IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
) CHAPTER 11
AMERISERVE FOOD ) CASE NOS. 00-358 (PJW) AND
DISTRIBUTION, INC., ET AL.,(1) ) 00-373 (PJW) THROUGH 00-385 (PJW)
) JOINTLY ADMINISTERED
DEBTORS. )
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THIRD AMENDED DISCLOSURE STATEMENT FOR
DEBTORS' THIRD AMENDED JOINT LIQUIDATING PLAN OF
REORGANIZATION PURSUANT TO CHAPTER 11 OF THE
UNITED STATES BANKRUPTCY CODE, DATED OCTOBER 20, 2000
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IMPORTANT DATES
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>> Date by which Ballots must be received: NOVEMBER 16, 2000
>> Date by which objections to Confirmation of the Plan must be filed and
served: NOVEMBER 16, 2000
>> Hearing on Confirmation of the Plan: NOVEMBER 28, 2000 AT 1:30 P.M.
(EASTERN TIME)
>> Date by which petitions for Administrative Claims must
be filed: OCTOBER 20, 2000
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James H.M. Sprayregen Laura Davis Jones (No. 2436)
James A. Stempel Michael R. Seidl
Matthew N. Kleiman Pachulski, Stang, Ziehl, Young & Jones, P.C.
Geoffrey A. Richards 919 North Market Street
Chris L. Dickerson 16th Floor
KIRKLAND & ELLIS Wilmington, Delaware 19899
200 East Randolph Drive (302) 652-4100
Chicago, Illinois 60601
(312) 861-2000
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Co-Counsel for the Debtors and Debtors in Possession
______________
(1) The Debtors are the following entities: AmeriServe Food Distribution,
Inc., NEBCO EVANS Holding Company, Holberg Warehouse Properties, Inc.,
AmeriServe Transportation, Inc., PSD Transportation Services, Inc., Chicago
Consolidated Corporation, ASNSC, Inc., Delta Transportation, Ltd., PSC Services
of Florida, Inc., Northland Transportation Services, Inc., ProSource Mexico
Holdings, Inc., NAVC Corp., North American Vantix Corp., and Vantix Logistics
Ltd.
TABLE OF CONTENTS
Page
I.INTRODUCTION.................................................................1
II.OVERVIEW OF PLAN............................................................4
A. Description of Property to be Distributed Under the Plan.....5
B. Summary of Classification and Treatment of Claims and
Interests Under the Plan.....................................5
III.GENERAL INFORMATION.......................................................12
A. The Debtors' Business.......................................12
B. Organizational Structure of the Debtors.....................13
C. Description of Business.....................................15
1. Foodservice Distribution...........................15
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2. Customers..........................................16
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3. Operations and Distribution........................17
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4. Product Replenishment..............................17
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5. Product Storage....................................17
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6. Order Fulfillment..................................18
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7. Fleet..............................................18
-----
8. Management Information Systems.....................18
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9. Procurement, Logistics and Redistribution..........18
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10. Employees..........................................19
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11. Properties.........................................19
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D. Significant Prepetition Transactions and Indebtedness.......19
1. The PFS Acquisition................................19
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2. $350 Million 8_% Senior Notes......................24
-----------------------------
3. Subsidiary Guaranty and Parent Guaranty............25
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4. Senior Redeemable Exchangeable Preferred Stock.....26
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5. ProSource Acquisition..............................26
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6. Capital Contribution to AFD........................26
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7. Amended Credit Agreement...........................27
------------------------
E. NEHC Capital Stock..........................................28
-i-
F. Management and Employees....................................28
G. D&O Liability Insurance.....................................30
IV.THE DEBTORS' CHAPTER 11 CASES..............................................30
A. Events Preceding the Chapter 11 Filings.....................30
1. The Beginning of a Severe Liquidity Crisis.........30
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2. Liquidity Dries Up.................................31
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B. Events During the Chapter 11 Cases..........................32
1. Administration of the Chapter 11 Cases.............32
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2. Creditors' Committee...............................37
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3. PACA Claimants.....................................37
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4. Reclamation Claimants..............................38
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5. Disposition of Assets..............................40
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6. Exit of Burger King from Distribution System.......42
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7. Exit of Chick-fil-A from Distribution System.......43
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8. Wind-down of Accounts Receivable Program...........43
----------------------------------------
9. Sale of CCC Operations.............................43
----------------------
10. Sale of Canadian and Mexican Operations............44
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11. McLane Sale Transaction............................44
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12. Assumption/Rejection of Contracts and Leases.......49
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13. Pending Litigation and Automatic Stay..............50
-------------------------------------
14. Claims Process.....................................52
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15. Exclusive Plan Proposal and Acceptance Rights......54
---------------------------------------------
16. Examiner...........................................54
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17. Settlement Among Debtors, Tricon and Ad Hoc Committee
-----------------------------------------------------
of Senior Secured Noteholders......................55
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V.THE PLAN OF REORGANIZATION..................................................58
A. Substantive Consolidation...................................58
B. Rationale Underlying Plan Treatments of Claims..............59
C. Determination of Amounts Allocated to General Unsecured
Claims......................................................59
1. Rationale..........................................60
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2. Allocation of Distributions to General Unsecured
------------------------------------------------
Claims.............................................60
------
D. Classification and Treatment of Claims and Interests Under
the Plan....................................................60
1. Classification.....................................60
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-ii-
2. Administrative Expense Claims......................61
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3. Priority Tax Claims................................62
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4. PACA Claims (Class 1) -- Unimpaired................63
-----------------------------------
5. Priority Non-Tax Claims (Class 2) -- Unimpaired....63
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6. Secured Claims (Class 3) -- Unimpaired.............64
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7. Tranche A Lender Claims (Class 4) -- Impaired......65
---------------------------------------------
8. Tranche B Lender Claims (Class 5) -- Unimpaired....66
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9. Senior Secured Noteholder Claims (Class 6) --
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Impaired...........................................67
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10. Tricon Claims (Class 7) -- Impaired................68
-----------------------------------
11. General Unsecured Claims (Class 8) -- Impaired.....70
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13. NEHC Claims (Class 10) -- Impaired.................72
----------------------------------
14. Interests in Debtors (Class 11) -- Impaired........72
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E. Securities Law Matters......................................73
F. Provisions Governing Plan Implementation ...................74
1. Sale of Assets ...................................74
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2. Funding of the Plan................................74
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3. Flow of Funds at Closing...........................76
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4. Tricon Contract Assumptions........................76
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5. Cancellation of Notes, Instruments, Debentures and
--------------------------------------------------
Equity Securities..................................76
-----------------
6. Surrender of Notes.................................77
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7. Survival of Certain Terms of Indentures............77
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G. Provisions Governing Post-Confirmation Estate...............77
1. Purpose of Post-Confirmation Estate................77
-----------------------------------
2. Establishment of Post-Confirmation Estate..........78
-----------------------------------------
3. Funding of Post-Confirmation Estate................78
-----------------------------------
4. Governance and Administration......................79
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5. Plan Administrator.................................79
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6. Preservation of Rights of Action...................79
--------------------------------
7. Transfer of Assets.................................84
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8. Valuation of Assets................................84
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9. Responsibilities of Plan Administrator.............84
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10. Powers of Plan Administrator.......................85
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11. Scope of Authority.................................85
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12. Distributions......................................86
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13. Disputed Claims Reserve............................86
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14. Termination........................................87
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15. Compensation.......................................87
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16. Exculpation; Indemnification.......................87
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17. Plan Oversight Committee...........................88
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18. Complete Terms and Provisions......................89
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H. Summary of Other Provisions of the Plan.....................89
1. Conditions Precedent to Confirmation Date of
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the Plan .........................................89
--------
2. Conditions Precedent to the Effective Date of
---------------------------------------------
the Plan...........................................90
--------
3. Executory Contracts and Unexpired Leases...........91
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4. Indemnification and Reimbursement Obligations......92
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5. Provisions Governing Distributions.................92
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6. Treatment of Disputed Claims.......................95
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7. Creditors' Committee Composition and Term..........97
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8. Corporate Action...................................97
----------------
9. Effect of Confirmation.............................97
----------------------
10. Retention of Jurisdiction..........................99
-------------------------
11. Modification, Revocation or Withdrawal of Plan....101
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12. Supplemental Documents............................102
----------------------
VI.CERTAIN FACTORS TO BE CONSIDERED..........................................102
A. Variances from Projections.................................102
B. Litigation.................................................102
C. Certain Tax Matters........................................103
VII.VOTING PROCEDURES AND REQUIREMENTS.......................................103
A. Parties in Interest Entitled to Vote.......................104
B. Classes Impaired and Entitled to Vote Under the Plan.......104
C. Vote Required for Acceptance by Classes of Claims..........104
VIII.CONFIRMATION OF THE PLAN................................................105
A. Confirmation Hearing.......................................105
B. Requirements for Confirmation of the Plan..................106
1. Acceptance........................................106
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2. Fair and Equitable Test...........................106
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3. Feasibility.......................................108
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4. "Best Interests" Test.............................108
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IX.FINANCIAL INFORMATION.....................................................110
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X.ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN..................111
A. Liquidation under Chapter 7................................111
XI.CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.......................111
A. Consequences to Debtors....................................112
B. Federal Income Tax Treatment of Post-Confirmation Estate...113
1. Classification of Post-Confirmation Estate........113
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2. Tax Reporting.....................................113
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3. Reserve for Disputed Claims.......................114
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C. Consequence to Holders of Claims...........................114
1. Holders of Claims.................................114
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2. Distributions in Discharge of Accrued But
----------------------------------------
Unpaid Interest...................................115
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3. Character of Gain or Loss; Tax Basis;
------------------------------------
Holding Period....................................115
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D. Consequences to Holders of Interests.......................116
E. Withholding................................................116
XII.CONCLUSION AND RECOMMENDATION............................................117
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I.
INTRODUCTION
AmeriServe Food Distribution, Inc. ("AFD") and certain of its
direct and indirect subsidiaries, as debtors and debtors in possession
(collectively, the "Debtors"), submit this Third Amended Disclosure Statement,
dated October 20, 2000 (the "Disclosure Statement"), in connection with the
solicitation of acceptances and rejections with respect to the Debtors' Third
Amended Joint Liquidating Plan of Reorganization Pursuant to Chapter 11 of the
United States Bankruptcy Code, dated October 20, 2000 (the "Plan"or "Debtors'
Plan"), a copy of which is annexed hereto as Exhibit "A". Capitalized terms used
and not otherwise defined 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 the Debtors, their businesses, and the
Chapter 11 Cases, (2) concerning the Plan and alternatives to the Plan, (3)
advising the holders of Claims and Interests of their rights under the Plan, (4)
assisting the holders of Claims and Interests 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 on or about October 20, 2000 (the "Disclosure
Order"), a copy of which is annexed hereto as Exhibit "B", the Bankruptcy Court
approved this Disclosure Statement, in accordance with section 1125 of the
Bankruptcy Code, as containing "adequate information" to enable a hypothetical,
reasonable investor typical of holders of Claims against, or Interests in, the
Debtors 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,
holders of Claims and Interests should not rely on any information relating to
the Debtors and their businesses, other than that contained in this Disclosure
Statement, the Plan and all exhibits hereto and thereto.
THIS DISCLOSURE STATEMENT IS NOT INTENDED TO REPLACE A CAREFUL
AND DETAILED REVIEW AND ANALYSIS OF THE PLAN BY EACH HOLDER OF A CLAIM OR
INTEREST. THIS DISCLOSURE STATEMENT IS INTENDED TO AID AND SUPPLEMENT THAT
REVIEW. THE DESCRIPTION OF THE PLAN IS A SUMMARY ONLY. HOLDERS OF CLAIMS AND
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 ("SEC") NOR HAS THE SEC PASSED UPON
THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
Pursuant to the provisions of the Bankruptcy Code, only
classes of claims or 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. In these cases, only Claims in Classes 4, 6, 7, 8,
9 and 10 are impaired by the Plan, and the holders of Claims in those Classes
are the only Entities entitled to vote to accept or reject the Plan. Class 11
will receive no distribution and is deemed to have rejected the Plan. Claims in
Classes 1, 2, 3 and 5 are unimpaired by the Plan, and the holders thereof are
conclusively presumed to have accepted the Plan.
THE RECORD DATE FOR DETERMINING THE HOLDERS OF CERTAIN CLAIMS
OR INTERESTS THAT MAY VOTE ON THE PLAN IS SEPTEMBER 12, 2000 (the "Voting Record
Date").
If you are entitled to vote to accept or reject the Plan,
accompanying this Disclosure Statement should be a ballot ("Ballot") for casting
your vote(s) on the Plan and a pre-addressed envelope for the return of he
Ballot. BALLOTS FOR ACCEPTANCE OR REJECTION OF THE PLAN ARE BEING PROVIDED ONLY
TO HOLDERS OF CLAIMS IN CLASSES 4, 6, 7, 8, 9 AND 10 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 one of these Classes 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:
BANKRUPTCY SERVICES, LLC: 1-888-498-7765
THE DEBTORS RECOMMEND THAT THE HOLDERS OF CLAIMS AND INTERESTS
IN ALL SOLICITED CLASSES VOTE TO ACCEPT THE DEBTORS' PLAN. THE AGENT, TRICON,
THE AD HOC COMMITTEE OF SENIOR SECURED NOTEHOLDERS (HOLDING CLAIMS APPROXIMATING
$139 MILLION OF SENIOR SECURED NOTEHOLDER CLAIMS) AND THE AD HOC COMMITTEE OF
RECLAMATION CLAIMANTS (HOLDING CLAIMS APPROXIMATING $13 MILLION OF RECLAMATION
CLAIMS) RECOMMEND THAT THE HOLDERS OF CLAIMS IN ALL SOLICITED CLASSES VOTE TO
ACCEPT THE DEBTORS' PLAN. THE CREDITORS' COMMITTEE ALSO SUPPORTS THE DEBTORS'
PLAN AND RECOMMENDS THAT THE HOLDERS OF CLAIMS IN ALL SOLICITED CLASSES VOTE TO
ACCEPT THE DEBTORS' 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:
Bankruptcy Services, LLC
Heron Tower
70 East 55th Street
6th Floor
New York, NY 10022
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 4:00 P.M. (EASTERN TIME) ON
NOVEMBER 16, 2000. 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.
The Debtors believe that prompt confirmation and
implementation of the Plan is in the best interests of the Debtors, all holders
of Claims and the Debtors' chapter 11 estates.
In accordance with the Disclosure Order and section 1128 of
the Bankruptcy Code, the Bankruptcy Court has fixed November 28, 2000, at 1:30
p.m. (Eastern Time), in the United States Court House, Sixth Floor, Courtroom of
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 November 16, 2000, 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
BY THE DEBTORS 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 THE DEBTORS. HOLDERS OF CLAIMS ENTITLED TO VOTE
SHOULD READ IT CAREFULLY AND IN ITS ENTIRETY, AND WHERE POSSIBLE, CONSULT WITH
COUNSEL OR OTHER ADVISORS PRIOR TO VOTING ON THE PLAN.
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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. 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.(2) 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, entitled, THE PLAN OF REORGANIZATION. The Plan is a
plan of reorganization for the Debtors and incorporates a settlement and
compromise by and among various parties in interest. The Plan represents the
product of negotiations among the Debtors and key parties in interest.
The Plan provides for the classification and treatment of
Claims against and Interests in the Debtors. The Plan designates 10 Classes of
Claims and 1 Class of Interests, which classify all Claims against and Interests
in the Debtors. These classes take into account the differing nature and
priority under the Bankruptcy Code of the various Claims and Interests as well
as the compromise and settlement referenced above.
_______________________
(2) This Disclosure Statement may not be relied upon by any persons for any
purpose other than by holders of Claims 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 the Debtors or any other party, or be
deemed conclusive evidence of the tax or other legal effects of the
reorganization on the Debtors or on holders of Claims or Interests.
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A. Description of Property to be Distributed under the Plan
The Plan requires that a Sale Transaction or an Alternative
Sale Transaction has occurred by the Effective Date. A Sale Transaction is a
sale by the Debtors to McLane Company, Inc. ("McLane"), to be consummated on the
Effective Date, of substantially all of the assets of the Debtors. An
Alternative Sale Transaction is a sale by the Debtors to a third party who
submits an offer that is higher and better than the terms of the McLane Purchase
Agreement. In the case of either transaction, all remaining assets will be
liquidated and the proceeds distributed pursuant to the Plan.
With certain exceptions, upon the Effective Date, the Plan
provides for a distribution of Cash to holders of Claims entitled to
distributions under the Plan. The Plan also provides for subsequent
distributions to holders of Claims entitled to distributions under the Plan from
the Post-Confirmation Estate.
The Post-Confirmation Estate is a trust that will be
responsible for liquidating through prosecution, settlement or other
disposition, claims and causes of action of the Debtors, as well as any other
assets remaining after the Sale Transaction or the Alternative Sale Transaction
is consummated.
PURSUANT TO THE PLAN, ALL EXISTING INTERESTS IN THE DEBTORS
(INCLUDING ALL ISSUED AND OUTSTANDING PREFERRED AND COMMON STOCK) WILL BE
EXTINGUISHED AND CANCELED.
B. Summary of Classification and Treatment of Claims and Interests under the
Plan
The following chart3 summarizes distributions to holders of
Allowed Claims and Interests under the Plan. The recoveries set forth below are
projected recoveries and may change based upon changes in Allowed Claims and
proceeds available.
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
Administrative Expense Payment in full, in Cash, $93,000,000.00(4) 100.0%
Claims (a) on the later of the
Effective Date and the date
upon which the Bankruptcy
Court order allowing such
Claim becomes an Allowed
___________________
(3) This chart is only a summary of the classification and treatment of Claims
and 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 Interests.
-5-
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
Claim, or (b) upon such other
terms as may be mutually
agreed upon between the holder
of such Claim and the Debtors
or the Plan Administrator.
Priority Tax Claims At the sole option of the $7,000,000.00 100.0%
Debtors or the Post-Confirmation
Estate, payment (a) in full, in
Cash, on the Effective Date, (b)
in accordance with section
1129(a)(9)(c) of the Bankruptcy
Code or (c) by mutual agreement
of the holder of such Claim and
the Debtors.
1 PACA Claims UNIMPAIRED. Unless otherwise $55,500,000.00(5) 100.0%
agreed upon by the holder of
such Claim and the Debtors or
the Post-Confirmation Estate,
payment in full, in Cash, from
the PACA Account upon the
later of the Effective Date
and the date on which such
Claim becomes an allowed Claim.
2 Priority Non-Tax Claims UNIMPAIRED. Unless otherwise $4,000,000.00 100.0%
agreed upon by the holder of
such Claim and the Debtors or
the Post-Confirmation Estate,
payment in full, in Cash, upon
the later of the Effective
Date and the date on which
such Claim becomes an Allowed
Claim.
3 Secured Claims UNIMPAIRED. Each holder shall Up to $2,000,000.00(6) 100.0%
receive, at the election of the
Debtors, either (a) payment in
full, in Cash, (b) the proceeds
from the sale or other
disposition of the Collateral,
(c) surrender of
________________________________________________________________________________
(4) The Administrative Claims Bar Date is set for October 20, 2000. Accordingly,
this figure is the Debtors' best estimate based, in part, on Claims filed to
date. In addition, this estimate includes certain Administrative Claims that
McLane has agreed to assume under the McLane Purchase Agreement.
(5) The Debtors have already paid in excess of $29 million in PACA Claims, and
are reconciling and/or contesting the remaining portion of PACA Claims. This
estimate assumes that the Debtors are unsuccessful in contesting all of the
remaining unsecured PACA Claims.
-6-
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
the Collateral,
or (d) such other distribution as
necessary to satisfy the
Bankruptcy Code.
4 Tranche A Lender Claims IMPAIRED. Each holder shall $122,400,000.00 100.0%
receive its Pro Rata Share of plus any fees and
Cash in an amount equal to the interest at the
unpaid principal balance owed non-default contract
to the Tranche A Lenders as of rate of 11.5% p.a.
the Effective Date plus
accrued interest at the
non-default contract rate of
11.5% per annum on the unpaid
principal balance owed to the
Tranche A Lenders on the
Effective Date. On the
Effective Date, the Debtors
shall deposit Cash into a
reserve account in an amount
equal to the unpaid
professional fees asserted by
the Tranche A Lenders pending
the allowance of such fee
Claims pursuant to section 506
of the Bankruptcy Code.
5 Tranche B Lender Claims UNIMPAIRED. On the Effective $114,900,000.00 100.0%
Date, the Debtors shall
deposit Cash into a reserve
account (the "Tranche B
Reserve") for the benefit of
the Tranche B Lenders in an
amount equal to One Hundred
Million Dollars ($100,000,000)
plus unpaid interest at the
default contract rate of 15%
per annum accrued during the
period beginning on the
Petition Date and ending on
the Effective Date. The
Tranche B Lender Claims shall
be paid from the Tranche B
Reserve when and to the extent
such Claims become Allowed
Tranche B Lender
_______________________________________________________________________
________________________________________________________________________________
(6) Taxing authorities have filed Secured Claims in the approximate amount of $2
million. The Debtors are investigating the validity and classification of these
Claims and may seek to expunge them and/or reclassify them as Priority Tax
Claims, Priority Non-Tax Claims and/or General Unsecured Claims.
-7-
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
Claims by Final Order of the
Bankruptcy Court.
____________________________________________________________________
6 Senior Secured Noteholder IMPAIRED. On the Effective $200,297,300.00 plus 32.5%
Claims Date, the Debtors will interest at the
distribute (a) to the Senior non-default contract
Secured Indenture Trustee, rate of 12% p.a.
Cash in an amount equal to
32.5% of the face amount (i.e.
$205 million) of the Senior
Secured Noteholder Claims
minus the sum of (i) 50% of
the Tranche B Interest (such
percentage, the "Noteholder
Proportion"), and (ii) the Ad
Hoc Senior Secured Noteholder
Committee Professional Fees,
and (b) to the Ad Hoc Senior
Secured Noteholders'
Professionals, the Ad Hoc
Senior Secured Noteholder
Committee Professional Fees.
The Senior Secured Indenture
Trustee shall distribute to
the Senior Secured Noteholders
their Pro Rata Share after
making all necessary
adjustments for payments
previously paid by members of
the Ad Hoc Senior Secured
Noteholder Committee to Ad Hoc
Senior Secured Noteholder
Committee Professionals. The
Senior Secured Noteholders are
also entitled to receive
certain other distributions.
7 Tricon Claims IMPAIRED. The Tricon Claims $220,000,000.00 Unknown(1)
shall be allowed as first
priority claims in the amount
of Two Hundred Twenty Million
Dollars ($220,000,000). In
addition, Tricon shall be
entitled to receive certain
non-recourse recoveries which
will not reduce Tricon's $220
million priority claim.
-8-
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
Claims by Final Order of
Bankruptcy Court
8 General Unsecured Claims $1,865,000,000(7) Unknown(8)
8A Claims Arising
Under Senior AFD
Indenture $350,000,000.00
Claims Arising
8B Under Senior
Subordinated AFD
Indenture
$485,000,000.00
General Unsecured
Claims of Senior
Secured
8C Noteholders
$140,000,000.00
______________________________________________________________________
8D All other General
Unsecured Claims $890,000,000.00
IMPAIRED. Class 8 consists of
General Unsecured Claims and
is divided into four separate
subclasses - 8A, 8B, 8C and 8D
- each of which is treated
identically in the Plan.
Subclass 8A consists of Claims
______________________________________________________________________
__________________________
(7) The current estimate of Allowed General Unsecured Claims includes 2-1/2
times the amount of Allowed Reclamation Claims. General Unsecured Claims have
been filed in an amount in excess of Ten Billion Dollars ($10,000,000,000).
(8) It is impossible to predict with any degree of certainty the range of
recoveries available to General Unsecured Claimants due to the speculative
nature of the Bankruptcy Causes of Action. Accordingly, recoveries on account of
Allowed General Unsecured Claims could be as low as zero.
-9-
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
Claims by Final Order of
the Bankruptcy Court
arising under the Senior AFD
Indenture. Subclass 8B
consists of Claims arising
under the Subordinated AFD
Indenture Trustee. Subclass
8C consists of the General
Unsecured Claims of the Senior
Secured Noteholders. Subclass
8D consists of all other
General Unsecured Claims.
Commencing on the Effective
Date, each holder of an
Allowed General Unsecured
Claim shall be entitled to
receive such holders' Pro Rata
Share of net recoveries realized
by the Post-Confirmation Estate
resulting from the liquidation of
the Post-Confirmation Estate
Assets (other than Encumbered
Residual Assets) according to the
chart in Section 12.3 of the Plan
remaining after the full
satisfaction of amounts payable
(a) in connection with the
administration of the
Post-Confirmation Estate, (b) on
account of (or reserved on
account of ) Post-Confirmation
Administrative Expense Advances
and (c) otherwise payable under
the Post-Confirmation Estate
Agreement. Notwithstanding the
foregoing, net recoveries
realized by the Post-Confirmation
Estate resulting from the
liquidation of Post-Confirmation
Estate Assets (other than
Encumbered Residual Assets) shall
be distributed to holders of
Allowed General Unsecured Claims
according to the chart set forth
in Section 12.3 of the Plan and
described herein.
__________________________________________________________________
9 Reclamation Claims IMPAIRED. Commencing on the $63,000,000 Unknown(2)
Effective Date, each holder of
an Allowed Reclamation Claim
will receive distributions as
if such claimant had Allowed
General Unsecured Claims in an
amount equal to 2 1/2 times the
allowed amount of such
Reclamation Claim.
Notwithstanding the foregoing,
in the event that any
Reclamation Claimant (i)
objects to the Plan, (ii)
votes not to accept the Plan,
(iii) after
-10-
Estimated
Estimated Aggregate Percentage
Amount of Allowed Recovery of
Claims or Interests Allowed
Claims or
Class Claim/Interest Treatment of Claim/Interest Interests
Claims by Final Order of
the Bankruptcy Court
November 1, 2000
(which date may be extended at
the Debtors' sole and absolute
discretion) seeks treatment of
such Claim in any manner
inconsistent with the
settlement described herein or
(iv) that has objected to the
Debtors' Motion for Further
Order Establishing Procedure
for Valuation of Allowed
Reclamation Claims filed on
September 13, 2000 and has not
withdrawn such objection on or
before November 1, 2000 (which
date may be extended at the
Debtors' sole and absolute
discretion), then such
Reclamation Claimant shall be
entitled to receive distributions
on account of the allowed portion
of such Reclamation Claim as if
such holder had an Allowed
General Unsecured Claim equal to
the amount of such Allowed
Reclamation
Claim rather than equal to 2 1/2
times such amount.
10 NEHC Claims IMPAIRED. Commencing on the $101,000,000 0.0%
Effective Date, each holder of
an Allowed NEHC Claim will
receive such holder's Pro Rata
Share of Post-Confirmation
Estate Assets remaining after
the full satisfaction in
accordance with the Plan of
(a) amounts payable in
connection with the
administration of the
Post-Confirmation Estate, (b)
Allowed General Unsecured
Claims and (c) Allowed
Reclamation Claims.
11 Interests in Debtors IMPAIRED. All Interests in all N/A 0.0%
of the Debtors shall be
extinguished.
________________________________________________________________________________________________________________
-11-
THE TREATMENT AND DISTRIBUTIONS PROVIDED TO HOLDERS OF ALLOWED
CLAIMS PURSUANT TO THE PLAN ARE IN FULL AND COMPLETE SATISFACTION OF THE ALLOWED
CLAIMS ON ACCOUNT OF WHICH SUCH TREATMENT IS GIVEN AND DISTRIBUTIONS ARE MADE.
III.
GENERAL INFORMATION
A. The Debtors' Business
Historically, the Debtors, together with their non-debtor
affiliates, were North America's largest foodservice distributor specializing in
chain restaurants. The foodservice distribution business involves purchasing,
receiving, warehousing, marketing, selecting and loading, delivering and
distributing a wide variety of food items as well as paper goods, cleaning and
other supplies and equipment. The Debtors and their non-debtor affiliates
serviced approximately 36,000 restaurants, the vast majority of which are in the
United States. For the twelve months ended September 25, 1999, AFD generated
consolidated net sales of $8.7 billion.
The Debtors' customers are generally owners and/or franchisees
of chain restaurant concepts. Prior to the Petition Date, these customers
included over 30 restaurant concepts, including restaurants in the Arby's,
Burger King, Chick-fil-A, Chili's, Dairy Queen, KFC, Lone Star Steakhouse, Long
John Silver's, Olive Garden, Pizza Hut, Red Lobster, Sonic, Taco Bell, TCBY and
TGI Friday's systems. For most of these restaurant concepts, the Debtors served
all or a substantial majority of the restaurants and were the single source of
supply. As of the Petition Date, AFD also operated foodservice distribution
businesses in Canada and Mexico.
The Debtors' operations generally can be categorized into
three business processes: product replenishment, product storage and order
fulfillment. Product replenishment involves the management of purchasing product
from vendors and transporting it to the Debtors' distribution centers. Product
storage involves the warehousing and rotation of dry and temperature-controlled
inventory at the distribution centers pending sale to customers. Order
fulfillment involves all activities from customer order placement and selecting
and loading through delivery from the distribution centers to the restaurant
location. Supporting these processes is the Debtors' nationwide network of
distribution centers, its fleet of tractors and trailers, and its management
information systems.
-12-
As of the Petition Date, the Debtors operated (or were in the
process of constructing) distribution centers located throughout the United
States, Canada and Mexico including the following locations: Albany, New York;
Atlanta, Georgia; Bell, California; Burlington, New Jersey; Charlotte, North
Carolina; Chester, New York; Columbus, Ohio; Denver, Colorado; Farmingdale, New
York; Fort Worth, Texas; Fredericksburg, Virginia; Grand Rapids, Michigan;
Gridley, Illinois; Gulfport, Mississippi; Hebron, Kentucky; Houston, Texas;
Indianapolis, Indiana; Industry, California; Kansas City, Kansas; Lemont,
Illinois; Lenexa, Kansas; Lewisville, Texas; Manassas, Virginia; Memphis,
Tennessee; Mexico City, Mexico; Milwaukee, Wisconsin; Mississauga, Ontario;
Norman, Oklahoma; Oakwood, Ohio; Obetz, Ohio; Oklahoma City, Oklahoma; Ontario,
California; Orlando, Florida; Oxford, Massachusetts; Phoenix, Arizona; Plymouth,
Minnesota; Portland, Oregon; Salt Lake City, Utah; Stafford, Virginia; Stockton,
California; Waukesha, Wisconsin; and Woodridge, Illinois. The Debtors' worldwide
headquarters are located in Addison, Texas.
As of the Petition Date, the Debtors and their non-debtor
affiliates employed approximately 8,300 full-time employees, approximately 600
of whom were employed in corporate support functions and approximately 7,700 of
whom were warehouse, transportation, sales, and administrative staff at the
distribution centers.
B. Organizational Structure of the Debtors
NEHC, AFD's parent, has twenty-one (21) direct and indirect
subsidiaries in corporate, partnership and trust form. NEHC and the other
Debtors will be liquidated and dissolved after the Effective Date. The corporate
structure of the Debtors and their non-debtor Affiliates is reflected on the
following chart.
-13-
[OBJECT OMITTED]
-14-
AFD is a wholly owned subsidiary of NEHC. NEHC is also the
majority owner of HWPI. AFD accounts for substantially all of NEHC's assets and
NEHC conducts substantially all of its business through AFD and its
subsidiaries.
NEHC is a wholly owned subsidiary of NEDI, which is a majority
owned subsidiary (92.9%) of Holberg Industries, Inc ("Holberg"). Holberg is a
privately held diversified service company with subsidiaries operating within
the foodservice distribution and parking services industries in North America.
Holberg was formed in 1986 to acquire and manage foodservice distribution
businesses. Holberg acquired NEBCO Distribution of Omaha, Inc. ("NEBCO") in 1986
for $6 million. NEBCO acquired Evans Brothers Company, a regional systems
distributor based in Waukesha, Wisconsin, in January 1990 for $33.9 million and
the combined company was renamed NEBCO EVANS Distribution, Inc. ("NEBCO EVANS").
NEBCO EVANS acquired L.L. Distribution Systems Inc. in 1990 for $10 million,
Condon Supply Company in 1991 for $3.4 million and AmeriServ Food Company
("AmeriServ"), a Dallas, Texas distributor of food products and supplies to
chain restaurants in such systems as Applebee's, Burger King, Dairy Queen, KFC
and Wendy's in January 1996 for $92.9 million.
In conjunction with the AmeriServ acquisition, on January 25,
1996, NEHC was formed as a wholly-owned subsidiary of NEDI and acquired all of
the stock of NEBCO EVANS. In April 1997, NEBCO EVANS, a Nebraska corporation,
changed its name to AmeriServe Food Distribution, Inc. (as such, "Nebraska
AmeriServe"). CCC, an operator of redistribution facilities for dry goods based
in Lemont, Illinois, was also acquired as part of the AmeriServ acquisition and
through subsequent transactions. Primarily as a result of these acquisitions,
Nebraska AmeriServe's net sales increased from $277.9 million in 1991 to $1.3
billion in 1996.
On December 28, 1997, Nebraska AmeriServe and its wholly-owned
subsidiary, The Harry H. Post Company, merged with and into AmeriServ Food
Company. In the mergers, AmeriServ Food Company changed its name to AmeriServe
Food Distribution, Inc. and reincorporated in Delaware.
C. Description of Business
1. FOODSERVICE DISTRIBUTION
The foodservice distribution business involves the purchasing,
receiving, warehousing, marketing, selecting, loading and delivery of fresh and
frozen meat and poultry, seafood, frozen foods, canned and dry goods, fresh and
preprocessed produce, beverages, dairy products, paper goods, cleaning supplies,
equipment and other supplies purchased from manufacturers and vendors and sold
to a broad range of enterprises, including restaurants, cafeterias, nursing
homes, hospitals, other health care facilities and schools (but generally does
not include supermarkets and other retail grocery stores). It is estimated that
the United States foodservice distribution industry will generate approximately
$150 billion in sales in 2000.
-15-
Within the foodservice distribution industry, there are two
primary types of distributors: broadline foodservice distributors and specialist
foodservice distributors, such as the Debtors. Broadline foodservice
distributors service a wide variety of customers including both independent and
chain restaurants, schools, cafeterias and hospitals. Broadline distributors may
purchase and inventory as many as 25,000 different food and food-related items.
Customers utilizing broadline foodservice distributors typically purchase
inventory from several distributors. Specialist foodservice distributors may be
segregated into three categories: product specialists, which distribute a
limited number of products (such as produce or meat); market specialists, which
distribute to one type of restaurant (such as Mexican); and systems specialists,
which focus on one type of customer (such as chain restaurants or health care
facilities).
The Debtors operate as a systems distributor that specializes
in servicing chain restaurants. Systems specialists, such as the Debtors,
typically purchase and inventory between 1,000 and 6,000 different food and
food-related items and often serve as a single source of supply for their
customers. Broadline foodservice distributors generally rely on sales
representatives who must call on customers regularly. Systems distributors,
however, regularly process orders electronically without the need for a sales
representative's involvement.
2. CUSTOMERS
The Debtors' customers are generally owners and/or franchisees
of chain restaurant concepts. As of the Petition Date, the Debtors' customers
included over 30 restaurant concepts with approximately 36,000 restaurant
locations. The corporate owner or franchiser of the restaurant concept generally
reserves the right to designate one or more approved foodservice distributors
within a geographic region, and each franchisee is typically allowed to select
its foodservice distributor from such approved list.
-16-
3. OPERATIONS AND DISTRIBUTION
The Debtors' operations generally can be categorized into
three business processes: product replenishment, product storage and order
fulfillment. Product replenishment involves the management of purchasing product
from vendors and transporting to the Debtors' distribution centers. Product
storage involves the warehousing and rotation of dry and temperature-controlled
inventory at the distribution centers pending sale to customers. Order
fulfillment involves all activities from customer order placement and selecting
and loading through delivery from the distribution centers to the restaurant
location. Supporting these processes has been the Debtors' nationwide network of
distribution centers, its fleet of approximately 1,500 tractors and 2,100
trailers and its management information systems. Substantially all of the
Debtors' products are purchased, stored and delivered in sealed cases which the
Debtors do not open or alter.
4. PRODUCT REPLENISHMENT
While the Debtors are responsible for purchasing products to
be delivered to their customers, chain restaurants typically approve the vendors
and negotiate the price for their proprietary products. The Debtors determine
the distribution centers that will warehouse products for each customer and the
quantities in which such products will be purchased. Order quantities for each
product are systematically determined for each distribution center, taking into
account both recent sales history and projected customer demand. The
distribution centers selected to serve a customer are based on the location of
the restaurants to be serviced.
5. PRODUCT STORAGE
The Debtors historically warehoused approximately 1,000 to
6,000 stock keeping units for their customers at their facilities located
throughout the United States, Canada and Mexico. Upon receipt of the product at
the distribution centers, the product is inspected and stored on pallets, in
racks or in bulk in the appropriate temperature-controlled environment. The
Debtors' computer systems continuously monitor inventory levels in an effort to
maintain optimal levels, taking into account required service levels, buying
opportunities and capital requirements. Each distribution center contains
ambient, refrigerated (including cool docks) and frozen space, as well as
offices for operations, sales and customer service personnel and a computer
network, accessing systems at other distribution centers and the Debtors'
corporate support centers. A majority of the Debtors' distribution centers are
between 100,000 to 200,000 square feet with approximately 20% refrigerated
storage space, 30% frozen storage space and 50% dry storage space.
-17-
6. ORDER FULFILLMENT
Each restaurant places product orders based on recent usage,
estimated sales and existing restaurant inventories. The Debtors use their
management information systems to continually update routes and delivery times
with each customer in order to lower fulfillment costs. Product orders are
placed with the Debtors one to three times a week either through the Debtors'
customer service representatives or through electronic transmission using
specially designed software. Once ordered by the customer, products are picked
and labeled at each distribution center, and the products are generally placed
on a pallet for the loading on outbound trailers. Delivery routes are scheduled
to both fully utilize the trailer's load capacity and minimize the number of
miles driven in order to exploit the cost benefit of customer density.
7. FLEET
As of the Petition Date, the Debtors operated a fleet of
approximately 1,500 tractors and 2,100 trailers through ATI. The Debtors leased
approximately 480 tractors from Penske Truck Leasing pursuant to full-service
leases. The Debtors also leased approximately 390 tractors from General Electric
Capital Corp. which are maintained through Penske Truck Leasing, UPS Truck
Leasing and other national maintenance providers. As of the Petition Date, the
Debtors owned approximately 540 tractors and 870 trailers, which are maintained
by national maintenance providers. The remaining tractors (approximately 90) and
trailers (approximately 1,230) are leased from a variety of leasing companies.
Substantially all of the Debtors' trailers contain temperature-controlled
compartments, which allow the Debtors to simultaneously deliver frozen food,
refrigerated food and dry goods.
8. MANAGEMENT INFORMATION SYSTEMS
AFD and the former PFS and ProSource businesses operated with
different computer systems. AFD utilizes a variety of personal computers and IBM
AS/400-based software applications. PFS and ProSource also operated with a
variety of applications, the core of which were mainframe-based. Programs in use
include various customized and special-purpose applications, such as warehouse
management tools, remote order entry, automated replenishment, delivery routing,
and onboard computers for delivery trucks. Prior to the Petition Date, the
Debtors replaced their core applications with software from J.D. Edwards in
order to integrate the systems of AFD, PFS and ProSource.
9. PROCUREMENT, LOGISTICS AND REDISTRIBUTION
The Debtors procure a wide range of food, paper and cleaning
products for ultimate distribution to their chain restaurant customers. As of
the Petition Date, the Debtors also operated two redistribution centers for the
purpose of purchasing slow-moving inventory items and consolidating these items
into full truckload shipments to the Debtors'
-18-
distribution centers nationally, as well as to customers. The Debtors also offer
redistribution services to customers outside of the continental United States.
The Debtors operate a freight logistics division for the purpose of achieving
the lowest landed costs to its distribution centers through the review of
purchase orders generated at the various distribution centers. The Debtors
generate freight savings through leveraged purchasing, with key carriers
operating in defined traffic lanes. This division also sells logistical services
to businesses outside the Debtors' restaurant customer base.
10. EMPLOYEES
As of December 31, 1999, the Debtors had approximately 8,300
full-time employees, approximately 600 of whom were employed in corporate
support functions and approximately 7,700 of whom were warehouse,
transportation, sales, and administrative staff at the distribution centers. As
of such date, approximately 1,000 of the Debtors' employees were covered by 12
collective bargaining agreements.
11. PROPERTIES
AFD leases approximately 150,000 square feet of headquarters
office space in Addison, Texas, a suburb of Dallas. As of the Petition Date, AFD
operated numerous distribution centers located throughout the United States,
Canada and Mexico.
D. Significant Prepetition Transactions and Indebtedness
The Debtors are party to numerous prepetition financing
arrangements including secured bank debt, privately issued secured debt,
publicly-issued unsecured debt and an accounts-receivable securitization
facility. Each of the foregoing types of indebtedness is more fully described
below.
1. THE PFS ACQUISITION
Pursuant to the PFS Acquisition Agreement by and between NEHC
and PepsiCo, Inc. ("PepsiCo") which was assigned to AFD on July 11, 1997 (the
"PFS Closing"), AFD acquired substantially all of the assets and properties used
or held for use by PFS in the United States and Canada for $841.6 million in
cash and assumed certain liabilities (the "PFS Acquisition"). In October 1997,
AFD also acquired PFS de Mexico, S.A. de C.V., a regional systems foodservice
distributor based in Mexico City, Mexico for $8 million.
PFS was a division of PepsiCo that distributed food products
and supplies and restaurant equipment to franchised and company-operated
restaurants in the Pizza Hut, Taco Bell and KFC systems. These systems were
spun-off by PepsiCo in October 1997 and are now operating as Tricon. In
addition, AFD was assigned a distribution agreement whereby it became the
exclusive distributor of selected products until July 11, 2002 to the
-19-
approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants in the continental
United States owned by Pizza Hut, Inc., Taco Bell Corp., Kentucky Fried Chicken
Corporation and Kentucky Fried Chicken of California, Inc. - all Tricon
subsidiaries - and their subsidiaries and previously serviced by PFS.
Approximately $50.6 million of fees and expenses were paid by the Debtors in
connection with the PFS Acquisition and related financing activity. In
connection with the PFS Acquisition, NEHC and AFD entered into the transactions
described below.
1. NEHC Transactions and Indebtedness
(1) EQUITY CONTRIBUTION
In connection with the PFS Acquisition, NEHC
contributed $130.0 million of cash to AFD (the
"Equity Contribution"). A portion of such funds was raised by NEHC through the
sale to DLJ Merchant Banking, L.P. II and affiliates (together with other DLJ
affiliates, "DLJ") for aggregate consideration of $115.0 million: (i) $60.0
million initial liquidation preference of 13 1/2% Senior Exchangeable Preferred
Stock (the "Senior Preferred Stock"); (ii) $55.0 million initial liquidation
preference of 15% Junior Exchangeable Preferred Stock (the "Junior Preferred
Stock"); and (iii) warrants to purchase shares of NEHC Class A Common Stock
("Warrant Shares") with an exercise price of $0.01 per Warrant Share,
representing the right to acquire an aggregate of up to 22.5% of the Common
Stock of NEHC on a fully diluted basis.
DLJ, Orkla ASA ("Orkla") and AFD were also party to an
investors agreement pursuant to which DLJ had the right to name two directors to
the board of NEHC and AFD and to approve certain actions by NEHC and its
subsidiaries. The investors agreement also provided for certain restrictions on
transfer, rights of first offer, rights to participate in transfers by other
parties, preemptive rights and other customary matters.
(2) OLD NEHC NOTE REDEMPTION
DLJ beneficially owned certain of the 12 1/2% Notes
of NEHC (the "Old NEHC Notes") with an
initial principal amount of $22.0 million. Orkla also held Old NEHC Notes with
an initial principal amount of $8.0 million.
In connection with the issuance of the 12 _% Senior Discount
Notes, $33.4 million of the proceeds was used to redeem all of the outstanding
Old NEHC Notes. Substantially all of the balance of the proceeds of the issuance
was used to fund a portion of the Equity Contribution.
-20-
(3) THE POST CONTRIBUTION
In connection with the January 1996 purchase of AmeriServ, AFD
and NEHC each acquired a minority interest in Post Holdings Company ("Post
Holdings"), which owned 93.6% of The Harry H. Post Company ("Post"). Post was a
systems food distributor with three distribution centers in the western United
States. On November 25, 1996, NEHC: (i) acquired (a) AFD's ownership interest in
Post Holdings for $2.5 million in NEHC preferred stock, and (b) Daniel W.
Crippen's 50% ownership of Post Holdings and (ii) merged Post Holdings with and
into NEHC with NEHC as the surviving entity. Mr. Crippen was AFD's Chief
Operating Officer and the former President of Post.
In connection with the PFS Acquisition: (i) the remaining 6.4%
of the capital stock outstanding of Post was acquired from the minority
stockholder; (ii) a dividend of $4.7 million was declared to eliminate the
intercompany balance between Post and NEHC; (iii) all of the capital stock of
Post was transferred to AFD; and (iv) Post's $12.6 million of outstanding
indebtedness was repaid. AFD's investment in NEHC preferred stock of $2.5
million was canceled.
(4) HWPI TRANSACTION
HWPI was owned 55% by Holberg and 45% by AFD. In connection
with the PFS Acquisition, NEHC purchased for $1.5 million Holberg's 55% interest
in HWPI.
(5) PREFERRED STOCK CONTRIBUTION
In connection with the PFS Acquisition, NEHC contributed to
AFD an aggregate principal amount of $45.0 million of outstanding preferred
stock previously issued by AFD to NEHC. Of this preferred stock, $30.0 million
had been issued by AFD to NEHC in connection with the acquisition of AmeriServ
Food Company.
(6) 12 _% SENIOR DISCOUNT NOTES
On July 11, 1997, NEHC received $55.0 million in proceeds upon
issuance, in a private placement not requiring registration under the Securities
Act of 1933 (as amended, the "Securities Act"), of $100,387,000 principal amount
of 12_% Senior Discount Notes (the "12_% Senior Discount Notes") due 2007
pursuant to an Indenture dated as of July 11, 1997 by and among NEHC and State
Street Bank and Trust Company as indenture trustee. During June 2000, State
Street Bank and Trust Company resigned as indenture trustee and was succeeded by
HSBC Bank USA (the "Subordinated NEHC Indenture Trustee"). A portion of the
proceeds was used to redeem the Old NEHC Notes with a principal amount of $33.4
million (including accretion of interest) issued in January of 1996. On December
12, 1997, NEHC consummated an offer to exchange the 12_% Senior Discount Notes
for new Senior Discount Notes, which are registered under the Securities Act
with terms substantially identical to the 12_% Senior Discount Notes. The
-21-
12_% Senior Discount Notes mature on July 15, 2007. No cash interest is payable
on the 12_% Senior Discount Notes prior to January 15, 2003. Interest on the
12_% Senior Discount Notes accrues at the rate of 12_% per annum and is payable
semi-annually in arrears on July 15 and January 15 of each year, commencing on
January 15, 2003, to holders of record on the immediately preceding July 1 and
January 1. The 12_% Senior Discount Notes rank pari passu in right of payment to
all senior debt of NEHC and rank senior in right of payment to all subordinated
debt of NEHC. As obligations of a holding company, the 12_% Senior Discount
Notes are effectively subordinated to all obligations of the subsidiaries of
NEHC, including the 10_% Senior Subordinated Notes and the 8_% Senior Notes and
borrowings under the Credit Facility.
2. AFD Transactions and Indebtedness
(1) THE CREDIT FACILITY
At the PFS Closing, AFD entered into a new senior credit
facility (as subsequently amended, the "Credit Facility"), providing for certain
term loans and a $150 million revolving credit line, by and among Bank of
America National Trust and Savings Association ("Bank of America NT&SA"; in such
capacity, the "Administrative Agent"), DLJ Capital Funding, Inc. (in such
capacity, the documentation agent, and, together with the Administrative Agent,
the "Agents") and the other Lenders thereto. BancAmerica Robertson Stephens
served as the syndication agent. In May of 1998, the Credit Facility was amended
to increase availability under the revolving credit line to $220 million.
At the PFS Closing, the following amounts were drawn under the
Credit Facility: $205.0 million of term loans (the "Term Loans"), consisting of:
(a) $78.1 million Term Loan A, which was to mature in six years; (b) $42.3
million of Term Loan B, which was to mature in seven years; (c) $42.3 million of
Term Loan C, which was to mature in eight years; and (d) $42.3 million of Term
Loan D, which was to mature in nine years. The Term Loans were fully repaid in
connection with the issuance of the $350 million 8_% Senior Notes. In late March
of 1999, the Credit Facility was amended to allow up to $30 million in issuance
of letters of credit without effecting availability under the revolving credit
line.
-22-
(2) ACCOUNTS RECEIVABLE PROGRAM
In connection with the PFS Acquisition, AFD entered into a
$250.0 million Accounts Receivable Program (the "Accounts Receivable Program"),
approximately $225.0 million of which was funded at the PFS Closing. Under the
Accounts Receivable Program, AFD established AmeriServe Funding Corporation
("AmeriServe Funding"). AmeriServe Funding is a wholly-owned, special purpose
bankruptcy-remote subsidiary that purchased from AFD, on a revolving basis,
substantially all trade receivables (the "Receivables") generated by AFD and/or
one or more of its subsidiaries. The Accounts Receivable Program was structured
as an off-balance sheet financing for accounting purposes.
Under the terms of a Second Amended and Restated Receivables
Purchase Agreement, dated as of July 28, 1998 (the "Receivables Purchase
Agreement"), among AFD and ProSource Services Corporation ("PSC") and jointly
with AFD, "Sellers"), AmeriServe Funding, and AFD as Servicer, AmeriServe
Funding acquired all right, title and interest of the Sellers in and to the
Receivables. AmeriServe Funding sold the Receivables to a newly-formed master
trust, AmeriServe Master Trust (the "Trust"), pursuant to the Amended and
Restated Pooling and Servicing Agreement dated as of July 28, 1998, as
supplemented by the Series 1998-1, 1998-3 and 1998-4 Supplements thereto among
AmeriServe as Servicer, the Transferor and Norwest National Banking Association
as Trustee (the "Pooling and Servicing Agreement"), which Trust issued series of
certificates representing an undivided interest in the assets of the Trust.
The exchange price for the Receivables conveyed to AmeriServe
Funding was a dollar amount equal to the aggregate unpaid balance of the
Receivables less a discount specified in the transaction documents. AmeriServe
Funding could also pay the exchange price for such Receivables by increasing the
principal amount of notes payable by it to AFD and subsidiaries of AFD rather
than paying cash for such Receivables. Certain of the Receivables were
transferred by AFD to AmeriServe Funding as a contribution of capital. The
Debtors believe that AmeriServe Funding (and the Trust, in turn) obtained first
priority, perfected ownership interests in the Receivables, and any related
security and proceeds thereof. AFD served as the master servicer of the Accounts
Receivable Program.
(3) $500 MILLION 10_% SENIOR SUBORDINATED NOTES
On July 11, 1997, and in connection with the PFS Acquisition,
AFD issued and sold $500 million principal amount of its 10_% Senior
Subordinated Notes due 2007 pursuant to an Indenture dated as of July 11, 1997,
by and among AFD, the Subsidiary Guarantors, and State Street Bank and Trust
Company (the "Subordinated AFD Indenture Trustee"). The 10_% Senior Subordinated
Notes were sold pursuant to exemptions from, or in transactions not subject to,
the registration requirements of the
-23-
Securities Act and applicable state securities laws. On December 12, 1997, AFD
consummated an offer to exchange the 10_% Senior Subordinated Notes for new 10_%
Senior Subordinated Notes, which are registered under the Securities Act with
terms substantially identical to the 10_% Senior Subordinated Notes. The 10_%
Senior Subordinated Notes mature on July 15, 2007. Interest accrues at the rate
of 10_% per annum and is payable semi-annually in arrears on January 15 and July
15 each year. Payment of principal, premium and interest on the 10_% Senior
Subordinated Notes are subordinated, as set forth in the Subordinated AFD
Indenture, to the prior payment in full of AFD's Senior Debt. "Senior Debt"
includes all indebtedness under the Credit Facility and the 8_% Senior Notes.
(4) PFS DISTRIBUTION AGREEMENT
Upon consummation of the PFS Acquisition, AFD was assigned and
assumed the Sales and Distribution Agreement (the "Distribution Agreement")
dated as of May 6, 1997, as amended as of May 29, 1997, by and among PFS and
PepsiCo's chain restaurant businesses that operated as Tricon after the
spin-off. The Distribution Agreement provided that AFD would be the exclusive
distributor of specified restaurant products purchased by approximately 9,800
Pizza Hut, Taco Bell and KFC restaurants within the continental United States,
which were owned by Tricon as of the closing of the PFS Acquisition (other than
certain specified restaurants), or which are acquired or built by Tricon during
the term of the Distribution Agreement. The Distribution Agreement covered
restaurants refranchised by PepsiCo (other than KFC restaurants) for the
five-year term. Additionally, the Distribution Agreement provided that AFD
should be an approved distributor of specified restaurant products sold to all
Tricon restaurants, whether franchised or owned by Tricon, in the United States,
Canada or the countries to which PFS exported restaurant products from its
distribution centers in the United States. The Distribution Agreement was to be
effective from the PFS Closing and through the fifth anniversary of the PFS
Closing. In September 1998, the Distribution Agreement was modified and the term
was extended from five years to seven and one-half years with an additional two
and one-half year extension option. Including this option period, the
Distribution Agreement expires in July 2007.
2. $350 MILLION 8_% SENIOR NOTES
On October 15, 1997, AFD issued and sold $350 million of its 8
_% Senior Notes due 2006 (the " 8_% Senior Notes") pursuant to the Indenture
dated as of October 15, 1997, by and among AFD, the Subsidiary Guarantors and
State Street Bank and Trust Company as the indenture trustee. During July 2000,
State Street Bank and Trust Company resigned as indenture trustee for the 8_%
Senior Notes and was succeeded by U.S. Bank National Association (the "Senior
AFD Indenture Trustee"). The 8_% Senior Notes were sold pursuant to an exemption
from, or in transactions not subject to, the
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registration requirements of the Securities Act). The 8_% Senior Notes offering
was completed as part of a refinancing of certain outstanding term indebtedness
of AFD incurred under the Credit Facility in connection with the PFS
Acquisition. The purpose of the refinancing was to, among other things, (i)
extend the maturity of those borrowings, (ii) fix the interest rate of those
borrowings at a rate believed by AFD to be attractive for fixed rate financing,
and (iii) provide AFD with additional cash to be utilized for working capital
and to fund possible future acquisitions. The net proceeds from the sale of the
8_% Senior Notes were used to repay $205 million of term loans which were
outstanding under the Credit Facility and to provide cash for working capital
and other general corporate purposes.
On December 12, 1997, AFD consummated an offer to exchange the
8_% Senior Notes for new 8_% Senior Notes, which were registered under the
Securities Act, with terms substantially identical to the 8_% Senior Notes. The
8_% Senior Notes are general unsecured obligations of AFD and rank pari passu in
right of payment with all unsecured debt of AFD.
3. SUBSIDIARY GUARANTY AND PARENT GUARANTY
Pursuant to the Subsidiary Guaranty, the indebtedness under
the Credit Facility, the 8_% Senior Notes and the 10_% Senior Subordinated Notes
are jointly and severally guaranteed by the Subsidiary Guarantors. The
Subsidiary Guaranty is supposed to be secured by all existing and after acquired
personal property (other than accounts receivable transferred in connection with
the Accounts Receivable Program or any securitization refinancing of the
Accounts Receivable Program) of AFD and its subsidiaries, including all
outstanding capital stock of AFD and of all of its domestic subsidiaries, and
any intercompany debt obligations, and, subject to exceptions to be agreed upon,
all existing and after-acquired real property fee and leasehold interests.
The only material subsidiary of AFD that is not a guarantor
subsidiary under the Subsidiary Guaranty is AmeriServe Funding, which is a
wholly owned, special purpose, bankruptcy-remote subsidiary. Funding has no
operating revenues or expenses, and its only asset is an undivided interest in
an accounts receivable trust. Funding's interest in the Trust is junior to the
claims of the holders of certificates issued by the Trust. Accordingly, as
creditors of AFD, the claims of the holders of the 8_% Senior Notes, the 10_%
Senior Subordinated Notes and the Finco Loan against the accounts receivable
held in the Trust are similarly junior to the claims of holders of the
certificates issued by the Trust.
Pursuant to the Parent Guaranty, the indebtedness under the
Credit Facility is guaranteed by NEHC. The Parent Guaranty is secured by a
pledge of all of the outstanding capital stock of AFD.
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4. SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK
On March 6, 1998 and in connection with the impending
ProSource Acquisition, NEHC received proceeds of $250.0 million upon issuance of
2,500,000 shares of 11 1/4% Senior Redeemable Exchangeable Preferred Stock ("11
1/4% Preferred Stock") due 2008, with a liquidation preference of $100 per
share, in transactions not requiring registration under the Securities Act.
Approximately $154.0 million of proceeds from the issuance were used to
repurchase all NEHC's outstanding Senior Preferred Stock, Junior Preferred Stock
and Junior Nonconvertible Preferred Stock. Dividends on the 11 1/4% Preferred
Stock are payable quarterly in cash or in additional shares of Preferred Stock,
at NEHC's option. The 11 1/4% Preferred Stock is exchangeable into 11 1/4%
Subordinated Exchange Debentures due 2008, at NEHC's option, subject to certain
conditions, on any scheduled dividend payment date.
On June 22, 1998, NEHC consummated an offer to exchange the 11
1/4% Preferred Stock for new 11 1/4% Preferred Stock, which were registered
under the Securities Act, with terms substantially identical to the original 11
1/4% Preferred Stock.
5. PROSOURCE ACQUISITION
On May 21, 1998, AFD acquired all of the outstanding stock of
ProSource, Inc. for $313.5 million in cash, which included repayment of
ProSource's existing debt of $159.9 million. ProSource, which reported net sales
of $3.9 billion for its fiscal year ended December 27, 1997, was in the
foodservice distribution business, specializing in quick service and casual
dining chain restaurants. ProSource serviced approximately 12,700 restaurants,
principally in the United States, including such chains as Burger King,
Chick-fil-A, Chili's, Long John Silver's, Olive Garden, Red Lobster, Sonic, TCBY
and TGI Friday's. Funding of the acquisition and related transactions included
$125.0 million provided by expansion of the Accounts Receivable Program to
include ProSource accounts receivable, a $50.0 million capital contribution to
AFD from NEHC, which was funded by NEHC's issuance of the 11 1/4% Preferred
Stock and cash and cash equivalents on hand.
On December 27, 1998, ProSource Services Corporation, a wholly
owned subsidiary of ProSource, merged with and into ProSource and ProSource
merged with and into AFD.
6. CAPITAL CONTRIBUTION TO AFD
On March 24, 1999, NEHC provided $25.0 million in a cash
contribution to AFD. These funds represented proceeds remaining from NEHC's
issuance of the 11 1/4% Preferred Stock in March of 1998. In December of 1999,
an additional $30.0 million was contributed to AFD.
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7. AMENDED CREDIT AGREEMENT
On October 1, 1999, AFD and the lenders under the Credit
Facility amended and restated the Credit Facility providing for a $205.0 million
12% term loan due 2006 and a revolving credit line of up to $125.0 million. The
term loan is payable to AmeriServe Finance Trust ("Finco"), a limited purpose
business trust. Finco financed the loan to AFD (the "Finco Loan") through a
joint issuance with its wholly owned subsidiary, AmeriServe Capital Corporation
("Capital"), of $205.0 million 12% Senior Secured Notes due 2006 (the "Senior
Secured Notes") in a private placement not requiring registration under the
Securities Act. Finco was established by NEDI. NEDI unconditionally guaranteed
the Senior Secured Notes issued by Finco and Capital. The Senior Secured Notes
were issued at a discount, resulting in proceeds before debt issuance costs of
$200.3 million. The proceeds from the Finco Loan were partially used by AFD to
repay $168.0 million drawn on the revolving credit line under the Credit
Facility, with the balance to be used for general corporate purposes. The Senior
Secured Notes are secured by the Finco Loan, which, in turn, is secured by a
second lien on AFD's assets (with certain exceptions) that is subordinate to a
first lien securing the Tranche A Lenders under the Credit Facility. Interest on
the Senior Secured Notes and the Finco Loan is payable semi-annually. United
States Trust Company of New York (the "Senior Secured Indenture Trustee") is
trustee under the Indenture dated as of October 1, 1999 with Finco and Capital
as issuers pursuant to which the Senior Secured Notes were issued (the "Senior
Secured Indenture"). The Senior Secured Indenture Trustee also entered into a
security agreement with Finco, dated October 1, 1999, pursuant to which, in the
event of default under the Senior Secured Indenture, the Senior Secured
Indenture Trustee succeeded Finco's rights under the Credit Facility.
The revolving credit line of up to $125.0 million funded by
the Tranche A Lenders replaced, with terms similar in nature, the previous
$220.0 million revolving credit line. Availability under the amended revolver,
which expires June 2003, is linked to levels of AFD's inventories of food and
paper products. Borrowing capacity is reduced by letters of credit outstanding.
On or about December 8, 1999, the Credit Facility was amended
to, among other things, make available an additional revolving loan facility
available to AFD. Pursuant to this amendment, the Tranche B Revolving Lender,
Food Distribution Funding, Inc., loaned AFD $100.0 million secured by the same
collateral as the Senior Secured Notes but with priority over and ahead of the
Senior Secured Noteholders and junior to the Tranche A Lenders. On information
and belief, Food Distribution Funding, Inc. is an affiliate of DLJ.
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E. NEHC Capital Stock
As of the Petition Date, of the fourteen million authorized
shares of Class B voting stock 10,008,241 shares were issued and outstanding. Of
the one million authorized shares of Class A nonvoting stock, none were
outstanding. Of the 300 authorized shares of 8% Senior Convertible Stock, 235
shares were outstanding. 2,500,000 shares of 11 1/4% Senior Redeemable
Exchangeable Preferred Stock were issued and outstanding.
As of the Petition Date, the authorized capital stock of AFD
consisted of 10,000 shares of common stock at a par value of $0.01 per share and
10,000 shares of preferred stock at a par value of $0.01 per share. No preferred
stock had been issued. All of AFD's issued and outstanding common stock is owned
by NEHC. AFD owns all of the issued and outstanding stock of all of the other
Debtors, except for NEHC.
F. Management and Employees
The current members of the Board of Directors of the Debtors
are as follows: NEHC - John V. Holten (Chairman), Gunnar E. Klintberg
(Vice-Chairman), Leif F. Onarheim and Tom Vidar Rygh; AFD - John V. Holten
(Chairman), Gunnar E. Klintberg (Vice-Chairman), Ronald A. Rittenmeyer, Leif F.
Onarheim, Tom Vidar Rygh and Thomas Cochill; HWPI - Kevin J. Rogan; ATI - Kevin
J. Rogan; PSD Transportation - Kevin J. Rogan; CCC - Kevin J. Rogan; ASNSC -
John V. Holten; Delta Transportation - Kevin J. Rogan; NTSI - Kevin J. Rogan;
NAVC - Diana M. Moog, Carol A. Weiss and Monte L. Miller; North American Vantix
- - Richard W. McCollum and Kevin J. Rogan; PSC Services - Kevin J. Rogan;
ProSource Mexico - Kevin J. Rogan; and Vantix Logistics - None (this Debtor is a
partnership).
The current officers of NEHC are John V. Holten, Chief
Executive Officer; Raymond E. Marshall, Executive Vice-President; Kevin J.
Rogan, Senior Vice-President, General Counsel and Secretary; Stanley J.
Szlauderbach, Vice-President and Chief Accounting Officer; Paul A. Garcia de
Quevedo, Vice-President, Treasurer and Assistant Secretary; Nancy Bittner,
Vice-President Planning; and Diana Moog, Executive Vice-President and Chief
Financial Officer.
The current senior management of AFD are Ronald A.
Rittenmeyer, President and CEO; Thomas W. Arnst, Executive Vice-President and
Chief Administrative Officer; Thomas A. Blair, Executive Vice-President - Field
Operations; Diana M. Moog, Executive Vice-President and Chief Financial Officer;
Raymond E. Marshall, Executive Vice-President - Chain Management; and Kevin J.
Rogan, Senior Vice-President, General Counsel and Secretary.
The current middle management of AFD are Robert Baker,
Regional Vice-President; Nancy M. Bittner, Vice-President Planning; Penny
Echelberger, Vice-President
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and Controller; Paul A. Garcia de Quevedo, Vice-President, Treasurer and
Assistant Secretary; Gary Nordlund, Vice-President, Information Technology;
Steve Johnson, Senior Vice-President, Purchasing and Logistics; Bonnie MacEslin,
Vice-President, Human Resources; Michael Shirey, Regional Vice-President;
Stanley J. Szlauderbach, Vice-President, Investor Relations and Chief Accounting
Officer; Carol Weiss, Senior Director, Tax; and Edward Zielinski, Senior
Vice-President, Operations Support.
The current members of senior management of the other Debtors
are as follows: HWPI - Kevin J. Rogan - Vice-President; ATI - Raymond E.
Marshall - President and Treasurer, Edward Zielinski - Vice-President and Kevin
J. Rogan - Vice-President and Assistant Secretary; PSD Transportation - Diana M.
Moog - Executive Vice-President, Kevin J. Rogan - Senior Vice-President and
Secretary, Paul A. Garcia de Quevedo - Vice-President, Treasurer and Assistant
Secretary, Raymond E. Marshall - Vice-President and Assistant Secretary and
Carol A. Weiss - Assistant Secretary; CCC - Raymond E. Marshall - Vice-President
and Treasurer and Kevin J. Rogan - Vice-President; ASNSC - John V. Holten -
President, Diana M. Moog - Executive Vice-President and Chief Financial Officer,
Kevin J. Rogan - Senior Vice-President and Secretary, Paul A. Garcia de Quevedo
- - Vice-President, Treasurer and Assistant Secretary, Raymond E. Marshall -
Vice-President and Assistant Secretary and Carol A. Weiss - Assistant Secretary;
Delta Transportation - Raymond E. Marshall - President and Treasurer, Edward
Zielinski - Vice-President and Kevin J. Rogan - Vice-President and Assistant
Secretary; PSC Services - Diana M. Moog - Executive Vice-President and Chief
Financial Officer, Kevin J. Rogan - Vice-President and Secretary, Paul A. Garcia
de Quevedo - Vice-President, Treasurer and Assistant Secretary, Raymond E.
Marshall - Vice-President and Assistant Secretary and Carol A. Weiss - Assistant
Secretary; ProSource Mexico - Diana M. Moog - Vice-President and Chief Financial
Officer, Paul A. Garcia de Quevedo - Vice-President, Treasurer and Secretary,
Raymond E. Marshall - Vice-President and Assistant Secretary and Kevin J. Rogan
- - Vice-President and Assistant Secretary; NTSI - Raymond E. Marshall - President
and Treasurer, Edward Zielinski - Vice-President, Kevin J. Rogan -
Vice-President and Assistant Secretary; North American Vantix - Paul Garcia de
Quevedo - Vice-President and Treasurer, Richard W. McCollum and Kevin J. Rogan -
Secretary; NAVC - Monte L. Miller - President, Treasurer and Secretary and Kevin
J. Rogan - Vice-President; Vantix Logistics - Jeff Macak - President and Kevin
J. Rogan - Vice-President.
As of the Petition Date, the Debtors had approximately 8,300
employees at their corporate headquarters, outside offices and various
facilities. The Debtors currently employ approximately 4,000 employees. The
reduction is due primarily to a downsizing of the Debtors' operations and
attrition. The Debtors have also trimmed their workforce for the purpose of
reducing their overhead.
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G. D&O Liability Insurance
The Debtors' Executive Protection Policy was issued by Federal
Insurance Company and covers claims in the aggregate amount of $25 million per
policy period (the "D&O Insurance Policy"). The D&O Insurance Policy, subject to
its terms, conditions and exclusions, provides certain coverage to the officers
and directors of Holberg, Inc. and its subsidiaries. The Debtors are indirect
subsidiaries of Holberg, Inc. The D&O Insurance Policy provides for certain
reimbursement to the Debtors for indemnification of directors and officers for
claims made in the period covered. Under their articles of incorporation and
bylaws, the Debtors indemnified officers and directors to the full extent
permitted by applicable law. AFD has reimbursed Holberg Industries, Inc. for a
portion of the premiums paid on account of the D&O Insurance Policy through May
15, 2001.
AFD purchased an additional $25 million of insurance coverage
that was issued by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania (the "Excess Policy"). The Excess Policy, subject to its terms,
conditions and exclusions, provides certain coverage to the officers and
directors of AFD for matters occurring on or after February 14, 2000. The
premiums on the Excess Policy have been paid through May 15, 2001.
IV.
THE DEBTORS' CHAPTER 11 CASES
A. Events Preceding the Chapter 11 Filings
As outlined below, certain events prior to the Petition Date
had certain consequences which ultimately necessitated the implementation of a
financial restructuring for the Debtors. These events culminated in the filing
for relief under chapter 11 of the Bankruptcy Code and the Plan.
1. THE BEGINNING OF A SEVERE LIQUIDITY CRISIS
In the two years preceding the Petition Date, AFD's pro forma
sales grew significantly from $1.5 billion in 1996 to $9.1 billion in 1998
(including the full year effect of acquisitions). This growth came largely from
the acquisitions of PFS and ProSource, both large foodservice distribution
companies with national scope specializing in the chain restaurant segment of
the United States foodservice industry. These acquisitions resulted in
redundancies in AFD's warehouse facilities, truck delivery routes and
administrative and other support functions. AFD developed a business
restructuring plan to consolidate and integrate the acquired businesses. Actions
identified in the plan included construction of new strategically located
warehouse facilities, closure of a number of existing warehouse facilities and
expansions/reconfigurations of others, disposition of property and equipment,
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conversions of computer systems, reductions in workforce, relocation of
employees and centralization of support functions largely at the Addison, Texas
headquarters. Completion of the plan was expected to significantly increase
operating efficiencies through warehouse economies of scale, increased
deliveries per truck route and centralized, standardized support processes.
Implementation of a major new computer software and hardware platform was
expected to facilitate the streamlining of warehouse operations and support
processes. The restructuring plan was scheduled to be implemented in two phases.
The first phase involved the consolidation of the quick service business. The
integration of the casual dining business was the second phase. The Debtors
modified their restructuring Plan during the third quarter of 1999 and instead
elected to transition out of the casual dining business.
AFD incurred significant cash costs to effect the
restructuring. Approximately $108 million in cash costs were incurred during
1997 and 1998. Another $157 million of cash costs attributable to AFD's
restructuring had been incurred through the third quarter of 1999. These
expenditures reflected costs to reconfigure the distribution center network,
including facility closures and start-up of new warehouse facilities, to realign
and centralize administrative and other support functions and implement the new
computer system platform.
In November of 1999, the Debtors retained Jay Alix &
Associates ("JA&A"), a nationally recognized firm that specializes in working
with financially troubled companies, to provide consulting services.
2. LIQUIDITY DRIES UP
In an attempt to improve liquidity, AFD issued over $300.0
million of secured debt during the final quarter of 1999. This additional
liquidity did little to improve the Debtors' worsening relationship with trade
vendors as many vendors refused to ship goods on terms other than cash on
delivery or cash in advance.
While significant progress had been made to implement the
Debtors' restructuring plan, costs associated with the restructuring, coupled
with the interest expense and costs attendant to the Debtors' highly leveraged
position and diminishing trade credit, substantially exhausted the Debtors'
available liquidity.
As of the Petition Date, the Debtors and their affiliates had
more than $2.0 billion in liabilities. Approximately $430.0 million represented
amounts due under various forms of secured credit agreements. Approximately
$965.0 million represented amounts due under numerous forms of unsecured credit
agreements. The remaining balance was owed to vendors.
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B. Events During the Chapter 11 Cases
1. ADMINISTRATION OF THE CHAPTER 11 CASES
Upon commencement of the Chapter 11 Cases, the Bankruptcy
Court entered certain orders designed to minimize disruption of the Debtors'
business operations and to facilitate their reorganization. Certain of these
orders are described below.
o POSTPETITION CREDIT FACILITY. One of the principal objectives
of the Chapter 11 Cases was to address the liquidity problems
referred to above. On or about February 2, 2000, the
Bankruptcy Court entered its Interim Order Pursuant to 11
U.S.C.ss.ss.363 and 364 Approving Borrowing, Granting Liens,
and Authorizing Certain Postpetition Transactions (the
"Interim DIP Order") authorizing the Debtors to borrow from
Burger King Corporation ("BKC") and Tricon Global Restaurants,
Inc. ("Tricon") up to $150.0 million on a secured revolving
credit basis (the "DIP Facility") pursuant to the terms of the
Interim DIP Order and the Loan and Security Agreement Term
Sheet attached to the Interim DIP Order. On or about March 17,
2000, the Bankruptcy Court entered its Final Order Pursuant to
11 U.S.C.ss.ss.363 and 364 Approving Borrowing, Granting
Liens, and Authorizing Certain Postpetition Transactions (the
"Final DIP Order") approving the DIP Facility pursuant to the
terms of the Interim Financing Agreement dated as of February
2, 2000 (the "DIP Financing Agreement") and the Trust
Agreement among The Chase Manhattan Bank, Tricon, BKC and AFD
dated as of February 21, 2000 (the "Trust Agreement", and
together with the DIP Financing Agreement and related
documents, the "Postpetition Loan Documents"). Tricon and BKC
subsequently entered into an agreement pursuant to which
Tricon and its affiliates (the "Tricon Entities") assumed,
subject to the terms and conditions of such agreement, certain
of BKC's obligations in the Chapter 11 Cases, including BKC's
obligations to fund the DIP Facility under and in accordance
with the terms of the Postpetition Loan Documents.
Pursuant to the Final DIP Order, the Tricon Entities were
generally granted pursuant to section 364(c)(2) of the Bankruptcy Code, a valid,
perfected and enforceable first-priority security interest in and lien upon (i)
all property of the Debtors or their estates, including all proceeds thereof
(but excluding avoidance actions belonging to the Debtors' estates), whether now
existing or hereafter acquired or arising, upon which (a) there was not a valid,
non-avoidable, and fully perfected lien, security interest or trust claim in
existence as of or immediately after the filing of the Chapter 11 Cases, or (b)
there is not at any time in the future a valid, non-avoidable, and fully
perfected lien, security interest or trust claim in existence. In addition,
pursuant to the Final DIP Order, the Tricon Entities were granted, pursuant to
section 364(c)(3) of the Bankruptcy Code, a valid, perfected and
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enforceable junior security interest in and junior lien upon all property of the
Debtors or their estates, upon which a valid, non-avoidable, and fully perfected
lien or trust claim existed immediately upon the filing of the Chapter 11 Cases.
Subject to the conditions set forth in the Final DIP Order,
the Final DIP Order also provided that the DIP Lenders were granted a
superpriority administrative expense claim for the postpetition indebtedness
equivalent in priority to a claim under section 364(c)(1), with priority over
any and all claims and costs or expenses of administration. Certain parties,
including the Creditors' Committee, may dispute the ability of the DIP Lenders
to assert a claim under section 364(c)(1) against proceeds of avoidance causes
of action.
The DIP Facility was set to expire according to its terms on
August 1, 2000. Pursuant to a Stipulation and Agreed Order, this date was
extended through and including September 28, 2000. Pursuant to a recently filed
Stipulation and Agreed Order, the Debtors expect that the expiration date of the
DIP Facility will be continued through and including October 30, 2000 and
thereafter upon the agreement of the Debtors and Tricon.
o USE OF CASH COLLATERAL. On February 2, 2000, the Bankruptcy
Court entered an Interim Stipulation and Order Authorizing the
Use of Cash Collateral and Granting Replacement Liens (the
"Interim Cash Collateral Stipulation"). The Interim Cash
Collateral Stipulation was continued on March 17, 2000 and
again on March 24, 2000.
On April 3, 2000, the Bankruptcy Court entered the Final
Stipulation and Order Authorizing the Use of Cash Collateral and Granting
Replacement Liens (the "Final Cash Collateral Stipulation" and, together with
the Interim Cash Collateral Stipulation, the "Cash Collateral Stipulations").
Pursuant to the Cash Collateral Stipulations, the Agent asserts that it holds
perfected security interests (the "Asserted Security Interests") in
substantially all of the Debtors' assets including, but not limited to, among
other things, the following property owned by the Debtors on their respective
petition dates: inventory (the "Prepetition Inventory"), receivables (the
"Prepetition Receivables") and cash (the "Prepetition Cash") (the Prepetition
Inventory, Prepetition Receivables and Prepetition Cash collectively is herein
referred to as the "Prepetition Collateral"). The Agent further asserts that the
Prepetition Collateral secures payment of the obligations evidenced by the
Credit Facility. On the Petition Date, the Debtors owned approximately $253.1
million, at cost, of inventory, approximately $45.0 million, at face, of
receivables and cash in the approximate amount of $28.5 million (the "Petition
Date Level" of the Prepetition Collateral).
The precise amount of the Petition Date Level and the "mix"
thereof (as to aging, obsolescence, nature and quality, etc.) has been
determined by mutual agreement
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of the Debtors, the DIP Lenders, the Agent, the Senior Secured Indenture
Trustee, the Creditors' Committee and other secured parties in interest and PACA
Claimants. Tricon has objected to both the Petition Date Level and the "mix"
thereof.
Pursuant to the Cash Collateral Stipulations, the DIP Lenders
entrusted to AFD inventory which is purchased and owned by the DIP Lenders (the
"Bailed Inventory"). This Bailed Inventory has been and is being distributed by
AFD to the DIP Lenders' system stores for the DIP Lenders. AFD acts as a
"collection agent" for the DIP Lenders with respect to the collection of
receivables generated by the sale of the Bailed Inventory (the "Bailed
Receivables") in accordance with and subject to the terms set forth in the Final
DIP Order.
On March 31, 2000, BKC, Tricon, the Agent and AFD, on its and
the other Debtors' behalf, executed a security agreement (the "Security
Agreement") which, among other things, granted to the Agent a security interest
in the Bailed Inventory and the Bailed Receivables. Debtors were authorized to
sell the Prepetition Inventory, collect the Prepetition Receivables and use the
Prepetition Cash, in the ordinary course of business, all in accordance with the
terms of the Cash Collateral Stipulations and the Security Agreement.
o CASH MANAGEMENT. The Bankruptcy Court entered a first day
order authorizing the Debtors to continue their current cash
management system, maintain their existing bank accounts, and
invest funds in money market accounts. Such relief assisted
the Debtors in collecting, controlling and disbursing funds,
creating economies of scale in purchasing goods and services,
investing idle cash to maximize interest income, and ensuring
the maximum availability of funds for various corporate
purposes.
o EMPLOYEES. The Bankruptcy Court entered a first day order
authorizing the Debtors to pay, in their discretion,
prepetition claims of employees for compensation, bonuses,
benefits and expense reimbursements, as well as prepetition
amounts owed with respect to certain trust and administration
obligations and workers compensation premiums. In addition,
the Debtors were authorized to continue to honor their
existing programs, policies and plans relating to employees.
Such relief was necessary to insure that the Debtors'
employees did not suffer personal hardship as a result of the
filing, and to prevent the employee attrition that might
otherwise occur.
On May 2, 2000, the Debtors filed a Motion for Entry of an
Order Authorizing and Approving Key Employee Retention Program (the "Retention
Program"), which motion was subsequently granted. Under the Retention Program,
up to approximately 500
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individuals (the "Key Employees"(9)) could receive "stay" bonuses in an
aggregate amount of up to approximately $7 million if the Key Employees are
employed by the Debtors on required "stay dates" and have continued their
current performance level during the applicable period. If a Key Employee is
terminated (other than for cause) by the Debtors prior to a "stay date," the
next unpaid "stay date" bonus portion would be paid by the Debtors, but no
further "stay date" bonus portions would be paid to such Key Employee.
On June 2, 2000, the Bankruptcy Court entered an order
approving a postpetition employee severance pay program providing for severance
benefits to be made available to certain of approximately 5,000 full-time
employees in the event that their employment is terminated by the Debtors as a
result of (a) a permanent reduction in force, (b) job elimination or (c) the
closure or discontinuance of the facility where the employee works. The Order
requires the Debtors to first obtain the consent of the Creditors' Committee and
the Senior Secured Noteholders before making any payments.
On July 27, 2000, the Bankruptcy Court entered an Order
Authorizing and Approving Supplemental Key Employee Retention Program in order
to induce five key employees -- Paul Garcia - Senior Vice President and
Treasurer; Dennis Rees - Vice President of Information Technology; Ed Clark -
General Manager; Syndee Stiles - Senior Director of Operations; and Randy
Brownfield - Director of Franchisee Relations -- to remain in the Debtors'
employ through the date the Debtors were to sell substantially all of their
assets and/or the conclusion of the Debtors' Chapter 11 Cases, plus up to thirty
days thereafter.
o MANAGEMENT CONSULTANTS. The Bankruptcy Court also entered an
order, dated April 28, 2000, authorizing the Debtors to employ
the firm of JA&A as financial advisor and business consultant
in these Chapter 11 Cases (the "JA&A Retention Order"). JA&A
is a leading global corporate turnaround specialist that
provides expertise in all key areas of financial restructuring
and operational turnarounds. Pursuant to the engagement, Peter
Fitzsimmons,
_______________________
9 Key Employees do not include (a) any employee at the Executive Vice
President level or higher at AFD, or (b) any employee subject to any other AFD
retention or stay bonus arrangement at the time of implementing the Retention
Program.
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a principal of JA&A, serves as the JA&A principal leading
the engagement. Pursuant to the JA&A Retention Order, JA&A
is compensated at its hourly rates and incentive fees,
including an incentive fee in the event that a third party
acquires the operating assets of the Debtors, whether
through a sale or through a restructuring. Specifically, the
Debtors have agreed to pay JA&A a success fee in the amount
of $2,500,000 upon the effective date of a plan of
reorganization or the achievement of a business solution
that provides for a substantial portion of the Debtors'
business to continue as a going concern subject to the
approval of the Bankruptcy Court. Any incentive fee received
by JA&A in these cases would inure to the benefit of the
owners and employees of JA&A, including Mr. Fitzsimmons, in
accordance with the compensation procedures of the firm.
o OTHER PROFESSIONALS. To assist them in carrying out their
duties as debtors in possession and to otherwise represent
their interests in the Chapter 11 Cases, the Debtors employed,
with authorization from the Bankruptcy Court, the following
professionals: Kirkland & Ellis and Pachulski, Stang, Ziehl,
Young & Jones, P.C. as co-counsel; Ernst & Young LLP as
auditors; E&Y Restructuring LLC as restructuring advisors;
Houlihan Lokey Howard & Zukin Capital ("HLHZ") as financial
advisors and investment bankers; CST Co., Inc. as collection
agent; Monger & Consultants Limited Partnership as claims
administrator and preference and reclamation claims
consultant; Bankruptcy Services, LLC as the Debtors' noticing
and balloting agent; and Margulies Communications Group as
public relations consultants.
Nationwide, the Debtors employ numerous attorneys and other
professionals to represent or assist them in a variety of situations. Such
professionals are referred to as "Ordinary Course Professionals." Included as an
Ordinary Course Professional is CST Co., Inc. which was retained as Collection
Agent to the Debtors. By Order of the Bankruptcy Court dated March 21, 2000 (the
"OCP Order"), to prevent loss of professional services and disruption to their
operations, the Debtors were authorized to employ and pay Ordinary Course
Professionals for postpetition services required to assist and advise the
Debtors in the operation of their businesses and to defend the Debtors in
matters arising in the ordinary course of the Debtors' businesses. Pursuant to
the OCP Order, the Debtors have the right to amend the list of retained Ordinary
Course Professionals and the Debtors filed their first amendment adding certain
Ordinary Course Professionals and removing others on May 25, 2000.
In addition to the retention of Ordinary Course Professionals,
in order to allow the Debtors to address day-to-day systems problems and obtain
systems support, by Order of the Bankruptcy Court dated June 2, 2000, the
Debtors were authorized to employ Ordinary Course Information Technology
Professionals to assist and advise the Debtors in
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the operation of their businesses in matters arising in the ordinary course.
Neither the Ordinary Course Professionals nor the IT Ordinary Course
Professionals are involved in the conduct of the Chapter 11 Cases.
2. CREDITORS' COMMITTEE
Pursuant to section 1102 of the Bankruptcy Code, the United
States Trustee may appoint a committee of creditors holding unsecured claims
and/or a committee of equity security holders as the United States Trustee deems
appropriate. Accordingly, on February 15, 2000, the United States Trustee
appointed a statutory committee of unsecured creditors (the "Creditors'
Committee") in these Chapter 11 Cases.
The Creditors' Committee originally consisted of the following
members: Tyson Foods, Inc., Credit Suisse First Boston, Best Foods, The Coca
Cola Company and the Senior AFD Indenture Trustee. Credit Suisse First Boston
has recently resigned from the Creditors' Committee. The Creditors' Committee
has retained, by order of the Bankruptcy Court, the following professionals to
represent its interests in the Chapter 11 Cases: Otterbourg, Steindler, Houston
& Rosen, P.C. and Walsh, Monzack & Monaco, P.A. as co-counsel; and Jefferies &
Company, Inc. as financial advisors.
3. PACA CLAIMANTS
Prior to the Petition Date, certain of the Debtors' vendors
sold goods to the Debtors that the vendors have argued are within the scope of
the Perishable Agricultural Commodities Act, 7 U.S.C. ss.449a et seq., the
Packers and Stockyards Act, 7 U.S.C. ss.181 et seq., and state statutes of
similar import. These federal and state statutes purport to create a statutory
trust on behalf of vendors who meet the requirements of the statutes. These
vendors have argued that as a result of this trust, they are entitled to be paid
from the proceeds of the products sold to the Debtors that fall within the scope
of these statutes before any other third party.
In an effort to avoid protracted litigation with these PACA
Claimants, the Debtors filed their Motion for Authority to Pay Prepetition
Claims under the Perishable Agricultural Commodities Act and the Packers and
Stockyards Act pursuant to which the Debtors sought authority to implement a
reconciliation procedure to expeditiously resolve disputes relating to the
validity of PACA Claims.
On March 17, 2000, the Court entered that certain Order
Relating to Claims under the Perishable Agricultural Commodities Act and the
Packers and Stockyard Act establishing a procedure to resolve PACA Claims. Under
this procedure, the Debtors are required to file and serve on all parties who
have requested notice in these proceedings a report listing all those PACA
Claims, if any, which they, after good faith review and
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evaluation of such claims, deem to be valid in accordance with applicable law.
In total, the Debtors have received notices from approximately 100 vendors
asserting PACA Claims aggregating approximately $65 million.
The Debtors along with their advisors have reconciled
approximately $30.0 million of valid PACA Claims relating to approximately 66
vendors. Of the $30.0 million of reconciled PACA Claims the Debtors have filed
reports and paid $29.0 million in valid PACA Claims and expect to file a report
for the additional $1.0 million shortly. Five vendors who sold french fries to
AFD have brought actions against AFD. These actions, CAVENDISH FARMS V.
AMERISERVE FOOD DISTRIBUTION, INC. ET AL., J.R. SIMPLOT CO. V. AMERISERVE FOOD
DISTRIBUTION, INC., ET AL., NESTLE USA, INC. V. AMERISERVE FOOD DISTRIBUTION,
INC., ET AL., MCCAIN FOODS USA V. AMERISERVE FOOD DISTRIBUTION, INC., ET AL.,
and LAMB WESTON, INC. V. AMERISERVE FOOD DISTRIBUTION, INC., ET AL., were
originally brought in the Bankruptcy Court. These actions have all been removed
to the United States District Court for the District of Delaware. The Debtors
expect these matters (which collectively seek approximately $13.8 million) to be
consolidated. The Debtors' motion to dismiss the lead case, CAVENDISH, was
denied on September 14, 2000. In addition, a sixth vendor has asserted a
$541,000 claim against AFD under the Minnesota Wholesale Produce Act. No lawsuit
has been filed yet regarding this claim.
4. RECLAMATION CLAIMANTS
Section 546(c)(1) of the Bankruptcy Code authorizes vendors
who have sold goods to a debtor in the ordinary course of business to reclaim
such goods (subject to certain limitations) if: (a) the debtor was insolvent
when the goods were delivered; (b) the seller demanded reclamation in writing;
(c) such demand was made within 10 days after the debtor received possession of
the goods (or within 20 days of delivery if the 10 day period expires after the
petition date); and (d) the seller is otherwise entitled to reclamation under
applicable state law. In order for a seller to reclaim goods, a debtor must have
had actual possession of the goods at the time the debtor received the written
reclamation demand.
Given the high volume of inventory received daily by the
Debtors, the Debtors anticipated that a number of vendors would assert
reclamation claims against the Debtors and otherwise attempt to interfere with
the sale of goods delivered to the Debtors after receiving notice of the
commencement of these Chapter 11 Cases. These goods were essential to the
Debtors, and the Debtors' businesses would be severally disrupted if vendors
were allowed to exercise their right to reclaim goods without a uniform
procedure that was fair and applicable to all parties.
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Moreover, because of the size of the Debtors' business, and in
particular the volume of inventory receipts and sales, it would not have been
feasible for the Debtors to return inventory shipments to vendors in response to
reclamation notices. Furthermore, absent the establishment of an orderly
reclamation process, the Debtors' business operations would have suffered and
management's attention would have been diverted from important operational
issues in order to deal with the reclamation claimants. Accordingly, on February
1, 2000, the Debtors filed their Motion for Order under 11 U.S.C. ss.ss. 105(a),
503(b), 546(c)(2) and 546(g) (A) Establishing Procedure for Treatment of
Reclamation Claims and (B) Prohibiting Third Parties from Interfering with
Delivery of Debtors' Goods. Pursuant to this motion, the Debtors sought
Bankruptcy Court authority to implement certain procedures governing the
processing and treatment of all Reclamation Claims. On February 2, 2000, the
Bankruptcy Court entered an Order granting the relief requested in this Motion.
The Debtors received reclamation demand letters from 361
vendors asserting $196.5 million in Reclamation Claims. The Debtors implemented
a process whereby they recalculated the reclamation claims for all 361 vendors.
These calculations were performed by determining if the goods sought to be
reclaimed through the demand letters were received during the applicable
reclamation period and quantified how much of the product received during the
reclamation period had been sold by the date that the Debtors received the
reclamation letter. Of the $196.5 million in Reclamation Claims, the Debtors
recalculated these Reclamation Claims at $63.2 million.
The process followed by the Debtors provided for filing their
reclamation report with the Bankruptcy Court stating the recalculated amounts of
the claims and the detail thereof for all 361 Reclamation Claimants. The
Reclamation Claimants had time to review the report and either accept the amount
as calculated by the Debtors or file an objection. As requested by Reclamation
Claimants, the Debtors also provided extensions to file objections.
As of August 15, 2000, there have been 247 Reclamation
Claimants (68% of the total claimants) who have accepted the Debtors calculated
amounts. These 247 vendors filed Reclamation Claims totaling $83.4 million and
have accepted $25.2 million as calculated by the Debtors. Therefore, the Debtors
have successfully reduced Reclamation Claims by $58.2 million or approximately
30% of the total dollar amount filed to date. Of the other 114 vendors, there
are 100 objections and 14 objection extensions pending. The asserted claims for
the 100 Reclamation Claimants that have filed objections total $100.9 million
for which the Debtors have calculated $31.8 million. The asserted claims for the
14 Reclamation Claimants with objection extensions total $12.2 million for which
the Debtors have calculated $6.2 million. The Debtors continue to pursue
resolution of these Reclamation Claims. The Debtors have also taken the position
that Reclamation Claims should be treated as General Unsecured Claims because of
the floating liens on the Debtors' assets asserted by both PACA Claimants and
the Secured Lenders and because
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there is insufficient Collateral to fully satisfy those Claims. This legal
position, in part, forms the basis for the proposed settlement with the Ad Hoc
Committee of Reclamation Claimants and the treatment afforded such claimants in
the Plan.
5. DISPOSITION OF ASSETS
Pursuant to section 363 of the Bankruptcy Code, the Debtors as
debtors in possession are authorized to sell, lease or otherwise dispose of
assets of their estates in the ordinary course of business without prior
permission from the Bankruptcy Court. However, any sale, lease or other
disposition of assets outside the ordinary course of business must be approved
by the Bankruptcy Court.
o SALE OR ABANDONMENT OF DE MINIMIS ASSETS. As part of their
efforts to downsize and restructure their operations, the
Debtors have closed a number of distribution centers. In these
distribution centers, prior to their closing, the Debtors
utilized and owned various types of equipment, machinery,
vehicles, supplies and furniture (the "De Minimis Assets"). As
a result of the closing of these distribution centers,
however, the Debtors no longer required the De Minimis Assets.
Accordingly, the Debtors obtained authorization from the
Bankruptcy Court to sell the De Minimis Assets, as necessary,
in accordance with the Debtors' customary terms of sale. In
addition, to the extent such sales could not be consummated,
the Debtors obtained authorization to abandon the De Minimis
Assets.
o SALES OF REAL ESTATE. The realignment and downsizing of the
Debtors' business enabled the Debtors to liquidate certain of
their real estate holdings. The Debtors have sold or are in
the process of selling developed and undeveloped parcels of
real estate located in Virginia Beach, Virginia; Greensboro,
North Carolina; Sealy, Texas; Conroe, Texas; Norman, Oklahoma;
and Fredericksburg, Virginia.
o FULLERTON AND LEWISVILLE FACILITIES. Prior to the commencement
of these Chapter 11 Cases, AFD was a tenant in two
distribution facilities, one located in Fullerton, California,
and the other located in Lewisville, Texas. The Fullerton
landlord is Western Properties Fund I ("Western"); the
Lewisville landlord is JDS Properties, Inc. ("JDS"). As the
Debtors' distribution operations were changing, the Debtors
determined that the volume of operations at these two
facilities no longer justified their continued use.
Meadowbrook Meat Company, Inc. ("MBM"), expressed an interest
in leasing both the Fullerton and Lewisville facilities from
the landlords.
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Ultimately, AFD, MBM, Western and JDS, reached the agreement
pursuant to which AFD sold certain of its assets relating to the operation of
the facilities to MBM, AFD rejected the Lewisville and Fullerton leases and
Western and JDS released their claims against the Debtors' estates in connection
with entering into new leases with MBM.
o EQUIPMENT DIVISION SALE. Shortly after the Petition
Date, the Debtors filed a motion to sell certain of
AFD's assets used to operate the Debtors' foodservice
equipment division (the "Equipment Division") to
Arbor Private Investment Company, L.L.C. ("Arbor") or
such other persons or entities submitting one or more
higher and better offers (the "Buyer").
The Equipment Division is engaged in the business of
distributing restaurant equipment and supplies, primarily to quick service and
casual dining restaurants. The customer base includes both owners and
franchisees of chain restaurants, including over ten restaurant concepts. The
Equipment Division has one distribution center and uses third party carriers to
perform all inbound and outbound freight movements. Roughly 40% of revenue is
derived from stock shipments, with the remaining 60% representing drop-shipments
from vendors directly to customers.
The Equipment Division's operations can be categorized into
three areas: new store development, replacement sales, and projects. New store
development includes equipment and supplies sold to groundbreaking stores.
Replacement equipment includes the sale of both heavy equipment and small wares
resupply. The projects category refers to nationwide or regional rollouts of new
equipment to a large group of stores in a short time frame.
Prior to the Petition Date, AFD conducted an extensive search
for a qualified buyer with the assistance of its investment banker, DLJ.
Marketing efforts to sell the Equipment Division began in October of 1999. AFD
conducted the marketing effort on an international, national and local basis.
After the Petition Date, HLHZ marketed the Equipment Division to more than
eighty potential buyers, including financial buyers and operating companies
located in the United States and international companies with a presence in the
United States.
As of the date that the Debtors filed their motion to sell the
Equipment Division, AFD had received four proposals from prospective buyers.
After subsequent discussions, AFD obtained three "qualified bids". At the
subsequent auction of the Equipment Division, the North Texas Opportunity Fund,
L.P. emerged as the buyer, agreeing to purchase the Equipment Division for
approximately $26.0 million, subject to working capital adjustments, including
the assumption of $6.0 million of postpetition liabilities relating to the
Equipment Division. The sale of the Equipment Division to the buyer closed on or
about August 14, 2000. The net proceeds to the Debtors' estates, after
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the working capital adjustments and assumption of postpetition liabilities were
taken into account, approximated $4.5 million, subject to further adjustments.
6. EXIT OF BURGER KING FROM DISTRIBUTION SYSTEM
As of the Petition Date, the Debtors serviced approximately
5,900 Burger King restaurants throughout the United States. Approximately 5,450
of those restaurants are owned and operated by Burger King franchisees (the "BKC
Franchisees"); the remaining 450 restaurants are owned and operated by BKC.
Prior to the Petition Date, BKC and AFD entered into
distributor approval agreements whereby AFD was named by BKC as an approved
distributor to Burger King restaurants. Additionally, BKC Franchisees entered
into separate franchisee supply agreements with AFD pursuant to which AFD agreed
to provide goods and distribution-related services. Pursuant to an Exclusive
Distributor Approval Agreement between AFD and BKC (the "BKC Supply Agreement"),
AFD agreed to provide goods and distribution-related services to the restaurants
owned and operated by BKC. BKC and the BKC Franchisees whose contracts with AFD
were purportedly scheduled to expire on May 15, 2000 declined to remain
customers of AFD.
Notwithstanding their disagreement on the facts and the law
affecting their rights, AFD, BKC, the BKC Franchisees and Restaurant Services,
Inc. agreed to effectuate an orderly transition of the Burger King business
pursuant to the terms of a letter agreement dated May 8, 2000, (the "BKC
Transition Agreement") as approved by the Bankruptcy Court. The Debtors assert
that BKC has failed to comply with the BKC Transition Agreement by, among other
things, failing to pay certain amounts it owes to the Debtors.
The Debtors timely completed their deliveries to Burger King
restaurants in June of 2000. The Debtors allege that, pursuant to the terms of
the BKC Transition Agreement, BKC owes the Debtors at least $13 million. BKC
disputes that it owes this amount to the Debtors and also has asserted an
alleged right of offset in the amount of $6 million.
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7. EXIT OF CHICK-FIL-A FROM DISTRIBUTION SYSTEM
As of the Petition Date, the Debtors serviced approximately
900 Chick-fil-A restaurants throughout the United States. Service to these
restaurants accounted for approximately 5% of AFD's annual revenues for its most
recent fiscal year. Prior to the Petition Date, Chick-fil-A and AFD entered into
certain agreements whereby Chick-fil-A contracted with AFD to provide goods and
distribution-related services to Chick-fil-A restaurants. Notwithstanding their
disagreement on the facts and the law affecting their respective rights, AFD and
Chick-fil-A agreed to effectuate an orderly transition of the Chick-fil-A
business pursuant to the terms and conditions of the letter agreement dated June
2, 2000 (the "Chick-fil-A Transition Agreement") as approved by the Bankruptcy
Court.
Other than as explained below, performance under the
Chick-fil-A Transition Agreement has been substantially completed. Pursuant to
the terms of the Chick-fil-A Transition Agreement, Chick-fil-A has guaranteed
AFD's payment to the vendors from whom AFD buys product for Chick-fil-A
restaurants. Chick-fil-A has withheld $1 million that it owes AFD, claiming that
AFD has failed to pay this amount to vendors who supplied AFD with product that
AFD then sold to Chick-fil-A. The Debtors disagree with Chick-fil-A's
allegations.
8. WIND-DOWN OF ACCOUNTS RECEIVABLE PROGRAM
Pursuant to the terms of various orders, Norwest as Trustee
and the Debtors resolved the issues surrounding the termination of the Accounts
Receivable Program, collection of the Receivables and payment of sufficient
proceeds from such collections to the Trust to pay amounts owed to Norwest as
Trustee for the benefit of the holders of the certificates issued to investors.
After the Debtors completed payment of three prepetition receivables
certificates under the Pooling and Servicing Agreement with collections of what
was believed to be prepetition receivables during the postpetition period, it
was determined that certain certificate holders were paid with collections from
postpetition receivables. Consequently, certain Creditors have filed Claims for
amounts due them relating to the above-described application of Cash.
9. SALE OF CCC OPERATIONS
On October 9, 2000, AFD announced that, subject to Bankruptcy
Court approval, it had signed an agreement to sell the assets of Chicago
Consolidated Corporation ("CCC") to Consolidated Distribution Corporation for
approximately $12,500,000 (subject to certain adjustments relating to inventory
levels). CCC is AFD's domestic redistribution company.
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10. SALE OF CANADIAN AND MEXICAN OPERATIONS
The Debtors pursued and consummated the sale of its stock in
its Canadian subsidiary for approximately $1.1 million (U.S.D.) in September,
2000. AFD and CCC entered into an agreement to sell the stock of PFS de Mexico
S.A. de C.V. and Servicios AmeriServe, S.A. de C.V. to Pacific Star, S.A. de
C.V. and Pacific Star Holding, S.A. de C.V. for approximately $5,000,000
(subject to certain adjustments relating to working capital). PFS de Mexico and
Servicios AmeriServe are AFD's distribution companies in Mexico. On October 16,
2000, following the auction for the contemplated sale, the Bankruptcy Court
approved the sale for $5,800,000 (U.S.D.) (subject to the working capital
adjustments) to Pacific Star, S.A. de C.V., the winning bidder of the auction.
The closing of the transaction remains subject to regulatory approval and other
customary conditions.
11. MCLANE SALE TRANSACTION
o THE SALES PROCESS. After an extensive examination of all of
their options, the Debtors concluded that their best course of
action was to sell their assets to a third party. With the
assistance of HLHZ, the Debtors' financial advisor, the
Debtors prepared and distributed a request for proposal
("RFP") to eight potentially interested third parties which
had executed confidentiality agreements. In response to the
RFP, three of the third parties did not express any interest
in purchasing the Debtors. The other five prospective bidders
conducted due diligence beginning in late April. By June 8,
2000, three entities submitted proposals. The Debtors
considered each of the submitted proposals and, based upon a
multitude of factors, including conditions to closing,
distribution capability and capacity, financial wherewithal,
pricing and distribution experience, the Debtors reduced the
number of potential purchasers to two. After initial bids were
received, another third party expressed interest in acquiring
the Debtors and has commenced due diligence. That party
submitted an indication of interest, yet the proposal
submitted to the Debtors contains conditions that the Debtors
concluded they could not satisfy.
In connection with the RFP process, the Debtors received from
McLane an offer to purchase substantially all of the Debtors' core operating
assets relating to its distribution business in the 48 contiguous United States.
Even after receiving the offer from McLane, the Debtors continued to pursue and
investigate the viability of several other alternatives, including the
implementation of a stand alone plan of reorganization. The Debtors determined
that, based upon all available information, in their business judgment, a sale
of substantially all of their assets pursuant to the Sale Transaction was in the
best interests of the Debtors' creditors and their chapter 11 estates.
On August 18, 2000, after approximately ten weeks of
arms-length negotiations, the Debtors and McLane reached agreement on the terms
and conditions of
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the Sale Transaction. Broadly speaking, the Sale Transaction contemplates the
purchase of substantially all of the Debtors' core operating assets relating to
its distribution business in the 48 contiguous United States by McLane pursuant
to the terms of the McLane Purchase Agreement.
o SIGNIFICANT PROVISIONS OF THE MCLANE PURCHASE AGREEMENT.
o THE PURCHASED ASSETS. The McLane Purchase Agreement
contemplates that McLane will purchase substantially
all of the Debtors' assets that are used by the
Debtors to distribute food products and restaurant
supplies, to Taco Bell, Kentucky Fried Chicken, Pizza
Hut and Long John Silver's in the 48 contiguous
United States (the "Concepts"), including the
following: o
i. Certain owned real property, certain leases
of real property and certain leases of
personal property;
ii. Inventory;
iii. Machinery, equipment, vehicles, furniture
and other tangible personal property;
iv. Permits that may be assigned by the Debtors;
v. Intellectual property;
vi. Certain contracts, agreements and personal
property leases;
vii. Subject to certain exceptions, the Debtors'
rights, claims and causes of action against
third parties, but only to the extent that
such rights, claims and causes of action
relate to (a) the assets being purchased by
McLane, (b) the Debtors' obligations that
are being assumed by McLane and (c) the
operation of the Debtors' business prior to
the Effective Date;
viii. Sales and promotional literature, customer
lists, customer files, customer deposits,
advances and prepaid and other assets
relating to the Debtors' business;
ix. Security deposits relating to any agreements
being assumed by the Debtors and assigned to
McLane; and
x. The goodwill relating to the Debtors'
business.
o THE EXCLUDED ASSETS. Assets that McLane is not
purchasing include, without limitation, the
following:
i. Cash, cash equivalents and bank deposits;
ii. Equity Securities in any of the Debtors and
their non-Debtor Affiliates;
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iii. Properties and assets used exclusively in
the conduct of the Equipment Division, the
CCC business and other non-Concept
businesses of the Debtors;
iv. Tax refunds or credits relating to taxes
paid prior to the Effective Date or relating
to a period prior to the Effective Date;
v. Bankruptcy Causes of Action;
vi. Contracts and agreements that McLane has
elected not have assigned to it; and
vii. The rights of the Debtors under the McLane
Purchase Agreement.
o ASSUMED OBLIGATIONS. The obligations of the Debtors
that McLane is assuming are the following:
i. Subject to certain exceptions, all
liabilities and obligations of the Debtors
under the "Assumed Agreements" and the
"Transferable Permits" (as each term is
defined in the McLane Purchase Agreement);
ii. All liabilities and obligations relating to
customer deposits and customer advances
which are part of the assets purchased
pursuant to the terms of the McLane Purchase
Agreement;
iii. All liabilities, obligations or
responsibilities relating to pollution,
protection of the environment, natural
resources and human health and safety
arising or accruing solely after the
Effective Date; and
iv. Certain accounts payable of the Debtors
relating to the Long John Silver's business,
Vantix Logistics, Ltd. and "common items"
owned by the Debtors and identified in a
schedule prepared at closing.
o PURCHASE PRICE AND EARNEST MONEY DEPOSIT. McLane has
agreed to pay the sum of (w) One Hundred Ten Million
Dollars ($110,000,000) in Cash, (x) the landed cost
value of inventory relating to the Concepts and (y)
25% of the landed cost value of the inventory related
to the Concepts that is greater than 90 days supply
(subject to certain adjustments) minus (z) the amount
of certain payables being assumed by McLane.
o DEPOSIT. Within three Business Days of the entry by
the Bankruptcy Court of an order that, among other
things, (a) establishes bid procedures (b) approves a
$4,000,000 termination fee payable to
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McLane under certain circumstances and expense
reimbursement and (c) sets a hearing pursuant to
which the Debtors will sell substantially all of
their assets to McLane, McLane shall deposit
$10,000,000 with a third party escrow agent to be
applied against the purchase price. The Bankruptcy
Court entered the contemplated bid procedures order
and McLane has deposited Ten Million Dollars
($10,000,000) with the escrow agent pursuant to the
terms of a deposit escrow agreement on or about
October 3, 2000.
o CONDITIONS TO CLOSING. Conditions to McLane's
obligation to close include, but are not limited to,
the following:
i. The execution and delivery by Tricon and
Tricon franchisees constituting at least 85%
of the restaurants served by the Debtors for
each of the Pizza Hut, Kentucky Fried
Chicken and Taco Bell concepts of pricing
and term amendments to their existing
contracts;(10)
ii. Absence of events which in the aggregate
would result in a Material Adverse Effect
(as defined in the McLane Purchase
Agreement);
iii. The execution and delivery by Tricon of an
agreement related to Tricon-owned inventory
intended for use in the Debtors' business;
and
iv. Other customary closing conditions,
including the expiration or the early
termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act
of 1976.
o ASSIGNMENT OF LEASES, AS MODIFIED. In connection with
the Sale Transaction, the Debtors, McLane and certain
lessors of equipment and non-residential real
property have negotiated and/or are currently
negotiating agreements whereby the Debtors assume and
assign to McLane the applicable executory contracts
and unexpired leases, as modified by agreement
amongst the parties. These arrangements are vital to
the consummation of the proposed transaction with
McLane. One of these arrangements is among McLane,
the Debtors and AFD (KV) LLC and AFD (MN) LLC, the
lessors of four
______________________________
(10) The Debtors have received information to suggest that this condition has
been met as of the date hereof.
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distribution facilities. The material terms of the
proposed agreement, of which the Debtors intend to
seek court approval pursuant to Bankruptcy Rule 9019,
are as follows:
i. The lessors agree to modify the existing
leases so as to create four separate leases
of one premises each. The four facilities
are currently demised under allegedly two
leases of two premises each, which the
lessors assert can only be assumed in full,
unless the relevant lessor otherwise agrees.
Since McLane's proposed purchase only
includes three of the four facilities (Grand
Rapids is excluded), absent the lessor's
agreement, the Debtors' attempted partial
assumption and assignment of the lease that
includes the Grand Rapids facility would
likely face opposition by the lessors.
ii. McLane or an affiliate thereof will take an
assignment of three of the four leases
(Kansas, Virginia and New Jersey
facilities), as modified in accordance with
the terms agreed upon between McLane and the
lessors. The lessors assert that the lease
terms agreed upon with McLane are less
favorable to the lessor than the terms
currently provided to the Debtors. McLane
would guarantee any McLane affiliate's
obligations under the modified leases.
iii. The Debtors would reject the fourth lease,
for the Grand Rapids, Michigan premises, and
the Debtors would comply with their
obligations under section 365(d)(3) of the
Bankruptcy Code with respect to those
premises except that the Grand Rapids lessor
would agree to a proration of the final
month's rent to reflect the date that the
Debtors reject the lease.
iv. The lessors would be entitled to retain the
proceeds of letters of credit issued in
their favor as security for the Debtors'
obligations under the lease agreements, as
partial consideration for their damage
claims and their agreement to permit the
assumption and assignment of the three
leases, as modified. The letters of credit
were issued in the amount of $8,750,000.
v. The Debtors would be required to remain
current through the closing date of the
McLane transaction on postpetition
obligations such as basic rent, taxes,
construction rent and other payment
obligations.
vi. The agreement also requires the Debtors to
pay approximately $2.5 million in additional
cash to the lessors, which amount includes
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vii. The Debtors also agreed to cause liens on
the premises to be removed and to cause the
facilities to be brought into compliance
with applicable zoning and occupancy
requirements.
viii. Finally, the lessors will be entitled to a
General Unsecured Claim of $6 million. After
taking into account mitigation represented
by the new leases with McLane and the
retention of the letter of credit proceeds,
the lessors have asserted that their damages
against the Debtors exceed $18 million in
the aggregate.
o BUSINESS JUSTIFICATIONS FOR THE SALE. The Debtors' Chapter 11
Cases have been pending for nine months. During that time
period, the Debtors have worked diligently to stem the tide of
mounting losses, dispose of unprofitable operations, develop
strategic initiatives for the foundation of a chapter 11 plan
and perform valuations with respect to their assets.
The Sale Transaction provides the Debtors with a known amount
of proceeds to be distributed to creditors pursuant to a plan of reorganization.
Moreover, since the sale of the Debtors' assets is subject to higher and better
offers, the Debtors are ensured of realizing the best price obtainable for the
assets. THE DEBTORS, THE AGENT, THE AD HOC COMMITTEE OF SENIOR SECURED
NOTEHOLDERS, THE AD HOC COMMITTEE OF RECLAMATION CLAIMANTS, TRICON AND THE
CREDITORS' COMMITTEE SUPPORT THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
BY THE SALE TRANSACTION.
12. ASSUMPTION/REJECTION OF CONTRACTS AND LEASES
Pursuant to section 365 of the Bankruptcy Code, the Debtors
may either assume, assume and assign, or reject executory contracts and
unexpired leases of real and personal property, subject to the approval of the
Bankruptcy Court. As a condition to assumption, or assumption and assignment,
the Debtors must cure all existing defaults under the contract or lease. If the
contract or lease is rejected, any resulting rejection damages are treated as
prepetition unsecured claims. Generally, and with certain exceptions,
postpetition obligations arising under a contract or lease must be paid in full
in the ordinary course of business.
o UNEXPIRED LEASES OF NON-RESIDENTIAL REAL PROPERTY. As of the
Petition Date, the Debtors were parties to approximately 68
unexpired leases of nonresidential real property (the
"Unexpired Non-Residential Real Property Leases"). The
Unexpired Non-Residential Real Property Leases primarily
related to the distribution centers through which the Debtors
conduct their food distribution business.
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Section 365(d)(4) of the Bankruptcy Code provides that if the
debtor does not assume or reject an unexpired lease of nonresidential real
property under which the debtor is the lessee within 60 days after the petition
date, or within such additional time as the court fixes, then such lease is
deemed rejected, and the debtor must immediately surrender such property to the
lessor. Due to, among other things, the large number of Unexpired
Non-Residential Real Property Leases and the size and complexity of these
Chapter 11 Cases, the Debtors were unable to make a reasonable and well-informed
decision as to whether to assume or reject the Unexpired Non-Residential Real
Property Leases within the initial 60-day period. Accordingly, the Debtors
requested subsequent extensions, and the Bankruptcy Court has extended the
Debtor's time to assume or reject the Unexpired Non-Residential Real Property
Leases (with some exceptions) to and including October 31, 2000.
During the Chapter 11 Cases, the Debtors have been conducting
an extensive review of the Unexpired Non-Residential Real Property Leases. As a
result of this analysis and in an effort to consolidate their operations, the
Debtors proceeded to reject 31 Unexpired Non-Residential Real Property Leases
that related primarily to the Debtors' warehouses and distribution centers. The
Debtors are continuing to analyze the necessity of certain facilities and likely
will reject additional Unexpired Non-Residential Real Property Leases.
o CONTRACTS AND LEASES OF PERSONAL PROPERTY. In the course of
the Chapter 11 Cases, the Debtors have analyzed and evaluated
their unexpired leases of personal property as well as their
other executory contracts (I.E., contracts in which
performance remains due to some extent on both sides) and ----
determined that it was in the best interests of the Debtors
and their estates to reject certain of these leases and
contracts pursuant to section 365(a) of the Bankruptcy Code.
Accordingly, the Debtors have rejected 33 contracts and leases
of personal property including: a letter agreement with
Donaldson, Lufkin & Jenrette Securities Corporation relating
to the sale of the Debtors' equipment division, eleven
employment agreements, several master leases and accompanying
schedules, and multiple leases for various types of equipment.
The Debtors are continuing to evaluate the remaining executory
contracts and will either assume or reject such contracts at
the time of confirmation of the Plan.
13. PENDING LITIGATION AND AUTOMATIC STAY
The nature of the Debtors' business is such that they are
routinely involved in litigation. As a result of the Chapter 11 Cases, pursuant
to section 362 of the Bankruptcy Code, all litigation pending against the
Debtors has been stayed. A number of
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motions seeking to lift the automatic stay have been filed. Except in certain
situations, the Debtors have opposed the motions, and the Bankruptcy Court has
agreed to keep the stay in place. The Debtors have generally not opposed motions
filed by persons whose claims are fully insured. Significant litigation matters
involving or affecting the Debtors not referenced elsewhere in this Disclosure
Statement are discussed below.
o AMERISERVE FOOD DISTRIBUTION INC., ET. AL. V. TRICON GLOBAL
RESTAURANTS, INC. - This matter is currently pending in the
Bankruptcy Court. The Debtors and one of their non-debtor
subsidiaries have asserted a turnover claim for approximately
$102 million. Tricon has filed a motion to dismiss. Tricon's
motion has not yet been fully briefed. As described in Article
V.F.2. below, entitled "FUNDING OF THE PLAN", in consideration
of the Tricon Funding, the Debtors shall dismiss this lawsuit
with prejudice within five (5) Business Days after the
Effective Date.
o AMERISERVE FOOD DISTRIBUTION, INC. V. JOHN HOLTEN, ET. AL. -
The Debtors have filed a complaint against John Holten, AFD's
former CEO and current Chairman of its Board of Directors. The
Debtors have also named various of their parent companies, all
of which are under the control of Mr. Holten, as defendants.
The complaint states claims for fraudulent transfer (under
federal and state law) as well as breach of fiduciary duty.
The defendants have answered the complaint and the parties are
currently beginning discovery. The matter is pending before
the Bankruptcy Court.
o Receivables Litigation - The Debtors have commenced several
arbitration proceedings against various customers to collect
overdue accounts receivables. The matters currently pending
include AMERISERVE FOOD DISTRIBUTION, INC. V. RON DEVINE, ET.
AL.; AMERISERVE FOOD DISTRIBUTION, INC. V. KINGCONN
ENTERPRISES, ET. AL.; and AMERISERVE FOOD DISTRIBUTION, INC.
V. POTOMAC FOODS. The Debtors are also currently preparing a
number of legal actions against various other customers in
order to collect past due receivables. The amount of these
overdue receivables is estimated to be in excess of $150.0
million.
o DLJ/Tranche B Lender Litigation - The Debtors and third
parties have commenced an investigation into the prepetition
activities and conduct of DLJ, the Tranche B Lender and their
representatives relating to their involvement with the Debtors
to determine whether the Debtors or third parties may possess
legal or equitable claims against DLJ and the Tranche B
Lender. The investigation is too premature to determine the
likelihood of success on the merits of any such claims.
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14. CLAIMS PROCESS
In chapter 11, claims against a debtor are established either
as a result of being listed in the debtor's schedules of liabilities or through
assertion by the creditor in a timely filed proof of claim. Claims asserted by
creditors are either allowed or disallowed. If allowed, the claim will be
recognized and treated pursuant to the plan of reorganization. If disallowed,
the creditor will have no right to obtain any recovery on or to otherwise
enforce the claim against the debtor.
o FILING OF SCHEDULES OF LIABILITIES. On February 2, 2000, the
Debtors requested, and the Bankruptcy Court granted, an
extension of time in which to file their schedules of
liabilities (the "Schedules") (as well as their schedules of
assets and executory contracts and their statements of
financial affairs). Because of the numerous demands on the
Debtors and their professionals resulting from the filing of
the Chapter 11 Cases, the Debtors requested additional
extensions of time in which to file their Schedules, which
requests were granted. On May 26, 2000, the Debtors filed
their Schedules with the Bankruptcy Court. The Debtors reserve
the right to amend their Schedules during the remaining
pendency of the Chapter 11 Cases.
o BAR DATE FOR FILING PROOF OF CLAIM. By order granting the bar
date motion (the "Bar Date Motion"), dated July 14, 2000 (the
"Bar Date Order"), the Court (i) approved September 12, 2000
as the bar date for all creditors to file proofs of claim,
(ii) authorized the Debtors to provide notice of the bar date
by direct mail and publication, and (iii) approved a bar date
notice (the "Bar Date Notice") to be sent to all of the
Debtors' known creditors. The Bar Date Notice notified
creditors of the deadline for filing proofs of claim and
contained explicit instructions regarding who should file a
proof of claim and the instructions for doing so.
The Bar Date Motion called for providing actual, written
notice to the following known creditors: vendors, employees and unions,
customers, parties to any litigation, current and past insurance carriers,
directors, lenders and accounts payable creditors, co-debtors, taxing
authorities and affiliates. The Debtors provided each known creditor with a
customized notice of the Bar Date and a customized proof of claim form.
Due to a miscommunication, personalized versions of the
publication notice were sent out to the known creditors as opposed to
personalized versions of the Bar Date Notice, as set forth in the Bar Date
Motion and Order. For the most part, both the publication notice and the Bar
Date Notice contain the same substantive information. The
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Bankruptcy Court granted the Debtors' amended motion seeking approval of the
form and manner of the personalized publication notice in place of the
personalized Bar Date Notice.
The Bar Date Notice was mailed to in excess of 136,000 parties
in interest on or about July 21, 2000. In addition, the Bar Date Notice was
published on August 11, 2000 in the WALL STREET JOURNAL (National Edition) and
in the DALLAS MORNING NEWS.
o CLAIMS OBJECTION PROCESS. The Debtors are in the process of
evaluating the proofs of claim to determine whether objections
seeking the disallowance of some asserted Claims should be
filed. The Debtors are reconciling the Claims listed in their
Schedules with the Claims asserted in proofs of claim and are
also in the process of eliminating Claims that are duplicative
or erroneous in order to ensure that only valid Claims are
allowed by the Bankruptcy Court. If the Debtors object to a
proof of claim, the Bankruptcy Court will determine whether or
not such Claim should be allowed. To the extent that the
Debtors are successful in their objections, the total amount
of the Debtors' liabilities to be treated under the Plan will
be decreased. If the Debtors do not object to a proof of
claim, that Claim asserted therein will be deemed allowed and
will be treated pursuant to the Plan. As appropriate, the
Debtors may seek to negotiate and settle disputes as to proofs
of claim as an alternative to filing objections to the proofs
of claim.
o ADMINISTRATIVE CLAIMS BAR DATE. The Bankruptcy Court has fixed
October 20, 2000 as the deadline by which creditors must file
requests for allowance of Administrative Expense Claims. The
Administrative Claims Bar Date applies to all unpaid
Administrative Claims arising from and after the Petition Date
through and including August 31, 2000, EXCEPT for (i)
Administrative Claims of professionals ------ retained
pursuant to sections 327 and 328 of the Bankruptcy Code, (ii)
expenses of members of the Creditors' Committee, (iii) all
fees payable and unpaid under 28 U.S.C.ss. 1930, and (iv) any
fees or charges assessed against the estates of the Debtors
under 28 U.S.C.ss. 123. The Debtors have given notice of the
Administrative Claims Bar Date by First Class United States
Mail to (i) all parties who have requested notice pursuant to
Bankruptcy Rule 2002, (ii) the United States Trustee, (iii)
counsel to Creditors' Committee, (iv) counsel to the Ad Hoc
Reclamation Committee, (v) counsel to the Ad Hoc Committee of
Senior Secured Noteholders, (vi) counsel to the Secured
Lenders, (vii) all of the Debtors' lessors and any party who
has provided postpetition goods or services to the Debtors
and, (viii) all other parties known by the Debtors that may
hold Administrative Claims. In addition to serving the notice
on the foregoing, in order to provide notice of the
Administrative Claims Bar Date to unknown creditors, in
accordance with Bankruptcy Rule 9008, the Debtors also
published notice of the
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Administrative Claims Bar Date in the WALL STREET JOURNAL
(National Edition) on September 20, 2000.
15. EXCLUSIVE PLAN PROPOSAL AND ACCEPTANCE RIGHTS
Section 1121(b) of the Bankruptcy Code provides for an initial
period of 120 days after the commencement of a chapter 11 case during which a
debtor has the exclusive right to file a plan of reorganization and 180 days to
obtain acceptances to such plan (the "Exclusive Periods"). In addition, pursuant
to section 1121(d) of the Bankruptcy Code, the Bankruptcy Court may, upon a
showing of cause, extend or increase a debtor's Exclusive Periods.
Prior to the expiration of the initial Exclusive Periods, the
Debtors sought an extension of such periods, citing a multitude of factors,
including: (i) the size and complexity of the Chapter 11 Cases; (ii) the
substantial efforts required to stabilize and rehabilitate the Debtors'
business; and (iii) the need to develop a long-range business plan to lay the
foundation for a consensual plan of reorganization. By order, dated June 2,
2000, the Bankruptcy Court granted the requested extension of the Debtors'
initial Exclusive Periods to and including August 10, 2000 and October 9, 2001,
respectively. The Debtors subsequently sought and obtained an additional
extension of their Exclusive Periods through and including November 10, 2000 and
January 9, 2001, respectively.
16. EXAMINER
On March 17, 2000, the Bankruptcy Court signed a Stipulation
and Order directing the United States Trustee to appoint an examiner in the
Chapter 11 Cases. Thereafter, on March 29, 2000, the Bankruptcy Court approved
the United States Trustee's Application for an Order Approving the Appointment
of Deloitte Consulting L.P. (the "Examiner") as the examiner in the Chapter 11
Cases. The Examiner was charged with the responsibility of conducting an
investigation into any allegations of fraud, dishonesty, incompetence,
misconduct, mismanagement, or irregularity in the management of the prepetition
affairs of the Debtors. The Examiner's authority also included the examination
of the Debtors' prepetition activities and to outline for the Bankruptcy Court
the circumstances that led to the demise of the Debtors' business and
necessitated the Debtors' filing for bankruptcy.
The Examiner conducted numerous meetings and telephone
conferences with the Debtors' officers and directors, Debtors' professionals,
former employees, counsel for the Creditors' Committee, the Debtors' largest
customers (both current and former), their major lenders, a variety of vendors
and other parties in interest. While the Examiner found substantial instances of
mismanagement during the period preceding the chapter 11
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filings, it concluded that the appointment of a trustee would be disruptive to
the Chapter 11 Cases.
After the Examiner's appointment, the Examiner reviewed all
significant actions taken by the Debtors in the Chapter 11 Cases and found no
instances of mismanagement or misconduct.
17. SETTLEMENT AMONG DEBTORS, TRICON AND AD HOC COMMITTEE OF SENIOR SECURED
NOTEHOLDERS
A fundamental element of the Plan is the implementation of a
settlement and compromise among the Debtors, Tricon and the Senior Secured
Noteholders. The Debtors believe that the compromise reached is fair and
equitable and in the best interest of the Debtors' estates and creditors. The
compromise permits the Debtors to propose the Plan with the support of its DIP
Lenders, Tranche A Lenders and the Senior Secured Noteholders, and allows the
Debtors to avoid the expense and burdens associated with litigating sharply
contested claims. The proposed settlement and compromise is the result of
extensive and arm's-length negotiations and the legal evaluations made by
counsel with respect to potentially contested issues. The Debtors believe that
the settlement reached falls within the reasonable range of litigation
possibilities.
The proposed compromise resolves various claims asserted by
Tricon to the assets of the Debtors' estates in the Chapter 11 Cases, including
claims arising under the Debtors' postpetition secured credit facility in the
original maximum amount of $150.0 million and a reimbursement claim of
approximately $49.8 million on an administrative expense priority basis. In
addition, the proposed compromise also resolves the Debtors' claims against
Tricon for past due receivables in an amount in excess of $100.0 million and the
disputes among the Debtors, Tricon and the Senior Secured Noteholders over the
precise value of Tricon's obligations to provide "Replacement Collateral" to the
Agent for the benefit of the holders of Tranche A Lender Claims, Tranche B
Lender Claims and the Senior Secured Noteholder Claims pursuant to the terms of
the Final Stipulation and Order Authorizing the Use of Cash Collateral and
Granting Replacement Liens, entered by the Bankruptcy Court in the Chapter 11
Cases on April 3, 2000.
The proposed settlement and compromise generally provides for
Tricon to provide sufficient funding to the Debtors so that, when coupled with
the McLane Proceeds, the Debtors are able to satisfy the amount of the Tranche A
Lender Claims, the Tranche B Lender Claims (to the extent later deemed allowed),
and an additional amount to permit the Senior Secured Noteholders to recover
32.5% of the face amount (i.e., $205 million) of the Senior Secured Notes. In
addition, the Debtors will keep fully funded an account to satisfy the maximum
potential recovery to PACA Claimants. The settlement seeks to resolve the
competing claims to the Debtors' assets asserted by the holders of Senior
Secured Noteholder Claims and Tricon, as well as the Senior Secured Noteholders'
asserted claims against Tricon on Tricon's obligations to provide replacement
collateral to the Agent for the benefit of the holders of Tranche A Lender
Claims, Tranche B Lender Claims and Senior Secured Noteholder Claims. As a
result of the settlement, including the settlement of
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contractual claims asserted by the Senior Secured Noteholders against Tricon,
Tricon agreed to fund in excess of $200 million that supplements the
contemplated proceeds from the McLane Transaction, a portion of which will be
distributed directly to the holders of Senior Secured Noteholder Claims.
As an integral part of the settlement and compromise, Tricon is to be
granted a release as set forth in the Plan covering claims, including, but not
limited to claims relating to (i) the Tricon Prepetition Receivable, (ii) the
Collateral Support Reimbursement Obligation and (iii) the DIP Facility Claim. In
addition, the release is designed to cover claims against BKC that arise out of
the DIP Facility or the Collateral Support Reimbursement Obligation, due to
Tricon's existing intercreditor obligations to BKC. The Debtors are not aware of
any claims that they may have against Tricon or BKC in respect of the DIP
Facility or the Collateral Support Reimbursement Obligation. Accordingly, and in
light of the substantial benefit the Debtors and their estates derive from the
settlement and compromise, the Debtors believe that the releases, as an integral
part of such settlement, are fair and reasonable under the circumstances and
supported by valid and sufficient consideration.
Another essential element of the settlement and compromise is
that holders of General Unsecured Claims receive a Pro Rata Share of
distributions available to Class 8. Tricon has explained that it will not
provide the Tricon Funding, nor will it agree to waive and release its right of
recovery on account of its Unsecured Claims (Tricon has asserted $35 million in
liquidated Unsecured Claims and additional Unsecured Claims in an unliquidated
unknown amount) if the Debtors treat General Unsecured Claims in a manner that
is inconsistent with their treatment under the Plan. The Debtors cannot predict
whether Tricon would refuse to provide the Tricon Funding or refuse to waive and
release its recovery rights on account of its Unsecured Claims if General
Unsecured Claims are treated differently than as presently contemplated in the
Plan.
The rationale behind the compromise and settlement consists of
an assessment by the Debtors and the holders of the Tricon Claims of their
ability to prevail on their claims against the other. The Debtors and Tricon
believe that unless these controversies are resolved, the prospect of concluding
the Sale Transaction will be diminished, with the effect that protracted
litigation would delay any reorganization alternative and potentially adversely
affect asset values.
Given this assessment by the Debtors, the Plan's compromise of
the Debtors' Claims against Tricon is in the best interests of the Debtors'
estates and all creditors.
18. SETTLEMENT AMONG DEBTORS, THE CREDITORS' COMMITTEE, TRICON AND THE AD
HOC COMMITTEE OF RECLAMATION CLAIMANTS.
The Plan also incorporates a proposed compromise and
settlement of certain issues among the Debtors, the Creditors' Committee, Tricon
and the Reclamation Claimants. The result of the compromise, which is
illustrated in the sharing of proceeds from Bankruptcy Causes of Action and
certain other assets among Tricon, the General Unsecured Creditors and the
Reclamation Claimants, also permits the Debtors to propose a Plan supported by
the Creditors' Committee and
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the Ad Hoc Committee of Reclamation Claimants. As part of this settlement and
compromise, Tricon will reduce its estimated $400 million of priority claims to
$220 million, thereby enabling junior classes to achieve potentially higher
recoveries. The fundamental issues addressed by this compromise are Tricon's
ability to assert its alleged first priority position on Bankruptcy Causes of
Action and certain other assets and whether Reclamation Claimants are entitled
to treatment as Administrative Expense Claims or General Unsecured Claims due to
the level of collateral underlying the Debtors' prepetition secured lenders'
liens and claims.
The Debtors believe that, in accordance with the majority of
court decisions that have addressed the issue of secured lenders with deficiency
claims, reclamation creditors are not entitled to administrative claim
treatment. However, in light of the potential litigation costs and expense of
delay, the Debtors, the Creditors' Committee and the Ad Hoc Committee of
Reclamation Claimants have determined that the treatment afforded to Allowed
Reclamation Claims in the Plan (i.e., treating such claims as General Unsecured
Claims in the amount of 2 1/2 times the amount of Allowed Reclamation Claim), is
fair and reasonable under the circumstances. It should be noted that certain
creditors alleging Reclamation Claims have indicated that they are not
supporting the settlement. Such Claimants have the right to do so by voting to
reject the Plan. The Debtors have agreed as part of the foregoing compromise to
support the payment of certain fees and expenses of the ad hoc committees of
Senior Secured Noteholders and Reclamation Claimants, subject to Bankruptcy
Court approval thereof.
In addition, certain holders of Reclamation Claims have
objected to the Debtors' Motion for Further Order Establishing Procedure for
Valuation of Allowed Reclamation Claims filed on September 13, 2000 which, as
noted above, seeks to fix all Reclamation Claims as General Unsecured Claims. In
addition, certain Reclamation Claimants may object to the Plan or seek to have
their Claims treated in a manner that is inconsistent with the settlement and
compromise with the ad hoc committee of Reclamation Claimants. This settlement
and compromise provides, and the Plan contains a provision which provides, that
in the event that any Reclamation Claimant (i) objects to the Plan, (ii) votes
not to accept the Plan, (iii) after November 1, 2000 (which date may be extended
at the Debtors' sole and absolute discretion) seeks treatment of such Claim in
any manner inconsistent with the settlement described herein or (iv) that has
objected to the Debtors' Motion for Further Order Establishing Procedure for
Valuation of Allowed Reclamation Claims filed on September 13, 2000 and has not
withdrawn such objection on or before November 1, 2000 (which date may be
extended at the Debtors' sole and absolute discretion), then such Reclamation
Claimant shall be entitled to receive distributions on account of the allowed
portion of such Reclamation Claim as if such holder had an Allowed General
Unsecured Claim equal to the amount of such Allowed Reclamation Claim rather
than equal to 2 1/2 times such amount.
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V.
THE PLAN OF REORGANIZATION
A. Substantive Consolidation
Substantive consolidation is a process by which the assets and
liabilities of different debtor entities are consolidated and the various debtor
entities are treated as a single entity. The consolidated assets create a single
fund from which all of the claims against the consolidated debtors are
satisfied. Creditors of single entities before consolidation become creditors of
the consolidated debtors, sharing in the assets of the consolidated estate.
Substantive consolidation also eliminates intercompany claims of the debtor
companies and duplicate claims against the related debtors. In addition,
creditors of the consolidated entities are combined for purposes of voting on a
plan of reorganization for the consolidated entity.
If the Bankruptcy Court approves the Plan and the Debtors
elect to consolidate their estates, (1) each of the Debtors and their respective
estates (in each case, other than NEHC) shall be substantively consolidated for
purposes of classification and distribution under the Plan, pursuant to section
1123(a)(5)(C) of the Bankruptcy Code and (2) all Allowed Claims in Class 8 and
Class 9 shall be treated on a pari passu basis. As a result of such
consolidation, for such purposes, the common stock issued by the Debtors shall
be deemed canceled and surrendered and all claims of any of the Debtors against
another Debtor shall be deemed canceled. NEHC, however, will not be
substantively consolidated with the other Debtors. As a result, NEHC will remain
a separate legal entity for all purposes.
The Debtors (excluding NEHC) believe the following facts
support their consolidation and the consolidation of their respective estates:
(i) the Debtors' general ledger system did not segregate accounts by legal
entity (other than with respect to CCC), and as a result, the Debtors did not
maintain separate and distinct books, financial records and accounts; (ii) the
assets and funds of the Debtors were commingled; (iii) AFD regularly paid the
unsecured debts of the other Debtors without any contractual obligation to do
so; (iv) AFD entered into executory contracts and leases from which the other
Debtors operated; (v) the Debtors shared many of the same officers and board of
director members; (vi) management information systems and reporting methods of
the Debtors did not distinguish between legal entities and treated AFD and the
other Debtors as one entity; and (vii) certain creditors of the Debtors have
looked to AFD for payment of the obligations of the Debtors. The preceding list
of factors in support of consolidation of AFD is not intended by the Debtors to
be exclusive.
The Debtors can provide no assurances, however, that the
Bankruptcy Court will approve the consolidation of the Debtors, whether or not
the Plan is accepted by holders of Claims entitled to vote on the Plan.
Furthermore, certain holders of Unsecured Notes may contest the consolidation of
the Debtors. In the event that the Bankruptcy
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Court does not approve consolidation, the Debtors will comply with any order
requiring separation of the Debtor entities under the Plan.
B. Rationale Underlying Plan Treatments of Claims
The terms of the Plan are the result of discussions among the
Debtors, Tricon, the Senior Secured Noteholders, the Ad Hoc Committee of Senior
Secured Noteholders, the Creditors' Committee, and the Ad Hoc Committee of
Reclamation Claimants and represent a compromise and settlement with respect to
the Debtors' claims against Tricon and Tricon's claims against the Debtors. The
Debtors and Tricon have differing views of the ultimate result of litigation
over the above issues in the event the Plan is not confirmed.
Statements as to the rationale underlying the treatment of
claims under the Plan are not intended to waive, compromise or limit any rights,
claims, or causes of action in the event the Plan is not confirmed. Rather, the
distributions contemplated by the Plan represent estimates of distributions
accomplished through the compromise and settlement of these issues without the
necessity for a final judicial determination thereof. The Debtors cannot assure
that an ultimate judicial determination of the compromised issues might not
result in treatment which is more or less favorable to any particular creditor.
The Plan represents and embodies compromises and settlements
of a number of intercreditor issues which have been raised in the Debtors'
Chapter 11 Cases. Resolution of these issues is crucial to any reorganization of
the Debtors and, if not resolved through compromise and settlement may result in
a substantial delay and expense pending their judicial determination.
The Debtors believe that the compromises and settlements
embodied in the Plan give due consideration to the strengths and weaknesses of
potential litigation arguments made by Tricon and that with respect to such
disputes, the distribution to any particular creditor is no better than the best
possible judicial determination in favor of such creditor while being no less
than the worse possible outcome. Accordingly, the Debtors believe the
compromises embodied in the Plan are within the range of likely results in the
event each issue was pursued to judgment.
C. Determination of Amounts Allocated to General Unsecured Claims
The Plan provides that General Unsecured Claims in Class 8,
which includes trade claims, among others, will receive a formula-based recovery
after the full satisfaction in accordance with the terms of the Plan of: (a)
amounts payable in connection with the
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administration of the Post-Confirmation Estate and (b) Claims senior in priority
to General Unsecured Claims. The rationale for this proposed recovery is
discussed below.
1. RATIONALE
The proposed distributions under the Plan to General Unsecured
Claims in Class 8 are based primarily upon the Debtors' assessment of potential
recoveries to unsecured creditors on a consolidated basis. Although the Debtors
believe that creditors dealt with particular entities, one objective of
effecting the compromise and settlement embodied in the Plan is to provide an
overall benefit to holders of General Unsecured Claims by making distributions
on a consolidated basis, that would be more certain than and exceed what they
would receive from a liquidation on an entity by entity basis. This is
particularly true based on the liens and priority claims granted to the Agent
for the benefit of the Tranche A Lenders, Tranche B Lender, the Senior Secured
Noteholders and to Tricon.
2. ALLOCATION OF DISTRIBUTIONS TO GENERAL UNSECURED CLAIMS
The allocation and recovery level proposed for General
Unsecured Claims was determined based upon an analysis of liquidation rights of
all Creditors. The value of assets available for distribution to all unsecured
creditors was determined by subtracting from total anticipated cash available
for distribution, projected allowed amounts for claims having priority over
General Unsecured Claims such as Administrative, Priority Tax, Priority Non-Tax,
PACA, Tranche A Lender and Tranche B Lender Claims as well as expenses of the
Post-Confirmation Estate.
THE PLAN IS ANNEXED HERETO AS EXHIBIT "A" AND IS AN INTEGRAL
PART OF THIS DISCLOSURE STATEMENT. THE SUMMARY OF THE PLAN SET FORTH HEREIN 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.
D. Classification and Treatment of Claims and Interests Under the Plan.
1. CLASSIFICATION
The Plan divides the Claims against, and the Interests in, the
Debtors into the following classes:
Unclassified -- Administrative Expense Claims
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Unclassified -- Priority Tax Claims
Class 1 -- PACA Claims
Class 2 -- Priority Non-Tax Claims
Class 3 -- Secured Claims
Class 4 -- Tranche A Lender Claims
Class 5 -- Tranche B Lender Claims
Class 6 -- Senior Secured Noteholder Claims
Class 7 -- Tricon Claims
Class 8 -- General Unsecured Claims
Class 8A -- Claims Arising Under Senior AFD Indenture
Class 8B -- Claims Arising Under the Subordinated AFD Indenture
Class 8C -- General Unsecured Claims of Senior Secured Noteholders
Class 8D -- All Other General Unsecured Claims
Class 9 -- Reclamation Claims
Class 10 -- NEHC Claims
Class 11 -- Interests in Debtors
2. ADMINISTRATIVE EXPENSE CLAIMS
Administrative Expense Claims are costs or expenses of
administration of the Debtors' Chapter 11 Cases incurred prior to the Effective
Date and allowed under sections 503(b) and 507(a)(1) of the Bankruptcy Code,
including (a) any actual and necessary costs and expenses of preserving the
Debtors' estates or operating the Debtors' business, (b) indebtedness or
obligations incurred or assumed by the Debtors during the Chapter 11 Cases in
connection with the conduct of their business, (c) allowances of compensation
and reimbursement of expenses to the extent Allowed by Final Orders under
section 330 or 503(b) of the Bankruptcy Code, and (d) fees or charges assessed
against the Debtors' estates under 28 U.S.C. ss. 1930, but excluding Tricon
Claims.
Generally, on the later to occur of (a) the Effective Date and
(b) the date on which such Claim shall become an Allowed Claim, the Debtors or
the Post-Confirmation Estate, as applicable, 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 Debtors or the
Post-Confirmation Estate, as the case may be. On the Effective Date, there shall
be escrowed all estimated amounts relating to the Professional Compensation and
Reimbursement Claims (including all potential success fees) accrued and unpaid
through the Confirmation Date pending entry of a Final Order on each such
professional's fee applications in addition to any other success fees or change
of control fees owing by the Debtors.
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Section 503(b) of the Bankruptcy Code provides for
compensation for services rendered and reimbursement for expenses incurred by
the court-appointed professionals representing the Debtors and the Creditors'
Committee pursuant to section 330 or 331 of the Bankruptcy Code. Section 503(b)
also provides for payment to creditors and certain other persons and entities
who have served as a member of the Creditors' Committee or who have made a
"substantial contribution" to a reorganization case, and to attorneys and
accountants for such persons and entities. As of the date of this Disclosure
Statement, the Debtors have not been apprised of any party's intention to make a
request for payment on such bases other than certain of the indenture trustees.
The Debtors are unable to estimate the amount of Allowed
Administrative Expense Claims (including Professional Compensation and
Reimbursement Claims) as of the Effective Date because the Administrative Claims
Bar Date has not yet passed.
3. PRIORITY TAX CLAIMS
Priority Tax Claims are Allowed Claims of governmental units
for taxes owed by the Debtors that are entitled to priority in payment pursuant
to section 507(a)(8) of the Bankruptcy Code. The taxes entitled to priority are
(a) taxes on income or gross receipts that meet the requirements set forth in
section 507(a)(8)(A), (b) property taxes meeting the requirements of section
507(a)(8)(B), (c) taxes that were required to be collected or withheld by the
Debtors and for which the Debtors are liable in any capacity as described in
section 507(a)(8)(C), (d) employment taxes on wages, salaries, or commissions
that are entitled to priority pursuant to section 507(a)(3), to the extent that
such taxes also meet the requirements of section 507(a)(8)(D), (e) excise taxes
of the kind specified in section 507(a)(8)(E), (f) customs duties arising out of
the importation of merchandise that meet the requirements of section
507(a)(8)(F), and (g) prepetition penalties relating to any of the foregoing
taxes to the extent such penalties are in compensation for actual pecuniary loss
as provided in section 507(a)(8)(G).
The Plan provides that each Allowed Priority Tax Claim, at the
sole option and discretion of the Debtors or the Post-Confirmation Estate, will
be paid (a) in full, in Cash, on the Effective Date, (b) in accordance with
section 1129(a)(9)(C) of the Bankruptcy Code, which requires deferred cash
payments over a period not exceeding six years from the date of assessment of
the Claim, having a value as of the Effective Date equal to the allowed amount
of the Claim, or (c) by mutual agreement of the holder of such Allowed Priority
Tax Claim and the Plan Administrator.
The total dollar amount of Allowed Priority Tax Claims should
approximate Seven Million Dollars ($7,000,000).
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4. PACA CLAIMS (CLASS 1) -- UNIMPAIRED
PACA Claims are Claims asserted pursuant to the Perishable
Agricultural Commodity Act, 7 U.S.C. ss.499a ET SEQ., the Packers and Stockyards
Act, 7 U.S.C.ss.181 ET SEQ., or state statutes of similar import.
Class 1 is unimpaired under the Plan, and pursuant to section
1126(f) of the Bankruptcy Code, each holder of an Allowed PACA Claim is
conclusively presumed to have accepted the Plan and may not vote with respect
thereto.
TREATMENT. Each holder of an Allowed PACA Claim shall be paid
the full amount of its Allowed PACA Claim in Cash from the PACA Account as soon
as practicable following the latest of (a) the Effective Date (b) the date each
PACA Claim becomes an allowed Claim and (c) such other date as may be agreed
upon by the Debtors or the Post-Confirmation Estate and the holder of the
Allowed PACA Claim. Such payment is in full satisfaction of all claims of PACA
Claimants, including Claims assertable against the Debtors and any claims
assertable against non-Debtors.
The Debtors estimate that they will have paid $30,000,000 in
Allowed PACA Claims as of the Effective Date and that, after taking into account
such payment, $22.0 million in PACA Claims will be outstanding as of the
Effective Date. To ensure that the PACA Account contains the maximum amount
recoverable by holders of PACA Claims, including interest, fees and costs, the
Debtors estimate that an additional $3.5 million will be deposited into the PACA
Account.
5. PRIORITY NON-TAX CLAIMS (CLASS 2) -- UNIMPAIRED
Priority Non-Tax Claims are Unsecured Claims, other than
Administrative Expense Claims and Priority Tax Claims, entitled to priority in
payment pursuant to section 507(a) of the Bankruptcy Code. Such Claims include
Claims for (a) wages, salaries or commissions as described and limited in
section 507(a)(3), (b) contributions to employee benefit plans as described and
limited in section 507(a)(4) and (c) deposits of money by individuals in
connection with the purchase, lease or rental of property or the purchase of
services for personal, family or household use as described and limited in
section 507(a)(6).
Class 2 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. Unless otherwise mutually agreed upon by the holder
of an Allowed Priority Non-Tax Claim and the Debtors or the Post-Confirmation
Estate, each
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holder of an Allowed Priority Non-Tax Claim will receive Cash in an amount equal
to such Allowed Priority Non-Tax Claim on the later of the Effective Date and
the date such Allowed Priority Non-Tax Claim becomes an Allowed Priority Non-Tax
Claim, or as soon thereafter as is practicable. The Debtors estimate that
Allowed Priority Non-Tax Claims will not exceed Four Million Four Hundred
Thousand Dollars ($4,400,000).
The Debtors do not believe that they will have any health care
continuation coverage liability under Section 4980B of the Tax Code ("COBRA")
after the date that all of the Debtors' group health plans are terminated. While
the Debtors are required to make COBRA continuation coverage available to their
employees under their health plans until such health plans are terminated, the
Debtors are permitted to and may charge their employees for up to 102% of the
cost of such COBRA continuation coverage.
From and after the Effective Date, other than with respect to
individuals with whom the Debtors have agreed to lump sum claim amounts in
respect of future retiree benefits, pursuant to section 1129(a)(13) of the
Bankruptcy Code, the Post-Confirmation Estate will continue to pay all "retiree
benefits," 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 Debtors
have obligated themselves to provide such benefits. As defined in section
1114(a) of the Bankruptcy Code, retiree benefits are payments to any entity or
person for the purpose of providing or reimbursing payments for retired
employees and their spouses and dependents, for medical, surgical or hospital
care benefits, or benefits in the event of sickness, accident, disability or
death under any plan, fund or program (through the purchase of insurance or
otherwise) maintained or established in whole or part by a debtor prior to the
filing of a petition for relief under chapter 11. The Debtors do not believe
they will have any "retiree benefits" obligations on or after the Confirmation
Date.
6. SECURED CLAIMS (CLASS 3) -- UNIMPAIRED
A Secured Claim is a Claim against the Debtors, other than a
Lender Claim, 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 3 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. Each holder of an Allowed Secured Claim will
receive, at the election of the Debtors to be noticed to the holder on or before
the Confirmation Date, one
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of the following: (a) payment of such holder's Allowed Secured Claim in full, in
Cash; (b) proceeds from the sale or disposition of the Collateral to the extent
of the value of their respective interests in such property; (c) surrender of
the Collateral; or (d) such other distributions as shall be necessary to satisfy
the requirements of chapter 11 of the Bankruptcy Code.
The Debtors estimate the dollar amount of Allowed Secured
Claims to be zero.
7. TRANCHE A LENDER CLAIMS (CLASS 4) -- IMPAIRED
Tranche A Lender Claims are Claims of the Agent, in its
capacity as agent for the Tranche A Lenders, and the Tranche A Lenders arising
from or related to (i) that certain Fifth Amended and Restated Credit Agreement,
dated as of December 8, 1999, by and among AFD, the Agent, the Tranche A
Lenders, the Tranche B Lender, and Finco and any of the documents and
instruments related thereto, including, without limitation, fees, costs and
expenses associated with rights and remedies thereunder, (ii) the Parent
Guaranty and (iii) the Subsidiary Guaranty.
Class 4 is impaired under the Plan and, pursuant to section
1126(a) of the Bankruptcy Code, is entitled to vote on the Plan.
TREATMENT. On the Effective Date, each holder of an Allowed
Tranche A Lender Claim shall receive the payment of such holder's Pro Rata Share
of Cash in an amount equal to the unpaid principal balance owed to the Tranche A
Lender on the Effective Date plus accrued interest at the non-default contract
rate of 11.5% per annum on the unpaid portion of the principal balance owed to
the Tranche A Lenders as of the Effective Date. On the Effective Date, the
Post-Confirmation Estate shall deposit Cash into a reserve account (the "Tranche
A Reserve") in an amount equal to the unpaid professional fees asserted by the
Tranche A Lenders pending the allowance of such fee claims pursuant to section
506 of the Bankruptcy Code. The distributions to the Tranche A Lenders on the
Effective Date and the funding of the Tranche A Reserve shall constitute a full
satisfaction of any Claims held by the Tranche A Lenders, and shall fully
satisfy any claims assertable by the Tranche A Lenders (or the Agent acting on
behalf of the Tranche A Lenders) in respect of the Collateral Support
Reimbursement Obligations or the Tricon Prepetition Receivable.
The Tranche A Lender Claims shall be deemed allowed in the
aggregate amount of (y) the sum of (i) One Hundred Twenty Two Million Four
Hundred Thousand Dollars ($122,400,000), (ii) all reasonable fees, costs and
expenses incurred by the Tranche A Lenders as agreed to by Debtors or the Plan
Administrator (or, if no such agreement is reached, then as decided by the
Bankruptcy Court) and (iii) accrued interest
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on the unpaid portion of the principal balance owed to the Tranche A Lenders at
the non-default contract rate relating to the period up to but not including the
Effective Date (it being understood that the Debtors (and, therefore, the
Post-Confirmation Estate) reserve their right to contest the application of
payments made on account of interest) minus (z) all amounts paid to the Agent
and the Tranche A Lenders on or after the Petition Date on account of their
Claims. Notwithstanding the allowance provided above, the Debtors (and,
therefore, the Post-Confirmation Estate) expressly reserve any and all Secured
Lender Causes of Action against, among others, Bank of America Securities L.L.C.
8. TRANCHE B LENDER CLAIMS (CLASS 5) -- UNIMPAIRED
Tranche B Lender Claims are Claims of the Tranche B Lenders
arising from or related to (i) that certain Fifth Amended and Restated Credit
Agreement, dated as of December 8, 1999, by and among AFD, the Agent, the
Tranche A Lenders, the Tranche B Lender, and Finco and any of the documents and
instruments related thereto, including, without limitation, fees, costs and
expenses associated with rights and remedies thereunder, (ii) the Parent
Guaranty and (iii) the Subsidiary Guaranty.
Class 5 is unimpaired under the Plan, and pursuant to section
1126(f) of the Bankruptcy Code, each holder of a Tranche B Lender Claim is
conclusively presumed to have accepted the Plan and may not vote with respect
thereto.
TREATMENT. On the Effective Date, the Debtors shall deposit
Cash into a reserve account (the "Tranche B Reserve") for the benefit of the
Tranche B Lenders in an amount equal to One Hundred Million Dollars
($100,000,000) plus unpaid interest at the default contract rate of 15% per
annum accrued during the period beginning on the Petition Date and ending on the
Effective Date (the "Tranche B Interest"). The Tranche B Lender Claims shall be
paid from the Tranche B Reserve when and to the extent such Claims become
Allowed Tranche B Lender Claims by Final Order of the Bankruptcy Court. The
funding of the Tranche B Reserve shall constitute a full satisfaction of any
Claims held by the Tranche B Lenders, and shall fully satisfy any Claim
assertable by the Tranche B Lenders (or the Agent acting on behalf of the
Tranche B Lenders) in respect of the Collateral Support Reimbursement
Obligations or the Tricon Prepetition Receivable. The Debtors (and, therefore,
the Post-Confirmation Estate) expressly reserve any and all Secured Lender
Causes of Action as they may pertain to the Tranche B Lender. In the event that
all or a portion of the Tranche B Lender Claims are disallowed or subordinated
to the rights of other Creditors, the portion of Tranche B Reserve proceeds that
are so disallowed or subordinated will be distributed in accordance with the
Final Order disallowing or subordinating such Claims.
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9. SENIOR SECURED NOTEHOLDER CLAIMS (CLASS 6) -- IMPAIRED
Senior Secured Noteholder Claims are Claims of the holders of
the Senior Secured Notes and the Senior Secured Indenture Trustee arising from
or related to (i) that certain Fifth Amended and Restated Credit Agreement,
dated as of December 8, 1999, by and among AFD, the Agent, the Tranche A
Lenders, the Tranche B Lender, and Finco and any of the documents and
instruments related thereto, including, without limitation, fees, costs and
expenses associated with rights and remedies thereunder, (ii) the Parent
Guaranty and (iii) the Subsidiary Guaranty.
Class 6 is impaired under the Plan and, pursuant to section
1126(a) of the Bankruptcy Code, is entitled to vote on the Plan.
TREATMENT. On the Effective Date, the Debtors will distribute
(a) to the Senior Secured Indenture Trustee, Cash in an amount equal to 32.5% of
the face amount (i.e. $205 million) of the Senior Secured Noteholder Claims
MINUS the sum of (i) 50% of the Tranche B Interest (such percentage, the
"Noteholder Proportion"), and (ii) the Ad Hoc Senior Secured Noteholder
Committee Professional Fees, and (b) to the Ad Hoc Senior Secured Noteholder
Committee Professionals, the Ad Hoc Senior Secured Noteholder Committee
Professional Fees.
The Senior Secured Indenture Trustee shall distribute to the
Senior Secured Noteholders their Pro Rata Share after making all necessary
adjustments for payments previously paid by members of the Ad Hoc Senior Secured
Noteholder Committee to the Ad Hoc Senior Secured Noteholder Committee
Professionals. Subsequent to the Effective Date, but no less than every ninety
(90) days following the Effective Date, the amount of Cash in the PACA Account
equal to the amount of all PACA Claims that are disallowed or reduced by order
of the Bankruptcy Court during such ninety (90) day period shall be distributed
as follows: First, to Tricon until Tricon has been repaid an amount that is
equal to the difference between (i) the amounts on deposit in or deposited into
the PACA Account on the Effective Date plus the aggregate distributions made to
PACA Claimants prior to the Effective Date minus (ii) $55 million; and second,
to the Senior Secured Indenture Trustee for the benefit of (and for pro rata
distribution to) the Senior Secured Noteholders (net of the amount of any
outstanding Ad Hoc Senior Secured Noteholder Committee Professional Fees which
amount shall first be paid to such professionals). In no event shall the Senior
Secured Noteholders have any obligation to fund the PACA Claims.
In addition, the Noteholder Proportion shall be refunded to
the Senior Secured Noteholders on the following terms: (i) if and to the extent
that the Tranche B Lender Claims relating to Tranche B Interest are disallowed
by a Final Order, the Senior Secured Noteholders shall be entitled to receive
the Noteholder Proportion; (ii) if Tranche B Lender Claims as to Tranche B
Interest are allowed and (x) there is no Tranche B Recovery, then no later than
five (5) days following the entry of a Final Order determining claims relating
to the Tranche B Recovery, the Senior Secured Noteholders shall receive a refund
from Tricon in an amount equal to the Noteholder Proportion; (y) if there is a
Tranche B Recovery and it is equal to or greater than the Noteholder Proportion,
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then the Senior Secured Noteholders shall not be entitled to any refund of the
Noteholder Proportion; and (z) if there is a Tranche B Recovery and it is less
than the Noteholder Proportion, then no later than five (5) days following the
entry of a Final Order determining claims relating to the Tranche B Recovery,
the Senior Secured Noteholders shall receive a refund of the difference between
such Tranche B Recovery and the remaining Noteholder Proportion. Any refund of
the Noteholder Proportion shall be paid to the Senior Secured Indenture Trustee
for pro rata distribution to the Senior Secured Noteholders, except that, in
calculating a Senior Secured Noteholder's Pro Rata Share of such refund, the
Senior Secured Indenture Trustee shall reduce a Senior Secured Noteholder's
share by the amount of any Tranche B Recovery. For purposes of the foregoing,
any subordination of the Tranche B Lender Claims to the Senior Secured Notes
shall be a Tranche B Recovery of the Noteholder Proportion to the extent of such
subordination if so ordered by a Final Order and, to the extent that the Senior
Secured Noteholders become entitled to a portion (or all) of the Tranche B
Interest as a consequence of the subordination (whether partial or whole) of the
Tranche B Lender Claims to the Senior Secured Notes, the Senior Secured
Noteholders shall waive such Tranche B Interest. The Senior Secured Noteholders
will accept the distributions to the Senior Secured Noteholders or for their
benefit, as described herein (the "Noteholder Distribution"), in full
satisfaction of any claims assertable by the Senior Secured Noteholders (or the
Agent acting on behalf of the Senior Secured Noteholders) in respect of the
Collateral Support Obligations or the Tricon Prepetition Receivable.
After giving effect to the Noteholder Distribution, the Senior
Secured Notes shall be allowed as secured claims to the extent of the value of
any remaining Collateral (if any) and as General Unsecured Claims to the extent
of any deficiency in an amount equal to the difference between the unpaid
principal amount of plus accrued and unpaid interest on Claims on the Petition
Date and the sum of the payments equaling the Noteholder Distribution; provided,
however, that nothing in the Plan shall in any way limit or impair the Senior
Secured Noteholders' rights (if any) to recover the funds reserved for the
Tranche B Lenders if and to the extent the Senior Secured Noteholders succeed in
equitably subordinating the Tranche B Lender Claims only to the Senior Secured
Notes and shall not impair the Senior Secured Noteholders' rights (if any) to
recover amounts payable to the Tranche B Lenders in the event that the Tranche B
Lender Claims are equitably subordinated to the Senior Secured Noteholder Claims
and not to any other Creditors.
Subject to any superior liens to the extent not satisfied in
full pursuant to the Plan, the liens securing the Senior Secured Notes will
attach to the proceeds to be distributed to or reserved for the PACA Claims and
the Secured Lenders under the Plan to the extent of the allowed secured claim of
the Senior Secured Noteholders, without prejudice to any party's rights to
challenge the amount of such secured claim.
10. TRICON CLAIMS (CLASS 7) -- IMPAIRED
Tricon Claims are all Claims by Tricon that Tricon asserts are
entitled to treatment other than as an Unsecured Claim and include the
following: (i) the DIP Facility Claim, (ii) the Reimbursement Claim, (iii) the
Collateral Support Reimbursement Obligations, (iv) the Excess Transition Costs
(if any) and (v) the Post-Confirmation Administrative Expense Advances.
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Class 7 is impaired under the Plan and, pursuant to section
1126(a) of the Bankruptcy Code, is entitled to vote on the Plan.
ALLOWANCE. The Tricon Claims shall be allowed as first
priority claims in the amount of Two Hundred Twenty Million Dollars
($220,000,000) and shall be paid in the manner specified below. In addition,
Tricon shall be entitled to receive the non-recourse recoveries specified below,
which non-recourse recoveries will not reduce Tricon's $220 million priority
claim.
NON-RECOURSE RECOVERIES. Tricon shall be entitled to receive
(i) all funds (if any) remaining in the Tranche A Reserve after a Final Order is
entered in respect of the Tranche A Lender Claims, (ii) fifty percent (50%) of
that portion (if any) of the Tranche B Interest that is disallowed by Final
Order, (iii) funds, if any, remaining in the PACA Account after the satisfaction
in full of all allowed PACA Claims equal in amount to the amounts funded into
the PACA Account on the Effective Date in excess of the Target PACA Amount, (iv)
all funds reserved for Administrative Expense Claims, Priority Tax Claims and
Priority Non-Tax Claims, in each case to the extent any such Claims are
disallowed by Final Order, and (v) all Cash and other recoveries (net of
recovery costs) in respect of Encumbered Residual Assets realized by the
Post-Confirmation Estate or Tricon.
PROCEEDS OF POST-CONFIRMATION ESTATE ASSETS. Net recoveries
realized by the Post-Confirmation Estate resulting from the liquidation of the
Post-Confirmation Estate Assets (other than Encumbered Residual Assets) shall be
distributed as follows: First, to Tricon until Tricon has been reimbursed for
all Post-Confirmation Administrative Expense Advances and litigation expenses
advances extended by Tricon. Second, to Tricon until Tricon has been reimbursed
for all priority claim reserves funded by Tricon in excess of the Base Reserve
Amount, but only to the extent that such excess priority claims are allowed.
Third, to a reserve maintained by the Plan Administrator, in accordance with the
terms of the Post-Confirmation Estate Agreement, to fund prospective
Post-Confirmation Administrative Expense Advances. And fourth, all remaining net
recoveries shall be shared between Tricon and holders of Allowed General
Unsecured Claims according to the following chart until such time as Tricon has
received, in addition to the reimbursements prescribed above and the
non-recourse recoveries specified above, $220 million:
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- ---------------------------------------------------------------------------------------------
PERCENTAGE SPLIT ON NET RECOVERIES BETWEEN
ALLOWED TRICON CLAIMS AND
ALLOWED GENERAL UNSECURED CLAIMS
- ---------------------------------------------------------------------------------------------
Net Recovery Amount Allowed Tricon Claims Allowed General Unsecured Claims
- ---------------------------------------------------------------------------------------------
Up to $50 million 80% 20%
- ---------------------------------------------------------------------------------------------
Next $50 million 70% 30%
- ---------------------------------------------------------------------------------------------
Next $50 million 60% 40%
- ---------------------------------------------------------------------------------------------
Next $50 million 60% 40%
- ---------------------------------------------------------------------------------------------
Next $50 million 50% 50%
- ---------------------------------------------------------------------------------------------
Next $50 million 40% 60%
- ---------------------------------------------------------------------------------------------
Next $50 million 40% 60%
- ---------------------------------------------------------------------------------------------
Next $50 million 40% 60%
- ---------------------------------------------------------------------------------------------
Additional Net Recoveries 0% All Additional Net Recoveries
- ---------------------------------------------------------------------------------------------
11. GENERAL UNSECURED CLAIMS (CLASS 8) -- IMPAIRED
General Unsecured Claims are Claims that are not Intercompany
Claims, NEHC Claims, Administrative Expense Claims, Priority Tax Claims, PACA
Claims, Priority Non-Tax Claims, Secured Claims, Tranche A Lender Claims,
Tranche B Lender Claims, Tricon Claims, Reclamation Claims or Senior Secured
Noteholder Claims (to the extent such claims received distributions in
accordance with their treatment under Class 6 of the Plan). General Unsecured
Claims are divided into four separate subclasses - subclasses 8A, 8B, 8C and 8D
- - each of which is treated identically in the Plan. Subclass 8A consists of
Claims arising under the Senior AFD Indenture. Subclass 8B consists of Claims
arising under the Subordinated AFD Indenture. Subclass 8C consists of General
Unsecured Claims of the Senior Secured Noteholders. Subclass 8D consists of all
other General Unsecured Claims.
Class 8 is impaired under the Plan and, pursuant to section 1126(a) of the
Bankruptcy Code, is entitled to vote on the Plan.
TREATMENT OF GENERAL UNSECURED CLAIMS. Each subclass in Class
8 shall be treated as a separate class for voting purposes. Commencing on the
Effective Date, each holder of an Allowed General Unsecured Claim shall be
entitled to receive such holders' Pro Rata Share of net recoveries realized by
the Post-Confirmation Estate resulting from the liquidation of the
Post-Confirmation Estate Assets (other than Encumbered Residual Assets)
according to the chart in Section 10 remaining after the full satisfaction of
amounts payable (a) in connection with the administration of the
Post-Confirmation Estate or otherwise payable under the Post-Confirmation
Estate, (b) on account of (or reserved on account of) Post-Confirmation
Administrative Expenses Advances and (c) otherwise payable under the
Post-Confirmation Agreement.
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Distributions to holders of Subclass 8A Claims (e.g., holders
of the 8 7/8% Senior Unsecured Notes) shall be payable, first to the Senior AFD
Indenture Trustee in satisfaction of the Senior AFD Indenture Trustee's Claims
arising under the Senior AFD Indenture. Distributions to holders of Subclass 8B
Claims (e.g., the 10 1/8% Senior Subordinated Notes) shall be payable, first, to
the Subordinated AFD Indenture Trustee in satisfaction of the Subordinated AFD
Indenture Trustee's Claims arising under the Subordinated AFD Indenture. Tricon
shall be deemed to waive and release any right of recovery it may have on
account of any Unsecured Claims.
The Debtors estimate the dollar amount of Allowed General
Unsecured Claims to be One Billion Eight Hundred Sixty Five Million Dollars
($1,865,000,000). It is impossible to predict with any degree of certainty the
range of recoveries available to General Unsecured Claimants due to the
speculative nature of the Bankruptcy Causes of Action. Accordingly, recoveries
on account of Allowed General Unsecured Claims could be as low as zero.
12. RECLAMATION CLAIMS (CLASS 9) -- IMPAIRED
Reclamation Claims are Claims arising out of a vendor sale and
delivery of goods to the Debtors prior to the Petition Date and in the ordinary
course of such vendor's business, as to which goods the vendors demanded in
writing reclamation within 10 days after receipt of such goods by the Debtors
(or if such 10-day period expires after the Petition Date, before 20 days after
receipt of such goods by the Debtors), and, at the time reclamation was
demanded, the Debtors had such goods in their possession with respect to which
the vendor would have been entitled to relief under section 546(c) of the
Bankruptcy Code if the Debtors had been insolvent at the time of deliver of such
goods; provided however, that the treatment of Reclamation Claims in the Plan
shall not be deemed an admission of the insolvency of the Debtors or evidence
thereof. All Reclamation Claims shall be Class 9 Claims and shall, to the extent
they are Allowed Reclamation Claims, be deemed to be secured claims, secured by
a lien pursuant to section 546(c)(2)(B) of the Bankruptcy Code in the goods
sought to be reclaimed junior to the liens in such property granted to the
Agent.
Class 9 is impaired under the Plan and, pursuant to section
1126(a) of the Bankruptcy Code, is entitled to vote on the Plan.
TREATMENT OF RECLAMATION CLAIMS. Commencing on the Effective
Date, each holder of an Allowed Reclamation Claim shall be entitled to receive
distributions as if such holder held an Allowed General Unsecured Claim in an
amount equal to 2 1/2 times the allowed amount of such holder's Reclamation
Claim. For example, an Allowed Reclamation Claim in the amount of One Million
Dollars ($1,000,000) will be treated under the Plan, for purposes of
distribution only, as holding as Allowed General Unsecured Claim in the amount
of Two Million Five Hundred Thousand Dollars ($2,500,000).
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Notwithstanding the foregoing, in the event that any
Reclamation Claimant (i) objects to the Plan, (ii) votes not to accept the Plan,
(iii) after November 1, 2000 (which date may be extended at the Debtors' sole
and absolute discretion) seeks treatment of such Claim in any manner
inconsistent with the settlement described herein or (iv) that has objected to
the Debtors' Motion for Further Order Establishing Procedure for Valuation of
Allowed Reclamation Claims filed on September 13, 2000 and has not withdrawn
such objection on or before November 1, 2000 (which date may be extended at the
Debtors' sole and absolute discretion), then such Reclamation Claimant shall be
entitled to receive distributions on account of the allowed portion of such
Reclamation Claim as if such holder had an Allowed General Unsecured Claim equal
to the amount of such Allowed Reclamation Claim rather than equal to 2 1/2 times
such amount.
The Debtors estimate the dollar amount of Allowed Reclamation
Claims to be Sixty Three Million Dollars ($63,000,000). It is impossible to
predict with any degree of certainty the range of recoveries available to
General Unsecured Claimants due to the speculative nature of the Bankruptcy
Causes of Action. Accordingly, recoveries on account of Allowed General
Unsecured Claims could be as low as zero.
13. NEHC CLAIMS (CLASS 10) -- IMPAIRED
A NEHC Claim is any Claim, against NEHC (including, but not
limited to, Claims relating to the 12_% Senior Discount Notes).
Class 9 is impaired under the Plan and, pursuant to section
1126(a) of the Bankruptcy Code, is entitled to vote on the plan.
TREATMENT. On the Effective Date, each holder of an Allowed
NEHC Claim will receive such holder's Pro Rata Share of Post-Confirmation Estate
Assets remaining after the full satisfaction in accordance with the terms of the
Plan of (a) amounts payable in connection with the administration of the
Post-Confirmation Estate, (b) Allowed General Unsecured Claims and (c) Allowed
Reclamation Claims. Distributions shall be payable, first, to the Subordinated
NEHC Indenture Trustee in satisfaction of the Subordinated NEHC Indenture
Trustee's claims arising under the Subordinated NEHC Indenture.
The Debtors estimate that Allowed NEHC Claims will equal One
Hundred One Million Dollars ($101,000,000).
14. INTERESTS IN DEBTORS (CLASS 11) -- IMPAIRED
Interests in the Debtors are all Interests in NEHC, AFD, HWPI,
PSD Transportation, ATI, CCC, ASNSC, Delta Transportation, PSC Services, NTSI,
ProSource Mexico, NAVC Corp., North American Vantix Corp. and Vantix Logistics.
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Class 10 is impaired under the Plan, and pursuant to Section
1126(f) of the Bankruptcy Code, the holders of Interests in the Debtors are
conclusively presumed to have rejected the Plan and may not vote with respect
thereto.
CANCELLATION OF INTERESTS. All NEHC Interests, AFD Interests,
HWPI Interests, PSD Transportation Interests, ATI Interests, CCC Interests,
ASNSC Interests, Delta Transportation Interests, PSC Services Interests, NTSI
Interests, ProSource Mexico Interests, NAVC Corp. Interests, North American
Vantix Corp. Interests and Vantix Logistics Interests shall be deemed
extinguished and the certificates and all other documents representing such
Interests shall be deemed canceled and of no force and effect. On the Effective
Date, the Plan Administrator shall administer the assets of each such Entity in
accordance with the provisions of the Plan.
E. Securities Law Matters
Section 1145(a) of the Bankruptcy Code generally exempts from
registration the issuance of securities if the following conditions are
satisfied: (i) the securities are issued by a debtor (or its successor) under a
plan of reorganization; (ii) the recipients of securities hold a claim against,
an interest in, or a claim for an administrative expense against the debtor; and
(iii) the securities are issued entirely in exchange for the recipient's claim
against or interest in the debtor, or are issued principally in such exchange
and partly for cash and property. Section 4(2) of the Securities Act generally
exempts from such registration private transactions by an issuer that do not
involve a public offering.
With respect to the Post-Confirmation Estate, the Debtors
believe that (i) the Post-Confirmation Estate is a "successor" to the Debtors
within the meaning of section 1145(a)(1) of the Bankruptcy Code and (ii) the
offer and sale of interests in the Post-Confirmation Estate 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 non-registration 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. The
Debtors believe that the organization of the Post-Confirmation Estate and the
issuance of interests in the Post-Confirmation Estate pursuant to the Plan is
consistent with the relevant facts set forth in such no-action requests.
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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, where
certain conditions were met, including where (i) 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 the bankruptcy court, and (ii) the beneficial interests in
such entity were not transferable. The Debtors believe that most of the
foregoing conditions will be satisfied with respect to the Post-Confirmation
Estate. Moreover, since interests in the Post-Confirmation Estate will be
nontransferable in accordance with their terms, the Debtors believe the resale
provisions of section 1145 of the Bankruptcy Code do not apply to such interests
for which there will be no market.
F. Provisions Governing Plan Implementation
1. SALE OF ASSETS
The Debtors shall consummate the sale of substantially all of
the Debtors' assets that are used by the Debtors to distribute food products and
restaurant supplies to Taco Bell, Kentucky Fried Chicken, Pizza Hut, and Long
John Silver's, in the 48 contiguous United States pursuant to the terms of the
McLane Purchase Agreement in connection with the Sale Transaction or an
Alternative Sale Transaction.
2. FUNDING OF THE PLAN
On the Effective Date, the Debtors shall convey, transfer,
assign and deliver the assets purchased by McLane in connection with the Sale
Transaction or such offeror who submits a higher and better offer pursuant to
the terms of the Alternative Sale Transaction free and clear of all liens and
interests in exchange for the McLane Purchase Price or the purchase paid price
pursuant to the terms of the Alternative Sale Transaction, as the case may be.
Subject to the other provisions of the Plan, on the Effective
Date Tricon will fund to the Debtors (the "Tricon Funding"), for the benefit of
the Debtors and the Creditors, Cash in an amount which, when added to the McLane
Proceeds or the purchase price paid pursuant to the Alternative Sale Transaction
and the Debtors' Cash on hand immediately prior to the closing of the Sale
Transaction or the Alternative Sale Transaction, equals the sum of the
following:
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(i) the difference between (y) Fifty Five Million Five
Hundred Thousand Dollars ($55,500,000) and (z) the
sum of aggregate distributions to PACA Claimants
prior to the Effective Date and the amount of Cash in
the PACA Account on the Effective Date;
(ii) the amount in which the Tranche A Lender Claims shall
be deemed allowed in accordance with Section 9.1 of
the Plan;
(iii) One Hundred Million Dollars ($100,000,000) in respect
of the loan made by the Tranche B Lender to the
Debtors (net of any reserves held for the Tranche B
Lender);
(iv) fifty percent (50%) of the Tranche B Interest;
(v) thirty two and one half percent (32.5%) of the face
amount (i.e., $205 million) of the Senior Secured
Notes;
(vi) if the Tranche B Recovery is less than the Noteholder
Proportion that is reserved for (or has been paid in
respect of allowed) Tranche B Interest and Tranche B
Interest has not otherwise been refunded to the
Senior Secured Noteholders, then the amount equal to
the difference between the Tranche B Recovery and the
Noteholder Proportion;
(vii) Claims that the Debtors are required to pay or
reserve for on the Effective Date (in accordance with
the pre-Effective Date budget); and
(viii) Projected expenses relating to (A) the wind down of
the Debtors' operations in accordance with the
Post-Effective Date Administrative Expense Budget and
(B) the operation of the Post-Confirmation Estate.
Tricon also shall fund Two Million Dollars
($2,000,000) for litigation expenses on the Effective
Date and, upon the request of the Plan Administrator,
fund Three Million Dollars ($3,000,000) as and when
necessary in the Plan Administrator's reasonable
discretion.
In consideration for the Tricon Funding, (i) the lawsuit
titled Case No. 00-597 (PJW); United States Bankruptcy Court, District of
Delaware; AMERISERVE FOOD DISTRIBUTION, INC., AMERISERVE FUNDING CORP., ET AL.
V. TRICON GLOBAL RESTAURANTS, INC. shall be dismissed with prejudice within five
(5) Business Days after the Effective Date, (ii) the Debtors shall remit to
Tricon the net Cash proceeds of the Encumbered Residual Assets, (iii) the
Debtors shall pay Tricon an amount of the Tricon Claims in the manner provided
in Sections 12.2 and
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12.3 of the Plan and (iv) the Debtor shall provide for the release in favor of
Tricon described herein.
Nothing contained in this Disclosure Statement or the Plan
shall, and Tricon's commitment to provide the Tricon Funding shall not,
constitute an admission by the Debtors (or Tricon) that (i) the Collateral
securing the Claims of the Secured Lenders has a value in excess of the combined
Claims of the holders of PACA Claims, the Tranche A Lender Claims and the
Tranche B Lender Claims; or (ii) all of the McLane Proceeds constitute proceeds
of the Secured Lender's Collateral.
3. FLOW OF FUNDS AT CLOSING
Once Tricon has fully funded the Tricon Funding, the Debtors
shall (i) fund the PACA Account in an amount equal to the difference between the
PACA Cash Amount and the amount of Cash in the PACA Account on the Effective
Date, (ii) fund the Tranche B Reserve, (iii) fund 50% of the Tranche B Interest
and (iv) pay all Claims required to be paid on the Effective Date. The Debtors
will then transfer the Post-Confirmation Estate Assets (which include the
Debtors' interest in the PACA Account, the Tranche B Reserve and the Tranche B
Interest) to the Post-Confirmation Estate in accordance with the terms of the
Plan.
4. TRICON CONTRACT ASSUMPTIONS
On the Effective Date, Tricon and its franchisees constituting
at least 85% of the restaurants served by the Debtors for each of the Pizza Hut,
Kentucky Fried Chicken and Taco Bell concepts shall consent to the Debtors'
assumption and assignment to McLane of the distribution agreements of each of
them, as modified by the amendments annexed to the McLane Purchase Agreement.
These assumptions and assignments will neither diminish nor elevate the status
or priority of Tricon Unsecured Claims or those of its franchisees against the
Debtors (if any) that arose prior to the Petition Date. Other than McLane's
commitment to perform its obligations under the distribution agreements (as so
amended by the transactions to be consummated in connection with the execution
of the McLane Purchase Agreement), Tricon and Tricon franchisees waive any
requirement of adequate assurance of future performance under section 365 of the
Bankruptcy Code or otherwise in connection with the Sale Transaction.
5. CANCELLATION OF NOTES, INSTRUMENTS, DEBENTURES AND EQUITY SECURITIES
On the Effective Date, except to the extent provided otherwise
in the Plan, all notes, instruments, certificates and other documents evidencing
Claims and all Equity Securities in any of the Debtors shall be canceled and
deemed terminated other than the
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Senior Secured Notes. On the Effective Date, except to the extent provided
otherwise in the Plan, any indenture relating to any of the foregoing,
including, without limitation, the Senior AFD Indenture, the Subordinated AFD
Indenture and the Subordinated NEHC Indenture, shall be deemed canceled as
permitted by section 1123(a)(5)(F) of the Bankruptcy Code.
6. SURRENDER OF NOTES
Except as otherwise ordered by the Bankruptcy Court, in order
to receive any distribution under the Plan, each holder of an Unsecured Note
issued under an indenture will be required to surrender all of its notes to the
appropriate indenture trustee for cancellation. Failure to comply with such
requirements will bar a holder from receiving any distribution under the Plan.
Notwithstanding the foregoing, all such notes shall be deemed surrendered,
canceled and of no further force or effect as of the Effective Date, whether or
not such notes are delivered to the appropriate indenture trustee.
The manner and procedure to be followed for surrendering notes
and for providing necessary affidavits and bonds shall be prescribed by the
indenture trustees, upon reasonable notices sent to all holders of such notes.
DO NOT RETURN YOUR NOTES OR OTHER EVIDENCE OF INDEBTEDNESS WITH YOUR BALLOT.
7. SURVIVAL OF CERTAIN TERMS OF INDENTURES
Notwithstanding the termination of the indentures and notes
issued under any indenture, the provisions of the indentures governing the
relationships of the indenture trustee and their respective holders of notes,
including those provisions relating to distributions, the indenture trustees'
rights to payment, liens on property to be distributed to holders of such notes,
and the indenture trustees' rights of indemnity, if any, shall not be affected
by the confirmation of the Plan.
G. Provisions Governing Post-Confirmation Estate
1. PURPOSE OF POST-CONFIRMATION ESTATE
The Post-Confirmation Estate is a trust to be created on the
Effective Date in accordance with the provisions of the Plan and the
Post-Confirmation Estate Agreement attached as Exhibit 1 to the Plan for the
benefit of holders of Claims in Classes 6, 7, 8, 9 and 10 only to the extent
such holders in such Classes are entitled to distributions under the Plan. The
Post-Confirmation Estate is to be established for the primary 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, except to the
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extent reasonably necessary to, and consistent with, the liquidating purpose of
the Post-Confirmation Estate. The Post-Confirmation Estate is intended to
qualify as a "grantor trust" for federal income tax purposes with the
Beneficiaries treated as grantors and owners of the trust.
2. ESTABLISHMENT OF POST-CONFIRMATION ESTATE
On the Effective Date, the Debtors, on their own behalf and on
behalf of holders of Claims in Classes 6, 7, 8, 9 and 10 shall execute the
Post-Confirmation Estate Agreement and will take all other steps necessary to
establish the Post-Confirmation Estate. In particular, the Debtors will transfer
to the Post-Confirmation Estate all of their right title, and interest in the
Post-Confirmation Estate Assets. In connection with the transfer of these
assets, including rights and causes of action (including Bankruptcy 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 Post-Confirmation Estate shall vest in the
Post-Confirmation Estate and its representatives, and the Debtors and the
Post-Confirmation Estate are authorized to take all necessary actions to
effectuate the transfer of such privileges. As of the date hereof, the Debtors
are unable to state the value of the Post-Confirmation Estate Assets.
3. FUNDING OF POST-CONFIRMATION ESTATE
In addition to funding the Tricon Funding, Tricon will fund up
to Five Million Dollars ($5,000,000) to the Post-Confirmation Estate in the form
of a Post-Confirmation Administrative Expense Advance for the purpose of funding
costs associated with litigating and settling Bankruptcy Causes of Action and
any other causes of action. Tricon will fund Two Million Dollars ($2,000,000) to
the Post-Confirmation Estate on the Effective Date. The remaining Three Million
Dollars ($3,000,000) will be funded by Tricon from the proceeds of the Tranche B
Reserve or, if such proceeds are not timely available, then such amount will be
funded directly by Tricon. The Debtors shall have no obligation to provide any
funding with respect to the Post-Confirmation Estate after they transfer the
Post-Confirmation Estate Assets to the Post-Confirmation Estate. Any Cash in the
Post-Confirmation Estate shall be applied, first, to the fees, costs and
expenses of the Plan Administrator and any other fees, costs, expenses and
liabilities of the Plan Administrator, second, to satisfy any other
administrative and wind down expenses of the Post-Confirmation Estate and,
third, to reimburse Tricon for Post-Confirmation Administrative Expense
Advances; provided, however, that costs and expenses associated with the
realization of proceeds of Post-Confirmation Estate Assets (other than
Encumbered Residual Assets) shall be satisfied from proceeds of
Post-Confirmation Estate Assets other than Encumbered Residual Assets.
Similarly, the costs and expenses associated with the realization of proceeds of
Encumbered Residual Assets shall be satisfied from proceeds of Encumbered
Residual Assets or at Tricon's cost.
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4. GOVERNANCE AND ADMINISTRATION
The Post-Confirmation Estate will be administered by the Plan
Administrator, and any replacements thereafter selected in accordance with the
provisions of the Post-Confirmation Estate Agreement. It is the responsibility
of the Plan Administrator to determine in accordance with the Post-Confirmation
Estate Agreement whether to prosecute, compromise or discontinue any
Post-Confirmation Estate Claims of the Post-Confirmation Estate and the
liquidation of any Post-Confirmation Estate Assets.
5. PLAN ADMINISTRATOR
The Plan Administrator will be Ronald A. Rittenmeyer or a
limited liability company of which he is the managing member ("Rittenmeyer").
The Creditors' Committee and Tricon have agreed to the appointment of
Rittenmeyer as the Plan Administrator, pending agreement on mutually agreeable
terms. Rittenmeyer will be retained, as of the Effective Date, as the fiduciary
responsible for, among other things, insuring compliance with the Plan pursuant
to and in accordance with the provisions of the Plan and the Post-Confirmation
Estate Agreement. Mr. Rittenmeyer currently serves as President and CEO of AFD.
6. PRESERVATION OF RIGHTS OF ACTION
a. The Debtors are currently investigating whether to pursue
potential Bankruptcy Causes of Action against other Entities. Some or all of
such Entities may dispute or deny that Bankruptcy Causes of Action may be
brought against them and could assert defenses thereto. The investigation has
not been completed to date, and under the Plan, the Plan Administrator, on
behalf of the Post-Confirmation Estate, retains all rights on behalf of the
Debtors and the Post-Confirmation Estate to commence and pursue any and all
Bankruptcy Causes of Action (under any theory of law or equity, including,
without limitation, the Bankruptcy Code, and in any court or other tribunal
including, without limitation, in an adversary proceeding filed in the Chapter
11 Cases) discovered in such an investigation to the extent the Plan
Administrator, on behalf of the Post-Confirmation Estate, deems appropriate in
accordance with the terms of the Post-Confirmation Estate Agreement. Potential
Bankruptcy Causes of Action currently being investigated by the Debtors, which
may but need not (if at all), be pursued by the Debtors prior to the Effective
Date and by the Plan Administrator, on behalf of Post-Confirmation Estate, after
the Effective Date to the extent warranted, include, without limitation, the
following Bankruptcy Causes of Action set forth below:
o Any lawsuits for, or in anyway involving, the
collection of accounts receivable or any matter
related thereto including, without limitation,
against those parties listed on the Party in Interest
Matrix;
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o The lawsuit titled Case No. 71-181-00280-00; American
Arbitration Association Commercial Arbitration;
AMERISERVE FOOD DISTRIBUTION V. KING CONN
ENTERPRISES, INC., ET AL. and any other causes of
action arising out of the circumstances, events,
transactions or other facts giving rise to this
claims and/or causes of action in the above numbered
adversary proceeding;
o The lawsuit titled Case No. 71-Y-181-00281-00;
American Arbitration Association Commercial
Arbitration; AMERISERVE FOOD DISTRIBUTION, INC. V.
POTOMAC FOODS, INC. and any other causes of action
arising out of the circumstances, events,
transactions or other facts giving rise to this
claims and/or causes of action in the above numbered
adversary proceeding;
o The lawsuit titled Case No. 71-Y-181-00282-00;
American Arbitration Association, Commercial
Arbitration; AMERISERVE FOOD DISTRIBUTION, INC. V.
RON DEVINE, NOVA KING, INC., VIRGINIA FOODS, INC. AND
A/R FOODS and any other causes of action arising out
of the circumstances, events, transactions or other
facts giving rise to this claims and/or causes of
action in the above numbered adversary proceeding;
o The lawsuit titled Case No. 00-000618 (PJW); United
States Bankruptcy Court, District of Delaware;
AMERISERVE FOOD DISTRIBUTION, INC. V. JOHN HOLTEN,
HOLBERG INCORPORATED, HOLBERG INDUSTRIES INC., AND
NEBCO EVANS DISTRIBUTORS, INC. and any other causes
of action arising out of the circumstances, events,
transactions or other facts giving rise to this
claims and/or causes of action in the above numbered
adversary proceeding;
o The lawsuit titled Case No. 00-3601; District Court
of Dallas County, Texas, F-116th Judicial Circuit;
AMERISERVE FOOD DISTRIBUTION, INC. V. MBM
CORPORATION, RICK RUTH, AND ROY DERIDDER and any
other causes of action arising out of the
circumstances, events, transactions or other facts
giving rise to this claims and/or causes of action in
the above numbered adversary proceeding;
o The lawsuit titled AMERISERVE FOOD DISTRIBUTION, INC.
V. MARMIJA, INC., ROB-HIN, INC., HIN-ROB, INC.,
HINBO, INC. and any other causes of action arising
out of the circumstances, events, transactions or
other facts giving rise to this claims and/or causes
of action in the above numbered adversary proceeding;
o Potential claims for prepetition breaches of
fiduciary duty, negligent management and wasting of
corporate assets and corporate opportunity and/or
arising under the Debtors' Directors and Officers
Insurance policies against the Debtors' prepetition
directors and officers, among others;
o Any and all claims against the prepetition members of
the Debtors' Boards
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of Directors and/or officers, including, without
limitation, the right to equitably subordinate claims
held by such directors and officers pursuant to
section 510(c) of the Bankruptcy Code;
o Any and all claims, including, but not limited to,
breach of contract and breach of fiduciary duty
against DLJ in connection with various acquisitions
and debt offerings;
o Any and all fraudulent conveyance claims against
PepsiCo in any way related to the Debtors' purchase
of PFS, BKC (including without limitation against BKC
franchisees), and the shareholders of ProSource, Inc.
(including without limitation from Onyx) in any way
related to the Debtors' purchase of ProSource;
o Potential claims for breach of a prepetition contract
and otherwise related to actions or inactions by the
Debtors' prepetition consultants and service
providers, including, without limitation, JD Edwards
and other consultants, set forth on the Party in
Interest Matrix;
o All claims or causes of action against Holberg
Incorporated, Holberg Industries, Inc., NEDI, John
Holten and any of the foregoing entities' other
shareholders arising out of the more than $11 million
of intercompany receivables now listed as being owed
by NEDI to NEHC but which prior to December 8, 1999
were listed as receivables owed to NEHC and AFD;
o Claims arising out of, and in connection with, the
prepetition management, operation and/or reporting of
financial and other information against all persons
and entities having any responsibility with respect
thereto, whether such claims are legal, equitable or
statutory in nature; including, without limitation,
those claims listed on the Party in Interest Matrix;
o Claims to recover amounts improperly awarded to
employees under the terms of any prepetition
employment or change in control agreement, including,
without limitation, those listed on the Party in
Interest Matrix;
o All violations against third parties with respect to
prepetition violations of applicable federal or state
securities laws;
o All claims or causes of action arising out of or that
relate to prepetition acquisitions or financings;
o Any and all actual or potential breach of contract
claims against BKC and its franchisees related to the
amendment of the distribution contracts with the
Debtors and/or the termination/expiration thereof;
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o The collection of monies due from customers and
vendors listed on the Party in Interest Matrix;
o Any and all actual or potential breach of contract
claims against BKC, Restaurant Services, Inc. and
Chick-fil-A related to, among other things, the
amendment of the distribution contracts with the
Debtors and/or the termination/expiration thereof
and/or the termination by other customers, employees
and other business relations of their relationships
with the Debtors;
o Any and all actual or potential breach of contract
claims against BKC franchisees (and the owners
thereof) relating to nonpayment of accounts
receivable, including North Carolina Franchise Group,
North Illinois Franchise Group, Southern King
Enterprises, Cimm's, Inc., Virginia Cimm's, Inc.,
Hawaii Cimm's, Inc., Oahu Restaurants, Inc.,
Southwest Cimm's, Inc., Lawrence P. Cimmarusti,
Amilia M. Cimmarusti, Ralph J. Cimmarusti, Hallie D.
Cimmarusti and Sydran Systems, Inc.;
o Any and all actual or potential breach of contract
claims against Brinker International, RTM, Inc.,
Sybra, Inc., ICH Corporation, Main St. Mains, Inc.,
Carlson Restaurants Worldwide, Inc., TGI Friday's,
Inc., International Dairy Queen and/or any and all
customers who improperly exited the Debtors' system
and/or have improperly asserted or taken action
through setoff; and
o Any and all potential claims or causes of action
against NEDI, Holberg, Inc., Holberg Industries, Inc,
and their respective shareholders (including but not
limited to John Victor Holten) arising out of or
related to the accounts receivable balance of
approximately $11.3 million now listed as being owed
by NEDI to NEHC, but which prior to December 8, 1999
was owed by Holberg Industries, Inc. to NEHC and AFD.
b. In addition, potential Bankruptcy Causes of Action which
may be pursued by the Debtors prior to the Effective Date and by the Plan
Administrator, on behalf of the Post-Confirmation Estate after the Effective
Date, also include, without limitation the following:
o Any other actual or potential Bankruptcy Causes of
Action, whether legal, equitable or statutory in
nature, arising out of, or in connection with the
Debtors' businesses or operations, including, without
limitation, the following: possible claims against
vendors, landlords, sublessees, assignees, customers
or suppliers for warranty, indemnity, back
charge/set-off issues, overpayment or duplicate
payment issues and collections/accounts receivable
matters; deposits or other amounts owed by any
creditor, lessor, utility, supplier, vendor,
landlord, sublessee, assignee, or other entity;
employee, management or operational matters; claims
against landlords, sublessees and assignees arising
from the various leases, subleases and assignment
agreements relating thereto, including, without
limitation, claims for overcharges relating to taxes,
common area maintenance and other similar charges;
financial reporting;
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environmental, and product liability matters; actions
against insurance carriers relating to coverage,
indemnity or other matters; counterclaims and
defenses relating to notes or other obligations;
contract or tort claims which may exist or
subsequently arise; and
o Except for the express waiver of certain claims in
the Plan, any and all actual or potential avoidance
claims pursuant to any applicable section of the
Bankruptcy Code, including, without limitation,
sections 544, 545, 547, 548, 549, 550, 551, 553(b)
and/or 724(a) of the Bankruptcy Code, arising from
any transaction involving or concerning the Debtors.
In addition, there may be numerous other Bankruptcy Causes of
Action which currently exist or may subsequently arise that are not set forth
herein, because the facts upon which such Bankruptcy Causes of Action are based
are not fully or currently known by the Debtors and, as a result, cannot be
raised during the pendency of the Chapter 11 Cases (collectively, the "Unknown
Causes of Action"). The failure to list any such Unknown Cause of Action herein
is not intended to limit the rights of the Plan Administrator, on behalf of the
Post-Confirmation Estate, to pursue any Unknown Cause of Action to the extent
the facts underlying such Unknown Cause of Action become fully known to the
Debtors.
The potential net proceeds from the Bankruptcy Causes of
Action identified herein, or which may subsequently arise or be pursued, are
speculative and uncertain and therefore no value has been assigned to such
recoveries. The Debtors and the Post-Confirmation Estate do not intend, and it
should not be assumed that because any existing or potential Bankruptcy Causes
of Action have not yet been pursued by the Debtors or are not set forth herein,
that any such Bankruptcy Causes of Action have been waived.
Unless Bankruptcy Causes of Action against an Entity are
expressly waived, relinquished, exculpated, released, compromised or settled in
the Plan or any Final Order, the Debtors expressly reserve all Bankruptcy Causes
of Action and Unknown Causes of Action, including the Bankruptcy Causes of
Action described herein, as well as any other Bankruptcy Causes of Action or
Unknown Causes of Action, for later adjudication and therefore, no preclusion
doctrine, including, without limitation, the doctrines of res judicata,
collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial,
equitable or otherwise) or laches shall apply to such Bankruptcy Causes of
Action upon or after the confirmation or consummation of the Plan. In addition,
the Debtors expressly reserve the right to pursue or adopt any claims alleged in
any lawsuit in which the Debtors are a defendant or an interested party,
including the lawsuits described herein, against any Person, including, without
limitation, the plaintiffs and co-defendants in such lawsuits.
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement entered into in connection
with the Plan, in accordance with section 1123(b)(3) of the Bankruptcy Code, any
claims, rights, and Bankruptcy Causes of Action that the respective Debtors, or
the Post-Confirmation Estate may hold against any Entity, including but
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not limited to those Bankruptcy Causes of Action listed herein, shall vest in
the Post-Confirmation Estate, and the Plan Administrator, on behalf of the
Post-Confirmation Estate, shall retain and may exclusively enforce, as the
authorized representative of the Post-Confirmation Estate, any and all such
claims, rights, or Bankruptcy Causes of Action, as appropriate, in accordance
with the best interests of the Post-Confirmation Estate and the terms of the
Post-Confirmation Estate Agreement. The Plan Administrator, on behalf of the
Post-Confirmation Estate, shall have the exclusive right, authority, and
discretion to institute, prosecute, abandon, settle, or compromise any and all
such claims, rights, and Bankruptcy Causes of Action without the consent or
approval of any third party and without any further order of court except as
otherwise provided in the Post-Confirmation Estate Agreement.
7. TRANSFER OF ASSETS
The transfer of the Post-Confirmation Estate Assets to the
Post-Confirmation Estate will be made for the benefit of the Beneficiaries, but
only to the extent such Beneficiaries are entitled to distributions under the
Plan. In this regard, in full and complete satisfaction of Allowed Claims of the
Beneficiaries, the Post-Confirmation Estate Assets will be transferred to the
Post-Confirmation Estate. Upon the transfer of the Post-Confirmation Estate
Assets, the Debtors will have no interest in or with respect to the
Post-Confirmation Estate Assets or the Post-Confirmation Estate. For all federal
income tax purposes, all parties (including, without limitation, the Debtors,
the Plan Administrator and the Beneficiaries) will treat the transfer of assets
to the Post-Confirmation Estate in accordance with the terms of the Plan, as a
transfer to the Beneficiaries, followed by a transfer by such Beneficiaries to
the Post-Confirmation Estate, and the Beneficiaries will be treated as the
grantors and owners thereof.
8. VALUATION OF ASSETS
As soon as practicable after the Effective Date, the Plan
Administrator shall apprise the Beneficiaries of the value of the
Post-Confirmation Estate Assets. The valuation shall be used consistently by all
parties (including the Debtors, the Plan Administrator and the Beneficiaries)
for all federal income tax purposes. The purpose of the valuation is to comply
with the general criteria for obtaining an IRS ruling that an entity created
pursuant to a confirmed plan of reorganization under chapter 11 of the
Bankruptcy Code will be classified as a liquidating trust. Any dispute regarding
the valuation of these assets shall be resolved by the Bankruptcy Court.
9. RESPONSIBILITIES OF PLAN ADMINISTRATOR
The responsibilities of the Plan Administrator shall include
(a) facilitating the prosecution or settlement of objections to and estimations
of Claims, (b) calculating and
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implementing all distributions in accordance with the Plan, (c) filing all
required tax returns and paying taxes and all other obligations on behalf of the
Post-Confirmation Estate from funds held by the Post-Confirmation Estate, (d)
periodic reporting to the Bankruptcy Court and parties in interest of the status
of the claims resolution process, distributions on Allowed Claims, prosecution
of Bankruptcy Causes of Action and all other causes of action, (e) liquidating
the Post-Confirmation Estate Assets and providing for the distribution of the
net proceeds thereof in accordance with the provisions of the Plan, (f) managing
the wind down of the Debtors' operations, and (g) such other responsibilities as
may be vested in the Plan Administrator pursuant to the Plan or Bankruptcy Court
order or as may be necessary and proper to carry out the provisions of the Plan.
10. POWERS OF PLAN ADMINISTRATOR
The powers of the Plan Administrator shall, without any
further Bankruptcy Court approval in each of the following cases, include (i)
the power to invest funds in, and withdraw, make distributions and pay taxes and
other obligations owed by the Post-Confirmation Estate from funds held by the
Plan Administrator and/or the Post-Confirmation Estate in accordance with the
Plan, (ii) the power to engage employees and professional persons to assist the
Plan Administrator with respect to his responsibilities, (iii) the power to
compromise and settle claims, Bankruptcy Causes of Action and causes of action
on behalf of or against the Post-Confirmation Estate after notice to adversely
affected parties in interest and in accordance with Post-Confirmation Estate
Agreement, and (iv) such other powers as may be vested in or assumed by the Plan
Administrator pursuant to the Plan, Bankruptcy Court order or as may be
necessary and proper to carry out the provisions of the Plan. Except as
expressly set forth herein and in the Post-Confirmation Estate Agreement, the
Plan Administrator, on behalf of the Post-Confirmation Estate, shall have
absolute discretion to pursue or not to pursue any and all claims, rights,
Bankruptcy Causes of Action or other causes of action, as he determines is in
the best interests of the Beneficiaries and consistent with the purposes of the
Post-Confirmation Estate, and shall have no liability for the outcome of its
decision. The Plan Administrator may incur any reasonable and necessary expenses
in liquidating and converting the Post-Confirmation Estate Assets to Cash.
In connection with the administration of the Post-Confirmation
Estate, except as set forth in the Post-Confirmation Estate Agreement, the Plan
Administrator is authorized to perform any and all acts necessary and desirable
to accomplish the purposes of the Post-Confirmation Estate.
11. SCOPE OF AUTHORITY
The responsibilities and authority of the Post-Confirmation
Estate shall include (a) facilitating the prosecution or settlement of
objections to and estimations of
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Claims, (b) calculating and implementing all distributions in accordance with
the Plan, (c) filing all required tax returns and paying taxes and all other
obligations on behalf of the Post-Confirmation Estate from funds held by the
Post-Confirmation Estate, (d) periodic reporting to the Bankruptcy Court and
parties in interest of the status of the Claims resolution process,
distributions on Allowed Claims, prosecution of Bankruptcy Causes of Action and
all other causes of action, (e) liquidating the Post-Confirmation Estate Assets
and providing for the distribution of the net proceeds thereof in accordance
with the provisions of the Plan, (f) managing the wind down of the Debtors'
operations, (g) liquidating and enforcing the Encumbered Residual Assets in a
manner acceptable to Tricon (which costs of liquidation and enforcement shall be
paid out of the first available Encumbered Residual Asset proceeds) and (h) such
other responsibilities as may be vested in the Post-Confirmation Estate pursuant
to the Plan or Bankruptcy Court order or as may be necessary and proper to carry
out the provisions of the Plan.
12. DISTRIBUTIONS
At least annually, the Plan Administrator shall distribute to
the beneficiaries of the Post-Confirmation Estate (the "Beneficiaries") 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
Post-Confirmation Estate may retain such amounts (i) as are necessary in the
sole discretion of the Plan Administrator to meet contingent liabilities and to
maintain the value of the Post-Confirmation Estate Assets during liquidation,
(ii) to pay administrative expenses (including any taxes) imposed on the
Post-Confirmation Estate or in respect of the Post-Confirmation Estate Assets
and (iii) to satisfy other liabilities incurred or assumed by the
Post-Confirmation Estate (or to which the Post-Confirmation Estate Assets are
otherwise subject) in accordance with the Plan or the Post-Confirmation Estate
Agreement. All such distributions shall be subject to the terms of the Plan, and
the Post-Confirmation Estate Agreement; PROVIDED, FURTHER, that of the net
amount distributable, the Plan Administrator shall reserve such amounts as would
be distributable in respect of Disputed Claims (treating such Claims, for this
purpose, as if they were Allowed Claims). The Plan Administrator may withhold
from amounts distributable to any Person any and all amounts, determined in the
Plan Administrator's reasonable sole discretion, to be required by any law,
regulation, rule, ruling, directive or other governmental requirement.
13. DISPUTED CLAIMS RESERVE
The Plan Administrator shall maintain, in accordance with the
Plan Administrator's powers and responsibilities under the Plan and the
Post-Confirmation Estate Agreement, a reserve on account of any distributable
amounts required to be set aside on account of Disputed Claims pursuant to
Section 6.1 of the Post-Confirmation Estate
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Agreement and the Plan. Such amounts (net of any expenses, including any taxes,
of the escrow relating thereto) shall be distributed, as provided herein and in
the Plan, as such Disputed Claims are resolved by Final Order, and shall be
distributable in respect of such Disputed Claims as such amounts would have been
distributable had the Disputed Claims been Allowed Claims as of the Effective
Date. There shall be distributed together with such amounts any net earnings of
the reserve related thereto. Distribution on account of this reserve shall be
made at least annually concurrent with other distributions from the
Post-Confirmation Estate.
14. TERMINATION
The duties, responsibilities and powers of the Plan
Administrator will terminate on the date set forth in the Post-Confirmation
Estate Agreement. The Post-Confirmation Estate 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
Post-Confirmation Estate if it is necessary to the liquidation of the
Post-Confirmation Estate 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 Plan Administrator receives an opinion of counsel or a
favorable ruling from the Internal Revenue Service ("IRS") that any further
extension would not adversely affect the status of the Post-Confirmation Estate
as a grantor trust for federal income tax purposes.
15. COMPENSATION
In addition to reimbursement for actual out-of-pocket expenses
incurred by the Plan Administrator, the Plan Administrator will be entitled to
receive reasonable compensation for services rendered on behalf of the
Post-Confirmation Estate in an amount and on such terms as may be agreed to by
the Debtors or the Post-Confirmation Estate as reflected in the
Post-Confirmation Estate Agreement. Any dispute with respect to such
compensation shall be resolved by the Bankruptcy Court.
16. EXCULPATION; INDEMNIFICATION
From and after the Effective Date, the Plan Administrator, the
Plan Administrator's and the Post-Confirmation Estate's employees and each of
their professionals and representatives shall be and hereby are exculpated by
all Persons and Entities, including, without limitation, holders of claims and
other parties in interest, from any and all claims, causes of action and other
assertions of liability arising out of the discharge of the powers and duties
conferred upon such Plan Administrator by the Plan or any order of the
Bankruptcy Court entered pursuant to or in furtherance of the Plan, or
applicable law, or otherwise, except only for actions or omissions to act to the
extent
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determined by an order of a court of competent jurisdiction (with such order
becoming a final, non-appealable order) to be due to their own respective gross
negligence or willful misconduct) on and after the Effective Date. No holder of
a claim or other party in interest will have or pursue any claim or cause of
action against the Plan Administrator, the Post-Confirmation Estate or the
employees or professionals or representatives of either the Plan Administrator
or the Post-Confirmation Estate for making payments in accordance with the Plan
or for implementing the provisions of the Plan. Any act or omission taken with
the approval of the Bankruptcy Court or POC will be conclusively deemed not to
constitute gross negligence or willful misconduct. The Post-Confirmation Estate
shall indemnify, defend and hold harmless the PA, the PA's and the PCE's
employees, professionals and representatives from and against any and all
claims, causes of action, liabilities, losses, damages and expenses (including
attorneys' fees and expenses) (other than to the extent determined by an order
of a court of competent jurisdiction (with such order becoming a final,
non-appealable order) to be due to their own respective gross negligence or
willful misconduct) to the fullest extent permitted by applicable law. The
obligations of the Debtors to indemnify, defend and reimburse the D&O Releasees
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 with respect to postpetition acts or omissions,
shall be assumed by the Post-Confirmation Estate to the extent covered by the
Plan. The Plan Administrator shall not be deemed a successor of the Debtors. The
Plan Administrator and the Post-Confirmation Estate shall be authorized to
obtain (by using Cash in the Post-Confirmation Estate) insurance coverage with
respect to the responsibilities, liabilities and obligations of the Plan
Administrator and the Post-Confirmation Estate and those Entities hired by the
Plan Administrator and the Post-Confirmation Estate to discharge such
responsibilities, liabilities and obligations. The exculpation provisions of
this section shall apply with equal force to those members of the Creditors'
Committee and Ad Hoc Committee of Reclamation Claimants who serve on the Plan
Oversight Committee, their professionals and their designees.
17. PLAN OVERSIGHT COMMITTEE:
On the Effective Date, the POC shall be appointed as described
in the Post-Confirmation Estate Agreement, with the rights and authority
described therein. The Committee Designees, the Reclamation Designee and the
Tricon Designee shall be the initial members of the Post-Confirmation Estate
Oversight Committee. The POC shall adopt its own bylaws; provided that such
bylaws shall contain the following provisions and other provisions consistent
with the Post-Confirmation Estate Agreement:
(i) If for any reason a Committee Designee ceases to
be a member of the POC, the remaining Committee Designees may
select a successor to that Committee Designee; provided,
however, that at all times, at least one-half of the Committee
Designees shall be prepetition trade vendors of the Debtors.
(ii) If for any reason the Reclamation Designee
ceases to be a member of the POC, the Ad Hoc Committee of
Reclamation Claimants may select a successor to fill the
vacancy.
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(iii) If for any reason prior to occurrence of the
Satisfaction Event, the Tricon Designee ceases to be a member
of the POC, Tricon shall select a successor to fill the
vacancy.
The Plan Administrator shall not be required to obtain Bankruptcy Court approval
with respect to any proposed action or inaction to which the POC has consented.
The POC shall be deemed to have consented to a proposed action or inaction by
the Plan Administrator if (i) so long as Tricon is a member of the POC, the
Tricon Designee has provided its written consent and (ii) a majority of the POC
members who are Committee Designees and the Reclamation Designee provide their
written consent. With respect to any litigation directly or indirectly involving
any member of the POC, such POC member(s) shall recuse themselves from any
decision affecting such litigation. For the avoidance of doubt, the Tricon
Designee shall recuse him or herself from any votes upon any matters involving
the initiation of litigation relating to PepsiCo and its current and former
officers, directors and affiliates. Tricon's membership on the POC shall
immediately cease and the powers of the Tricon Designee shall immediately
terminate upon the Satisfaction Event.
18. COMPLETE TERMS AND PROVISIONS
The foregoing is a brief summary of the terms and provisions
of the Plan relating to the Post-Confirmation Estate. Section IV.G. of the Plan
and the Post-Confirmation Estate Agreement should be carefully reviewed for a
complete understanding of the Post-Confirmation Estate.
H. Summary of Other Provisions of the Plan
1. CONDITIONS PRECEDENT TO CONFIRMATION DATE OF THE PLAN
The occurrence of the Confirmation Date shall be subject to
satisfaction of the following conditions precedent:
1. The entry of the Confirmation Order in form and substance
satisfactory to the Debtors.
2. The Bankruptcy Court shall have entered an order providing
that no Reclamation Claims shall be treated as Administrative Expense Claims or
Priority Non-Tax Claims.
3. Class 6 shall have voted to accept the Plan.
4. The Sale Transaction or the Alternative Sale Transaction
shall not have been terminated.
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2. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE OF THE PLAN
The "effective date of the plan," as used in section 1129 of
the Bankruptcy Code, will not occur, and the Plan will be of no force and
effect, until the Effective Date, which will be the first Business Day after the
Confirmation Date on which the following conditions precedent shall have been
satisfied or, as described below, waived:
1. CONFIRMATION ORDER: The Confirmation Order shall be in
full force and effect and shall not be subject to an appeal, reconsideration or
stay or pleading seeking an appeal, reconsideration or a stay.
2. EXECUTION OF DOCUMENTS: OTHER ACTIONS: All other actions
and documents necessary to implement the Plan shall have been effected or
executed, including the Post-Confirmation Estate Agreement.
3. SALE TRANSACTION; ALTERNATIVE SALE TRANSACTION: The
Debtors shall have consummated either (i) the Sale Transaction pursuant to and
in accordance with the terms of the McLane Purchase Agreement or (ii) the
Alternative Sale Transaction.
4. TRICON FUNDING OBLIGATION: Payment of Cash by Tricon to
the Debtors in the amount of the Tricon Funding in accordance with the Plan.
5. ABILITY TO MEET PROJECTED CASH NEEDS: The
Post-Confirmation Estate shall have sufficient Cash to permit payment of all of
its and the Plan Administrator's projected fees, expenses and wind down costs.
To the extent practicable or legally permissible, each of the
foregoing conditions may be waived, in whole or in part, by the Debtors in their
sole discretion (and by the Debtors and Tricon in the case of H.1.b., H.1.d.,
H.2.a. and H.2.c. above). 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 other than proceeding as if such condition did not
exist.
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3. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. REJECTED IF NOT ASSUMED:
The Bankruptcy Code authorizes the Debtors, subject to the
approval of the Bankruptcy Court, to assume, assume and assign, or reject
executory contracts and unexpired leases. Such assumption, assumption and
assignment, or rejection may be effected during the Chapter 11 Cases or pursuant
to the Plan. 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, assumed and assigned, or rejected with the approval of the Bankruptcy
Court, or which are not the subject of a motion to assume or assume and assign
pending as of the Effective Date, or which are not specifically designated to be
assumed pursuant to the Plan, will be deemed rejected by the Debtors on the
Effective Date, and the entry of the Confirmation Order by the Bankruptcy Court
will constitute approval of such rejections pursuant to sections 365(a) and 1123
of the Bankruptcy Code.
2. REJECTION DAMAGE CLAIMS:
Not later than November 14, 2000, the Debtors will file with
the Bankruptcy Court a list of executory contracts and unexpired leases to be
assumed by the Debtors pursuant to the Plan as of the Effective Date. All other
executory contracts and unexpired leases will be deemed rejected as of the
Effective Date. If the rejection of an executory contract or unexpired lease by
the Debtors 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, will be forever barred and will not be enforceable against the
Debtors, or their properties or agents, successors or assigns, unless a proof of
claim is filed with the Bankruptcy Court and served upon counsel for the Debtors
on or before thirty (30) days after the later to occur 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 unexpired lease.
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3 CURE PAYMENTS:
Any monetary amounts required as cure payments on any
executory contract or unexpired lease to be assumed under the Plan will 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 contract or unexpired lease otherwise may
agree. In the event of a dispute regarding (a) the amount of any cure payment,
(b) the ability of the Debtors 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 will be subject to the jurisdiction of the Bankruptcy Court and made
following the entry of a Final Order resolving such dispute.
4. INDEMNIFICATION AND REIMBURSEMENT OBLIGATIONS.
Notwithstanding any other provision of the Plan to the
contrary, the obligations of the Debtors to indemnify and reimburse the D&O
Releases against and for any obligations in respect of those claims relating to
post-Petition Date actions or omissions covered by the Plan and/or pursuant to
articles of incorporation, codes of regulations, bylaws, applicable law, or
specific agreement, or any combination of the foregoing with respect to
postpetition acts or omissions, shall, to the extent such indemnity and
reimbursement obligations are permitted under applicable law, be deemed assumed
by the Post-Confirmation Estate on the Effective Date without any further action
by any Entity.
5. PROVISIONS GOVERNING DISTRIBUTIONS
1. REQUIREMENT FOR ALLOWANCE OF CLAIMS:
No payments or other distributions will be made on account of
any Claim that is not "Allowed."
"Allowed Claim" means any Claim against the Debtors, (i) proof
of which was filed on or before September 12, 2000, the date designated by the
Bankruptcy Court as the last date for filing proofs of Claim against the
Debtors, or (ii) if no proof of Claim has been timely filed, which has been or
hereafter is listed by the Debtors in their Schedules as liquidated in amount
and not disputed or contingent and, in each such case in clauses (i) and (ii)
above, a Claim 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 has been allowed in whole or in
part by a Final Order. For purposes of determining the amount of an "Allowed
Claim," there will be deducted therefrom an
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amount equal to the amount of any Claim which the Debtors may hold against the
holder thereof, to the extent such Claim may be set off pursuant to section 553
of the Bankruptcy Code.
2. TIME AND METHOD OF DISTRIBUTIONS:
All distributions under the Plan will be made by the
Post-Confirmation Estate or such other Entity as may be designated by the
Post-Confirmation Estate.
Initial distributions will be made in the Plan Administrator's
sole discretion after the Effective Date. Whenever any distribution to be made
under this 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 will be deemed to have been made on the date due. Unless the Entity
receiving a payment agrees otherwise, any payment in Cash to be made by the
Post-Confirmation Estate will be made, at the election of the Plan
Administrator, by check drawn on a domestic bank or by wire transfer from a
domestic bank.
Subject to the provisions of Bankruptcy Rule 2002(g), and
except as provided in the Plan, distributions and deliveries to holders of
Allowed Claims will be made at the address of each such holder set forth on the
Debtors' 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 the Debtors have
been notified in writing of a change of address.
3. UNDELIVERABLE DISTRIBUTIONS:
If any distribution to any holder is returned to the
Post-Confirmation Estate as undeliverable, no further distributions will be made
to such holder unless and until the Post-Confirmation Estate is notified, in
writing, of such holder's then-current address. Undeliverable distributions will
remain in the possession of the Post-Confirmation Estate until such time as a
distribution becomes deliverable. All Entities ultimately receiving
distributions which were previously undeliverable, will not be entitled to any
interest or other accruals of any kind. Nothing contained in the Plan will
require the Post-Confirmation Estate to attempt to locate any holder of an
Allowed Claim.
After the first anniversary of the Effective Date, the
Post-Confirmation Estate will file with the Bankruptcy Court a list setting
forth the names of those Entities to which distributions have been made under
the Plan and have been returned as undeliverable as of the date thereof. Any
holder of an Allowed Claim that does not assert its rights pursuant to the Plan
to receive a distribution within six months from and after the Effective Date
will have its Claim for such undeliverable distribution discharged and will be
forever barred
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from asserting any such Claim against the Post-Confirmation Estate or its
property. In such case, any consideration held for distribution on account of
such Claim will revert to the Post-Confirmation Estate for further distribution
pursuant to the terms of the Plan.
4. COMPLIANCE WITH TAX REQUIREMENTS:
To the extent applicable, the Post-Confirmation Estate 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.
5. TIME BAR TO CASH PAYMENT:
Checks issued by the Post-Confirmation Estate on account of
Allowed Claims will be null and void if not negotiated within 90 days from and
after the date of issuance thereof. Requests for the reissuance of any check
will be made directly to the Post-Confirmation Estate 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 will be made on or before the later of (a) the
first anniversary of the Effective Date or (b) 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 will be discharged and forever barred and the Post-Confirmation Estate
will retain all monies related thereto for further distribution pursuant to the
terms of the Plan.
6. DISTRIBUTIONS AFTER EFFECTIVE DATE:
Distributions made after the Effective Date to holders of
Claims that are not Allowed Claims as of the Effective Date but which later
become Allowed Claims will be deemed to have been made on the Effective Date.
7. SET-OFFS:
The Post-Confirmation Estate may, pursuant to section 553 of
the Bankruptcy Code or applicable nonbankruptcy law, set off against any Allowed
Claim 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 Debtors or Post-Confirmation Estate
may hold against the holder of such Allowed Claim; PROVIDED, HOWEVER, that
neither the failure to effect such a set-off nor the allowance of any Claim
under the Plan will constitute a waiver or release by the Debtors or the
Post-Confirmation Estate of any such claims, rights and causes of action that
the Debtors or the Post-Confirmation Estate may possess against such holder;
and, PROVIDED, FURTHER, that nothing contained in the Plan is intended to limit
the rights of any Creditor to
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effectuate a setoff prior to the Effective Date in accordance with the
provisions of sections 362 and 553 of the Bankruptcy Code.
8. SUBORDINATION RIGHTS:
Except as otherwise ordered by the Bankruptcy Court or as set
forth in Section 11.2 of the Plan, on the Effective Date, each holder of a Claim
shall be deemed to have waived all contractual, legal and equitable
subordination rights which it may have, whether arising under general principles
of equitable subordination, section 510(c) of the Bankruptcy Code or otherwise,
with respect to any and all distributions to be made under the Plan, and all
such contractual, legal or equitable subordination rights that each holder of a
Claim has individually and collectively with respect to any such distribution
made pursuant to the Plan shall be discharged and terminated, and all actions
related to the enforcement of such subordination rights will be permanently
enjoined. If so otherwise ordered, then, all subordination rights and claims
determined by such order related to subordination shall remain valid,
enforceable and unimpaired in accordance with section 510 of the Bankruptcy Code
or otherwise.
9. FRACTIONAL DOLLARS; DE MINIMIS DISTRIBUTIONS:
Payments of fractions of dollars will not be made. Whenever
any payment of a fraction of a dollar under the Plan would otherwise be called
for, the actual payment made will reflect a rounding of such fraction to the
nearest dollar (up or down), with half dollars being rounded down. The Plan
Administrator will not make any payment of less than One Hundred Dollars ($100)
with respect to any Claim unless a request therefor is made in writing to the
Plan Administrator.
6. TREATMENT OF DISPUTED CLAIMS
"Disputed Claim" means any Claim against the Debtors, 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 Debtors in
accordance with applicable law, which objection, request for estimation, or
dispute has not been withdrawn or determined by a Final Order.
1. OBJECTIONS TO CLAIMS; PROSECUTION OF DISPUTED CLAIMS:
The Debtors, the Post-Confirmation Estate or the Plan
Administrator shall object to the allowance of Claims or Interests filed with
the Bankruptcy Court with respect to which they dispute liability or allowance
in whole or in part. All objections will be litigated to Final Order; PROVIDED,
HOWEVER, that the Post-Confirmation Estate will have the
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authority to file, settle, compromise or withdraw any objections to Claims,
without approval of the Bankruptcy Court. Unless otherwise ordered by the
Bankruptcy Court, the Debtors, the Post-Confirmation Estate or the Plan
Administrator will file and serve all objections to Claims as soon as
practicable.
2. ESTIMATION OF CLAIMS:
The Debtors, the Post-Confirmation Estate or the Plan
Administrator 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 Debtors, the Post-Confirmation Estate or the Plan
Administrator previously objected to such Claim or whether the Bankruptcy Court
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 will constitute the
allowed amount of such Claim. If the estimated amount constitutes a maximum
limitation on the amount of such Claim, the Debtors, the Post-Confirmation
Estate or the Plan Administrator 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.
3. PAYMENTS AND DISTRIBUTIONS ON DISPUTED CLAIMS:
There will be set aside for each holder of a Disputed Claim
such portion of Cash as necessary to provide required distributions if such
Claim was an Allowed Claim, either based upon the amount of the Claim as filed
with the Bankruptcy Court or the amount of the Claim as estimated by the
Bankruptcy Court.
At such time as a Disputed Claim becomes, in whole or in part
an Allowed Claim, the Plan Administrator shall 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
becomes a Final Order but in no event more than thirty (30) days thereafter. No
interest will be paid on Disputed Claims that later become Allowed or with
respect to any distribution to such holder. No distribution will be made with
respect to all or any portion of any Disputed Claim pending the entire
resolution thereof in the manner prescribed in the Plan.
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7. CREDITORS' COMMITTEE COMPOSITION AND TERM
From the Confirmation Date and 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. 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. The dissolution of the Creditors' Committee shall not impair the
ability of its members to serve on the POC in accordance with the terms of the
Post-Confirmation Estate Agreement.
8. CORPORATE ACTION
Upon the entry of the Confirmation Order by the Bankruptcy
Court, all matters provided under the Plan involving the corporate structure of
the Debtors shall be deemed authorized and approved without any requirement of
further action by the Debtors, the Debtors' shareholders or the Debtors' boards
of directors. The Debtors (and their board of directors) shall dissolve or
otherwise terminate their existence following the Effective Date and are
authorized to dissolve or terminate the existence of wholly-owned non-Debtor
subsidiaries following the Effective Date.
9. EFFECT OF CONFIRMATION
1. TITLE TO ASSETS:
Except as otherwise provided by the Plan, including, without
limitation, in connection with the Sale Transaction or the Alternative Sale
Transaction, on the Effective Date, title to all assets and properties of the
Debtors will vest in the Post-Confirmation Estate in accordance with section
1141 of the Bankruptcy Code.
2. INJUNCTION:
Except as otherwise expressly provided in the Plan, all
Entities (other than Governmental Units) who have held, hold or may hold Claims
or 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 account of any such Claim or Interest against the Debtors, the
Post-Confirmation Estate or the Plan Administrator, (b) the enforcement,
attachment, collection or recovery by any manner or means of any judgment,
award, decree or order against the Debtors, the Post-Confirmation Estate or the
Plan Administrator, (c) creating, perfecting or enforcing any encumbrance of any
kind against the Debtors, the Post-Confirmation Estate or the Plan Administrator
or against the
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property or interests in property of the Debtors, the Post-Confirmation Estate
or the Plan Administrator, with respect to any such Claims or Interests, and (d)
asserting any defense or right of setoff, subrogation, or recoupment of any kind
against any obligation due from the Debtors, the Post-Confirmation Estate or the
Plan Administrator or against the property or interests in property of the
Debtors, the Post-Confirmation Estate or the Plan Administrator, with respect to
any such Claim or Interest. This injunction shall not preclude any cause of
action against any Entities not included within the described injunction.
Unless otherwise provided, all injunctions or stays provided
for in the Chapter 11 Cases pursuant to sections 105, 362 or 525 of the
Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, will
remain in full force and effect until the Effective Date.
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 Debtors, the
Post-Confirmation Estate or the Plan Administrator which the Debtors, the
Post-Confirmation Estate or the Plan Administrator, as the case may be, retain
sole and exclusive authority to pursue in accordance with the Plan or which has
been released pursuant to the Plan.
3. INJUNCTION AS TO TRICON AND BKC:
Except as otherwise provided in the Plan, from and after the
Effective Date, the Debtors and Creditors (other than Governmental Units) shall
be enjoined from asserting any Claims (i) against Tricon regarding matters that
occur prior to the Effective Date, including, without limitation, any Claims
relating to the Collateral Support Obligations, the DIP Facility or the Tricon
Prepetition Receivable and (ii) against BKC regarding the Collateral Support
Obligations or the DIP Facility. For the avoidance of doubt, this injunction
does not apply to (i) the Bankruptcy Causes of Action or other causes of action
reserved by the Debtors under the Plan or (ii) any postpetition contractual
obligations of Tricon or BKC other than the DIP Facility and Collateral Support
Obligations.
4. EXCULPATION:
The Debtors, the Plan Administrator, the Post-Confirmation
Estate, the D&O Releasees, the Senior Secured Noteholders in their capacity as
Senior Secured Noteholders (and the Ad Hoc Committee of Senior Secured
Noteholders), the Creditors' Committee and its members each in their capacity as
members of the Creditors' Committee and Entities employed pursuant to sections
327 and 1103 of the Bankruptcy Code (acting in such capacity) shall neither have
nor 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,
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implementation, administration, confirmation or consummation 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, including the
Post-Confirmation Estate Agreement, or any other act taken or omitted to be
taken in connection with the Chapter 11 Cases.
5. INJUNCTION AS TO D&O RELEASEES:
As of the Effective Date, all Entities are permanently
enjoined from commencing or continuing in any manner, any action or proceeding
against any of the D&O Releasees, whether directly, derivatively, on account of
or respecting any claim, debt, right or cause of action based in whole or in
part upon any act or omission, transaction, agreement, event or other occurrence
taking place after the Petition Date and on or before the Effective Date. For
the avoidance of doubt, this injunction does not apply to prepetition claims or
liabilities (i) in respect of any loan, advance or similar payment by the
Debtors or their affiliates to any such Entity, or (ii) in respect of any
contractual obligation owed by such Entity to the Debtors or their affiliates.
For the avoidance of doubt, the D&O Releasees are intended third party
beneficiaries of this Plan.
6. LIMITED RELEASES BY AND OF CERTAIN PARTIES:
Except as otherwise specifically provided in the Plan, and
other than the Bankruptcy Causes of Action or other causes of action reserved by
the Debtors under the Plan (including, without limitation, claims by the Debtors
against Tricon system franchisees) or any postpetition contractual obligations
of Tricon or BKC other than the DIP Facility and Collateral Support Obligations,
for good and valuable consideration, including, but not limited to the Tricon
Funding, (a) Tricon shall be released from any and all Claims or causes of
action of any kind that belong to the Debtors or their estates that arose prior
to the Effective Date including, but not limited to, Claims in respect of the
Collateral Support Reimbursement Obligations, the DIP Facility and the Tricon
Prepetition Receivable, and (b) BKC shall be released only from any Claims in
respect of the Collateral Support Obligations or the DIP Facility. This release
does not apply to (a) with respect to BKC, the Bankruptcy Causes of Action or
other causes of action reserved by the Debtors in accordance with Section 17.7
of the Plan or any postpetition contractual obligations other than the DIP
Facility and Collateral Support Obligations or (b) with respect to Tricon,
Claims by the Debtors against Tricon system franchisees, including, without
limitation, Golden West Tacos, Bankruptcy Causes of Action or other causes of
action reserved by the Debtors in accordance with Section 17.7 of the Plan or
any postpetition contractual obligations other than the DIP Facility and
Collateral Support Obligations.
10. RETENTION OF JURISDICTION
The Bankruptcy Court will retain and have exclusive
jurisdiction over any
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matter (a) arising under the Bankruptcy Code, (b) arising
in or related to the Chapter 11 Cases or the Plan, or (c) that relates to the
following:
1. Resolution of any matters related to the assumption,
assumption and assignment, or rejection of any executory contract or unexpired
lease to which the Debtors are a party or with respect to which the Debtors 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, to add any executory contracts or unexpired leases
to the list of executory contracts and unexpired leases to be rejected;
2. Entry of such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and the documents contained
in the Plan Supplement and all contracts, instruments, releases, and other
agreements or documents created in connection with the Plan or the Plan
Supplement;
3. Determination of 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 the
Post-Confirmation Estate after the Effective Date;
4. Ensuring that distributions to holders of Allowed Claims
are accomplished as provided in the Plan;
5. Hearing and determining any timely objections to
Administrative Expense Claims or to proofs of Claim filed, both before and after
the Confirmation Date, including any objections to the classification of any
Claim 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;
6. Entry and implementation of such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified, reversed or vacated;
7. Issuance of such orders in aid of execution of the Plan,
to the extent authorized by section 1142 of the Bankruptcy Code;
8. Consideration of 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;
9. Hearing and determining all applications for awards of
compensation for services rendered and reimbursement of expenses incurred prior
to the Confirmation Date;
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10. Hearing and determining 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 or exculpated under the Plan;
11. Issuance of injunctions or other orders as may be
necessary or appropriate to restrain interference by any Entity with
consummation or enforcement of the Plan;
12. Determination of any other matters that may arise in
connection with or are related to the Plan, the Disclosure Statement, the Plan
Supplement, the Confirmation Order or any contract, instrument release or other
agreement or document created in connection with the Plan, the Disclosure
Statement or the Plan Supplement;
13. Hearing and determining matters concerning state, local
and federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code;
14. Hearing any other matter or for any purpose specified in
the Confirmation Order that is not inconsistent with the Bankruptcy Code;
15. To hear and determine any matters that may arise in
connection with the Sale Transaction or the Alternative Sale Transaction and any
order of the Bankruptcy Court with respect to any of the foregoing; and
16. Entry of a final decree closing the Chapter 11 Cases.
11. MODIFICATION, REVOCATION OR WITHDRAWAL OF PLAN
The Debtors reserve 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, the Debtors 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 that has accepted the Plan will be deemed to have accepted
the Plan as modified if the proposed modification does not materially and
adversely change the treatment of the Claim of such holder.
The Plan may be revoked or withdrawn prior to the Confirmation
Date by the Debtors. If the Plan is revoked or withdrawn prior to the
Confirmation Date, then the Plan
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will be deemed null and void. In such event, nothing contained in the Plan will
be deemed to constitute a waiver or release of any claims by the Debtors or any
other Entity or to prejudice in any manner the rights of the Debtors or any
other Entity in any further proceedings involving the Debtors.
12. SUPPLEMENTAL DOCUMENTS
The Plan Supplement will contain (i) the Post-Confirmation
Estate Agreement, in form and substance reasonably satisfactory to the Debtors
and the Creditors' Committee and (ii) the Party in Interest Matrix, (iii) the
pre-Effective Date budget and (iv) the Post-Effective Date Administrative
Expense Budget. The Plan Supplement will be filed with the Bankruptcy Court as
early as practicable (but in no event later than ten 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 Interests may obtain a copy of the Plan Supplement from the Debtors
by contacting Bankruptcy Services, LLC, Heron Tower, 70 East 55th Street, 6th
Floor, New York, NY 10022, 1-888-498-7765. Such copies will be available ten
days prior to the Confirmation Hearing.
VI.
CERTAIN FACTORS TO BE CONSIDERED
HOLDERS OF IMPAIRED CLAIMS 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 of the
Sale Transaction or the Alternative Sale Transaction. The Sale Transaction has
(and the Alternative Sale Transaction may have) certain price adjustments which
could result in lower proceeds available to pay holders of Claims in Class 6, 7,
8 9 and 10. Further, to the extent that Allowed Claims in Classes 8 and 9 exceed
projected amounts, projected recoveries to holders of Allowed Claims in those
Classes could decrease.
B. Litigation
Litigation that was pending as of the Petition Date is stayed
and will be resolved and
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treated pursuant to the Plan.
C. Certain Tax Matters
For a summary of the federal income tax consequences of the
Plan to holders of Certain Claims and holders of Interests, and to the Debtors,
SEE Article XI below, entitled CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
PLAN.
VII.
VOTING PROCEDURES AND REQUIREMENTS
HOLDERS OF CLAIMS OR INTERESTS
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 ACTUALLY RECEIVED
BY THE BALLOTING AGENT (AS DEFINED BELOW), NO LATER THAN 4:00 P.M., EASTERN
TIME, ON NOVEMBER 16, 2000. 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 BALLOTING 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:
BANKRUPTCY SERVICES, LLC
HERON TOWER
70 EAST 55TH STREET
6TH FLOOR
NEW YORK, NY 10022
TELEPHONE: 1-888-498-7765
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If you wish to obtain an additional copy of the Plan, the Disclosure
Statement, the Plan Supplement or any exhibits to such documents, at your own
expense, unless otherwise specifically required by Bankruptcy Rule 3017(d),
please submit your request to Bankruptcy Services, LLC.
A. Parties in Interest Entitled to Vote
Subject to the provisions of the Disclosure Order, any holder
of a Claim against the Debtors as of the Petition Date, 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 sections 1126(f) and 1126(g) of the Bankruptcy Code and (b) either
(i) such holder's Claim has been scheduled by the Debtors (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 September 12, 2000. In
addition, any holder of an Interest in the Debtors is not entitled to vote to
accept or reject the Plan because Class 11 is deemed to have rejected the Plan
pursuant to sections 1126(f) and 1126(g) of the Bankruptcy Code. UNLESS
OTHERWISE PERMITTED IN THE PLAN, THE HOLDER OF ANY DISPUTED CLAIM OR DISPUTED
INTEREST IS NOT ENTITLED TO VOTE WITH RESPECT TO SUCH DISPUTED CLAIM OR DISPUTED
INTEREST, UNLESS THE BANKRUPTCY COURT, UPON APPLICATION BY SUCH HOLDER,
TEMPORARILY ALLOWS SUCH DISPUTED CLAIM OR DISPUTED INTEREST 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.
B. Classes Impaired and Entitled to Vote Under the Plan
The Claims included in Classes 4, 6, 7, 8, 9 and 10 are
impaired under the Plan and the holders of such Claims are entitled to vote to
accept or reject the Plan. Interests included in Class 10 are impaired under the
Plan and the holders of such Claims are deemed to have rejected the Plan in
accordance with section 1126 of the Bankruptcy Code. Claims in Classes 1, 2, 3
and 5 are not impaired under the Plan and holders of such Claims are deemed to
have accepted the Plan.
C. Vote Required for Acceptance by Classes of Claims
The Bankruptcy Code defines acceptance of a plan by a class of
claims as
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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 such Claims voting cast their Ballots in favor of acceptance. A
Class of holders of Claims shall be deemed to accept the Plan in the event that
no holder of a Claim within that Class submits a Ballot by the Ballot Date.
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 TRANCHE A LENDER CLAIMS, TRANCHE B LENDER CLAIMS AND SENIOR
SECURED NOTEHOLDER 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 November
28, 2000, at 1:30 p.m. Eastern Time, Courtroom of 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 the Claim or Interest held or asserted by
the objectant against the Debtors' estates or property, the basis for the
objection and the specific grounds therefor. The objection, together with proof
of service thereof, must then be filed with the Bankruptcy Court, with a copy to
chambers, and served upon (i) Kirkland & Ellis, Attorneys for the Debtors, 200
East Randolph Drive, Chicago, Illinois 60601, Attention: James H.M. Sprayregen,
Esq.; (ii) Pachulski, Stang, Ziehl, Young, Jones PC, Attorneys for the Debtors,
919 North Market Street, 19th Floor, Wilmington, Delaware 19801, Attention:
Laura Davis Jones, Esq., and
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(iii) Otterbourg, Steindler, Houston & Rosen, P.C., Attorneys for the Creditors'
Committee, 230 Park Avenue, New York, New York 10169, Attention: Scott L. Hazan,
Esq.; so as to be received no later than 4:00 p.m., Eastern Time, on November
16, 2000.
Objections to confirmation of the Plan are governed by Federal
Rule of Bankruptcy Procedure 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY
AND PROPERLY 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 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 Interests impaired under the Plan.
1. ACCEPTANCE
Claims in Classes 4, 6, 7, 8, 9 and 10 are impaired under, and
the holders of such Claims are 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 of Claims 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 (other than any Claims of creditors designated under section 1126(e)
of the Bankruptcy Code) that have voted to accept or reject the Plan.
Interests in Class 11 are impaired; however, holders of such
Interests will not receive or retain property under the Plan and, therefore,
such classes are deemed not to have accepted the Plan. Accordingly, confirmation
of the Plan will require application of the "fair and equitable test", described
below, to such Classes.
Claims in Classes 1, 2, 3 and 5 are unimpaired by the Plan,
and the holders thereof are conclusively presumed to have accepted the Plan.
2. FAIR AND EQUITABLE TEST
The Debtors will seek to confirm the Plan notwithstanding the
nonacceptance or deemed nonacceptance of the Plan by any impaired Class of
Claims or 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
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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
interests. The Debtors believe that the Plan satisfies this requirement.
The Bankruptcy Code establishes different "fair and equitable"
tests for secured claims, unsecured claims and interests, as follows:
1. SECURED CLAIMS:
Either the plan must provide (i) that the holders of such
claims retain the liens securing such claims, whether the property subject to
such liens is retained by the debtor or transferred to another entity, to the
extent of the allowed amount of such claims, and each holder of a claim receives
deferred cash payments totaling at least the allowed amount of such claim, of a
value, as of the effective date of the plan, of at least the value of such
holder's interest in the estate's interest in such property; (ii) for the sale
of any property that is subject to the liens securing such claims, free and
clear of such liens, with such liens to attach to the proceeds of such sale; or
(iii) for the realization by such holders of the indubitable equivalent of such
claims.
2. 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.
3. INTERESTS:
Either (i) each interest holder will receive or retain under
the plan property of a value equal to the greater of (y) the fixed liquidation
preference or redemption price, if any, of such stock or (z) 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.
THE DEBTORS BELIEVE THAT THE PLAN MAY BE CONFIRMED ON A
NONCONSENSUAL BASIS (PROVIDED AT LEAST ONE IMPAIRED CLASS OF CLAIMS VOTES TO
ACCEPT THE PLAN). ACCORDINGLY, THE DEBTORS 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.
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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. The Plan contemplates that all assets of the Debtors
will ultimately be disposed of and all proceeds of the assets will be
distributed to the Creditors pursuant to the terms of the Plan. Since no further
financial reorganization of the Debtors will be possible, the Debtors believe
that the Plan meets the feasibility requirement. In addition, based upon the
proceeds resulting from the Sale Transaction, the Debtors believe that
sufficient funds will exist at confirmation to make all payments required by the
Plan.
4. "BEST INTERESTS" TEST
With respect to each impaired Class of Claims and 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 the Debtors were liquidated under chapter 7 of the
Bankruptcy Code.
This analysis requires the Bankruptcy Court to determine what
the holders of Allowed Claims and Allowed Interests in each impaired class would
receive from the liquidation of the Debtors' assets and properties in the
context of chapter 7 liquidation cases. The cash amount which would be available
for the satisfaction of Unsecured Claims and Interests of the Debtors would
consist of the proceeds resulting from the disposition of the unencumbered
assets of the Debtors, augmented by the unencumbered Cash held by the Debtors at
the time of the commencement of the liquidation cases. 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 the
Debtors' business and the use of chapter 7 for the purposes of liquidation.
The Debtors' costs of liquidation under chapter 7 would
include the fees payable to a trustee in bankruptcy, as well as those payable to
attorneys, investment bankers and other professionals that such a trustee may
engage, plus any unpaid expenses incurred by the Debtors during the Chapter 11
Cases, 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 cases. In addition, claims could arise by reason of the breach or
rejection of obligations incurred and executory contracts entered into or
assumed by the Debtors during the pendency of the Chapter 11 Cases.
The foregoing types of Claims and such other claims which may
arise in the liquidation cases or result from the pending Chapter 11 Cases would
be paid in full from the liquidation proceeds before the balance of those
proceeds would be made available to pay prepetition Claims.
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To determine if the Plan is in the best interests of each
impaired class, the value of the distributions from the proceeds of the
liquidation of the Debtors' assets and properties (after subtracting the amounts
attributable to the aforesaid claims) is then compared with the value offered to
such classes of Claims and Interests under the Plan.
In applying the "best interests" test, it is possible that
Claims and Interests in the chapter 7 cases may not be classified according to
the seniority of such Claims and 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 cases of the Debtors. 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. The Debtors believe 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 postpetition interest. Consequently, the Debtors believe that pursuant to
chapter 7 of the Bankruptcy Code, holders of General Unsecured Claims, NEHC
Claims and 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 Cases, 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 Cases, the Debtors
believe that confirmation of the Plan will provide each holder of an Allowed
Claim with more than the amount it would receive pursuant to liquidation of the
Debtors under chapter 7 of the Bankruptcy Code.
The Debtors also believe 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
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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 cases, the delay could be prolonged.
The Debtors' Liquidation Analysis is attached hereto as
Exhibit "C". The information set forth in Exhibit "C" provides a summary of the
liquidation values of the Debtors' assets assuming a chapter 7 liquidation in
which a trustee appointed by the Bankruptcy Court would liquidate the assets of
the Debtors' estates. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis.
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 the Debtors 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 the Debtors were, in fact, to undergo such a liquidation. The
chapter 7 liquidation period is assumed to be a period of six to eighteen months
following the discontinuance of operations. This period would allow for the
collection of receivables, selling of assets and the winding down of operations.
IX.
FINANCIAL INFORMATION
The unaudited consolidated financial statements of the Debtors
for the fiscal year ended December 25, 1999, a copy of which is attached hereto
as Exhibit "D" (the "1999 Statements") reflect a net loss of $1.44 billion
compared to a net loss of $152.29 million for the fiscal year ended December 26,
1998. This decline in results was driven by higher spending in integrating the
acquired PFS and ProSource businesses, greater noncash depreciation and
amortization charges, increased financing costs, lower gross margins resulting
from numerous operational challenges and a significant write-down of intangible
assets that were related to, among other things, acquisition activities.
On January 31, 2000 and February 1, 2000, AFD and the other
Debtors, respectively, commenced proceedings under chapter 11 of the Bankruptcy
Code. The unaudited consolidated financial statements of the Debtors for the
period from February 1, 2000 to August 5, 2000, as filed with the Bankruptcy
Court (a copy of the most recent of which is attached hereto as Exhibit "E"),
reflect a net loss of $147.6 million. This loss is primarily due to
extraordinary expenses relating to the wind down of certain business units,
including the casual dining business, interest expense associated with financing
operations
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and recurring restructuring expenses. Further, under the DIP Facility, the
Debtors also significantly altered the way in which they report revenue with
substantially lower revenue reported relating to two primary customers - BKC and
Tricon. Under the "direct pay" program which was instituted after the Petition
Date, Tricon and BKC buy their product directly from vendors and, as a result,
the Debtors' revenue relating to these sales approximate the prior year's gross
margin on such sales.
X.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors have evaluated several alternatives to the Plan.
After studying these alternatives, including the continuation of the Debtors'
business, the Debtors have 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 the Debtors' analysis
leading to their conclusion that a liquidation under chapter 7 would not provide
the highest value to parties in interest.
A. Liquidation under Chapter 7
If no plan of reorganization can be confirmed, the Debtors'
Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy
Code in which a trustee would be elected or appointed to liquidate the assets of
the Debtors for distribution to the holders of Claims and, if permitted,
Interests 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 Interests is set forth in
Section VII.B.4. herein, entitled CONFIRMATION OF THE PLAN - REQUIREMENTS FOR
CONFIRMATION OF THE PLAN - "BEST INTERESTS" TEST. The Debtors believe that
liquidation under chapter 7 would result in (1) smaller distributions being made
to holders of Claims than those provided for in the Plan, and (2) no
distributions being made to holders of Claims in Class 8 and Class 9 or
Interests.
XI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion is a summary of certain U.S. federal
income tax consequences of the Plan to the Debtors and to holders of Claims and
Interests. This discussion is based on the IRC, Treasury Regulations promulgated
and proposed thereunder, judicial decisions and published administrative rules
and pronouncements of the IRS as in effect on the date hereof. Due to the
complexity of certain aspects of the Plan,
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the lack of applicable legal precedent, the possibility of changes in the law,
the differences in the nature of the Claims (including Claims within the same
Class) and Interests, the holders' status and method of accounting (including
holders within the same Class) and the potential for disputes as to legal and
factual matters with the IRS, the tax consequences described herein are subject
to significant uncertainties. No legal opinions have been requested from counsel
with respect to any of the tax aspects of the Plan and no rulings have been or
will be requested from the IRS with respect to the any of the issues discussed
below. Furthermore, legislative, judicial or administrative changes may occur,
perhaps with retroactive effect, which could affect the accuracy of the
statements and conclusions set forth below as well as the tax consequences to
the Debtors and the holders of Claims and Interests.
This discussion does not purport to address all aspects of
U.S. federal income taxation that may be relevant to the Debtors or the holders
of Claims or Interests in light of their personal circumstances, nor does the
discussion deal with tax issues with respect to taxpayers subject to special
treatment under the U.S. federal income tax laws (including, for example, banks,
governmental authorities or agencies, pass-through entities, brokers and dealers
in securities, insurance companies, financial institutions, tax-exempt
organizations, small business investment companies, regulated investment
companies and foreign taxpayers). This discussion does not address the tax
consequences to holders of Claims who did not acquire such Claims at the issue
price on original issue. No aspect of foreign, state, local or estate and gift
taxation is addressed.
THE FOLLOWING SUMMARY IS NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING AND ADVICE BASED UPON THE PERSONAL CIRCUMSTANCES OF EACH HOLDER OF A
CLAIM OR INTEREST. EACH HOLDER OF A CLAIM OR INTEREST IS URGED TO CONSULT WITH
SUCH HOLDER'S TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
A. Consequences to Debtors
Under the Plan, the Debtors are (i) selling certain of their
assets pursuant to the Sale Transaction and (ii) transferring substantially all
the consideration received in the Sale Transaction and their remaining assets to
the Post-Confirmation Estate. These transfers of assets may result in the
recognition of taxable gain or loss by the Debtors. Nevertheless, due to
available net operating loss and other loss carryforwards, the Debtors do not
anticipate that a significant federal income tax liability, if any, will be
incurred as a result of such transactions. To the extent that any federal income
tax liability results from the Sale Transaction or transfer of assets to the
Post-Confirmation Estate, the Debtor will pay the resulting tax to the IRS. The
Plan also provides that the Debtors will be liquidated and dissolved. As a
result, there will be no net operating loss or capital loss carryforwards or
other tax attributes available to the Debtors or to the Post-Confirmation Estate
following the Effective Date after giving effect to the transactions
contemplated by the Plan.
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B. Federal Income Tax Treatment of Post-Confirmation Estate
1. CLASSIFICATION OF POST-CONFIRMATION ESTATE
Pursuant to the Plan, the Debtors will transfer the
Post-Confirmation Estate Assets to the Post-Confirmation Estate and the
Post-Confirmation Estate will become obligated to make Distributions in
accordance with the Plan. The Plan provides, and this discussion assumes, that
the Post-Confirmation Estate will be treated for federal income tax purposes as
a "liquidating trust," as defined in Treasury Regulation Section 301.7701-4(d),
and will therefore be taxed as a grantor trust, of which the Beneficiaries will
be treated as the owners and grantors thereof. Accordingly, because a grantor
trust is treated as a pass-through entity for federal income tax purposes, no
tax should be imposed on the Post-Confirmation Estate itself or on the income
earned or gain recognized by the Post-Confirmation Estate. Instead, the
Beneficiaries will be taxed on their allocable shares of such net income or gain
in each taxable year (determined in accordance with the Post-Confirmation Estate
Agreement), whether or not they received any distributions from the
Post-Confirmation Estate in such taxable year.
Although the Post-Confirmation Estate has been structured with
the intention of complying with guidelines established by the IRS in Rev. Proc.
94-45, 1994-2 C.B. 684, for the formation of liquidating trusts, it is possible
that the IRS could require a different characterization of the Post-Confirmation
Estate, which could result in different and possibly greater tax liability to
the Post-Confirmation Estate and/or the holders of Allowed Claims. No ruling has
been or will be requested from the IRS concerning the tax status of the
Post-Confirmation Estate and there can be no assurance the IRS will not require
an alternative characterization of the Post-Confirmation Estate. If the
Post-Confirmation Estate were determined by the IRS to be taxable not as a
liquidating trust, as described in Treasury Regulation Section 301.7701-4(d),
the taxation of the Post-Confirmation Estate and the transfer of assets by the
Debtors to the Post-Confirmation Estate could be materially different than is
described herein and could have a material adverse effect on the holders of
Allowed Claims.
2. TAX REPORTING
The Plan Administrator will file tax returns with the IRS for
the Post-Confirmation Estate as a grantor trust in accordance with Treasury
Regulation Section 1.671-4(a). The Plan Administrator will also send to each
Beneficiary of the Post-Confirmation Estate a separate statement setting forth
the Beneficiary's allocable share of items of income, gain, loss, deduction or
credit and will instruct the Beneficiary to report such items on such
Beneficiary's federal income tax return.
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3. RESERVE FOR DISPUTED CLAIMS
The Plan Administrator must establish a reserve on account of
any distributable amounts required to be set aside on account of Disputed
Claims. Such amounts, net of certain expenses, shall be distributed as such
Disputed Claims are resolved as such amounts will have been distributable had
the Disputed Claims been Allowed Claims as of the Effective Date, together with
any net earnings related thereto. The Post-Confirmation Estate will pay taxes on
the taxable net income or gain allocable to holders of Disputed Claims on behalf
of such holders and, when such Disputed Claims are ultimately resolved, holders
whose Disputed Claims are determined to be Allowed Claims will receive
distributions from the Post-Confirmation Estate net of taxes which the
Post-Confirmation Estate had previously paid on their behalf.
C. Consequence to Holders of Claims
The federal income tax consequences of the Plan to a holder of
a Claim will depend upon several factors, including but not limited to: (i) the
origin of the holder's Claim, (ii) whether the holder is a resident of the
United States for tax purposes (or falls into any of the special classes of
taxpayers excluded from this discussion as noted above), (iii) whether the
holder reports income on the accrual or cash basis method, (iv) whether the
holder has taken a bad debt deduction or worthless security deduction with
respect to this Claim and (v) whether the holder receives distributions under
the Plan in more than one taxable year. HOLDERS ARE STRONGLY ADVISED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE TAX TREATMENT UNDER THE PLAN OF THEIR
PARTICULAR CLAIMS.
1. HOLDERS OF CLAIMS
Generally, a holder of an Allowed Claim will recognize gain or
loss equal to the difference between the "amount realized" by such holder and
such holder's adjusted tax basis in the Allowed Claim. The "amount realized" is
equal to the sum of the Cash and the fair market value of any other
consideration received under the Plan in respect of a holder's Claim, including,
to the extent such holder is a Beneficiary of the Post-Confirmation Estate, the
fair market value of each such holder's proportionate share of the assets
transferred to the Post-Confirmation Estate on behalf of and for the benefit of
such holder (to the extent that such Cash or other property is not allocable to
any portion of the Allowed Claim representing accrued but unpaid interest (see
discussion below)).
The transfer of the Post-Confirmation Estate Assets to the
Post-Confirmation Estate by the Debtors should be treated for federal income tax
purposes as a transfer of such Post-Confirmation Estate Assets to the holders of
Allowed Claims to the extent they are Beneficiaries of the Post-Confirmation
Estate, followed by a deemed transfer of such Post-Confirmation Estate Assets by
such Beneficiaries to the Post-Confirmation Estate. As a result of such
treatment, such holders of Allowed Claims will have to take into account the
fair market value of their pro rata share, if any, of the Post-Confirmation
Estate Assets
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transferred on their behalf to the Post-Confirmation Estate in determining the
amount of gain realized and required to be recognized upon consummation of the
Plan on the Effective Date. In addition, since a holder's share of the assets
held in the Post-Confirmation Estate may change depending upon the resolution of
Disputed Claims, the holder may be prevented from recognizing any loss in
connection with consummation of the Plan until the time that all such Disputed
Claims have been resolved. The Plan Administrator will provide the holders of
Allowed Claims with valuations of the assets transferred to the
Post-Confirmation Estate on the behalf of and for the benefit of such holders
and such valuations should be used consistently by the Post-Confirmation Estate
and such holders for all federal income tax purposes. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE RECOGNITION OF GAIN OR LOSS, FOR FEDERAL
INCOME TAX PURPOSES, ON THE SATISFACTION OF THEIR ALLOWED CLAIMS.
2. DISTRIBUTIONS IN DISCHARGE OF ACCRUED BUT UNPAID INTEREST
Pursuant to the Plan, distributions received in respect of
Allowed Claims will be allocated first to the principal amount of such Allowed
Claims, with any excess allocated to accrued but unpaid interest. However, there
is no assurance that the IRS will respect such allocation for federal income tax
purposes. Holders of Allowed Claims not previously required to include in their
taxable income any accrued but unpaid interest on an Allowed Claim may be
treated as receiving taxable interest, to the extent any consideration they
receive under the Plan is allocable to such accrued but unpaid interest. Holders
previously required to include in their taxable income any accrued but unpaid
interest on an Allowed Claim may be entitled to recognize a deductible loss, to
the extent that such accrued but unpaid interest is not satisfied under the
Plan. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE ALLOCATION OF
CONSIDERATION RECEIVED IN SATISFACTION OF THEIR ALLOWED CLAIMS AND THE FEDERAL
INCOME TAX TREATMENT OF ACCRUED BUT UNPAID INTEREST.
3. CHARACTER OF GAIN OR LOSS; TAX BASIS; HOLDING PERIOD
The character of any gain or loss as long-term or short-term
capital gain or loss or as ordinary income or loss recognized by a holder of
Allowed Claims under the Plan will be determined by a number of factors,
including, but not limited to, the status of the holder, the nature of the
Allowed Claim in such holder's hands, the purpose and circumstances of its
acquisition, the holder's holding period of the Allowed Claim, and the extent to
which the holder previously claimed a deduction for the worthlessness of all or
a portion of the Allowed Claim. The holder's aggregate tax basis for any
consideration received under the Plan will generally equal the amount realized
in the exchange (less any amount allocable to interest as described in the next
paragraph). The holding period for any consideration received under the Plan
will generally begin on the day following the receipt of such consideration.
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D. Consequences to Holders of Interests
Pursuant to the Plan, all Interests in all of the Debtors are
being extinguished. A holder of any Interest extinguished under the Plan should
generally be allowed a "worthless stock deduction" in an amount equal to the
holder's adjusted basis in the holder's Interest. A "worthless stock deduction"
is a deduction allowed to a holder of a corporation's stock for the taxable year
in which such stock becomes worthless. If the holder held the Interest as a
capital asset, the loss will be treated as a loss from the sale or exchange of
such capital asset. Capital gain or loss will be long-term if the Interest was
held by the holder for more than one year and otherwise will be short-term. Any
capital losses realized generally may be used by a corporate holder only to
offset capital gains, and by an individual holder only to the extent of capital
gains plus $3,000 of other income.
E. Withholding
All Distributions to holders of Allowed Claims under the Plan
are subject to any applicable withholding, including employment tax withholding.
The Debtors and/or the Post-Confirmation Estate will withhold appropriate
employment taxes with respect to payments made to a holder of an Allowed Claim
which constitutes a payment for compensation. Payors of interest, dividends, and
certain other reportable payments are generally required to withhold thirty-one
percent (31%) of such payments if the payee fails to furnish such payee's
correct taxpayer identification number (social security number or employer
identification number), to the payor. The Debtors and/or the Post-Confirmation
Estate may be required to withhold a portion of any payments made to a holder of
an Allowed Claim if the holder (a) fails to furnish the correct social security
number or other taxpayer identification number ("TIN") of such holder, (b)
furnishes an incorrect TIN, (c) has failed to properly to report interest or
dividends to the IRS in the past, or (d) under certain circumstances, fails to
provide a certified statement signed under penalty of perjury, that the TIN
provided is the correct number and that such holder 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.
AS INDICATED ABOVE, THE FOREGOING IS INTENDED TO BE A SUMMARY
ONLY AND NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN
SOME CASES, UNCERTAIN. ACCORDINGLY, EACH HOLDER OF A CLAIM OR INTEREST IS URGED
TO CONSULT SUCH HOLDER'S TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND
OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
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CONCLUSION AND RECOMMENDATION
The Debtors believe that the Plan is in the best interests of
all holders of Claims and Interests and urges the holders of impaired Claims in
Classes 4, 6, 7, 8, 9 and 10 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 4:00 p.m., Eastern Time, on November 16, 2000.
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Dated: Dallas, Texas
_____________, 2000
AMERISERVE FOOD DISTRIBUTION, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Senior Vice-President and General Counsel
AMERISERVE TRANSPORTATION, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President and Assistant Secretary
ASNSC, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Senior Vice-President and Secretary
CHICAGO CONSOLIDATED CORPORATION
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President
DELTA TRANSPORTATION, LTD.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President and Assistant Secretary
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HOLBERG WAREHOUSE PROPERTIES, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President
NAVC CORP.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President
NEBCO EVANS HOLDING COMPANY
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Senior Vice-President, General Counsel
and Secretary
NORTH AMERICAN VANTIX CORP.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Secretary
NORTHLAND TRANSPORTATION SERVICES, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President and Assistant Secretary
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PRO SOURCE MEXICO HOLDINGS, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President and Assistant Secretary
PSC SERVICES OF FLORIDA, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President and Secretary
PSD TRANSPORTATION SERVICES, INC.
DEBTOR AND DEBTOR IN POSSESSION
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Senior Vice-President and Secretary
VANTIX LOGISTICS, LTD.
By:
----------------------------------------------
Name: Kevin J. Rogan
Title: Vice-President
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EXHIBIT A
DEBTORS' THIRD AMENDED JOINT LIQUIDATING PLAN OF REORGANIZATION
EXHIBIT B
DISCLOSURE ORDER
EXHIBIT C
LIQUIDATION ANALYSIS
EXHIBIT D
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
EXHIBIT E
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM THE PETITION
DATE TO AUGUST 5, 2000.