy Code.
(b) Time and Method of Distributions:
Payments and Distributions to be Made by Reorganized Fine
Host: Except with respect to distributions to be made by the Litigation Trustee
pursuant to Section 16.8 of the Plan and the Litigation Trust Agreement, all
payments and distributions under the Plan will be made by Reorganized Fine Host.
Any payments or distributions to be made by Reorganized Fine Host pursuant to
the Plan will be deemed timely made if made within twenty (20) days after the
dates specified in the Plan. Whenever any distribution to be made under the Plan
is due on a day other than a Business Day, such distribution will instead be
made, without interest, on the immediately succeeding Business Day, but shall be
deemed to have been made on the date due. A distribution will be allocated to
the principal amount of a Claim first and then, to the extent the distribution
exceeds the principal amount of the Claim, to any portion of the Claim
representing accrued but unpaid interest.
Except as provided in Article VI of the Plan, all such
distributions and deliveries to holders of Allowed Claims shall be made at the
address of each such holder set forth on Fine Host's Schedules filed with the
Bankruptcy Court unless superseded by the address set forth on proofs of claim
filed by such holders, or at the last known addresses of such holder if no proof
of claim is filed or if Fine Host has been notified in writing of a change of
address. Distributions and deliveries to holders of Allowed Equity Interests
shall be made at the addresses set forth in the transfer ledger for Fine Host
common stock as of the Record Date.
Distributions Made from Litigation Trust: Distributions
to be made from the Litigation Trust are described in Section F.6. below.
(c) Fractional Securities:
No fractional shares of Reorganized Fine Host Common Stock or
New Warrants to purchase fractional shares will be issued. Fractional shares of
Reorganized Fine Host Common Stock and fractional New Warrants will be rounded
to the next greater or next lower number of shares in accordance with the
following method: (a) fractions of one-half (1/2) or greater will be rounded to
the next higher whole number, and (b) fractions of less than one-half (1/2) will
be rounded to the next lower whole number. The total number of shares or
interests of Reorganized Fine Host Common Stock and/or New Warrants to be
distributed to a Class hereunder will be adjusted as necessary to account for
such rounding. Accordingly, if necessary, Reorganized Fine Host will issue to
the Subordinated Notes Trustee such additional shares of Reorganized Fine Host
Common Stock as will be necessary to make any "rounding" distribution to the
holders of the Subordinated Notes. In the event that, as a result of such
rounding, a holder of a Claim or Equity Interests would receive no distribution
pursuant to the Plan, such holder shall receive Cash in lieu of the fractional
shares of Reorganized Fine Host Common Stock or New Warrants to purchase
fractional shares such holder was entitled to receive.
(d) Termination of Subordination Rights and Settlement of
Related Claims and Controversies:
The classification and manner of satisfying all Claims and
Equity Interests under the Plan take into consideration all contractual, legal
and equitable subordination rights, whether arising under general principles of
equitable subordination, sections 510(b) and (c) of the Bankruptcy Code or
otherwise, that a holder of a Claim or Equity Interest may have against other
Claim or Equity Interest holders with respect to any distribution made pursuant
to the Plan. On the Effective Date, all contractual, legal or equitable
subordination rights that a holder of a Claim or Equity Interest may have with
respect to any distribution to be made pursuant to the Plan shall be discharged
and terminated, and all actions related to the enforcement of such subordination
rights shall be permanently enjoined and distributions pursuant to the Plan
shall not be subject to payment to a beneficiary of such terminated
subordination rights, or to levy, garnishment, attachment or other legal process
by any beneficiary of such terminated subordination rights. Pursuant to
Bankruptcy Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the provisions of Section 14.12 of the Plan
will constitute a good faith compromise and settlement of all claims or
controversies relating to the termination of all contractual, legal and
equitable subordination rights that a holder of a Claim or Equity Interest may
have with respect to any Allowed Claim or Allowed Equity Interest, or any
distribution to be made on account of an Allowed Claim or an Allowed Equity
Interest. The entry of the Confirmation Order will constitute the Bankruptcy
Court's approval of the compromise and settlement of all such claims or
controversies and the Bankruptcy Court's finding that such compromise and
settlement is in the best interests of Fine Host, Reorganized Fine Host, and
their respective property and holders of Claims and Equity Interests and is
fair, equitable and reasonable.
(e) Undeliverable Distributions:
Holding of Undeliverable Distributions: If any distribution to
any holder is returned to Reorganized Fine Host as undeliverable, no further
distributions will be made to such holder unless and until Reorganized Fine Host
is notified, in writing, of such holder's then-current address. Undeliverable
distributions will remain in the possession of Reorganized Fine Host until such
time as a distribution becomes deliverable. All Persons ultimately receiving
undeliverable Cash, or dividends distributed with respect to Reorganized Fine
Host Common Stock will not be entitled to any interest or other accruals of any
kind. Nothing contained in the Plan requires Reorganized Fine Host to attempt to
locate any holder of an Allowed Claim or an Allowed Equity Interest.
Failure to Claim Undeliverable Distributions: Within thirty
(30) days of the second and third anniversaries of the Effective Date,
Reorganized Fine Host will file with the Bankruptcy Court a list of known
holders of unclaimed distributions. Any holder of an Allowed Claim or an Allowed
Equity Interest that does not assert its rights pursuant to the Plan to receive
a distribution within four (4) years from and after the Effective Date will have
its Claim or Equity Interest for such undeliverable distribution discharged and
will be forever barred from asserting any such Claim or Equity Interest against
Reorganized Fine Host or its property. In such case, any consideration held for
distribution on account of such Claim or Equity Interest will revert to
Reorganized Fine Host.
(f) Compliance with Tax Requirements:
To the extent applicable, Reorganized Fine Host will comply
with all tax withholding and reporting requirements imposed on it by any
governmental unit, and all distributions pursuant to the Plan will be subject to
such withholding and reporting requirements.
(g) Time Bar to Cash Payments:
Checks issued by Fine Host or Reorganized Fine Host, as the
case may be, on account of Allowed Claims under the Plan will be null and void
if not negotiated within ninety (90) days after the date of issuance thereof.
Requests for reissuance of any check will be made directly to Fine Host or
Reorganized Fine Host, as the case may be, by the holder of the Allowed Claim
with respect to which such check originally was issued. Any claim in respect of
such a voided check must be made before the later of (a) the second anniversary
of the Effective Date or (b) ninety (90) days after the date of issuance of such
check, if such check represents a final distribution under the Plan on account
of such Claim. After such date, all claims in respect of void checks and the
underlying distributions will be discharged and forever barred and Fine Host or
Reorganized Fine Host, as the case may be, may retain all moneys related
thereto.
(h) Distributions After Effective Date:
Distributions made after the Effective Date to holders of
Claims and Equity Interests that are not Allowed Claims or Allowed Equity
Interests as of the Effective Date but which later become Allowed Claims will be
deemed to have been made on the Effective Date.
(i) Set-Offs:
Reorganized Fine Host may, pursuant to section 553 of the
Bankruptcy Code or applicable nonbankruptcy law, set off against any Allowed
Claim or Allowed Equity Interest and the distributions to be made pursuant to
the Plan on account thereof (before any distribution is made on account
thereof), the claims, rights and causes of action of any nature that Fine Host
or Reorganized Fine Host may hold against the holder of such Allowed Claim or
Allowed Equity Interest; provided, however, that neither the failure to effect
such a set-off nor the allowance of any Claim or Equity Interest under the Plan
will constitute a waiver or release by Fine Host or Reorganized Fine Host of any
such claims, rights and causes of action that Fine Host or Reorganized Fine Host
may possess against such holder; and, provided, further, that nothing contained
in the Plan is intended to limit the rights of any Creditor or holder of an
Equity Interest to effectuate a setoff prior to the Effective Date in accordance
with the provisions of sections 362 and 553 of the Bankruptcy Code.
(j) Surrender and Cancellation of Instruments:
The Plan provides that, on the Effective Date, the
Subordinated Notes, (and all related documents) will be cancelled. The Plan also
provides that, except as Fine Host otherwise may agree, (a) each holder of a
note or other instrument evidencing a Claim must surrender such note or
instrument to Fine Host or Reorganized Fine Host, as the case may be, (b) no
distribution under the Plan will be made to or on behalf of any holder of such a
Claim unless and until such note or instrument is received or the unavailability
of such note or instrument is reasonably established to the satisfaction of Fine
Host or Reorganized Fine Host, as the case may be, and (c) in accordance with
section 1143 of the Bankruptcy Code, any holder of a Claim that fails to
surrender such note or instrument or to execute and deliver an affidavit of loss
and/or indemnity reasonably satisfactory to Fine Host or Reorganized Fine Host,
as the case may be, and in the event that such entity requests, any such holder
who fails to furnish a bond in form and substance (including amount) reasonably
satisfactory to Fine Host or Reorganized Fine Host, as the case may be, within
two (2) years from and after the Effective Date, will be deemed to have
forfeited all rights, claims and interests and will not participate in any
distribution under the Plan. Surrender of the restricted global certificates
held by The Depository Trust Company in the name of Cede & Co. to the
Subordinated Notes Trustee shall constitute surrender of the Subordinated Notes.
4. Treatment of Disputed Claims or Disputed Equity Interests
"Disputed Claim" or "Disputed Equity Interest" means a Claim
against or Equity Interest in Fine Host, to the extent the allowance of which is
the subject of a timely objection or request for estimation in accordance with
the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Confirmation Order,
or is otherwise disputed by Fine Host in accordance with applicable law, which
objection, request for estimation or dispute has not been withdrawn or
determined by a Final Order.
Fine Host or Reorganized Fine Host may object to the allowance
of Claims or Equity Interests filed with the Bankruptcy Court with respect to
which it disputes liability or allowance in whole or in part. All objections
shall be litigated to Final Order; provided, however, that Reorganized Fine Host
(within such parameters as may be established by the Board of Directors of
Reorganized Fine Host) will have the authority to file, settle, compromise or
withdraw any objections to Claims or Equity Interests, without approval of the
Bankruptcy Court. Unless otherwise ordered by the Bankruptcy Court, Fine Host or
Reorganized Fine Host will file and serve all objections to Claims and Equity
Interests as soon as practicable, but in no event later than the Effective Date
or such later date as may be approved by the Bankruptcy Court.
(a) Estimation of Claims:
Fine Host or Reorganized Fine Host may at any time request
that the Bankruptcy Court estimate any contingent or Disputed Claim pursuant to
section 502(c) of the Bankruptcy Code regardless of whether Fine Host or
Reorganized Fine Host previously has objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will
retain jurisdiction to estimate any Claim at any time during litigation
concerning any objection to any Claim, including, without limitation, during the
pendency of any appeal relating to any such objection. Subject to the provisions
of section 502(j) of the Bankruptcy Code, in the event that the Bankruptcy Court
estimates any contingent or Disputed Claim, the amount so estimated shall
constitute the allowed amount of such Claim. If the estimated amount constitutes
a maximum limitation on the amount of such Claim, Fine Host or Reorganized Fine
Host may pursue supplementary proceedings to object to the allowance of such
Claim. All of the aforementioned objection, estimation and resolution procedures
are intended to be cumulative and not necessarily exclusive of one another.
Claims may be estimated and subsequently compromised, settled, withdrawn or
resolved by any mechanism approved by the Bankruptcy Court.
(b) Payments and Distributions on Disputed Claims and Equity Interests:
At such time as a Disputed Claim or Disputed Equity Interest
becomes, in whole or in part, an Allowed Claim or an Allowed Equity Interest,
Reorganized Fine Host, will distribute to the holder thereof the distributions,
if any, to which such holder is then entitled under the Plan. Such distribution,
if any, will be made as soon as practicable after the date that the order or
judgment of the Bankruptcy Court allowing such Disputed Claim or Disputed Equity
Interest becomes a Final Order but in no event more than thirty (30) days
thereafter. No interest will be paid on Disputed Claims or Disputed Equity
Interests that later become Allowed or with respect to any distribution to such
holder. In the event dividend distributions have been made with respect to the
Reorganized Fine Host Stock distributable to a holder of a Disputed Claim or
Disputed Equity Interest that later becomes Allowed, such holder shall be
entitled to receive such previously distributed dividends, without any interest
with respect thereto. No distributions will be made with respect to all or any
portion of any Disputed Claim or Disputed Equity Interest pending the entire
resolution thereof. Distributions from the Litigation Trust with respect to
Disputed Claims or Disputed Equity Interests that later become Allowed shall be
made in accordance with the provisions of Section 16.14 of the Plan. See "The
Litigation Trust," below.
(c) Rights of Action:
Any rights, claims, or causes of action accruing to Fine Host,
as debtor or debtor in possession pursuant to the Bankruptcy Code or pursuant to
any statute or legal theory, including, without express or implied limitation,
any avoidance or recovery actions under sections 544, 545, 548, 549, 550, 551,
and 553 of the Bankruptcy Code and any rights to, claims, or causes of action
for recovery under any policies of insurance issued to or on behalf of any of
the debtor or debtor in possession will remain assets of Fine Host's estate and,
on the Effective Date, will be transferred to Reorganized Fine Host. Reorganized
Fine Host will be deemed the appointed representative to, and may, pursue,
litigate, and compromise and settle any such rights, claims, or causes of
action, as appropriate, in accordance with what is in the best interests of and
for the benefit of Reorganized Fine Host. The foregoing will not apply to the
Litigation Trust Claims.
On the Effective Date, and because all Allowed General
Unsecured Claims have been paid pursuant to an order of the Bankruptcy Court,
dated January 7, 1999, Fine Host will be deemed to waive the right to prosecute
any recovery action under section 547 of the Bankruptcy Code that belongs to
Fine Host, as debtor or debtor in possession.
5. Committees
(a) Creditors' Committee Composition and Term:
From the Confirmation Date up to and including the Effective
Date, the members of the Creditors' Committee, if any, appointed pursuant to
section 1102 of the Bankruptcy Code, and their duly appointed successors, will
continue to serve. Upon the disallowance by Final Order of the Claim held by a
Creditor that is a member of the Creditors' Committee, such membership shall
terminate and no replacement will be appointed. Upon the resignation, death or
disability of a member of the Creditors' Committee, the Creditor having
appointed such member will have the right to designate a replacement. In the
event such Creditor shall fail to designate a replacement, no other replacement
may be appointed to the Creditors' Committee. Members of the Creditors'
Committee will serve without compensation but shall be entitled to reimbursement
of their reasonable out-of-pocket expenses which are attributable to their
attendance at Creditors' Committee meetings. The Creditors' Committee will be
entitled to retain legal counsel and such other professionals as may be
authorized by the Bankruptcy Court, the fees and expenses of which shall be
entitled to payment as Administrative Expense Claims. On the Effective Date, the
Creditors' Committee will be dissolved and the members thereof and the
professionals retained by the Creditors' Committee in accordance with section
1103 of the Bankruptcy Code will be released and discharged from their
respective fiduciary obligations.
(b) Ad Hoc Committee Term and Fees:
In the event not otherwise disbanded prior to the Effective
Date, on the Effective Date, the Ad Hoc Committee will be dissolved. On the
later to occur of (i) the Effective Date and (ii) entry of an order of the
Bankruptcy Court allowing and authorizing the payment thereof, Reorganized Fine
Host will pay the reasonable fees and expenses of the Ad Hoc Committee's
professionals incurred from and after the Petition Date. The Ad Hoc Committee's
financial advisor has advised Fine Host that it may seek allowance of a success
fee. In such event, the financial advisor will advise Fine Host of the amount of
any such request prior to the hearing to consider confirmation of the Plan. Such
amount will be deducted in determining Available Cash.
(c) Equity Committee:
By motion, dated March 5, 1999, Kirkland has requested that
the Bankruptcy Court enter an order directing the United States Trustee to
appoint a committee of holders of Equity Interests. On March 15, 1999, Fine Host
objected to the motion and the relief requested therein. As of the date hereof,
the matter is under consideration by the Bankruptcy Court.
6. The Litigation Trust
(a) Establishment of the Trust:
On the Effective Date, Fine Host, on its own behalf and on
behalf of holders of Allowed Claims and Allowed Equity Interests in Classes 5,
6A and 6B will execute the Litigation Trust Agreement, substantially in the form
annexed hereto as Exhibit "C", and will take all other steps necessary to
establish the Litigation Trust. On the Effective Date, and in accordance with
and pursuant to the terms of Section 16.4 of the Plan, Fine Host will transfer
to the Litigation Trust all of its right, title, and interest in the Litigation
Trust. In connection with the above-described rights and causes of action, any
attorney-client privilege, work-product privilege, or other privilege or
immunity attaching to any documents or communications (whether written or oral)
transferred to the Litigation Trust will vest in the Litigation Trustee and its
representatives, and Fine Host and the Litigation Trustee are authorized to take
all necessary actions to effectuate the transfer of such privileges.
Notwithstanding the foregoing, the Litigation Trust will not
be established unless Class 3 votes to accept the Plan. In addition, Sub-Classes
6A and 6B will have no interest in the Litigation Trust unless both Classes 3
and 5 vote to accept the Plan.
(b) Purpose of the Litigation Trust:
The Litigation Trust will be established for the sole purpose
of liquidating its assets, in accordance with Treasury Regulation Section
301.7701-4(d), with no objective to continue or engage in the conduct of a trade
or business.
(c) Funding Expenses of the Litigation Trust:
In accordance with the Litigation Trust Agreement and any
agreements entered into in connection therewith, on the Effective Date, Fine
Host will transfer One Million Dollars ($1,000,000.00) to the Litigation Trust.
The Debtor and Reorganized Fine Host shall have no further obligation to provide
any funding with respect to the Litigation Trust.
(d) Valuation of Assets:
As soon as possible after the Effective Date, but in no event
later than thirty (30) days thereafter, the Litigation Trust Board will inform,
in writing, the Litigation Trustee of the value of the assets transferred to the
Litigation Trust, based on the good faith determination of the Litigation Trust
Board, and the Litigation Trustee shall apprise, in writing, the beneficiaries
of the Litigation Trust of such valuation. FINE HOST MAKES NO REPRESENTATION AS
TO THE VALUE OF THE LITIGATION TRUST CLAIMS OR WHETHER THERE WILL BE ANY
DISTRIBUTIONS MADE TO HOLDERS OF LITIGATION TRUST INTERESTS. All parties
(including Fine Host, the Litigation Trustee and the beneficiaries of the
Litigation Trust) are required to use such valuation consistently for all
federal income tax purposes.
(e) Liquidation of Assets; Responsibilities of Litigation Trustee:
(1) The Litigation Trustee, upon direction by the
Litigation Trust Board, and the exercise of their collective reasonable
business judgment, shall, in an expeditious but orderly manner, liquidate
and convert to Cash the assets of the Litigation Trust, make timely
distributions and not unduly prolong the duration of the Litigation Trust.
The liquidation of the Litigation Trust Claims may be accomplished either
through the prosecution, compromise and settlement, abandonment or
dismissal of any or all claims, rights or causes of action, or otherwise.
The Litigation Trustee, upon direction by the Litigation Trust Board, will
have absolute right to pursue or not to pursue any and all claims, rights,
or causes of action, as it determines is in the best interests of the
beneficiaries of the Litigation Trust, including without limitation, taking
into account the indemnification and contribution obligations of
Reorganized Fine Host and the diminution in value of Reorganized Fine Host,
and consistent with the purposes of the Litigation Trust, and will have no
liability for the outcome of its decision. The Litigation Trustee may incur
any reasonable and necessary expenses in liquidating and converting the
assets to Cash.
(2) The Litigation Trustee will have the power (i
to prosecute for the benefit of the Litigation Trust all claims, rights and
causes of action transferred to the Litigation Trust (whether such suits
are brought in the name of the Litigation Trust or otherwise), and (ii) to
otherwise perform the functions and take the actions provided for or
permitted in the Plan or in any other agreement executed by the Litigation
Trustee pursuant to the Plan. Any and all proceeds generated from such
claims, rights, and causes of action will be the property of the Litigation
Trust.
(f) Investment Powers:
The right and power of the Litigation Trustee to invest assets
transferred to the Litigation Trust, the proceeds thereof, or any income earned
by the Litigation Trust, will be limited to the right and power to invest such
assets (pending periodic distributions in accordance with Section 16.8 of the
Plan) in Cash Equivalents; provided, however, that (a) the scope of any such
permissible investments shall be limited to include only those investments, or
will be expanded to include any additional investments, as the case may be, that
a liquidating trust, within the meaning of Treasury Regulation Section
301.7701-4(d) may be permitted to hold, pursuant to the Treasury Regulations, or
any modification in the IRS guidelines, whether set forth in IRS rulings, other
IRS pronouncements or otherwise and (b) the Litigation Trustee may expend the
assets of the Litigation Trust (i) as reasonably necessary to meet contingent
liabilities and to maintain the value of the assets of the Litigation Trust
during liquidation, (ii) to pay reasonable administrative expenses (including,
but not limited to, any taxes imposed on the Litigation Trust or fees and
expenses in connection with litigation), and (iii) to satisfy other liabilities
incurred or assumed by the Litigation Trust (or to which the assets are
otherwise subject) in accordance with the Plan or the Litigation Trust
Agreement.
(g) Annual Distribution; Withholding:
The Litigation Trust will distribute at least annually to the
holders of Litigation Trust Interests all net cash income plus all net cash
proceeds from the liquidation of assets (including as Cash for this purpose, all
Cash Equivalents); provided, however, that the Litigation Trust may retain such
amounts (i) as are reasonably necessary to meet contingent liabilities and to
maintain the value of the assets of the Litigation Trust during liquidation,
(ii) to pay reasonable administrative expenses (including any taxes imposed on
the Litigation Trust or in respect of the assets of the Litigation Trust or any
escrow created in connection with the Litigation Trust), and (iii) to satisfy
other liabilities incurred or assumed by the Litigation Trust (or to which the
assets are otherwise subject) in accordance with the Plan or the Litigation
Trust Agreement. All such distributions will be pro rata based on the number of
Litigation Trust Interests held by a holder compared with the aggregate number
of Litigation Trust Interests outstanding, subject to the terms of the Plan and
the Litigation Trust Agreement; provided, further, that of the net amount
distributable, the Litigation Trustee shall transfer to an escrow, such amounts
as would be distributable in respect of Disputed Claims and Disputed Equity
Interests (treating such Claims and Equity Interests, for this purpose, as if
they were Allowed Claims and Equity Interests). The Litigation Trustee may
withhold from amounts distributable to any Person any and all amounts,
determined in the Litigation Trustee's reasonable sole discretion, to be
required by any law, regulation, rule, ruling, directive or other governmental
requirement.
(h) Reporting Duties:
Federal Income Tax: Subject to definitive guidance from the IRS or a court
of competent jurisdiction to the contrary (including the receipt by the
Litigation Trustee of a private letter ruling if the Litigation Trustee so
requests one, or the receipt of an adverse determination by the IRS upon audit
if not contested by the Litigation Trustee), and except as provided below in the
subparagraph entitled "Alternative Tax Reporting if no Distribution to Class 6,"
the Litigation Trustee will file returns for the Litigation Trust as a grantor
trust pursuant to Treasury Regulation Section 1.671-4(a). The Litigation Trustee
will also annually send to each holder of a Litigation Trust Interest a separate
statement setting forth the holder's share of items of income, gain, loss,
deduction or credit and will instruct all such holders to report such items on
their federal income tax returns. The Litigation Trustee will also file (or
cause to be filed) any other statements, returns or disclosures relating to the
Litigation Trust that are required by any governmental unit.
Allocations of Litigation Trust Taxable Income: Subject to the following
paragraph, allocations of Litigation Trust taxable income shall be determined by
reference to the manner in which an amount of cash equal to such taxable income
would be distributed (without regard to any restrictions on distributions
described herein) if, immediately prior to such deemed distribution, the
Litigation Trust had distributed all of its other assets (valued for this
purpose at their tax book value) to the holders of the Litigation Trust
Interests (treating any holder of a Disputed Claim or a Disputed Equity
Interest, for this purpose, as a current holder of a Litigation Trust Interest
entitled to distributions), taking into account all prior and concurrent
distributions from the Litigation Trust (including all distributions held in
escrow pending the resolution of Disputed Claims and Disputed Equity Interests).
Similarly, taxable loss of the Litigation Trust will be allocated by reference
to the manner in which an economic loss would be borne immediately after a
liquidating distribution of the remaining Liquidation Trust Claims. The tax book
value of the Litigation Trust Claims for this purpose shall equal their fair
market value on the Effective Date or, if later, the date such assets were
acquired by the Litigation Trust, adjusted in either case in accordance with tax
accounting principles prescribed by the IRC, the regulations and other
applicable administrative and judicial authorities and pronouncements.
Alternative Tax Reporting If No Distribution to Class 6. In the event that
all Litigation Trust Interests are distributable to holders of Allowed
Rescission Claims, and notwithstanding anything in Article XVI of the Plan to
the contrary, the Litigation Trust (inclusive of the escrow to be established
pursuant to Section 16.14 of the Plan) shall be treated as a "qualified
settlement fund" within the meaning of Treasury Regulation Section 1.468B-1 (and
shall be governed by the Treasury Regulations relating thereto), subject to
definitive guidance from the IRS or a court of competent jurisdiction to the
contrary. If, in such instance, the Litigation Trust is determined by the IRS or
a court of competent jurisdiction not to be a "qualified settlement fund", the
other provisions of Section 16.9 of the Plan shall apply unaffected by the
preceding sentence, and the Litigation Trustee shall so notify in writing all
relevant parties (including, without limitation, Reorganized Fine Host and all
holders of Allowed Rescission Claims).
(i) Trust Implementation:
The Litigation Trust Agreement will be filed in the Plan Supplement and
will contain provisions customary to trust agreements utilized in comparable
circumstances including, but not limited to, any and all provisions necessary to
ensure the continued treatment of the Litigation Trust as a grantor trust for
federal income tax purposes. All parties (including Fine Host, the Litigation
Trustee and holders of Allowed Claims and Allowed Equity Interests in Classes 5
and 6) will execute any documents or other instruments as necessary to cause
title to the applicable assets to be transferred to the Litigation Trust.
THERE IS NO ASSURANCE THAT HOLDERS OF LITIGATION TRUST
INTERESTS WILL RECEIVE ANY DISTRIBUTIONS FROM THE LITIGATION TRUST. ACCORDINGLY,
EACH HOLDER OF A LITIGATION TRUST INTEREST IS ADVISED TO DISCUSS THE
RAMIFICATIONS OF THE AFOREMENTIONED REPORTING OBLIGATIONS WITH THEIR RESPECTIVE
TAX ADVISORS.
(j) Registry of Beneficial Interests:
The Litigation Trustee will maintain a registry of the holders
of Litigation Trust Interests.
(k) Termination:
The Litigation Trust will terminate no later than the fifth
(5th) anniversary of the Effective Date; provided, however, that, on or prior to
the date six (6) months prior to such termination, the Bankruptcy Court, upon
motion by a party in interest, may extend the term of the Litigation Trust if it
is necessary to the liquidation of the Litigation Trust Claims. Notwithstanding
the foregoing, multiple extensions can be obtained so long as Bankruptcy Court
approval is obtained at least six (6) months prior to the expiration of each
extended term; provided, however, that the aggregate of all such extensions
shall not exceed three (3) years, unless the Litigation Trustee receives a
favorable ruling from the IRS that any further extension would not adversely
affect the status of the Litigation Trust as a grantor trust for federal income
tax purposes.
(l) Net Litigation Trust Recovery:
Notwithstanding anything contained in the Plan to the
contrary, in the event that a defendant in a litigation brought by the
Litigation Trustee for and on behalf of the Litigation Trust is required by a
Final Order to make payment to the Litigation Trust (the "Judgment Amount") or
has a right of setoff under section 553 of the Bankruptcy Code or applicable
non-bankruptcy law, has a claim for contribution or reimbursement or has
incurred costs and expenses (the "Defense Costs", and together with the Judgment
Amount, the "Indemnified/Contribution Amount") which would give rise to an
enforceable Claim against Fine Host or Reorganized Fine Host, as the case may
be, (i) such defendant shall be obligated to pay only the excess, if any, of the
amount of the Judgment Amount over the Indemnified/Contribution Amount, (ii)
none of the Litigation Trust, the holders or beneficiaries of the Litigation
Trust Interests shall be entitled to assert a claim against the Debtor or
Reorganized Fine Host with respect to the Indemnified/Contribution Amount, and
(iii) the Debtor and Reorganized Fine Host shall have no liability with respect
to such Indemnified/Contribution Amount.
Notwithstanding anything contained herein to the contrary, in
the event that a defendant in a litigation brought by the Litigation Trustee for
and on behalf of the Litigation Trust (i) has a right of setoff under section
553 of the Bankruptcy Code or applicable non-bankruptcy law, has a claim for
contribution or reimbursement or has incurred Defense Costs which would give
rise to an enforceable claim against Fine Host or Reorganized Fine Host, as the
case may be, and (ii) the amount of the Defense Costs are in excess of the
Judgment Amount, if any, (a) the Judgment Amount shall be offset against the
Defense Costs and shall not be paid to the Litigation Trust by such defendant,
(b) the Litigation Trust shall reimburse Reorganized Fine Host immediately for
the payment of the difference between the Defense Costs and any Judgment Amount,
(c) none of the Litigation Trust, the holders or beneficiaries of the Litigation
Trust Interests shall be entitled to assert a claim against the Debtor or
Reorganized Fine Host with respect to the Indemnified/Contribution Amount, and
(d) the Debtor and Reorganized Fine Host shall have no liability with respect to
such Indemnified/Contribution Amount.
(m) Escrow on Account of Disputed Claims and Disputed Equity Interests:
The Litigation Trustee shall maintain, in accordance with the
Litigation Trustee's powers and responsibilities under the Plan and the
Litigation Trust Agreement, an escrow of any distributable amounts required to
be set aside on account of Disputed Claims and Disputed Equity Interests
pursuant to the Plan. Such amounts (net of any expenses, including any taxes, of
the escrow relating thereto) shall be distributed, as provided in the Plan, as
such Disputed Claims or Disputed Equity Interests are resolved by Final Order,
and shall be distributable in respect of such Litigation Trust Interests as such
amounts would have been distributable had the Disputed Claims or Disputed Equity
Interests been Allowed Claims and Equity Interests as of the Effective Date.
There shall be distributed together with such amounts any net earnings of the
escrow related thereto. Distributions from the escrow shall be made at least
annually concurrent with other distributions from the Litigation Trust.
As more fully set forth below, the escrow shall be responsible
for payment of certain taxes attributable to the taxable income of the
Litigation Trust allocable to Litigation Trust Interests relating to such
Disputed Claims and Disputed Equity Interests. In the event, and to the extent
the escrow has insufficient funds to pay such taxes (or no escrow has been
established at such time due to the absence of any distributable proceeds), such
taxes shall be borne by the Litigation Trust and either (i) reimbursed by the
escrow from any subsequent amounts transferred by the Litigation Trustee to the
escrow in respect of such Disputed Claims and Disputed Equity Interests or (ii)
to the extent such Claims and Equity Interests have subsequently been resolved,
may be deducted from any increased amounts distributable by the Litigation Trust
as a result of the resolutions of such Claims and Equity Interests on a fair and
equitable basis.
Subject to definitive guidance from the IRS or a court of
competent jurisdiction to the contrary (including the receipt by the Litigation
Trustee of a private letter ruling if the Litigation Trustee so requests one, or
the receipt of an adverse determination by the IRS upon audit if not contested
by the Litigation Trustee), and except as otherwise provided in Section 16.9(d)
of the Plan (see "The Litigation Trust-Reporting Duties," above), the Litigation
Trustee shall (i) treat the escrow as a discreet trust for federal income tax
purposes, consisting of separate and independent shares to be established in
respect of each Disputed Claim or Disputed Equity Interest, in accordance with
the trust provisions of the IRC (Sections 641 et seq.), (ii) treat as taxable
income or loss of the escrow with respect to any given taxable year the portion
of the taxable income or loss of the Litigation Trust that would have been
allocated to the holders of Disputed Claims and Disputed Equity Interests had
such Claims and Equity Interests been Allowed on the Effective Date (but only
for the portion of the taxable year with respect to which such Claims or Equity
Interests are unresolved), (iii) treat as a distribution from the escrow any
increased amounts distributed by the Litigation Trust as a result of any
Disputed Claims or Disputed Equity Interests resolved earlier in the taxable
year, to the extent such distributions relate to taxable income or loss of the
escrow determined in accordance with the provisions hereof, and (iv) to the
extent permitted by applicable law, shall report consistent with the foregoing
for state and local income tax purposes. All holders of Allowed Claims and
Allowed Equity Interests in Classes 5, 6A and 6B shall report, for tax purposes,
consistent with the foregoing.
7. Effect of Confirmation
(a) Discharge of Fine Host; Injunction:
The rights afforded in the Plan and the treatment of all
holders of Claims or Equity Interests in the Plan will be in exchange for and in
complete satisfaction, discharge and release of all Claims and Equity Interests
of any nature whatsoever, known or unknown, including any interest accrued or
expenses incurred thereon from and after the Petition Date, against Fine Host,
as debtor and debtor in possession, or its estate, properties or interests in
property. Except as otherwise provided in the Plan, on the Effective Date, all
Claims against, and Equity Interests in, Fine Host, as debtor and debtor in
possession, shall be satisfied, discharged and released in full. All persons and
entities will be precluded from asserting against Fine Host, as debtor and
debtor in possession, its successor or assigns, including Reorganized Fine Host,
or its assets, properties or interests in property, any other Claims based upon
any act or omission, transaction or other activity of any kind or nature that
occurred prior to the Confirmation Date, whether or not the facts or legal bases
therefor were known or existed prior to the Confirmation Date. The Confirmation
Order will be a judicial determination of discharge of all liabilities of Fine
Host.
Except as otherwise expressly provided in the Plan, all
persons and entities who have held, hold or may hold Claims against or Equity
Interests in Fine Host are permanently enjoined, on and after the Effective
Date, from (a) commencing or continuing in any manner any action or other
proceeding of any kind with respect to any such Claim or Equity Interest against
Fine Host or Reorganized Fine Host, (b) the enforcement, attachment, collection
or recovery by any manner or means of any judgment, award, decree or order
against Fine Host or Reorganized Fine Host, (c) creating, perfecting or
enforcing any encumbrance of any kind against Fine Host, or Reorganized Fine
Host or against the property or interests in property of Fine Host or
Reorganized Fine Host, with respect to any such Claims or Equity Interests, and
(d) asserting any right of setoff, subrogation, or recoupment of any kind
against any obligation due from Fine Host or Reorganized Fine Host or against
the property or interests in property of Fine Host or Reorganized Fine Host,
with respect to any such Claim or Equity Interest; provided, however, that such
injunction shall not preclude the United States of America or any of its police
or regulatory agencies from enforcing their police or regulatory powers; and,
provided, further, that, except in connection with a properly filed proof of
claim, the foregoing proviso does not permit the United States of America or any
of its police or regulatory agencies from obtaining any monetary recovery from
Fine Host or Reorganized Fine Host or their respective property or interests in
property with respect to any such Claim or Equity Interest, including , without
limitation, any monetary claim or penalty in furtherance of a police or
regulatory power. Upon confirmation of the Plan, its provisions will bind Fine
Host and its Creditors and Equity Interest holders, whether or not they accept
the Plan.
(b) Vesting and Liens; Discharge of Liabilities:
Except as otherwise provided by the Plan, on the Effective
Date, title to all assets and properties encompassed by the Plan will vest in
Reorganized Fine Host in accordance with section 1141 of the Bankruptcy Code,
and the Confirmation Order will be a judicial determination of discharge of Fine
Host's liabilities, except as provided in the Plan.
(c) Limited Release of Directors, Officers and Employees by Fine Host:
As of the Effective Date, Fine Host will be deemed to have
waived and released its present and former directors, officers, employees,
consultants and agents who were directors, officers, employees, consultants or
agents, respectively, both at any time during the Chapter 11 Case and on or
before the Petition Date, from any and all claims of Fine Host, including,
without limitation, claims which Fine Host, as debtor or debtor in possession,
otherwise has legal power to assert, compromise or settle in connection with the
Chapter 11 Case, arising on or prior to the Effective Date; provided, however,
that this provision will not operate as a waiver or release of any claim (i)
with respect to any loan, advance or similar payment by Fine Host to any such
person, (ii) with respect to any contractual obligation owed by such person to
Fine Host, (iii) relating to such person's fraud or gross negligence, (iv) to
the extent based upon or attributable to such person gaining in fact a personal
profit to which such person was not legally entitled, including, without
limitation, profits made from the purchase or sale of equity securities of Fine
Host which are recoverable by Fine Host pursuant to section 16(b) of the
Exchange Act, or (v) relating to such person's breach of fiduciary duty, other
than those claims against which such directors, officers and employees were or
are protected by the provisions of (a) the By-Laws of Fine Host Corporation, (b)
the Amended Certificate of Incorporation of Fine Host Corporation or (c)
applicable law. As such, the Plan's limited release is not a release of claims
of third parties and is not effective in any way with respect to commissions of
fraud or gross negligence, or breaches of fiduciary duty not otherwise protected
by Fine Host's by-laws or certificate of incorporation, or applicable law.
8. Modification; Revocation or Withdrawal of Plan
Fine Host reserves the right, in accordance with the
Bankruptcy Code and the Bankruptcy Rules, to amend or modify the Plan at any
time prior to the entry of the Confirmation Order. After the entry of the
Confirmation Order, Fine Host may, upon order of the Bankruptcy Court, amend or
modify the Plan, in accordance with section 1127(b) of the Bankruptcy Code, or
remedy any defect or omission or reconcile any inconsistency in the Plan in such
manner as may be necessary to carry out the purpose and intent of the Plan. A
holder of a Claim or Equity Interest that has accepted the Plan shall be deemed
to have accepted the Plan as modified if the proposed modification does not
materially and adversely change the treatment of the Claim or Equity Interest of
such holder.
The Plan may be revoked or withdrawn prior to the date that
the Bankruptcy Court enters the Confirmation Order (the "Confirmation Date") by
Fine Host. If the Plan is revoked or withdrawn prior to the Confirmation Date,
then the Plan shall be deemed null and void. In such event, nothing contained in
the Plan shall be deemed to constitute a waiver or release of any claims by Fine
Host or any other Entity or to prejudice in any manner the rights of Fine Host
or any other Entity in any further proceedings involving Fine Host.
9. Exculpation/Limitation of Liability in Connection with the Plan,
Disclosure Statement and Related Documents
None of Fine Host, Reorganized Fine Host, the Litigation
Trustee, the Litigation Trust Board, the members of the Ad Hoc Committee, the
Subordinated Notes Trustee, nor any of their respective present and former
directors, officers, employees, consultants, advisors and agents (including,
without limitation, attorneys, financial advisors, accountants and other
professionals) (acting in such capacity), will have or incur any liability to
any Entity for any act taken or omitted to be taken in connection with or
related to the formulation, preparation, dissemination, implementation,
confirmation, consummation or administration of the Plan, the Disclosure
Statement or any contract, instrument, release or other agreement or document
created or entered into in connection with the Plan, the property to be
distributed under the Plan or any other act taken or omitted to be taken in
connection with the Plan; provided, however, that the provisions of Section 19.7
of the Plan will have no effect on the liability of any Entity that would
otherwise result from any such act or omission to the extent that such act or
omission is determined by a Final Order to have constituted gross negligence,
willful misconduct or breach of fiduciary duty. Any of the foregoing parties in
all respects shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan.
10. Supplemental Documents
Forms of the Amended Bylaws of Reorganized Fine Host, Amended
and Restated Certificate of Incorporation of Reorganized Fine Host, Reorganized
Fine Host Credit Agreement, and the definitive documentation with respect to the
Warrant Agreement, the Management Options and the Employment Contracts, all in
form and substance reasonably satisfactory to Fine Host and the Ad Hoc
Committee, will be contained in the Plan Supplement and will be filed with the
Bankruptcy Court at least ten (10) days prior to the Confirmation Hearing, or on
such other date as the Bankruptcy Court may establish. The Plan Supplement may
be inspected in the office of the Clerk of the Bankruptcy Court during hours
established therefor. In addition, holders of Claims and Equity Interests may
obtain a copy of the Plan Supplement from Fine Host by contacting Weil, Gotshal
& Manges LLP, counsel to Fine Host, 767 Fifth Avenue, New York, New York 10153,
Attention: Ms. Kathleen Lee.
G. Articles of Incorporation and By-Laws of Fine Host; Corporate Action
1. Amendment of Articles of Incorporation and By-Laws
The articles of incorporation and by-laws of Fine Host will be
amended as of the Effective Date to read substantially as set forth in the
Amended and Restated Certificate of Incorporation of Reorganized Fine Host and
Amended Bylaws of Reorganized Fine Host. In accordance with section 1123(a)(6)
of the Bankruptcy Code, the Amended and Restated Certificate of Incorporation of
Reorganized Host will contain a prohibition against the issuance of nonvoting
equity securities.
2. Corporate Action
On the Effective Date, the adoption of the Amended and
Restated Certificate of Incorporation of Reorganized Fine Host and Amended
Bylaws of Reorganized Fine Host will be authorized and approved in all respects,
in each case without further action under applicable law, regulation, order, or
rule, including, without limitation, any action by the stockholders of Fine Host
or Reorganized Fine Host. On the Effective Date, the cancellation of all Equity
Interests, the issuance of the Reorganized Fine Host Common Stock, the issuance
of the New Warrants, the approval and effectiveness of the Management Options,
employment agreements, severance, and other benefits described in the Plan, and
all other matters provided under the Plan involving the corporate structure of
Reorganized Fine Host or corporate action by Reorganized Fine Host will be
deemed to have occurred, be authorized, and will be in effect from and after the
Effective Date without requiring further action under applicable law,
regulation, order, or rule, including, without limitation, any action by the
stockholders of Fine Host or Reorganized Fine Host.
VI.
CERTAIN FACTORS TO BE CONSIDERED
IMPAIRED CREDITORS AND HOLDERS OF EQUITY INTERESTS SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN
THIS DISCLOSURE STATEMENT AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR
INCORPORATED BY REFERENCE HEREIN, PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN.
A. Variances from Projections
A fundamental premise of the Plan is the implementation and
realization of Reorganized Fine Host's proposed business plan, as reflected in
the Projections and the assumptions underlying such Projections. The Projections
reflect numerous assumptions concerning the anticipated future performance of
Reorganized Fine Host and with respect to prevailing market and economic
conditions, which are beyond the control of Reorganized Fine Host and which may
not materialize. The Projections include, among other items, assumptions
concerning the general economy, the ability to make necessary capital
expenditures, the ability to establish market strength, consumer purchasing
trends and preferences, and the ability to increase gross margin and control
future operating expenses (including labor costs, bad debts and other operating
costs). Fine Host believes that the assumptions underlying the Projections are
reasonable. However, unanticipated events and circumstances occurring subsequent
to the preparation of the Projections may affect the actual financial results of
Reorganized Fine Host. Therefore, the actual results achieved throughout the
periods covered by the Projections necessarily will vary from the projected
results, which variations may be material and adverse.
B. Significant Holders
Pursuant to the Plan, certain holders of Allowed Claims may
receive distributions of shares of Reorganized Fine Host Common Stock
representing in excess of five percent of the outstanding shares of Reorganized
Fine Host Common Stock. If holders of significant numbers of shares of
Reorganized Fine Host Common Stock were to act as a group, such holders may be
in a position to control the outcome of actions requiring shareholder approval,
including the election of directors. This concentration of ownership could
facilitate or hinder the negotiated change of control of Reorganized Fine Host
and, consequently, impact the value of the Reorganized Fine Host Common Stock.
Further, the possibility that one or more of the holders of
significant numbers of shares of Reorganized Fine Host Common Stock may
determine to sell all or a large portion of their shares in a short period of
time may adversely affect the market price of Reorganized Fine Host Common
Stock.
C. Lack of Trading Market
Reorganized Fine Host currently has no intention to seek the
listing of Reorganized Fine Host Common Stock. Accordingly, there can be no
assurance that an active trading market for such stock will develop, or, if
developed, that it will continue. In addition, there can be no assurance as to
the degree of price volatility in any market for Reorganized Fine Host Common
Stock that does develop. Accordingly, no assurance can be given that a holder of
Reorganized Fine Host Common Stock will be able to sell such securities in the
future or as to the price at which any such sale may occur. If such markets were
to exist, such securities could trade at prices higher or lower than the value
ascribed to such securities herein depending upon many factors, including
prevailing interest rates, markets for similar securities, general economic and
industry conditions, and the performance of, and investor expectations for,
Reorganized Fine Host.
In addition, holders of Reorganized Fine Host Common Stock who
are deemed to be statutory underwriters pursuant to section 1145(b) of the
Bankruptcy Code or who otherwise are deemed to be "affiliates" or "control
persons" of Reorganized Fine Host within the meaning of the Securities Act, will
be unable to freely transfer or sell their securities after the Effective Date,
except pursuant to an available exemption from registration under the Securities
Act and under equivalent state securities or "blue sky" laws. See Section V.E.3.
below, The Plan of Reorganization - Securities to Be Issued Pursuant to the Plan
- - Securities Law Matters.
D. Competitive Conditions
Fine Host and its subsidiaries (collectively, the
"Enterprise") encounter significant competition in each area of the contract
food service market in which it operates. Food service companies compete for
clients on the basis of quality and service standards, innovative approaches to
food service facilities design and maximization of sales and price (including
capital expenditures). Competition may result in price reductions, decreased
gross margins and loss of market share. Certain of the Enterprise's competitors
compete with the Enterprise on both a national and international basis and have
greater financial and other resources than the Enterprise. In addition, existing
or potential clients may elect to "self operate" their food service, eliminating
the opportunity for the Enterprise to compete for the account. There can be no
assurance that the Enterprise will be able to compete successfully in the future
or that competition will not have a material adverse effect on the Enterprise's
business, financial condition or results of operations.
E. Dividend Policies
Reorganized Fine Host presently intends to retain earnings for
working capital and to fund capital expenditure requirements, if any and,
therefore, does not anticipate paying any cash dividends on its common stock in
the foreseeable future. Certain institutional investors may only invest in
dividend-paying or similar current income producing equity securities or may
operate under other regulatory or contractual restrictions which may prohibit or
limit their ability to invest in Reorganized Fine Host Common Stock and,
therefore, impact adversely the market and/or market price for such stock.
F. Health and Other Governmental Regulations
The Enterprise's business is subject to various governmental
regulations incidental to its operations, such as environmental, employment and
health and safety regulations. Since it serves alcoholic beverages at many
convention centers and recreation and leisure facilities, the Enterprise also
holds liquor licenses incidental to its contract food service business and is
subject to the liquor license requirements of the states in which it holds a
liquor license. As of December 31, 1998, the Enterprise held liquor licenses in
22 states. While the application procedures and requirements for a liquor
license vary by state, the Enterprise has received an alcoholic beverage license
with respect to each application it has submitted, and has never had an
alcoholic beverage license revoked or suspended.
Typically, liquor licenses must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of the Enterprise's operations, including
minimum age of patrons and employees, hours of operation, advertising, wholesale
purchasing, inventory control and handling, and storage and dispensing of
alcoholic beverages. The Enterprise has not encountered any material problems
relating to alcoholic beverage licenses to date. The failure to receive or
retain a liquor license in a particular location could adversely affect the
Enterprise's ability to obtain such a license elsewhere.
The Enterprise is subject to "dram-shop" statutes in the
states in which its facilities are located. These statutes generally provide a
person injured by an intoxicated person the right to recover damages from an
establishment which wrongfully served alcoholic beverages to the intoxicated
individual. The Enterprise carries liquor liability coverage as part of its
existing comprehensive general liability insurance which it believes is
adequate. While the Enterprise maintains such insurance, there can be no
assurance that such insurance will be adequate to cover any potential liability
or that such insurance will continue to be available on commercially acceptable
terms.
In addition, various federal and state agencies impose
nutritional guidelines and other requirements on the Enterprise at certain of
the education, healthcare and corrections facilities it serves. The cost of the
Enterprise's compliance with governmental regulations has not been material.
However, there can be no assurance that additional federal or state legislation,
or changes in regulatory implementation, would not limit the activities of the
Enterprise in the future or significantly increase the cost of regulatory
compliance.
G. Certain Tax Matters
For a summary of the federal income tax consequences of the
Plan to holders of Certain Claims and holders of Equity Interests, and to Fine
Host, see Article XIII below, Certain Federal Income Tax Consequences of the
Plan.
VII.
VOTING PROCEDURES AND REQUIREMENTS
A. Holders of Claims
IT IS IMPORTANT THAT HOLDERS OF CLAIMS EXERCISE THEIR RIGHT TO
VOTE TO ACCEPT OR REJECT THE PLAN. All known holders of Claims entitled to vote
on the Plan have been sent a Ballot together with this Disclosure Statement.
Such holders should read the Ballot carefully and follow the instructions
contained therein. Please use only the Ballot (or Ballots) that accompanies this
Disclosure Statement.
FOR YOUR VOTE TO COUNT, YOUR BALLOT MUST BE RECEIVED BY THE
BALLOT AGENT (AS DEFINED BELOW), NO LATER THAN 5:00 P.M., NEW YORK CITY TIME, ON
MAY 7, 1999. IF YOU MUST RETURN YOUR BALLOT TO YOUR BANK OR BROKER, OR THE AGENT
OF EITHER, YOU MUST RETURN YOUR BALLOT TO THEM IN SUFFICIENT TIME FOR THEM TO
PROCESS IT AND RETURN IT TO THE BALLOT AGENT, BY THE VOTING DEADLINE.
ANY BALLOT WHICH IS EXECUTED AND RETURNED BUT WHICH DOES NOT
INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL BE DEEMED AN ACCEPTANCE OF
THE PLAN. IF YOU HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES OR IF A BALLOT
IS DAMAGED OR LOST, YOU MAY CONTACT THE BALLOTING AGENT AT THE ADDRESS SPECIFIED
BELOW OR BY TELEPHONING:
PRICEWATERHOUSECOOPERS LLP
P.O. BOX 958, TIMES SQUARE STATION
NEW YORK, NEW YORK 10108
ATTENTION: MR. RONALD ZAZWORSKY
PHONE: (212) 597-3182
Additional copies of this Disclosure Statement are available
upon written request to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ms. Kathleen Lee
B. Parties in Interest Entitled to Vote
Subject to the provisions of the Disclosure Order, any holder
of a Claim against Fine Host as of March 17, 1999, which Claim has not been
disallowed by order of the Bankruptcy Court, and is not disputed is entitled to
vote to accept or reject the Plan if (a) such Claim is impaired under the Plan
and is not of a class that is deemed to have accepted or rejected the Plan
pursuant to section 1126(f) and 1126(g) of the Bankruptcy Code and (b) either
(i) such holder's Claim has been scheduled by Fine Host (and such Claim is not
scheduled as disputed, contingent or unliquidated), or (ii) such holder has
filed a proof of claim on or before the Bar Date of February 16, 1999. Unless
otherwise permitted in the Plan, the holder of any Disputed Claim is not
entitled to vote with respect to such Disputed Claim, unless the Bankruptcy
Court, upon application by such holder, temporarily allows such Disputed Claim
for the limited purpose of voting to accept or reject the Plan. Any such
application must be heard and determined by the Bankruptcy Court on or before
fifteen (15) days prior to the Confirmation Hearing. A vote on the Plan may be
disregarded if the Bankruptcy Court determines, after notice and a hearing, that
such vote was not solicited or procured in good faith or in accordance with the
provisions of the Bankruptcy Code.
C. Classes Impaired and Entitled to Vote Under the Plan
Claims in Classes 3 (Subordinated Note Claims) and 5
(Debenture Rescission Claims) are impaired under the Plan and the holders of
such Claims are entitled to vote to accept or reject the Plan. Claims and Equity
Interests in Sub-Class 6A and Sub-Class 6B (Statutorily Subordinated Claims and
Equity Interests) are impaired under the Plan and are deemed to have rejected
the Plan in accordance with section 1126 of the Bankruptcy Code.
D. Vote Required for Acceptance by Class of Claims
The Bankruptcy Code defines acceptance of a plan by a class of
claims as acceptance by holders of at least two-thirds in dollar amount and more
than one-half in number of the claims of that class which actually cast ballots
for acceptance or rejection of the plan. Thus, acceptance by a class of Claims
occurs only if at least two-thirds in dollar amount and a majority in number of
the holders of Claims voting cast their Ballots in favor of acceptance. A vote
may be disregarded if the Bankruptcy Court determines, after notice and a
hearing, that such acceptance or rejection was not solicited or procured in good
faith or in accordance with the provisions of the Bankruptcy Code.
CREDITORS AND OTHER PARTIES IN INTEREST ARE CAUTIONED TO
REVIEW THE DISCLOSURE ORDER FOR A FULL UNDERSTANDING OF VOTING REQUIREMENTS,
INCLUDING, WITHOUT LIMITATION, USE OF BALLOTS AND MASTER BALLOTS IN CONNECTION
WITH THE VOTING OF SUBORDINATED NOTE CLAIMS.
VIII.
CONFIRMATION OF THE PLAN
Under the Bankruptcy Code, the following steps must be taken
to confirm the Plan.
A. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy
Court, after notice, to hold a hearing on confirmation of a plan. By order of
the Bankruptcy Court, the Confirmation Hearing has been scheduled for May 18,
1999, at 9:30 a.m., New York City Time, Courtroom of Chief Bankruptcy Judge
Peter J. Walsh, Sixth Floor of the United States Court House, 824 North Market
Street, Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned
from time to time by the Bankruptcy Court without further notice except for an
announcement made at the Confirmation Hearing or any adjournment thereof.
Section 1128(b) of the Bankruptcy Code provides that any party
in interest may object to confirmation of a plan. Any objection to confirmation
of the Plan must be in writing, conform to the Federal Rules of Bankruptcy
Procedure and the Local Rules of the Bankruptcy Court, set forth the name of the
objectant, the nature and amount of Claim or Equity Interest held or asserted by
the objectant against Fine Host's estate or property, the basis for the
objection and the specific grounds therefor, and be filed with the Bankruptcy
Court, with a copy to chambers, together with proof of service thereof, and
served upon (i) Weil, Gotshal & Manges LLP, Co-Attorneys for Fine Host, 767
Fifth Avenue, New York, New York 10153, Attention: Brian S. Rosen, Esq.; (ii)
Richards, Layton & Finger, P.A., Co-Attorneys for Fine Host, One Rodney Square,
Wilmington, Delaware 19899, Attention: Thomas L. Ambro, Esq., (iii) Kasowitz,
Benson, Torres & Friedman, LLP, Attorneys for the Ad Hoc Committee, 1301 Avenue
of the Americas, New York, New York, 10019, Attention: David M. Friedman, Esq.
and (iv) The United States Trustee for the District of Delaware, 601 Walnut
Street, Curtis Center, Suite 950 West, Philadelphia, Pennsylvania 19106,
Attention: Maria Gianaraikis, Esq., so as to be received no later than 4:00
P.M., New York City Time, on May 7, 1999.
Objections to confirmation of the Plan are governed by Federal
Rule of Bankruptcy Procedure 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY
SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
B. Requirements for Confirmation of the Plan
At the Confirmation Hearing, the Bankruptcy Court will confirm
the Plan only if all of the requirements of section 1129 of the Bankruptcy Code
are met. Among the requirements for confirmation are that the Plan (a) is
accepted by all impaired Classes of Claims and Equity Interests or, if rejected
by an impaired Class, that the Plan "does not discriminate unfairly" and is
"fair and equitable" as to such Class, (b) is feasible, and (c) is in the "best
interests" of holders of Claims and Equity Interests impaired under the Plan.
1. Acceptance
Claims in Classes 3 and 5 are impaired under and entitled to
vote on the Plan and, therefore, must accept the Plan in order for it to be
confirmed without application of the "fair and equitable test," described below,
to such Classes. As stated above, Classes 3 and 5 will have accepted the Plan if
the Plan is accepted by at least two-thirds in dollar amount and a majority in
number of the Claims of each such Class of such creditors (other than any such
creditor designated under section 1126(e) of the Bankruptcy Code) that have
voted to accept or reject the Plan. Claims and Equity Interests in Sub-Class 6A
and Sub-Class 6B, respectively, are impaired and are deemed to have rejected the
Plan in accordance with section 1126 of the Bankruptcy Code.
2. Fair and Equitable Test
Fine Host may seek to confirm the Plan notwithstanding the
nonacceptance of the Plan by any impaired Class of Claims or Equity Interests.
To obtain such confirmation, it must be demonstrated to the Bankruptcy Court
that the Plan "does not discriminate unfairly" and is "fair and equitable" with
respect to such dissenting impaired Class. A plan does not discriminate unfairly
if the legal rights of a dissenting class are treated in a manner consistent
with the treatment of other classes whose legal rights are substantially similar
to those of the dissenting class and if no class receives more than it is
entitled to for its claims or equity interests. Fine Host believes that the Plan
satisfies this requirement.
The Bankruptcy Code establishes different "fair and equitable"
tests for unsecured claims and equity interests, as follows:
(a) Unsecured Claims.
Either (i) each holder of an impaired unsecured claim receives
or retains under the plan property of a value equal to the amount of
its allowed claim or (ii) the holders of claims and interests that are
junior to the claims of the dissenting class will not receive any
property under the plan.
(b) Equity Interests.
Either (i) each equity interest holder will receive or retain
under the plan property of a value equal to the greater of (x) the
fixed liquidation preference or redemption price, if any, of such stock
or (y) the value of the stock, or (ii) the holders of interests that
are junior to the stock will not receive any property under the plan.
FINE HOST BELIEVES THAT THE PLAN MAY BE CONFIRMED ON A
NONCONSENSUAL BASIS (PROVIDED AT LEAST ONE IMPAIRED CLASS OF CLAIMS VOTES TO
ACCEPT THE PLAN). ACCORDINGLY, FINE HOST WILL DEMONSTRATE AT THE CONFIRMATION
HEARING THAT THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(b) OF THE
BANKRUPTCY CODE AS TO ANY NON-ACCEPTING CLASS.
3. Feasibility
The Bankruptcy Code requires that confirmation of a plan is
not likely to be followed by the liquidation or the need for further financial
reorganization of a debtor. For purposes of determining whether the Plan meets
this requirement, Fine Host has analyzed its ability to meet its obligations
under the Plan and has prepared projections for Reorganized Fine Host (the
"Projections") for the each of the four fiscal years in the period ending
December 31, 2002. The Projections, and the significant assumptions on which
they are based, are annexed hereto as Exhibit "E". Based upon such Projections,
Fine Host believes it will have sufficient assets to satisfy its obligations
under the Plan and that confirmation of the Plan is not likely to be followed by
liquidation or the need for further financial reorganization.
The Projections include:
(1) Significant Assumptions;
(2) Projected Pro Forma Consolidated Balance Sheets;
(3) Projected Pro Forma Consolidated Statements of
Operations; (4) Projected Pro Forma Consolidated
Statements of Cash Flows; and (5) Projected Pro Forma
Capitalization.
The Projections are based on the assumption that the Plan will
be confirmed by the Bankruptcy Court and, for projection purposes, that the
Effective Date of the Plan will take place no later than April 30, 1999.
4. "Best Interests" Test
With respect to each impaired Class of Claims and Equity
Interests, confirmation of the Plan requires that each such holder either (a)
accepts the Plan or (b) receives or retains under the Plan property of a value,
as of the Effective Date of the Plan, that is not less than the value such
holder would receive or retain if Fine Host was liquidated under Chapter 7 of
the Bankruptcy Code.
This analysis requires the Bankruptcy Court to determine what
the holders of Allowed Claims and Allowed Equity Interests in each impaired
class would receive from the liquidation of Fine Host's assets and properties in
the context of a Chapter 7 liquidation case. The cash amount which would be
available for the satisfaction of Unsecured Claims and Equity Interests of Fine
Host would consist of the proceeds resulting from the disposition of the
unencumbered assets of Fine Host, augmented by the unencumbered cash held by
Fine Host at the time of the commencement of the liquidation case. Such cash
amount would be reduced by the costs and expenses of the liquidation and by such
additional administrative and priority claims that may result from the
termination of Fine Host's business and the use of Chapter 7 for the purposes of
liquidation.
Fine Host's costs of liquidation under Chapter 7 would include
the fees payable to a trustee in bankruptcy, as well as those payable to
attorneys and other professionals that such a trustee may engage, plus any
unpaid expenses incurred by Fine Host during the Chapter 11 Case, such as
compensation for attorneys, financial advisors, accountants and costs and
expenses of members of any official committees that are allowed in the Chapter 7
case. In addition, claims would arise by reason of the breach or rejection of
obligations incurred and executory contracts entered into or assumed by Fine
Host during the pendency of the Chapter 11 Case.
The foregoing types of Claims and such other claims which may
arise in the liquidation case or result from the pending Chapter 11 Case would
be paid in full from the liquidation proceeds before the balance of those
proceeds would be made available to pay prepetition Claims.
To determine if the Plan is in the best interests of each
impaired class, the present value of the distributions from the proceeds of the
liquidation of Fine Host's assets and properties (after subtracting the amounts
attributable to the aforesaid claims) is then compared with the present value
offered to such classes of Claims and Equity Interests under the Plan.
In applying the "best interests" test, it is possible that
Claims and Equity Interests in the Chapter 7 case may not be classified
according to the seniority of such Claims and Equity Interests. In the absence
of a contrary determination by the Bankruptcy Court, all pre-Chapter 11
Unsecured Claims which have the same rights upon liquidation would be treated as
one class for the purposes of determining the potential distribution of the
liquidation proceeds resulting from the Chapter 7 case of Fine Host. The
distributions from the liquidation proceeds would be calculated on a pro rata
basis according to the amount of the Claim held by each creditor. Therefore,
creditors who claim to be third-party beneficiaries of any contractual
subordination provisions might have to seek to enforce such contractual
subordination provisions in the Bankruptcy Court or otherwise. Fine Host
believes that the most likely outcome of liquidation proceedings under Chapter 7
would be the application of the rule of absolute priority of distributions.
Under that rule, no junior creditor receives any distribution until all senior
creditors are paid in full with interest, and no stockholder receives any
distribution until all creditors are paid in full with post-petition interest.
Consequently, Fine Host believes that under Chapter 7, holders of Equity
Interests would receive no distributions.
After consideration of the effects that a Chapter 7
liquidation would have on the ultimate proceeds available for distribution to
creditors in the Chapter 11 case, including: (a) the increased costs and
expenses of a liquidation under Chapter 7 arising from fees payable to a trustee
in bankruptcy and professional advisors to such trustee; (b) the substantial
erosion in value of assets in a Chapter 7 case in the context of the expeditious
liquidation required under Chapter 7 and the "forced sale" atmosphere that would
prevail; (c) the adverse effects on the salability of business segments as a
result of the departure of key employees, the loss of customers and suppliers;
and (d) the substantial increases in claims which would be satisfied on a
priority basis or on parity with creditors in the Chapter 11 Case, Fine Host
believes that confirmation of the Plan will provide each holder of an Allowed
Claim or Allowed Equity Interest with not less than the amount it would receive
pursuant to liquidation of Fine Host under Chapter 7 of the Bankruptcy Code.
Fine Host also believes that the value of any distributions
from the liquidation proceeds to each class of allowed claims in a Chapter 7
case would be less than the value of distributions under the Plan because such
distributions in a Chapter 7 case would not occur for a substantial period of
time. It is likely that distribution of the proceeds of the liquidation could be
delayed for at least a year or more after the completion of such liquidation in
order to resolve claims and prepare for distributions. In the likely event
litigation were necessary to resolve claims asserted in the Chapter 7 case, the
delay could be prolonged.
The Debtor's Liquidation Analysis is attached hereto as
Exhibit "D". The information set forth in Exhibit "D" provides a summary of the
liquidation values of the Debtor's assets assuming a Chapter 7 liquidation in
which a trustee appointed by the Bankruptcy Court would liquidate the assets of
the Debtor's estate. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis. The
Liquidation Analysis was prepared by management of Fine Host with the assistance
of BT Alex. Brown.
Underlying the Liquidation Analysis are a number of estimates
and assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of Fine Host and management.
The Liquidation Analysis is also based upon assumptions with regard to
liquidation decisions that are subject to change. Accordingly, the values
reflected may not be realized if Fine Host was, in fact, to undergo such a
liquidation. The Chapter 7 liquidation period is assumed to be a period of six
to twelve months following the discontinuance of operations. This period would
allow for the collection of receivables, selling of assets including service
contracts, and the winding down of operations.
IX.
PROJECTIONS
A. Introduction
1. Purpose of the Projections
As a condition to confirmation of a plan, the Bankruptcy Code
requires, among other things, that the Bankruptcy Court determine that
confirmation is not likely to be followed by the liquidation or the need for
further financial reorganization of Fine Host. See Section VIII above,
Confirmation of the Plan -- Requirements for Confirmation of the Plan. In
connection with the development of the Plan, and for purposes of determining
whether the Plan satisfies this feasibility standard, Fine Host's management has
analyzed the ability of Fine Host to meet its obligations under the Plan. In
this regard, Fine Host developed business plans and Projections of earnings,
cash flows and financial position for each of the four fiscal years in the
period ending December 31, 2002. See Section VIII above, Confirmation of the
Plan -- Requirements For Confirmation of the Plan -- Feasibility.
The Projections, annexed hereto as Exhibit "E", should be read
in conjunction with the assumptions, qualifications, and the footnotes to tables
containing the Projections set forth therein, the historical consolidated
financial information (including the notes and schedules thereto) and the other
information set forth in the Annual Report on Form 10-K and the Quarterly Report
on Form 10-Q annexed hereto as Exhibits "F" and "G", respectively, the full
texts of which are incorporated herein by reference, and the Selected Financial
Data appearing in Article X below, Financial Information. The Projections were
prepared in good faith based upon assumptions believed to be reasonable and
applied in a manner consistent with past practice.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO COMPLYING
WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS ("AICPA") OR THE FINANCIAL
ACCOUNTING STANDARDS BOARD ("FASB"). FINE HOST'S INDEPENDENT ACCOUNTANTS,
PRICEWATERHOUSECOOPERS LLP, HAVE NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING
PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND,
ACCORDINGLY, HAVE NOT EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE WITH
RESPECT THERETO.
FINE HOST DOES NOT, AS A MATTER OF COURSE, PUBLISH ITS
BUSINESS PLANS AND STRATEGIES OR PROJECTIONS OF ITS ANTICIPATED FINANCIAL
POSITION, RESULTS OF OPERATIONS OR CASH FLOWS. ACCORDINGLY, FINE HOST DOES NOT
INTEND, AND DISCLAIMS ANY OBLIGATION TO, (A) FURNISH UPDATED BUSINESS PLANS OR
PROJECTIONS TO HOLDERS OF CLAIMS OR EQUITY INTERESTS PRIOR TO THE EFFECTIVE DATE
OR TO HOLDERS OF REORGANIZED FINE HOST COMMON STOCK OR ANY OTHER PARTY AFTER THE
EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS WHICH MAY
BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH UPDATED
INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN
PREPARED BY FINE HOST'S MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, NECESSARILY ARE BASED UPON A VARIETY OF ESTIMATES AND
ASSUMPTIONS, WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE
REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
PARTIES' CONTROL. FINE HOST CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS TO
THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO THE ABILITY OF REORGANIZED
FINE HOST TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT
MATERIALIZE, AND EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON
WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED, OR
MAY BE UNANTICIPATED AND THUS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND
POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A
GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
X.
FINANCIAL INFORMATION
A. General
The audited consolidated balance sheets for the fiscal years
ended December 25, 1996 and December 31, 1997 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years ended December 31, 1997, December 25, 1996, and December 27,
1995 (unaudited), of Fine Host and its subsidiaries are contained in the Annual
Report on Form 10-K, a copy of which is annexed hereto as Exhibit "F", and the
full text of which is incorporated herein by reference. In addition, the
unaudited consolidated balance sheets for the fiscal quarter ended September 30,
1998, and the related consolidated statements of operations and cash flows for
the fiscal quarter ended September 30, 1998 of Fine Host and its subsidiaries
are contained in the Quarterly Report on Form 10-Q, a copy of which is annexed
hereto as Exhibit "G", and the full text of which is incorporated herein by
reference. The aforementioned financial information is provided to permit the
holders of Claims and Equity Interests to better understand Fine Host's
historical business performance.
B. Selected Financial Data
Reference is made to "Item 6. Selected Financial Data" set
forth in the Annual Report on Form 10-K and "Part I. Financial Statements" set
forth in the Quarterly Report on Form 10-Q, which are annexed hereto as Exhibits
"E" and "F", respectively, and the full texts of which are incorporated herein
by reference.
C. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For a detailed discussion by management of Fine Host's
financial condition, most recent results of operations, liquidity and capital
resources, reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report on Form 10-K
and Quarterly Report on Form 10-Q, which are annexed hereto as Exhibits "F" and
"G", and the full texts of which are incorporated herein by reference.
XI.
REORGANIZATION VALUE
Fine Host has been advised by BT Alex. Brown, its financial
advisor, with respect to the reorganization value of Reorganized Fine Host on a
going concern basis. Solely for purposes of the Plan, the estimated range of
reorganization values of Reorganized Fine Host, after distributions of cash
pursuant to the Plan, was assumed to be approximately $95 million to $130
million (with a midpoint value of $112.5 million) as of an assumed Effective
Date of April 30, 1999.
THE ASSUMED RANGE OF THE REORGANIZATION VALUE, AS OF AN
ASSUMED EFFECTIVE DATE OF APRIL 30, 1999, REFLECTS WORK PERFORMED BY BT ALEX.
BROWN ON THE BASIS OF INFORMATION IN RESPECT OF THE BUSINESS AND ASSETS OF FINE
HOST AVAILABLE TO BT ALEX. BROWN AS OF JANUARY 9, 1999. NEITHER BT ALEX. BROWN
NOR FINE HOST HAS UPDATED THE ESTIMATED RANGE OF THE REORGANIZATION VALUE TO
REFLECT INFORMATION AVAILABLE TO FINE HOST OR BT ALEX. BROWN SUBSEQUENT TO
JANUARY 9, 1999. HOWEVER, BT ALEX. BROWN SUBSEQUENTLY REVIEWED THE RANGE OF THE
REORGANIZATION VALUE BASED ON ADDITIONAL INFORMATION IN RESPECT OF THE BUSINESS
AND ASSETS OF FINE HOST AVAILABLE TO BT ALEX. BROWN AS OF FEBRUARY 15, 1999, AND
DETERMINED THAT THE RANGE OF REORGANIZATION VALUE MAY IN FACT BE AT OR BELOW THE
MID-POINT VALUE OF THE RANGE.
Based upon the assumed range of the reorganization value of
Reorganized Fine Host of between $95.0 million and $130.0 million and an assumed
total debt (including capital lease obligations) of approximately $5.5 million,
Fine Host has employed an imputed estimate of the range of equity value for
Reorganized Fine Host of between $89.5 million and $124.5 million, with a
midpoint value of $107.0 million. Assuming a distribution of 10,000,000 shares
of Reorganized Fine Host Common Stock pursuant to the Plan, the imputed estimate
of the range of equity value on a per share basis for Reorganized Fine Host is
between $8.95 and $12.45 per share, with a midpoint value of $10.70 per share.
For purposes of determining reorganization value, BT Alex.
Brown assumed that the impact on the equity value of Reorganized Fine Host from
the issuance of the New Warrants and the Management Options would be minimal.
This assumption is based on among other reasons, the fact that there is minimal
economic dilution given (i) the $13.19 exercise price of the New Warrants is
higher than the midpoint value of $10.70 per share, and (ii) the strike price of
75% of the Management Options is higher than the midpoint value of $10.70 per
share (the remaining 25% of the Management Options have a $10.00 strike price).
The foregoing estimates of the reorganization value of
Reorganized Fine Host are based on a number of assumptions, including a
successful reorganization of Fine Host's business and finances in a timely
manner, the implementation of the Reorganized Fine Host's business plan, the
achievement of the forecasts reflected in the Projections, market conditions as
of February 15, 1999, continuing through the assumed Effective Date of April 30,
1999, and the Plan becoming effective in accordance with the estimates and other
assumptions discussed herein.
IN ESTIMATING THE RANGE OF THE REORGANIZATION VALUE OF
REORGANIZED FINE HOST, BT ALEX. BROWN: (I) REVIEWED CERTAIN HISTORICAL FINANCIAL
INFORMATION OF FINE HOST FOR RECENT YEARS AND INTERIM PERIODS; (II) REVIEWED
CERTAIN INTERNAL FINANCIAL AND OPERATING DATA OF FINE HOST INCLUDING FINANCIAL
PROJECTIONS, PREPARED AND PROVIDED BY MANAGEMENT RELATING TO ITS BUSINESS AND
ITS PROSPECTS; (III) MET WITH CERTAIN MEMBERS OF SENIOR MANAGEMENT OF FINE HOST
TO DISCUSS FINE HOST'S OPERATIONS AND FUTURE PROSPECTS; (IV) REVIEWED PUBLICLY
AVAILABLE FINANCIAL DATA AND CONSIDERED THE MARKET VALUES OF PUBLIC COMPANIES
WHICH BT ALEX. BROWN DEEMED GENERALLY COMPARABLE TO THE OPERATING BUSINESS OF
FINE HOST; (V) CONSIDERED CERTAIN ECONOMIC AND INDUSTRY INFORMATION RELEVANT TO
THE OPERATING BUSINESS; AND (VI) REVIEWED CERTAIN ANALYSES PREPARED BY OTHER
FIRMS RETAINED BY FINE HOST AND CONDUCTED SUCH OTHER STUDIES, ANALYSES
INQUIRIES, AND INVESTIGATIONS AS IT DEEMED APPROPRIATE. ALTHOUGH BT ALEX. BROWN
CONDUCTED A REVIEW AND ANALYSIS OF FINE HOST'S BUSINESS, OPERATING ASSETS AND
LIABILITIES AND REORGANIZED FINE HOST'S BUSINESS PLANS, IT ASSUMED AND RELIED ON
THE ACCURACY AND COMPLETENESS OF ALL (I) FINANCIAL AND OTHER INFORMATION
FURNISHED TO IT BY FINE HOST AND BY OTHER FIRMS RETAINED BY FINE HOST, AND (II)
PUBLICLY AVAILABLE INFORMATION, INCLUDING TO THE EXTENT RELEVANT PRECEDENT
TRANSACTIONS. SEE EXHIBIT "H" HERETO FOR A DISCUSSION OF PRECEDENT TRANSACTIONS
AND THE APPROPRIATE WEIGHT ACCORDED SUCH TRANSACTIONS. IN ADDITION, BT ALEX.
BROWN DID NOT INDEPENDENTLY VERIFY MANAGEMENT'S PROJECTIONS IN CONNECTION WITH
SUCH ESTIMATES OF THE REORGANIZATION VALUE, AND NO INDEPENDENT VALUATIONS OR
APPRAISALS OF FINE HOST WERE SOUGHT OR OBTAINED IN CONNECTION HEREWITH.
ESTIMATES OF THE REORGANIZATION VALUE DO NOT PURPORT TO BE
APPRAISALS OR NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE
SOLD AS A GOING CONCERN, IN LIQUIDATION, OR OTHERWISE.
IN THE CASE OF REORGANIZED FINE HOST, THE ESTIMATES OF THE
REORGANIZATION VALUE PREPARED BY BT ALEX. BROWN REPRESENT THE HYPOTHETICAL
REORGANIZATION ENTERPRISE VALUE OF REORGANIZED FINE HOST. SUCH ESTIMATES WERE
DEVELOPED SOLELY FOR PURPOSES OF THE FORMULATION AND NEGOTIATION OF A PLAN OF
REORGANIZATION AND THE ANALYSIS OF IMPLIED RELATIVE RECOVERIES TO CREDITORS
THEREUNDER. SUCH ESTIMATES REFLECT COMPUTATIONS OF THE RANGE OF THE ESTIMATED
REORGANIZATION ENTERPRISE VALUE OF REORGANIZED FINE HOST THROUGH THE APPLICATION
OF VARIOUS VALUATION TECHNIQUES AND DO NOT PURPORT TO REFLECT OR CONSTITUTE
APPRAISALS, LIQUIDATION VALUES OR ESTIMATES OF THE ACTUAL MARKET VALUE THAT MAY
BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE ISSUED PURSUANT TO THE
PLAN, WHICH MAY BE SIGNIFICANTLY DIFFERENT THAN THE AMOUNTS SET FORTH HEREIN.
THE VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS
UNCERTAINTIES AND CONTINGENCIES WHICH ARE DIFFICULT TO PREDICT, AND WILL
FLUCTUATE WITH CHANGES IN FACTORS AFFECTING THE FINANCIAL CONDITION AND
PROSPECTS OF SUCH A BUSINESS. AS A RESULT, THE ESTIMATE OF THE RANGE OF THE
REORGANIZATION ENTERPRISE VALUE OF REORGANIZED FINE HOST SET FORTH HEREIN IS NOT
NECESSARILY INDICATIVE OF ACTUAL OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR
LESS FAVORABLE THAN THOSE SET FORTH HEREIN. BECAUSE SUCH ESTIMATES ARE
INHERENTLY SUBJECT TO UNCERTAINTIES, NEITHER FINE HOST, BT ALEX. BROWN, NOR ANY
OTHER PERSON ASSUMES RESPONSIBILITY FOR THEIR ACCURACY. IN ADDITION, THE
VALUATION OF NEWLY-ISSUED SECURITIES IS SUBJECT TO ADDITIONAL UNCERTAINTIES AND
CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. ACTUAL MARKET PRICES OF
SUCH SECURITIES AT ISSUANCE WILL DEPEND UPON, AMONG OTHER THINGS, PREVAILING
INTEREST RATES, CONDITIONS IN THE FINANCIAL MARKETS, THE ANTICIPATED INITIAL
SECURITIES HOLDINGS OF PREPETITION CREDITORS, SOME OF WHICH MAY PREFER TO
LIQUIDATE THEIR INVESTMENT RATHER THAN HOLD IT ON A LONG-TERM BASIS, AND OTHER
FACTORS WHICH GENERALLY INFLUENCE THE PRICES OF SECURITIES.
THE ESTIMATES OF THE REORGANIZATION VALUE DETERMINED BY BT
ALEX. BROWN REPRESENT ESTIMATED REORGANIZATION VALUES AND DO NOT REFLECT VALUES
THAT COULD BE ATTAINABLE IN THE PUBLIC OR PRIVATE MARKETS. THE IMPUTED ESTIMATE
OF THE RANGE OF THE REORGANIZATION EQUITY VALUE OF REORGANIZED FINE HOST
ASCRIBED IN THE ANALYSIS DOES NOT PURPORT TO BE AN ESTIMATE OF THE
POST-REORGANIZATION MARKET TRADING VALUE. ANY SUCH TRADING VALUE MAY BE
MATERIALLY DIFFERENT FROM THE IMPUTED ESTIMATE OF THE REORGANIZATION EQUITY
VALUE RANGE FOR REORGANIZED FINE HOST ASSOCIATED WITH BT ALEX. BROWN'S VALUATION
ANALYSIS.
Reorganized Fine Host may, in its discretion, seek to list
Reorganized Fine Host Common Stock for trading. There can be no assurance,
however, that the stock will be so listed and, if so listed, that an active
trading market would develop.
XII.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION
OF THE PLAN
Fine Host has evaluated several alternatives to the Plan,
including the liquidation of Fine Host. After studying these alternatives, Fine
Host has concluded that the Plan is the best alternative and will maximize
recoveries by parties in interest, assuming confirmation of the Plan. The
following discussion provides a summary of Fine Host's analysis leading to its
conclusion that a liquidation or alternative plan of reorganization would not
provide the highest value to parties in interest.
A. Liquidation Under Chapter 7
If no plan of reorganization can be confirmed, Fine Host's
Chapter 11 Case may be converted to a case under Chapter 7 of the Bankruptcy
Code in which a trustee would be elected or appointed to liquidate the assets of
Fine Host for distribution to its creditors in accordance with the priorities
established by the Bankruptcy Code. A discussion of the effect that a Chapter 7
liquidation would have on the recovery of holders of Allowed Claims and Allowed
Equity Interests is set forth in Section VIII.B.4., Confirmation of the Plan -
Requirements for Confirmation of the Plan - Best Interests Test. Fine Host
believes that liquidation under Chapter 7 would result in (1) smaller
distributions being made to creditors than those provided for in the Plan, (2)
no distributions being made to holders of Equity Interests, and (3) the failure
to realize the greater going concern value of the Debtor's assets.
B. Alternative Plan of Reorganization
If the Plan is not confirmed, Fine Host or any other party in
interest could attempt to formulate a different plan. Such a plan might involve
either a reorganization and continuation of Fine Host's business or an orderly
liquidation of its assets. Fine Host believes that the Plan, as described
herein, enables holders of Claims and Equity Interests to realize the greatest
recovery under the circumstances. In a liquidation under Chapter 11, Fine Host's
assets would be sold in an orderly fashion over a more extended period of time
than in a liquidation under Chapter 7, probably resulting in somewhat greater
recoveries then under Chapter 7. Further, if a trustee were not appointed,
because one is not required in a Chapter 11 case, the expenses for professional
fees would most likely be lower than in a Chapter 7 case. Although preferable to
a Chapter 7 liquidation, Fine Host believes that a liquidation under Chapter 11
is a much less attractive alternative to holders of Claims and Equity Interests
than the Plan because the return to holders of Claims and Equity Interests
provided for in the Plan is likely to be greater than the returns under a
Chapter 11 liquidation.
XIII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income tax
consequences of the implementation of the Plan to the Debtor and certain holders
of Claims and Equity Interests. The following summary does not address the
federal income tax consequences to holders of claims that are entitled to
payment in full under the Plan (e.g., holders of Allowed General Unsecured
Claims, holders of Allowed Priority Tax Claims) and to holders of Allowed
Secured Claims).
The following summary is based on the IRC, Treasury
regulations promulgated and proposed thereunder, judicial decisions and
published administrative rules and pronouncements of the Internal Revenue
Service ("IRS") as in effect on the date hereof. Changes in such rules or new
interpretations thereof may have retroactive effect and could significantly
affect the federal income tax consequences described below.
The federal income tax consequences of the Plan are complex
and are subject to significant uncertainties. The Debtor has not requested a
ruling from the IRS or an opinion of counsel with respect to any of the tax
aspects of the Plan. Thus, no assurance can be given as to the interpretation
that the IRS will adopt. In addition, this summary does not address foreign,
state or local tax consequences of the Plan, nor does it purport to address the
federal income tax consequences of the Plan to special classes of taxpayers
(such as foreign taxpayers, broker-dealers, banks, mutual funds, insurance
companies, financial institutions, small business investment companies,
regulated investment companies, tax-exempt organizations, and investors in
pass-through entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME
TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES
PERTAINING TO A HOLDER OF A CLAIM OR EQUITY INTEREST. ALL HOLDERS OF CLAIMS OR
EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL,
STATE, LOCAL AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN OF
REORGANIZATION.
A. Consequences to the Debtor
The Debtor reported a consolidated net operating loss ("NOL")
carryforward for federal income tax purposes of approximately $28.8 million as
of the end of its taxable year ended December 31, 1997, and expects to report a
further loss for its taxable year ended December 31, 1998. Additional NOLs may
be recognized prior to the Effective Date. The amount of such NOL carryforwards
and other losses remain subject to adjustment by the IRS. Moreover, as discussed
below, such NOL carryforwards (and possibly certain other tax attributes of the
Debtor) may be reduced or subject to limitation upon the implementation of the
Plan.
1. Cancellation of Debt
In general, the IRC provides that a debtor in a bankruptcy
case must reduce certain of its tax attributes -- such as its NOL carryforwards
and current year NOLs, tax credits, and tax basis in assets -- by the amount of
any cancellation of debt ("COD"). COD is the amount by which the indebtedness
discharged exceeds any consideration given in exchange therefor. Any reduction
in tax attributes generally occurs on a separate company basis, even though the
Debtor files a consolidated federal income tax return. As a result of the
satisfaction and discharge of Claims pursuant to the Plan (in particular the
Subordinated Note Claims), the Debtor will suffer COD and attribute reduction,
except to the extent that one or more statutory exceptions to COD and attribute
reduction apply (such as where the payment of the Claim would have given rise to
a tax deduction). The extent of such COD and resulting attribute reduction will
depend primarily on the amount of cash and the fair market value of the
Reorganized Fine Host Common Stock distributed in satisfaction of the
Subordinated Note Claims. Based on the midpoint of the range of estimated
imputed equity values for the Reorganized Fine Host Common Stock (see Section V,
Reorganization Value, above) and approximately $45 million of Creditor Cash, the
Debtor anticipates that it will incur approximately $24 million of COD and
resulting attribute reduction for federal income tax purposes.
2. Limitations on NOL Carryforwards
and Other Tax Attributes
Following the implementation of the Plan, any consolidated
NOLs (and carryforwards thereof) and certain other tax attributes of the Debtor
allocable to periods prior to the Effective Date will be subject to the
limitations imposed by Section 382 of the IRC.
Under Section 382, if a corporation undergoes an "ownership
change," the amount of its pre-change losses that may be utilized to offset
future taxable income is, in general, subject to an annual limitation. Such
limitation also may apply to certain losses or deductions which are "built-in"
(i.e., economically accrued but unrecognized) as of the date of the ownership
change that are subsequently recognized. The issuance of Reorganized Fine Host
Common Stock pursuant to the Plan will constitute an ownership change of the
Debtor.
The amount of the annual limitation to which the Debtor would
be subject generally should be equal to the product of (i) the lesser of the
value of the equity of Reorganized Fine Host immediately after the ownership
change or the value of the Debtor's consolidated gross assets immediately before
such change (with certain adjustments) and (ii) the "long-term tax exempt rate"
in effect for the month in which the ownership change occurs (4.70% for
ownership changes occurring in February 1999). However, if the Debtor does not
continue its historic business or use a significant portion of its business
assets in a new business for two years after the ownership change, the annual
limitation would be zero.
As stated above, Section 382 also can operate to limit
built-in losses recognized subsequent to the date of the ownership change. If a
loss corporation has a net unrealized built-in loss at the time of an ownership
change (taking into account most assets and all items of "built-in" income and
deductions), then any built-in losses recognized during the following five years
(up to the amount of the original net built-in loss) generally will be treated
as a pre-change loss and similarly will be subject to the annual limitation.
Conversely, if the loss corporation has a net unrealized built-in gain at the
time of an ownership change, any built-in gains recognized during the following
five years (up to the amount of the original net built-in gain) generally will
increase the annual limitation in the year recognized, such that the loss
corporation would be permitted to use its pre-change losses against such
built-in gain income in addition to its regular annual allowance. In general, a
loss corporation's net unrealized built-in gain or loss will be deemed to be
zero unless it is greater than the lesser of (i) $10 million or (ii) 15% of the
fair market value of its assets (with certain adjustments) before the ownership
change. It is not known whether the Debtor will be in a net unrealized built-in
gain or a net unrealized built-in loss position on the Effective Date.
Although an exception to the foregoing annual limitation rules
generally applies where so-called "old and cold" creditors of the debtor receive
at least 50% of the vote and value of the stock of the reorganized debtor, due
to the significant accumulations of Subordinated Note Claims the Debtor does not
anticipate that it will qualify for this exception.
3. Alternative Minimum Tax
In general, an alternative minimum tax ("AMT") is imposed on a
corporation's alternative minimum taxable income at a 20% rate to the extent
such tax exceeds the corporation's regular federal income tax. For purposes of
computing taxable income for AMT purposes, certain tax deductions and other
beneficial allowances are modified or eliminated. In particular, even though a
corporation otherwise might be able to offset all of its taxable income for
regular tax purposes by available NOL carryforwards, only 90% of a corporation's
taxable income for AMT purposes may be offset by available NOL carryforwards (as
recomputed for AMT purposes).
In addition, if a corporation undergoes an "ownership change"
within the meaning of Section 382 of the IRC and is in a net unrealized built-in
loss position (as determined for AMT purposes) on the date of the ownership
change, the corporation's aggregate tax basis in its assets would be reduced for
certain AMT purposes to reflect the fair market value of such assets as of the
change date.
Any AMT that a corporation pays generally will be allowed as a
nonrefundable credit against its regular federal income tax liability in future
taxable years when the corporation is no longer subject to the AMT.
4. Transfer of Litigation Trust Claims
Pursuant to the Plan, the Litigation Trust Claims will be
treated as transferred to the holders of Claims and Equity Interests in Classes
5 and 6 (and then, on their behalf, to the Litigation Trust). It is possible
that the transfer of the Litigation Trust Claims will result in the recognition
of income by the Debtor based on the value of such Claims on the Effective Date.
Nevertheless, due to available NOL carryforwards, the Debtor does not anticipate
that a significant tax liability (if any) will be incurred as a result of such
transfer.
B. Consequences to Certain Holders of Claims and Equity Interests
1. Subordinated Note Claims
Pursuant to the Plan, holders of Allowed Subordinated Note
Claims will receive, in satisfaction of their Claims, Creditor Cash and
Reorganized Fine Host Common Stock. Although certain holders of Subordinated
Note Claims may also hold Debenture Rescission Claims, the following discussion
does not take into account any amounts that such holder may receive in respect
of its Debenture Rescission Claims. Holders of Subordinated Notes who are also
holders of Debenture Rescission Claims are urged to consult their tax advisors
concerning the consequences of the Plan to them.
The federal income tax consequences of the Plan to a holder of
an Allowed Subordinated Note Claim depends, in part, on whether such note
constitutes "securities" for federal income tax purposes. The term "security" is
not defined in the IRC or in the Treasury regulations promulgated thereunder and
has not been clearly defined by judicial decisions. The determination of whether
a particular debt constitutes a "security" depends upon an overall evaluation of
the nature of the debt. One of the most significant factors considered in
determining whether a particular debt is a security is its original term. In
general, debt obligations issued with a weighted average maturity at issuance of
five years or less (e.g., trade debt and revolving credit obligations) do not
constitute securities, whereas debt obligations with a weighted average maturity
at issuance of 10 years or more constitute securities. Each holder of a
Subordinated Note Claim is urged to consult its tax advisor regarding the status
of such notes.
(a) Subordinated Notes Do Not Constitute "Securities"
In general, if the Subordinated Notes do not constitute
"securities" for federal income tax purposes, each holder will recognize gain or
loss in an amount equal to the difference between (i) the "amount realized" by
the holder in satisfaction of its Allowed Subordinated Note Claims (other than
any Claim for accrued interest) and (ii) the holder's adjusted tax basis in its
Subordinated Note Claims (other than any Claim for accrued but unpaid interest).
See "Distributions in Discharge of Accrued Interest", below. The amount realized
by a holder will equal the sum of the fair market value of any Reorganized Fine
Host Common Stock and the amount of any Creditor Cash received by such holder.
Where gain or loss is recognized by a holder of a Subordinated
Note Claim, the character of such gain or loss as long-term or short-term
capital gain or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the holder, whether the
Subordinated Note constitutes a capital asset in the hands of the holder and how
long it has been held, whether the Subordinated Note was acquired at a market
discount, and whether and to what extent the holder had previously claimed a bad
debt deduction.
A holder's aggregate tax basis in any Reorganized Fine Host
Common Stock received in satisfaction of Subordinated Note Claims that do not
constitute "securities" for federal income tax purposes will equal the fair
market value of such stock and the holding period for such stock generally will
begin the day following the issuance of such stock.
(b) Subordinated Notes Constitute "Securities"
If the Subordinated Notes constitute "securities" for federal
income tax purposes, the receipt of the Reorganized Fine Host Common Stock and
Creditor Cash in satisfaction of the Subordinated Note Claims will constitute a
"recapitalization" for federal income tax purposes. Accordingly, no holder will
generally be permitted to recognize a loss upon such exchange. However, a holder
generally will be required to include in income any gain realized (computed as
described in the preceding section), up to the amount of any Creditor Cash
received by such holder (other than on account of any Claim for accrued but
unpaid interest). See "Distributions in Discharge of Accrued Interest", below.
The character of such gain as capital gain or ordinary income will depend on a
number of factors as described in the preceding section.
A holder's aggregate tax basis in the Reorganized Fine Host
Common Stock received in satisfaction of its Subordinated Note Claims will equal
the holder's aggregate adjusted tax basis in its Subordinated Notes (including
any Claim for accrued but unpaid interest), increased by any gain or interest
income recognized in respect of its Subordinated Note Claims and decreased by
the amount of cash received and any deduction claimed in respect of any unpaid
previously accrued interest. In general, the holder's holding period for the
Reorganized Fine Host Common Stock received will include the holder's holding
period for the Subordinated Notes, except to the extent the Reorganized Fine
Host Common Stock was issued in respect of a Claim for accrued but unpaid
interest.
(c) Distributions in Discharge of Accrued Interest
Pursuant to the Plan, all distributions in respect of the
Subordinated Notes will be allocated first to the principal amount of the
Subordinated Notes, with any excess allocated to unpaid accrued interest.
However, there is no assurance that such allocation would be respected by the
IRS for federal income tax purposes. In general, to the extent any amount
received (whether stock, cash or other property) by a holder of a debt is
received in satisfaction of accrued interest during its holding period, such
amount will be taxable to the holder as interest income (if not previously
included in the holder's gross income). Conversely, a holder generally
recognizes a deductible loss to the extent any accrued interest claimed was
previously included in its gross income and is not paid in full. Each holder of
a Subordinated Note is urged to consult its tax advisor regarding the allocation
of consideration and the deductibility of unpaid interest for tax purposes.
(d) Future Stock Gains
Any gain recognized by a holder upon a subsequent taxable
disposition of Reorganized Fine Host Common Stock received pursuant to the Plan
in satisfaction of its Subordinated Note Claims (or any stock or other property
received for such common stock in a later tax-free exchange) will be treated as
ordinary income to the extent of (i) any bad debt deductions (or additions to a
bad debt reserve) claimed with respect to its Subordinated Note Claims and any
ordinary loss deduction incurred upon satisfaction of such Claims, less any
income (other than interest income) recognized by the holder upon satisfaction
of such Claims, and (ii) with respect to a cash-basis holder, also any amounts
which would have been included in its gross income if the holder's Subordinated
Note Claims had been satisfied in full but which was not included by reason of
the cash method of accounting.
In addition, the Treasury Department is expected to promulgate
regulations that will provide that any accrued "market discount" not treated as
ordinary income upon a tax-free exchange of market discount bonds would carry
over to the nonrecognition property received in the exchange. If such
regulations are promulgated and applicable to the Plan and if the Subordinated
Notes constitute "securities", any holder of a Subordinated Note which has
accrued market discount would carry over such accrued market discount to the
Reorganized Fine Host Common Stock received pursuant to the Plan, such that any
gain recognized by the holder upon a subsequent disposition of such Reorganized
Fine Host Common Stock also would be treated as ordinary income to the extent of
any accrued market discount not previously included in income. In general, a
Subordinated Note will have accrued "market discount" if such note was acquired
after its original issuance at a discount to its adjusted issue price.
2. Equity Interests
Pursuant to the Plan, holders of Allowed Equity Interests will
receive, in cancellation of their interests, Litigation Trust Interests,
Reorganized Fine Host Common Stock and New Warrants (unless the Plan is not
accepted by Class 3 or Class 5, in which event no distributions of any kind
shall be made to such holders). The Reorganized Fine Host Common Stock and the
New Warrants will not be distributed until the Final Distribution Date. Such
holders may be treated as receiving additional distributions of Litigation Trust
Interests as Disputed Claims and Disputed Equity Interests in Classes 5 and 6
are resolved.
In general, no holder of an Allowed Equity Interest will be
permitted to recognize any loss in respect of its Equity Interest. However, a
holder generally will be required to include in income any gain realized
(computed as described below) to the extent of the fair market value of its
interest in the Litigation Trust Claims (other than any amount treated as
imputed interest as a result of the subsequent receipt of additional interests
in the Litigation Trust Claims upon the disallowance of any Disputed Claims or
Disputed Equity Interests). In addition, because the Reorganized Fine Host
Common Stock and New Warrants are not distributed until delayed until the Final
Distribution Date, the original issue discount and imputed interest provisions
of the IRC may apply to treat a portion of such distribution as imputed interest
for federal income tax purposes. Such imputed interest may accrue over time
using the constant interest method and holders of Equity Interests may be forced
to include such imputed interest in income as it accrues.
A holder will realize gain in an amount equal to the excess,
if any, of (i) the "amount realized" by the holder in cancellation of its Equity
Interests over (ii) the holder's adjusted tax basis in its Equity Interests. The
amount realized by a holder will equal the aggregate fair market value of the
holder's interest in the Litigation Trust Claims and the Reorganized Fine Host
Common Stock and New Warrants received by such holder (other than any such
amounts characterized as imputed interest for federal income tax purposes). The
character of any gain recognized as capital gain or ordinary (dividend) income
will be determined as described below.
In accordance with the Plan, all parties are required to treat
the transfer of Litigation Trust Claims to the Litigation Trust for all federal
income tax purposes as a direct transfer to the holders of Claims and Equity
Interests in Classes 5 and 6, followed by a transfer by such holders to the
Litigation Trust in exchange for Litigation Trust Interests. In addition, for
all federal income tax purposes, the holders are required to use as the value of
such Litigation Trust Claims at the time of transfer the value determined by the
Board of Directors of Reorganized Fine Host. Holders will be apprised, in
writing, of such valuation. See "Tax Treatment of the Litigation Trust," below.
A holder's aggregate tax basis in the Reorganized Fine Host
Common Stock and New Warrants received in cancellation of its Equity Interests
will equal the holder's aggregate adjusted tax basis in its Equity Interests,
increased by any gain or imputed interest income recognized in respect of its
Equity Interests and decreased by the amount of boot received. Such aggregate
adjusted tax basis will be allocated between the Reorganized Fine Host Common
Stock and the New Warrants based on their relative fair market values. In
general, the holder's holding period for the Reorganized Fine Host Common Stock
and New Warrants received will include the holder's holding period for the
Equity Interests, except to the extent the receipt of the Reorganized Fine Host
Common Stock and New Warrants was required to be characterized as imputed
interest.
For a discussion of the consequences of the ownership and
disposition of the New Warrants that such holders will receive, see "Ownership
and Disposition of New Warrants," below.
(a) Potential Dividend Characterization
In general, any gain recognized by holders of Equity Interests
shall be treated as dividend income to the extent of the Debtor's current or
accumulated earnings and profits (if any), but as to each holder, only if the
distributions received by such holder in respect of its Equity Interests are not
(i) "substantially disproportionate" with respect to the shareholder within the
meaning of section 302(b)(2) of the IRC, or (ii) are "essentially equivalent to
a dividend" with respect to the shareholder within the meaning of section
302(b)(1) of the IRC. In determining whether either of these tests have been
met, the shareholder must take into account not only stock it actually owns
(including any stock acquired pursuant to the Plan), but also stock
constructively owned within the meaning of section 318 of the IRC. Under section
318(a)(4), if a person has an option to acquire stock, such stock shall be
considered as owned by such person. Warrants are treated as options for this
purpose. Also, any other purchases or sales of Reorganized Fine Host Common
Stock or New Warrants by a holder may, under certain circumstances, be taken
into account in determining the holder's post-distribution ownership.
A distribution to a shareholder will not be "essentially
equivalent to a dividend" if it results in a "meaningful reduction" in the
shareholders' interest in the Debtor. If, as a result of the distribution, a
shareholder of the Debtor whose relative stock interest in the Debtor is minimal
and who exercises no control over corporate affairs suffers a reduction in his
proportionate interest in the Debtor, that shareholder should be regarded as
having suffered a meaningful reduction in his interest in the Debtor.
Accordingly, the debtor anticipates that distributions to most holders of Equity
Interests will not be "essentially equivalent to a dividend."
Dividends received by corporate shareholders will be eligible
for the 70% dividends-received deduction, subject to certain holding period and
debt financing limitations under the IRC. Furthermore, section 1059 of the IRC
requires a corporate shareholder to reduce its basis (but not below zero) in any
New Common Stock owned immediately after the exchange (ignoring any stock
constructively owned) by the "nontaxed portion" of any "extraordinary dividend"
if the holder has not held its stock for more than two years as of the date the
amount or payment of such dividend is announced, declared or agreed to.
Generally, the nontaxed portion of an extraordinary dividend is the amount of
the dividends-received deduction. The extent (if any) by which the nontaxed
portion of an extraordinary dividend exceeds the holders' tax basis in its stock
is treated as current gain from the sale or exchange of such stock. Also, in the
case of any amounts which would not have been treated (in whole or in part) as a
dividend if any options had not been taken into account under section 318(a)(4),
such amounts will be treated as an extraordinary dividend without regard to the
period the taxpayer held such stock.
Due to the highly factual nature of the section 302 tests,
holders of Equity Interests should consult their tax advisors as to the tax
consequences of the Plan to them.
(b) Capital Gain Treatment
In general, if any gain recognized is not treated as dividend
income, such gain will be considered gain from the sale or exchange of the
holder's Equity Interests. The character of such gain as long-term or short-term
capital gain or as ordinary income will be determined by a number of factors,
including the tax status of the holder, whether the Equity Interests constitute
a capital asset in the hands of the holder, and whether the Equity Interests
have been held for more than one year at the Effective Date.
3. Debenture Rescission Claims and Statutorily Subordinated Claims
Pursuant to the Plan, holders of Allowed Debenture Rescission
Claims and Allowed Statutorily Subordinated Claims will receive, in satisfaction
of their claims, Litigation Trust Interests, Reorganized Fine Host Common Stock
and New Warrants (unless the Plan is not accepted by Class 3, or, in the case of
holders of Statutorily Subordinated Claims, by Class 3 or Class 5, in which
event no distributions of any kind shall be made to such holders). The
Reorganized Fine Host Common Stock and the New Warrants will not be distributed
until the Final Distribution Date. Such holders may receive additional
distributions of Litigation Trust Interests as the Disputed Claims in Classes 5
and 6 are resolved.
The federal income tax consequences of the Plan to holders of
Debenture Rescission Claims and Statutorily Subordinated Claims are uncertain,
particularly as to whether the receipt of all or part of the distributions would
be treated as a tax-free exchange, and the timing, amount and character of any
loss incurred or gain realized with respect to its Claim. Because the
Reorganized Fine Host Common Stock and New Warrants is not distributed until the
Final Distribution Date, the original issue discount and imputed interest
provisions of the IRC may apply to treat a portion of such distribution as
imputed interest for federal income tax purposes. Such imputed interest may
accrue over time using the constant interest method and holders of Equity
Interests may be forced to include such imputed interest in income as it
accrues.
In the case of the Litigation Trust Interests to be received,
the Plan provides that all parties are required to treat the transfer of
Litigation Trust Claims to the Litigation Trust for all federal income tax
purposes as a transfer to the holders of Claims and Equity Interests in Classes
5 and 6, followed by a transfer by such holders, to the Litigation Trust in
exchange for Litigation Trust Interests. In addition, for all federal income tax
purposes, the holders are required to use as the value of such Litigation Trust
Claims at the time of transfer the value determined by the Board of Directors of
Reorganized Fine Host. Holders will be apprised, in writing, of such valuation.
However, the tax treatment of the Litigation Trust, and the tax implications to
holders of Allowed Debenture Rescission Claims, may differ in the event that
such class rejects the Plan and are entitled to receive one hundred percent
(100%) of the Litigation Trust Interests. See "Tax Treatment of the Litigation
Trust," below.
For a discussion of the consequences of the ownership and
disposition of the New Warrants that such holders will receive, see "Ownership
and Disposition of New Warrants," below. In the case of holders of Debenture
Rescission Claims, see also "Subordinated Note Claims -- Future Stock Gains,"
above.
Holders of Debenture Rescission Claims are urged to consult
their tax advisor regarding the tax implications of the Plan to them, including
the tax treatment of the Litigation Trust.
4. Ownership and Disposition of the New Warrants
A holder of a New Warrant will not recognize gain or loss upon
the exercise of the New Warrant. The holder's tax basis in the Reorganized Fine
Host Common Stock received upon exercise of a New Warrant would be equal to the
sum of the holder's tax basis in the New Warrant and the exercise price. The
holding period of the Reorganized Fine Host Common Stock received upon exercise
of a New Warrant would commence on the date of the exercise of such New Warrant.
Upon the lapse or disposition of the New Warrant, the holder generally should
recognize gain or loss equal to the difference between the amount received
(nothing in the case of a lapse) and its tax basis in the warrant. In general,
such gain or loss should be a capital gain or loss, long-term or short-term
depending on whether the requisite holding period was satisfied.
5. Tax Treatment of the Litigation Trust
Upon the Effective Date, the Litigation Trust shall be
established for the benefit of all holders of Allowed Claims and Equity
interests in Classes 5 and 6 (including any such Claim or Equity Interest
allowed after the Effective Date). Pursuant to the Plan, and in partial
satisfaction of Claims and Equity Interests in Classes 5 and 6, all Litigation
Trust Claims will be transferred to such holders of Claims and Equity Interests
(to be held by the debtor on their behalf), and immediately thereafter,
transferred on their behalf to the Litigation Trust in exchange for Litigation
Trust Interests.
(a) Classification of Litigation Trust
Except as otherwise discussed below (see "-- Tax Treatment In
the Event of No Distribution to Class 6," below), the Litigation Trust is
intended to qualify as a liquidating trust for federal income tax purposes. In
general, a liquidating trust is not a separate taxable entity but rather is
treated for federal income tax purposes as a "grantor" trust (i.e., a
pass-through entity). However, merely establishing a trust as a liquidating
trust does not ensure that it will be treated as a grantor trust for federal
income tax purposes. The IRS, in Rev. Proc. 94-45, 1994-28 I.R.B. 124, set forth
the general criteria for obtaining an IRS ruling as to the grantor trust status
of a liquidating trust under a chapter 11 plan. The Litigation Trust has been
structured with the intention of complying with such guidelines. Accordingly,
except as otherwise discussed below, and absent definitive guidance from the IRS
or a court of competent jurisdiction to the contrary, the Plan provides that all
parties (including the Debtor, the Litigation Trustee and the holders of
Litigation Trust Interests) are required to treat, for federal income tax
purposes, the Litigation Trust as a grantor trust of which the holders of
Allowed Class 5 and 6 Claims and Equity Interests are the owners and grantors.
The following discussion therefore assumes that the Litigation Trust would be so
treated for federal income tax purposes except as otherwise indicated. See "--
Tax Treatment In the Event of No Distribution to Class 6," below. However, no
ruling has been requested from the IRS concerning the tax status of the
Litigation Trust as a grantor trust. Because of the uncertainty that exists in
this area of the tax law, there can be no assurance as to the federal income tax
classification of the Litigation Trust.
(b) Tax Reporting
For all federal income tax purposes, all parties (including
the Debtor, the Litigation Trustee and the holders of Litigation Trust
Interests) must treat the transfer of the Litigation Trust Claims to the
Litigation Trust, in accordance with the terms of the Plan, as a transfer of the
such Claims directly to the holders of Allowed Class 5 and 6 Claims and Equity
Interests followed by the transfer of such Litigation Trust Claims by such
holders to the Litigation Trust. Consistent with the treatment of the Litigation
Trust as a grantor trust of which such holders are the owners and grantors, each
such holder shall be treated as the direct owners of an undivided interest in
the assets of the Litigation Trust for all federal income tax purposes (which
assets will have a tax basis equal to their fair market value on the Effective
Date, as determined in accordance with the Plan). Accordingly, each holder of a
Litigation Trust Interest will be required to report on its federal income tax
return(s) its allocable share of any income, gain, loss, deduction or credit
recognized or incurred by the Litigation Trust. See "Allocation of Taxable
Income and Loss" and "Escrow on Account of Disputed Claims and Disputed Equity
Interests," below. The character of items of income, deduction and credit to any
holder and the ability of such holder to benefit from any deduction or losses
may depend on the particular situation of such holder.
The federal income tax reporting obligation of a holder of a
Litigation Trust Interest is not dependent upon the Litigation Trust
distributing any cash or other proceeds. Therefore, a holder of a Litigation
Trust Interest may incur a federal income tax liability regardless of the fact
that the Litigation Trust has not made, or will not make, any concurrent or
subsequent distributions to the holder. If a holder incurs a federal tax
liability but does not receive distributions commensurate with the taxable
income allocated to it, the holder may be entitled to a subsequent or offsetting
loss.
As soon as possible after the Effective Date, but in no event
later than thirty (30) days thereafter, the Board of Directors of Reorganized
Fine Host will inform, in writing, the Litigation Trustee of the value of the
assets transferred to the Litigation Trust, and the Litigation Trustee will
apprise, in writing, the holders of Litigation Trust Interests of such
valuation. The valuation shall be used consistently by all parties (including
the Debtor, the Litigation Trustee and the holders of Litigation Trust
Interests) for all federal income tax purposes.
The Litigation Trustee will file with the IRS returns for the
Litigation Trust as a grantor trust pursuant to Treasury Regulation section
1.671-4(a). The Litigation Trustee will also send to each holder of a Litigation
Trust Interest a separate statement setting forth the holder's share of items of
income, gain, loss, deduction or credit and will instruct the holder to report
such items on its federal income tax return. The Litigation Trustee shall also
file all appropriate tax returns with respect to the escrow maintained on
account of Disputed Claims and Disputed Equity Interests, and supply to the
recipients of any distributions from the escrow any information required under
applicable law.
(c) Allocation of Taxable Income and Loss
The Plan provides that allocations of Litigation Trust taxable
income shall be determined by reference to the manner in which an amount of cash
equal to such taxable income would be distributed (without regard to any
restrictions on distributions described herein or in the Plan) if, immediately
prior to such deemed distribution, the Litigation Trust had distributed all of
its other assets (valued for this purpose at their tax book value) to the
holders of Litigation Trust Interests (treating any holder of a Disputed Claim
or a Disputed Equity Interest, for this purpose, as a current holder entitled to
distributions), taking into account all prior and concurrent distributions from
the Litigation Trust (including all distributions held in escrow pending the
resolution of Disputed Claims and Equity Interests). Similarly, taxable loss of
the Litigation Trust will be allocated by reference to the manner in which an
economic loss would be borne immediately after a liquidating distribution of the
remaining Litigation Trust assets. The tax book value of the Litigation Trust
assets for this purpose shall equal their fair market value on the Effective
Date or, if later, the date such assets were acquired by the Trust, adjusted in
either case in accordance with tax accounting principles prescribed by the IRC,
the regulations and other applicable administrative and judicial authorities and
pronouncements.
(d) Escrow on Account of Disputed Claims and Disputed Equity Interests
Pursuant to the Plan, any distributable amounts retained by
the Litigation Trustee pending resolution of Disputed Claims and Disputed Equity
Interests shall be set aside in an escrow on account of Disputed Claims and
Disputed Equity Interests.
Under section 468B(g) of the IRC, amounts earned by an escrow
account, settlement fund or similar fund must be subject to current tax.
Although certain Treasury Regulations have been issued under this section, no
Treasury Regulations have as yet been promulgated to address the tax treatment
of accounts in a bankruptcy setting. Thus, depending on the facts, such accounts
possibly could be treated as a separately taxable trust, as a grantor trust
treated as owned by the holders of Disputed Claims or Disputed equity Interests
or by the Debtor, or otherwise. On February 1, 1999, the IRS issued proposed
Treasury Regulations that would establish, if finalized in their current form,
the tax treatment of escrows of the type here involved that are established
after the date such Treasury Regulations become final. In general, such Treasury
Regulations would tax such an escrow (the assets of which include an interest in
non-passive assets, including litigation causes of action) similar to a
corporation. As to previously established escrows, such Treasury Regulations
would provide that the IRS would not challenge any reasonably, consistently
applied method of taxation for income earned by the escrow, and any reasonable,
consistently applied method for reporting such income.
Absent definitive guidance from the IRS or a court of
competent jurisdiction to the contrary (including the issuance of applicable
Treasury Regulations, the receipt by the Litigation Trustee of a private letter
ruling if the Litigation Trustee so requests one, or the receipt of an adverse
determination by the IRS upon audit if not contested by the Litigation Trustee),
and except as otherwise discussed below (see "-- Tax Treatment In the Event of
No Distribution to Class 6," below), the Litigation Trustee shall:
(i) treat the escrow as a discreet trust for federal income tax
purposes, consisting of separate and independent shares to be
established in respect of each Disputed Claim or Disputed
Equity Interest, in accordance with the trust provisions of
the IRC (Sections 641 et seq.),
(ii) treat as taxable income or loss of the escrow with respect to
any given taxable year the portion of the taxable income or
loss of the Litigation Trust that would have been allocated
to the holders of such Disputed Claims and Disputed Equity
Interests had such Claims and Equity Interests been Allowed
on the Effective Date (but only for the portion of the
taxable year with respect to which such Claims or Equity
Interests are unresolved),
(iii) treat as a distribution from the escrow any increased amounts
distributed by the Litigation Trust as a result of any
Disputed Claims or Disputed Equity Interests resolved earlier
in the taxable year, to the extent such distribution relates
to taxable income or loss of the escrow determined in
accordance with the provisions hereof, and
(iv) to the extent permitted by applicable law, report consistently for state
and local income tax purposes.
In addition, pursuant to the Plan, all holders of Claims are required to report
consistently with such treatment. Accordingly, subject to issuance of definitive
guidance and except as discussed in the next section, the Litigation Trustee
will report on the basis that any amounts earned by the escrow and any taxable
income of the Litigation Trust allocable to the escrow are subject to a separate
entity level tax, except to the extent such earnings are distributed during the
same taxable year. In such event, any amounts earned by the escrow, and any
taxable income of the Litigation Trust allocated to the escrow, that is
distributed to a holder during the same taxable year will be includible in such
holder's gross income.
Distributions from the escrow will be made (1) to holders of
Disputed Claims or Equity Interests to the extent such Claims or Equity
Interests are subsequently Allowed and (2) to holders of previously Allowed
Claims and Allowed Equity Interests (whether such Claims or Equity Interests
were Allowed on or after the Effective Date) to the extent any Disputed Claims
or Disputed Equity Interests are disallowed. Accordingly, each holder of a Claim
or Equity Interest in Class 5 or 6 is urged to consult its tax advisor regarding
the potential tax treatment of such escrow and the resulting tax consequences to
such holder.
(e) Alternative Tax Reporting If No Distribution to Class 6
In the event that all Litigation Trust Interests are
distributable to holders of Allowed Debenture Rescission Claims, the Litigation
Trust (inclusive of the escrow to described in the preceding section with
respect to Disputed Claims and Disputed Equity Interests) shall be treated as a
"qualified settlement fund" within the meaning of Treasury Regulation Section
1.468B-1, absent definitive guidance from the IRS or a court of competent
jurisdiction to the contrary (including the receipt by the Litigation Trustee of
a private letter ruling if the Litigation Trustee so requests one, or the
receipt of an adverse determination by the IRS upon audit if not contested by
the Litigation Trustee). Accordingly, the federal income tax treatment of the
Litigation Trust would be governed by Treasury Regulation Section 1.468B-1 et
seq. Qualified settlement funds are subject to a separate entity level tax.
If properly treated as a qualified settlement fund, the
holders of Allowed Debenture Rescission Claims should not be considered for
federal income tax purposes as having a taxable event on account of their
interest in the Litigation Trust except to the extent they receive distributions
from the Litigation Trust. Such distributions should be treated in such event as
additional amounts received by the holders in respect of their Allowed Claims
(other than to the extent required to be treated as imputed interest for federal
income tax purposes).
In the event that the Litigation Trust is definitively
determined by the IRS or a court of competent jurisdiction not to be a
"qualified settlement fund", the earlier described treatment of the Litigation
Trust as a liquidating trust for federal income tax purposes shall apply (unless
similarly determined to be inapplicable) and the Litigation Trustee shall so
notify in writing all relevant parties (including, without limitation,
Reorganized Fine Host and all holders of Allowed Rescission Claims).
6. Withholding
All distributions to holders of Subordinated Notes under the
Plan are subject to any applicable withholding. Under federal income tax law,
interest, dividends, and other reportable payments may, under certain
circumstances, be subject to "backup withholding" at a 31% rate. Backup
withholding generally applies if the holder (a) fails to furnish its social
security number or other taxpayer identification number ("TIN"), (b) furnishes
an incorrect TIN, (c) fails properly to report interest or dividends, or (d)
under certain circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number and that
it is not subject to backup withholding. Backup withholding is not an additional
tax but merely an advance payment, which may be refunded to the extent it
results in an overpayment of tax. Certain persons are exempt from backup
withholding, including, in certain circumstances, corporations and financial
institutions.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES
APPLICABLE UNDER THE PLAN OF REORGANIZATION.
XIV.
CONCLUSION AND RECOMMENDATION
Fine Host believes that the Plan is in the best interests of
all Creditors and holders of Equity Interest and urges the holders of impaired
Claims in Classes 3 and 5 to vote to accept the Plan and to evidence such
acceptance by returning their ballots so that they will be actually received on
or before 5:00 p.m., New York City Time, on May 7, 1999.
Dated: Greenwich, Connecticut
March 17, 1999
Respectfully submitted,
FINE HOST CORPORATION
By:
Name: William D. Forrest
Title: President and Chief
Executive Officer
- -----------------------------
Stephen Karotkin (SK 7357) Thomas L. Ambro (No. 677)
Brian S. Rosen (BR 0571) A Member of the Firm
Members of the Firm
WEIL, GOTSHAL & MANGES LLP RICHARDS, LAYTON & FINGER, P.A
767 Fifth Avenue One Rodney Square
New York, New York 10153 Wilmington, Delaware 19899
(212) 310-8000 (302) 658-6541
Attorneys for Debtor and Debtor in Possession Attorneys for Debtor and
Debtor in Possession
D-1
THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE PLAN.
ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT
HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS
BEING SUBMITTED FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE BANKRUPTCY
COURT.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- -----------------------------------------------------
x
In re : Chapter 11 Case No.
99 - 20 (PJW)
:
FINE HOST CORPORATION,
:
Debtor.
x
- -----------------------------------------------------
SECOND AMENDED DISCLOSURE STATEMENT FOR PLAN OF
REORGANIZATION FOR DEBTOR PURSUANT TO
CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
WEIL, GOTSHAL & MANGES LLP RICHARDS, LAYTON & FINGER, P.A.
767 Fifth Avenue One Rodney Square
New York, New York 10153 Wilmington, Delaware 19899
(212) 310-8000 (302) 658-6541
Attorneys for Debtor and Attorneys for Debtor and
Debtor in Possession Debtor in Possession
A-1
EXHIBIT A
Plan of Reorganization
B-1
EXHIBIT B
Form of Disclosure Order
C-1
C-1
EXHIBIT C
Form of Litigation Trust Agreement
D-1
EXHIBIT D
Liquidation Analysis
D-1
D-1
FINE HOST CORPORATION
Notes to Liquidation Analysis
The Liquidation Analysis reflects Fine Host's estimate of the proceeds that
would be realized if Fine Host were to be liquidated in accordance with Chapter
7 of the Bankruptcy Code. Underlying the Liquidation Analysis are a number of
estimates and assumptions that, although developed and considered reasonable by
management and BT Alex. Brown, are inherently subject to significant business,
economic and competitive uncertainties and contingencies beyond the control of
Fine Host and its management, and upon assumptions with respect to the
liquidation decisions which could be subject to change. ACCORDINGLY, THERE CAN
BE NO ASSURANCE THAT THE VALUES REFLECTED IN THE LIQUIDATION ANALYSIS WOULD BE
REALIZED IF FINE HOST WERE, IN FACT, TO UNDERGO SUCH A LIQUIDATION, AND ACTUAL
RESULTS COULD VARY MATERIALLY FROM THOSE SHOWN HERE.
The Liquidation Analysis assumes a liquidation period of twelve months
during which a two-phase approach to the liquidation would occur.
Phase I would entail a six month period in which contracts, leases,
inventory, property and equipment, and employees at all operating units would be
transferred through sale or otherwise to other contract food service providers
or liquidated and/or terminated as appropriate. Unit level operations would be
expected to substantially cease in any event within a six month period. This
time period would allow for an orderly transfer of food service operations and
could be expected to minimize litigation from customers for breach of contract.
Phase II would entail a six month wrap-up period following cessation of
operations. Fine Host's remaining assets including receivables, property and
equipment, and miscellaneous assets would be collected and/or liquidated.
Certain corporate personnel, such as those in Financial, Treasury and Management
Information System areas would be retained as necessary to support the
completion of the liquidation process.
The following notes describe the significant assumptions reflected in
the Liquidation Analysis.
Note A - Book Values as of December 31, 1998
The book values used in this Liquidation Analysis are the book
values as of December 31, 1998, and are assumed to be representative of Fine
Host's assets and liabilities as of the Effective Date.
Note B - Cash and Cash Equivalents
The Liquidation Analysis assumes that operations during the
liquidation period would not generate additional cash available for distribution
except for net proceeds from the disposition of non-cash assets. It is assumed
that cash and cash equivalents of approximately $65 million held in corporate
accounts would be 100% collectable. The remaining cash consisting of petty cash,
interest funds, and vending machine funds is assumed to be between 50% and 75%
collectable. The discount provides for likely shortages in the collection and
deposit of these funds during the liquidation process.
Note C - Accounts Receivable
Trade accounts receivables have been discounted by
approximately 50% and a small amount of other non-trade accounts receivable have
been discounted by approximately 75% due to risks inherent in collectibility
during a liquidation process.
Note D - Notes Receivable
Notes Receivable primarily represents funds loaned by Fine
Host to clients in connection with the signing or renewing of contracts. These
loans are often used by clients to fund construction and/or working capital
needs. Approximately $19 million represents a note receivable from one
significant customer of Fine Host.
Note E - Inventory
Inventory consist primarily of food, alcoholic and
non-alcoholic beverages, supplies and other miscellaneous inventory. Such items
generally have a short shelf life and are subject to spoilage and pilferage. The
liquidation recovery as a percentage of cost was assumed to be the following:
food (25%), alcoholic and non-alcoholic beverages (60%), and supplies and other
miscellaneous (25%).
Note F - Prepaid Expenses, Deposits, Goodwill and Other Assets
Prepaid expenses, deposits, goodwill and other assets have
been estimated to have no liquidation recovery value. The major items included
in other assets are capitalized deferred financing costs, non-compete covenants,
and capitalized organizational costs.
Note G - Contract Rights
Contract rights are comprised of two categories: advances,
grants and related investments in primarily recreation and leisure service
accounts, and value attributable to contracts acquired pursuant to Fine Host's
acquisition of various businesses. Management believes that a portion of the
advances, grants, and related investments are covered by buy-back protection
language included in a number of the contracts in the event of early
termination.
Note H - Fixed Assets, Net
Fixed Assets consist primarily of furniture & fixtures,
vending equipment, office equipment, leasehold improvements, smallwares,
vehicles and software. A significant portion of these assets are located at
various client locations across the country. It is assumed that customers,
competitors (including successor food service providers), equipment brokers
would be the principal buyers for such equipment at distressed liquidation
values of between 10% and 20% of net book value. In many cases, the cost of
removal and relocation would be prohibitive. No liquidation recovery has been
assumed for leasehold improvements and software.
Note I - Other Items Available for Distribution
The Liquidation Analysis assumes available cash would be
distributed to claimants at the end of Phase II. During the liquidation period,
interest income would be generated on an average balance of cash and cash
equivalents after liquidation expenses at a rate of 4% per annum.
Note J - Costs Associated with Liquidation
During Phase I, contracts, leases, inventory, property and
equipment, and employees at all operating units would be transferred or
liquidated through sale or during the initial six month period. Although the
operations have generally been operated profitably at the unit contribution
level (before corporate overhead), it is assumed that the uncertainty caused by
the liquidation process would result in diminished unit profitability.
Management estimates that unit operations would be expected to generate a loss
of approximately $3.0 million during this six month period.
Corporate payroll and operating costs during liquidation are
based upon the assumption that corporate functions would be required to oversee
the Phase I liquidation process, but would be significantly toward the end of
Phase I. Any remaining corporate functions would phase out over the Phase II
wind-down.
Chapter 7 Trustee Fees include those fees associated with the
appointment of a Chapter 7 trustee in accordance with Section 326 of the
Bankruptcy Code. Trustee fees are estimated based on historical experience in
other similar cases and are calculated at 3% of the total cash generated during
the liquidation and 1% of the cash on-hand as of the commencement of the Chapter
7.
Chapter 7 Professional Fees include legal and accounting fees
incurred during the twelve month liquidation period. Monthly professional fees
are assumed to be $300,000 per month during the beginning of the Chapter 7 and
decline to $100,000 per month by the end of the case.
Note K - Secured Creditor Claims
For purposes of the Liquidation Analysis, management believes
that the only significant secured claims are related to capital lease
obligations.
Note L - Administrative and Priority Claims
For purposes of the Liquidation Analysis, management made
several assumptions with respect to estimating Administrative Expense Claims and
Priority Claims. Pursuant to Fine Host's First Day Orders approved by the
Bankruptcy Court, pre-petition trade creditors and employees are being paid in
the normal course of business. As of an assumed Effective Date of April 30,
1999, management believes that significantly all of the pre-petition trade
claims and pre-petition accrued wages & benefits will have been paid in the
normal course of business. As a result, significantly all of Fine Host's trade
payables and accrued wages and benefits are assumed to represent Administrative
Expense Claims of Fine Host as of April 30, 1999. Additionally, management
estimates a limited amount of professional fees and Priority Tax Claims.
Note M - Pre-Petition Unsecured Claims
For purposes of the Liquidation Analysis, management has
assumed that pre-petition unsecured claims will consist of Subordinated Note
Claims, claims related to Acquisition Debt, and other accrued expense Claims.
E-1
E-1
EXHIBIT E
Projected Financial Information
EXHIBIT E
PROJECTIONS
1. Summary of Significant Assumptions
(a) Effective Date and Plan Terms
The Projections assume an Effective Date of April 30, 1999,
with Allowed Claims and Allowed Equity Interests treated in accordance with the
treatment provided in the Plan with respect to such Allowed Claims and Allowed
Equity Interests. The Projections consider the ongoing operations of Reorganized
Fine Host and its proposed strategies for managing its operations. With respect
to the expenses incurred as a result of the Chapter 11 Case, management has
assumed that Fine Host will confirm a Chapter 11 Plan of Reorganization and
emerge from bankruptcy by April 30, 1999. If Fine Host does not emerge from
Chapter 11 by April 30, 1999, additional bankruptcy expenses will be incurred
until such time as a Plan of reorganization is confirmed. These expenses could
significantly impact Fine Host's results of operations and cash flows.
This projected financial information was prepared to show the
estimated consolidated financial position, results of operations and cash flows,
and capitalization of Reorganized Fine Host following January 1, 1999. The
assumptions are based on the assumptions discussed below and should be read in
conjunction with the Disclosure Statement, including Article VI, Certain Factors
to be Considered. Additionally, all projections are based upon an evolutionary
review of Fine Host's operations, including an analysis of infrastructure
defects and acquisition integration difficulties. Furthermore, the projections
take into account the loss of certain profitable contracts during the preceding
calendar year and the discontinuance of certain unprofitable contracts.
The Projections included herein are:
1. Pro Forma Consolidated Balance Sheet of Reorganized
Fine Host as of December 31, 1998, based on the
unaudited estimated balance sheet as of December 31,
1998, updated to reflect the projected accounting
effects of the Plan's consummation and of "fresh
start" accounting as promulgated by the AICPA
Statement of Position 90-7 entitled "Financial
Reporting by Entities in Reorganization Under the
Bankruptcy Code" (SOP 90-7).
2. Projected Consolidated Balance Sheets of Reorganized
Fine Host as of January 1, 1999; January 1, 2000;
January 1, 2001; and January 1, 2002.
3. Projected Consolidated Income Statements of
Reorganized Fine Host for each of the four fiscal
years in the period from January 1, 1999 to December
31, 2002.
4. Projected Consolidated Statements of Cash Flows of
Reorganized Fine Host for each of the four fiscal
years in the period from January 1, 1999 to December
31, 2002.
The projections have been prepared on the basis of generally
accepted accounting principles consistent with those currently utilized by Fine
Host in the preparation of its consolidated financial statements except as noted
in the accompanying assumptions. The Projections should be read in conjunction
with the significant assumptions, qualifications, and notes set forth below and
with the audited annual consolidated financial statement for the fiscal year
ended December 31, 1997 and the quarterly financial statements for the fiscal
quarter ended September 30, 1998.
(b) Reorganized Fine Host's Business
Reorganized Fine Host will continue to operate as a contract
food service management company serving six distinct markets and providing food
services at more than 900 facilities located in 41 states. Reorganized Fine Host
will have approximately 3,250 full-time employees and 11,000 employees hired on
a part-time or event-by-event basis. All major management decisions concerning
inventory purchases, advertising, capital expenditures, human resource policies
and other matters will be made centrally from the Reorganized Fine Host
executive offices in Greenwich, Connecticut. It is assumed that Reorganized Fine
Host will not acquire any contract food service management companies or related
businesses for the foreseeable future.
(c) Operational Improvements
Key operational improvements encompassed in these Projections
include:
o Fine Host will continue to improve and develop its
corporate infrastructure in order to more effectively and
efficiently "serve" its operating units. Inefficient
and/or redundant overhead structures will be eliminated
with corresponding cost savings.
These corporate infrastructure improvements will be focused
within the following functional areas: Human Resources, Risk Management,
Accounting, Information Technology, and Purchasing.
o Significant improvements to the Company's financial
reporting systems and processes will result in a variety
of operational improvements and cost efficiencies
primarily through improved management decisions resulting
from timely and accurate financial information.
o Fine Host will continue its program to improve its purchasing power resulting
in higher gross margins.
o Fine Host will improve its control over food costs by
adopting uniform control practices at the unit level.
(d) Consolidation
The Projections include Reorganized Fine Host and its
consolidated subsidiaries.
(e) Economic Assumptions
The overall economic assumptions with respect to expenses is a
3% annual inflation rate.
(f) Revenue Assumptions
Revenue growth has been developed by line of business. Fiscal
year 1999 reflects the Fine Host Business Plan and was developed through a
bottom-up budgeting approach. Fiscal years 2000, 2001 and 2002 have been
projected using Fiscal year 1999 as a base. The Projections are based upon the
following key assumptions:
o No new service contracts are obtained through the
acquisition of businesses which operate in the contract
food service industry.
o No material loss of service contracts due to the Company's
current financial situation and resulting bankruptcy
filing.
o Recreation & Leisure - The Projections do not project
growth in FY 1999 but rather focus on contract renewals
and preservation of the existing client base during this
period. FY 1999 Revenues are projected to be 12% lower
than those of the previous year. FY 2000 forecasts no
future growth for the Company, while FY 2001 and FY 2002
contemplate perspective growth of 8% per annum.
o Education, Business & Industry - FY 1999 revenues are
projected to have a net decrease of 4%. The Projections in
FY 2000, FY 2001 and FY 2002 contemplate growth of 11%,
10%, and 10% per annum, respectively.
o Healthcare & Corrections - The Corrections business has
been expanding and forecasts strong growth of 22% in 1999.
FY 2002 growth is forecasted at 35%, while FY 2001 and FY
2002 growth is projected to be 20%. The Healthcare
business has been expanding at a slower rate with growth
estimates of 13%, 25%, 15% and 15% in FY 1999 through FY
2002, respectively.
(g) Gross Margin
A significant portion of the Company's growth in the past was
derived from acquisitions. From April 1993 through October 1997, the Company
acquired 12 companies. As a result of this rapid growth and expansion, there
were numerous management and infrastructure deficiencies which resulted in a
reduced level of gross margin performance. Over the past year, management with
the assistance of Buccino & Associates has implemented numerous operational
changes and centralized the purchasing function which have had a positive impact
on gross margin performance. Gross profit in FY 1998 was 7.5% with expected
improvements in FY 1999 to 2002 to 9%, 11%, 12% and 13%, respectively.
Significant programs positively impacting gross margin over
the projection period include (i) Improved purchasing power due to consolidation
of the purchasing function at the corporate level, (ii) Elimination and
rationalization of districts and personnel managing those districts; and (iii)
Risk management programs to manage workers compensation, unemployment and other
costs.
(h) Operating Expenses
Operating expenses are expected to improve from 10.2% to 9.9%
in FY 1998, and 1999, respectively. As Fine Host undergoes a restructuring
process to centralize and improve Human Resources, Accounting, Information
Technology and other corporate functions, cuts in overhead expenses and
rationalization of processes will occur. Many of these improvements will occur
and their associated costs will be incurred in 1999 for a slight improvement in
operating expenses. The benefits of these improvements will be significantly
realized in FY 2000 and onwards with estimated operating expenses declining to
8% and 7.3% in FY 2002.
(i) Interest Expense
The Projections include interest expense of $0.47 million,
$1.02 million and $0.3 million in FY 1999, FY 2000 and FY 2001, respectively.
(j) Income Taxes
The projected provisions for income taxes have been calculated
in accordance with FASB Statement No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). A combined federal and state income tax rate of 40% has been assumed
in calculating the income taxes to be paid for each of the four years in the
period ending December 31, 2002. Fine Host has Net Operating Losses of
approximately $40 million at the end of FY 1998. As a result of Change of
Control and extinguishing debt, the annual NOL limitation on Fine Host income
taxes is approximately $900,000.
(k) Capital Expenditures
The Projections assume aggregate capital expenditures of $13.9
million in FY 1999 and $10.8 million thereafter for the fiscal years in the
period ending December 31, 2002. These amounts are estimated to be sufficient to
finance investment requirements under new service contracts and maintain and
upgrade Fine Host's existing fixed assets.
(l) Accounts Payable
These Projections contemplate trade credit terms of
approximately 30 days outstanding with respect to trade payables as of the
Effective Date.
2. Significant Balance Sheet Adjustments
A. The confirmation and consummation will be accomplished according to
the terms of the Plan as described in the Disclosure Statement herein.
B. "Fresh start" accounting adjustments have been made to reflect the
estimated adjustments necessary to adopt "fresh start" reporting in accordance
with SOP 90-7. "Fresh start" reporting requires that the reorganization value of
Reorganized Fine Host be allocated to its assets in conformity with Accounting
Principles Bulletin ("APB") Opinion No. 16, "Business Combinations," for
transactions reported on the basis of the purchase method. Any reorganization
value less than the fair value of specific tangible or identified intangible
assets is to be allocated back to its non-current tangible assets on a pro rata
basis after offsetting the intangible assets. The reorganization value used in
preparing the Pro Forma Consolidated Balance Sheet of Reorganized Fine Host as
of January 9, 1999 was assumed to be in a range of $95.0 million to $130.0
million, after cash distributions in the Plan. Based upon the assumed total debt
(including capital lease obligations) of $5.5 million, the estimated imputed
range of equity value of Reorganized Fine Host is between $89.5 million and
$124.5 million, with a midpoint value of approximately $107.0 million for
purposes of "fresh start" reporting.
The reorganization value is subject to adjustment to reflect
any fluctuation in these Projections on which the valuation is based. The
allocation of the reorganization value to individual assets and liabilities is
subject to change after the Effective Date and could result in material
differences to the allocated values estimated in these Projections.
C. The significant "fresh start" accounting adjustments are summarized
as follows:
o Other Assets which include various intangibles such as
Organizational Costs, Acquisition Costs and Deferred Financing
Costs are eliminated through the application of "fresh start"
accounting.
o The fair value of the identifiable assets in excess of the
reorganization value ("negative goodwill") is allocated to
reduce the fair values of certain non-current assets in
accordance with generally accepted accounting principles.
3. Long-term Debt and Exit Financing
Pursuant to the Plan, it is contemplated that Reorganized Fine
Host will assume existing capital leases with a net present value of
approximately $750 thousand, and will assume other existing long-term debt of
approximately $4.7 million under substantially the same terms and conditions as
are presently available.
Reorganized Fine Host, solely to the extent determined by Fine
Host to be in the best interests of Reorganized Fine Host (See Section V.D., The
Plan of Reorganization - Reorganized Fine Host Matters), will enter into a
working capital agreement to provide for general corporate purposes. For
purposes of the Projections, no borrowings under the working capital facility
are assumed as of the Effective Date.
E-1
F-1
EXHIBIT F
Fine Host Corporation Annual Report on Form 10-K For the
Fiscal Year Ended December 31, 1997
G-1
EXHIBIT G
Fine Host Corporation Quarterly Report on Form 10-Q For the
Fiscal Quarter Ended September 30, 1998
H-1
EXHIBIT H
Precedent Transaction Analysis
I-1
EXHIBIT I
Agreement Concerning Vote, dated January 6, 1999
TABLE OF CONTENTS
(continued)
i
TABLE OF CONTENTS
i
Page
I. INTRODUCTION............................................................................................1
A. General........................................................................................1
II. OVERVIEW OF PLAN........................................................................................3
A. Summary of Classification and Treatment of Claims and Equity Interests Under the Plan..........4
III. GENERAL INFORMATION....................................................................................11
A. Fine Host's Business..........................................................................11
B. Organizational Structure of Fine Host.........................................................11
C. Description of Business.......................................................................12
1. Fine Host's Business.................................................................12
2. Food Service Contracts...............................................................13
D. Fine Host Common Stock........................................................................14
E. Employees.....................................................................................14
F. Leases........................................................................................14
G. Fine Host's Significant Debt..................................................................14
1. The Subordinated Notes...............................................................14
2. Intercompany Indebtedness............................................................14
3. Acquisition Debt.....................................................................15
IV. FINE HOST'S CHAPTER 11 CASE............................................................................15
A. Events Preceding the Filing of the Chapter 11.................................................15
1. The Accounting Irregularities and Commencement of the Audit Committee
Investigation........................................................................15
2. Negotiation of the Restructuring and the Plan........................................16
3. Management...........................................................................16
B. Events During the Chapter 11 Case.............................................................17
1. Administration of the Chapter 11 Case................................................17
2. Creditors' Committee/Equity Committee................................................17
3. Bar Date.............................................................................17
C. Pending Litigation and Other Legal Proceedings................................................18
1. Class Actions........................................................................18
2. Subordinated Note Action.............................................................18
3. Other Legal Proceedings and Investigations...........................................19
4. Insurance............................................................................20
V. THE PLAN OF REORGANIZATION.............................................................................20
A. Introduction..................................................................................20
B. Classification and Treatment of Claims and Equity Interests Under the Plan....................21
1. Classification.......................................................................21
2. Administrative Expense Claims........................................................21
3. Priority Tax Claims..................................................................22
4. Priority Non-Tax Claims (Class 1)-- Unimpaired.......................................22
5. Secured Claims (Class 2) - Unimpaired................................................22
6. Subordinated Note Claims (Class 3)-- Impaired........................................23
7. General Unsecured Claims (Class 4)-- Unimpaired......................................24
8. Debenture Rescission Claims (Class 5)-- Impaired.....................................24
9. Class 6 - Statutorily Subordinated Claims (Sub-Class 6A) and Equity Interests
(Sub-Class 6B) -- Impaired...........................................................26
C. Merger of Corporate Entities..................................................................27
D. Reorganized Fine Host Matters.................................................................27
1. Governance and Management of Reorganized Fine Host...................................27
2. Board of Directors of Reorganized Fine Host..........................................27
3. Management...........................................................................27
4. Employment Contracts.................................................................28
5. Management Options...................................................................28
6. Reorganized Fine Host Credit Agreement...............................................31
E. Securities to Be Issued Pursuant to Plan......................................................31
1. Reorganized Fine Host Common Stock...................................................31
2. New Warrants.........................................................................31
3. Securities Law Matters...............................................................31
F. Summary of Other Provisions of the Plan.......................................................35
1. Conditions Precedent to the Effective Date of the Plan...............................35
2. Executory Contracts and Unexpired Leases.............................................35
3. Provisions Governing Distributions...................................................36
4. Treatment of Disputed Claims or Disputed Equity Interests............................39
5. Committees...........................................................................40
6. The Litigation Trust.................................................................41
7. Effect of Confirmation...............................................................45
8. Modification; Revocation or Withdrawal of Plan.......................................46
9. Exculpation/Limitation of Liability in Connection with the Plan, Disclosure
Statement and Related Documents......................................................46
10. Supplemental Documents...............................................................46
G. Articles of Incorporation and By-Laws of Fine Host; Corporate Action..........................47
1. Amendment of Articles of Incorporation and By-Laws...................................47
2. Corporate Action.....................................................................47
VI. CERTAIN FACTORS TO BE CONSIDERED.......................................................................47
A. Variances from Projections....................................................................47
B. Significant Holders...........................................................................48
C. Lack of Trading Market........................................................................48
D. Competitive Conditions........................................................................48
E. Dividend Policies.............................................................................48
F. Health and Other Governmental Regulations.....................................................49
G. Certain Tax Matters...........................................................................49
VII. VOTING PROCEDURES AND REQUIREMENTS.....................................................................49
A. Holders of Claims.............................................................................49
B. Parties in Interest Entitled to Vote..........................................................50
C. Classes Impaired and Entitled to Vote Under the Plan..........................................50
D. Vote Required for Acceptance by Class of Claims...............................................50
VIII. CONFIRMATION OF THE PLAN...............................................................................51
A. Confirmation Hearing..........................................................................51
B. Requirements for Confirmation of the Plan.....................................................51
1. Acceptance...........................................................................51
2. Fair and Equitable Test..............................................................52
3. Feasibility..........................................................................52
4. "Best Interests" Test................................................................53
IX. PROJECTIONS............................................................................................54
A. Introduction..................................................................................54
1. Purpose of the Projections...........................................................54
X. FINANCIAL INFORMATION..................................................................................55
A. General.......................................................................................55
B. Selected Financial Data.......................................................................55
C. Management's Discussion and Analysis of Financial Condition and Results of Operations.........55
XI. REORGANIZATION VALUE...................................................................................56
XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN..............................................58
A. Liquidation Under Chapter 7...................................................................58
B. Alternative Plan of Reorganization............................................................58
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN....................................................58
A. Consequences to the Debtor....................................................................59
1. Cancellation of Debt.................................................................59
2. Limitations on NOL Carryforwards and Other Tax Attributes............................59
3. Alternative Minimum Tax..............................................................60
4. Transfer of Litigation Trust Claims..................................................60
B. Consequences to Certain Holders of Claims and Equity Interests................................61
1. Subordinated Note Claims.............................................................61
2. Equity Interests.....................................................................62
3. Debenture Rescission Claims and Statutorily Subordinated Claims......................64
4. Ownership and Disposition of the New Warrants........................................65
5. Tax Treatment of the Litigation Trust................................................65
6. Withholding..........................................................................68
XIV. CONCLUSION AND RECOMMENDATION..........................................................................68
EXHIBIT A Plan of Reorganization..........................................................................A-1
EXHIBIT B Form of Disclosure Order........................................................................B-1
EXHIBIT C Form of Litigation Trust Agreement..............................................................C-1
EXHIBIT D Liquidation Analysis............................................................................D-1
EXHIBIT E Projected Financial Information.................................................................E-1
EXHIBIT F Fine Host Corporation Annual Report on Form 10-K For the Fiscal Year
Ended December 31, 1997.........................................................................F-1
EXHIBIT G Fine Host Corporation Quarterly Report on Form 10-Q For the Fiscal Quarter
Ended September 30, 1998........................................................................G-1
EXHIBIT H Precedent Transaction Analysis..................................................................H-1
EXHIBIT I Agreement Concerning Vote, dated January 6, 1999................................................I-1
1 This Disclosure Statement may not be relied upon by any persons for any
purpose other than by holders of Claims or Equity Interests entitled to vote for
the purpose of determining whether to vote to accept or reject the Plan, and
nothing contained herein shall constitute an admission of any fact or liability
by any party, or be admissible in any proceeding involving Fine Host or any
other party, or be deemed conclusive evidence of the tax or other legal effects
of the reorganization on Fine Host or on holders of Claims or Equity Interests.
2 Many of such Claims already have been paid pursuant to an order of the
Bankruptcy Court, dated January 7, 1999.
3 The allocation of Fine Host Common Stock is subject to dilution on account of
the Management Options and the exercise of New Warrants. This distribution
assumes that Classes 3 and 5 vote to accept the Plan.
4 This chart is only a summary of the classification and treatment of Claims and
Equity Interests under the Plan. Reference should be made to the entire
Disclosure Statement and the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
5 "Reorganization value" is a term of art imputing a value to the reorganized
entity that may be achieved over time after the impact of the chapter 11 case on
the business and results of operations have been overcome, the business has been
stabilized and the business has demonstrated its ability to produce results
consistent with projections. "Reorganization value" is not intended to mean
trading value.
6 Inclusive of projected amounts of compensation and reimbursement of
expenses of professionals to be awarded by the Bankruptcy Court.
7 Does not include interest accrued on the Subordinated Notes through the
Petition Date.
8 Assumes that Creditor Cash is approximately $45 million.
9 Assumes all of such Claims already have been paid pursuant to an order of the
Bankruptcy Court, dated January 7, 1999.
10 As of February 16, 1999, the bar date established by the Bankruptcy
Court, Debenture Rescission Claims in excess of $175,000,000 were filed with the
Bankruptcy Court. Without the commencement of a claims reconciliation process,
including, without limitation, determining whether Debenture Recission Claims
were validly assigned to holders of Subordinated Note Claims, Fine Host is
unable to estimate or quantify these claims at this time, and therefore is
unable to estimate the percentage recovery for these Claims. In addition, if
Class 3 does not vote to accept the Plan, the Class of Debenture Rescission
Claims will receive no distribution under the Plan.
11 Fine Host is unable to estimate the percentage recovery for Sub-Class 6A
or Sub-Class 6B. In addition, if either Class 3 or Class 5 does not vote to
accept the Plan, the Class of Statutorily Subordinated Claims and Equity
Interests will receive no distribution under the Plan.
12 Fine Host is unable to estimate the percentage recovery for Sub-Class 6A
or Sub-Class 6B. In addition, if either Class 3 or Class 5 does not vote to
accept the Plan, the Class of Statutorily Subordinated Claims and Equity
Interests will receive no distribution under the Plan.
13 References to Fine Host in this Article III include Fine Host and its
subsidiaries and affiliates.
14 By separate letter, dated March 1, 1999, the United States Trustee denied a
similar request of Frank Wood. Fine Host was never served with Mr. Wood's
request.
15 On or about May 1, 1998, the Special Committee, by and through its counsel,
Schulte, Roth & Zabel LLP, completed its investigation and prepared a report in
connection therewith. Such report was shared with, among others, the Lead
Plaintiffs in the Class Action. Based upon, among other things, such
information, certain officers and directors of Fine Host were dismissed, without
prejudice, from the Class Action.
16 This amount may include amounts owed by affiliates of Fine Host.