JEFFRY A. DAVIS (Bar No. 098895)
TROY ZANDER (Bar No. 167823)
KARLA A. LYON (Bar No. 185602)
GRAY CARY WARE & FREIDENRICH LLP
401 B Street, Suite 1700
San Diego, California 92101-4297
Telephone: 619-699-2810
Facsimile: 619-236-1048
Attorneys for
Debtor and Debtor in Possession
TriTeal Corporation
UNITED STATES BANKRUPTCY COURT
Southern District of California
In re CASE NO. 99-03494
TRITEAL CORPORATION, a AMENDED DISCLOSURE STATEMENT TO
Delaware corporation, DEBTOR IN POSSESSION'S PLAN OF
LIQUIDATION DATED AUGUST 27, 1999
Debtor and
Debtor in Possession. Date: October 15, 1999
Time: 10:00 a.m.
Tax I.D. No. 33-0548924 Dept: 4
Judge: Peter W. Bowie
TABLE OF CONTENTS
Page
I. INTRODUCTION.............................................................1
A. The Purpose of this Document........................................2
II. CONFIRMATION OF THE PLAN.................................................5
A. No Vote Is Necessary Under Debtor's Plan............................5
B. Confirmation Hearing................................................6
III. DEBTOR'S BACKGROUND AND BUSINESS OPERATIONS..............................6
A. Description of the Debtor...........................................6
B. History and Events Contributing to the Filing.......................7
C. Securities Litigation...............................................8
1. Financial Restatements.........................................8
2. The Securities Litigation......................................9
3. SEC Investigation.............................................10
D. Indemnity Claims...................................................11
E. Post-Petition Events...............................................11
F. Debtor's Current Assets/Liabilities and Operations.................12
IV. THE DEBTOR'S PLAN OF REORGANIZATION.....................................12
A. General Overview of the Plan.......................................12
B. Unclassified Claims................................................13
1. Administrative Expenses.......................................13
2. Priority Tax Claims...........................................14
C. Classification and Treatment of Claims and Interests................15
1. Class 1.......................................................15
2. Class 2.......................................................16
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TABLE OF CONTENTS
(continued)
Page
3. Class 3.......................................................16
4. Class 4.......................................................17
5. Class 5.......................................................18
D. Means for Effectuating the Plan....................................18
1. Liquidation...................................................18
2. Responsible Person............................................19
E. Risk Factors.......................................................19
F. Miscellaneous Provisions of the Plan...............................20
1. Assumption or Rejection of Unexpired Leases
and Executory Contracts.......................................20
2. Objections to Claims or Interests.............................20
3. Resolution of Disputes........................................21
4. Settlement of Claims and Disputes.............................21
5. Compensation and Reimbursement of Professionals...............22
6. Payment of Fees Owed to the U.S. Trustee and
Clerk's Office................................................22
7. Retention of Jurisdiction.....................................23
8. Default Under the Plan........................................23
G. Tax Consequences of the Plan.......................................23
V. LIQUIDATION ANALYSIS....................................................24
A. Introduction.......................................................24
1. Liquidation Analysis..........................................24
VI. MODIFICATION OF THE PLAN................................................26
VII. EFFECT OF CONFIRMATION OF PLAN..........................................26
VIII. LIMITATION OF LIABILITY.................................................26
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TABLE OF CONTENTS
(continued)
Page
IX. POST-CONFIRMATION CONVERSION OR DISMISSAL...............................28
A. Final Decree.......................................................29
X. CONCLUSION AND RECOMMENDATION...........................................29
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I.
INTRODUCTION
TriTeal Corporation, a Delaware corporation ("TriTeal" or the
"Debtor"), is the debtor in this chapter 11 bankruptcy case. On April 2, 1999,
TriTeal commenced a bankruptcy case by filing a petition under chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"), 11 U.S.C. ss. 101, ET
SEQ. Chapter 11 allows the debtor, and under some circumstances creditors and
other parties in interest, to propose a plan of reorganization. A plan of
reorganization may provide for the debtor to reorganize its affairs and continue
to operate, or to liquidate, or a combination of both. The Debtor is the party
proposing the Plan of Liquidation (the "Plan") sent to you in the same envelope
as this disclosure statement document.
The Debtor's management, in consultation with retained advisors and
consultants, has determined that the Debtor will not be able to operate
profitably in the foreseeable future. Therefore, in accordance with its
fiduciary duties to creditors and shareholders, the Debtor's board of directors
determined that it was in the best interest of those parties to liquidate the
Debtor and distribute the proceeds of that liquidation to the parties legally
entitled to those proceeds. The Debtor has chosen to liquidate through chapter
11 rather than liquidating under state law because the Debtor believes this
method is more efficient, is quicker, is likely to be less expensive, and
provides for greater certainty than dissolution under state law. The Debtor's
Plan of Liquidation provides for FULL PAYMENT TO ALL CREDITORS upon the
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Effective Date. At the same time, most of the Debtor's remaining CASH WILL BE
DISTRIBUTED PRO RATA TO THE DEBTOR'S SHAREHOLDERS. The remainder of the Debtor's
assets will continue to be liquidated, with a final distribution to shareholders
upon completion of the liquidation. The liquidation rights of creditors and
shareholders under state and federal law will be implemented by the Plan.
A. THE PURPOSE OF THIS DOCUMENT
The Bankruptcy Code requires that any party filing a plan of
reorganization also prepare and file with the bankruptcy court (the "Bankruptcy
Court") a "disclosure statement," describing the proposed plan and providing
creditors and parties in interest with information about the debtor. THE
DOCUMENT YOU ARE READING IS THE DISCLOSURE STATEMENT FOR THE ENCLOSED PLAN OF
LIQUIDATION FILED BY THE DEBTOR.(1)
The Bankruptcy Code requires a disclosure statement to contain
"adequate information." In other words, the Disclosure Statement must contain
information of a kind and in sufficient detail to enable the parties who are
affected by the Plan to intelligently vote for or against the Plan or object to
the Plan. Although creditors and shareholders of the Debtor will not have an
opportunity to vote to accept or reject the Plan since their liquidation rights
are unimpaired by the Plan, this Disclosure Statement has been provided to
inform creditors, shareholders and the Bankruptcy Court of the Debtor's
background, the events
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(1) Unless otherwise noted, all defined terms in this Disclosure Statement have
the same meaning as in the Plan.
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leading to the filing of this Chapter 11 Case and particulars concerning the
Plan.
The Bankruptcy Court has reviewed this Disclosure Statement. The
Bankruptcy Court has determined that this Disclosure Statement contains adequate
information and may be sent to you in connection with the Debtor's Plan. This
Disclosure Statement summarizes the Plan, and provides information relating to
the Plan and the process the Bankruptcy Court follows in determining whether or
not to confirm the Plan.
THE INFORMATION CONTAINED HEREIN HAS BEEN SUBMITTED BY THE MANAGEMENT
OF THE DEBTOR, UNLESS SPECIFICALLY STATED TO BE FROM OTHER SOURCES. THE DEBTOR
HAS AUTHORIZED NO REPRESENTATIONS CONCERNING IT OR ITS FINANCIAL AFFAIRS, OTHER
THAN THOSE SET FORTH HEREIN.
YOU MAY NOT RELY UPON THIS DISCLOSURE STATEMENT FOR ANY PURPOSE OTHER
THAN IN CONNECTION WITH THE PLAN. NOTHING CONTAINED IN THE PLAN OR DISCLOSURE
STATEMENT SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY OR
BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE DEBTOR OR ANY OTHER PARTY.
EXCEPT AS MAY BE SET FORTH HEREIN, THE BANKRUPTCY COURT HAS NOT
APPROVED ANY REPRESENTATIONS CONCERNING THE DEBTOR OR THE VALUE OF ITS ASSETS.
THE DEBTOR HAS NOT AUTHORIZED ANY REPRESENTATIONS OR INDUCEMENT TO SECURE
ACCEPTANCE OR REJECTION OF THE PLAN OTHER THAN AS CONTAINED HEREIN AND APPROVED
BY THE BANKRUPTCY COURT.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
U.S. SECURITIES & EXCHANGE COMMISSION NOR HAS
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THE COMMISSION PASSED ON THE ACCURACY OF THE STATEMENTS CONTAINED HEREIN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF
THE DATE HEREOF, UNLESS ANOTHER DATE IS SPECIFIED HEREIN. NEITHER DELIVERY OF
THIS DISCLOSURE STATEMENT NOR ANY EXCHANGE OF RIGHTS MADE IN CONNECTION WITH
THIS DISCLOSURE STATEMENT AND PLAN SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH HEREIN SINCE
THE DATE THE DISCLOSURE STATEMENT WAS PREPARED.
ALTHOUGH THE MANAGEMENT OF THE DEBTOR BELIEVES THAT THE CONTENTS OF
THIS DISCLOSURE STATEMENT ARE COMPLETE AND ACCURATE TO THE BEST OF ITS
KNOWLEDGE, INFORMATION AND BELIEF, THE DEBTOR AND ITS MANAGEMENT ARE UNABLE TO
WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN IS WITHOUT ANY
INACCURACY. ANY STATEMENTS REGARDING PROJECTED AMOUNTS OF CLAIMS AND DIVIDENDS
ARE ESTIMATES BASED UPON CURRENTLY AVAILABLE INFORMATION AND ARE NOT A
REPRESENTATION THAT SUCH AMOUNTS WILL ULTIMATELY PROVE CORRECT.
THE DEBTOR BELIEVES THAT THE TREATMENT OF CREDITORS AND SHAREHOLDERS
UNDER THE PLAN WILL RESULT IN A GREATER RECOVERY FOR THOSE PARTIES THAN THAT
WHICH IS LIKELY TO BE ACHIEVED UNDER DIRECTION OF A TRUSTEE IN A CASE UNDER
CHAPTER 7 OF THE BANKRUPTCY CODE. ACCORDINGLY, THE DEBTOR BELIEVES THAT
CONFIRMATION OF THE PLAN IS IN THE BEST INTEREST OF CREDITORS AND SHAREHOLDERS.
THE BANKRUPTCY COURT HAS NOT YET CONFIRMED THE PLAN DESCRIBED IN THIS
DISCLOSURE STATEMENT. IN OTHER WORDS, THE TERMS OF THE PLAN ARE NOT YET BINDING
ON ANYONE. HOWEVER, IF THE BANKRUPTCY COURT LATER CONFIRMS THE PLAN, THEN THE
PLAN WILL BE BINDING ON ALL CREDITORS AND INTEREST HOLDERS IN THIS CASE.
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II.
CONFIRMATION OF THE PLAN
Generally, under the Bankruptcy Code, all creditors and interest
holders whose claims are impaired vote to accept or reject a plan of
reorganization. ("Impaired" generally means "changing or altering the legal or
equitable rights of such creditor"). The Bankruptcy Court will then determine
whether each class has accepted the plan by the requisite statutory majority. If
all classes vote to accept the plan, the plan will be confirmed if the
Bankruptcy Court determines the plan meets certain legal requirements. SEE,
GENERALLY, Bankruptcy Code ss. 1129(a).
A. NO VOTE IS NECESSARY UNDER DEBTOR'S PLAN.
As a matter of bankruptcy law, only the members of those classes whose
claims or interests are impaired under a plan or reorganization are entitled to
vote for acceptance or rejection of the plan. Since no Classes are impaired
under the Debtor's Plan, no Class is eligible to vote on the Plan.
Pursuant to Bankruptcy Code section 1126(f), an unimpaired class and
each holder of a claim or interest in that class are deemed to have accepted the
plan, and those creditors or interest holders do not vote on the plan. Under the
Plan, all Classes are unimpaired and, accordingly, all Classes are deemed to
have accepted the Plan under this provision.
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Pursuant to Bankruptcy Code section 1126(g), if the holders of claims
or interests in a given class receive or retain nothing under the Plan, that
class is deemed not to have accepted the plan. Under the Debtor's Plan, there
are no such Classes. Therefore, no Class is deemed to have rejected the Plan
under this provision.
B. CONFIRMATION HEARING.
The Bankruptcy Court will hold a hearing with respect to confirmation
of the Plan to determine whether the Plan meets the requirements of Bankruptcy
Code section 1129(a), including the requirement that the Plan has been proposed
in good faith and is feasible. THE TIME, PLACE AND DATE OF THE HEARING ON
CONFIRMATION AND THE DATE BY WHICH OBJECTIONS TO CONFIRMATION MUST BE FILED AND
SERVED ARE SPECIFIED IN THE NOTICE OF HEARING THAT ACCOMPANIES THIS DISCLOSURE
STATEMENT.
III.
DEBTOR'S BACKGROUND AND BUSINESS OPERATIONS.
A. DESCRIPTION OF THE DEBTOR.
The Debtor is a Delaware corporation which developed, marketed and
supported open systems-based, mission-critical desktop systems software and
integrated applications that enable multi-platform deployment of client/server
applications throughout an enterprise. The Debtor was originally founded as a
California corporation in January 1993, but later reincorporated as a Delaware
corporation in connection with its initial public offering. The Debtor commenced
operations in April 1993 and released its first product in May 1993. The
Debtor's stock was traded on the NASDAQ national market under the symbol TEAL
until it was delisted in June 1998. The Debtor's business operations were
headquartered at 2011 Palomar Airport Road, Suite 200, Carlsbad, California
92009. It formerly had offices in a number of locations, including New York,
Texas, Colorado, Massachusetts, the Netherlands, and the United Kingdom.
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The company's products are based, in part, on certain technologies
licensed from Hewlett-Packard, the Open Group (formerly the Open Software
Foundation), SPYRUS and other technology vendors. The Debtor introduced its
flagship product, the TriTeal Enterprise Desktop ("TED"), in August 1995. The
Debtor's revenues have historically been derived from two principal sources (i)
license fees for the use of the Debtor's software products, and (ii) maintenance
agreements and software development contract revenues.
The Debtor has two authorized classes of stock. The Debtor currently
has authorized 5,000,000 shares of preferred stock at $.001 par value, none of
which have been issued. The Debtor currently has authorized 30,000,000 shares of
common stock at a par value of $.001. Shares issued and outstanding totaled
11,532,990 as of December 31, 1998.
B. HISTORY AND EVENTS CONTRIBUTING TO THE FILING.
The Debtor was incorporated in 1993 for the purpose of providing
enterprise desktop solutions. TriTeal enjoyed relatively successful operations
from 1993 through 1996. In March 1997, TriTeal's board of directors decided to
bring in additional management assistance. David Chen was hired in July 1997 as
president and chief operating officer, but stepped down in December 1997, along
with the chief financial officer, Art Budman. Also, two of the founders, Oran
Thomas and Greg White, left the company at this time. In February 1998, the
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board of directors decided to retain a team from Regent Pacific Management
Corporation ("Regent Pacific"), a management consulting firm, to provide a
management and strategic direction. The board of directors chose Regent Pacific
because of its specialization in turnarounds and interim management.
At the time Regent Pacific was retained, TriTeal had many serious
issues to confront, including an SEC investigation, the defense of a class
action lawsuit, a NASDAQ investigation, a dispute with its master reseller over
delinquent payments and performance issues.
TriTeal, with the assistance of Regent Pacific, addressed these issues
by reducing its workforce by 40%, consolidating facilities into one building,
releasing unaudited restated financial results, settlement of the class action
lawsuit, establishing a new directors' and officers' liability policy, hiring
KPMG as investment bankers, concluding negotiations with the landlord to
terminate a prospective lease, and contacting prospective buyers and strategic
partners.
In mid-1998, TriTeal retained KPMG to locate a buyer for the company.
KPMG analyzed TriTeal's technology, products, markets, customers, and user
benefits and developed a list of potential strategic partners and buyers. More
than 40 firms were contacted. Unfortunately, no offers were received. In light
of the continuing losses, the decision was made to further reduce the number of
employees and liquidate the company.
C. SECURITIES LITIGATION.
1. FINANCIAL RESTATEMENTS. During December 1997, the Debtor became
aware of information indicating that there may have been certain errors and
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irregularities that could affect the timing and dollar amount of certain
previously reported revenues and related operating results. Special counsel was
engaged to perform a review of such potential errors and irregularities. Based
on the results of this review, and additional work performed by the Debtor's
independent auditors and the Debtor, and following consultation with outside
counsel to the Debtor, the Debtor restated its quarterly and annual financial
statements for the fiscal years ended March 31, 1997 and 1996 and the quarters
ended June 30 and September 30, 1997. These restatements reflected a material
adverse change in reported revenues, net income (loss), stockholders' equity,
total assets and working capital for all periods restated, except that the
results of operations for the quarters ended September 30, 1997 and 1996 were
favorably impacted. As part of the restatements, the Debtor reversed sales
transactions aggregating approximately $17,000,000 in revenue, of which
approximately $3,700,000 was recognized in subsequent restated periods. In
addition, as a result of the reviews performed, the independent auditors
withdrew their audit opinions with respect to the fiscal 1997 and 1996 financial
statements. The Debtor does not anticipate that any of the remaining restated
revenues will be recognized in future periods.
2. THE SECURITIES LITIGATION. On November 7, 1997, a number of class
action complaints were filed against the Debtor and certain of its officers,
directors and two of the Debtor's underwriters (the "Securities Litigation").
These complaints were brought on behalf of a purported class of investors in the
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Debtor's common stock. The complaints alleged, among other things, that the
defendants misrepresented or failed to disclose to investors material facts
concerning the Debtor and its business, operations, revenues and prospects, and
that certain of the defendants improperly sold shares of common stock of the
Debtor at prices that were artificially inflated as a result of these alleged
nondisclosures or misrepresentations. The complaints also alleged violations of
the Federal securities law.
On March 22, 1999, the United States District Court for the Southern
District of California approved a settlement of the Securities Litigation. The
Securities Litigation was settled for a total amount of $12,000,000. TriTeal
paid $10,000,000, its portion of the settlement, pre-petition. The remaining
$2,000,000 was satisfied through insurance coverage.
3. SEC INVESTIGATION. On January 20, 1998, the Debtor initiated
contact with the Enforcement Division of the Securities and Exchange Commission
("Enforcement Division") to make voluntary disclosure to the Securities and
Exchange Commission ("SEC") and to apprise the Enforcement Division of
information indicating that there may have been certain errors and
irregularities that could affect the timing and dollar amount of certain
previously reported revenues and related operating results. A meeting with the
Enforcement Division was held on January 22, 1998. By letter dated March 9,
1998, the Debtor was notified by the SEC that it had commenced a formal
investigation of the Debtor. The SEC issued a subpoena for various documents
relating to the Debtor's finances, financial controls and restatement of
revenues. The Debtor and senior management officials have provided and are
continuing to provide the relevant documents and information and intend to
cooperate fully with the SEC.
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D. INDEMNITY CLAIMS.
The Debtor may have indemnification obligations to its former
officers, directors and employees pursuant to the Debtor's bylaws,
indemnification agreements, and under section 28.02 of the California Labor Code
and section 145 of the Delaware Corporations Code, depending on the outcome of
the SEC investigation. The indemnity claimants who have filed claims against the
Debtor with the Bankruptcy Court are Robert D. Ruhe, Armando Viteri, Gregory J.
White, James R. Arnett, Oran M. Thomas, Rand R. Shulman, Ronald B. Hegli,
Jeffrey Witous, and Arthur Budman. It is possible, but not anticipated, that the
indemnity obligations may exceed the Debtor's remaining assets after payments to
Classes 1, 2, 3(a) and 3(b), but until the SEC completes its investigation, the
Debtor cannot estimate these claims. The SEC has not yet informed the Debtor as
to the outcome of its investigation, so the Debtor cannot determine precisely
what the full extent of its indemnity obligations, if any, may be to its former
officers, directors and employees.
E. POST-PETITION EVENTS.
SALE OF LICENSES. On or about May 25, 1999, the Debtor sold a license
for the VUE Source Code for Internal Development and Support to AT&T for
$150,000. On or about June 30, 1999, the Debtor sold a license for the TED
Source Code for Internal Development and Support to Morgan Stanley for $150,000.
The Debtor is presently negotiating a sale to J.P. Morgan of a TED Source
Code for Internal Development and Support.
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F. DEBTOR'S CURRENT ASSETS/LIABILITIES AND OPERATIONS.
The Debtor has assets totaling $6,358,592.60 and estimated liabilities
totaling $2,594,872.24. In addition, as stated above, a number of the Debtor's
former officers and directors have filed proofs of claims for indemnity arising
out of the ongoing SEC investigation. The total amount of such Indemnity Claims
is unliquidated and, therefore, unknown. As of June 30, 1999, the Debtor's
assets consist of: (1) checking, savings and other accounts with financial
institutions in the amount of $5,777,042.05; (2) security deposits in the amount
of $441,601.74, (3) accounts receivable in the amount of $6,383.11; (4) patents,
copyrights and other intellectual property (value unknown); (5) office
equipment, furnishings and supplies in the amount of $7,500.00; and (6) other
assets valued at $126,065.70.
IV.
THE DEBTOR'S PLAN OF REORGANIZATION.
A. GENERAL OVERVIEW OF THE PLAN.
The following is a brief description of significant provisions of the
Plan. This summary is not a substitute for a full and complete reading of the
Plan. The Plan, if confirmed, will be binding upon the Debtor and all holders of
claims and interests. Any statements regarding projected amounts of claims and
dividends are estimates of the Debtor based upon currently available information
and are not a representation that such amounts will ultimately prove correct.
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The Plan provides for the liquidation of the Debtor's assets. Holders
of allowed claims will receive cash in full satisfaction of their claims. No
claim shall be paid an amount in excess of the amount allowed by the Bankruptcy
Court.
The implementation of the Plan will be effected by Jeffrey Black as
the Debtor's court-appointed responsible officer. Mr. Black has served as
Controller of the Debtor since September 1996. Mr. Black will liquidate the
remaining assets and make all distributions required or permitted by the Plan.
The Debtor will continue to possess all of the rights, powers, and duties of a
trustee under the Bankruptcy Code.
As required by the Bankruptcy Code, the Plan classifies claims and
interests in various classes according to their right to priority. The Plan
states whether each class of claims or interests is impaired or unimpaired. The
Plan provides the treatment each class will receive.
The Effective Date of the Plan is the eleventh (11th) Business Day
after the date the Confirmation Order is entered, unless the Debtor elects an
earlier Effective Date.
B. UNCLASSIFIED CLAIMS.
Bankruptcy Code section 1123(a)(1) provides that a plan should
classify all claims other than claims of the kind specified in sections
507(a)(1), 507(a)(2) and 507(a)(8). As such, the Debtor has not classified the
following claims:
1. ADMINISTRATIVE EXPENSES. Administrative expenses are claims for
professional fees, expenses of administering the Debtor's Chapter 11 Case and
any fees or charges assessed against the Estate under chapter 123 of title 28 of
the United States Code which are allowed under sections 503(b) and 507(a)(1) of
the Bankruptcy Code. The Bankruptcy Code requires that all administrative
expenses be paid on the Effective Date, unless a particular claimant agrees to a
different treatment under the Plan.
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Total administrative expenses are anticipated to be approximately
$300,000-$400,000. The Debtor's general bankruptcy counsel, Gray Cary Ware &
Freidenrich LLP, received a pre-petition retainer of $88,471. The Debtor's
special corporate counsel, Cooley Godward, LLP, received a pre-petition retainer
of $50,000. Neither Gray Cary Ware & Freidenrich nor Cooley Godward have agreed
to limit their fees to the pre-petition retainers, and may incur fees and costs
in excess of the retainer in connection with confirmation of the Plan. The
Debtor is also paying on a current basis, pursuant to the court order, the
attorneys' fees for counsel to various alleged indemnified officers, directors
and employees, up to a total of $150,000.
In addition, it may be necessary for the Debtor to retain
accountants to provide year-end financial statements and tax return work. The
cost of those services is estimated to be $15,000.
2. PRIORITY TAX CLAIMS. Priority tax claims include the Allowed
Claims of governmental units that are entitled to priority under Bankruptcy Code
section 507(a)(8) (certain claims of taxing authorities). The Debtor has
scheduled such claims as totaling $3,525.08. Except to the extent that the
holder has agreed to different treatment of such Claim, each holder of an
allowed Priority Tax Claim shall be paid in Cash the allowed amount of such
Claim, plus Plan Interest, on the later of the Effective Date or ten (10) days
after an order approving such Claim becomes a Final Order.
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C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
1. CLASS 1.
a. CLASSIFICATION. Class 1 consists of any Secured Claims which
are Allowed Claims. Each Secured Claim will be separately classified under Class
1 as Class 1(a), 1(b), etc.
(a) Class 1(a) -- EOP Operating Limited Partnership
("EOP"). EOP was the Debtor's landlord on a facility lease located at 17 New
England Executive Park, Burlington, MA 01803. Burlington holds a security
deposit in the amount of $20,308.00.
(b) Class 1(b) -- PT Carlsbad Associates ("Carlsbad").
Carlsbad was the Debtor's landlord on three facility leases located at 2011
Palomar Airport Road, No. 200, Nos. 201/203, and No. 300, Carlsbad, CA 92009.
Carlsbad holds a security deposit in the amount of $213,547.27.
(c) Class 1(c) -- Fairborn Morris. Fairborn Morris was
the Debtor's landlord on a facility lease located at Unit 8, Shaftesbury Court,
Slough, United Kingdom. Fairborn Morris holds a security deposit in the amount
of $19,400.23.
b. TREATMENT. Each Class 1 claim shall be paid in full in
accordance with the terms of the agreements between the Debtor and the holder of
such Class 1 Claim, but only up to the amount of such holder's security deposit.
Any portion of such holder's claim which exceeds the security deposit shall be
treated and paid as a Class 3 Claim. Each holder of a Class 1 Claim will be
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entitled to retain any lien, security interest or collateral securing such Claim
until that holder's Class 1 Claim is paid in full. Unless a material prepayment
penalty would be incurred, the Debtor will pay all Class 1 Claims in full on the
Effective Date. If a material prepayment penalty would be incurred, the Debtor
will pay such Claim in accordance with the agreements between the Debtor and the
Class 1 Claim holder. Class 1 is unimpaired.
2. CLASS 2.
a. CLASSIFICATION. Class 2 consists of Claims for wages or
vacation pay accrued and owing as of the Petition Date entitled to priority
pursuant to Bankruptcy Code section 507(a)(3). The Debtor believes no Class 2
Claims exist. Class 2 is unimpaired.
b. TREATMENT. Except to the extent that the holder has agreed to
a different treatment of such Claim, each holder of an allowed Class 2 Claim
shall be paid in Cash the allowed amount of such Claim, plus Plan Interest, on
the later of the Effective Date or ten (10) days after an order allowing such
Claim becomes a Final Order.
3. CLASS 3.
a. CLASSIFICATION. Class 3 consists of all Unsecured Claims of
the Debtor not entitled to priority under the Bankruptcy Code. As set forth in
its Schedule of Liabilities, the Debtor estimates Class 3 Claims total
$2,038,091.66, including contingent, disputed and unliquidated Claims, but not
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including claims for indemnity which may be filed by the Debtor's former
officers, directors and employees. Class 3 is unimpaired.
(1) CLASS 3(A) consists of all Class 3 Claims held by
Claimants who filed a proof of claim prior to the Claims Bar Date.
(2) CLASS 3(B) consists of all Class 3 Claims held by
Claimants who filed a proof of claim after the Claims Bar Date, but prior to
Confirmation.
b. TREATMENT. Except to the extent that the holder has agreed to
a different treatment of such Claim, each holder of an allowed Class 3(a) or
3(b) Claim shall be paid in Cash the allowed amount of such Claim, plus Plan
Interest, on the later of the Effective Date or ten (10) days after an order
approving such Claim becomes a Final Order. Class 3(a) Claims will have priority
over Class 3(b) Claims.
4. CLASS 4.
a. CLASSIFICATION. Class 4 consists of all holders of Indemnity
Claims which have become Allowed Claims. As discussed above, the Debtor does not
know the amount of its liability, if any, on Indemnity Claims at this time.
Class 4 is unimpaired.
b. TREATMENT. Each holder of an allowed Class 4 Claim shall be
paid in Cash the allowed amount of such Claim, plus Plan Interest, on the later
of the Effective Date or ten (10) days after an order approving such Claim
becomes a Final Order and after payment to the unclassified classes and Classes
1, 2, 3(a) and 3(b).
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5. CLASS 5.
a. CLASSIFICATION. Class 5 consists of all holders of Interests
as reflected in the Debtor's books and records as of 30 days prior to the
Effective Date. Class 5 is unimpaired.
b. TREATMENT. Each holder of an allowed Class 5 Claim will be
entitled to a Pro Rata distribution of all remaining Cash of the Estate after
payments to the unclassified classes, and Classes 1, 2, 3(a), 3(b) and 4. Upon
the Effective Date, seventy-five percent (75%) of the Cash remaining in the
Estate after payment to the unclassified classes and Classes 1, 2, 3(a), 3(b)
and 4, and funding the Contested Claims Reserves, shall be distributed Pro Rata
to holders of Allowed Class 5 Interests. However, Class 5 Claims will not be
entitled to a distribution until each Class 4 Claim has become an Allowed Claim,
Disallowed Claim, has been provided for in full within the Contested Claims
Reserves by an agreement between the Debtor and the Indemnity Claimant or
estimated for purposes of distribution by an order of the Bankruptcy Court.
After all the Debtor's assets are liquidated into Cash and all other classes
have been paid in accordance with the Plan, each holder of a Class 5 Claim will
be paid a Pro Rata distribution of the remaining Cash.
D. MEANS FOR EFFECTUATING THE PLAN.
1. LIQUIDATION.
All assets of the Debtor's bankruptcy Estate shall be liquidated
into Cash by the Debtor. As to any asset or group of assets with a fair market
value of less than $50,000, the Debtor may use such reasonable means for the
liquidation of its assets as it may, in its discretion, determine, without the
necessity of a court order or notice to parties in interest. The sale of any
assets or group of assets with a fair market value of $50,000 or more shall be
subject to approval of the Bankruptcy Court after notice to holders of Contested
Claims, Class 4 Claims and Class 5 Interests who have requested such notice by
written request to the Debtor's counsel.
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2. RESPONSIBLE PERSON.
The implementation of the Plan will be effected by Jeffrey Black as
the Debtor's court-appointed responsible officer. Jeffrey Black will liquidate
the remaining assets and make all distributions required or permitted by the
Plan. The Debtor will retain all of the rights, powers, and duties of a trustee
under the Bankruptcy Code.
E. RISK FACTORS.
The contents of this Disclosure Statement are based upon the best
information available to the Debtor at the time this Disclosure Statement was
initially filed with the Bankruptcy Court. The Debtor reserves the right to
revise the information contained herein as more accurate information becomes
available. In addition, the listing of a particular claim for a specific amount
in this Disclosure Statement is not an admission by the Debtor as to either
liability or amount, and the Debtor reserves the right to object to any and all
claims in accordance with the Plan.
Because the Plan provides for liquidation of the Debtor's assets,
there is a risk that the sale of certain scheduled assets will result in less
than the scheduled values. The Debtor believes, however, that since most of its
assets consist of cash and deposit accounts, such risk will be minimal.
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F. MISCELLANEOUS PROVISIONS OF THE PLAN.
1. ASSUMPTION OR REJECTION OF UNEXPIRED LEASES AND EXECUTORY
CONTRACTS.
Pursuant to the Plan, all executory contracts and unexpired leases of
the Debtor entered into prior to the Petition Date that are not expressly
assumed by the Debtor pursuant to an application filed by the Debtor on or prior
to the Confirmation Date shall be deemed to have been rejected by the Debtor on
the Confirmation Date. Each entity that is a party to an executory contract or
unexpired lease rejected pursuant to the Plan, and only such entity, shall file
with the Bankruptcy Court and serve on the Debtor's counsel, a proof of claim
relative to such rejection Claim prior to Confirmation or be forever barred from
asserting any such Claim or receiving any payment on account of such Claim. Any
Allowed Claims arising out of the rejection of an executory contract or lease
will be classified as a Class 3(a) Claim.
2. OBJECTIONS TO CLAIMS OR INTERESTS.
An objection to a Claim may be filed at any time prior to the
Effective Date, unless the Bankruptcy Court, upon request, extends such period.
Such extension may be granted without notice to the affected claimants. Filing,
service, and prosecution of such objections shall be subject to and in
accordance with the Federal Rules of Bankruptcy Procedures and appropriate local
rules and procedures. The Debtor will segregate and hold all distributions
otherwise payable on account of any Claim subject to objection. Claims as to
which an objection has been filed will be paid when a Final Order is entered by
the Bankruptcy Court allowing it. No undetermined Claim or Interest shall
receive a distribution unless and until it becomes an Allowed Claim or Interest.
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3. RESOLUTION OF DISPUTES.
Disputes regarding the validity or amount of Claims shall be resolved
pursuant to the procedures established by the Bankruptcy Court, the Plan, the
Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and other applicable
law, and such resolution shall not be a condition precedent to consummation of
the Plan.
4. SETTLEMENT OF CLAIMS AND DISPUTES.
Subject to the notice procedures set forth in this section, the Debtor
is authorized to (i) enter into binding compromises and to settle and liquidate
any cause of action of the Debtor, (ii) sell the remaining assets of the Debtor
as described in section IV(D)(1), and/or (iii) abandon property of the Estate
which the Debtor determines to be burdensome or of inconsequential benefit to
the Estate. The Debtor shall mail written notice of any such compromise,
disposition or abandonment to those parties who have filed, after the
Confirmation Date, a written request that all notices be mailed to them. If the
Debtor does not receive any written notice of an objection and demand for a
hearing on the compromise, disposition or abandonment within fifteen (15) days
of the mailing of such notice, the Debtor shall submit an order to the
Bankruptcy Court for its approval. Upon Final Order of the Bankruptcy Court, the
compromise, disposition or abandonment shall be effective, final and binding on
all parties in interest. If timely notice of an objection to the compromise,
disposition or abandonment is received by the Debtor, the Debtor shall (i)
withdraw the proposed compromise, disposition or abandonment wherein it will be
without force and effect, or (ii) move for the approval of the compromise,
disposition or abandonment by the Bankruptcy Court on notice to all parties who
have filed, after the Confirmation Date, a written request that all notices be
mailed to them.
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5. COMPENSATION AND REIMBURSEMENT OF PROFESSIONALS.
All professionals retained by the Debtor shall be entitled to payment
of their post-confirmation fees and reimbursement of expenses on a monthly
basis. Professionals shall mail or deliver a detailed statement of unpaid fees
and expenses to the Responsible Person and counsel to the Debtor. If there is no
objection to the requested fees and expenses within ten (10) days of mailing or
delivery of the detailed statement of unpaid fees and expenses, the Responsible
Person shall pay the requested amount in full. If any party objects to a portion
of the fees or expenses submitted by any professional, the Debtor shall pay the
undisputed portion of such fees and expenses and shall reserve monies in the
amount of the disputed fees and expenses pending resolution of said objection by
(i) agreement between the professional requesting such fees and expenses and the
disputing party, or (ii) resolution of the disputed amount by the Bankruptcy
Court pursuant to a Final Order. Professionals shall not otherwise be required
to file applications for Bankruptcy Court approval of post-confirmation fees and
expenses.
6. PAYMENT OF FEES OWED TO THE U.S. TRUSTEE AND CLERK'S OFFICE.
Fees payable under 28 U.S.C. ss. 1930 will have been paid by the date
of the hearing on confirmation of the Plan. The Responsible Person will continue
with the payment of quarterly fees as required, after the Confirmation Date.
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7. RETENTION OF JURISDICTION.
Under the Plan, the Bankruptcy Court will retain jurisdiction over the
Chapter 11 Case after the Confirmation Date to the fullest extent permitted
under 28 U.S.C. ss. 1334.
8. DEFAULT UNDER THE PLAN.
The Plan provides that if an event of default occurs and is not cured
within 30 days of the date written notice of the missed payment under the Plan
is provided to the Debtor, the injunction provided under the Plan shall be
dissolved and creditors will be free to pursue any and all non-bankruptcy law
rights and remedies against the Debtor or any other party liable for such debt.
G. TAX CONSEQUENCES OF THE PLAN.
ANY PERSON CONCERNED WITH THE TAX CONSEQUENCES TO THEM OF THE PLAN
SHOULD CONSULT WITH HIS/HER OWN ACCOUNTANTS, ATTORNEYS, AND/OR ADVISORS TO
DETERMINE HOW THE PLAN MAY AFFECT HIS/HER TAX LIABILITY. The Debtor does not
anticipate any adverse tax consequences to it as a result of its performance
under the Plan.
/////
/////
/////
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V.
LIQUIDATION ANALYSIS.
A. INTRODUCTION.
In order to confirm a plan of reorganization, the court must find that
the Plan provides for a distribution to any creditor voting not to accept the
Plan that such creditor will receive at least as much under the Plan as that
creditor would receive in a Chapter 7 liquidation. Although not required because
all creditors and Interest holders are deemed to accept the Plan, the Debtor
provides the following liquidation analysis.
1. LIQUIDATION ANALYSIS.
The Debtor's estimate of the liquidation value of its assets
is as follows:
DESCRIPTION OF ASSETS BOOK VALUE LIQUIDATION VALUE
- --------------------- ------------- -----------------
Cash 2) $5,777,042.05 $5,777,042.05
Security deposits $441,601.74 $441,601.74
Accounts receivable $6,383.11 $6,383.11
Intellectual property unknown unknown
Office equipment, equipment
and supplies $7,500 $7,500
Other assets $126,065.70 $126,065.70
Total $6,358,592.60 $6,358,592.60
Based upon a liquidation value of $6,358,592.60, distribution of
the proceeds of liquidation (without Plan Interest) would be as follows under
the Plan and in a Chapter 7 liquidation.
- --------------------
(2) As reflected in Debtor's Debtor-In-Possession Monthly Operating Report for
the month of June, 1999.
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CLAIMS CHAPTER 11 CHAPTER 7
- ------ ------------- -------------
Administrative expenses (3) $300,000.00 $500,000.00
Priority tax claims (4) $3,525.08 $3,525.08
Class 1(a) Burlington Holding $20,308.00 $20,308.00
Class 1(b) PT Carlsbad Assoc. $213,547.27 $213,547.27
Class 1(c) Thread Needle $19,400.23 $19,400.23
Class 2 Priority Wage Claims $0.00 $0.00
Class 3(a) and 3(b) Unsecured Claims (5) $2,038,091.66 $2,038,091.66
Class 4 Indemnity Claims unknown unknown
Class 5 Interest Holders $3,763,720.36 $3,563,720.36
As set forth above, liquidation under Chapter 7 and through the
Plan are similar except that in a Chapter 7 case the Chapter 7 trustee would be
entitled to a fee of in excess of $200,000. This fee is based on the statutory
allowance set forth in section 326 of the Bankruptcy Code. All other expenses
would be approximately the same. Accordingly, while all classes of Claims will
be paid in full under both the Plan and Chapter 7, shareholders will receive a
greater distribution under the Plan than they would in a Chapter 7 case.
- --------------------
(3) Estimated actual amount is subject to court approval. For Chapter 11
includes amounts payable to Responsible Person. For Chapter 7 includes
trustee's statutory fees.
(4) Estimates based on Debtor's Amended Schedule of Liabilities.
(5) Estimates based on Debtor's Amended Schedule of Liabilities, without any
reserve for potential indemnity claims under Class 4.
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VI.
MODIFICATION OF THE PLAN.
The Debtor may modify the Plan at any time prior to the conclusion of
the hearing on confirmation of the Plan. However, the Bankruptcy Court may
require a new disclosure statement and/or reballoting on the Plan if such
modification is sought. The Debtor may also seek to modify the Plan at any time
after confirmation so long as the Plan has not been substantially consummated
and if the Bankruptcy Court authorizes the proposed modifications after notice
and a hearing.
VII.
EFFECT OF CONFIRMATION OF PLAN.
The Confirmed Plan binds the Debtor, any entity acquiring property
under the Plan, and any Creditor or Interest Holder, whether or not the Claim or
Interest of such creditor, or Interest Holder is impaired under the Plan and
whether or not such Creditor, or Interest Holder has accepted the Plan. Except
as otherwise provided in the Plan or the Order Confirming the Plan, the
Confirmation of the Plan vests all of the property of the Estate in the Debtor.
VIII.
LIMITATION OF LIABILITY.
Except as otherwise provided in the Plan, the Debtor and the
Responsible Person, and any of such parties' respective present or former
members, officers, directors, employees, advisors, attorneys, representatives,
financial advisors, or agents and any of such parties' successors and assigns,
shall not have or incur, and are under the Plan released from, any claim,
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obligation, cause of action or liability to one another or to any Creditor or
Interest holder, or any other party in interest, or any of their respective
agents, employees, representatives, financial advisors, attorneys or affiliates,
or any of their successors or assigns, for any act or omission in connection
with, relating to or arising out of the Debtor's Chapter 11 Case, the pursuit of
confirmation of the Plan, the consummation of the Plan, the administration of
the Plan or the property to be distributed under the Plan, except for their
willful misconduct, and in all respects shall be entitled to reasonably rely
upon the advice of counsel with respect to their duties and responsibilities
under the Plan. The limited releases discussed above have no effect on any
individual direct claims of former and current shareholders with regard to the
pre-petition conduct or pre-petition liabilities of any of the individuals or
entities referred to above to the extent such claims are not property of the
Estate.
Notwithstanding any other provision of the Plan, no holder of a Claim
or Interest, or other party in interest, none of their respective agents,
employees, representatives, financial advisors, attorneys or affiliates, and no
successors or assigns of the foregoing, have any right of action against the
Debtor, or the Responsible Person or any of such parties' respective present or
former members, officers, directors, employees, advisors, attorneys,
representatives, financial advisors, or agents or such parties' successors and
assigns, for any act or omission in connection with, relating to or arising out
of the Chapter 11 Case, the pursuit of confirmation of the Plan, the
consummation of the Plan, the administration of the Plan or the property to be
distributed under the Plan, except for their willful misconduct.
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The above exculpation provisions are designed to promote the fulsome
participation of debtors, other major constituents, and their professionals in
the expeditious and efficient reorganization process. Without such protections,
the reorganization process would grind to a halt as individuals would be
reluctant to serve as professionals or otherwise participate in the
reorganization for fear that time-sensitive decisions would be subsequently
challenged by disgruntled litigants.
IX.
POST-CONFIRMATION CONVERSION OR DISMISSAL.
A creditor or party in interest may bring a motion to convert or
dismiss a case under Bankruptcy Code section 1112(b)(7) after the Plan is
confirmed if there is default in performing the Plan. If the Bankruptcy Court
orders a case converted after the Plan is confirmed, the Plan provides that
property of the Estate that has not been disbursed pursuant to the Plan will
revest in the chapter 7 estate and that the automatic stay will be reimposed
upon the revested property to the extent that relief from stay was not
previously authorized by the Bankruptcy Court during the case.
The order confirming the Plan may also be revoked under very limited
circumstances. The Bankruptcy Court may revoke the order if and only if the
order of confirmation was procured by fraud and if a party in interest brings a
motion to revoke confirmation within 180 days after the entering of the order of
confirmation.
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A. FINAL DECREE.
Once the Plan has been fully consummated, the Debtor shall file a
request with the Bankruptcy Court to obtain a final decree to close the case.
X.
CONCLUSION AND RECOMMENDATION.
The Debtor believes that the Plan is the most efficient, most
expedient, least costly and fairest manner to liquidate the Debtor's assets and
distribute the proceeds to its creditors and shareholders.
Dated: August 27, 1999
TRITEAL CORPORATION,
a Delaware corporation,
Debtor and Debtor in Possession
By: /S/ Jeffrey Black
-----------------
Jeffrey Black
Responsible Person
/S/ Jeffry A. Davis
- ----------------------------------------
JEFFRY A. DAVIS
GRAY CARY WARE & FREIDENRICH LLP
Proposed Attorneys for Debtor and
Debtor in Possession TriTeal Corporation
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