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EXHIBIT 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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IN RE : CHAPTER 11
:
CONTIFINANCIAL CORPORATION, ET AL., : CASE NO. 00 B 12184 (AJG)
:
DEBTORS. : (JOINTLY ADMINISTERED)
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DISCLOSURE STATEMENT RELATING TO SECOND AMENDED JOINT
PLAN OF REORGANIZATION OF CONTIFINANCIAL CORPORATION
AND AFFILIATES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
DATED: NEW YORK, NEW YORK
NOVEMBER 9, 2000
DEWEY BALLANTINE LLP TOGUT, SEGAL & SEGAL LLP
BANKRUPTCY COUNSEL FOR CONTIFINANCIAL BANKRUPTCY COUNSEL FOR CONTIMORTGAGE
CORPORATION, ET AL. CORPORATION, ET AL.
DEBTORS-IN-POSSESSION DEBTORS-IN-POSSESSION
ATTN: RICHARD S. MILLER, ESQ. ATTN: ALBERT TOGUT, ESQ.
1301 AVENUE OF THE AMERICAS ONE PENN PLAZA
NEW YORK, NY 10019-6092 NEW YORK, NY 10119
(212) 259-8000 (212) 594-5000
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT..........................................................1
INTRODUCTION...................................................................2
A. Who is Entitled to Vote.............................................2
B. Definitions; Exhibits...............................................5
C. Notice to Creditors.................................................5
D. Disclosure Statement Enclosures.....................................7
E. Summary of Voting Procedures........................................7
F. Explanation of Chapter 11...........................................9
I. GENERAL INFORMATION....................................................10
A. General Background.................................................10
II. ACTIVITIES WITHIN THE CHAPTER II CASES.................................18
A. Filing.............................................................18
B. Administration of the Cases........................................18
C. Bankruptcy Court First Day Orders..................................18
D. Retention and Compensation of Professionals.......................18
E. The Debtors'Business Operations....................................20
F. Asset Sales........................................................20
G. Executory Contracts and Unexpired Leases...........................23
H. Other Matters......................................................24
I. Bar Date For Filing Proofs of Claims...............................25
J. Pension Benefit Guaranty Corporation Claims........................26
K. Notice Regarding Certain Potential Claims..........................27
III. SUMMARY OF THE PLAN....................................................30
A. Overview of the Plan...............................................30
B. Substantive Consolidation..........................................31
C. Summary of Classification and Treatment of Claims and
Equity Interest Under the Plan.....................................34
D. Establishments of Trusts; Implementation of Plan...................39
E. Distributions To Holders Of Claims And Interests...................43
IV. EFFECT OF THE PLAN ON CLAIMS AND INTERESTS.............................49
A. Jurisdiction of Court..............................................49
B. Binding Effect.....................................................49
C. Term of Injunctions or Stays.......................................49
D. Rights of Action...................................................49
E. Discharge..........................................................50
F. Preservation of Insurance..........................................51
V. EXECUTORY CONTRACTS....................................................51
A. Executory Contracts and Unexpired Leases...........................51
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B. Cure...............................................................51
C. Rejection Damages Bar Date.........................................52
D. Executory Contracts and Unexpired Leases Entered Into and
Other Obligations Incurred After the Petition Date.................52
VI. CONDITIONS TO CONFIRMATION AND OCCURRENCE OF EFFECTIVE DATE...........52
A. Conditions to Confirmation.........................................52
B. Conditions to Occurrence of Effective Date.........................52
C. Waiver of Conditions to Confirmation and Occurrence of
Effective Date.....................................................53
D. Effect of Nonoccurrence of the Conditions to Occurrence
of Effective Date..................................................53
VII. CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN.................53
A. Confirmability and Severability of a Plan..........................53
B. Cramdown...........................................................54
VIII. ADMINISTRATIVE PROVISIONS..............................................54
A. Retention of Jurisdiction..........................................54
B. Governing Law......................................................54
C. Administrative Bar Date............................................55
D. Effectuating Documents and Further Transaction.....................55
E. Limitation of Liability............................................56
F. Amendments.........................................................56
G. Successors and Assigns.............................................57
IX. ESTIMATED DISTRIBUTIONS................................................57
X. FINANCIAL PROJECTIONS..................................................58
A. Responsibility for and Purpose of the Projections..................58
B. Summary of Significant Assumptions.................................60
C. Special Note Regarding Forward-Looking Statements..................62
D. Financial Projections..............................................62
XI. VOTING REQUIREMENTS, ACCEPTANCE, CONFIRMATION AND
CONSUMMATION OF THE PLAN...............................................67
A. General............................................................67
B. Eligibility to Vote................................................67
C. Estimation and Temporary Allowance of Claims.......................68
D. Acceptance Requirements............................................68
E. Transmission of Ballots............................................68
F. Acceptances Required From Impaired Classes.........................69
G. Confirmation Without Acceptance of All Impaired
Classes ("Cram-down")..............................................69
H. Feasibility of the Plan............................................70
I. Best Interests of Creditors........................................71
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XII. COMPLIANCE WITH SECURITIES LAWS........................................71
A. Compliance of Securities Laws......................................71
XIII. CERTAIN RISK FACTORS TO BE CONSIDERED..................................72
A. Settlements Embodied in the Plan...................................72
B. Matters Affecting Trading..........................................72
C. Projected Financial Information....................................73
XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN....................73
A. Federal Income Tax Consequences Generally..........................74
B. Federal Income Tax Consequences to the Debtors.....................74
C. Federal Income Tax Consequences To Creditors With Allowed
Claims Upon Exchange...............................................76
D. Federal Income Tax Consequences of the Liquidating Trust...........77
E. Disputed Claims Reserve Trust......................................79
F. Withholding and Reporting..........................................80
XV. ALTERNATIVES TO CONFIRMATION OF THE PLAN...............................80
XVI. ALTERNATIVE PLANS OF REORGANIZATION....................................80
XVII. CONFIRMATION HEARING...................................................80
XVIII. CONCLUSION.............................................................82
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PRELIMINARY STATEMENT
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE.
NO PERSON MAY GIVE ANY INFORMATION ON BEHALF OF THE DEBTORS REGARDING
THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN, OTHER THAN THE
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT.
THIS DISCLOSURE STATEMENT IS DESIGNED TO PROVIDE ADEQUATE INFORMATION
TO ENABLE HOLDERS OF CLAIMS AGAINST THE DEBTORS TO MAKE AN INFORMED JUDGMENT ON
WHETHER TO ACCEPT OR REJECT THE PLAN. ALL CREDITORS ARE ADVISED AND ENCOURAGED
TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING
TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS
DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN
(WHICH IS ANNEXED HERETO AS EXHIBIT 1), OTHER EXHIBITS ANNEXED HERETO AND OTHER
DOCUMENTS REFERENCED AS FILED WITH THE COURT PRIOR TO THE END OF SOLICITATION
PERIOD FOR THE PLAN. SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE NO ASSURANCE
THAT: (A) THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN ARE MATERIALLY
ACCURATE, AND (B) THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
PERSONS OR ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING,
SELLING OR TRANSFERRING CLAIMS AGAINST THE DEBTORS SHOULD EVALUATE THIS
DISCLOSURE STATEMENT IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED, AND
SHOULD BE AWARE THAT ACTUAL DISTRIBUTIONS MAY VARY FROM THE ESTIMATES CONTAINED
HEREIN.
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE COURT AS
CONTAINING ADEQUATE INFORMATION OF A KIND AND IN SUFFICIENT DETAIL TO ENABLE
HOLDERS OF CLAIMS TO MAKE AN INFORMED JUDGMENT WITH RESPECT TO VOTING TO ACCEPT
OR REJECT THE PLAN. HOWEVER, THE COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT
DOES NOT CONSTITUTE A RECOMMENDATION OR DETERMINATION BY THE COURT WITH RESPECT
TO THE MERITS OF THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), OR SIMILAR PUBLIC GOVERNMENTAL OR
REGULATORY AUTHORITY AND NEITHER THE SEC NOR SUCH AUTHORITY HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT, THE INFORMATION
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CONTAINED HEREIN, OR THE MERITS OF THE PLAN OF REORGANIZATION. THE ISSUANCE OF
CERTAIN SECURITIES AS DESCRIBED HEREIN IN EXCHANGE FOR THE CANCELLATION OF
CERTAIN EXISTING INDEBTEDNESS HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR SIMILAR STATE OR "BLUE SKY" LAWS. THE ISSUANCE OF SUCH
SECURITIES ARE BEING MADE PURSUANT TO SECTION 1145 OF THE BANKRUPTCY CODE.
ALL CAPITALIZED TERMS AND PHRASES USED IN THIS DISCLOSURE STATEMENT AND
NOT OTHERWISE DEFINED HEREIN WILL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
PLAN.
INTRODUCTION
ContiFinancial Corporation ("CFN"), ContiMortgage Corporation ("CMC"),
ContiTrade Services LLC, ContiWest Corporation, ContiFinancial Services
Corporation, Resource One Consumer Discount Company, Inc., Warminster National
Abstract, Inc., Keystone Capital Group, Inc., Keystone Mortgage Investments,
Inc., ZTS Corporation, Resource One Mortgage of Oxford Valley, Inc., Resource
One Consumer Discount Co. of Minnesota, Inc., Resource One Mortgage of Delaware
Valley, Inc., ResourceCorp Financial, Inc., ContiInsurance Agency, Inc., Crystal
Mortgage Company, Inc., Lenders M.D., Inc., California Lending Group, Inc.,
ContiAsset Receivables Management L.L.C., Royal Mortgage Partners, L.P. and
Fidelity Mortgage Decisions Corporation (collectively, the "Debtors"), debtors
and debtors-in-possession"), in the above-captioned chapter 11 cases (the
"Chapter 11 Cases") pending in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court") under chapter 11 of the
United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq. (as amended, the
"Bankruptcy Code"), filed with the Bankruptcy Court a second amended plan of
reorganization, dated November 9, 2000, as may be amended from time to time (the
"Plan"), a copy of which is annexed hereto as Exhibit 1. The Debtors are
distributing this disclosure statement (the "Disclosure Statement"), pursuant to
section 1125 of the Bankruptcy Code, to provide the Debtors' creditors with
adequate information so that they can make an informed judgment on whether to
vote to accept or reject the Plan. Please read this Disclosure Statement and the
Plan carefully and follow the instructions set forth below to vote on the Plan.
A. WHO IS ENTITLED TO VOTE
The following entities are entitled to vote on the Plan:
(1) creditors of the Debtors that hold General Unsecured Claims;
(2) the lending institutions (collectively, the "Bank Group") that are
parties to that certain credit agreement dated January 7, 1997, as amended,
among CFN, the lenders parties thereto and Credit Suisse First Boston, as
administrative agent, and Credit Suisse First Boston, New York Branch and
Dresdner Bank AG, New York and Grand Cayman Branches as co-arrangers (the
"Credit Agreement"), and that certain amended and restated letter of credit and
reimbursement agreement, dated September 9, 1997, as amended and restated August
21, 1998, among CFN, The Participating Banks Thereto, Credit Suisse First
Boston, New York Branch, as
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Agent, Dresdner Bank AG, New York Branch as Issuing Bank, and Credit Suisse
First Boston, New York Branch and Dresdner Bank AG, New York and Grand Cayman
Branches as arrangers (the "CP Program," and together with the Credit Agreement,
the "Bank Facilities"); and
(3) holders of (i) 7 1/2% Senior Notes Due 2002, issued by CFN on March
1, 1997, (ii) 8 3/8% Senior Notes Due 2003, issued by CFN on August 15, 1996,
and (iii) 8 1/8% Senior Notes Due 2008, issued by CFN on March 4, 1998
(collectively, the "Senior Notes").
CFN has held extensive discussions with two unofficial committees
established prior to the Petition Date (as defined in Article II, Section A of
this Disclosure Statement): (i) an unofficial committee comprised of members of
the Bank Group (the "Unofficial Bank Group Committee") and (ii) an unofficial
committee comprised of certain holders of Senior Notes, specifically, American
Express Financial Advisors, Putnam Investment Management and other funds,
Salomon Brothers Asset Management, Inc., and Bennet Management, Inc. and the
Indenture Trustee, Wells Fargo Bank Minnesota, National Association, formerly
known as Norwest Bank Minnesota, National Association (collectively, the
"Unofficial Noteholders' Committee")(1). The Debtors have been advised by the
Unofficial Noteholders' Committee that the Unofficial Noteholders' Committee
holds over 50% of the Senior Notes. No other creditors' committee exists in
these cases.(2) The Plan is the product of those negotiations among the Debtors,
the Unofficial Bank Group Committee and the Unofficial Noteholders' Committee.
The Debtors' Boards of Directors and each of the Unofficial Committees urge you
to vote to accept the Plan.
The Debtors' principal legal advisors are Dewey Ballantine LLP ("Dewey
Ballantine") and Togut, Segal & Segal LLP ("Togut, Segal & Segal"). Their
financial advisors are The Blackstone Group ("Blackstone"). They can be
contacted at:
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DEWEY BALLANTINE LLP TOGUT, SEGAL & SEGAL LLP THE BLACKSTONE GROUP
1301 Avenue of the Americas One Penn Plaza - Suite 3335 345 Park Avenue
New York, NY 10019-6092 New York, NY 10119 New York, NY 10154
(212) 259-8000 (212) 594-5000 (212) 583-5000
Attn: Richard S. Miller, Attn: Albert Togut, Esq. Attn: Arthur B. Newman
Esq.
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The Unofficial Noteholders' Committee retained Akin, Gump, Strauss,
Hauer & Feld, L.L.P. ("Akin, Gump") as its legal advisor and Houlihan Lokey
Howard & Zukin ("Houlihan Lokey") as its financial advisor. These advisors can
be contacted at:
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1 The Unofficial Bank Group Committee and the Unofficial Noteholders'
Committee shall jointly be referred to herein as the "Unofficial Committees".
2 An official creditors' committee was appointed by the Office of the
United States Trustee on May 24, 2000. Upon the request of its members, the
United States Trustee disbanded that creditors' committee on June 29, 2000.
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AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. HOULIHAN LOKEY HOWARD & ZUKIN
590 Madison Avenue 601 Second Avenue, Suite 4950
New York, New York 10022 Minneapolis, Minnesota 55402
(212) 872-1000 (612) 338-2910
Attn: Daniel H. Golden, Esq. Attn: Jeff Werbalowsky
The Unofficial Bank Group Committee retained Weil Gotshal & Manges LLP
("Weil Gotshal") as its legal advisor and PriceWaterhouseCoopers LLP
("PriceWaterhouse") as its financial advisor. These advisors can be contacted
at:
WEIL, GOTSHAL & MANGES LLP PRICEWATERHOUSECOOPERS LLP
767 Fifth Avenue 1177 Avenue of the Americas
New York, New York 10153 New York, New York 10019
(212) 310-8000 (212) 596-8000
Attn: Marvin E. Jacob, Esq. Attn: Denis O'Connor
Judy G. Z. Liu, Esq.
The table on this page summarizes the treatment for creditors and
shareholders (equity interests) under the Plan. For a complete explanation,
please refer to the discussion in Article III, Section C of this Disclosure
Statement, entitled "Summary of Classification and Treatment of Claims and
Equity Interests Under the Plan" and to the Plan itself.
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ESTIMATED
CLASS DESCRIPTION TREATMENT RECOVERY
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Administrative Claims Unimpaired 100%
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Priority Tax Claims Unimpaired 100%
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1a Greenwich Repurchase Unimpaired See, Article III, Section
Facility Secured Claims C of this Disclosure
Statement
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1b Greenwich Whole Loan Unimpaired See, Article III, Section
Facility Secured Claims C of this Disclosure
Statement
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2a MBIA Claims Unimpaired See, Article III, Section
C of this Disclosure
Statement
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2b FGIC Claims Unimpaired See, Article III, Section
C of this Disclosure
Statement
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3 Other Secured Claims Unimpaired See, Article III, Section
C of this Disclosure
Statement
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4 Priority Claims Unimpaired 100%
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ESTIMATED
CLASS DESCRIPTION TREATMENT RECOVERY
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5 Bank Group Claims, Senior Impaired 15%(3)
Note Claims, and General
Unsecured Claims
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6 Convenience Claims Unimpaired 100%
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7 Subordinated Claims Impaired No Recovery
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8 Equity Interests in the Impaired No Recovery
Debtors
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The Plan is the product of extensive negotiations over the past several
months among the Debtors, their legal, financial and other professional
advisors, the members of the Unofficial Bank Group Committee (representing
holders of claims against the Debtors in the approximate amount of $338
million), and the members of the Unofficial Noteholders' Committee (who have
advised the Debtors that they hold in excess of 50% of the aggregate principal
amount of all Senior Notes) with the assistance of their respective legal and
financial advisors. The Boards of Directors of the Debtors have approved the
Plan and the transactions contemplated thereby and recommend that all creditors
whose votes are being solicited submit ballots to accept the Plan.
B. DEFINITIONS; EXHIBITS
1. Definitions. Unless otherwise defined herein, capitalized terms used
in this Disclosure Statement will be defined as set forth in the Plan or as
defined in the Bankruptcy Code.
2. Exhibits. All exhibits to this Disclosure Statement will be filed
with the Court on or before the date of the hearing on approval of this
Disclosure Statement and are incorporated as if fully set forth herein and are a
part of this Disclosure Statement.
C. NOTICE TO CREDITORS
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3 The estimates for these recoveries are explained more fully in
Article IX of this Disclosure Statement. As described more fully in Article X of
this Disclosure Statement, the Debtors believe that the estimated recoveries for
holders of Class 5 Claims will be increased by cash flow from certain ESRs (as
defined below) transferred to the Liquidating Trust. As provided in the
Preference Stipulation, the estimated recovery to the holders of Allowed Bank
Group Claims and Allowed Senior Note Claims will be reduced by an amount equal
to any professional fees paid by the Debtors to any professional retained by
each of the Unofficial Bank Group Committee and the Unofficial Noteholders'
Committee. As explained in Article III, Section C of this Disclosure Statement,
pursuant to the Compromise and Settlement, creditors holding Allowed General
Unsecured Claims against the Settlement Debtors will receive a Ratable
Distribution of the Settlement Debtors Premium.
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1. Purpose of Disclosure Statement. This Disclosure Statement is being
transmitted to holders of impaired Claims against the Debtors that are entitled
to vote to accept or reject the Plan (i.e., Class 5 - Bank Group Claims, Senior
Note Claims, and General Unsecured Claims). The Disclosure Statement is not
being transmitted to holders of Subordinated Claims or Equity Interests in the
Debtors (i.e., Classes 7 and 8) as no recovery is available to the holders of
these Claims or Interests.
The purpose of this Disclosure Statement is to provide creditors with
information that (i) summarizes the Plan and alternatives to the Plan, (ii)
advises creditors of their rights under the Plan, (iii) assists creditors
entitled to vote in making informed decisions as to whether they should vote to
accept or reject the Plan, and (iv) assists the Bankruptcy Court in determining
whether the Plan complies with the provisions of chapter 11 of the Bankruptcy
Code and should be confirmed. This Disclosure Statement contains important
information regarding (w) the Debtors' history, (x) developments in the Chapter
11 Cases, (y) the Plan, including a summary and analysis thereof, and (z)
considerations pertinent to acceptance or rejection of the Plan. This Disclosure
Statement is designed to provide holders of impaired Claims that are entitled to
vote to accept or reject the Plan with adequate information to enable such
holders to make a reasonably informed decision with respect to the Plan prior to
exercising the right to vote to accept or reject the Plan. All creditors are
encouraged to read this Disclosure Statement and its exhibits carefully and in
their entirety before deciding to vote either to accept or reject the Plan.
2. Information Contained in this Disclosure Statement. This Disclosure
Statement is the only document authorized by the Bankruptcy Court to be used in
connection with the solicitation of votes accepting the Plan. No solicitation of
votes may be made except pursuant to this Disclosure Statement, and no Person
has been authorized by the Bankruptcy Court or the Debtors to use or disclose
any information concerning the Debtors other than the information contained
herein. Other than as explicitly set forth in this Disclosure Statement, you
should not rely upon any information relating to the Debtors, their estates, the
value of their assets, the nature or amounts of their liabilities, their
creditors' Claims, or the amount or value of any distributions made under the
Plan. All financial information contained in this Disclosure Statement has been
provided by the Debtors. The financial information contained herein as described
in Article X ("Financial Projections") of this Disclosure Statement has not been
the subject of a certified audit and has not been prepared in accordance with
generally accepted accounting principles. This Disclosure Statement is accurate
to the best of the Debtors' knowledge, information and belief. The Debtors have
endeavored to make this Disclosure Statement as clear and comprehensive as
possible in order to furnish creditors with adequate information to make an
informed decision regarding acceptance or rejection of the Plan.
PLEASE READ THIS DISCLOSURE STATEMENT, INCLUDING THE PLAN, IN ITS ENTIRETY PRIOR
TO VOTING ON THE PLAN. A COPY OF THE PLAN IS ANNEXED HERETO AS EXHIBIT 1. THIS
DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN, FOR THE CONVENIENCE OF
CREDITORS, BUT THE PLAN ITSELF QUALIFIES ALL SUCH SUMMARIES. ACCORDINGLY, IF
THERE EXISTS ANY INCONSISTENCY BETWEEN THE PLAN AND THIS DISCLOSURE STATEMENT,
THE TERMS OF THE PLAN WILL CONTROL.
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D. DISCLOSURE STATEMENT ENCLOSURES.
Accompanying the Disclosure Statement are the following enclosures:
1. Disclosure Statement Approval Order. A copy of the order of the
Court dated November 10, 2000, approving this Disclosure Statement and, among
other things, establishing procedures for voting on the Plan, and scheduling the
hearing to consider, and the deadline for objecting to, confirmation of the Plan
(the "Disclosure Statement Approval Order").
2. Notice of Confirmation Hearing. A copy of the notice of the deadline
for submitting ballots to accept or reject the Plan and, among other things, the
date, time and place of the hearing to confirm the Plan, and the deadline for
filing objections to confirmation of the Plan (the "Notice of Confirmation
Hearing").
3. Ballots. One or more ballots (and return envelopes) for voting to
accept or reject the Plan, unless you are not entitled to vote. See Article XI
below for an explanation of which parties-in-interest are entitled to vote.
E. SUMMARY OF VOTING PROCEDURES.
To be counted, your vote, if being sent by mail, must be received,
pursuant to the following instructions, by the Debtors' Voting Agent at the
following address, before the Voting Deadline of 5:00 p.m. (Eastern Time) on
December 13, 2000.
ContiFinancial Corporation, et al.
c/o Donlin, Recano & Company, Inc.
P.O. Box 2034
Murray Hill Station
New York, New York 10156
Or, if being sent by hand, to the following address:
ContiFinancial Corporation, et al.
c/o Donlin, Recano & Company, Inc.
419 Park Avenue South, Suite 1206
New York, New York 10016
Or, if you are the beneficial owner of a Senior Note, or the nominee of
a beneficial owner, you may return your ballot by facsimile to:
ContiFinancial Corporation, et al.
c/o Donlin, Recano & Company, Inc.
Facsimile Number: (212) 481-1416
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1. IF YOU ARE, AS OF THE NOVEMBER 8, 2000 RECORD DATE, THE BENEFICIAL
OWNER OF SENIOR NOTES:
IF THE NOTES ARE REGISTERED IN YOUR OWN NAME: Please complete the
information requested on the Ballot, sign, date and indicate your vote
on the Ballot, and return the Ballot in the enclosed, pre-addressed
envelope so that it is actually received by the Voting Agent before the
Voting Deadline.
IF THE SENIOR NOTES ARE REGISTERED IN "STREET NAME":
IF YOUR BALLOT HAS ALREADY BEEN SIGNED (OR "PREVALIDATED") BY YOUR
NOMINEE (YOUR BROKER, BANK, OTHER NOMINEE OR THEIR AGENT): Please
complete the information requested on the Ballot, and indicate your
vote on the Ballot, and return your completed Ballot in the enclosed,
pre-addressed envelope so that it is actually received by the Voting
Agent before the Voting Deadline.
OR
IF YOUR BALLOT HAS NOT BEEN SIGNED (OR "PREVALIDATED") BY YOUR NOMINEE
(YOUR BROKER, BANK, OTHER NOMINEE, OR THEIR AGENT): Please complete the
information requested on the Ballot, sign, date and indicate your vote
on the Ballot, and return completed Ballot to your nominee in
sufficient time for your nominee to then forward your vote to the
Voting Agent so that it is actually received by the Voting Agent before
the Voting Deadline.
2. IF YOU ARE THE NOMINEE FOR A BENEFICIAL OWNER, AS OF THE NOVEMBER 8,
2000 RECORD DATE, OF SENIOR NOTES: Please forward a copy of this Disclosure
Statement and the appropriate Ballot to each beneficial owner, AND:
ALL BALLOTS THAT YOU HAVE SIGNED (OR "PREVALIDATED") should be
completed by the beneficial owners and returned by the beneficial
owners directly to the Voting Agent so that such Ballots are received
by the Voting Agent before the Voting Deadline.
ALL BALLOTS THAT YOU HAVE NOT SIGNED (OR "PREVALIDATED") must be
collected by you, and you should complete the Master Ballot, and
deliver the completed Master Ballot to the Voting Agent so that it is
actually received by the Voting Agent before the Voting Deadline.
3. IF YOU ARE A SECURITIES CLEARING AGENCY: Please arrange for your
respective participants to vote by executing an omnibus proxy in their favor.
4. IF YOU ARE A MEMBER OF THE BANK GROUP OR IF YOU HOLD A GENERAL
UNSECURED CLAIM:
Please complete the information requested on the Ballot, sign, date and
indicate your vote on the Ballot, and return completed Ballot in the
enclosed pre-
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addressed, postage-paid envelope so that it is actually received by the
Voting Agent before the Voting Deadline.
5. ELECTION TO RECEIVE CASH ONLY (ONLY FOR HOLDERS OF GENERAL UNSECURED
CLAIMS):
In addition to voting to accept or reject the Plan, holders of General
Unsecured Claims (not holders of Senior Notes or members of the Bank
Group) may use their Ballot to elect not to be a part of Class 5 that
will receive a Ratable Share of Class 5 Cash and Trust Assets but to be
placed in Class 6 Convenience Class and receive Cash equal to the
lesser of (a) 100% of their claims or (b) $1000. Creditors holding
General Unsecured Claims may make this election by marking the
appropriate box on their Ballot. If you elect to have your claim placed
in Class 6, you will be unimpaired under the Plan and will be deemed to
have voted for approval of the Plan.
IF YOU ARE A HOLDER OF A CLAIM AND YOU HAVE RETURNED YOUR BALLOT, BUT FAILED TO
INDICATE ON YOUR BALLOT WHETHER YOU ACCEPT OR REJECT THE PLAN, SUCH BALLOT WILL
BE COUNTED AS AN ACCEPTANCE OF THE PLAN.
F. EXPLANATION OF CHAPTER 11.
Chapter 11 is the principal reorganization vehicle of the Bankruptcy
Code. Pursuant to chapter 11, a debtor is authorized to reorganize its affairs
for its benefit and the benefit of its creditors. In a chapter 11 case the
debtor typically remains in control of the estate as the "debtor-in-possession."
Upon filing a petition for chapter 11 reorganization and during the pendency of
a reorganization case, the Bankruptcy Code imposes an automatic stay against
creditors' attempts to collect or enforce, through litigation or otherwise,
claims against the debtor. The automatic stay provisions of section 362 of the
Bankruptcy Code, unless lifted by court order, will generally prohibit or
restrict attempts by secured or unsecured creditors or other claimants to
collect or enforce any claims against the debtor that arose prior to the
commencement of the chapter 11 case.
The Bankruptcy Code provides for the creation of an official committee
of unsecured creditors in a chapter 11 case. On May 24, 2000, the United States
Trustee appointed an Official Committee of Unsecured Creditors (the "Official
Creditors Committee"). On June 29, 2000, upon the request of its members, the
United States Trustee disbanded the Official Creditors' Committee. Since the
disbandment of the Official Creditors' Committee, the Unofficial Committees
continue to function as they did prior to the Petition Date.
The provisions of the Bankruptcy Code are designed to encourage the
parties in interest in a chapter 11 proceeding to negotiate the terms of a plan
of reorganization so that it may be confirmed. The plan of reorganization is the
vehicle for satisfying the claims against and interests in the debtor. After the
plan of reorganization has been filed, the holders of claims against and/or
interests in a debtor may be permitted to vote to accept or reject the plan.
Section 1125 of the Bankruptcy Code requires a debtor, before soliciting
acceptances of the proposed
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plan, to prepare a disclosure statement containing adequate information of such
kind, and in such detail, as to enable a hypothetical reasonable investor to
make an informed judgment about the plan. The Court has determined that this
Disclosure Statement meets that test.
I. GENERAL INFORMATION
A. GENERAL BACKGROUND
1. Description of the Debtors' Businesses. CFN is a Delaware
corporation with its principal place of business at 277 Park Avenue, New York,
New York 10172. CFN is the direct parent of CMC and it is either the direct or
indirect parent of the other Debtors or directly or indirectly owns
substantially all of the equity in the other Debtors. Prior to February 1996,
CFN was a wholly-owned subsidiary of ContiGroup Companies, Inc. ("ContiGroup,"
formerly known as Continental Grain Company). ContiGroup is a privately held,
multinational Delaware corporation. In February 1996, through a public offering
of equity, CFN issued 7,130,000 shares of common stock. On May 29, 1997, CFN
issued an additional 2,800,000 shares of common stock. ContiGroup presently owns
approximately 78% of CFN's outstanding common stock. In addition, CFN has issued
three offerings of debt aggregating to approximately $700 million, 7 1/2% Senior
Notes Due 2002, issued March 1, 1997, 8 3/8% Senior Notes Due 2003, issued
August 15, 1996, and 8 1/8% Senior Notes Due 2008, issued March 4, 1998.
The Debtors were a leading originator, purchaser, seller, securitizer
and servicer of home equity loans, concentrating on lending to individuals whose
borrowing needs generally were not being served by traditional financial
institutions due to such individuals' impaired credit profiles and other
factors. Loan proceeds typically were used by such individuals to consolidate or
refinance debt, to finance home improvements, to pay educational expenses and
for a variety of other uses.(4) By focusing on individuals with impaired credit
profiles and providing prompt responses to their borrowing requests, the Debtors
were able to charge higher interest rates for their loan products than typically
were charged by conventional mortgage lenders. As of the Petition Date, the
Debtors employed approximately 1,300 people.
In the ordinary course of their business, the Debtors had significant
cash needs in order to fund loan purchases and originations, payment of interest
costs, funding of over-collateralization requirements for securitizations,
operating expenses, income taxes, acquisitions and capital expenditures.
Adequate credit facilities and other sources of funding, including the ability
of the Debtors to sell loans through whole loan sales and securitizations, were
essential to the continuation of the Debtors' ability to purchase and originate
loans.
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4 Historically, the Debtors operated as a more diversified consumer and
commercial financial intermediary that originated, securitized and serviced
various loan products in addition to home equity loans. These products included
commercial real estate loans, high loan-to-value mortgages, non-prime auto
loans, charged-off consumer receivables, equipment leases and franchise loans.
Due to the unavailability of necessary capital, the Debtors were unable to
continue financing these diversified product lines. As a result, during the
approximately 18 months preceding the Petition Date, the Debtors restricted
their focus to the core home equity loan business and reduced or eliminated most
of their other loan products and businesses.
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The primary funding strategy for the Debtors was in recognition of
gains in connection with securitizations and whole loan sales. In the typical
securitization transaction, the Debtors sold loans or other assets to a special
purpose entity, established for the limited purpose of buying assets from the
Debtors and transferring such assets to a trust. The trust issued
interest-bearing securities that were collateralized by the underlying pool of
mortgage loans or other assets, as the case may be. The proceeds were used as
consideration to purchase the assets from the Debtors. Typically, the Debtors
retained the residual interests (or a portion thereof) represented by residual
class certificates and interest-only certificates (the "Residual Interests" or
"ESRs"). By retaining the Residual Interests, the Debtors are entitled to
receive the excess cash flows generated by the securitized loans generally
calculated as the difference between (a) the monthly interest payments from the
loans and (b) the sum of (i) pass-through interest paid to third-party
investors, (ii) trustees fees, (iii) third-party credit enhancement fees, and
(iv) servicing fees. The Debtors' right to receive this excess cash flow stream
began after certain over-collateralization requirements had been met, which were
specific to each securitization and were used to provide credit enhancement for
the senior securities issued by the trust.
The Debtors also retained the rights (the "Servicing Rights") to
service the pool of mortgages owned by the trust. Servicing included collecting
payments from borrowers, remitting payments to investors who have purchased the
loans, investor reporting, accounting for principal and interest, contacting
delinquent borrowers, conducting foreclosure proceedings and disposing of
foreclosed properties. These Servicing Rights were valuable to the Debtors, as
they recognized income from fees, pre-payment penalties and late payment charges
earned for servicing loans.
At the time of the securitization and the delivery of the loans, the
Debtors recognized gain on sale based on a number of factors including the
difference, or "spread," between the interest rates on the loans and the
interest rate paid to investors (which typically was priced based on Treasury
securities with a maturity corresponding to the anticipated life of the loans).
If interest rates rose between the time the Debtors originated or purchased the
loans and the time the loans were priced at securitization, the spread narrowed,
resulting in a loss in value of the loans.
To protect against such losses, the Debtors hedged the value of the
loans through the short sale of Treasury securities. Prior to hedging, the
Debtors performed an analysis of their loans taking into account, among other
things, interest rates and maturities to determine the amount, type, duration
and proportion of each Treasury security to sell short so that the risk to the
value of the loans was effectively hedged. The Debtors executed the sale of the
Treasury securities with large, reputable securities firms and used the proceeds
received to acquire Treasury securities under repurchase agreements with large,
reputable securities firms.
To meet their cash needs, the Debtors entered into the Bank Facilities
with the Bank Group, as well as short term loan agreements ("Warehouse
Facilities") with various lenders (collectively, the "Warehouse Lenders"). Prior
to a loan securitization or whole loan sale, CFN borrowed funds on a short term
basis under their Warehouse Facilities to support the accumulation of loans.
When the Debtors had accumulated an adequate number of loans, such loans were
either securitized or sold in whole loan sales; virtually every loan which the
Debtors
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originated or purchased was sold through either a securitization or whole loan
sale. While the Warehouse Facilities generally had one-year terms, certain of
the Warehouse Facilities, had automatic renewal features subject to the absence
of defaults. Other than the Greenwich Facility (as defined below), the Warehouse
Facilities have been repaid and terminated pursuant to their terms.
From 1996 through 1998, the Debtors engaged in a calculated expansion
of their origination business by purchasing all or a substantial interest in
California Lending Group, Inc., d/b/a United Lending Group, Royal Mortgage
Partners, L.P., d/b/a Royal MortgageBanc, Triad Financial Corporation
("Triad"),(5) Resource One Consumer Discount Company, Inc., Fidelity Mortgage
Decisions Corporation, Crystal Mortgage Company, Inc. and its subsidiary Lenders
M.D., Inc., and Keystone Mortgage Partners L.L.C.
As stated, the Debtors' business operations required continual access
to short-and long-term sources of debt and equity capital. Historically, the
Debtors found their warehouse and other facilities as well as
internally-generated funds sufficient to fund the Debtors' liquidity
requirements. However, as set forth below, severe and unexpected market
turbulence caused significant losses for the Debtors and commenced the chain of
events resulting in the commencement of the Chapter 11 Cases.
2. Market Turbulence in 1998 and Thereafter. The Debtors' operations
were significantly and adversely affected by severe market conditions that
commenced in August 1998. During this period, with economic conditions
deteriorating in Russia and Asia, fixed income investors purchased large amounts
of U.S. Treasury securities, causing U.S. Treasury yields to decrease
significantly. As investor demand for U.S. Treasury securities increased, the
demand for other fixed income securities declined dramatically, causing yields
on such other securities to rise relative to U.S. Treasury securities. Since
almost all of the Debtors' loan originations were ultimately funded by the
issuance of securities backed by the loans it originated (i.e., through
securitizations), these unusual interest rate movements affected the market
value of all of the Debtors' originations, causing significant losses and
leading to a critical loss of liquidity.
By late September 1998, the interest rate movements had caused the near
collapse of a large hedge fund controlling over $90 billion in financial assets.
These events panicked the world's banking systems and further eroded the value
of financial securities. In October 1998, a large investor in the subordinate
classes of securities issued in commercial loan securitizations filed for
bankruptcy protection under the weight of margin calls by its lenders. These
margin calls were made because of a loss in value of the securities which
collateralized the investor's borrowings. This bankruptcy removed a large source
of liquidity from the commercial loan securitization market and had an adverse
effect on certain of the remaining lenders in this market, including the
Debtors.
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5 On June 11, 1999, the Debtors sold their interest in Triad. A portion
of the proceeds of the sale of Triad were used to repay a portion of the amounts
owing to the Bank Group under the Bank Facilities.
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The impact of these events upon the Debtors were severe, but as
described below, the Debtors were able to stabilize their operations
sufficiently to attempt to sell certain of their business and try to sell CFN
and repay significant indebtedness. Other similar companies were not as
successful in surviving the immediate impact of these events. Among large
companies in the Debtors' industry which sought bankruptcy relief were Southern
Pacific Funding Corporation (October 1, 1998); Cityscape Financial Corp.
(October 6, 1998), CRIIMI MAE Inc. (October 5, 1998), United Companies Financial
Corporation (March 1, 1999), FirstPlus Financial Group, Inc. (March 5, 1999);
and Harbor Financial Group, Inc. (October 14, 1999). It was evident that the
industry as a whole was suffering under enormous financial pressure.(6)
The immediate impact of these events on CFN was an increase to CFN's
margin requirements under their Warehouse Facilities. In addition, CFN
experienced significant losses in certain hedge positions in which it had
invested in order to hedge certain exposure relating to sustained decreases in
interest rates as well as decreases in the overall mortgage-backed security
market. In response to the decline in market value of the inventory securing the
Warehouse Facilities, CFN's lenders continued to make margin calls for
additional cash collateral. The most significant hedge losses and margin calls
occurred in CFN's commercial loan portfolio due to the longer durations
associated with these loans and in the Debtors' high loan-to-value business
because of the more limited funding options for this product.
The Debtors immediately took steps to reduce their financing needs and
provide continued access to liquidity. Unable to obtain needed liquidity, the
Debtors negotiated for ContiGroup to provide a facility for monthly servicer
advances, up to an aggregate outstanding amount of $85 million, to certain
securitization trusts for which CMC was the servicer. Although the advances were
made to, and repaid by, the securitization trusts, and not the Debtors,
ContiGroup's advances improved the liquidity of the Debtors by relieving them of
their obligations to make a significant portion of these monthly cash advances
from the Debtors' remaining reserve. In June 1999, ContiGroup also extended a
short-term warehouse financing facility to the Debtors for a maximum amount of
$60 million. Both of these facilities ended and were terminated pursuant to
their terms prior to the Petition Date. The monthly servicer advance facility
was replaced by a servicer advance facility provided by Greenwich as described
below.
3. Events Leading to the Filing of the Debtors' Chapter 11 Cases. By
early 1999, it became obvious that the Debtors would not be able to continue
their operations without a significant equity infusion. To that end, the Debtors
solicited offers from third parties who might be interested in purchasing the
Debtors, including Residential Funding Corporation ("RFC"), a subsidiary of
General Motors Acceptance Corporation. On May 14, 1999, the Debtors signed an
indication of interest letter with RFC under which RFC indicated its interest in
acquiring all of the outstanding common stock of CFN. On July 2, 1999, a second
indication of interest letter was signed with RFC, again for the acquisition of
all of the outstanding common stock of CFN, but on revised business terms. This
transaction would have resulted in the assumption or repayment of the Debtors'
then-outstanding financings and ordinary course
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6 The industry continues to suffer. Recently, two large sub-prime
lenders closed their operations. The Money Store, closed its operations in June
of 2000 and Conseco Finance, Inc. announced a reorganization that would close
five of its lending units in July of 2000.
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indebtedness, and a payment to shareholders for their equity interests.
Definitive documentation for the acquisition was negotiated with RFC. On July
14, 1999, the day of the expected signing of the definitive documentation, RFC
informed the Debtors that it had determined not to proceed with the acquisition.
In light of the failure to consummate the transaction with RFC, and
with the impending expiration of its credit facilities, the Debtors hired Alan
Fishman as Chief Executive Officer of CFN and Chairman of the Board of Directors
of CMC. Under Mr. Fishman's direction, senior management undertook a thorough
review of the Debtors' business operations, capitalization, financial condition,
and future prospects. After that review, the Debtors' senior management
determined that they should pursue a plan (the "Restructuring Plan") of reducing
the Debtors' size, eliminating unnecessary Warehouse Facilities that could
further destabilize the Debtors through margin calls, and other operating
restrictions, negotiating for the restructuring or extension of the Debtors'
credit facilities with the Bank Group and recommencing the search for an equity
investor in the Debtors or buyers of the Debtors' remaining businesses.
Pursuant to the Restructuring Plan, in August 1999, CFN entered into a
definitive agreement with Greenwich Capital Financial Products, Inc.
("Greenwich"), a subsidiary of Greenwich Capital Markets, Inc., to provide CFN
with a $500 million revolving servicing-released whole loan purchase facility
(the "Greenwich Whole Loan Purchase Facility") with a maximum aggregate purchase
commitment of $1.5 billion, at the Debtors' option, through March 31, 2000.
Greenwich also agreed to provide a warehouse facility of up to $250 million on a
revolving basis (the "Greenwich Repurchase Facility," and together with the
Greenwich Whole Loan Purchase Facility, the "Greenwich Facilities") to CFN.
Under an Amended and Restated Pledge Agreement, as amended, dated as of August
31, 1999, referencing the Greenwich Facilities, Greenwich was granted a security
interest in certain property of the Debtors, including, without limitation, (i)
mortgage loans underlying the certain securitizations and (ii) certain
designated excess spread receivables. The Greenwich Facilities had an original
maturity date of March 31, 2000. In addition to the two facilities, Greenwich
agreed to underwrite an approximately $800 million securitization of home equity
loans that were funded under CFN's various warehouse facilities. That
securitization successfully closed in August 1999. In addition to the August
securitization transaction, CFN also entered into several whole loan sales in
order to generate much needed cash flow and to repay remaining amounts
outstanding under various warehouse lines.
The Bank Facilities contained certain financial covenants which CFN was
obligated to meet. Because of the significant losses sustained by CFN, CFN found
itself in potential breach of such financial covenants. CFN was successful in
negotiating amendments which eliminated potential defaults. On August 19, 1999,
CFN reached an agreement with the Bank Group to extend the maturity date of the
Bank Facilities from August 20, 1999 to March 31, 2000. In consideration of this
extension, CFN agreed to pledge to the Bank Group certain ESRs.
Also, in August 1999, the Debtors began the implementation of a
workforce reduction plan which resulted in the termination of approximately 30%
of the Debtors' employees in order to achieve the strategic goals of focusing
the Debtors' origination efforts on the channels with the greatest potential and
reducing the Debtors' overall size and expense
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structure. Within 45 days of his arrival, Mr. Fishman and the senior management
team implemented a Restructuring Plan that enabled the Debtors to repay in
excess of $1 billion of warehouse loan debt, extend its other credit facilities,
pay interest on the Bank Facilities and the three issued Senior Notes, obtain
additional financing from Greenwich, sell and securitize loan portfolios as
necessary to enable continued operations, recommence efforts to sell the
businesses or find a merger partner to create a transaction that could replace
the failed RFC deal, and reduce the Debtors' size and refocus their business
operations.
With the objectives of the Restructuring Plan underway, the Debtors
re-launched their efforts to explore strategic alternatives. With the assistance
of their professionals, the Debtors pursued various strategic alternatives,
including, but not limited to, a sale of the Debtors, sales of one or more of
the business operations and/or assets of the Debtors with or without additional
equity capital.
During this period of time, the Debtors' senior management team in
discussions with the existing pre-petition Bank Group and advisors to the
Unofficial Noteholders' Committee informed them that while exploring these
various strategic alternatives, the Company would also prepare a stand-alone
business plan in case it was needed. The Debtors' goal was to fully explore
available alternatives, and to move forward with a course of action most likely
to bring the best available return.
During the fiscal quarter ending December 31, 1999, the Debtors and
their advisors identified and contacted potential parties to pursue one or more
of these strategic alternatives. The Debtors had received indications of
interest from several such parties for the purchase of various groups of assets
of the Debtors, and the interested parties conducted reviews of the Debtors and
the Debtors' assets.
In addition, while exploring sales opportunities and developing the
stand-alone business plan, the Debtors continued efforts to stabilize their
remaining business operations. To that end, several employee incentive programs
were implemented in order to ensure that key personnel remained with the Debtors
and steps were taken, including the commencement of legal proceedings in
Pennsylvania, to prevent third parties from depleting the Debtors' remaining
work force and depleting key personnel.
Commencing in February, 2000, the Debtors initiated intense discussions
with the Bank Group and the Unofficial Noteholders' Committee concerning
available alternatives. The following institutions holding in the aggregate in
excess of 50% of the Senior Notes agreed to serve on the Unofficial Noteholders'
Committee and receive confidential, non-public information about the Debtors:
Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, Putnam
Investment Management, Inc., American Express Financial Corporation, Salomon
Brothers Asset Management, Inc. and Bennett Management.
On March 30, 2000, CFN and the Bank Group entered into a Forbearance
Agreement, whereby the Bank Group agreed not to enforce its rights and remedies
until June 10, 2000. As consideration for entering into the Forbearance
Agreement, CFN conveyed to the agent of the Bank Group on behalf of the Bank
Group the collateral securing the Bank Facilities, thereby reducing the claim of
the Bank Group by $84 million. The Debtors additionally paid
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interest on the Senior Notes through April 30, 2000. The Greenwich Repurchase
Facility was also extended through April 28, 2000.
After exploring every alternative, the Debtors informed their creditors
that they believed it was desirable and in the best interest of the estates and
their creditors for the Debtors to sell their assets relating to the servicing
business. The Debtors believed that maximization of the estates' value could
best be accomplished by retaining the value of the Debtors' ESRs in combination
with the sale of the Debtors' servicing business to try to ensure that the ESRs
would continue to be properly serviced. The Debtors recommended this course of
action for several reasons. The nature of the Debtors' most significant and
valuable assets, the ESRs, are such that their value depends not only on the
mortgages underlying the various securitization loan pools but on the efficiency
of the servicer. This is because the holders of ESRs will be paid after the
holders of the senior securities are paid and after the servicer's costs are
subtracted. Accordingly, the efficiency of the servicer and the ability of the
servicer to extract mortgage payments is crucial to the maximization of the
value of the ESRs. After extensive review and financial analysis, it was unclear
whether CMC, as a stand-alone servicer, would be able to attract sufficient
financing and maintain sufficient liquidity to continue to operate as a first
class servicing operation. In addition, without the ability to obtain newly
originated loans and with the existing loans in securitizations that were
winding down to maturity, it would be difficult for CMC as a stand-alone
servicing entity to justify the costs necessary to maintain the infrastructure
needed to service the loans in a manner that would maximize the value of the
ESRs. In fact, financial projections showed that after several years, CMC would
begin to incur significant losses, while pay-outs from the ESRs would not be not
maximized until after that time. Further, given the fact that a stand-alone
entity would be servicing a diminished loan pool, it was unclear whether
necessary key employees could be retained without costly retention programs.
Finally, any servicing entity would need the support of certain
certificate insurers. For each of the existing securizations, an insurance
policy was issued by a certificate insurer (the "Certificate Insurer") in favor
of senior holders of certificates. Under the insurance policies and the various
pooling and servicing agreements ("PSAs"), the Certificate Insurers insure that
the holders of the senior certificates receive all required payments, even if
the servicer fails to perform and collect payments on the mortgages in the
securitization pool. For that reason, the PSAs provide the Certificate Insurers
the right to terminate the servicer under certain circumstances. A termination
and transfer of the Servicing Rights of CMC, under adverse circumstances, would
have a severe and detrimental effect on the ESRs. Thus, it was important for the
Certificate Insurers to support the servicing entity in this case in order to
protect the ultimate value of the ESRs. Indeed, it was imperative that the
servicing platform be stabilized immediately because the Certificate Insurers
had asserted that unless they consented to a transfer, they either currently
have or will have in the future the right to terminate CMC (or any purchaser of
the Servicing Rights), as servicer on all of their securitization pools.
Accordingly, for all of the reasons stated above, it was management's
reasoned decision, with the support of its major creditor interests, to sell
CMC's servicing business. At the conclusion of an exhaustive sales process,
including negotiations with several potential purchasers of the servicing
business, the Debtors determined to enter into a transaction with Fairbanks
Capital Corp. ("Fairbanks") as soon as practicable. Fairbanks, a nationally
recognized servicer based in Salt Lake City, had a $6 billion servicing
portfolio of loans, and was familiar
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with the servicing of sub-prime loans similar to those being serviced by the
Debtors. More importantly, Fairbanks intended to maintain the Hatboro servicing
location thereby facilitating the uninterrupted servicing, maximization of
collections and minimization of shutdown costs.
In anticipation of the sale of CMC's servicing business to Fairbanks
and in order to stabilize operations at the servicing platform, CMC and
Fairbanks entered into that certain Interim Collections Services Management
Agreement, by and among CMC and Fairbanks, dated May 12, 2000 (the "Management
Agreement"). The Management Agreement provided for Fairbanks to manage and
supervise the servicing obligations of the Debtors pending the sale of the
Debtors' Servicing Rights and related assets. On May 12, 2000, CMC and Fairbanks
also entered into that certain asset purchase agreement (the "Fairbanks Asset
Purchase Agreement") which provided, inter alia, for the transfer of CMC's
servicing business to Fairbanks after the commencement of the Debtors' Chapter
11 Cases subject to Court review and approval. Further, on that same day, CMC
and MBIA entered into that certain side servicing agreement (the "MBIA
Agreement"), whereby MBIA extended CMC's right to act as servicer, to enable CMC
to consummate the sale of its Servicing Rights to Fairbanks, or to another
servicer acceptable to MBIA, in exchange for certain rights and concessions,
which are described in Article II, Section F of this Disclosure Statement.
During fiscal year 2000, after careful study, the Debtors had also
determined that it would be in the best interest of their estates that they exit
the business of originating loans (the "Origination Business"). In order to
facilitate the sale or transfer of the Origination Business prior to the
Petition Date, the Debtors transferred some of the assets relating to the
Origination Business to Avatar Financial Corp. ("Avatar"), a wholly-owned
subsidiary of CMC. The Debtors formed Avatar in January, 2000 for the sole
purpose of facilitating the sale of the Origination Business. Consequently, the
Debtors commenced, with the assistance of various professionals, a targeted
marketing effort to acquire a purchaser of the Origination Business. After the
Debtors' marketing efforts turned up no buyers that would contribute value to
the Origination Business, the Debtors determined that a proposal to acquire most
of the remaining Origination Business made by certain of CMC's senior managers
who operate the Origination Business (the "CMC Senior Managers") was the best
available way to exit the Origination Business. The Debtors also located buyers
for certain specific origination business lines, specifically, California
Lending Group, Inc. and Royal Mortgage Partners L.P.
The CMC Senior Managers formed Avatar Acquisition L.L.C. ("Acquisition
L.L.C."), an entity whose Board of Directors consists of the CMC Senior
Managers. As of the date hereof, it is anticipated that Acquisition L.L.C. will
purchase the stock of Avatar. The Debtors believe that the sale of Avatar to the
CMC Senior Managers through the Acquisition L.L.C. vehicle is in the best
interests of these estates and will minimize the costs that would otherwise be
incurred in elimination of the Origination Business. Pursuant to a certain stock
purchase agreement which CMC and Acquisition L.L.C. are in the process of
finalizing, the Debtors will transfer all of the remaining assets relating to
the Origination Business to Avatar in consideration of Avatar's assumption of
the obligations and liabilities of CMC regarding the transferred assets.
Further, CMC will sell the stock of Avatar to Acquisition L.L.C. subject to the
approval of the Bankruptcy Court. The transfer of the Origination Business to
Avatar and the sale of the stock to Acquisition L.L.C. (the "Avatar Sale") is
discussed further in Article II, Section F of this Disclosure Statement.
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The Debtors commenced their Chapter 11 Cases in order to consummate the
sale of CMC's servicing to Fairbanks, the transfer and sale of the Origination
Business and the remaining transactions called for in the Plan in order to
transfer the value of the Debtors' remaining assets to their creditors. The
Debtors believe that these actions are the best available alternatives and will
maximize the available return to creditors of these estates.
II. ACTIVITIES WITHIN THE CHAPTER II CASES
A. FILING. On May 17, 2000 (the "Petition Date"), the Debtors commenced
these cases by filing voluntary Chapter 11 petitions with the Bankruptcy
Court.(7) By Orders of the Bankruptcy Court, dated May 18, 2000 and August 15,
2000, the Debtors' Chapter 11 Cases were consolidated for procedural purposes
and are being jointly administered under Case Number 00 B 12184 (AJG). The
Honorable Arthur J. Gonzalez has presided over the Chapter 11 Cases since the
Petition Date.
B. ADMINISTRATION OF THE CASES. After the Petition Date, and in accordance
with Sections 1107(a) and 1108 of the Bankruptcy Code, the Debtors continued to
operate their businesses and manage their properties as debtors in possession.
As of the date of this Disclosure Statement, no trustee or examiner has been
appointed in the Chapter 11 Cases, nor has any motion for a trustee or examiner
been made. On May 24, 2000, the United States Trustee appointed the Official
Creditors Committee under section 1102(a) of the Bankruptcy Code. On June 29,
2000, upon the request of its members, the United States Trustee disbanded the
Official Creditors Committee. The Unofficial Bank Group Committee and the
Unofficial Noteholders' Committee, which were formed prior to the Petition Date,
have continued to operate as they did before the Petition Date.
C. BANKRUPTCY COURT FIRST DAY ORDERS. On the first day of the Chapter 11
Cases, the Bankruptcy Court entered a number of orders granting the Debtors
various forms of relief. In particular, the Debtors obtained orders authorizing:
(i) the continued use of business forms and records and the maintenance of bank
accounts and cash management system; (ii) the investment of the cash generated
from the Debtors' post-petition operations in accordance with Bankruptcy Court
approved investment guidelines; (iii) the payment of certain pre-petition wages,
salaries and commissions to employees; (iv) the continuation of servicing of
existing loan obligations and the sale of loans in the ordinary course of
business; and (v) the retention of various professionals to render services to
the Debtors.
D. RETENTION AND COMPENSATION OF PROFESSIONALS.
1. Bankruptcy and Special Counsel. The Debtors retained Dewey
Ballantine as bankruptcy counsel to the CFN Entities(8) and Togut, Segal and
Segal as bankruptcy counsel to the
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7 Two of the Debtors, Royal Mortgage Partners, L.P. and Fidelity
Mortgage Decisions Corporation, commenced their Chapter 11 Cases on August 14,
2000.
8 The CFN Entities referred to herein are comprised of CFN and its
direct subsidiaries except for ContiMortgage Corporation, California Lending
Group, Inc. and certain non-debtor affiliates. The CFN Entities include
ContiFinancial Services Corporation, ContiAsset Receivables Management L.L.C.,
ContiTrade Services L.L.C., ContiWest Corporation, Keystone Mortgage Investment,
Inc., Keystone Capital Group, Inc. and Warminster National Abstract, Inc.
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CMC Entities.(9) The Debtors also retained Dewey Ballantine as special counsel
to the CMC Entities. In addition, the Debtors retained the law firms of Pitney,
Hardin, Kipp & Szuch, LLP ("Pitney, Hardin"), Cronin & Vris LLP ("Cronin &
Vris"), Jackson Lewis Schnitzler & Krupman ("Jackson, Lewis"), and Vinson &
Elkins, LLP ("Vinson & Elkins) as special counsels to the Debtors, each to
perform necessary legal services for the Debtors regarding various matters and
disciplines. The Orders approving the retention of Pitney Hardin, Cronin & Vris,
and Vinson & Elkins on a final basis were entered on July 18, 2000. The Orders
approving the retention of Togut, Segal & Segal and Dewey Ballantine on a final
basis were entered on July 19, 2000 and July 20, 2000, respectively. By Order
dated May 18, 2000, the Debtors retained Jackson, Lewis on an interim basis only
until July 18, 2000.
2. Financial Advisors and Auditors. The Debtors retained The Blackstone
Group as their financial advisors, and Arthur Andersen, LLP ("Andersen") as
their auditors, tax advisors and consultants. The Orders approving the retention
on a final basis of Andersen and Blackstone were entered by the Bankruptcy Court
on July 18, 2000 and August 4, 2000, respectively.
3. Ordinary Course Professionals. The Debtors have continued the
retention of a number of professionals to assist the Debtors in the ordinary
course of the Debtors' business, including attorneys, appraisers, mortgage
brokers, realtors and title search experts (collectively, the "Ordinary Course
Professionals"). These Ordinary Course Professionals have been essential to the
Debtors' daily operations as well as the proper management of the Debtors'
estates. The Order approving the Debtors' retention of the Ordinary Course
Professionals was entered by the Bankruptcy Court on May 18, 2000. Pursuant to
that Order, the Debtors were authorized to compensate these professionals in the
ordinary course for amounts due both prior to and after the Petition Date.
4. Claims Agent. Because of the large number of Creditors in the
Chapter 11 Cases, on May 18, 2000, the Debtors obtained Bankruptcy Court
approval to have Donlin, Recano & Co. appointed as the official claims agent
(the "Claims Agent") for the Clerk of the Bankruptcy Court. The services
performed and to be performed by the Claims Agent include: (a) distribution of
notices required to be sent to parties in interest, (b) receipt, maintenance,
docketing and administration of the proofs of claims filed in the Chapter 11
Cases, (c) tabulation of acceptances and rejections of the Plan, and (d)
provision of other administrative services that the Debtors may require.
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9 The CMC Entities are comprised of CMC and its direct subsidiaries and
California Lending Group, Inc., which is a direct subsidiary of CFN. The CMC
Entities include California Lending Group Inc., ZTS Corp., ContiInsurance
Agency, Inc., Crystal Mortgage Company, Inc., Lenders M.D. Inc., Resource One
Consumer Discount Company, Inc., Resource One Consumer Discount Company of
Minnesota, Inc., Resource One of Delaware Valley, Inc., Resource One Mortgage of
Oxford Valley, Inc., ResourceCorp Financial, Inc., Royal Mortgage Partners, L.P.
and Fidelity Mortgage Decisions Corporation
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5. Professionals Retained by the Unofficial Committees. The Unofficial
Bank Group Committee retained Weil, Gotshal as their legal advisors and
PriceWaterhouse as their financial advisors. The Unofficial Noteholders'
Committee retained Akin, Gump as their legal advisors and Houlihan Lokey as
their financial advisors. The distributions received by each Unofficial
Committee's respective constituents under the Plan will be reduced by the amount
of fees and expenses, if any, payable by the Debtors to the retained advisors
for each of the Unofficial Committees.
E. THE DEBTORS' BUSINESS OPERATIONS
The Debtors have taken actions necessary to minimize the disruption of
their business operations pending transfer of the servicing and origination
business and to facilitate their reorganization. These include the following:
1. Administrative Expenses. The Debtors have considered good relations
with their trade and other business vendors to be essential to the continued
operation of their businesses during the pendency of the Chapter 11 Cases. Also,
the Fairbanks Asset Purchase Agreement and the Management Agreement required the
Debtors to use reasonable efforts to preserve their ongoing business
relationships with, inter alia, suppliers, customers, affected landlords,
creditors and employees. Accordingly, the Debtors have paid these vendors claims
as they become due in the ordinary course of business, as allowed by the
Bankruptcy Code and Orders of the Court.
2. Employee Matters. The Debtors considered their employee workforces
to be one of their most valuable assets because continued employee cooperation
and support is important to preservation of the value of ESR and other assets.
Accordingly, the Debtors took numerous steps to minimize disruptions.
Specifically, during the pendency of the Chapter 11 Cases, the Debtors sought
and the Bankruptcy Court entered two Orders, dated May 18, 2000 and July 7,
2000, authorizing the Debtors to pay certain accrued pre-petition employee
obligations in the nature of wages, salary and other compensation earned and to
honor certain employee reimbursement requests incurred in a manner consistent
with the Debtors' prepetition practices and policies.
F. ASSET SALES.
1. The Fairbanks Sale. The Fairbanks Asset Purchase Agreement provided
that the sale of CMC's servicing business to Fairbanks was subject to higher and
better offers from competing bidders. Accordingly, the Debtors obtained an order
(the "Bidding Protections Order") from the Court approving certain buyer bidding
protections and other specific bidding procedures typical for a sale of this
nature. In accordance with the Bidding Procedures Order, an auction was held on
June 21, 2000 at the Bankruptcy Court. At the auction, the Debtors received a
competing bid from North American Mortgage Corporation. However, at the hearing
the Court determined the highest and best bid was made by Fairbanks.
Accordingly, on June 21, 2000, the Bankruptcy Court entered an Order
(the "Fairbanks Sale Order") (i) authorizing the sale of CMC's servicing
business to Fairbanks free and clear of all liens, claims and encumbrances, (ii)
authorizing the assumption and assignment
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of certain executory contracts and unexpired leases, and (iii) approving the
terms and conditions of the Fairbanks Asset Purchase Agreement and (iv)
authorizing the Debtors to consummate the agreement. On July 14, 2000, CMC and
Fairbanks amended the Fairbanks Asset Purchase Agreement by executing an
agreement entitled "Amendment No. 1 to the Asset Purchase Agreement"
(collectively, the "Amended Fairbanks Asset Purchase Agreement"). Pursuant to
the Amended Fairbanks Asset Purchase Agreement, the Servicing Rights arising
under various loan servicing agreements were assigned to Fairbanks, however,
pre-payment penalties, unpaid servicing fees, certain reimbursement rights from
servicing or delinquency advances, and property from foreclosures were retained
by CMC. Also, assigned to Fairbanks were certain specific assets related to the
Servicing Rights, including certain equipment and machinery, executory
contracts, unexpired leases, and intellectual property.
The Amended Fairbanks Asset Purchase Agreement required the payment by
Fairbanks of consideration in the amount of $640,000 in cash and the assumption
by Fairbanks of all the obligations and liabilities arising under the executory
contracts and unexpired leases to be assumed by Fairbanks, including continued
servicing for the ESRs. The Debtors' financial professionals estimate that the
value realized by the Debtors pursuant to the sale of the servicing business to
Fairbanks to be in the range of $104,000,000 to $125,000,000. The Debtors and
Fairbanks consummated the Amended Fairbanks Asset Purchase Agreement on July 14,
2000.
(a) The MBIA Agreement. In furtherance of closing the Fairbanks Sale,
CMC entered into the MBIA Agreement with MBIA as certificate insurer, whereby
MBIA extended CMC's right to act as servicer to enable CMC to consummate the
sale of its Servicing Rights to Fairbanks, or to another servicer acceptable to
MBIA. MBIA insures transactions for an outstanding principal balance of
approximately $6 billion. Further, MBIA consented to the sale to Fairbanks
including assignment of PSA's governing MBIA insured trusts, and agreed to amend
certain triggers in a manner satisfactory to Fairbanks that could otherwise
result in termination of servicing. In exchange for MBIA's accommodation, CMC
agreed to perform the servicing of delinquent loans in the manner specified by
MBIA and to establish a reserve account (the "MBIA Reserve Account") for the
benefit of MBIA. The MBIA Reserve Account will be funded from payments over time
from specified ESRs (the "Specified Residuals"), as contained on Schedule II to
the MBIA Agreement, in an amount up to $6,000,000 to pay or reimburse MBIA for
amounts it will pay in claims which are not otherwise reimbursed under the
certificate insurance policies and any future claims that MBIA may have against
CMC and its affiliates under MBIA's pooling and servicing agreements. As
provided in the Fairbanks Sale Order, MBIA will also obtain a lien on the
Specified Residuals that will fund the Reserve Account. With regard to any
pre-petition claims held by MBIA against the Debtors, such claims will be deemed
satisfied under the MBIA Agreement and limited to not more than $6,000,000.
(b) The FGIC Settlement Agreement. CMC was the servicer of certain
sub-prime home equity loans with an aggregate outstanding principal balance of
approximately $480,776,143 under certain pooling and servicing agreements, which
were to be assigned to Fairbanks pursuant to the Fairbanks Asset Purchase
Agreement (collectively, the "FGIC Pooling and Servicing Agreements"). Financial
Guaranty Insurance Company ("FGIC"), a monoline insurance company that
guaranteed certain distributions on the senior most classes of certificates
issued in connection with the securitizations effected under those Pooling and
Servicing
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Agreements, was an expressly designated third-party beneficiary of the FGIC
Pooling and Servicing Agreements.
Pursuant to the Fairbanks Sale, CMC sought authority to assume and
assign the FGIC Pooling and Servicing Agreements pursuant to ss. 365(a) of the
Bankruptcy Code. In an effort to resolve the dispute between FGIC and CMC
regarding the amount required to cure all outstanding defaults under the FGIC
Pooling and Servicing Agreements, FGIC and CMC negotiated a certain settlement
agreement (the "FGIC Settlement Agreement"). Pursuant to the FGIC Settlement
Agreement, (i) CMC agreed to establish a segregated trust account (the "FGIC
Reserve Account") in the name of FGIC in the amount of $600,000, (ii) FGIC will
have a lien on the FGIC Reserve Account and (iii) FGIC is granted an allowed
secured claim against CMC in the amount of the lesser of (x) $600,000, plus the
aggregate amount of earnings and other income on amounts on deposit in the FGIC
Reserve Account, and (y) the aggregate amount of claims FGIC can assert against
CMC. In addition, the Debtors will pay $40,000 to FGIC as reimbursement for the
legal fees and expenses incurred by FGIC in connection with CMC's failure to
perform its obligations under the FGIC Pooling and Servicing Agreements. The
FGIC Settlement Agreement was approved by the Bankruptcy Court on June 21, 2000
as part of the hearing to approve the Fairbanks Sale. The FGIC Settlement
Agreement was implemented by CMC and FGIC on July 13, 2000.
2. The Avatar Sale. On September 18, 2000, Acquisition L.L.C. and CMC
entered into that certain stock purchase agreement (the "Avatar Stock Purchase
Agreement") whereby CMC agreed to transfer the remaining assets of the loan
origination business of CMC and certain of its wholly-owned affiliates to
Acquisition L.L.C., and to sell the stock of Avatar to Acquisition L.L.C. The
assets which will be transferred to Acquisition L.L.C., as more particularly
described under section 2.2 of the Avatar Stock Purchase Agreement, include
inventory, furniture and equipment, intellectual property, books and records,
pipeline mortgage loans, intangible property rights, as well as assets that
consists of rights under certain executory contracts and unexpired leases
relating to the origination business (the "Material Agreements"). Subject to the
terms of the Avatar Stock Purchase Agreement, Acquisition L.L.C. will assume the
obligations and liabilities of CMC under each Material Agreement, arising after
the date upon which each Material Agreement is transferred to Acquisition L.L.C.
On September 22, 2000, the Debtors filed a motion to approve the Avatar
Sale subject to higher and better offers, to approve the terms of the Avatar
Stock Purchase Agreement and to consummate such agreement. On October 2, 2000,
the Debtors obtained an order from the Bankruptcy Court approving bidding
procedures, including a reimbursable expenses fee and a minimum overbid amount.
On October 12, 2000, the Court approved the sale of CMC's remaining Origination
Business to Acquisition, L.L.C. and submission of a consensual order is pending.
The Avatar Sale is conditioned upon, among other things, Acquisition L.L.C.
receiving appropriate financing for the transaction. The Avatar Stock Purchase
Agreement provides for a "Closing Date" of no later than November 30, 2000. As
of the date hereof, in the event that the Debtors are unsuccessful in selling
the Origination Business to Acquisition L.L.C., the Debtors intend to shut down
the Origination Business.
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G. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. The Hatboro Lease Settlement. On February 13, 1997, CMC and 330
South Warminster Associates, L.P. (the "Landlord" or "330 South Warminster"),
executed that certain lease, as amended (the "Hatboro Lease"), for office space
located at 338 South Warminster Road, Hartboro Township, Pennsylvania (the
"Hatboro Premises"). Prior to the Petition Date, CMC primarily operated its
business from the Hatboro Premises, including its servicing business and its
origination business. The term of the Hatboro Lease does not expire until August
31, 2009. CMC's annual rent under the Hatboro Lease is approximately $3.2
million with the annual rent increasing to approximately $3.6 million by the end
of the lease term. In addition to CMC's obligations under the Hatboro Lease, CFN
has provided a guaranty to the Landlord to secure CMC's obligations under the
lease (the "Guaranty").
Given that CMC has sold its servicing business to Fairbanks and is
currently in the process of selling or otherwise disposing of its origination
business, CMC no longer has a need for the Hatboro Premises. Accordingly, CMC
and the Landlord entered into that certain settlement agreement, dated July 18,
2000 (the "Hatboro Lease Settlement Agreement") which resolves all matters
between the Debtors and the Landlord relating to CMC's obligations under the
Hatboro Lease, as well as terminating the Guaranty. The Hatboro Lease Settlement
Agreement terminates CMC's and CFN's obligations and fixes the Landlord's claim
in the sum of $1.375 million, as an administrative claim, provided, among other
things, that (i) the Bankruptcy Court approves the Hatboro Lease Settlement
Agreement, (ii) CMC pays to the Landlord a lease termination fee in the amount
of $1.375 million and (iii) the Landlord executes a lease with Fairbanks and a
lease with Avatar. In the event that the Avatar sale does not close, the
Landlord will be entitled to an additional $800,000 which is currently escrowed.
The Hatboro Lease Settlement Agreement was approved by the Bankruptcy Court on
September 1, 2000.
2. Assumption of Contracts and Leases. Pursuant to the Amended
Fairbanks Asset Purchase Agreement, the Debtors assumed the executory contracts
set forth on Schedule A to a certain Assignment and Assumption Agreement, dated
July 14, 2000, by and between CMC and Fairbanks. The Debtors will seek further
approval of the Bankruptcy Court to assume additional executory contracts or
unexpired leases that are required to be assumed under the Amended Fairbanks
Asset Purchase Agreement, if and to the extent such approvals prove to be
necessary.
Similarly, the Debtors will prepare to take such actions as are
necessary to accomplish the assumption and assignment of leases and executory
contracts that are required to be assumed by Avatar under the Avatar Stock
Purchase Agreement.
3. Rejection of Contracts and Leases. By Order of the Bankruptcy Court,
dated July 13, 2000, the Debtors rejected (i) certain non-residential real
property leases that neither Fairbanks nor Avatar expressed an interest in
assuming and (ii) certain leases for premises that the Debtors vacated prior to
the Petition Date. In total the Debtors rejected sixty-seven (67) leases. The
Debtors reviewed these leases and concluded that these leases have no potential
value to the Debtors' estates. The Debtors determined that the costs associated
with marketing such leases, in addition to the cure amounts that would be
required to be paid if the leases were
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to be assumed and assigned, would be significantly greater than any potential
value that might be realized by any future sale or sublease. Accordingly, in
order to avoid accruing additional administrative expenses in connection with
the leases, the Debtors concluded that it was in the best interests of the
Debtors' estates and creditors to reject the leases. The leases which have been
rejected by the Debtors are set forth in Exhibit A to the rejection motion filed
by the Debtors on June 29, 2000.
4. 365(d)(4) Extension. In order to afford the Debtors an opportunity
to review certain leases in light of the Fairbanks Sale, the Avatar Sale and
their reorganization prospects, the Debtors filed a motion on June 29, 2000 (the
"365(d)(4) Motion") seeking to extend through the date of confirmation of a plan
of reorganization, the Debtors' time within which to assume or reject such
leases. By Order dated July 13, 2000, the Bankruptcy Court approved the Debtors'
365(d)(4) Motion allowing the Debtors additional time to fully determine which
of the leases identified on Exhibit A to the 365(d)(4) Motion and any other
unexpired leases of nonresidential real property which may have been
inadvertently omitted therefrom, should be assumed and assigned or rejected.
H. OTHER MATTERS.
Prior to the Petition Date, in order to stabilize their business
operations and to maximize recoveries to the creditors of their estates, the
Debtors voluntarily made certain pre-petition payments to creditors. Within the
ninety days prior to the Petition Date, the Debtors made payments to creditors,
including (i) interest payments in the approximate aggregate amount of
$24,043,000 to the holders of the Senior Notes (the "Senior Notes Interest
Payment"), including regularly scheduled interest payments in the approximate
amount of $16 million, plus a "true-up" interest payment made on May 16, 2000 in
the aggregate amount of approximately $8,418,000 to Wells Fargo Bank Minnesota,
National Association (the "Indenture Trustee") on behalf of all interest accrued
under the Senior Notes through April 30, 2000; and (ii) interest payments in the
approximate aggregate amount of $9,196,000 to the Bank Group, including
regularly scheduled interest payments in the approximate aggregate amount of
$8.67 million, plus a default interest payment in the approximate amount of
$526,000 (together with the Senior Notes Interest Payment, the "Pre-Petition
Interest Payments").
In an effort to resolve a post-petition dispute between the Unofficial
Noteholders' Committee and the Bank Group regarding (i) whether certain of the
Pre-Petition Interest Payments constitute avoidable preferences under section
547 of the Bankruptcy Code(10) and (ii) governance of the Official Creditors
Committee, which committee was comprised of four holders of Senior Notes and
three members of the Bank Group, the parties entered into that certain
stipulation (the "Pre-Petition Interest Payments Settlement Agreement"). By
Order dated July 6, 2000, the Bankruptcy Court approved the Pre-Petition
Interest Payments Settlement Agreement. Under the terms of the settlement, (i)
the Bank Group received an additional cash distribution from the Debtors in the
amount of $1,639,540, (ii) unsecured creditors, other than
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10 Each of the Bank Group and the Unofficial Noteholders Committee
asserted defenses to any preference action that could have been brought with
respect to the Pre-Petition Interest Payments.
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the Bank Group and the holders of Senior Notes, will receive their ratable share
from a total amount of $100,000 (plus interest actually earned and paid thereon
from June 12, 2000) with such distribution to occur under the Debtors' confirmed
plan of reorganization and (iii) all preference claims under section 547 of the
Bankruptcy Code which the Debtors may have had against the Bank Group and the
holders of Senior Notes regarding the Pre-Petition Interest Payments were
forever released, waived and discharged. Further, the Bank Group and the
Unofficial Noteholders' Committee agreed to establish two unofficial committees
and jointly requested that the Office of the United States Trustee disband the
Official Creditors' Committee. Such request was granted on June 29, 2000.
On April 3, 2000, CFN established the ContiFinancial Corporation 2000
Incentive Trust (the "Incentive Trust") for the benefit of seven key executive
employees (the "Key Executives"). Prior to the Petition Date, CFN transferred
certain funds to Wilmington Trust Company, as trustee under the Incentive Trust
("Wilmington") including $300,000 transferred to Wilmington as an advance
against certain expenses that Wilmington might incur in connection with the
Incentive Trust (the "Expense Fund"). Pursuant to the terms of an incentive plan
dated May 5, 2000 (the "Incentive Plan"), payments to the Key Executives were to
be made upon the earlier of October 31, 2000 or the consummation of a plan or
reorganization.
On October 26, 2000, the Debtors, each of the Unofficial Committees and
the Key Executives entered into a proposed Stipulation (the "Stipulation")
regarding the Incentive Trust in order to avoid potential litigation regarding
the establishment of and transfers made to fund the Incentive Trust,
distributions thereunder, and the Expense Fund.
Among other things, the Stipulation provides for CFN to recover from
Wilmington and/or the Key Executives for the benefit of CFN's Estate an
aggregate amount of $900,000 in cash (the "Settlement Amount"), from the funds
compromising the Expense Fund and/or distributed to the Key Executives from the
Incentive Trust pursuant to the terms and provisions of the Incentive Plan;
provided, however, that the amount CFN recovers from Wilmington will be limited
to the net amount of funds compromising the Expense Fund. The Stipulation
further provides that CFN may also receive a portion of the Settlement Amount
from other third party (i.e., non-Debtor) sources.
The Stipulation also provides that neither the Unofficial Committees
nor any successor in interest to the Debtors will take any actions against any
of the Key Executives to recover the balance of the Incentive Trust Funds
distributed to and received by them pursuant to the Incentive Plan and Incentive
Trust. The Stipulation also provides that, upon the return of the Funds
compromising the Expense Fund, each of the Debtors' estates, the Unofficial
Committees and the Key Executives will be deemed to have released Wilmington
from any and all claims arising from or related to the establishment or
management of the Incentive Trust or Expense Fund, or the disbursement of the
funds deposited therein. On November 8, 2000, the Court entered an Order
approving the Stipulation.
I. BAR DATE FOR FILING PROOFS OF CLAIMS. The Debtors' Schedules and
Statements of Affairs were filed on July 31, 2000. By Order dated August 7, 2000
(the "Bar
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Date Order"), the Court fixed September 14, 2000, as the date by which certain
proofs of claims must be filed against the Debtors' Estates (the "Bar
Date")(11). Under the Bar Date Order, any person or entity that was required to
file a timely proof of claim and failed to do so on or before the Bar Date will
not be entitled with respect to such Claim to receive any payment or
distribution of property from the Debtors, their successors or assigns, and will
be forever barred from asserting such Claim against the Debtors' Estates.
To date, approximately 1,000 claims have been filed in the Chapter 11
Cases in the approximate amount of $36.5 billion. Of that amount, 7 claims
totaling approximately $35 billion were filed by MBIA. MBIA has since informed
the Debtors that it will amend its claims to reflect the terms of the MBIA
Agreement, including reducing the amount of its claims to a $6 million secured
claim against the several Debtors liable under the MBIA Agreement.
The Debtors continue to review and analyze the remaining filed claims
and intend to file objections to claims where appropriate. Toward that end, the
Debtors requested and the court entered an order on October 25, 2000,
establishing procedures for the reconciliation of an objection to claims (the
"Claims Procedures Order"). Pursuant to the Claims Procedures Order, the Debtors
filed their first omnibus objection to claims seeking to disallow and expunge 32
duplicate or amended and superseded claims in the approximate aggregate amount
of $18 million.
J. PENSION BENEFIT GUARANTY CORPORATION CLAIMS. ContiFinancial Corp. ("CFN")
sponsors a tax-qualified defined benefit pension plan (the "Pension Plan"). 29
U.S.C. ss. 1322. The other Debtors are members of CFN's controlled group as
defined by 29 U.S.C. ss. 1301(a)(14).
The Pension Plan is covered by the mandatory pension plan termination insurance
program established under Title IV of the Employee Retirement Income Security
Act of 1974 ("ERISA"), as amended, 29 U.S.C ss. 1301-1462. PBGC is a
wholly-owned United States government corporation, created by ERISA to
administer the mandatory pension plan termination insurance program. PBGC
guarantees the payment of certain pension benefits when a pension plan, covered
by Title IV, terminated without sufficient assets to cover its total liabilities
for benefits under 29 U.S.C. ss. 1362(b).
Pension plans covered by Title IV of ERISA can be terminated exclusively under
29 U.S.C. ss.ss. 1341 or 1342. If a pension plan has sufficient assets to cover
its total benefit liabilities, the sponsor may voluntarily terminate the pension
plan under 29 U.S.C. ss. 1341(b). If a pension plan does not have sufficient
assets to satisfy its total benefit liabilities then the sponsor may voluntarily
terminate the pension plan under 29 U.S.C. ss.1341(c), provided the statutory
requirements are satisfied, or the PBGC may terminate the pension plan
involuntarily under 29 U.S.C. ss. 1342. Until the Pension Plan is terminated,
the Debtors have the duties to fund, if necessary, maintain and administer it in
accordance with the requires of ERISA.
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11 Pursuant to the Bar Date Order, the Court fixed November 17, 2000 as the
date by which Claims of governmental units must be filed against the Debtors'
Estates.
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Debtors' actuary estimates that the Pension Plan has sufficient assets to cover
all of its liabilities for benefits. Debtors intend to terminate the Pension
Plan pursuant to 29 U.S.C. ss. 1341(b). If termination of the Pension Plan is
completed under 29 U.S.C. ss. 1341(b), the PBGC will withdraw its claims against
the Debtors' bankruptcy estates as soon as possible after the final distribution
of the Pension Plan's assets is certified to the PBGC in accordance with 29
U.S.C. ss. 1341(b)(3)(B).
As a protective measure, in the event that the standard termination of the
Pension Plan is not completed, PBGC has filed unliquidated claims against the
Debtors' bankruptcy estates. PBGC has asserted that portions of these claims may
be entitled to priority.
K. NOTICE REGARDING CERTAIN POTENTIAL CLAIMS. The following constitutes
notice of alleged or potential Causes of Action.
The Debtors have claims and Causes of Action against Empire Funding
Corp. ("Empire"), certain Empire affiliates and parties doing business with
Empire regarding transactions and business dealings with the Debtors and amounts
due to the Debtors in satisfaction of claims against Empire and certain Empire
affiliates. Empire is also a debtor in chapter 11. The Debtors have asserted
claims in Empire's pending chapter 11 case. Empire has filed unliquidated proofs
of claim in these Chapter 11 Cases. The Debtors have filed a proof of claim in
Empire's pending chapter 11 case and one Debtor has filed an adversary
proceeding in that case seeking a judicial determination of the amount of its
claims and the nature and perfection of its ownership and security interest in
certain assets in Empire's case. Empire and certain affiliates have also filed
unliquidated proofs of claim in these Chapter 11 Cases. Reference is made to the
proofs of Claim filed by the Debtors and the adversary proceeding for a more
complete description of these matters.
The Debtors have entered into transactions in the ordinary course of
business with American General Finance, Inc. and certain of its affiliates ("Am
Gen") including certain prepetition loan sales. The Debtors are presently
engaged in settlement discussions with Am Gen regarding Claims by and against Am
Gen arising from the prepetition transactions. The Debtors will pursue Claims
against Am Gen should settlement discussions fail.
The Debtors have identified outstanding prepetition loans made by the
Debtors to certain former Officers. Collection of amounts due and owing to the
Debtors for outstanding prepetition loans will be undertaken.
The Debtors have been informed by representatives of the Unofficial
Committees that the Unofficial Committees believe that the Estates may have
Causes of Action against Arthur Andersen LLP ("Arthur Andersen") for auditors'
malpractice and negligence and accountants' malpractice and negligence. Arthur
Andersen has informed the Debtors and the Unofficial Committees that it believes
the Unofficial Committees' allegations to be without merit.
The Debtors have recently been informed by representatives of the
Unofficial Committees that the Unofficial Committees believe that the Estates
may have Causes of Action against underwriters of the Senior Notes for, inter
alia, underwriters' malpractice. To date and to
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the best of the Debtors' knowledge, the Unofficial Committees have not
communicated with any of the underwriters concerning any of such potential
claims nor have the Unofficial Committees informed the Debtors of the basis for
such allegations or claims.
The Debtors have recently been informed by representatives of the
Unofficial Committees that the Unofficial Committees believe that fees paid by
the Debtors to Lehman Brothers, Inc. ("Lehman Brothers") for services performed
for the Debtors by Lehman Brothers between August 1999 and April 2000 may be
recoverable by the Estates from Lehman Brothers as a fraudulent conveyance if
the Debtors did not receive reasonably equivalent value and the Debtors were
insolvent on the date of such payments or were rendered insolvent by reason of
such payments. To date and to the best of the Debtors' knowledge, the Unofficial
Committees have not communicated with Lehman Brothers concerning any such
potential claims nor have the Unofficial Committees informed the Debtor of any
additional basis for these allegations. Lehman Brothers has filed proofs of
claim in these Chapter 11 Cases seeking additional payment for services
rendered.
In December 1998, CFN retained Blackstone as financial advisor in
connection with its creditor negotiations. In July, 1999, Blackstone received a
payment for services rendered to the Debtors in connection with the terms of the
December 21, 1998 engagement letter which provided for payment of a
restructuring fee (the "Restructuring Fee"). In addition, in the one year prior
to the Petition Date, Blackstone received additional payments for services
rendered to the Debtors (the "Advisory Fees") pursuant to the terms of another
engagement letter dated September 15, 1999. The Debtors have been informed by
representatives of the Unofficial Committees that the Unofficial Committees
believe the Restructuring Fee and the Advisory Fees may be recoverable by the
Estates from Blackstone, either as a fraudulent conveyance if the Debtors did
not receive reasonably equivalent value and the Debtors were insolvent on the
date of such payments or were rendered insolvent by reason of such payments, or
as a preference pursuant to Section 547 of the Bankruptcy Code. Blackstone has
informed the Debtors and Unofficial Committees that it believes the Unofficial
Committees' allegations to be without merit.
In the one year prior to the Petition Date, Dewey Ballantine was paid
for services rendered to the Debtors as the Debtors' primary legal counsel. The
Debtors have been informed by representatives of the Unofficial Committees that
the Unofficial Committees believe that these payments may be recoverable by the
Estates from Dewey Ballantine, either as a fraudulent conveyance if the Debtors
did not receive reasonably equivalent value in exchange for the payments and the
Debtors were insolvent on the date of such payments or were rendered insolvent
by reason of such payments, or as a preference pursuant to Section 547 of the
Bankruptcy Code. Dewey Ballantine has informed the Debtors and Unofficial
Committees that it believes the Unofficial Committees' allegations to be without
merit.
In July, 1999, CFN retained the law firm of Cronin & Vris, LLP
("Cronin"), as legal counsel. On August 11, 1999, Cronin and CFN entered into a
retainer agreement that provided for the retention of Cronin to perform legal
services in connection with a work-out and reorganization of CFN's liabilities
and capital structure. The agreement provided for Cronin to bill the Debtors
based on hourly rates and provided for payment of a Success Fee to Cronin. In
the one year prior to the Petition Date, Cronin received payments from the
Debtors, including the
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Success Fee and a retainer in respect of post-petition services to be rendered.
The Debtors have been informed by representatives of the Unofficial Committees
that the Unofficial Committees believe that the Success Fee and other fees may
be recoverable by the Estates from Cronin, either as a fraudulent conveyance if
the Debtors did not receive reasonably equivalent value and the Debtors were
insolvent on the date of such payments or were rendered insolvent by reason of
such payments, or as a preference pursuant to Section 547 of the Bankruptcy
Code. Cronin has informed the Debtors and Unofficial Committees that it believes
the Unofficial Committees' allegations to be without merit.
On July 14, 1999, the anticipated closing date, the Debtors' proposed
stock transaction with Residential Funding Corporation terminated. Shortly
thereafter, CFN's Chief Executive Officer was terminated and Alan Fishman
("Fishman") was hired, as Chief Executive Officer and member of the Board of
Directors. Fishman executed an employment agreement (the "Employment Agreement")
with CFN on July 20, 1999. The Employment Agreement provided that, in the event
Fishman was terminated without cause or if he chose to terminate his employment
for good reason, CFN was obligated to pay additional sums to Fishman (the
"Fishman Payment"). Payments under the Employment Agreement were guaranteed by
ContiGroup. On February 17, 2000, CFN entered into an amended Employment
Agreement with Fishman and paid the Fishman Payment. The Debtors have been
informed by representatives of the Unofficial Committees that the Unofficial
Committees believe that the Fishman Payment may be recoverable by the Estates
from Fishman as a fraudulent conveyance if CFN paid Fishman either with actual
intent to hinder, delay or defraud creditors or if CFN received less than
reasonably equivalent value in exchange for the payment of the Fishman Payment
and CFN was insolvent or rendered insolvent by payment of the Fishman Payment.
Fishman has informed the Debtors and the Unofficial Committees that he believes
the Unofficial Committees' allegations to be without merit.
In July, 1999, CFN retained Columbia Financial Partners, L.P.
("Columbia Financial") to provide financial and general business consulting
services to the Debtors pursuant to the terms of an engagement letter dated July
20, 1999 (the "Engagement Letter"). Columbia Financial is owned and controlled
by Fishman. The Engagement Letter provided for a monthly fee payable to Columbia
Financial and a term of two years and reimbursement to Columbia Financial of
certain amounts it might not receive from a third party because it accepted the
CFN engagement. ContiGroup guaranteed the payment of Columbia Financial's fees
under the Engagement Letter. In the one year prior to the Petition Date,
Columbia Financial received payments from the Debtors (the "Columbia Payments").
The Debtors have been informed by representatives of the Unofficial Committees
that the Unofficial Committees believe that the Columbia Payments may be
recoverable by the estates from Columbia Financial, either as a fraudulent
conveyance if the Debtors did not receive reasonably equivalent value in
exchange for the Columbia Payments and the Debtors were insolvent on the date of
such payments or were rendered insolvent by reason of such payments, or as a
preference pursuant to Section 547 of the Bankruptcy Code. Columbia Financial
has informed the Debtors and Unofficial Committees that it believes the
Unofficial Committees' allegations to be without merit.
In the one year prior to the Petition Date, the Debtors established
certain employee incentive plans and related irrevocable trusts and other
compensation and incentive plans (collectively, the "Employee Incentive Plans").
The Debtors have been informed by
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representatives of the Unofficial Committees that the Unofficial Committees
believe that the Estates may have Causes of Action against the Debtors' officers
and directors as a result of the establishment, funding and payments made under
the Employee Incentive Plans including avoidance of certain trust payments as
fraudulent conveyances, breaches of fiduciary duty, negligence and corporate
waste. In addition, the Unofficial Committees believe that the Estates may have
Causes of Action against the trustees of the Employee Incentive Trusts,
including actions for avoidance of certain transfers to the trusts as fraudulent
conveyances.(12) The Debtors have also been informed by representatives of the
Unofficial Committees that the Unofficial Committees believe that the Estates
may have Causes of Action against current and former officers and directors
including actions for breach of fiduciary duty, fraudulent conveyance,
mismanagement, negligence and corporate waste. The Debtors have advised the
Unofficial Committees that they believe the Unofficial Committees' allegations
to be without merit.
The Debtors have been informed by representatives of the Unofficial
Committees that the Unofficial Committees believe that the Estates may have
Causes of Action against ContiGroup, including actions related to management of
the Debtors, piercing the corporate veil to hold ContiGroup liable for the debts
of CFN, claims predicated on the theory that creditors suffered cognizable harm
by reason of ContiGroup's efforts in prolonging and aggravating the Debtors'
insolvency, aiding and abetting breaches of fiduciary duty, breaches of
fiduciary duty, and preferences relating to the Fishman Payment, payments to
Columbia Financial and a payment made pursuant to the provisions of a certain
tax sharing agreement between ContiGroup and the Debtors. ContiGroup has filed
proofs of claim in these Chapter 11 Cases. ContiGroup has advised the Debtors
and the Unofficial Committees that it believes the Unofficial Committees'
allegations to be without merit.
III. SUMMARY OF THE PLAN
A. OVERVIEW OF THE PLAN. The Plan incorporates a Compromise and Settlement
of certain issues related primarily to whether the estates of each of the
Debtors should be consolidated for purposes of making payments to Creditors,
whether and to what extent proceeds from the sale of certain assets should be
allocated among the Debtors based upon their respective claims of ownership to
certain assets sold thereunder, and the amount and priority of certain
Intercompany Claims. The provisions of the Plan relating to substantive
consolidation of the Debtors, the cancellation of Intercompany Claims, and the
treatment of each class of Claims under the Plan reflect this Compromise and
Settlement, which, upon the Effective Date, will be binding upon the Debtors,
all Creditors, and all Persons receiving any payments or other distributions
under the Plan whether or nor such Persons have voted to accept the Plan. If the
Plan is confirmed by the Bankruptcy Court and is then consummated as is set
forth below, holders of Claims in certain classes will receive the distributions
set forth below.
The terms of the Plan are based, among other things, upon the Debtors'
assessment of their ability to make the distributions under the Plan and repay
their remaining obligations. In conjunction with the Plan, the Debtors have made
financial projections of ESR
--------------
12 Such Causes of Action will not include any claims released pursuant
to a Stipulation and Order dated November 8, 2000.
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cash flows for each of the fiscal years 2000 through 2005, which financial
statements are discussed in Article X of this Disclosure Statement.
B. SUBSTANTIVE CONSOLIDATION.
As noted, the Plan embodies a compromise and settlement of certain
issues related primarily to whether the Estates of each of the Debtors should be
substantively consolidated. Rather than subject their Estates to the enormous
costs, delays and uncertainties attendant to a judicial determination of such
issues, the Debtors seek to resolve the matter consensually through the Plan.
The Debtors believe that the compromise and settlement of the substantive
consolidation issues embodied in the Plan in the form of a premium to be paid to
the holders of Allowed General Unsecured Claims against CMC and the Resource One
Debtors is fair and reasonable as to all of their respective creditors.
Substantive consolidation is a judicially fashioned doctrine, derived
from the bankruptcy court's general equitable powers, which allows a court in
appropriate cases to disregard the separateness of two or more
affiliated-debtors and to consolidate and pool together the assets and
liabilities of such entities and treat them as though held and incurred by a
single entity.13 The statutory predicate for substantive consolidation has been
found in section 105 of the Bankruptcy Code.14 While in general, "courts have
adopted the view that the power to consolidate should be used sparingly because
of the potential harm to creditors," nonetheless, there is "a 'modern' or
'liberal' trend toward allowing substantive consolidation, which has its genesis
in the increased judicial recognition of the widespread use of interrelated
corporate structures by subsidiary corporations operating under a parent
entity's corporate umbrella for tax and business purposes."(15) Since the
standards for substantive consolidation are derived from the court's general
equitable powers and not from statute, courts examine the facts and
circumstances of each case to determine if such relief is warranted.(16)
The test articulated by the Court of Appeals for the Second Circuit
involves two overriding factors: "(i) whether creditors dealt with the entities
as a single economic unit and did not rely on their separate identity in
extending credit ... or (ii) whether the affairs of the Debtors are so entangled
that consolidation will benefit all creditors". In re Augie/Restivo Baking Co.,
860 F.2d 515 (2d Cir. 19 88). The first factor (i.e., did creditors think of the
debtors as one unit) turns on the expectations of the creditors. Augie/Restivo,
860 F.2d at 518-519. The second factor (i.e., entanglement of the entities) can
be established if the debtors functioned as a single unit, even if their
separate corporate identities are recognized in publicly filed documents. See
Standard Brands Paints, 154 B.R. 563, 572 (Bankr. C.D. Ca1. 1993). The
overarching principle
--------------
13 See FDIC v. Colonial Realty Co., 966 F.2d 57, 59 (2d Cir. 1992);
Union Sav. Bank v. Augie/Restivo Baking Co. (In re Augie/Restivo Baking Co.),
860 F.2d 515, 518 (2d Cir. 1988); Chemical Bank Trust Co. v. Kheel, 369 F.2d
845, 847 (2d Cir. 1966).
14 Augie/Restivo, 860 F.2d at 518 n.1.
15 2 Collier on Bankruptcy P. 105.99[1][d] (Lawrence P. King ed., 15th
ed. rev. 1998) (quoting Eastgroup Properties v. Southern Motel Assocs., Ltd.,
935 F.2d 245, 248-49 (11th Cir. 1991).
16 5 Collier on Bankruptcy P. 1100.06[1].
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is equity or fairness to creditors. F.D.I.C. v. Colonial Realty Co., 966 F.2d
57, 61 (2nd Cir. 1992). Also, substantive consolidation may be warranted if it
is determined that "all creditors will benefit because untangling is either
impossible or so costly as to consume the assets." Augie/Restivo, 860 F.2d at
519; see also Drexel Burnham Lambert Group, 138 B.R. 723, 766 (Bankr. S.D.N.Y.
1992). Satisfactory evidence of either factor may result in the court ordering
substantive consolidation.
In these cases, assertions have been made that substantive
consolidation is appropriate using the analysis set forth in the Augie/Restivo
case. Factors asserted weighing in favor of substantive consolidation include,
without limitation:
o the Debtors functioned as one economic unit owned by CFN;
o the loans by the Bank Group and the sale of the Senior Notes were not
just based on CFN's financial condition but also on the assets, operations,
prospects and financial condition of the affiliated Debtors;
o CFN directly or indirectly owns the affiliated Debtors, controls
their boards of directors, tightly controls the amount of money they
receive, controls the operation of their businesses, including providing
liquidity and advances, tightly controls their expenditures and, at the
close of each business day, sweeps the cash held by certain of the
affiliated Debtors for CFN's benefit;
o the Debtors' operations were entangled in that there were
inter-company sharing of expenses (including payroll), inter-company
guarantees of debts, daily cash sweeps and complex inter-company financings
and advances;
o the capital used to substantially operate the affiliated Debtors was
obtained by CFN from the sale of the Senior Notes and borrowings under the
Bank Facilities; and
o the Debtors engaged in various intercompany financing transactions
that unduly benefited certain of the affiliated Debtors, at the expense of
CFN and its creditor body including the conversion into equity of certain
intercompany indebtedness owned by CMC to CFN within 12 months of the
Petition Date.
Assertions have been made that substantive consolidation is
inappropriate using the analysis set forth in the Augie/Restivo case. Factors
asserted weighing against substantive consolidation include, but are not limited
to:
o the Debtors observed corporate formalities, including maintaining
separate financial statements, books and records, by-laws, boards of
directors and other indicia of an independent corporate existence;
o each of the Debtors has already filed its own schedule of assets and
liabilities and statement of financial affairs in the Chapter 11 Cases;
o the prospectuses for the issuance of the Senior Notes reflect the
holding
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company structure of the Debtors and state that, upon liquidation of the
Debtors, holders of the Senior Notes would be able to participate in the
assets of the affiliates of CFN only after the claims of creditors of CFN's
affiliates had been satisfied, except to the extent that CFN may be itself a
creditor;
o neither the members of the Bank Group nor the purchasers of the
Senior Notes obtained guarantees from the affiliated Debtors to support
their extension of credit to CFN; and
o CMC and the Resource One Debtors were operating companies with their
own creditor bodies independent of, and apart from, CFN and the other
affiliated Debtors, and each maintained its own disbursement account for the
payment of ordinary course operating expenses other than payroll.
Based upon a review and analysis of the relevant law, facts and
equities, it would be unfair for there to be a complete and unqualified pooling
of the assets and liabilities of the Settlement Debtors' Estates with those of
the other Debtors through substantive consolidation. Yet, there are enormous
costs, delays and uncertainties attendant to litigating the substantive
consolidation and related issues. There are more than $1 billion of claims
against the CFN Estate. Even if the CFN Estate partially prevails in litigating
its claims and causes of action relating to substantive consolidation and
certain intercompany transactions, there would be an extremely detrimental and
prejudicial impact on the Estates of the Settlement Debtors. There would also be
an extremely detrimental and prejudicial impact on the Estates of all of the
Debtors due to, among other things, the costs, risks and extended delays
inherent in attempting to resolve these complex issues through litigation.
Balancing all of the equities, the Debtors believe that the Compromise
and Settlement of the substantive consolidation and related issues embodied in
the Plan is fair and reasonable and in the best interest of their respective
Estates. While recognizing and taking into account the arguments concerning
substantive consolidation and related financing transactions, the Plan provides
that holders of Allowed General Unsecured Claims against the Settlement Debtors
will receive a premium on account of their Claims resulting in greater
recoveries than would be the case if the Debtors' Estates were completely
consolidated without qualification. As a result, holders of Allowed General
Unsecured Claims against the Settlement Debtors will receive treatment that is
different and better than holders of Bank Group Claims, Senior Note Claims and
Allowed General Unsecured Claims against the other Debtors.
Specifically, pursuant to Section 5.07(d) of the Plan, the holders of
Allowed General Unsecured Claims against the Settlement Debtors are receiving a
recovery in the form of additional Liquidating Trust Units which the Debtors
estimate is in the range of approximately
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20% to 101% more Units than such holders would have received without such
premium, as illustrated by the following chart:
CMC/RESOURCE DISTRIBUTION EXAMPLES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CMC/Resource Claims $14,579,000 $20,000,000 $40,000,000
Number of Trust Units(17)
Distribution Without Settlement Debtors Premium 138,517 189,049 371,083
Settlement Debtors Premium 140,000 140,000 75,000
----------- ----------- -----------
Total Distribution 278,517 329,049 446,083
Example: Units Distributed to Settlement Debtor Creditor
with a $10,000 Claim
Distribution Without Settlement Debtors Premium 95 95 93
Settlement Debtors Premium 96 70 19
----------- ----------- -----------
Total Distribution 191 165 112
% Increase in Units 101.1% 74.1% 20.2%
</TABLE>
C. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTEREST
UNDER THE PLAN
Claims and Equity Interests are divided into eight (8) Classes under
the Plan, and the proposed treatment of Claims varies among Classes. The Plan
contains three Classes of unimpaired Secured Claims (Classes 1a, 1b, 2a, 2b, and
3), Priority Tax Claims and other Priority Claims (Class 4), one class of
impaired Unsecured Claims, which includes Bank Group Claims, Senior Note Claims
and General Unsecured Claims (Class 5), one Class of unimpaired Convenience
Claims (Class 6), one Class of impaired Subordinated Claims (Class 7), and one
Class of impaired Equity Interests (Class 8). The meaning of "Impairment," and
the consequences thereof in connection with voting on the Plan, are set forth in
Article X of this Disclosure Statement.
The following Section briefly summarizes the classification and
treatment of Claims and Equity Interests under the Plan.
Unclassified Claims
1. Administrative Claims. Administrative Claims include the costs and
expenses of administration of the Chapter 11 Cases of a kind specified in
section 503(b) of the Bankruptcy Code and entitled to priority under section
507(a)(1) of the Bankruptcy Code, including, among other things, (a) the actual,
necessary costs and expenses incurred after the Petition Date, of operating the
Debtors' businesses and preserving the Debtors' Estates, (b) professional fees
for the legal, financial and other advisors to the Debtors, the Unofficial
Noteholders' Committee and the Unofficial Bank Group Committee to the extent
allowed by the Bankruptcy Court and (c) any
--------------
17 Based upon 10,000,000 Liquidating Trust Units to be distributed
under the Plan.
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fees or charges assessed against the Debtors' Estates pursuant to section 1930,
Chapter 123 of Title 28 of the United States Code.
Subject to the Bar Date provisions in the Plan and except to the extent
the Debtors and the holder of an Allowed Administrative Claim agree to a
different treatment, the Liquidating Trustee will pay to each holder of an
Allowed Administrative Claim Cash in an amount equal to such Allowed
Administrative Claim on the later of (i) the Effective Date and (ii) thirty days
after the date on which such Administrative Claim becomes an Allowed
Administrative Claim, or as soon thereafter as is practicable; provided,
however, that Allowed Administrative Claims representing obligations incurred in
the ordinary course of business of the Debtors will be paid by the Debtors or
the Liquidating Trustee, as the case may be, in accordance with the terms and
conditions of the particular agreements from which such Allowed Administrative
Claims arise.
2. Priority Tax Claims. Priority Tax Claims are claims of a kind
specified in section 507(a)(8) of the Bankruptcy Code.
Except to the extent the Debtors and the holder of an Allowed Priority
Tax Claim agree to a different treatment, the Liquidating Trustee will make
deferred cash payments over a period not exceeding six years from the date of
assessment of such tax. Payments will be made in equal quarterly installments of
principal, plus simple interest accruing from the Effective Date at a rate equal
to nine percent (9%) per annum on the unpaid portion of each Priority Tax Claim;
provided, however, that the Liquidating Trust will have the right to pay any
Priority Tax Claim, or any remaining balance of such Claim, in full, at any time
on or after the Effective Date, without premium or penalty. The first payment
will be due on the latest of (i) ninety days after the Effective Date, (ii)
ninety days after the date on which an order allowing any such Claim becomes a
Final Order, and (iii) such other date that is agreed on by the holder of an
Allowed Priority Tax Claim and the Debtors or the Liquidating Trust, as the case
may be, or as soon thereafter as is practicable.
3. US Trustee Fees. The Debtors or the Liquidating Trust, as the case
may be, will pay all U.S. Trustee Fees for each Chapter 11 Case until such time
as the Court enters a final decree closing each Chapter 11 Case.
Classified Claims
4. Class 1a: Greenwich Repurchase Facility Secured Claims. Greenwich
Repurchase Facility Secured Claims consist of any Secured Claims of Greenwich
arising out of the Greenwich Repurchase Facility and the Greenwich Security
Agreement. Holders of Claims in Class 1a are unimpaired and, therefore, are
conclusively presumed to have accepted the Plan and are not entitled to vote to
accept or reject the Plan. Holders of Greenwich Repurchase Facility Secured
Claims will receive the following treatment:
On the Effective Date, or a later date pursuant to an agreement between
CFN and Greenwich, all Greenwich Repurchase Facility Secured Claims, if any,
will, at the Debtors' sole option, be (i) paid in full in Cash, (ii) Reinstated
with Greenwich retaining its Liens upon the
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<PAGE>
Greenwich Collateral in accordance with the Greenwich Security Agreement or
(iii) satisfied by returning to Greenwich the Collateral securing such Greenwich
Repurchase Facility Claims. The Greenwich Collateral consists of certain assets
of CFN, as described more particularly in the Greenwich Security Agreement,
including CFN's rights to any assets purchased subject to transactions under the
Greenwich Repurchase Facility, certain excess spread receivables as described in
Schedule III of the Greenwich Security Agreement, and all investment property,
distributions, and proceeds arising from or related thereto.
5. Class 1b: Greenwich Whole Loan Purchase Facility Secured Claims.
Greenwich Whole Loan Purchase Facility Secured Claims consist of any Secured
Claims arising out of the Greenwich Whole Loan Purchase Facility and the
Greenwich Security Agreement. Holders of Claims in Class 1b are unimpaired and,
therefore, are conclusively presumed to have accepted the Plan and are not
entitled to vote to accept or reject the Plan. Under the Plan, holders of
Greenwich Whole Loan Purchase Facility Secured Claims will receive the following
treatment:
On the Effective Date, or a later date pursuant to agreement between
CFN and Greenwich, all Greenwich Whole Loan Purchase Facility Secured Claims, if
any, will, at the Debtors' sole option, be (i) paid in full in Cash, (ii)
Reinstated with Greenwich retaining its Liens upon the Greenwich collateral in
accordance with the Greenwich Security Agreements, or (iii) satisfied by
returning to Greenwich the Greenwich Collateral securing such Greenwich Whole
Loan Purchase Facility Secured Claims.
6. Class 2a: MBIA Claims. MBIA Claims consists of any and all claims of
MBIA against the Debtors arising out of any certificate insurance policies
issued by MBIA, any of the MBIA Pooling and Servicing Agreements or any other
agreements, documents and instruments related thereto. Each holder of Allowed
Claims in Class 2a is not impaired and, therefore is conclusively presumed to
have accepted the Plan and is not entitled to vote to accept or reject the Plan.
Under the Plan, holders of MBIA Claims will receive the following treatment:
On the Effective Date, the MBIA Claims, if any, will receive the
treatment for those claims and will receive Liens on the MBIA Reserve Account
all as described in and provided by the MBIA Agreement.
7. Class 2b: FGIC Claims. The FGIC Claims consists of all Claims of
FGIC against the Debtors arising out of any certificate insurance policies
issued by FGIC, any of the FGIC Pooling and Service Agreements or any other
agreements, documents and instruments related thereto. Each holder of Allowed
Claims in Class 2b is not impaired and, therefore is conclusively presumed to
have accepted the Plan and is not entitled to vote to accept or reject the Plan.
Under the Plan, holders of FGIC Claims will receive the following treatment:
On the Effective Date, the FGIC Claims, if any, will receive the
treatment for those claims and will receive Liens on the FGIC Reserve Account
all as described in and provided by the FGIC Settlement Agreement
8. Class 3: Other Secured Claims. Other Secured Claims consist of any
Secured Claim other than the Greenwich Repurchase Facility Secured Claims, the
Greenwich Whole
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Loan Purchase Facility Secured Claims, the MBIA Claims and the FGIC Claims.
Holders of Allowed Claims in Class 3 are not impaired. Each holder of Allowed
Secured Claims in Class 3 is not impaired and, therefore is conclusively
presumed to have accepted the Plan and is not entitled to vote to accept or
reject the Plan. Under the Plan, holders of Other Secured Claims will receive
the following treatment:
At the sole option of the Debtors, the Liquidating Trustee or the Plan
Administrator, as the case may be, on the later of (x) the Effective Date, or
(y) for Claims in Class 3 that were Disputed Claims and have become Allowed
Secured Claims, the Quarterly Distribution Date, or as soon thereafter as is
practicable, such Allowed Secured Claim will (i) be Reinstated; or (ii) receive
the Collateral securing such Allowed Secured Claim; or (iii) receive Cash in an
amount, not to exceed the Allowed amount of such Claim, equal to the proceeds
actually realized from the sale of any Collateral securing such Claim, less the
actual costs and expenses of disposing of such Collateral; or (iv) receive such
other treatment as may be agreed upon by the Debtors, the Liquidating Trustee,
or the Plan Administrator, as the case may be, and the holder of an Allowed
Secured Claim. In the event that the Debtors, the Liquidating Trustee or the
Plan Administrator, elect, pursuant to option (i) above, to distribute to the
holder of an Allowed Secured Claim, the Collateral securing such Allowed Secured
Claim, the holder of such Allowed Secured Claim may request that the Liquidating
Trustee or the Plan Administrator (a) attempt to sell the Collateral securing
the Allowed Secured Claim, or (b) abandon such Collateral. In the event that the
Debtors, the Liquidating Trustee or the Plan Administrator honors such a request
and attempts to sell such Collateral securing such Allowed Secured Claim or
abandon such Collateral, all expenses relating thereto, including, but not
limited to, storage expenses, will be borne by the holder of the Allowed Secured
Claim. Notwithstanding the foregoing, the Debtors, the Liquidating Trustee or
the Plan Administrator retains the right to decline to honor a request by the
holder of an Allowed Secured to attempt to sell such Collateral.
9. Class 4: Priority Claims. Priority Claims consist of any Claim
entitled to priority pursuant to section 507(a) of the Bankruptcy Code, other
than (a) an Administrative Claim, or (b) a Priority Tax Claim. Each holder of
Allowed Priority Claims in Class 4 is not impaired. Each holder of Claims in
Class 4 is not entitled to vote to accept or reject the Plan in its capacity as
a holder of such Claim. Under the Plan, holders of Allowed Claims in Class 4
will receive the following treatment:
Each holder of an Allowed Claim in Class 4 will receive Cash in an
amount equal to the amount of such Allowed Claim on the later of (i) the
Effective Date, or (ii) for Claims in Class 4 that were Disputed Claims and have
become Allowed Claims, the Quarterly Distribution Date, or as soon thereafter as
is practicable.
10. Class 5: Bank Group Claims, Senior Notes Claims, and General
Unsecured Claims. Bank Group Claims consist of any Claim of the Bank Group
arising under the Bank Facilities. Senior Notes Claims consist of any Claim
arising under the Senior Notes. General Unsecured Claims consist of any Claim
that is a General Unsecured Claim asserted against the Debtors. Holders of
Allowed Claims in Class 5 are impaired and are entitled to vote to accept or
reject the Plan. Under the Plan, holders of Allowed Claims in Class 5 will
receive the following treatment:
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<PAGE>
Subject to Section 5.07 of the Plan, on (i) the Effective Date, or (ii)
the Quarterly Distribution Date, for Claims in Class 5 that were Disputed Claims
and have become Allowed Class 5 Claims, or as soon thereafter as is practicable,
each holder of an Allowed Claim in Class 5 will receive a Ratable Share of (a)
Class 5 Cash, and (b) 9,860,000 Liquidating Trust Units representing an
undivided interest in the Trust Assets transferred to the Liquidating Trust by
the Debtors pursuant to the Plan and the Liquidating Trust Agreement.
(a) Preference Stipulation. In addition to the Distribution provided
above for the Class 5 Claims, each holder of an Allowed General Unsecured Claim
will receive a Ratable Share of the funds to be distributed to such Holders as
required under the Preference Stipulation, as described in Article II, Section H
of this Disclosure Statement.
(b) Settlement Debtors Premium. In addition to the Distribution
provided for in Section 5.07(b) and (c) of the Plan, on the Initial Distribution
Date, a Ratable Share of the Settlement Debtors Premium Initial Distribution
will be distributed to holders of Allowed General Unsecured Claims against the
Settlement Debtors and the Disputed Claims Reserve Trust on account of Disputed
General Unsecured Claims against the Settlement Debtors. Thereafter, the
remaining Settlement Debtors Premium (i.e., the Settlement Debtors Premium minus
the Settlement Debtors Premium Initial Distribution) will be distributed, when
practicable, on Quarterly Distribution Dates, in accordance with the Settlement
Debtors Premium Adjustment. For the purpose of calculating such Ratable Share,
only the aggregate Face Amount of General Unsecured Claims against the
Settlement Debtors will be included in the denominator of the equation.
(c) Unofficial Committee Fees. Upon the Effective Date, the Unofficial
Noteholders' Committee Fees and the Bank Group Committee Fees will be paid by
the Debtors to the extent such fees have not been paid by the respective members
of such committee. The aggregate amount of Class 5 Cash to be otherwise
distributed to the holders of Allowed Senior Notes Claims and Allowed Bank Group
Claims in accordance with Section 5.07(b) of the Plan will be reduced,
respectively.
(d) Creditors Electing Convenience Class Treatment. Each holder of an
Allowed General Unsecured Claim may elect on its Ballot, contemporaneously with
such holder's vote to accept or reject the Plan, to be included in Class 6
rather than Class 5 and receive the Distributions provided for in Section 5.08
of the Plan.
11. Class 6: Convenience Claims. Convenience Claims consist of any
General Unsecured Claim, in an amount equal to or less than $1,000, or
voluntarily reduced by the holder of the Claim to $1,000. Each holders of an
Allowed Class 6 is not impaired and will not be entitled to vote on the Plan.
Under the Plan, holders of Allowed Claims in Class 6 will receive the following
treatment:
Each holder of an Allowed Convenience Claim in Class 6 will receive
Cash in an amount equal to the lesser of (a) one-hundred percent (100%) of such
Allowed Convenience Claim or (b) $1,000 on the later of (i) the Effective Date,
or (ii) for Claims in Class 6 that were Disputed Claims and have become Allowed
Claims, the Quarterly Distribution Date, or as soon thereafter as is
practicable.
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12. Class 7: Subordinated Claims. Subordinated Claims consist of any
Claim that is subject to subordination under section 510 of the Bankruptcy Code
(including, but limited to, any Claim arising from the recession of a purchase
or sale of a Security of the Debtors or affiliate of the Debtors, for damages
for the purchase or sale of a Security of the Debtors or an affiliate of the
Debtors, or for reimbursement or contribution allowed under section 502 of the
Bankruptcy Code on account of such a claim. For purposes of the Plan, each
holder of a Subordinated Claim in Class 7 will not receive any distribution of
property under the Plan on account of their Claim. Holders of Claims in Class 7
are conclusively presumed to have rejected the Plan and are not entitled to vote
to accept or reject the Plan.
13. Class 8: Equity Interests in Debtors. Equity Interests in the
Debtors consist of any holder of equity in any of the Debtors, including,
without limitation, any "equity security" in the Debtors as defined by section
101(16) of the Bankruptcy Code. For purposes of the Plan, each holder of Equity
Interests in Class 8 will not receive any distribution of property under the
Plan on account of its Equity Interests. Holders of Equity Interests in Class 8
are conclusively presumed to have rejected the Plan and are not entitled to vote
to accept or reject the Plan.
D. ESTABLISHMENTS OF TRUSTS; IMPLEMENTATION OF PLAN.
1. The Liquidating Trust.
(a) Establishment of the Trust. On the Effective Date, the
Debtors, on their own behalf and on behalf of holders of Allowed Class 5 Claims,
will execute the Liquidating Trust Agreement and will take all other steps
necessary to establish the Liquidating Trust. The Liquidating Trust Agreement
will contain provisions customary to trust agreements utilized in comparable
circumstances, including, but not limited to, any and all provisions necessary
to ensure the treatment of the Liquidating Trust as a liquidating trust for
federal income tax purposes. On the Effective Date, the Debtors will transfer
(as described in Section 6.01(c) of the Plan) to the Liquidating Trust all of
their right, title, and interest in all of the Trust Assets, including, among
others, Cash (less any Cash transferred to the Disputed Claims Reserve Trust as
required by Section 6.04 of the Plan), Distributed ESRs, Causes of Action and
the stock of the Surviving Special Purpose Entities, free and clear of any Lien,
Claim or Interest in such property of any other Person or entity except as
provided in the Plan. Title to all Trust Assets will vest in the Liquidating
Trust as of the Effective Date. The Debtors or such other Persons that may have
possession or control of such Trust Assets will transfer possession or control
of such Trust Assets to the Liquidating Trustee and will execute documents or
instruments necessary to effectuate such transfers.
(b) Purpose of the Liquidating Trust. The Liquidating Trust will
be established for the sole purpose of liquidating the Trust 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. Subject to definitive
guidance from the IRS, all parties will treat the trust as a liquidating trust
for all federal income tax purposes.
(c) Appointments. On or prior to the Confirmation Date, the Bank
Group Committee and the Unofficial Noteholders Committee will appoint a
Liquidating Trustee and Liquidating Trust Committee in accordance with the
provisions set forth in the Liquidating Trust
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Agreement. Any individual who serves on the Liquidating Trust Committee may also
serve on the Plan Administration Committee. The same person who serves as
Liquidating Trustee may also serve in a separate capacity as the Plan
Administrator. Neither the Liquidating Trustee nor any individual appointed to
the Liquidating Trust Committee may serve on any of the boards of directors of
the Surviving Special Purpose Entities. Appropriate compensation for each member
of the Liquidating Trust Committee will be negotiated by the Liquidating Trustee
and each member of the Liquidating Trust Committee. The Liquidating Trustee will
have all the powers and responsibilities specified in the Liquidating Trust
Agreement, including, without limitation, the powers of a trustee and debtor in
possession under Sections 1106 and 1107 of the Bankruptcy Code.
(d) Transfer of Assets.
(i) The transfer of the Trust Assets to the Liquidating Trust will
be made, as provided in the Plan, for the benefit of the holders of Allowed
Class 5 Claims, whether allowed on or after the Effective Date. In this regard,
the Trust Assets will be transferred to such holders of Allowed Class 5 Claims
and, in respect of any Disputed Claims to the Disputed Claims Reserve Trust, to
be held, in each case, by the Debtors on their behalf. Immediately thereafter,
on behalf of holders of Allowed Claims, the Debtors will transfer such Trust
Assets to the Liquidating Trust in exchange for Liquidating Trust Units for the
benefit of holders of the Allowed Class 5 Claims in accordance with the Plan.
The Liquidating Trustee will then distribute the Liquidating Trust Units to the
holders of the Allowed Class 5 Claims in exchange for their claims and to the
Plan Administrator (to be held in the Disputed Claims Reserve Trust for the
benefit of holders of Disputed Claims), subject to the conditions set forth in
the Liquidating Trust Agreement. Upon the transfer of the Trust Assets, the
Debtors will have no further interest in or with respect to the Trust Assets or
the Liquidating Trust.
(ii) For all federal income tax purposes, all parties (including,
without limitation, the Debtors, the Liquidating Trustee, the holders of Allowed
Class 5 Claims and the Plan Administrator) will treat the transfer of Trust
Assets to the Liquidating Trust, in accordance with the terms of the Plan, as a
transfer to the holders of Allowed Class 5 Claims (and in respect of any
Disputed Claims, to the Plan Administrator) followed by a transfer by such
holders to the Liquidating Trust (and in respect of any Disputed Claims, by the
Plan Administrator to the Disputed Claims Reserve Trust), and the beneficiaries
of the Liquidating Trust (or Disputed Claims Reserve Trust) will be treated as
the grantors and owners thereof.
(e) Valuation of Assets. As soon as possible after the Effective
Date, but in no event later than thirty (30) days thereafter, (i) the
Liquidating Trust Committee will inform, in writing, the Liquidating Trustee of
the fair market value of the Trust Assets transferred to the Liquidating Trust,
based on the good faith determination of the Liquidating Trust Committee, and
(ii) the Liquidating Trustee will apprise, in writing, the holders of the
Liquidating Trust Units of such valuation. The valuation will be used
consistently by all parties (including, without limitation, the Debtors, the
Liquidating Trustee, the holders of Allowed Class 5 Claims and the Plan
Administrator) for all federal income tax purposes.
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(f) Investment Powers. The Liquidating Trustee may invest the Trust
Assets, the proceeds thereof, or any income earned by the Liquidating Trust, in
accordance with and subject to the terms of the Liquidating Trust Agreement.
(g) Termination. The Liquidating Trust will terminate no later than the
fifth (5th) anniversary of the Effective Date; provided, however, that, on or
prior to the date six (6) months prior to such termination, the Bankruptcy
Court, upon motion by a party in interest, may extend the term of the
Liquidating Trust if it is necessary to the liquidation of the Trust Assets.
Notwithstanding the foregoing, multiple extensions can be obtained so long as
Bankruptcy Court approval is obtained at least six (6) months prior to the
expiration of each extended term; provided, however, that the aggregate of all
such extensions will not exceed three (3) years, unless the Liquidating Trustee
receives a favorable ruling from the IRS that any further extension would not
adversely affect the status of the trust as a liquidating trust for federal
income tax purposes.
2. Disputed Claims Reserves Trust.
(a) Establishment of Disputed Claims Reserve Trust. On the Effective
Date, and after making all Distributions required to be made on the Effective
Date, the Debtors will execute the Plan Administration Agreement and establish
the Disputed Claims Reserve Trust which will be administered by the Plan
Administrator.
(b) [Intentionally Omitted]
(c) Appointment of Plan Administrator and Plan Administration
Committee. On or prior to the Confirmation Date, the Bank Group Committee and
the Unofficial Noteholders' Committee will appoint the Plan Administrator and
the Plan Administration Committee as provided in the Plan Administration
Agreement. The responsibilities and powers of the Plan Administrator and the
Plan Administration Committee will be as set forth in the Plan Administration
Agreement. The person who serves as the Liquidating Trustee may also serve in a
separate capacity as the Plan Administrator. Any individual who serves on the
Liquidating Trust Committee may also serve on the Plan Administration Committee.
Neither the Plan Administrator nor any individual appointed to the Plan
Administration Committee, nor any agent or employee of such persons, may serve
on the boards of directors of the Surviving Special Purpose Entities. The Plan
Administrator, under the direction of the Plan Administration Committee, will
(i) hold and administer the Disputed Claims Reserve Trust, (ii) object to,
settle or otherwise resolve Disputed Claims, (iii) make distributions to holders
of Disputed Claims that subsequently become Allowed Claims in accordance with
the Plan, (iv) distribute any remaining assets of the Dispute Claims Reserve
Trust, after resolving all Disputed Claims, to holders of previously Allowed
Claims for Ratable distribution in accordance with the Plan and (v) wind up the
remaining affairs of and dissolve the Debtors. Compensation for each member of
the Plan Administration Committee will be negotiated by the Plan Administrator
and each respective member of the Plan Administration Committee.
(d) Transfer of Assets. On the Effective Date, the Debtors will fund
the Disputed Claims Reserve Trust with Liquidating Trust Units and Cash in an
amount to be determined by the Liquidating Trustee, Plan Administrator,
Unofficial Noteholders Committee
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financial advisories and Bank Group Committee financial advisors, with advice of
the Debtors, for (a) the costs and expenses projected to be incurred in
connection with resolution of Disputed Claims and Distribution of the proceeds
thereof in accordance with the Plan, (b) the costs and expenses projected to be
incurred in connection with the winding up of the affairs of the Debtors and
their dissolution and (c) the reasonable compensation of the Plan Administrator
and the Plan Administration Committee. Cash and other property will be placed
into the Disputed Claims Reserve Trust and will be held in separate interest
bearing accounts in trust by class for the benefit of the holders of Allowed
Claims entitled thereto under the terms of the Plan. Any payment made to the
holder of an Allowed Claim which was previously a Disputed Claim from the
Disputed Claims Reserve Trust will include any accrued interest thereon at the
rate earned in such interest bearing account less any expenses, including,
without limitation, applicable taxes. The Disputed Claims Reserve Trust will be
terminated by the Plan Administrator, upon the filing with the Bankruptcy Court
of a written certification of the Plan Administrator that all Distributions and
other dispositions of all Cash and/or Liquidating Trust Units required under the
Plan have been made in accordance with the terms of the Plan. Such written
certification will be sent by the Plan Administrator to the Liquidating Trustee
within 15 days of the satisfaction of the condition set forth in the immediately
preceding sentence. With respect to the Liquidating Trust Units held in the
Disputed Claims Reserve Trust, neither the Plan Administrator, nor any other
party, will be entitled to vote any of the Liquidating Trust Units held in the
Disputed Claims Reserve Trust. In the event that any matter requires the
approval of the holders of Liquidating Trust Units prior to the Distribution of
the Liquidating Trust Units held in the Disputed Claims Reserve Trust, solely
with respect to such vote, the Liquidating Trust Units held by the Plan
Administrator will be deemed not to have been issued. The Plan Administrator
will hold in reserve the Settlement Debtors Premium (less the Settlement Debtors
Premium Initial Distribution which had previously been distributed in accordance
with Section 5.07(d) of the Plan) and any proceeds or Distributions thereof,
which proceeds will be held in a separate interest bearing account pending
Distribution in accordance with Section 5.07(d) of the Plan.
(e) Net Liquidating Trust Recovery/Affirmative Obligations:
(i) Net Judgment. Notwithstanding anything contained in the Plan to the
contrary, in the event that any creditor or a defendant in a litigation brought
by the Liquidating Trustee for and on behalf of the Liquidating Trust (a
"Defendant") (1) is required by a Final Order to make payment to the Liquidating
Trust (the "Judgment Amount"), and (2) has a right of setoff under section 553
of the Bankruptcy Code or applicable non-bankruptcy law, has a claim for
contribution or reimbursement or has incurred costs and expenses which would
give rise to an enforceable claim against the Debtors or the Liquidating Trust
(other than Subordinated Claims), each as determined by a Final Order, (the
aggregate amount of all such rights, claims, costs and expenses being referred
to herein as the "Offset Amount"), such Defendant will be obligated to pay only
the excess, if any, of the amount of the Judgment Amount over the Offset Amount.
(ii) Affirmative Obligations. Notwithstanding anything contained in the
Plan to the contrary, in the event that a Defendant (1) has an Offset Amount and
(2) the Offset Amount is in excess of the Judgment Amount, if any, (i) the
Judgment Amount will be set off against the Offset Amount and will not be paid
to the Liquidating Trust by such Defendant and (ii) the Defendant will be deemed
to have a Disputed Claim that has become an Allowed Claim
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(in the amount of the excess of the Offset Amount over the Judgment Amount) and
will be entitled to receive the appropriate distribution from the Disputed
Claims Reserve Trust and subsequent Distributions from the Liquidating Trust in
accordance with the Class of Claim as provided for under the Plan, and (iii) the
Liquidating Trust will have no liability with respect to such Offset Amount. In
the event that the Disputed Claims Reserve Trust contains insufficient Cash
and/or Liquidating Trust Units on account of Offset Amounts, then the
Liquidating Trust may transfer Cash and/or Liquidating Trust Units to the
Disputed Claims Reserve Trust for the benefit of any Defendant as if the Offset
Amount was a Disputed Claim.
E. DISTRIBUTIONS TO HOLDERS OF CLAIMS AND INTERESTS.
1. Initial Distributions. On the Initial Distribution Date, the
Liquidating Trustee will make a Distribution to: (i) each holder of an Allowed
Claim in an amount equal to its Ratable Share (calculated as of the applicable
Initial Distribution Date) of Cash and/or Liquidating Trust Units in accordance
with the terms of the Plan; (ii) each Paying Agent in an amount equal to the
aggregate Ratable Share (calculated as of the Initial Distribution Date) of Cash
or Liquidating Trust Units in accordance with the terms of the Plan, that such
Paying Agent will distribute to holders of Allowed Claims in the relevant Class;
and (iii) if applicable, the Disputed Claims Reserve Trust of the remaining Cash
and Liquidating Trust Units allocated in accordance with the terms of the Plan.
Subject to Section 6.05(b) of the Plan, the amount of Cash to be paid on the
Initial Distribution Date to holders of Allowed Claims will be calculated as if
each Disputed Claim were an Allowed Claim in its Face Amount.
2. Estimation of Claims. The Plan Administrator may, at any time,
request that the Bankruptcy Court estimate any Claim subject to estimation under
section 502(c) of the Bankruptcy Code and for which the Debtors may be liable
under the Plan, including any Claim for taxes, to the extent permitted by
section 502(c) of the Bankruptcy Code regardless of whether any party in
interest previously objected to such Claim, and the Bankruptcy Court will retain
jurisdiction to estimate any Claim pursuant to section 502(c) of the Bankruptcy
Code at any time during litigation concerning any objection to any Claim. In the
event that the Bankruptcy Court estimates any contingent or unliquidated Claim,
that estimated amount will constitute either the Allowed amount of such Claim or
a maximum limitation on such Claim, as determined by the Bankruptcy Court. If
the estimated amount constitutes a maximum limitation on such Claim, the Plan
Administrator may elect to pursue any supplemental proceedings to object to any
ultimate allowance on such Claim. All of the aforementioned Claims objection,
estimation and resolution procedures are 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. Resolution of Disputed Claims. No Distribution or payment will be
made on account of a Disputed Claim until such Disputed Claim becomes an Allowed
Claim. No Distribution or payment will be made to any holder of an Allowed
General Unsecured Claim who is also a potential defendant in an avoidance action
under chapter 5 of the Bankruptcy Code. For purposes of the Plan, such
Distribution or payment on account of such Allowed General Unsecured Claim will
be held in the Disputed Claims Reserve Trust as if it were a Disputed Claim.
Unless otherwise ordered by the Bankruptcy Court, after the Effective Date, the
Plan Administrator, under the direction of the Plan Administration Committee,
will have the exclusive
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right to make and file objections to and settle, compromise or otherwise resolve
Claims, except that as to applications for allowances of compensation and
reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code,
objections may be made in accordance with the applicable Bankruptcy Rules by
parties-in-interest. The Plan Administrator will file and serve a copy of each
objection upon the holder of the Claim to which an objection is made and the
Liquidating Trustee as soon as practicable but in no event later than (i) one
hundred-twenty days after the Effective Date, or (ii) such other time as may be
fixed or extended by the order of the Bankruptcy Court. After the Effective
Date, the Plan Administrator may settle or compromise any Disputed Claim without
approval of the Bankruptcy Court. The Liquidating Trustee will have standing and
be entitled to contest the settlement, compromise or resolution of any Disputed
Claim.
4. Distributions when a Disputed Claim Becomes an Allowed Claim; or
when a Disputed Claim is Subsequently Disallowed. On the first Quarterly
Distribution Date from and after the Initial Distribution Date, or as soon
thereafter as practicable, the Plan Administrator will make Ratable
Distributions in accordance with the provisions of the Plan (calculated as of
such Quarterly Distribution Date), of Cash and/or Liquidating Trust Units
reserved for any Disputed Claim that has become an Allowed Claim during the
preceding calendar quarter, to the holder of such Allowed Claim or the relevant
Paying Agent, as the case may be. Holders of Disputed Claims that are ultimately
Allowed will also be entitled to receive any Distributions received on and after
the Effective Date on account of the Liquidating Trust Units distributed to such
holder on account of its Allowed Claim. Any Distributions held in the Disputed
Claims Reserve Trust for the benefit of a holder of a Disputed Claim, which is
subsequently Disallowed, in whole or part, will be distributed on a Ratable
basis to holders of previously Allowed Claims and to the Disputed Claims Reserve
Trust on account of Disputed Claims, as if such amounts had been distributed on
the Effective Date.
5. Additional Quarterly Distributions on Account of Liquidating Trust
Units. On each Quarterly Distribution Date, the Liquidating Trustee will
distribute from the Liquidating Trust to each holder of a Liquidating Trust
Unit, or to the relevant Paying Agent, as the case may be, on account of such
Liquidating Trust Unit a Ratable Share of Available Cash. Notwithstanding
anything to the contrary under the Plan, no Distribution will be made on any
Quarterly Distribution Date, unless the aggregate Distribution on such Quarterly
Distribution Date would be in excess of $10,000 in value (as such value is set
forth herein and/or in the Plan).
6. Late Claims. Except as otherwise expressly provided in the Plan, any
Claim not deemed filed pursuant to section 1111(a) of the Bankruptcy Code or
timely filed pursuant to the Bankruptcy Code, Bankruptcy Rules or any applicable
order of the Court, will (a) not be treated as an Allowed Claim; and (b) be
expunged from the Claims register in the Chapter 11 Cases without need for any
further notice, motion, objection or order.
7. Miscellaneous Distribution Provisions.
(a) Method of Cash Distributions. Cash payments made pursuant to the
Plan will be in United States dollars by checks drawn on a domestic bank
selected by the Liquidating Trustee or the Plan Administrator, as the case may
be, or by wire transfer from a domestic bank, at the option of the Liquidating
Trustee or the Plan Administrator, as the case may be; provided,
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however, that cash payments made to foreign creditors, if any, holding Allowed
Claims may be paid, at the option of the Liquidating Trustee or the Plan
Administrator, as the case may be, in such funds and by such means as are
necessary or customary in a particular foreign jurisdiction.
(b) Distributions on Non-Business Days. Any payment or Distribution due
on a day other than a Business Day will be made, without interest, on the next
Business Day.
(c) Accrual of Postpetition Interest. Unless otherwise provided for in
the Plan, no holder of a pre-petition Allowed Claim will be entitled to the
accrual of interest on account of such Claim
(d) No Distribution Pending Allowance. Notwithstanding any other
provision of the Plan, no Cash or other property will be distributed under the
Plan on account of any Disputed Claim, unless and until such Claim becomes an
Allowed Claim. No Distribution or payment will be made to any holder of an
Allowed General Unsecured Claim who is also a potential defendant in an
avoidance action under chapter 5 of the Bankruptcy Code. For purposes of the
Plan, such Distribution or payment on account of such Allowed General Unsecured
Claim will be held in the Disputed Claims Reserve Trust as if it were a Disputed
Claim.
(e) No Distribution of Fractional Liquidating Trust Units.
Notwithstanding any other provisions of the Plan, only whole numbers of
Liquidating Trust Units will be issued. When any Distribution on account of an
Allowed Claim would otherwise result in the issuance of a number of Liquidating
Trust Units that is not a whole number, the Liquidating Trustee will aggregate
and, if possible, sell all Fractional Liquidating Trust Units otherwise then
distributable in accordance with the Plan at then prevailing prices and
distribute the net proceeds to the Persons otherwise entitled thereto. If such
sale is not possible then such aggregated Liquidating Trust Units will be
extinguished. Notwithstanding the foregoing, if a Person holds more than one
Claim, the Fractional Liquidating Trust Units that such Person otherwise would
be entitled to on account of each such Claim held by such Person will be
aggregated and, after taking into account such aggregation, such Person will
receive on account thereof (in addition to any whole number of Liquidating Trust
Units or other Distribution such Person is entitled to under the Plan prior to
such aggregation) (i) any resulting whole number of shares of Liquidating Trust
Units and (ii) the net proceeds for any remaining Fractional Liquidating Trust
Units sold in accordance with Section 6.06(e) of the Plan.
(f) No Distribution in Excess of Allowed Amount of Claim.
Notwithstanding anything to the contrary in the Plan, no holder of an Allowed
Claim will receive in respect of such Claim any Distribution (of a value set
forth in the Plan or in the Disclosure Statement) in excess of the Allowed
amount of such Claim except that the foregoing will not limit holders of
Disputed Claims from receiving accrued interest as provided in this Plan, if
such holders Disputed Claims become Allowed. No Distribution or payment will be
made to any holder of a Allowed General Unsecured Claim who is also a defendant
in an avoidance action under chapter 5 of the Bankruptcy Code.
8. De Minimis Distributions. Notwithstanding anything to the contrary
contained in the Plan, the Liquidating Trustee or the Plan Administrator, as the
case may be, will
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not be required to distribute Cash to the holder of an Allowed Claim if the
amount of cash to be distributed on account of such Claim is less than $25. Any
holder of an Allowed Claim on account of which the amount of Cash to be
distributed is less than $25 will have such Claim discharged and will be forever
barred from asserting any such Claim against the Debtors, the Liquidating Trust,
or their respective property. Any Cash not distributed pursuant to this
provision will be the property of the Liquidating Trust, free of any
restrictions thereon.
9. Setoffs. The Debtors, the Liquidating Trustee or the Plan
Administrator, as the case may be, are authorized, pursuant to section 553 of
the Bankruptcy Code, to set off against any Allowed Claim and the Distributions
to be made on account of such Allowed Claim, the claims, rights and Causes of
Action of any nature that the Debtors may hold against the holder of such
Allowed Claim; provided, however, that neither the failure to effect such a
setoff nor the allowance of any Claim under the Plan will constitute a waiver or
release by the Debtors of any such claims, rights and Causes of Action that the
Debtors may possess against such holder.
10. Intercompany Claims. In accordance with the overall Compromise and
Settlement provided for in the Plan, the Intercompany Claims will be deemed
released, waived and discharged as of the Effective Date.
11. Unclaimed Property.
(a) Escrow of Unclaimed Property. Unclaimed Property (and all interest,
dividends, and other Distributions thereon) will be delivered promptly to the
Liquidating Trustee or the Plan Administrator, as the case may be, by each
Paying Agent. The Liquidating Trustee or the Plan Administrator, as the case may
be, will deposit such Unclaimed Property in trust (for the benefit of the
holders of Allowed Claims entitled thereto under the terms of the Plan) in a
subaccount of the Liquidating Trust or the Disputed Claims Reserve Trust, as the
case may be. For a period of one year following the Effective Date, Unclaimed
Property, including any interest, dividends, and other Distributions thereon
will be: (i) held in such subaccount solely for the benefit of the holders of
Allowed Claims that have failed to claim such property; and (ii) released from
such subaccount and delivered to the holder of an Allowed Claim upon
presentation of proper proof by such holder of its entitlement thereto. The
Liquidating Trustee or the Plan Administrator, as the case may be, will pay, or
cause to be paid, out of the funds held in the Liquidating Trust or the Disputed
Claims Reserve Trust, as the case may be, including, without limitation, the
subaccount, any tax imposed by any federal, state or local taxing authority on
the income generated by the funds held in such subaccount. The Liquidating
Trustee or the Plan Administrator, as the case may be, will also file, or cause
to be filed any tax or information return related to such accounts. All Cash
held in each such subaccount will be invested in accordance with section 345 of
the Bankruptcy Code, as modified by the relevant Orders of the Court for
investments made by the Debtors during the Chapter 11 Cases. The earnings on
such investments will be held in trust as an addition to the balance of the
subaccount for the benefit of the holders of Allowed Claims entitled to such
Unclaimed Property, and will not constitute property of the Liquidating Trust.
(b) Distribution of Unclaimed Property. At the end of one year
following the relevant Distribution Date of Cash and/or Liquidating Trust Units,
the holders of Allowed
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Claims theretofore entitled to Unclaimed Property will cease to be entitled
thereto (such holders, the "Unclaimed Holders"), and the Unclaimed Property for
each Unclaimed Holder will then be distributed on a Ratable basis to the holders
of Liquidating Trust Units in accordance with the Plan.
12. Exemption from Transfer Taxes. Pursuant to section 1146(c) of the
Bankruptcy Code, the assignment or surrender of any lease or sublease, or the
delivery, making, filing, or recording of any deed or other instrument of
transfer, or the issuance, transfer, or exchange of any security, including,
without limitation, the Liquidating Trust Units, under, in furtherance of, or in
connection with the Plan, whether arising prior or subsequent to the
Confirmation Date, including any deeds, bills of sale or assignments executed in
connection with any disposition of assets contemplated by the Plan will not be
subject to any stamp, real estate transfer, mortgage, recording or other similar
tax, including, but not limited to, any transfers of assets to the Liquidating
Trust or Disputed Claims Reserve Trust on or shortly after the Effective Date by
the Debtors, holders of Allowed Class 5 Claims or the Plan Administrator.
13. Cancellation of Capital Stock. As of the Effective Date, by virtue
of the Plan and in all events without any action on the part of the holders
thereof, each share of Old Common Stock issued and outstanding or held in
treasury, will be cancelled and retired and no consideration will be paid or
delivered with respect thereto. Notwithstanding anything in the Plan to the
contrary, holders of Old Common Stock will not be required to surrender such
stock to the Debtors.
14. Cancellation of Senior Notes and Agreements. On the Effective Date,
except as otherwise provided for in the Plan, the Senior Notes and any other
note, bond, indenture or other instrument or document evidencing or creating any
indebtedness or obligation of the Debtors (the "Instruments") will be deemed
cancelled and of no further force or effect without any further action on the
part of the Bankruptcy Court, or any Person, including, but limited to,
governmental agencies. The holders of such cancelled Senior Notes and
Instruments will have no claims against the Debtors for payment of such Senior
Notes or Instruments, except for the rights provided pursuant to the Plan,
including without limitation, the rights provided for pursuant to Section
5.07(b) in the Plan.
Following the Effective Date, holders of Senior Notes will receive from
the respective indenture trustee, agent, servicer or the Liquidating Trustee,
specific instructions regarding the time and manner in which the Senior Notes
are to be surrendered if requested by the Liquidating Trustee. All Distributions
under this Plan in respect of Allowed Senior Note Claims (after giving effect to
Section 5.07(e) of the Plan) will be made to the Indenture Trustee for the
benefit of such holders, and will be subject to any rights or liens that the
Indenture Trustee may have for fees, costs, expenses and indemnification under
the respective Indentures or other agreement.
Any Senior Note which is lost, stolen, mutilated or destroyed, will be
deemed surrendered when the holder of a Claim based thereon delivers to the
applicable indenture trustee, agent, servicer or the Liquidating Trustee (a)
evidence satisfactory to the indenture trustee, agent, servicer or the
Liquidating Trustee of the loss, theft, mutilation or destruction of such
instrument or certificate, and (b) such security or indemnity as may be required
by the
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indenture trustee, agent, servicer or the Liquidating Trustee to hold each of
them harmless with respect thereto.
Each indenture or other agreement that governs the rights of the holder
of a Claim and that is administered by an indenture trustee, an agent or a
servicer will continue in effect solely for the purposes of (a) allowing such
indenture trustee, agent or servicer to make the Distributions to be made on
account of such Claims under the Plan, (b) permitting such indenture trustee,
agent or servicer to maintain any rights or liens it may have for fees, costs,
expenses and indemnification under such indenture or other agreement and to be
paid or reimbursed for such prepetition and postpetition fees, costs, expenses
and indemnification only from the Distributions (until payment in full of such
fees, costs, expenses or indemnification) that are governed by the respective
indenture or other agreement in accordance with the provisions set forth
therein; provided, however, that the foregoing will not affect the discharge of
Debtors' Liabilities under the Bankruptcy Code and Confirmation Order or result
in an expense or liability to the Debtor or the Liquidating Trustee.
Nothing in Section 6.13 of the Plan will constitute a waiver or affect
the ability of holders of Senior Notes or Instruments to assert claims on
account of Senior Notes or Instruments against third parties.
15. Disputed Payments. If any dispute arises as to the identity of a
holder of an Allowed Claim who is to receive any Distribution, the Liquidating
Trustee or Plan Administrator, as the case may be, or relevant Paying Agent may,
in lieu of making such Distribution to such Person, make such Distribution into
an escrow account to be held in trust for the benefit of such holder and will
not constitute property of the Debtors, their Estates or the Liquidating Trust.
Such Distribution will be held in escrow until the disposition thereof will be
determined by order of the Bankruptcy Court or other court of competent
jurisdiction or by written agreement among the interested parties to such
dispute.
16. Withholding Taxes. In connection with the Plan, to the extent
applicable, the Liquidating Trustee and Plan Administrator will comply with all
withholding and reporting requirements imposed on it by federal, state and local
taxing authorities, and all Distributions will be subject to such withholding
and reporting requirements.
17. Obligations Incurred After the Confirmation Date. Payment
obligations incurred after the date and time of entry of the Confirmation Order,
including, without limitation, the Professional fees of the Debtors through the
Effective Date will not be subject to application or proof of claim and may be
paid by the Debtors or the Liquidating Trust, as the case may be, in the
ordinary course of business and without further Bankruptcy Court approval, as
Administrative Claims.
18. Instructions to Liquidating Trustee or Plan Administrator. Prior to
any Distribution on account of any Senior Notes, the indenture trustee, agent or
servicer of the Senior Notes will (a) inform the Liquidating Trustee or Plan
Administrator, as the case may be, as to the amount of properly surrendered
Senior Notes and (b) instruct the Liquidating Trustee or Plan Administrator, as
the case may be, in a form and manner that the Liquidating Trustee or Plan
Administrator, as the case may be, reasonably determines to be acceptable, of
the names of the
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holders of Senior Notes with Allowed Class 5 Claims who are to receive
Distributions in respect of such Class 5 Claims in exchange for properly
surrendered Senior Notes.
19. Record Date for Distributions to Holders of Senior Notes. At the
close of business on the Confirmation Date, the transfer ledgers of the
indenture trustees, agent and servicers of the Senior Notes will be closed, and
there will be no further changes in the record holders of the Senior Notes. The
Debtors, the Liquidating Trust, the Liquidating Trustee, and the indenture
trustees, agents and servicers for such Senior Notes will have no obligation to
recognize any transfer of such Senior Notes occurring after the Confirmation
Date. The Debtors, the Liquidating Trust, the Liquidating Trustee, and the
indenture trustees, agents and servicers for such Senior Notes will be entitled
instead to recognize and deal for all purposes under the Plan with only those
record holders stated on the transfer ledgers as of the close of business on the
Confirmation Date.
20. Dissolution. From and after the Effective Date, the Plan
Administrator will use its reasonable best efforts to dissolve the Debtors and
any affiliates of the Debtors that are not surviving Special Purpose Entities as
quickly as is reasonably practical. In that connection, the Plan Administrator
will prepare and file all corporate resolutions, statements, notices, tax
returns and other documents necessary to accomplish their dissolution, and the
Confirmation Order will provide for the appointment of the Plan Administrator as
the authorized signatory to execute on behalf of each Debtor any and all
documents necessary to accomplish such dissolution.
IV. EFFECT OF THE PLAN ON CLAIMS AND INTERESTS
A. JURISDICTION OF COURT. Until the Effective Date, the Court will
retain jurisdiction over the Debtors and their Estates. Thereafter, jurisdiction
of the Court will be limited to the subject matters set forth in Article XI of
the Plan.
B. BINDING EFFECT. Except as otherwise provided in section 1141(d) of
the Bankruptcy Code, on and after the Confirmation Date, the provisions of the
Plan will bind any holder of a Claim against, or Equity Interest in, the Debtors
and their respective successors and assigns, whether or not the Claim or Equity
Interest of such holder is impaired under the Plan and whether or not such
holder has accepted the Plan.
C. TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided in the Plan,
all injunctions or stays provided for in the Chapter 11 Cases pursuant to
sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, will remain in full force and effect until the latter of:
(1) Final Claims Resolution Date or (2) the Effective Date.
D. RIGHTS OF ACTION. On the Effective Date, the Liquidating Trust will
be deemed to have taken an assignment of, and will thereafter, retain and have
the right to enforce any and all present or future rights, claims or Causes of
Action, against any Person and with respect to any rights of the Debtors that
arose before or after the Petition Date, including, but not limited to, rights,
claims and Causes of Action. All present or future rights, claims or Causes of
Action against any Person that existed prior to the Effective Date are preserved
and are deemed assigned to the Liquidating Trust, including, without limitation,
such claims, rights or Causes of Action
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<PAGE>
identified in this Disclosure Statement. The Liquidating Trust may pursue,
abandon, settle or release any or all such claims, rights or Causes of Action,
as it deems appropriate.
E. DISCHARGE.
1. Scope. Except as otherwise provided in the Plan or Confirmation
Order, in accordance with section 1141(d)(1) of the Bankruptcy Code, when the
Confirmation Order becomes a Final Order, the Plan and the Confirmation Order
will discharge, effective as of the Effective Date, all debts of, Claims
against, Liens on, and Interests in each of the Debtors, their assets, or
properties, which debts, Claims, Liens, and Interests arose at any time before
the entry of the Confirmation Order. The discharge of the Debtors will be
effective as to each Claim or Interest, regardless of whether a proof of Claim
or Interest therefor was filed, whether the Claim is an Allowed Claim, or
whether the holder thereof votes to accept the Plan. On the Effective Date, as
to every discharged Claim and Interest, any holder of such Claim or Interest
will be precluded from asserting against any Debtor formerly obligated with
respect to such Claim or Interest, or against such Debtor's assets or
properties, any other or further Claim or Interest based upon any document,
instrument, act, omission, transaction, or other activity of any kind or nature
that occurred before the Confirmation Date.
2. Injunction. Except as otherwise provided in the Plan or Confirmation
Order, as of the Effective Date, all entities that hold a Claim that is
discharged pursuant to Section 7.05(a) of the Plan or an Interest or other right
of an equity security holder that is terminated pursuant to the terms of the
Plan, are permanently enjoined from taking any of the following actions on
account of any such discharged Claims, debts or liabilities or terminated
Interests or rights: (1) commencing or continuing in any manner any action or
other proceeding against the Debtors, the Liquidating Trust or the Disputed
Claims Reserve Trust or their respective Trust Assets or other property; (2)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtors, the Liquidating Trust or the
Disputed Claims Reserve Trust or their respective Trust Assets or other
property; (3) creating, perfecting or enforcing any Lien or encumbrance against
the Debtors, the Liquidating Trust or the Disputed Claims Reserve Trust or their
respective Trust Assets or other property; and (4) asserting a setoff, right of
subrogation or recoupment of any kind against any obligation due to the Debtors,
the Liquidating Trust or the Disputed Claims Reserve Trust or their respective
Trust Assets or other property.
3. Release of Collateral. Unless a particular Secured Claim is
Reinstated or the holder thereof receives a return of its Collateral in respect
of such Claim under the Plan: (i) each holder of: (A) a Secured Claim; and/or
(B) a Claim that is purportedly secured, will on or immediately before the
Effective Date: (x) turn over and release to the Liquidating Trust any and all
property that secures or purportedly secures such Claim; and (y) execute such
documents and instruments as the Debtors or the Liquidating Trust requires to
evidence such claimant's release of such property; and (ii) on the Effective
Date, all claims, right, title and interest in such property will revert to the
Liquidating Trust free and clear of all Claims and Interests, including (without
limitation) Liens, charges, pledges, encumbrances and/or security interests of
any kind. No Distribution under the Plan will be made to or on behalf of any
holder of such Claim unless and until such holder executes and delivers to the
Debtors or the Liquidating Trust such release of Liens. Any such holder that
fails to execute and deliver such release of Liens within 180 days
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<PAGE>
of the Effective Date will be deemed to have no further Claim and will not
participate in any Distribution under the Plan. Notwithstanding the immediately
preceding sentence, any holder of a Disputed Claim will not be required to
execute and deliver such release of Liens until the time such Claim is Allowed
or Disallowed.
4. Cause of Action Injunction. On and after the Effective Date, for
cause shown, (a) all Persons other than the Liquidating Trustee will be
permanently enjoined from commencing or continuing in any manner any action or
proceeding (whether directly, indirectly, derivatively or otherwise) on account
of, or respecting, any Claim, debt, right or Cause of Action that the
Liquidating Trustee retains sole and exclusive authority to pursue, and in
accordance with the Liquidating Trust Agreement, and (b) all Persons other than
the Liquidating Trust will be permanently enjoined from commencing or continuing
in any manner any action or proceeding (whether directly, indirectly,
derivatively or otherwise) on account of or respecting any Causes of Action.
F. PRESERVATION OF INSURANCE. The provisions of the Plan will not diminish
or impair in any manner the enforceability and coverage of any insurance
policies that may cover Claims against the Debtors or any other Person,
including, without limitation, the D&O Insurance.
V. EXECUTORY CONTRACTS
A. EXECUTORY CONTRACTS AND UNEXPIRED LEASES. As of the Effective Date, all
executory contracts and unexpired leases of each Debtor will be deemed rejected
by such Debtor pursuant to the provisions of section 365 of the Bankruptcy Code,
except: (a) any executory contract or unexpired lease that has been or is the
subject of a motion to assume or assume and assign filed pursuant to section 365
of the Bankruptcy Code by any of the Debtors before the Effective Date; (b) any
executory contract or unexpired lease listed in the "Schedule of Assumed and
Assumed and Assigned Executory Contracts and Unexpired Leases" to be Filed by
the Debtors as Exhibit E to the Plan on or before the Exhibit Filing Date; (c)
any executory contract or unexpired lease assumed or assumed and assigned
pursuant to the provisions of the Plan; (d) any agreement, obligation, security
interest, transaction or similar undertaking that the relevant Debtor believes
is not executory or is not a lease, and which is later determined by the Court
to be an executory contract or unexpired lease that is subject to assumption or
rejection under section 365 of the Bankruptcy Code.
B. CURE. At the election of the relevant Debtor, any monetary defaults under
each executory contract and unexpired lease to be assumed under the Plan will be
satisfied pursuant to section 365(b)(1) of the Bankruptcy Code, in one of the
following ways: (a) by payment of the default amount in Cash on the Effective
Date; or (b) on such other terms as agreed to by the parties to such executory
contract or unexpired lease. In the event of a dispute regarding: (i) the amount
of any cure payments; (ii) the ability of the Debtor that is a party thereto to
provide adequate assurance of future performance under the contract or lease to
be assumed; or (iii) any other matter pertaining to assumption, then the cure
payments required by section 365(b)(1) of the Bankruptcy Code will be made
following the entry of a Final Order resolving the dispute and approving
assumption.
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<PAGE>
C. REJECTION DAMAGES BAR DATE. If the rejection by any Debtor, pursuant to
the Plan or otherwise, of an executory contract or unexpired lease, results in a
Claim, then such Claim will be forever barred and will not be enforceable
against such Debtor or the Liquidating Trust or the properties of either of them
unless a proof of claim is filed with the clerk of the Bankruptcy Court and
served upon counsel to the Debtors, Liquidating Trustee and the Plan
Administrator on or before the earlier of (i) the later of the applicable Bar
Date or within thirty (30) days after the date of service of an order of the
Court authorizing such rejection including this Confirmation Order, (ii) thirty
(30) days after such rejection becomes effective if such rejection occurred by
reason of expiration of a time period fixed by the Court, or (iii) such other
period set by the Court.
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER
OBLIGATIONS INCURRED AFTER THE PETITION DATE. Executory contracts and unexpired
leases entered into and other obligations incurred after the Petition Date by
any Debtor will be performed by the Liquidating Trust. Accordingly, such
executory contracts, unexpired leases and other obligations will survive and
remain unaffected by entry of the Confirmation Order.
VI. CONDITIONS TO CONFIRMATION AND OCCURRENCE
OF EFFECTIVE DATE
A. CONDITIONS TO CONFIRMATION. The Plan may not be confirmed unless each of
the conditions set forth below is satisfied. Except as provided in Section 9.03
of the Plan, any one or more of the following conditions may be waived at any
time by the Debtors with consent of each of the Unofficial Committees.
1. The Disclosure Statement Order will have been entered and be a Final
Order.
2. The Confirmation Order will be in a form reasonably acceptable to
the Debtors and each of the Unofficial Committees.
3. The Compromise and Settlement and all other provisions embodied in
the Plan will not have been modified.
B. CONDITIONS TO OCCURRENCE OF EFFECTIVE DATE. The Effective Date for the
Plan may not occur unless each of the conditions set forth in Section 9.02 of
the Plan is satisfied. Except as provided in Section 9.03 of the Plan, any one
or more of the following conditions may be waived at any time by the Debtors
with the consent of each of the Unofficial Committees.
1. The Confirmation Order which, inter, alia, approves the Compromise
and Settlement will have been entered and be a Final Order.
2. The Liquidating Trustee, the Liquidating Trust Committee, the Plan
Administrator and the Plan Administration Committee each will have been properly
nominated and appointed and each will have accepted to act in such capacity.
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<PAGE>
3. The Liquidation Trust Agreement and the Plan Administration
Agreement will be in a form acceptable to each of the Unofficial Committees.
C. WAIVER OF CONDITIONS TO CONFIRMATION AND OCCURRENCE OF EFFECTIVE DATE.
Each of the conditions to confirmation of the Plan or to the occurrence of the
Effective Date is for the benefit of the Debtors. Other than the requirement
that the Disclosure Statement Order and the Confirmation Order must be entered,
the requirement that a particular condition be satisfied may be waived, as set
forth in this Plan.
D. EFFECT OF NONOCCURRENCE OF THE CONDITIONS TO OCCURRENCE OF EFFECTIVE
DATE. If each of the conditions to the occurrence of the Effective Date have not
been satisfied or duly waived on or before the date which is no later than the
first Business Day after sixty (60) days after the Confirmation Order is
entered, or by such later date as is approved, after notice and a hearing, by
the Court, then upon motion by any party in interest made before the time that
each of the conditions has been satisfied or duly waived, the Confirmation Order
may be vacated by the Court; provided, however, that, notwithstanding the filing
of such a motion, the Confirmation Order will not be vacated if each of the
conditions to occurrence of the Effective Date is either satisfied or duly
waived before the Court enters an order granting the relief requested in such
motion. If the Confirmation Order is vacated pursuant to Section 9.04 of the
Plan, the Plan will be null and void in all respects, and nothing contained in
the Plan will: (a) constitute a waiver or release of any Claims by or against,
or Interests in, the Debtors; or (b) prejudice in any manner the rights of any
of the Debtors or of any other party in interest, including, without limitation,
the right to seek a further extension of the exclusivity periods under section
1121(d) of the Bankruptcy Code.
VII. CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN
A. CONFIRMABILITY AND SEVERABILITY OF A PLAN. The Debtors, with the consent
of each of the Unofficial Committees, reserve the right to alter, amend, modify,
revoke or withdraw the Plan as it applies to any particular Debtor. The Debtors,
with the consent of each of the Unofficial Committees, reserves the right to
make non-substantive changes in the Plan, which changes may be necessary to
facilitate the withdrawal of another Debtor from the Plan. Any such revocation
or withdrawal by a Debtor (only with the consent of each of the Unofficial
Committees) will not affect the Plan as the plan of reorganization of the other
Debtors. If a Debtor revokes or withdraws from the Plan (only with the consent
of each of the Unofficial Committees): (a) nothing contained in the Plan will be
deemed to constitute a waiver or release of any Claims by or against such
Debtor, or to prejudice in any manner the rights of such Debtor or any persons
in any further proceedings involving such Debtor; and (b) any provisions of any
Confirmation Order with respect to such Debtor will be null and void (and such
Debtor will not be benefited by the Confirmation Order) and all such rights of
or against such Debtor will exist as though the Plan had not been filed and no
actions taken to effectuate it. A determination by the Bankruptcy Court that the
Plan, as it applies to any particular Debtor, is not confirmable pursuant to
section 1129 of the Bankruptcy Code will not limit or affect: (1) the
confirmability of the Plan (only with the consent of each of the Unofficial
Committees) as it applies to any other Debtor; or (2) the Debtors' ability to
modify the Plan (only with the consent of each of the
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<PAGE>
Unofficial Committees), as it applies to any particular Debtor, to satisfy the
confirmation requirements of section 1129 of the Bankruptcy Code. Each provision
of the Plan will be considered separable and, if for any reason any provision or
provisions in the Plan are determined to be invalid and contrary to any existing
or future law, the balance of the Plan will be given effect without relation to
the invalid provision.
B. CRAMDOWN. Because certain impaired classes of creditors are deemed to
reject the Plan, the Debtors will request the Bankruptcy Court to confirm the
Plan in accordance with section 1129(b) of the Bankruptcy Code only as to
Classes 7 and 8.
VIII. ADMINISTRATIVE PROVISIONS
A. RETENTION OF JURISDICTION. Notwithstanding confirmation of the Plan or
occurrence of the Effective Date, the Court will retain jurisdiction for all
purposes permitted under applicable law, including, without limitation, the
following purposes:
1. Determination of the allowability of Claims upon objection to such
Claims by Debtors or the Plan Administrator, as the case may be, and the
validity, extent, priority and nonavoidability of consensual and nonconsensual
Liens and other encumbrances;
2. Determination of tax liability pursuant to section 505 of the
Bankruptcy Code;
3. Approval, pursuant to section 365 of the Bankruptcy Code, of all
matters related to the assumption, assumption and assignment, or rejection of
any executory contract or unexpired lease of any of the Debtors;
4. Determination of requests for payment of administrative expenses
entitled to priority under section 507(a)(1) of the Bankruptcy Code, including
compensation of parties entitled thereto under section 330 of the Bankruptcy
Code;
5. Resolution of controversies and disputes regarding the
interpretation of the Plan;
6. Implementation of the provisions of the Plan and entry of Orders in
aid of confirmation and consummation of the Plan, including, without limitation,
appropriate Orders to protect the Debtors and their successors from actions by
creditors and/or Interest holders of the Debtors or any of them and resolving
disputes and controversies regarding property of the Estates, the Liquidating
Trust, the Disputed Claims Reserve Trust or powers of the Liquidating Trustee
and the Plan Administrator;
7. Modification of the Plan pursuant to section 1127 of the Bankruptcy
Code;
8. Adjudication of any Causes of Action;
9. Entry of a Final Order closing the Chapter 11 Cases.
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<PAGE>
B. GOVERNING LAW. Except to the extent the Bankruptcy Code, Bankruptcy
Rules, or other federal laws apply and except for Reinstated Secured Claims
governed by another jurisdiction's law, the rights and obligations arising under
the Plan will be governed by the laws of the State of New York, without giving
effect to principles of conflicts of law.
C. ADMINISTRATIVE BAR DATE.
1. General Provisions. Except as provided in Section 11.03(b) of the
Plan for Administrative Claims of Professionals requesting compensation or
reimbursement of expenses and in Section 11.03(c) for liabilities incurred by a
Debtor in the ordinary course of its business, requests for payment of
Administrative Claims must be Filed no later than 30 days after the Effective
Date. Holders of Administrative Claims who are required to File a request for
payment of such Claims and who do not File such requests by the applicable Bar
Date will be forever barred from asserting such Claims against the Debtors, the
Liquidating Trust or their respective property.
2. Professionals. All Professionals or other entities requesting
compensation or reimbursement of expenses pursuant to sections 327, 328, 330,
331, 503(b) and 1103 of the Bankruptcy Code for services rendered before the
Confirmation Date (including compensation requested by any Professional or other
entity for making a substantial contribution in any Case but excluding
professionals retained pursuant to the Ordinary Course Professionals Orders)
will File an application for final allowance of compensation and reimbursement
of expenses no later than 45 days after the Confirmation Date. Objections to
applications of Professionals or other entities for compensation or
reimbursement of expenses must be Filed no later than 75 days after the
Confirmation Date. All compensation and reimbursement of expenses allowed by the
Bankruptcy Court will be paid to the applicable Professional immediately
thereafter. Each Professional that intends to seek payment for compensation or
reimbursement of expenses from the Debtors (including compensation requested by
any Professional or other entity for making a substantial contribution in the
Chapter 11 Cases) will provide the Debtors with a statement by no later than the
Confirmation Date, of the amount of estimated unpaid fees and expenses that each
such Professional has incurred or expects to incur through the Confirmation
Date. The Debtors or the Liquidating Trustee, as the case may be, will establish
a reserve in an appropriate amount for the payment of any such unpaid fees and
expenses of such Professionals.
3. Ordinary Course Liabilities. Holders of Administrative Claims based
on liabilities incurred by a Debtor in the ordinary course of business,
including, without limitation, Professionals retained pursuant to the Ordinary
Course Professionals Orders, will not be required to File any request for
payment of such Claims. Such Administrative Claims will be assumed and paid by
the Liquidating Trust pursuant to the terms and conditions of the particular
transaction giving rise to such Administrative Claim, without any further action
by the holders of such Claims or the Court.
4. Payment of Statutory Fees. All fees payable pursuant to section 1930
of title 28 of the United States Code, as determined by the Court on the
Confirmation Date, will be paid on the Effective Date. Any statutory fees
accruing after the Confirmation Date will be paid in accordance with Article IV
of the Plan.
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<PAGE>
D. EFFECTUATING DOCUMENTS AND FURTHER TRANSACTION. Each Debtor will be
authorized to execute, deliver, file, or record such documents, contracts,
instruments, releases, and other agreements and take such other action as may be
necessary to effectuate and further evidence the terms and conditions of the
Plan.
E. LIMITATION OF LIABILITY. None of the Debtors, the Bank Group Committee,
the Indenture Trustee, the Unofficial Noteholders' Committee (including the
present and former members), their respective officers and directors, employees,
agents (acting in such capacity), representatives nor any professional employed
by any of them (collectively, the "Affected Parties") will have or incur any
liability to any Person or entity for any action taken or omitted to be taken in
connection with or related to (i) the formulation, preparation, dissemination,
implementation, confirmation, or consummation of the cases, the Plan, the
Disclosure Statement, or any contract, release, or other agreement or document
created or entered into, or any other action taken or omitted to be taken in
connection with the Plan, and (ii) actions taken or omitted to be taken in
connection with the Chapter 11 Cases or the operations of administration of the
Debtors during the Chapter 11 Cases that arose out or relate to the period from
the Petition Date through the Effective Date. Notwithstanding anything in
Section 11.05 of the Plan to the contrary, the provisions of such Section will
(i) not limit in any way whatsoever the liability of any Person or entity that
would otherwise result from any action or omission to the extent that such
action or omission is determined in a Final Order to have constituted gross
negligence, willful misconduct, or breach of fiduciary duty; (ii) be of no force
or effect as to the Liquidating Trustee including, without limitation, his power
and authority to investigate, commence and prosecute Causes of Action, if any,
against any of the Affected Parties and no Affected Party will be entitled to
rely upon or assert Section 11.05 of the Plan as a defense to any such Causes of
Action brought by the Liquidating Trustee; (iii) not effect the rights of any
party-in-interest pursuant to Section 11.03(b) of the Plan. If Section 11.05 of
the Plan is deemed in any way to limit, impair, or constitute a defense to any
such Causes of Action brought by the Liquidating Trustee, such portion or all of
Section 11.05 of the Plan will be deemed null and void and of no force and
effect.
F. AMENDMENTS Preconfirmation Amendment. The Debtors, with the consent of
each of the Unofficial Committees, may modify the Plan at any time prior to the
entry of the Confirmation Order provided that the Plan, as modified, and the
Disclosure Statement pertaining thereto meet applicable Bankruptcy Code
requirements of Section 1125, among others.
2. Post-confirmation Amendment Not Requiring Resolicitation. After the
entry of the Confirmation Order, the Debtors may modify the Plan, with the
consent of each of the Unofficial Committees, to remedy any defect or omission
or to reconcile any inconsistencies in the Plan or in the Confirmation Order, as
may be necessary to carry out the purposes and effects of the Plan, provided
that: (i) the Debtors obtain approval of the Bankruptcy Court for such
modification, after notice and a hearing; and (ii) such modification will not
materially and adversely affect the interests, rights, treatment, or
Distributions of any Class under the Plan.
3. Post-confirmation Amendment Requiring Resolicitation. After the
Confirmation Date and before the Effective Date of the Plan, the Debtors may
modify the Plan, with the consent of each of the Unofficial Committees, in a way
that materially or adversely affects the interests, rights, treatment, or
Distributions of a class of Claims or Interests, provided
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that: (i) the Plan, as modified, meets applicable Bankruptcy Code requirements;
(ii) the Debtors obtain Bankruptcy Court approval for such modification, after
notice and a hearing; (iii) such modification is accepted by at least two-thirds
in amount, and more than one-half in number, of Allowed Claims voting in each
class affected by such modification; and (iv) the Debtors comply with section
1125 of the Bankruptcy Code with respect to the Plan as modified.
G. SUCCESSORS AND ASSIGNS. The rights, benefits, and obligations of any
Person named or referred to in the Plan will be binding upon, and will inure to
the benefit of, the heir, executor, administrator, successor or assign of such
Person.
IX. ESTIMATED DISTRIBUTIONS
Class 5 Claims consist of Bank Group Claims, Senior Note Claims and
General Unsecured Claims. As discussed, holders of Class 5 Claims will receive
an Initial Distribution of Cash on the Effective Date, and subsequent
distributions thereafter as the Trust Assets are liquidated. No estimate can be
made at this time as to the actual timing and amount of such subsequent
distributions. The timing and amount of such subsequent distributions will be
determined by the Liquidating Trustee.
For purposes of this recovery analysis, the recovery to holders of
Class 5 Claims has been calculated based on the Initial Distribution and
relatively liquid Trust Assets that are projected to be collected within the
5-year Projection Period, as detailed in the Financial Projections included in
Article X. Because of the highly volatile and speculative nature of the ESR cash
flows, no certain estimate can be made at this time as to the cash flow that
will ultimately be collected from the ESRs. While certain projected ESR cash
flows have been included in the attached Projections, the book value of the ESRs
has not been included in the percentage recovery to holders of Class 5 Claims
shown here because the actual cash flow may differ materially from the book
value. Furthermore, no value has been ascribed to other assets that the
Liquidating Trust will hold, such as Causes of Action and recoveries from Empire
Funding Corporation, among others, as the recoverable value of these assets is
highly uncertain.
While CFN has attempted to illustrate recoverable values for these
assets, actual distributions to holders of Class 5 Claims will be reduced by
operating expenses of the Liquidating Trust, which are estimated to be
approximately $1.5 million per year.
As further discussed in the Plan, to the extent that there are Disputed
Claims as of the Effective Date, funds will be withheld from the Initial
Distribution and held in a Disputed Claims Reserve Trust until the Disputed
Claims are resolved. Therefore, the actual amount of cash distributed as of the
Effective Date may be lower than the Initial Distribution amount shown below.
<TABLE>
<CAPTION>
($ millions) ESTIMATED VALUE
---------------
<S> <C>
INITIAL DISTRIBUTION
Projected Cash Balance as of December 31, 2000 $112.2
Less: Estimated Priority & Administrative Expenses 6.1
Less: Cash to Capitalize the Liquidating Trust 5.0
---------------
Estimated Initial Distribution to Holders of Class 5 Claims 101.1
57
<PAGE>
TRUST ASSETS PROJECTED TO BE FULLY COLLECTED WITHIN PROJECTION PERIOD
---------------------------------------------------------------------
Servicing Advances 48.5
Prepayment Penalties & Deferred Servicing Fees 10.3
---------------
Subtotal "Liquid" Trust Assets 58.8
TRUST ASSETS NOT PROJECTED TO BE FULLY COLLECTED WITHIN
PROJECTION PERIOD ESRs 257.7
---------------------- ---------------
Total Trust Assets(18) 316.5
---------------
Estimated Claims in Class 5 $1,052.5
Estimated Recovery From Initial Distribution 9.6%
Estimated Recovery From "Liquid" Trust Assets 5.6%
Estimated Recovery From ESRs NA(19)
---------------
Total Estimable Recovery to Class 5 Creditors 15.2%
</TABLE>
THE VALUES OF THE TRUST ASSETS SHOWN ABOVE REPRESENT ESTIMATED VALUES AND DO NOT
NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS
FOR THE LIQUIDATING TRUST UNITS. SUCH TRADING VALUES COULD BE MATERIALLY
DIFFERENT FROM THE VALUES ASSOCIATED WITH THIS RECOVERY ANALYSIS.
THE CLAIMS ESTIMATES AND RECOVERIES ON ACCOUNT OF SUCH CLAIMS ARE THE DEBTORS
BEST ESTIMATES BASED UPON AVAILABLE ESTIMATES AS OF SUCH DATES. THE DEBTORS
CONTINUE TO EXAMINE CLAIMS AND INFORMATION CONTAINED IN THEIR BOOKS AND RECORDS.
AS A RESULT, THE NUMBERS CONTAINED IN THIS DISCLOSURE STATEMENT MAY BE SUBJECT
TO MATERIAL CHANGE.
X. FINANCIAL PROJECTIONS
A. RESPONSIBILITY FOR AND PURPOSE OF THE PROJECTIONS.
As a condition to confirmation of a plan, the Bankruptcy Code requires,
among other things, that the Bankruptcy Court determine that confirmation is not
likely to be followed by the liquidation or the need for further financial
reorganization of the debtor. In connection with the development of the Plan,
and for purposes of determining whether the Plan satisfies this feasibility
standard, the Debtors' management has, through the development of financial
projections (the "Projections"), analyzed the ability of the Debtors to meet its
obligations under the Plan while maintaining sufficient liquidity and capital
resources to avoid a subsequent financial restructuring. The Projections were
also prepared to assist each holder of a Class 5 Claim in determining whether to
accept or reject the Plan.
--------------
18 Excludes restricted cash held in reserve for potential claims from
MBIA and Greenwich.
19 Not estimable at this time.
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<PAGE>
The Projections should be read in conjunction with the assumptions,
qualifications and footnotes to tables containing the Projections set forth
herein, the historical consolidated financial information (including the notes
and schedules thereto) and the other information set forth in the Debtors'
Annual Report on Form 10-K for the fiscal year ended March 31, 1999, and the
Debtors' Quarterly Report on Form 10-Q for the period ended December 31, 1999.
The Projections were prepared in good faith based upon assumptions believed to
be reasonable and applied in a manner consistent with past practice. The
assumptions about the cash flows of the reorganized Debtors after the assumed
Effective Date which are utilized in the Projections were prepared in September
2000 and were based, in part, on economic, competitive, and general business
conditions prevailing at the time. While as of the date of this Disclosure
Statement such conditions have not materially changed, any future changes in
these conditions may materially impact the ability of the Debtors to achieve the
Projections.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH
THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE DEBTORS' INDEPENDENT ACCOUNTANT,
ARTHUR ANDERSEN, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE
FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS OR ACCURACY THEREOF AND,
ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH
RESPECT THERETO.
THE DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISH PROJECTIONS OF THEIR
ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, THE DEBTORS DO NOT INTEND TO, AND DISCLAIM ANY OBLIGATION TO, (A)
FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS OR EQUITY INTERESTS PRIOR TO
THE EFFECTIVE DATE OR TO HOLDERS OF LIQUIDATING TRUST UNITS OR ANY OTHER PARTY
AFTER THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS
THAT MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH
UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN PREPARED
EXCLUSIVELY BY THE DEBTORS' MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE
REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
DEBTORS' CONTROL. THE DEBTORS CAUTION THAT NO REPRESENTATIONS CAN BE MADE AS TO
THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO THE REORGANIZED DEBTORS'
ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT
MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE
ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR,
ALTERNATIVELY, MAY HAVE
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<PAGE>
BEEN UNANTICIPATED, AND THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL
RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE,
MAY NOT BE RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS
THAT WILL OCCUR.
FINALLY, THE FOLLOWING PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE FAIR
VALUE OF THE ASSETS OF THE REORGANIZED DEBTORS AND ITS ACTUAL LIABILITIES AS OF
THE EFFECTIVE DATE. THE REORGANIZED DEBTORS WILL BE REQUIRED TO MAKE SUCH
ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE BASED UPON THE
FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY GREATER OR LOWER THAN THE
VALUES ASSUMED IN THE FOREGOING ESTIMATES.
B. SUMMARY OF SIGNIFICANT ASSUMPTIONS.
The Debtors have developed the Projections (summarized below) to assist
creditors in their evaluation of the Plan and to analyze its feasibility. THE
PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS DESCRIBED BELOW.
ACTUAL RESULTS AND VALUES MAY AND WILL VARY FROM THOSE PROJECTED.
1. Plan Terms and Consummation. The Projections assume an Effective
Date of December 31, 2000 with Allowed Claims and Equity Interests treated in
accordance with the treatment provided in the Plan with respect to such Allowed
Claims and Equity Interests. If consummation of the Plan does not occur on or
around December 31, 2000, additional bankruptcy expenses will be incurred until
such time as a plan of reorganization is confirmed. These expenses could
significantly impact the Debtors' results of operations and cash flows.
2. Assumptions Preceding the Effective Date. As a basis for the
Projections, management has estimated the operating results for the period of
time leading up to the Effective Date. Specifically, it has been assumed that
prior to the Effective Date, the sale of the CMC origination business to Avatar
Acquisition, L.L.C. will have been consummated. The reorganized Debtors will
have no ongoing business operations after the Effective Date, and will be
reorganized on the Effective Date as a Liquidating Trust.
The Projections assume that all of CFN's receivables held for sale,
which represent its remaining loan inventory, will be sold prior to emergence
from Chapter 11. The majority of these loans are expected to be sold at or near
book value; however, some loans are projected to be sold at a substantial
discount due to document defects or other problems relating to the loans.
Cash income prior to the Effective Date consists primarily of the
projected receipt of ESR cash flow, prepayment penalties, and servicing
advances. The Debtors also project that it will continue to generate some income
from its origination activities through the expected date of the sale to Avatar
Acquisition, L.L.C. on November 30, 2000. Expenses prior to the Effective Date
include corporate general and administrative expenses, continuing expenses
relating to the servicing and origination businesses, professional fees and
other bankruptcy-related expenses.
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3. General Economic Conditions. The Projections were prepared assuming
that economic conditions do not differ significantly over the next five years
from current economic conditions.
4. Income. The reorganized Debtors will have three primary sources of
income:
o ESR Cash Flow: ESR cash flow has been projected based on numerous
assumptions, including future interest rates, delinquencies, realized
losses, and prepayment speeds associated with the mortgage loans underlying
the ESRs. These assumptions are consistent with the Company's recent
experience and historical valuation methodology. However, ESR cash flows are
extremely volatile and can be affected by, among other things, servicing
practices, Liquidating Trust management decisions, and general economic
conditions, all of which are uncertain. Because the residuals are long-term
assets, many of which are not producing current cash flow, management
expects that the majority of the ESR cash flow will be received after the
end of the projection period. It is projected that the Liquidating Trust
will collect approximately $158 million in ESR cash flow over the projection
period, and that it will have a $190 million asset remaining at the end of
the projection period. This remaining asset is expected to be collected over
as many as 20 years after the end of the projection period.
o Collection of Servicing Advances: Servicing advances made by the Debtors
prior to the sale of the servicing business to Fairbanks will be collected
by Fairbanks over time and remitted to the Liquidating Trust. To the extent
that Fairbanks collects greater than 80% of these advances, Fairbanks will
share in 20% of the remaining collections. The projections assume that
approximately $49 million in servicing advances will be remitted to the
Company over the projection period. CFN does not expect to receive any
additional servicing advances after the end of the 5-year projection period.
o Collection of Prepayment Penalties and Deferred Servicing Fees: According to
the terms of the Fairbanks Asset Purchase Agreement, CFN is entitled to
receive all prepayment penalties relating to CFN loans that are collected by
Fairbanks. CFN estimates that it will receive approximately $12 million in
prepayment penalties over the projection period, with the majority being
collected in the first 18 months, based on the assumed prepayment
characteristics of the portfolio. CFN is also entitled to receive 50% of the
deferred servicing fees outstanding at the time of the sale to Fairbanks,
which it estimates will be approximately $4 million, as they are collected.
CFN does not expect to receive any additional prepayment penalties or
deferred servicing fees after the end of the 5-year projection period.
5. Expenses. As a liquidating trust, the reorganized Debtors will have
no ongoing business expenses after emergence from Chapter 11. Management has
estimated that the reorganized Debtors will incur management fees of $1.5
million per year. These expenses include the costs of Liquidating Trust
management, back office operations, audit and accounting fees, and board of
trustees expenses.
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6. Income Taxes. The Projections assume that, as a trust, the
reorganized Debtors will not incur any corporate tax obligations.
7. Distributions to creditors. The Projections assume that all
available cash after payment of priority and administrative claims, excluding
cash required for the operation of the Liquidating Trust, will be distributed to
general unsecured creditors on the Effective Date in accordance with the Plan.
It has been estimated that $5 million in cash will be required to remain in the
trust as initial capitalization. No further cash distributions are assumed for
purposes of the Projections, although the Liquidating Trustee will make
distributions at least annually in accordance with the Plan.
8. Other. The Projections do not include proceeds for claims of CFN,
including preference and fraudulent transfer claims and contract and tort claims
not arising under the Bankruptcy Code. Although the Plan provides for
reservation and assignment to the Liquidating Trust of all such claims, CFN has
not concluded its analysis of possible claims it may bring and believes that any
estimate of proceeds of those claims at this time would not be meaningful. For
the same reason, the Projections also do not include any expenses the
Liquidating Trust may incur in pursuing those claims, which would reduce cash
available for payment to creditors to the extent the expenses exceed the
proceeds of pursuing those claims. Amounts that the Liquidating Trust recovers
from such claims, net of expenses, will increase the amount available for
distributions.
C. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
Except for historical information, statements contained in this Disclosure
Statement and incorporated by reference, including the Projections in this
section, may be considered "forward-looking statements" within the meaning of
federal securities law. Such forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
general economic and business conditions, particularly as they may affect
prepayment rates and loss rates on the Debtors' securitized loans, the ability
of Fairbanks to continue to service CFN's loans, and the ability of the Debtors
to sell receivables at currently expected prices. For additional information
about the Debtors and relevant risk factors, see Section XII, Certain Risk
Factors To Be Considered.
D. FINANCIAL PROJECTIONS.
The financial projections prepared by management are summarized in the following
tables. Specifically, the attached tables include:
a. Pro-forma Reorganized CFN's balance sheet at December 31, 2000.
b. Projected balance sheets for fiscal years ending in March 2001, 2002, 2003,
2004 and 2005.
c. Projected income statements for fiscal years ending in March 2001, 2002,
2003, 2004 and 2005.
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d. Projected statements of cash flow for fiscal years ending in March 2001,
2002, 2003, 2004 and 2005.
CONTIFINANCIAL CORP.
PRO-FORMA REORGANIZED BALANCE SHEET
DECEMBER 31, 2000
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
ESTIMATED RESTATED
ASSETS DECEMBER 31, 2000 POR ADJUSTMENTS DECEMBER 31, 2000
------ ----------------- --------------- -----------------
<S> <C> <C> <C>
Cash $112,178 $(107,178) $5,000
Restricted cash 10,064 - 10,064
Servicing advances 48,511 - 48,511
Other receivables 11,079 (11,079) -
ESRs 257,718 - 257,718
Prepayment penalties & deferred servicing fees 10,267 - 10,267
Net property, plant & equipment 4,102 (4,102) -
Other assets 12,126 (12,126) -
--------- --------- --------
Total Assets $ 466,045 $(134,485) $331,560
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 3,502 (3,502) -
Liabilities subject to compromise 1,052,504 (1,052,504) (a) -
--------- --------- --------
Total Liabilities 1,056,006 1,056,006 -
Common stock 477 331,083 (b) 331,560
Additional paid in capital 396,287 (396,287) -
Retained earnings (deficit) (961,516) 961,516 -
Treasury stock (25,209) 25,209 -
--------- --------- --------
Total Stockholders Equity (deficit) (589,961) 921,521 331,560
--------- --------- --------
Total Liabilities and Stockholders' Equity $466,045 $(134,485) $331,560
========= ========= ========
</TABLE>
NOTES TO PRO-FORMA REORGANIZED BALANCE SHEET
--------------------------------------------
(a) The Plan provides for, among other things, a deleveraging of CFN through an
exchange of all of the general unsecured claims for Liquidating Trust Units.
This amount represents primarily the forgiveness of such obligations.
(b) For the purposes of this presentation, book values have been assumed to
equal fair values except for specific items in which quantifiable data is
currently available. The amount of shareholders' equity in the reorganized
balance sheet is not an estimate of the trading value of the Liquidating
Trust Units after confirmation of the Plan, which value is subject to many
uncertainties and cannot be reasonably estimated at this time. CFN does not
make any representation as to the trading value of Liquidating Trust Units
to be issued pursuant to the Plan.
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<PAGE>
REORGANIZED CONTIFINANCIAL
PROJECTED BALANCE SHEETS
FISCAL YEAR ENDING 2001 THROUGH 2005
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------------------
ASSETS MARCH 2001 MARCH 2002 MARCH 2003 MARCH 2004 MARCH 2005
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash $11,844 $49,094 $86,778 $143,590 $208,517
Restricted cash 10,064 11,000 11,000 11,000 11,000
Servicing advances 44,721 28,425 14,250 4,184 -
ESRs 260,890 265,106 263,213 235,321 190,449
Prepayment penalties & deferred servicing fees 7,858 1,875 204 - -
-------- -------- -------- -------- --------
Total Assets 335,377 355,499 375,445 394,094 409,965
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total Liabilities - - - - -
Common stock 331,560 331,560 331,560 331,560 331,560
Additional paid in capital - - - - -
Retained earnings (deficit) 3,818 23,940 43,885 62,534 78,406
Treasury stock - - - - -
-------- -------- -------- -------- --------
Total Stockholders Equity (deficit) 335,377 355,499 375,445 394,094 409,965
-------- -------- -------- -------- --------
Total Liabilities and Stockholders' Equity $335,377 $355,499 $375,445 $394,094 $409,965
======== ======== ======== ======== ========
</TABLE>
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<PAGE>
REORGANIZED CONTIFINANCIAL
PROJECTED INCOME STATEMENTS
FISCAL YEARS 2001 THROUGH 2005
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-----------------------------------------------------------------------
MARCH 2001 MARCH 2002 MARCH 2003 MARCH 2004 MARCH 2005
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Servicing Fees and Prepayment Penalties $26,284 $6,455 $1,756 $209 $ -
Origination Income 8,548 - - - -
Interest Income 24,832 21,062 21,296 20,097 17,336
Other 56 88 64 48 35
-------- ------- ------- ------- -------
TOTAL REVENUES 59,719 27,605 23,116 20,353 17,372
COST AND OPERATING EXPENSES
General and administrative expenses 67,106 1,500 1,500 1,500 1,500
Depreciation and Amortization 27,529 5,983 1,671 204 -
-------- ------- ------- ------- -------
OPERATING (LOSS) INCOME (34,916) 20,122 19,945 18,649 15,872
Restructuring Expense 18,757 - - - -
Interest expense 14,561 - - - -
-------- ------- ------- ------- -------
(LOSS) INCOME BEFORE INCOME TAXES (68,234) 20,122 19,945 18,649 15,872
Provision for income taxes (10,325) - - - -
-------- ------- ------- ------- -------
Net (Loss) Income $(57,909) $20,122 $19,945 $18,649 $15,872
======== ======= ======= ======= =======
SUPPLEMENTAL DATA:
ESR Cash Flow 17,818 16,845 23,190 47,989 62,208
</TABLE>
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<PAGE>
REORGANIZED CONTIFINANCIAL
STATEMENT OF CASH FLOWS
FISCAL YEARS 2001 THROUGH 2005
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-----------------------------------------------------------------------------
MARCH 2001 MARCH 2002 MARCH 2003 MARCH 2004 MARCH 2005
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(57,909) $20,122 $19,945 $18,649 $15,872
Adjustments to reconcile net (loss)
income to net cash provided by
(used for) operating activities:
Depreciation and amortization 27,529 5,983 1,671 204 -
Net Change in:
ESR balance (1,993) (4,217) 1,894 27,892 44,871
Restricted cash (10,064) (936) - - -
Net receivables held for sale 62,273 - - - -
Servicing Advances 14,246 16,297 14,174 10,066 4,184
Other receivables 7,167 - - - -
Other assets 9,239 - - - -
Accounts payable (48,375)
Other 9,049 - - - -
---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 11,162 37,249 37,684 56,812 64,927
INVESTING ACTIVITIES
Sale of PP&E 4,800 - - - -
---------- ---------- ---------- ---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES 4,800 - - - -
FINANCING ACTIVITIES
Warehouse facility (3,614) - - - -
Liabilities Subject to Compromise (4,374) - - - -
Other 24 - - - -
---------- ---------- ---------- ---------- ----------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (7,964) - - - -
PAYMENTS PURSUANT TO POR (107,178)
CHANGE IN CASH AND CASH EQUIVALENTS (99,181) 37,249 37,684 56,812 64,927
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 111,025 11,844 49,094 86,778 143,590
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $11,844 $49,094 $86,778 $143,590 $208,517
========== ========== ========== ========== ==========
</TABLE>
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XI. VOTING REQUIREMENTS, ACCEPTANCE, CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. GENERAL.
To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy
Court make a series of findings concerning the Plan and the Debtors, including
that: (i) the Plan classifies Claims and Interests in a permissible manner; (ii)
the Plan complies with the applicable provisions of the Bankruptcy Code; (iii)
the Debtors comply with the applicable provisions of the Bankruptcy Code; (iv)
the Debtors have proposed the Plan in good faith and not by any means forbidden
by law; (v) the disclosure required by section 1125 of the Bankruptcy Code has
been made; (vi) the Plan has been accepted by the requisite votes of holders of
Claims or Interests (except to the extent that "cram-down" is available under
section 1129(b) of the Bankruptcy Code (see below discussion on "Cram-down,"
Section G), (vii) the Plan is feasible and Confirmation will not likely be
followed by the liquidation or the need for further financial reorganization of
the Debtors; (viii) the Plan is in the "best interests" of all holders of Claims
or Interests in an impaired Class by providing to such holders on account of
their Claims or Interests property of a value, as of the Effective Date, that is
not less than the amount that such holder would receive or retain in a chapter 7
liquidation, unless each holder of a Claim or Interest in such Class has
accepted the Plan (see Section I entitled "Best Interests of Creditors"); (ix)
all fees and expenses payable under 28 U.S.C. ss. 1930 (relating to bankruptcy
fees payable to the clerk of the Bankruptcy Court and the office of the United
States Trustee) have been paid or the Plan provides for the payment of such fees
on the Effective Date; (x) the Plan provides for the continuation after the
Effective Date of all retiree benefits, as defined in section 1114 of the
Bankruptcy Code, at the level established at any time prior to Confirmation
pursuant to section 1114 of the Bankruptcy Code, for the duration of the period
that the Debtors have obligated themselves to provide such benefits; and (xi)
the Plan proponents must have disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as a director or
officer of the Debtors or a successor to the Debtors under the Plan, and the
appointment to or continuance in such office by such individual must be
consistent with public policy.
The Debtors believe that the Plan satisfies all of the statutory
requirements of chapter 11 of the Bankruptcy Code. Certain of these requirements
are discussed in more detail below. The Debtors have proposed the Plan in good
faith.
B. ELIGIBILITY TO VOTE.
Pursuant to the Bankruptcy Code, only classes of claims against or
equity interests of a debtor that are "impaired" (within the meaning of section
1124 of the Bankruptcy Code) under the terms and provisions of a plan of
reorganization are entitled to vote to accept or reject a plan. A class is
"impaired" if the legal, equitable, or contractual rights attaching to the
claims or interests of that class are modified, other than by curing defaults
and reinstating maturity or by payment in full in cash. Classes of claims and
interests that are not impaired are not entitled to vote on a plan and, under
section 1126(f) of the Bankruptcy Code, are conclusively presumed to have
accepted a plan. Therefore, holders of such unimpaired classes
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<PAGE>
are not being solicited. In addition, under section 1126(g), classes of claims
and interests that receive no distributions are deemed to have rejected the Plan
and the votes of such holders will not be solicited. See "Summary of
Classification and Treatment of Claims and Equity Interest under the Plan" for a
summary of the classification and treatment of Claims and Interests under the
Plan, as well as a designation of whether each Class is impaired or unimpaired.
The holder of a Claim in Class 5 is entitled to vote to accept or
reject the Plan if (a) such claim is a Bank Group Claim, Senior Notes Claim or
General Unsecured Claim, (b) such holder's Claim has been scheduled by the
Debtors and such Claim is not scheduled as disputed, contingent or unliquidated,
or (c) such holder has filed a proof of claim on or before September 14, 2000,
pursuant to section 502(a) of the Bankruptcy Code, Bankruptcy Rule 3003 and the
Bar Date Order, except where the Debtors have specifically agreed to a late
filed proof of claim. Any Claim in the aforesaid Class as to which an objection
has been filed and has not been withdrawn or dismissed is not entitled to vote
unless the Bankruptcy Court, pursuant to Bankruptcy Rule 3018(a) and upon
application of the holder whose Claim has been objected to, temporarily allows
the Claim in an amount that the Bankruptcy Court deems proper solely for the
purpose of accepting or rejecting the Plan.
A vote may be disregarded if the Bankruptcy Court determines, pursuant
to section 1126(e) of the Bankruptcy Code, that it was not solicited or procured
in good faith or in accordance with the provisions of the Bankruptcy Code.
C. ESTIMATION AND TEMPORARY ALLOWANCE OF CLAIMS.
Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule
3018, the Bankruptcy Court may estimate and temporarily allow a Claim for voting
and other purposes. The Debtors or holders of particular Claims may seek an
order of the Bankruptcy Court temporarily allowing, for voting purposes only,
certain Disputed Claims.
D. ACCEPTANCE REQUIREMENTS.
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by creditors that hold at least two-thirds in dollar amount and
more than one-half in number of the allowed claims of such class who actually
vote for acceptance or rejection of a plan. The vote of a holder of a claim may
be disregarded if the bankruptcy court determines, after notice and a hearing,
that the acceptance or rejection was not solicited or procured in good faith or
in accordance with the provisions of the Bankruptcy Code.
E. TRANSMISSION OF BALLOTS.
All record holders of undisputed Claims which are impaired (including
any Claims that are temporarily Allowed for voting purposes) as of the date the
order approving this Disclosure Statement was entered by the Bankruptcy Court
are entitled to vote to accept or reject the Plan and may do so by completing
the appropriate ballot which is enclosed with this Disclosure Statement. In most
cases, each ballot enclosed with this Disclosure Statement has been encoded with
the amount of your Claim for voting purposes (if your Claim is a Disputed Claim,
this amount may not be the amount ultimately allowed for purposes of
distributions under
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the Plan) and the Debtor and Class to which your Claim relates. PLEASE CAREFULLY
FOLLOW THE INSTRUCTIONS ACCOMPANYING THE ENCLOSED BALLOT, AS DESCRIBED IN THE
INTRODUCTION, SECTION E OF THIS DISCLOSURE STATEMENT.
VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE ON THE
PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS FOR A PARTICULAR
DEBTOR, OR AGAINST MORE THAN ONE DEBTOR, YOU MAY RECEIVE MORE THAN ONE BALLOT.
YOU SHOULD COMPLETE SIGN, AND RETURN EACH BALLOT THAT YOU RECEIVE.
F. ACCEPTANCES REQUIRED FROM IMPAIRED CLASSES.
In order for a plan to be confirmed without resort to the "cram-down"
provisions of the Bankruptcy Code, each Class of "impaired" Claims and Interests
must be determined to have accepted the Plan. As previously mentioned, each
Class of "impaired" Claims and Interests will be determined to have accepted the
Plan if Creditors and Interest holders who actually vote, accept the plan by
votes (i) representing at least two-thirds in amount of Allowed Claims or
Interests in such impaired Class and (ii) more than one-half in number of
Allowed Claims in such Class.
The holders of Class 5 Claims are "impaired" under the Plan, and the
Debtors are soliciting acceptances for the Plan from the holders of Class 5
Claims. The holder of Claims in Classes 7 and Equity Interests in Class 8 will
receive no distribution under the Plan and, therefore, are deemed to reject the
Plan.
All other Classes are unimpaired under the Plan (Classes 1a, 1b, 2a,
2b, 3, 4 and 6) and are deemed to have accepted the Plan.
G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES ("CRAM-DOWN").
In the event that a plan otherwise satisfies the Bankruptcy Code's
requirements for confirmation, but one or more classes of Claims or Interests
votes to reject the Plan, a debtor has the right to seek confirmation of its
plan under the "cram-down" provisions of the Bankruptcy Code. The Debtors intend
to exercise their right to "cram-down" the Plan.
The Bankruptcy Court can "cram-down" the Plan at the Debtors' request
only if at least one impaired Class of Claims, the Class 5 Claims (excluding the
votes of insiders) has accepted the Plan and all other requirements of section
1129(a) of the Bankruptcy Code are satisfied.
In addition, the Bankruptcy Court must find that, as to each impaired
Class that has not accepted the Plan, the Plan does not "discriminate unfairly"
and is "fair and equitable" with respect to such non-accepting Class. Because
Classes 7 and 8 are deemed to have rejected the Plan, the Bankruptcy Court will
have to determine at the Confirmation Hearing whether the
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Plan is fair and equitable to, and does not discriminate unfairly against,
Classes 7 and 8 and any rejecting impaired Class of Claims.
A plan does not "discriminate unfairly" within the meaning of the
Bankruptcy Code if the dissenting class will receive value relatively equal to
the value given to all other similarly situated classes.
A plan of reorganization is "fair and equitable" within the meaning of
the Bankruptcy Code if no class receives more than it is legally entitled to
receive for its claims or interests.
A plan is "fair and equitable" as to a class of secured claims that
rejects a plan if the plan provides (a)(i) that the holders of claims included
in the rejecting class retain the liens securing those claims whether the
property subject to those liens is retained by the debtors or transferred to
another entity, to the extent of the allowed amount of such claims, and (ii)
that each holder of a claim of such class receives on account of that claim
deferred cash payments totaling at least the allowed amount of that claim, of a
value, as of the effective date of the plan, equal to at least the value of the
holder's interest in the estate's interest in such property; or (b) for the
realization by such holders of the indubitable equivalent of such claims.
If a class of unsecured claims rejects a plan, the plan may still be
confirmed as long as the plan provides (a) for each holder of a claim included
in the rejecting class to receive or retain on account of that claim property
that has a value, as of the effective date of the plan, equal to the allowed
amount of such claim, or (b) that the holder of any claim or any interest that
is junior to the claims of such class will not receive or retain on account of
such junior claim or interest any property at all.
If a class of interests rejects a plan, the plan may still be confirmed
as long as the plan provides (a) that each holder of an interest included in the
rejecting class receive or retain on account of that interest property that has
a value, as of the effective date of the plan, equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or the
value of such interest, or (b) that the holder of any interest that is junior to
the interest of such class will not receive or retain under the plan on account
of such junior interest any property at all.
Holders of Claims in Classes 7 and Equity Interests in Class 8 will not
receive or retain any property under the Plan, and are therefore deemed to have
rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code.
Accordingly, the Debtors intend to seek confirmation of the Plan pursuant to the
"cram-down" provisions of section 1129(b) of the Bankruptcy Code. The Debtors
further believe that the Plan satisfies the requirements of section 1129(b)
since no claim or interest that is junior to the aforementioned classes will
receive any property under the Plan.
H. FEASIBILITY OF THE PLAN.
In connection with confirmation of the Plan, the Bankruptcy Court will
have to determine that the Plan is feasible pursuant to section 1129(a)(11),
which means that
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confirmation of the Plan is not likely to be followed by the liquidation or the
need for further financial reorganization of the Debtors. As discussed, the
Debtors believe that the Plan is comparable to a liquidation and, therefore, no
further restructuring will be necessary.
I. BEST INTERESTS OF CREDITORS.
To confirm the Plan over the objections of dissenting holders of Claims
and Interests, the Bankruptcy Court must also independently determine that the
Plan is in the "best interests" of all dissenting holders of Claims and
Interests impaired under the Plan. Under the "best interests" test, the
Bankruptcy Court must find that the Plan provides to each dissenting holder of
an impaired Claim or Interest a recovery of a value at least equal to the value,
as of the Effective Date, of the distribution that each such holder would
receive were the Debtors liquidated under chapter 7 of the Bankruptcy Code.
Since it is the Debtor belief that the Plan is comparable to a liquidation, a
liquidation under chapter 7 of the Bankruptcy Code would merely increase
administrative costs in the form of chapter 7 trustee's fees and other
professional fees.
To calculate a chapter 7 trustee fees, section 326(a) of the Bankruptcy
Code provides that such fee is calculated based on all moneys disbursed not to
exceed 25 percent on the first $5,000 or less, 10 percent on any amount in
excess of $5,000 but not in excess of $50,000, 5 percent on any amount in excess
of $50,000 but not in excess of $1,000,000, and reasonable compensation not to
exceed 3 percent of such moneys in excess of $1,000,000. Based on the Debtors
financial projections, it is very likely that a chapter 7 trustee's fee will
exceed $4,760,850. In addition to the chapter 7 trustee's fee, a chapter 7
trustee would require the assistance of other professionals and such
professionals' fees would be in addition to the chapter 7 trustee's fee. The
Debtors' believe the Plan is in the best interest of creditors and all creditors
are receiving value greater than or at least equal to the value, as of the
Effective Date, of the distribution that each such holder would receive were the
Debtors liquidated under chapter 7 of the Bankruptcy Code.
XII. COMPLIANCE WITH SECURITIES LAWS
A. COMPLIANCE OF SECURITIES LAWS.
Section 1145 of the Bankruptcy Code exempts the original issuance of
securities under a plan of reorganization from registration under the Securities
Act of 1933, as amended (the "Securities Act") and state law. Under Section
1145, the issuance of the reorganization securities is exempt from registration
if three principal requirements are satisfied: (1) the securities must be issued
by a debtor, its successor, or an affiliate participating in a joint plan of
reorganization with the debtor; (2) the recipients of the securities must hold a
claim against the debtor or such affiliate, an interest in the debtor or such
affiliate; and (3) the securities must be issued entirely in exchange for the
recipient's claim against or interest in the debtor or such affiliate; or
"principally" in such exchange and "partly" for cash or property.
1. Issuance of Liquidating Trust Units. The Debtors believe that the
issuance of the Liquidating Trust Units under the Plan will satisfy the
conditions listed above because: (a) the issuance of such securities are
expressly contemplated under the Plan; (b) the recipients are holders of
"Claims" against the Debtors; and (c) the recipients will obtain the Liquidating
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Trust Units in exchange for their pre-petition Claims. Accordingly, under
section 1145 of the Bankruptcy Code, the issuance of Liquidating Trust Units
under the Plan will be exempt from registration under the Securities Act of 1933
and applicable state and local laws requiring registration of securities. If the
Liquidating Trustee determines, with the advice of counsel, that the Liquidating
Trust is required to comply with the registration and reporting requirements of
the Securities and Exchange Act of 1934, as amended, or the Investment Company
Act of 1940, as amended, then the Liquidating Trustee will take any and all
actions to comply with such reporting requirements and file necessary periodic
reports with the Securities and Exchange Commission.
2. Transferability. Upon issuance thereof, the beneficial interests
represented by the Liquidating Trust Units will be transferable, subject to the
conditions set forth in the Liquidating Trust Agreement. The Liquidating Trustee
will not seek to have the Liquidating Trust Units listed on a nationally
recognized stock exchange after the Effective Date.
XIII. CERTAIN RISK FACTORS TO BE CONSIDERED
The holder of an impaired Claim should consider carefully the following
risk factors as well as all of the other information contained in this
Disclosure Statement, including the Plan and other Exhibits hereto, before
deciding whether to vote to accept or reject the Plan.
The formulation of a plan of reorganization is the principal purpose of
a chapter 11 case. The Plan sets forth the means for satisfying the holders of
Claims against the Debtors.
A. SETTLEMENTS EMBODIED IN THE PLAN
The Plan contains various debtor-creditor and inter-creditor
settlements that are reflected in the relative recoveries of the creditor groups
and that are designed to achieve a global resolution of these Chapter 11 Cases.
The Plan is premised upon settlement, rather than litigation of these disputes.
The Plan represents, in effect, a linked series of concessions by
creditors in separate classes of Claims. In proposing the Plan, the Debtors
intend to offer a non-litigation alternative to creditors in the context of the
reorganization of the Debtors.
The Debtors believe that settlement of these disputes is the best way
to ensure a prompt resolution of the Chapter 11 Cases. They further believe that
although litigation may produce somewhat different absolute and relative
recoveries from those embodied in the Plan, such litigation may not increase the
values to be distributed under the Plan and may not be finally resolved for
years, thus delaying distributions to creditors and will be costly to the
Estates.
B. MATTERS AFFECTING TRADING
There is no assurance that an active market will exist for trading the
Liquidating Trust Units. No trading market currently exists for the Liquidating
Trust Units.
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The Liquidating Trust Units will be issued pursuant to the Plan to
holders of Class 5 Claims, some of whom may prefer to liquidate their
Liquidating Trust Units rather than to hold them on a long-term basis.
Accordingly, it is anticipated that the market, to the extent one exists, may be
volatile. Moreover, while the Plan was developed based upon an estimated range
of possible values of the price per unit of the Liquidating Trust Units, such
valuation was not an estimate of the prices at which the Liquidating Trust Units
may trade in the market, and the Debtors have not attempted to make any such
estimate in connection with the development of the Plan. No assurance can be
given as to the market price that will prevail following the Effective Date.
On the Effective Date, holders of Bank Group Claims and Senior Note
Claims will be issued Liquidating Trust Units representing over 98% of such
units based on the Debtors' estimate of Allowed Class 5 Claims. The issuance of
substantial amounts of Liquidating Trust Units on the Effective Date may result
in a low market price for the Liquidating Trust Units for some time following
the Effective Date and may restrict the marketability of the Liquidating Trust
Units. Sales of or offers to sell a substantial number of the shares of the
Liquidating Trust Units could affect adversely the market for and price of the
Liquidating Trust Units.
C. PROJECTED FINANCIAL INFORMATION
The financial projections included in this Disclosure Statement are
dependent upon (i) the approval of the sale of CMC's origination business to
Avatar Acquisition, L.L.C., (ii) the outcome of potential litigation rights
vested in these estates, and (iii) the ability of Fairbanks to service the
mortgage loans in the securitizations effectively. The projections of future
performance of the ESRs contained herein reflect numerous assumptions, including
confirmation and consummation of the Plan in accordance with its terms, the rate
mortgage loan defaults and mortgage prepayment for the securitizations, general
business and economic conditions and other matters, most of which are beyond the
control of the Liquidating Trust and Fairbanks and some of which may well not
materialize. In addition, unanticipated events and circumstances occurring
subsequent to the preparation of the projections may affect the actual financial
results of the Liquidating Trust. Therefore, the actual results achieved
throughout the period covered by the projections will vary from the projected
results. The variations may be material.
XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes the material federal income tax
consequences expected to result from the consummation of the Plan and the
formation of the Liquidating Trust. This discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Tax Code"),
applicable Treasury Regulations, judicial authority and current administrative
rulings and pronouncements of the Internal Revenue Service (the "IRS"). There
can be no assurance that the IRS will not take a contrary view, and no ruling
from the IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to, among
others, the Debtors, the holders of Claims and the Liquidating Trust.
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The following summary is for general information only. The federal
income tax consequences of the Plan and the formation and operation of the
Liquidating Trust, as well as distributions from the Liquidating Trust, are
complex and subject to significant uncertainties. This summary does not address
foreign, state or local tax consequences of the Plan or the Liquidating Trust,
nor does it purport to address all of the federal income tax consequences of the
Plan or the Liquidating Trust. This summary also does not purport to address the
federal income tax consequences of the Plan or the Liquidating Trust to
taxpayers subject to special treatment under the federal income tax laws, such
as broker-dealers, tax-exempt entities, financial institutions, insurance
companies, S corporations, small business investment companies, mutual funds,
regulated investment companies, foreign corporations, and non-resident alien
individuals. EACH HOLDER OF A CLAIM IS STRONGLY URGED TO CONSULT ITS OWN TAX
ADVISOR REGARDING THE POTENTIAL FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE PLAN AND THE LIQUIDATING TRUST.
A. FEDERAL INCOME TAX CONSEQUENCES GENERALLY
Upon the Effective Date of the Plan, the Debtors will transfer the
Trust Assets which include, but are not limited to, Cash, ESRs, the stock of the
Surviving Special Purpose Entities and Causes of Action to the Liquidating Trust
for the benefit of certain holders of Claims (as more fully described in Section
C below and in the Plan) (the "Transfer"). The Plan provides that the Transfer
of the Trust Assets to the Liquidating Trust must be treated for all purposes of
the Tax Code as a transfer of the Trust Assets to such holders followed by a
transfer of the Trust Assets by such holders to the Liquidating Trust in
exchange for Liquidating Trust Units. As soon as practicable following the
Transfer of the Trust Assets to the Liquidating Trust, the Debtors will
liquidate and dissolve in accordance with applicable State law.
B. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
1. Transfer of Trust Assets and Liquidation.
The Debtors may realize federal taxable income as the result of (i) the
Transfer to the extent the fair market value of the Trust Assets exceeds their
adjusted tax basis, (ii) certain deferred and other intercompany items that will
be recognized upon the Transfer, and/or (iii) the liquidation of the Debtors
pursuant to the Plan. Any such income as the result of the Transfer may be
offset by net operating losses ("NOLs") and NOL carryforwards as well as by
other losses realized on the Transfer. Accordingly, the Debtors do not believe
that the Transfer will result in any material tax liability.
The Debtors believe that as of March 31, 2000, the NOLs and NOL
carryforwards that are allocable to the Debtors amount to in excess of
$100,000,000, and additional NOLs may be generated for the portion of the tax
year ending March 31, 2001 that will precede the Effective Date. Any such NOLs,
however, may be subject to audit and possible challenge by the IRS. The Debtors
believe that, assuming the NOLs are not subject to a successful challenge by the
IRS and assuming that a change of ownership does not occur under Section 382 of
the Tax Code as a result of a worthless stock deduction by a 50-percent
shareholder, the NOLs should be sufficient to offset the federal taxable income
arising on the Effective Date (as described above). The
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Debtors believe, therefore, that they should not be subject to tax as determined
under the regular federal income tax rules. The Debtors may be subject, however,
to the alternative minimum tax ("AMT"). For purposes of computing alternative
minimum taxable income ("AMTI"), NOL carryforwards may not offset more than 90%
of the pre-NOL AMTI. The rate of corporate tax on AMTI is 20 percent. Thus, a
corporation that has taxable income prior to taking into account its NOL
carryforwards may be required to pay federal tax at an effective rate of at
least 2 percent of its pre-NOL AMTI (10 percent of the 20 percent AMT rate),
regardless of the aggregate amount of its NOL carryforwards.
2. Cancellation of Indebtedness Income.
Upon the Effective Date of the Plan, the Debtors will be discharged of
their outstanding indebtedness to the extent such discharge is allowed by law
and such indebtedness is not otherwise satisfied. As a result, the Debtors
generally will realize cancellation of indebtedness ("COI") income to the extent
that the Cash and fair market value of any property paid by the Debtors in
return for the discharge of indebtedness is less than the adjusted issue price
(plus the amount of any accrued but unpaid interest) of such indebtedness
discharged thereby. Under Section 108(a) of the Tax Code, however, COI income
will not be recognized if the COI income occurs in a case brought under the
Bankruptcy Code, provided the taxpayer is under the jurisdiction of a court in
such case and the COI is granted by the court or is pursuant to a plan approved
by the court. Accordingly, because the Debtors are under the jurisdiction of the
Bankruptcy Court and the COI will be pursuant to the Bankruptcy Court's approval
of the Plan, the Debtors should not be required to recognize any COI income
realized as a result of the implementation of the Plan.
Under Section 108(b) of the Tax Code, the Debtors will each be required
to reduce certain tax attributes, including NOLs and NOL carryforwards, in an
amount (subject to certain modifications) equal to the amount of COI income
excluded from income as described in the preceding paragraph. Under the Tax
Code, such tax attribute reduction occurs in the year after the determination of
tax for the year which includes the Effective Date. Therefore, subject to the
possible reduction or limitation discussed above, the NOLs of the Debtors should
be available to offset income arising on or before the Effective Date (as
described above in Section B.1 of this Article).
Any reduction in tax attributes under Section 108(b) of the Tax Code
appears to apply on a separate company basis even though the Debtors and certain
other of their affiliates file a federal consolidated income tax return.
Therefore, only Debtors realizing COI income should be required to reduce their
tax attributes (including their NOLs). The IRS has held in private letter
rulings that where a member of a consolidated group is permitted to exclude from
income COI income pursuant to Section 108(a) of the Tax Code, such member is
required to reduce only its own separate company tax attributes without having
to reduce the tax attributes of any other member of the consolidated group. In a
recent field service advice, however, the IRS ruled that a debtor member was
required to treat all of a consolidated group's NOLs as a tax attribute of the
debtor member subject to reduction under Section 108(b) of the Tax Code as a
result of the exclusion of COI from income. Although such rulings and advice may
not be relied upon by other taxpayers as binding authority, they do provide some
indication of the IRS's position. Accordingly, either as a result of tax
attribute reduction under Section 108(b) of the
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Tax Code, the liquidation of the Debtors or the transfer of stock of the
Surviving Special Purpose Entities, the NOLs of the Debtors and each of their
affiliates may be eliminated or substantially limited in use and therefore
effectively unavailable to the holders of Claims.
C. FEDERAL INCOME TAX CONSEQUENCES TO CREDITORS WITH ALLOWED CLAIMS
UPON EXCHANGE
1. Allowed Class 5 Claims.
(a) Gain or Loss Recognized. For federal income tax purposes, each
holder of an Allowed Class 5 Claim generally should recognize gain or loss on
the Transfer to the extent of the difference between (i) the sum of the amount
of Cash received and the fair market value of the allocable share of the
non-cash assets received by such holder and (ii) the adjusted tax basis of such
holder's Allowed Claim. The amount of gain or loss of the holders of Allowed
Class 5 Claims may be affected by subsequent distributions as the result of the
disallowance of Disputed Claims in Class 5 as discussed in Section E of this
Article below.
(b) Determination of Fair Market Value. As described in Section A
above, the Plan requires that the Transfer be treated for all purposes of the
Tax Code as a transfer of the Trust Assets to the holders of Allowed Class 5
Claims followed by a transfer by such holders to the Liquidating Trust. As such,
within 30 days of the Effective Date, the holders of Allowed Class 5 Claims will
be notified by the Liquidating Trustee of the fair market value of the Assets as
determined by the Liquidating Trust Committee. Pursuant to the Plan, such
valuation will be used by all parties (including the Debtors, the Liquidating
Trustee, the holders of the Allowed Class 5 Claims and the Plan Administrator)
for all federal income tax purposes.
(c) Character of Gain or Loss. The character of any gain or loss as
capital or ordinary income or loss and, in the case of capital gain or loss, as
short-term or long-term, will depend on a number of factors, including: (i) the
nature and origin of the Claim (e.g., Claims arising in the ordinary course of a
trade or business or made for investment purposes); (ii) the tax status of the
holder of the Claim; (iii) whether the Claim is a capital asset in the hands of
the holder; (iv) whether the Claim has been held by the holder for more than one
year; (v) the extent to which the holder previously claimed a loss or a bad debt
deduction with respect to the Claim; and (vi) the extent to which the holder
acquired the Claim at a market discount.
(d) Adjusted Tax Basis and Holding Period. Each holder of an Allowed
Class 5 Claim will acquire a tax basis in its allocable share of the Trust
Assets in the Liquidating Trust equal to the fair market value of such Trust
Assets on the Effective Date (see Section C.1.(c) of this Article above). Such
holder's holding period of the Trust Assets will begin on the day following the
Effective Date.
2. Other Allowed Claims.
For federal income tax purposes, each holder of an Allowed Claim other
than an Allowed Class 5 Claim generally should recognize gain or loss equal to
the amount of any Cash received with respect to its Claim (other than for
accrued but unpaid interest) less its adjusted tax basis in its Claim (other
than for accrued but unpaid interest). The character of such gain or loss
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as long-term or short-term capital gain or loss or as ordinary income or loss
will depend on a number of factors, including: (i) the nature and origin of the
Claim (e.g., Claims arising in the ordinary course of a trade or business or
made for investment purposes); (ii) the tax status of the holder of the Claim;
(iii) whether the Claim is a capital asset in the hands of the holder; (iv)
whether the Claim has been held by the holder for more than one year; (v) the
extent to which the holder previously claimed a loss or a bad debt deduction
with respect to the Claim; and (vi) the extent to which the holder acquired the
Claim at a market discount.
3. Receipt of Interest.
To the extent that a holder of a Claim receives any Cash or other
property in respect of its Claims for interest, such holder generally will
recognize interest income if such amounts have not already been included for
federal income tax purposes in such holder's taxable income under its method of
tax accounting. In the event that the amount of Cash and other property
allocable to a Claim for interest is less than the amount previously included as
interest on the Claim in the holder of a Claim's federal taxable income, the
discharged portion of the interest may be deductible as an ordinary loss in the
taxable year in which the Effective Date occurs (or, if later, the taxable year
in which the Claim becomes Allowed).
D. FEDERAL INCOME TAX CONSEQUENCES OF THE LIQUIDATING TRUST
1. Classification of the Liquidating Trust.
The Liquidating Trust will be organized for the primary purpose of
liquidating the Trust Assets transferred to it with no objective to continue or
engage in the conduct of a trade or business, except to the extent reasonably
necessary to, and consistent with, the liquidating purpose of the Liquidating
Trust. Thus, the Liquidating Trust is intended to be classified for federal
income tax purposes as a "liquidating trust" within the meaning of Treasury
Regulation Section 301.7701-4(d). Under the Plan, all parties are required to
treat the Liquidating Trust as a liquidating trust, subject to definitive
guidance from the IRS. In light of the provisions of the Plan and the
Liquidating Trust Agreement and assuming the parties act in accordance with such
provisions, the Liquidating Trust should qualify as a liquidating trust. In
general, a liquidating trust is not a separate taxable entity but rather is
treated as a grantor trust, pursuant to Sections 671 et seq. of the Tax Code,
owned by the persons who transfer assets to it. Because of certain provisions of
the Liquidating Trust, the Liquidating Trust also should qualify as an
"investment trust" within the meaning of Treasury Regulation Section
301.7701-4(c), which is similarly treated as a grantor trust for federal income
tax purposes.
No request for a ruling from the IRS will be sought on the
classification of the Liquidating Trust. Accordingly, there can be no assurance
that the IRS would not take a contrary position to the classification of the
Liquidating Trust. If the IRS were to challenge successfully the classification
of the Liquidating Trust as a grantor trust, the federal income tax consequences
to the Liquidating Trust and the holders of Claims could vary from those
discussed herein (including the potential for an entity-level tax).
2. Transfer of Trust Assets to the Liquidating Trust by Holders of
Allowed Class 5 Claims
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No additional gain or loss should be recognized by holders of the
Allowed Class 5 Claims on their transfer of the Trust Assets to the Liquidating
Trust or on their receipt of the Liquidating Trust Units. It is the intent of
the Plan that the holders of Liquidating Trust Units be treated as the grantors
and direct owners of undivided interests in the Trust Assets held by the
Liquidating Trust.
3. Allocation of Liquidating Trust Taxable Income and Loss and
Disposition of Trust Assets
Each holder of a Liquidating Trust Unit must report on its federal
income tax return its allocable share of income, gain, loss, deduction and
credit recognized or incurred by the Liquidating Trust. (None of the Debtors'
NOLs (if any) will be available to reduce any income or gain of the Liquidating
Trust.) Moreover, upon the sale or other disposition of any Trust Asset, each
holder of a Liquidating Trust Unit must report on its federal income tax return
its share of any gain or loss measured by the difference between (i) its share
of the amount of Cash and/or the fair market value of any property received by
the Liquidating Trust in exchange for the Trust Asset so sold or otherwise
disposed of and (ii) such holder's adjusted tax basis in its share of such Trust
Asset. The character of any such gain or loss to any such holder will be
determined as if such holder itself had directly sold or otherwise disposed of
the Trust Asset. The character of items of income, gain, loss, deduction and
credit to any holder of a Liquidating Trust Unit, and the ability of such holder
to benefit from any deductions or losses, may depend on the particular
circumstances or status of such holder.
As a grantor trust, each holder of a Liquidating Trust Unit has an
obligation to report its share of the Liquidating Trust's tax items (including
gain on the sale or other disposition of a Trust Asset) which is not dependent
on the distribution of any Cash or other Trust Assets by the Liquidating Trust.
Accordingly, a holder of a Liquidating Trust Unit may incur a tax liability as a
result of owning a share of the Trust Assets, regardless of whether the
Liquidating Trust distributes Cash or other Trust Assets. Although, the
Liquidating Trust provides that it will generally make at least quarterly
Distributions of Cash, due to the Liquidating Trust's requirement to maintain
certain reserves that may under certain circumstances limit or preclude current
Cash Distributions, and due to possible differences in the timing of income on,
and the receipt of Cash from, the ESRs and other Trust Assets, a holder of a
Liquidating Trust Unit may, in certain years, report and pay tax on a greater
amount of income than the amount of Cash received by such holder in such year.
4. Liquidating Trust Tax Reporting.
The Liquidating Trust will file annual information tax returns with the
IRS as a grantor trust pursuant to Treasury regulation Section 1.671-4(a) that
will include information concerning certain items relating to the holding or
liquidation of the Trust Assets (e.g., income, gain, loss, deduction and
credit). Each holder of a Liquidating Trust Unit will receive a copy of such
information returns and must report on its federal income tax return its share
of all such items. The information provided by the Liquidating Trust will
pertain to holders of Liquidating Trust Units who received their Liquidating
Trust Units in connection with the Plan; transferees of Liquidating Trust Units
will be required to determine for themselves whether they should report a
different amount of income, gain, loss, deduction and credit.
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E. DISPUTED CLAIMS RESERVE TRUST
1. Disputed Claims in Class 5.
On the Effective Date, or as soon thereafter as practicable, the
Liquidating Trust will issue a certain amount of Liquidating Trust Units that
will be held apart from the Liquidating Trust in the Disputed Claims Reserve
Trust in respect of Disputed Claims in Class 5 and the Debtors will transfer a
fixed amount of Cash to the Disputed Claims Reserve Trust. The Liquidating
Trust's taxable income, gain, loss, deduction and credit will be allocated to
the Liquidating Trust Units held in the Disputed Claims Reserve Trust in the
same manner as Liquidating Trust taxable income, gain, loss, deduction and
credit allocated to other holders of Liquidating Trust Units. The federal income
tax treatment with respect to disputed claims held by such a reserve is unclear.
Subject to definitive guidance, the Plan requires that the Plan Administrator,
on behalf of the holders of the Disputed Claims in Class 5 whose Liquidating
Trust Units and Cash will be held by the Disputed Claims Reserve Trust, pay tax
on net income allocable to such Liquidating Trust Units at the highest marginal
tax rate applicable to trusts while the Dispute Claims Reserve Trust holds Cash
and Liquidating Trust Units. The IRS might assert, however, that any such income
is allocable to the holders of the Allowed Class 5 Claims or otherwise. If the
IRS were successful with this argument, the Plan Administrator should be able to
file a claim for a refund for taxes paid by the Disputed Claims Reserve Trust
with respect to such income, barring the lapse of the applicable statute of
limitations period.
To the extent a Disputed Claim in Class 5 is Disallowed, the interests
of the holders of the Allowed Class 5 Claims would be affected. In this regard,
the disallowance of a Disputed Claim in Class 5 would be treated as an
additional distribution of Trust Assets to holders of Allowed Class 5 Claims at
such time that should increase the income or the gain (or decrease the loss)
recognized by such holders on a Distribution as well as increase the holder's
tax basis in its allocable share of each Trust Asset in the Liquidating Trust.
To the extent a Disputed Claim in Class 5 becomes an Allowed Claim, the federal
income tax consequences to the holder of such a Claim should generally be the
same as the consequences to holders of Allowed Class 5 Claims described above in
Section C. Further, such holder's recognition of gain or loss resulting from the
exchange of a Claim for the Trust Assets should not occur until the date the
Disputed Claim in Class 5 becomes an Allowed Class 5 Claim. EACH HOLDER OF A
CLAIM IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ALLOWANCE OR DISALLOWANCE OF A
CLASS 5 CLAIM.
2. Other Disputed Claims.
On the Effective Date, the Liquidating Trust will transfer Cash to the
Disputed Claims Reserve Trust in respect of Disputed Claims other than Class 5
Claims ("Other Disputed Claims"). The federal income tax treatment with respect
to such Other Disputed Claims is unclear. Subject to definitive guidance, the
Plan requires that the Plan Administrator pay tax on net income allocable to the
Disputed Claims Reserve Trust at the highest tax rate applicable to trusts while
the Disputed Claims Reserve Trust holds Cash on account of such Other Disputed
Claims. The IRS might assert, however, that any such income is allocable to the
holders of
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Allowed Claims or otherwise. If the IRS were successful with this
argument, the Plan Administrator should be able to file a claim for a refund for
taxes paid by the Disputed Claims Reserve Trust with respect to such income,
barring the lapse of the applicable statute of limitations period.
E. WITHHOLDING AND REPORTING
The Debtors and, after the Effective Date, the Liquidating Trust and
the Disputed Claims Reserve Trust, will withhold all amounts required by law to
be withheld from payments to holders of Allowed Claims or holders of Liquidating
Trust Units, as applicable. For example, under federal income tax law, interest,
dividends and other reportable payments may, under certain circumstances, be
subject to backup withholding at a 31% rate. Backup withholding generally
applies only if the holder (i) fails to furnish its social security number or
other taxpayer identification number ("TIN"); (ii) furnishes an incorrect TIN;
(iii) fails properly to report interest or dividends; or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in overpayment
of tax. Certain persons are exempt from backup withholding, including
corporations and financial institutions.
XV. ALTERNATIVES TO CONFIRMATION OF THE PLAN
The Debtors believe that the Plan affords the holders of Claims the
potential for the greatest realization on the Debtors' assets and, thus, is in
the best interests of such holders. If the Plan is not confirmed, however,
alternatives include (a) alternative plans of reorganization or (b) liquidation
of the Debtors under chapter 7 or chapter 11. As discussed, the Debtors believe
that the Plan is comparable to a liquidation without the increased costs
associated with the appointment of a trustee under chapters 7 or 11.
XVI. ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, the Debtors or, if the Bankruptcy Court
did not grant further extensions of the Debtors' exclusive period in which to
solicit votes for a plan of reorganization, any other party-in-interest in the
Chapter 11 Cases could propose a different plan or plans. Such plans might
involve either a reorganization and continuation of the Debtors' businesses, or
an orderly liquidation of its assets or a combination of both. The Debtors do
not believe that an alternative plan could provide greater recoveries than those
provided in the Plan. Moreover, the filing of alternative plans would result in
additional costs in administering the Chapter 11 Cases and significant delays in
making distributions.
XVII. CONFIRMATION HEARING
By order of the court dated November 10, 2000, the Confirmation Hearing
has been scheduled for December 19, 2000 at 11:00 a.m. Eastern Time, before the
Honorable Arthur J. Gonzalez, in the United States Bankruptcy Court for the
Southern District of New York, One Bowling Green, New York, New York 10004. The
Confirmation Hearing may be adjourned from time to time by the Court without
further notice except for an announcement made at the
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Confirmation Hearing or any adjourned hearing. Any objection to confirmation
must be made in writing, filed with the Clerk of the Bankruptcy Court and served
upon the following parties, together with proof of service thereof, so as to be
ACTUALLY RECEIVED on or before December 13, 2000 at 5:00 p.m. (Eastern Time):
For the Debtors
ContiFinancial Corporation
277 Park Avenue
New York, New York 10172
(212) 208-2800
Attn: Alan H. Fishman
with copies to:
Dewey Ballantine LLP
Attorneys for the Debtors
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
Attn: Richard S. Miller, Esq.
Togut, Segal & Segal LLP
Attorneys for the Debtors
One Penn Plaza
New York, New York 10169
(212) 594-5000
Attn: Albert Togut, Esq.
For the Unofficial Bank Group Committee
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Attn: Marvin E. Jacob, Esq.
Judy G. Z. Liu, Esq.
For the Unofficial Noteholders' Committee
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
(212) 872-1000
Attn: Daniel H. Golden, Esq.
Ira S. Dizengoff, Esq.
81
<PAGE>
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED IT WILL NOT
BE CONSIDERED BY THE COURT.
At the Confirmation Hearing, the Court must determine whether the
requirements of section 1129 of the Bankruptcy Code have been satisfied and,
upon demonstration of such compliance, the Court will enter the Confirmation
Order.
XVIII. CONCLUSION
The Debtors submit that the plan complies in all respects with chapter
11 of the Bankruptcy Code and the Debtors recommend to holders of Claims who are
entitled to vote on the plan that they vote to accept the plan. The Debtors
remind such holders that, to be counted, each ballot, signed and marked to
indicate the holder's vote, must be actually received by no later than 5:00 p.m.
Eastern Time on December 13, 2000, at the following address:
ContiFinancial Corporation, et al.
c/o Donlin, Recano & Company, Inc.
P.O. Box 2034
Murray Hill Station
New York, New York 10156
Or, if being sent by hand, to the following address:
ContiFinancial Corporation, et al.
c/o Donlin, Recano & Company, Inc.
419 Park Avenue South, Suite 1206
New York, New York 10016
Or, ONLY if you are the beneficial owner of a Senior Note, or the
nominee of a beneficial owner, you may return your ballot by facsimile to:
ContiFinancial Corporation, et al.
c/o Donlin, Recano & Company, Inc.
Facsimile Number: (212) 481-1416
82
<PAGE>
Dated: New York, New York
November 9, 2000
Respectfully Submitted
CONTIFINANCIAL CORPORATION, ET AL.
Debtors and Debtors-in-Possession
By: /s/
----------------------------------
Alan H. Fishman
Authorized Signatory
By: /s/
----------------------------------
Robert D. Davis
Authorized Signatory
By: /s/
----------------------------------
Michael T. Conrad
Authorized Signatory
By: /s/
----------------------------------
Hal Willard
Authorized Signatory
83
<PAGE>
EXHIBIT 1
SECOND AMENDED JOINT PLAN OF REORGANIZATION
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------X
IN RE : CHAPTER 11
:
CONTIFINANCIAL CORPORATION, ET AL., : CASE NO. 00 B 12184 (AJG)
:
DEBTORS. : (JOINTLY ADMINISTERED)
---------------------------------------X
SECOND AMENDED JOINT PLAN OF REORGANIZATION OF
CONTIFINANCIAL CORPORATION AND AFFILIATES UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE
DATED: NEW YORK, NEW YORK
NOVEMBER 9, 2000
DEWEY BALLANTINE LLP TOGUT, SEGAL & SEGAL LLP
COUNSEL FOR CONTIFINANCIAL COUNSEL FOR CONTIMORTGAGE
CORPORATION, ET AL. CORPORATION, ET AL.
DEBTORS IN POSSESSION DEBTORS IN POSSESSION
ATTN: RICHARD S. MILLER, ESQ. ATTN: ALBERT TOGUT, ESQ.
1301 AVENUE OF THE AMERICAS ONE PENN PLAZA
NEW YORK, NY 10019-6092 NEW YORK, NY 10169
(212) 259-8000 (212) 594-5000
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION...................................................................1
ARTICLE I. DEFINITIONS, RULES OF INTERPRETATION, AND CONSTRUCTION..............2
A. Defined Terms.........................................................2
B. Definitions...........................................................2
Section 1.01 Additional Quarterly Distributions.....................2
Section 1.02 Administrative Claim...................................2
Section 1.03 Allowed................................................2
Section 1.04 Allowed Administrative Claim...........................2
Section 1.05 Allowed Claim..........................................2
Section 1.06 Allowed Priority Claim.................................3
Section 1.07 Assets.................................................3
Section 1.08 Available Cash.........................................3
Section 1.09 Available Unclaimed Property...........................3
Section 1.10 Ballot.................................................3
Section 1.11 Bank Agent.............................................3
Section 1.12 Bank Group.............................................3
Section 1.13 Bank Group Claim.......................................3
Section 1.14 Bank Group Committee...................................3
Section 1.15 Bank Group Committee Fees..............................3
Section 1.16 Bankruptcy Code........................................3
Section 1.17 Bankruptcy Court.......................................4
Section 1.18 Bankruptcy Rules.......................................4
Section 1.19 Bar Date...............................................4
Section 1.20 Business Day...........................................4
Section 1.21 Cash...................................................4
Section 1.22 Causes of Action.......................................4
Section 1.23 CFN....................................................4
Section 1.24 Chapter 11 Cases.......................................4
Section 1.25 Claim..................................................4
Section 1.26 Claims Agent...........................................4
Section 1.27 Class..................................................4
Section 1.28 Class 5 Cash...........................................4
Section 1.29 Class [___] Claim......................................5
Section 1.30 CMC....................................................5
Section 1.31 Collateral.............................................5
Section 1.32 Compromise and Settlement..............................5
Section 1.33 Confirmation Date......................................5
Section 1.34 Confirmation Hearing...................................5
i
<PAGE>
Section 1.35 Confirmation Order.....................................5
Section 1.36 Convenience Claim......................................5
Section 1.37 Court..................................................5
Section 1.38 Credit Agreement.......................................5
Section 1.39 D&O Insurance..........................................5
Section 1.40 Debtors................................................6
Section 1.41 Defendant..............................................6
Section 1.42 Disallowed.............................................6
Section 1.43 Disclosure Statement...................................6
Section 1.44 Disclosure Statement Order.............................6
Section 1.45 Disputed Claim.........................................6
Section 1.46 Disputed Claims Reserve Trust..........................6
Section 1.47 Distributed ESRs.......................................6
Section 1.48 Distribution...........................................6
Section 1.49 Distribution Address...................................6
Section 1.50 Distribution Date......................................7
Section 1.51 Effective Date.........................................7
Section 1.52 Equity Interest........................................7
Section 1.53 ESR....................................................7
Section 1.54 Estates................................................7
Section 1.55 Exhibit................................................7
Section 1.56 Exhibit Filing Date....................................7
Section 1.57 Face Amount............................................7
Section 1.58 FGIC...................................................7
Section 1.59 FGIC Agreement.........................................7
Section 1.60 FGIC Claims............................................8
Section 1.61 FGIC Pooling and Servicing Agreements..................8
Section 1.62 FGIC Reserve Account...................................8
Section 1.63 Fidelity...............................................8
Section 1.64 File or Filed..........................................8
Section 1.65 Final Claims Resolution Date...........................8
Section 1.66 Final Order............................................8
Section 1.67 Fractional Liquidating Trust Unit......................8
Section 1.68 General Unsecured Claim................................8
Section 1.69 Greenwich..............................................8
Section 1.70 Greenwich Collateral...................................8
Section 1.71 Greenwich Security Agreement...........................8
Section 1.72 Greenwich Repurchase Facility..........................9
Section 1.73 Greenwich Repurchase Facility Secured Claims...........9
Section 1.74 Greenwich Whole Loan Purchase Facility.................9
Section 1.75 Greenwich Whole Loan Purchase Facility Secured
Claims...............................................9
Section 1.76 Indentures.............................................9
Section 1.77 Indenture Trustee......................................9
Section 1.78 Initial Distribution...................................9
Section 1.79 Initial Distribution Date..............................9
Section 1.80 Intercompany Claim.....................................9
ii
<PAGE>
Section 1.81 Interest...............................................9
Section 1.82 IRS....................................................9
Section 1.83 Judgment Amount........................................9
Section 1.84 Letter of Credit Agreement............................10
Section 1.85 Lien..................................................10
Section 1.86 Liquidating Trust.....................................10
Section 1.87 Liquidating Trust Agreement...........................10
Section 1.88 Liquidating Trust Committee...........................10
Section 1.89 Liquidating Trust Unit................................10
Section 1.90 Liquidating Trustee...................................10
Section 1.91 MBIA..................................................10
Section 1.92 MBIA Agreement........................................10
Section 1.93 MBIA Claims...........................................10
Section 1.94 MBIA Pooling and Servicing Agreements.................10
Section 1.95 MBIA Reserve Account.................................10
Section 1.96 Offset Amount.........................................11
Section 1.97 Old Common Stock......................................11
Section 1.98 Ordinary Course Professionals Orders..................11
Section 1.99 Other Secured Claims..................................11
Section 1.100 Paying Agent..........................................11
Section 1.101 Person................................................11
Section 1.102 Petition Date.........................................11
Section 1.103 Plan..................................................11
Section 1.104 Plan Administration Agreement.........................11
Section 1.105 Plan Administration Committee.........................11
Section 1.106 Plan Administrator....................................12
Section 1.107 Preference Stipulation................................12
Section 1.108 Prepetition Claim.....................................12
Section 1.109 Priority Claim........................................12
Section 1.110 Priority Tax Claim....................................12
Section 1.111 Professionals.........................................12
Section 1.112 Quarterly Distribution Date...........................12
Section 1.113 Ratable or Ratable Share..............................12
Section 1.114 Reinstated............................................12
Section 1.115 Resource One Debtors..................................12
Section 1.116 Royal.................................................12
Section 1.117 Schedules.............................................13
Section 1.118 Secured Claim.........................................13
Section 1.119 Security..............................................13
Section 1.120 Senior Notes..........................................13
Section 1.121 Senior Notes Claim....................................13
Section 1.122 Settlement Debtors....................................13
Section 1.123 Settlement Debtors Premium............................13
Section 1.124 Settlement Debtors Premium Adjustment.................13
Section 1.125 Settlement Debtors Premium Initial Distribution.......14
Section 1.126 Subordinated Claim....................................14
iii
<PAGE>
Section 1.127 Surviving Special Purpose Entities....................14
Section 1.128 Treasury Regulation...................................14
Section 1.129 Trust Assets..........................................14
Section 1.130 Unclaimed Property....................................14
Section 1.131 Unofficial Committees.................................15
Section 1.132 Unofficial Noteholders' Committee.....................15
Section 1.133 Unofficial Noteholders' Committee Fees................15
Section 1.134 U.S. Trustee Fees.....................................15
C. Rules of Construction................................................15
Section 1.135 Generally.............................................15
Section 1.136 Exhibits..............................................15
Section 1.137 Time Periods..........................................15
Section 1.138 Miscellaneous Rules...................................15
ARTICLE II. COMPROMISE AND SETTLEMENT; GENERAL RULES REGARDING
CLASSIFICATION OF CLAIMS AND INTERESTS............................16
Section 2.01 Compromise and Settlement.............................16
Section 2.02 General Rules of Classification Under the
Bankruptcy Code.....................................16
Section 2.03 Undersecured Claims...................................16
ARTICLE III. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS....................17
Section 3.01 Summary...............................................17
ARTICLE IV. TREATMENT OF UNCLASSIFIED CLAIMS..................................17
Section 4.01 Administrative Claims.................................17
Section 4.02 Priority Tax Claims...................................18
Section 4.03 U.S. Trustee Fees.....................................18
ARTICLE V. TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS.......................18
Section 5.01 Class 1a: Greenwich Repurchase Facility
Secured Claims............................18
Section 5.02 Class 1b: Greenwich Whole Loan Purchase
Facility Secured Claims...................19
Section 5.03 Class 2a: MBIA Claims.................................19
Section 5.04 Class 2b: FGIC Claims.................................19
Section 5.05 Class 3: Other Secured Claims........................19
Section 5.06 Class 4: Priority Claims.............................20
Section 5.07 Class 5: Bank Group Claims, Senior Notes Claims,
and General Unsecured Claims..............20
Section 5.08 Class 6: Convenience Claims..........................21
Section 5.09 Class 7: Subordinated Claims.........................21
Section 5.10 Class 8: Equity Interests............................22
ARTICLE VI. ESTABLISHMENT OF TRUSTS; IMPLEMENTATION OF PLAN...................22
iv
<PAGE>
Section 6.01 The Liquidating Trust.................................22
Section 6.02 Appointment of Liquidating Trustee and
Liquidating Trust Committee.........................23
Section 6.03 Liquidating Trust Units, Applicability of
Securities Laws and Reporting Requirements..........24
Section 6.04 Disputed Claims Reserve Trust.........................24
Section 6.05 Distributions To Holders Of Claims And Interests......26
Section 6.06 Miscellaneous Distribution Provisions.................28
Section 6.07 De Minimis Distributions..............................29
Section 6.08 Setoffs...............................................29
Section 6.09 Intercompany Claims...................................30
Section 6.10 Unclaimed Property....................................30
Section 6.11 Exemption from Transfer Taxes.........................30
Section 6.12 Cancellation of Capital Stock.........................31
Section 6.13 Cancellation of Senior Notes and Agreements...........31
Section 6.14 Disputed Payments.....................................32
Section 6.15 Withholding Taxes.....................................32
Section 6.16 Obligations Incurred After the Confirmation Date......32
Section 6.17 Instructions to Liquidating Trustee or Plan
Administrator.......................................32
Section 6.18 Record Date for Distributions to Holders of
Senior Notes........................................32
Section 6.19 Dissolution...........................................33
ARTICLE VII. EFFECT OF THE PLAN ON CLAIMS AND INTERESTS.......................33
Section 7.01 Jurisdiction of Court.................................33
Section 7.02 Binding Effect........................................33
Section 7.03 Term of Injunctions or Stays..........................33
Section 7.04 Rights of Action......................................33
Section 7.05 Discharge.............................................34
Section 7.06 Preservation of Insurance.............................35
ARTICLE VIII. EXECUTORY CONTRACTS.............................................35
Section 8.01 Executory Contracts and Unexpired Leases..............35
Section 8.02 Cure..................................................35
Section 8.03 Rejection Damages Bar Date............................36
Section 8.04 Executory Contracts and Unexpired Leases Entered
Into and Other Obligations Incurred After the
Petition Date.......................................36
ARTICLE IX. CONDITIONS TO CONFIRMATION AND OCCURRENCE OF EFFECTIVE DATE.......36
Section 9.01 Conditions to Confirmation............................36
Section 9.02 Conditions to Occurrence of Effective Date............36
Section 9.03 Waiver of Conditions to Confirmation and
Occurrence of Effective Date........................37
Section 9.04 Effect of Nonoccurrence of the Conditions to
Occurrence of Effective Date........................37
v
<PAGE>
ARTICLE X. CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN.............37
Section 10.01 Confirmability and Severability of a Plan.............37
Section 10.02 Cramdown..............................................38
ARTICLE XI. ADMINISTRATIVE PROVISIONS.........................................38
Section 11.01 Retention of Jurisdiction.............................38
Section 11.02 Governing Law.........................................39
Section 11.03 Administrative Bar Date...............................39
Section 11.04 Effectuating Documents and Further Transactions.......40
Section 11.05 Limitation of Liability...............................40
Section 11.06 Amendments............................................41
Section 11.07 Successors and Assigns................................41
Section 11.08 Confirmation Order and Plan Control...................41
Section 11.09 Headings..............................................41
Section 11.10 Notices...............................................42
EXHIBITS
A Liquidating Trust Agreement
B Plan Administration Agreement
C Distributed ESRs
D Surviving Non-Debtor Affiliates
E Assumed Executory Contracts and Unexpired Leases
F Disputed Claims
vi
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
IN RE : CHAPTER 11
:
CONTIFINANCIAL CORPORATION, ET AL., : CASE NO. 00 B 12184 (AJG)
:
DEBTORS. : (JOINTLY ADMINISTERED)
----------------------------------------X
SECOND AMENDED JOINT PLAN OF REORGANIZATION OF
CONTIFINANCIAL CORPORATION AND AFFILIATES
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
INTRODUCTION
ContiFinancial Corporation, ContiMortgage Corporation, ContiTrade
Services LLC, ContiWest Corporation, ContiFinancial Services Corporation,
Resource One Consumer Discount Company, Inc., Warminster National Abstract,
Inc., Keystone Capital Group, Inc., Keystone Mortgage Investments, Inc., ZTS
Corporation, Resource One Mortgage of Oxford Valley, Inc., Resource One Consumer
Discount Co. of Minnesota, Inc., Resource One Mortgage of Delaware Valley, Inc.,
ResourceCorp Financial, Inc., ContiInsurance Agency, Inc., Crystal Mortgage
Company, Inc., Lenders M.D., Inc., California Lending Group, Inc., ContiAsset
Receivables Management L.L.C., Royal Mortgage Partners, L.P. and Fidelity
Mortgage Decisions Corporation (collectively, the "Debtors") as debtors and
debtors-in-possession in the above-captioned chapter 11 cases, hereby propose
the following second amended joint plan of reorganization pursuant to section
1121(a) of title 11 of the United States Code. Reference is made to the
Disclosure Statement for a discussion of the Debtors' history, businesses,
properties, results of operations, projections for future recoveries, a summary
and analysis of the Plan and other related matters. The Debtors are the
proponents of the Plan within the meaning of section 1129 of the Bankruptcy
Code.
These reorganization cases have been consolidated for procedural
purposes and are being jointly administered pursuant to an order of the United
States Bankruptcy Court for the Southern District of New York. This Plan
contemplates the substantive consolidation of the Debtors for purposes of
distribution and voting.
Under section 1125(b) of the Bankruptcy Code, a vote to accept or
reject the Plan cannot be solicited from a holder of a claim or interest until
such time as the Disclosure Statement has been approved by the Bankruptcy Court
and distributed to holders of claims and interests. ALL HOLDERS OF CLAIMS
AGAINST THE DEBTORS ARE ENCOURAGED TO READ THE PLAN AND THE RELATED DISCLOSURE
STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT
<PAGE>
OR TO REJECT THE PLAN. SUBJECT TO CERTAIN RESTRICTIONS AND REQUIREMENTS SET
FORTH IN THE PLAN, THE DEBTORS RESERVE THE RIGHT TO ALTER, AMEND, MODIFY, REVOKE
OR WITHDRAW THE PLAN PRIOR TO ITS SUBSTANTIAL CONSUMMATION.
ARTICLE I.
DEFINITIONS, RULES OF INTERPRETATION, AND CONSTRUCTION
A. Defined Terms. As used herein, the following terms have the
respective meanings specified below, unless the context otherwise requires (such
meanings to be equally applicable to both the singular and plural, and masculine
and feminine forms of the terms defined). Any term used in the Plan but not
defined herein that is used in the Bankruptcy Code or Bankruptcy Rules shall
have the meaning assigned to that term in the Bankruptcy Code or Bankruptcy
Rules.
B. Definitions.
Section 1.01 Additional Quarterly Distributions means a Distribution on
a Quarterly Distribution Date to each holder of Liquidating Trust Units from the
Liquidating Trust as set forth in this Plan.
Section 1.02 Administrative Claim means any Claim under sections 503(b)
and 507(a)(1) of the Bankruptcy Code, including, without limitation: (a) the
actual, necessary costs and expenses incurred by the Debtors after the Petition
Date, and (b) compensation for legal and other services and reimbursement of
expenses awarded pursuant to sections 330(a), 331 or 1103 of the Bankruptcy
Code.
Section 1.03 Allowed means, with respect to a Claim or Interest, the
extent to which a Claim or Interest is not objected to within the period fixed
by the Bankruptcy Code, the Bankruptcy Rules or orders of the Court, or
otherwise allowed by a Final Order, including, without limitation, the
Confirmation Order and (a) scheduled by the Debtors pursuant to the Bankruptcy
Code and the Bankruptcy Rules in a liquidated amount and not listed as
contingent, unliquidated or disputed, (b) timely Filed under applicable law with
the Court pursuant to the Bankruptcy Code, the Bankruptcy Rules or any
applicable orders of the Court, or (c) late-Filed and allowed by Court Order
after notice and a hearing. Unless otherwise specified herein, in section 506(b)
of the Bankruptcy Code or by order of the Bankruptcy Court, "Allowed Claim,"
shall not, for the purposes of distributions under the Plan, include (x) for
Prepetition Claims, interest on such Claim or Claims accruing from or after the
Petition Date, (y) punitive or exemplary damages, or (z) any fine, penalty or
forfeiture.
Section 1.04 Allowed Administrative Claim means an Administrative Claim
to the extent it is Allowed.
Section 1.05 Allowed Claim means a Claim to the extent that such Claim
is Allowed.
2
<PAGE>
Section 1.06 Allowed Priority Claim means a Priority Claim to the
extent it is Allowed.
Section 1.07 Assets means all assets of the Debtors of any nature
whatsoever, including, without limitation, all property of the Estates pursuant
to Section 541 of the Bankruptcy Code, Cash, Causes of Action, claims of right,
interests and property, real and personal, tangible and intangible.
Section 1.08 Available Cash means all Cash of the Liquidating Trust,
less Cash necessary for the administration of the Liquidating Trust, as
determined in the reasonable discretion of the Liquidating Trustee.
Section 1.09 Available Unclaimed Property means Unclaimed Property that
is unclaimed on the first anniversary of the date of Distribution of such
property (together with any interest thereon and proceeds thereof).
Section 1.10 Ballot means the ballot distributed to a holder of a Claim
on which ballot such holder of a Claim may, inter alia, vote for or against the
Plan.
Section 1.11 Bank Agent means Credit Suisse First Boston, New York
Branch, as Administrative Agent, to the Credit Agreement or any successor
thereto.
Section 1.12 Bank Group means Credit Suisse First Boston, New York
Branch, as Administrative Agent, and Credit Suisse First Boston, New York
Branch, and Dresdner Bank AG, New York and Grand Cayman Branches, as
Co-Arrangers, and those other financial institutions that are parties to the
Credit Agreement and the Letter of Credit Agreement and their successors and
assigns.
Section 1.13 Bank Group Claim means any Claim of the Bank Group arising
under the Credit Agreement and the Letter of Credit Agreement.
Section 1.14 Bank Group Committee means those members of the Bank Group
acting as an unofficial creditors' committee in the Chapter 11 Cases, which
committee may be reconstituted from time to time, including Credit Suisse First
Boston, Credit Lyonnais, The Bank of New York, and The Bank of Nova Scotia.
Section 1.15 Bank Group Committee Fees means those fees and expenses
actually incurred or to be paid by the Debtors to Weil, Gotshal & Manges LLP, as
counsel to the Bank Group Committee, and PriceWaterhouseCoopers LLP, as
financial advisors to the Bank Group Committee, pursuant to the Plan or
Confirmation Order for payment of such fees and expenses for work performed from
the Petition Date through the Effective Date.
Section 1.16 Bankruptcy Code means the Bankruptcy Reform Act of 1978,
as amended and codified at title 11 of the United States Code, 11 U.S.C. ss.ss.
101 et seq.
3
<PAGE>
Section 1.17 Bankruptcy Court means the United States Bankruptcy Court
for the Southern District of New York which has jurisdiction over the Chapter 11
Cases.
Section 1.18 Bankruptcy Rules means the Federal Rules of Bankruptcy
Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of
Civil Procedure, as amended, made applicable through the Federal Rules of
Bankruptcy Procedure, and the Local Rules of the Bankruptcy Court.
Section 1.19 Bar Date means such date(s) fixed by Order(s) of the
Bankruptcy Court by which Proofs of Claim, Proofs of Interest, or requests for
allowance of Administrative Claims must be Filed.
Section 1.20 Business Day means any day except a Saturday, Sunday, or
"legal holiday" as such term is defined in Bankruptcy Rule 9006(a).
Section 1.21 Cash means cash and cash equivalents in U.S. dollars.
Section 1.22 Causes of Action means any and all claims, rights and
causes of action belonging to the Debtors or their Estates including, but not
limited to, those referred to in the Disclosure Statement, any and all claims,
rights and causes of action the Debtors or the Estates may have against any
Person arising under sections 544 through 550 of the Bankruptcy Code, or any
similar provision of state law or any other law, rule, regulation, decree,
order, statute or otherwise.
Section 1.23 CFN means ContiFinancial Corporation, a Delaware
corporation.
Section 1.24 Chapter 11 Cases means case numbers 00-12184 (AJG) through
00-12187 (AJG), 00-12189 (AJG) through 00-12203 (AJG) inclusive, 00-13732 (AJG)
and 00-13733 (AJG), commenced by the Debtors under chapter 11 of the Bankruptcy
Code on the Petition Date in the Bankruptcy Court, and styled ContiFinancial
Corporation, et al., Debtors.
Section 1.25 Claim means a claim, as such term is defined in section
101(5) of the Bankruptcy Code, against the Debtors.
Section 1.26 Claims Agent means Donlin, Recano & Co. or such successor
as the Debtors or the Plan Administrator may designate.
Section 1.27 Class means a group of Claims or the Equity Interests as
classified in Article III under the Plan.
Section 1.28 Class 5 Cash means Cash, which shall be distributed on the
Initial Distribution Date to holders of Class 5 Claims as provided in Section
5.07 of the Plan, estimated in the Disclosure Statement as reflected in the Pro
Forma Balance Sheet, Section X-D.
4
<PAGE>
Section 1.29 Class [___] Claim means a Claim in the particular Class of
Claims identified and described in Article III of the Plan.
Section 1.30 CMC means ContiMortgage Corporation, a Delaware
corporation.
Section 1.31 Collateral means any property or interest in property of
the estates of the Debtors that is subject to an unavoidable Lien to secure the
payment or performance of a Claim.
Section 1.32 Compromise and Settlement means the settlement which is
part of, incorporated in the Plan, and a condition precedent to the Effective
Date, resolving issues among each of the Debtors, the Unofficial Noteholders'
Committee and the Unofficial Bank Group Committee concerning (a) substantive
consolidation; (b) treatment of intercompany loans and claims; and (c) the
Settlement Debtors Premium.
Section 1.33 Confirmation Date means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order.
Section 1.34 Confirmation Hearing means the hearing conducted by the
Bankruptcy Court to consider confirmation of the Plan.
Section 1.35 Confirmation Order means the order, entered by the Clerk
of the Bankruptcy Court, confirming the Plan in accordance with the provisions
of the Bankruptcy Code.
Section 1.36 Convenience Claim means any General Unsecured Claim, in an
amount equal to or less than $1,000, or voluntarily reduced by the holder of the
General Unsecured Claim to $1,000 (the "Threshold Amount"); provided, however,
that such Threshold Amount may be increased in the reasonable business judgment
of the Debtors, subject to the consent of each of the Unofficial Committees at
or before the Confirmation Hearing for the purpose of administrative convenience
or to reduce the expenses of administration of the Liquidating Trust.
Section 1.37 Court shall have the same meaning as Bankruptcy Court.
Section 1.38 Credit Agreement means that certain Credit Agreement,
dated as of January 7, 1997, as amended, among CFN, The Lenders Party Thereto,
and Credit Suisse First Boston, New York Branch, as Administrative Agent, and
Credit Suisse First Boston, New York Branch, and Dresdner Bank AG, New York and
Grand Cayman Branches, as Co-Arrangers, and any of the documents or instruments
related thereto.
Section 1.39 D&O Insurance means the officers and directors insurance
maintained by the Debtors which covers the Debtors' present and former officers
and directors.
5
<PAGE>
Section 1.40 Debtors shall have the meaning ascribed in the
Introduction herein.
Section 1.41 Defendant shall have the meaning given such term in
Section 6.04(e) hereof.
Section 1.42 Disallowed means the extent to which a Disputed Claim is
not Allowed whether by Final Order of the Court, by agreement of the parties or
otherwise.
Section 1.43 Disclosure Statement means the written disclosure
statement, that relates to the Plan, as amended, supplemented or modified from
time to time, and as approved by the Bankruptcy Court under section 1125 of the
Bankruptcy Code.
Section 1.44 Disclosure Statement Order means the order of the Court
approving the Disclosure Statement as containing adequate information pursuant
to section 1125 of the Bankruptcy Code.
Section 1.45 Disputed Claim means (a) if no proof of Claim has been
timely Filed or deemed timely Filed under applicable law or order of the Court,
a Claim that has been listed on a Debtor's Schedules as disputed, contingent or
unliquidated; or (b) if a proof of Claim has been Filed or deemed timely Filed
under applicable law or order of the Court, a proof of Claim as to which an
objection has been timely Filed and has not been (i) withdrawn, (ii) overruled
or denied by a Final Order or (iii) granted in whole by a Final Order. For the
purposes of the Plan, a Claim shall be considered a Disputed Claim, unless
otherwise ordered by the Bankruptcy Court, if (x) an objection has been Filed
with respect to such Claim prior to the Effective Date or, if a Claim is
permitted to be Filed after the Effective Date, no later than thirty days after
such Claim has been Filed or (y) such claim is listed on Exhibit F titled
"Disputed Claims" attached to this Plan to be Filed by the Debtors on or before
the Exhibit Filing Date.
Section 1.46 Disputed Claims Reserve Trust means a trust established by
the Debtors for the payment of Disputed Claims that become Allowed Claims after
the Effective Date, and which shall hold Cash and Liquidating Trust Units in
trust for the benefit of the holders of Disputed Claims that become Allowed
Claims, and shall not, constitute property of the Debtors' Estates or the
Liquidating Trust.
Section 1.47 Distributed ESRs means those ESRs, listed on Exhibit C
hereto, that will be contributed by the Debtors to the Liquidating Trust for the
benefit of holders of Allowed Class 5 Claims, in accordance with the provisions
of this Plan.
Section 1.48 Distribution means the distribution in accordance with
this Plan of any property or Assets distributed under Articles IV or V herein,
including, without limitation, (a) Cash, (b) Liquidating Trust Units, or (c) any
combination thereof.
Section 1.49 Distribution Address means the address set forth in the
relevant proof of claim, as such address may have been updated pursuant to
Bankruptcy
6
<PAGE>
Rule 2002(g). If no proof of claim is Filed in respect of a particular Claim,
such defined term means the address set forth in the relevant Debtor's
Schedules, as such address may have been updated pursuant to Bankruptcy Rule
2002(g).
Section 1.50 Distribution Date means any date on which a Distribution
is made, including, without limitation, the Initial Distribution Date or a
Quarterly Distribution Date.
Section 1.51 Effective Date means a Business Day selected by the
Debtors which is not later than eleven (11) days after the Confirmation Order is
entered by the Bankruptcy Court, or as soon thereafter as practicable.
Section 1.52 Equity Interest means the interest held by any Person in
the equity of the Debtors, including, without limitation, any "equity security"
in the Debtors as defined by section 101(16) of the Bankruptcy Code.
Section 1.53 ESR means any certificated or non-certificated interest
retained by a Debtor or an affiliate of the Debtors that entitles the holders of
such interest to receive some or all of the excess cash flows generated by a
pool of securitized loans generally calculated as (a) the monthly interest
payments from the loans, less (b) the sum of (i) pass-through interest paid to
third-party investors, (ii) trustees fees, (iii) third-party credit enhancement
fees, and (iv) servicing fees.
Section 1.54 Estates means, as to each Debtor, the estate of such
Debtor in its Chapter 11 Case created by section 541 of the Bankruptcy Code upon
the commencement of such Chapter 11 Case.
Section 1.55 Exhibit means an exhibit to either this Plan or the
Disclosure Statement.
Section 1.56 Exhibit Filing Date means the last date by which forms of
the Exhibits to the Plan shall be Filed with the Bankruptcy Court, which date
shall be not later than ten (10) days prior to the date on which the
Confirmation Hearing will be held, or such later date as may be fixed by the
Bankruptcy Court.
Section 1.57 Face Amount means (a) with respect to any Claim for which
a proof of claim is Filed, an amount equal to: (i) the liquidated amount, if
any, set forth therein; and/or (ii) any other amount estimated by the Court in
accordance with section 502(c) of the Bankruptcy Code and the relevant
provisions of this Plan; or (b) if no proof of claim is Filed and such Claim is
scheduled in the relevant Debtor's Schedules, the amount of the Claim scheduled
as undisputed, fixed and liquidated.
Section 1.58 FGIC means Financial Guaranty Insurance Company.
Section 1.59 FGIC Agreement means that certain settlement agreement
dated as of July 13, 2000 among CMC, on behalf of itself and the other Debtors
and FGIC.
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Section 1.60 FGIC Claims means any and all Claims of FGIC against the
Debtors. The FGIC Claims shall be Allowed Secured Claims in accordance with the
FGIC Agreement.
Section 1.61 FGIC Pooling and Servicing Agreements means those
agreements listed on Exhibit "A" to the FGIC Agreement.
Section 1.62 FGIC Reserve Account means that certain reserve account
established for the benefit of FGIC pursuant to the FGIC Agreement.
Section 1.63 Fidelity means Fidelity Mortgage Decisions Corporation, an
Illinois corporation.
Section 1.64 File or Filed means filed with the Bankruptcy Court in the
Chapter 11 Cases.
Section 1.65 Final Claims Resolution Date means the date on which the
last Disputed Claim has been resolved, either by consent, order of the
Bankruptcy Court or otherwise.
Section 1.66 Final Order means an order as to which the time to appeal,
petition for certiorari, or move for reargument or rehearing has expired and as
to which no appeal, petition for certiorari, or other proceedings for reargument
or rehearing shall then be pending or as to which any right to appeal, petition
for certiorari, move for reargument, or rehearing shall have been waived in
writing or, in the event that an appeal, writ of certiorari, or reargument or
rehearing thereof has been sought, such order shall have been affirmed by the
highest court to which such order was appealed, or certiorari has been denied,
or from which reargument or rehearing was sought, and the time to take any
further appeal, petition for certiorari or motion for reargument or rehearing
shall have expired.
Section 1.67 Fractional Liquidating Trust Unit means the fractions of
Liquidating Trust Units not distributed pursuant to Section 6.06 hereof.
Section 1.68 General Unsecured Claim means an unsecured Claim that is
not an Administrative Claim, a Priority Tax Claim, a Secured Claim, a Priority
Claim, a Bank Group Claim, a Senior Notes Claim, or a Subordinated Claim.
Section 1.69 Greenwich means, collectively, Greenwich Capital Financial
Products, Inc. and its affiliates.
Section 1.70 Greenwich Collateral means certain assets of CFN upon
which Greenwich maintains Liens as provided in the Greenwich Security Agreement.
Section 1.71 Greenwich Security Agreement means that certain Amended
and Restated Pledge Agreement dated August 31, 1999, made by CFN as grantor in
favor of Greenwich.
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Section 1.72 Greenwich Repurchase Facility means that certain Master
Repurchase Agreement Governing Purchases and Sales of Assets, dated as of August
9, 1999, as amended, by and among CFN, CMC and Greenwich, and any of the
documents or instruments related thereto.
Section 1.73 Greenwich Repurchase Facility Secured Claims means any
Secured Claims of Greenwich arising out of the Greenwich Repurchase Facility and
the Greenwich Security Agreement.
Section 1.74 Greenwich Whole Loan Purchase Facility means that certain
Master Mortgage Loan Purchase Facility, dated as of August 9, 1999, as amended,
by and among CFN, CMC and Greenwich, and any of the documents or instruments
related thereto.
Section 1.75 Greenwich Whole Loan Purchase Facility Secured Claims
means any Secured Claims arising out of the Greenwich Whole Loan Purchase
Facility and the Greenwich Security Agreement.
Section 1.76 Indentures means the agreements to which CFN is a party
and under which the Senior Notes were issued.
Section 1.77 Indenture Trustee means Wells Fargo Bank, National
Association, formerly known as Norwest Bank Minnesota, National Association,
which serves as successor indenture trustee under each of the Indentures.
Section 1.78 Initial Distribution means that distribution to holders of
Allowed Claims made on or as soon as practicable after the Effective Date as
provided for in Section 6.05 of the Plan.
Section 1.79 Initial Distribution Date means the date on which Initial
Distributions, if any, are made under the Plan.
Section 1.80 Intercompany Claim means any Claims between and among the
Debtors or any non-debtor affiliate.
Section 1.81 Interest means (a) share in a corporation, whether or not
transferable or denominated "stock," or similar security; (b) membership
interest in a limited liability company; (c) interest of a limited partner in a
limited partnership; (d) warrant or right, other than a right to convert, to
purchase, sell or subscribe to a share, security or interest of a kind specified
in subparagraphs (a), (b) and (c) of this paragraph; or (e) interest of a
general partner in a limited or general partnership.
Section 1.82 IRS means the Internal Revenue Service.
Section 1.83 Judgment Amount shall have the meaning given such term in
Section 6.04(e) hereof.
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Section 1.84 Letter of Credit Agreement means that certain Amended and
Restated Letter of Credit and Reimbursement Agreement, dated as of September 9,
1997, as amended and restated August 21, 1998, among CFN, the Participating
Banks Party Thereto, Credit Suisse First Boston, New York Branch, as Agent,
Dresdner Bank AG, New York Branch, as Issuing Bank, and Credit Suisse First
Boston, New York Branch, and Dresdner Bank AG, New York and Grand Cayman
Branches, as Arrangers, as amended.
Section 1.85 Lien means any charge against or interest in property to
secure payment of a debt or performance of an obligation.
Section 1.86 Liquidating Trust means the liquidating trust to be
created on the Effective Date, in accordance with Article VI of the Plan and
governed by this Plan and the Liquidating Trust Agreement, which liquidating
trust shall issue 10,000,000 Liquidating Trust Units on the Effective Date of
the Plan.
Section 1.87 Liquidating Trust Agreement means the agreement to be
dated as of the Effective Date establishing and delineating the terms and
conditions of the Liquidating Trust, substantially in the form annexed hereto as
Exhibit A, which is incorporated in full into and is a part of this Plan as if
set forth herein.
Section 1.88 Liquidating Trust Committee means those individuals
appointed in accordance with Liquidating Trust Agreement with the powers and
responsibilities set forth in the Liquidating Trust Agreement.
Section 1.89 Liquidating Trust Unit means an undivided beneficial
interest in the Liquidating Trust represented by a certificate, substantially in
the form annexed to the Liquidating Trust Agreement as Exhibit A.
Section 1.90 Liquidating Trustee means the Person appointed in
accordance with the Liquidating Trust Agreement to administer the Liquidating
Trust.
Section 1.91 MBIA means MBIA Insurance Corporation.
Section 1.92 MBIA Agreement means that certain side servicing agreement
dated as of May 17, 2000, as amended, to the MBIA Pooling and Servicing
Agreements among CMC, as servicer, CFN and MBIA as certificate insurer.
Section 1.93 MBIA Claims means any and all Claims of MBIA against the
Debtors. The MBIA Claims shall be Allowed Secured Claims in accordance with the
MBIA Agreement.
Section 1.94 MBIA Pooling and Servicing Agreements means those
agreements listed on Schedule I to the MBIA Agreement.
Section 1.95 MBIA Reserve Account means that certain reserve account
established for the benefit of MBIA pursuant to the MBIA Agreement.
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Section 1.96 Offset Amount shall have the meaning given such term in
Section 6.04(e) hereof.
Section 1.97 Old Common Stock means the common stock or Interests
issued by any of the Debtors and outstanding immediately prior to the Effective
Date or held in treasury.
Section 1.98 Ordinary Course Professionals Orders means those Orders,
dated May 18, 2000 and June 14, 2000, and any subsequent notices filed pursuant
to the Ordinary Course Professionals Orders, authorizing the Debtors to retain,
employ and compensate certain professionals in the ordinary course of the
Debtors' businesses.
Section 1.99 Other Secured Claims means any Secured Claim other than
the Greenwich Repurchase Facility Secured Claims, the Greenwich Whole Loan
Purchase Facility Secured Claims, the MBIA Claims or the FGIC Claims.
Section 1.100 Paying Agent means the Indenture Trustee, Bank Agent,
stock transfer agents, agents contractually authorized and/or obligated to make
Distributions to certain claimants and similar intermediaries and agents
participating in making or conveying Distributions as required by the Plan which
shall not be the Liquidating Trustee.
Section 1.101 Person means an individual, corporation, general
partnership, limited partnership, limited liability company, limited liability
partnership, association, joint venture, trust, estate, unincorporated
organization, or a government or any agency or political subdivision thereof.
Section 1.102 Petition Date means May 17, 2000, the date upon which the
chapter 11 petitions of each of the Debtors were filed, with the exception of
Royal and Fidelity, for which Petition Date means August 14, 2000.
Section 1.103 Plan means this joint chapter 11 plan of reorganization,
including, without limitation, the exhibits and schedules hereto, as such may be
altered, amended, or otherwise modified from time to time.
Section 1.104 Plan Administration Agreement means the agreement to be
dated as of the Effective Date (i) establishing and delineating the terms and
conditions of the Disputed Claims Reserve Trust; (ii) appointing the Plan
Administrator and the Plan Administration Committee; and (iii) setting forth the
responsibilities and powers of the Plan Administrator and the Plan
Administration Committee, substantially in the form annexed hereto as Exhibit B,
which is incorporated in full into and is a part of the Plan as set forth
herein.
Section 1.105 Plan Administration Committee means those individuals
appointed in accordance with the Plan Administration Agreement with the powers
and responsibilities set forth in the Plan Administration Agreement.
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Section 1.106 Plan Administrator means the person appointed in
accordance with the Plan Administration Agreement to supervise operation of the
Disputed Claims Reserve Trust and perform such other duties as provided in the
Plan Administration Agreement.
Section 1.107 Preference Stipulation means that certain stipulation
among the Unofficial Noteholders' Committee, the Bank Group and the Debtors "So
Ordered" by the Court on July 6, 2000, relating to the settlement and compromise
of claims regarding certain interest payments made by CFN prior to the Petition
Date.
Section 1.108 Prepetition Claim means any Claim arising on or prior to
the Petition Date.
Section 1.109 Priority Claim means any Claim entitled to priority
pursuant to section 507(a) of the Bankruptcy Code, other than (a) an
Administrative Claim, or (b) a Priority Tax Claim.
Section 1.110 Priority Tax Claim means any Claim entitled to priority
pursuant to section 507(a)(8) of the Bankruptcy Code.
Section 1.111 Professionals means the attorneys, accountants and other
professionals whose retention has been approved by the Court in these Chapter 11
Cases.
Section 1.112 Quarterly Distribution Date means the first Business Day
after the end of each calendar quarter (i.e., March 31, June 30, September 30
and December 31 for each calendar year) from and after the Effective Date upon
which Additional Quarterly Distributions shall be made.
Section 1.113 Ratable or Ratable Share means a number (expressed as a
percentage) equal to the proportion that an Allowed Claim bears to the aggregate
amount or number of Allowed Claims plus Disputed Claims (in their aggregate Face
Amount) in such Class as of the date of determination.
Section 1.114 Reinstated means leaving unaltered the legal, equitable
and contractual rights to which a Claim entitles the holder of such Claim, in
accordance with section 1124 of the Bankruptcy Code.
Section 1.115 Resource One Debtors means Resource One Consumer Discount
Company, Inc., a Pennsylvania corporation, Resource One Mortgage of Oxford
Valley, Inc., a Pennsylvania corporation, Resource One Consumer Discount Co. of
Minnesota, Inc., a Pennsylvania corporation, Resource One Mortgage of Delaware
Valley, Inc., a Pennsylvania corporation, and ResourceCorp Financial, Inc., a
Pennsylvania corporation.
Section 1.116 Royal means Royal Mortgage Partners, L.P., a California
limited partnership.
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Section 1.117 Schedules means the schedules of assets and liabilities
and the statement of financial affairs, as each may be amended from time to
time, Filed by the Debtors as required by section 521 of the Bankruptcy Code and
the Bankruptcy Rules.
Section 1.118 Secured Claim means a Claim secured by a Lien on any
Asset of the Debtors, or right of setoff, which Lien or right of setoff, as the
case may be, is valid, perfected and enforceable under applicable law and is not
subject to avoidance under the Bankruptcy Code or applicable nonbankruptcy law,
but only to the extent of the value, pursuant to section 506(a) of the
Bankruptcy Code, of any interest of the holder of the Claim in property of the
Estate(s) securing such Claim.
Section 1.119 Security means security as defined in Section 101 of the
Bankruptcy Code.
Section 1.120 Senior Notes means collectively, the (i) 7 1/2% Senior
Notes Due 2002, issued by CFN on March 1, 1997, (ii) 8 3/8% Senior Notes Due
2003, issued by CFN on August 15, 1996, and (iii) 8 1/8% Senior Notes Due 2008,
issued by CFN on March 4, 1998.
Section 1.121 Senior Notes Claim means any Claim arising under the
Senior Notes; but not a cause of action for damages arising from purchase or
sale of such Senior Note.
Section 1.122 Settlement Debtors means CMC and the Resource One
Debtors.
Section 1.123 Settlement Debtors Premium means, subject to the
Settlement Debtors Premium Adjustment, 140,000 Liquidating Trust Units, which
amount of such Liquidating Trust Units may not be modified without the consent
of each of the Unofficial Committees, to be distributed to holders of Allowed
General Unsecured Claims against the Settlement Debtors in accordance with
Section 5.07(d) of the Plan; provided, however, that, notwithstanding the
Settlement Debtors Premium Adjustment, in no event will less than 75,000
Liquidating Trust Units be distributed to holders of Allowed General Unsecured
Claims against the Settlement Debtors in accordance with Section 5.07(d) of the
Plan. All Liquidating Trust Units not distributable as of the Final Claims
Resolution Date in accordance with the Settlement Debtors Premium Adjustments
shall be cancelled and the proceeds realized in respect thereof shall be
distributed to the holders of previously Allowed Claims in Class 5 as if such
amounts had been distributed on the Effective Date.
Section 1.124 Settlement Debtors Premium Adjustment means, in the event
the aggregate amount of Allowed General Unsecured Claims against the Settlement
Debtors exceeds $20,000,000, the 140,000 Liquidating Trust Units otherwise
distributable to holders of Allowed General Unsecured Claims against the
Settlement Debtors in accordance with Section 5.07(d) of the Plan shall be
reduced by .00325 Units for each dollar that the aggregate amount of Allowed
General Unsecured Claims against the Settlement Debtors exceeds $20,000,000, as
determined by the following formula,
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(which formula may not be modified without the consent of each of the Unofficial
Committees):
(Aggregate Amount of Allowed
Settlement Debtors General Unsecured Claims
Premium Adjustment = 140,000 - (.00325) X Against the Settlement - 20,000,000)
Debtors
Notwithstanding the above formula, the Settlement Debtors Premium Initial
Distribution shall be distributed in accordance with Section 5.07(d) of the
Plan.
Section 1.125 Settlement Debtors Premium Initial Distribution means
75,000 Liquidating Trust Units to be distributed in accordance with Section
5.07(d).
Section 1.126 Subordinated Claim means any Claim that is subject to
subordination under Section 510 of the Bankruptcy Code, including, without
limitation, any claim arising from the rescission of a purchase or sale of a
Security of the Debtors or affiliates of the Debtors, for damages from the
purchase or sale of a Security of the Debtors or affiliates of the Debtors, or
for reimbursement or contribution allowed under section 502 of the Bankruptcy
Code on account of such a claim.
Section 1.127 Surviving Special Purpose Entities means those certain
non-debtor affiliates of the Debtors listed on Exhibit D hereto whose stock will
be transferred to and become assets of the Liquidating Trust.
Section 1.128 Treasury Regulation means those regulations promulgated
pursuant to the Internal Revenue Code of 1986, as amended.
Section 1.129 Trust Assets means any and all of the Debtors' right,
title and interest in all property and Assets of the Debtors transferred on the
Effective Date to the Liquidating Trust or the Disputed Claims Reserve Trust, as
the case may be, including, without limitation, any Causes of Action the Debtors
or their Estates may hold against any Person.
Section 1.130 Unclaimed Property means any Distributions other than
payments to holders of Senior Notes Claims and Bank Group Claims unclaimed on or
after the applicable Initial Distribution Date or the date on which an
Additional Quarterly Distribution would have been made in respect of the
relevant Allowed Claim. Unclaimed Property shall include: (a) checks (and the
funds represented thereby) and Liquidating Trust Units (i) mailed to a
Distribution Address and returned as undeliverable without a proper forwarding
address or (ii) not mailed or delivered because no Distribution Address to mail
or deliver such property was available, and (b) funds for checks delivered but
uncashed within one year of the Effective Date.
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Section 1.131 Unofficial Committees means each of the Bank Group
Committee and Unofficial Noteholders' Committee.
Section 1.132 Unofficial Noteholders' Committee means the committee of
holders of Senior Notes formed prior to and after the Petition Date to negotiate
on behalf of such holders the restructuring of the Debtors' financial affairs
which may be reconstituted from time to time, including American Express
Financial Advisors, Putnam Investment Management and other funds, Salomon
Brothers Asset Management, Inc., Wells Fargo Bank Minnesota, National
Association, and Bennet Management, Inc.
Section 1.133 Unofficial Noteholders' Committee Fees means those fees
and expenses actually incurred and to be paid by the Debtors to Akin, Gump,
Strauss, Hauer & Feld LLP, as counsel to the Unofficial Noteholders' Committee,
and Houlihan, Lokey, Howard & Zukin, as financial advisors to the Unofficial
Noteholders' Committee, pursuant to Section 5.07(e) of the Plan or the
Confirmation Order for payment of such fees and expenses for work performed from
the Petition Date through the Effective Date.
Section 1.134 U.S. Trustee Fees means all fees and charges assessed
against the Estates by the United States Trustee and due pursuant to section
1930 of title 28 of the United States Code.
C. Rules of Construction.
Section 1.135 Generally. For purposes of the Plan, (a) any reference in
the Plan to an existing document or Exhibit Filed or to be Filed means such
document or Exhibit as it may have been or may be amended, modified or
supplemented; (b) unless otherwise specified, all references in the Plan to
Sections, Articles and Exhibits are references to Sections, Articles and
Exhibits of or to the Plan; and (c) the rules of construction set forth in
section 102 of the Bankruptcy Code and the Bankruptcy Rules shall apply unless
superseded herein or in the Confirmation Order.
Section 1.136 Exhibits. All Exhibits are incorporated into and are a
part of the Plan as if set forth in full herein. Copies of Exhibits, after being
Filed, can be obtained upon written request to Dewey Ballantine LLP, 1301 Avenue
of the Americas, New York, New York 10019 (Attn: Richard S. Miller, Esq.),
counsel to the Debtors.
Section 1.137 Time Periods. In computing any period of time prescribed
or allowed by the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
Section 1.138 Miscellaneous Rules. (i) The words "herein," "hereof,"
"hereunder," and other words of similar import refer to this Plan as a whole,
not to any particular Section, subsection, or clause, unless the context
requires otherwise; (ii) whenever it appears appropriate from the context, each
term stated in the singular or the plural includes the singular and the plural,
and each pronoun stated in the masculine, feminine or neuter includes the
masculine, feminine and the neuter; and (iii) captions and headings to Articles
and Sections of the Plan are inserted for convenience or reference only and are
not intended to be a part or to affect the interpretation of the Plan.
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ARTICLE II.
COMPROMISE AND SETTLEMENT; GENERAL RULES
REGARDING CLASSIFICATION
OF CLAIMS AND INTERESTS
Section 2.01 Compromise and Settlement. The Plan incorporates a
proposed Compromise and Settlement of certain issues related primarily to
whether the Estates of each of the Debtors should be consolidated for purposes
of aggregating Assets and making payments to Creditors, whether and to what
extent proceeds from the sale of certain Assets should be allocated among the
Debtors based upon their respective claims of ownership to certain Assets sold
thereunder, and the amount and priority of certain Intercompany Claims. The
provisions of the Plan relating to substantive consolidation of the Debtors, the
cancellation of Intercompany Claims, and the treatment of each class of Claims
under the Plan reflect this Compromise and Settlement, which, upon the Effective
Date, shall be binding upon the Debtors, all Creditors, and all Persons whether
or not such Persons have voted to accept or reject this Plan.
Section 2.02 General Rules of Classification Under the Bankruptcy Code.
In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims have not been classified and thus are excluded
from the Classes as set forth below. All other Claims and Interests have been
classified as set forth below.
A Claim or Interest is classified in a particular Class only to the
extent that the Claim or Interest falls within the description of that Class and
is classified in other Class(es) to the extent that any remainder of the Claim
or Interest falls within the description of such other Class(es).
A Claim is also placed in a particular Class for the purpose of
receiving Distributions pursuant to the Plan only to the extent that such Claim
is an Allowed Claim in that Class and such Claim has not been paid, released, or
otherwise settled prior to the Effective Date.
Section 2.03 Undersecured Claims. To the extent that the amount of an
Allowed Claim is greater than the value of the Collateral securing such Claim as
of the applicable valuation date (assuming the value of such Collateral is
greater than $0), subject to section 1111(b) of the Bankruptcy Code, such Claim
is classified in both Classes of Other Secured Claims for the secured portion of
such Claim and the class of General Unsecured Claims for the excess of such
Claim over the value of the Collateral. Notwithstanding anything to the contrary
herein, absent an order of the Bankruptcy Court or agreement fixing the allowed
amount of a Secured Claim or the scheduling of such Claim as liquidated,
nondisputed and noncontingent on the relevant Debtor's Schedules, the relevant
Debtor is not bound by a classification made or implied herein with respect to
any particular Claim.
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ARTICLE III.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Section 3.01 Summary. Claims, other than Administrative Claims and
Priority Tax Claims, are classified for all purposes, including voting,
confirmation, and distribution, as follows:
Class 1a: Greenwich Repurchase Class 1a consists of the Greenwich Facility
Secured Claims Repurchase Facility Secured Claims.
Class 1b: Greenwich Whole Loan Class 1b consists of the Greenwich Whole
Facility Secured Claims Loan Facility Secured Claims.
Class 2a: MBIA Claims Class 2a consists of the MBIA Claims
Class 2b: FGIC Claims Class 2b consists of the FGIC Claims
Class 3: Other Secured Claims Class 3 consists of Other Secured Claims
Class 4: Priority Claims Class 4 consists of all non-tax Priority
Claims
Class 5: Bank Group Claims, Class 5 consists of all Bank Group Claims,
Senior Notes Claims, and Senior Notes Claims, and General
General Unsecured Claims Unsecured Claims
Class 6: Convenience Claims Class 6 consists of all Convenience Claims
Class 7: Subordinated Claims Class 7 consists of all Subordinated Claims
Class 8: Equity Interests Class 8 consists of all Equity Interests in
the Debtors
ARTICLE IV.
TREATMENT OF UNCLASSIFIED CLAIMS
Section 4.01 Administrative Claims. Subject to the Bar Date provisions
herein and except to the extent the Debtors and the holder of an Allowed
Administrative Claim agree to a different treatment, the Liquidating Trustee
shall pay to each holder of an Allowed Administrative Claim, Cash, in an amount
equal to such Allowed Administrative Claim, on the later of (i) the Effective
Date and (ii) thirty days after the date on which such Administrative Claim
becomes an Allowed Administrative Claim, or as soon thereafter as is
practicable; provided, however, that Allowed Administrative Claims representing
obligations incurred in the ordinary course of business of the Debtors shall be
paid by the Debtors or the Liquidating Trustee, as the case may be, in
accordance
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with the terms and conditions of the particular agreements from which such
Allowed Administrative Claims arise.
Section 4.02 Priority Tax Claims. Except to the extent the Debtors and
the holder of an Allowed Priority Tax Claim agree to a different treatment, the
Liquidating Trustee shall make deferred Cash payments over a period not
exceeding six years from the date of assessment of such tax. Payments shall be
made in equal quarterly installments of principal, plus simple interest accruing
from the Effective Date at a rate equal to nine percent (9%) per annum on the
unpaid portion of each Priority Tax Claim; provided, however, that the
Liquidating Trust shall have the right to pay any Priority Tax Claim, or any
remaining balance of such Claim, in full, at any time on or after the Effective
Date, without premium or penalty. The first payment shall be due on the latest
of (i) ninety days after the Effective Date, (ii) ninety days after the date on
which an order allowing any such Claim becomes a Final Order, and (iii) such
other date that is agreed on by the holder of an Allowed Priority Tax Claim and
the Debtors or the Liquidating Trust, as the case may be, or as soon thereafter
as is practicable.
Section 4.03 U.S. Trustee Fees. The Debtors or the Liquidating Trust,
as the case may be, shall pay all U.S. Trustee Fees until such time as the Court
enters a final decree closing each of the Debtors' cases.
ARTICLE V.
TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS
The holders of Allowed Claims in each Class shall receive the following
distributions where applicable, on or after the Initial Distribution Date,
unless another date is otherwise provided for herein or elsewhere under the
Plan.
Section 5.01 Class 1a: Greenwich Repurchase Facility Secured Claims.
(a) Impairment. Holders of Allowed Claims in Class 1a are not impaired.
Each holder of an Allowed Secured Claim in Class 1a is not entitled to vote to
accept or reject the Plan in its capacity as a holder of such Claim.
(b) Treatment. On the Effective Date, or a later date pursuant to an
agreement between CFN and Greenwich, all Greenwich Repurchase Facility Secured
Claims, if any, shall, at the Debtors' sole option, be (i) paid in full in Cash,
(ii) Reinstated with Greenwich retaining its Liens upon the Greenwich Collateral
in accordance with the Greenwich Security Agreement, or (iii) satisfied by
returning to Greenwich the Greenwich Collateral securing such Greenwich
Repurchase Facility Secured Claims.
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Section 5.02 Class 1b: Greenwich Whole Loan Purchase Facility Secured
Claims.
(a) Impairment. Holders of Allowed Claims in Class 1b are not impaired.
Each holder of an Allowed Secured Claim in Class 1b is not entitled to vote to
accept or reject the Plan in its capacity as a holder of such Claim.
(b) Treatment. On the Effective Date, or a later date pursuant to
agreement between CFN and Greenwich, all Greenwich Whole Loan Purchase Facility
Secured Claims, if any, shall, at the Debtors' sole option, be (i) paid in full
in Cash, (ii) Reinstated with Greenwich retaining its Liens upon the Greenwich
Collateral in accordance with the Greenwich Security Agreement, or (iii)
satisfied by returning to Greenwich the Greenwich Collateral securing such
Greenwich Whole Loan Purchase Facility Secured Claims.
Section 5.03 Class 2a: MBIA Claims.
(a) Impairment. Holders of Allowed Claims in Class 2a are not impaired.
Each holder of an Allowed Secured Claim in Class 2a is not entitled to vote to
accept or reject the Plan in its capacity as a holder of such Claim.
(b) Treatment. On the Effective Date, the MBIA Claims, if any, shall
receive the treatment for those claims and shall receive Liens on the MBIA
Reserve Account all as described in and provided by the MBIA Agreement.
Section 5.04 Class 2b: FGIC Claims.
(a) Impairment. Holders of Allowed Claims in Class 2b are not impaired.
Each holder of an Allowed Secured Claim in Class 2b is not entitled to vote to
accept or reject the Plan in its capacity as a holder of such Claim.
(b) Treatment. On the Effective Date, the FGIC Claims, if any, shall
receive the treatment for those claims and shall receive Liens on the FGIC
Reserve Account all as described in and provided by the FGIC Agreement.
Section 5.05 Class 3: Other Secured Claims.
(a) Impairment. Holders of Allowed Claims in Class 3 are not impaired.
Each holder of an Allowed Secured Claim in Class 3 is not entitled to vote to
accept or reject the Plan in its capacity as a holder of such Claim.
(b) Treatment. At the sole option of the Debtors, the Liquidating
Trustee or the Plan Administrator, as the case may be, on the later of (x) the
Effective Date, or (y) for Claims in Class 3 that were Disputed Claims and have
become Allowed Secured Claims, the Quarterly Distribution Date, or as soon
thereafter as is practicable, such Allowed Secured Claim shall: (i) be
Reinstated; or (ii) receive the Collateral securing such Allowed Secured Claim;
or (iii) receive Cash in an amount, not to exceed the Allowed amount of such
Claim, equal to the proceeds actually realized from the sale
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of any Collateral securing such Claim, less the actual costs and expenses of
disposing of such Collateral; or (iv) receive such other treatment as may be
agreed upon by the Debtors, the Liquidating Trustee, or the Plan Administrator,
as the case may be, and the holder of an Allowed Secured Claim. In the event
that the Debtors, the Liquidating Trustee or the Plan Administrator, elect,
pursuant to option (ii) above, to distribute to the holder of an Allowed Secured
Claim, the Collateral securing such Allowed Secured Claim, the holder of such
Allowed Secured Claim may request that the Liquidating Trustee or the Plan
Administrator (a) attempt to sell the Collateral securing the Allowed Secured
Claim, or (b) abandon such Collateral. In the event that the Liquidating Trustee
or the Plan Administrator honors such a request and attempts to sell such
Collateral securing such Allowed Secured Claim or abandon such Collateral, all
expenses relating thereto, including, but not limited to, storage expenses,
shall be borne by the holder of the Allowed Secured Claim. Notwithstanding the
foregoing, the Liquidating Trustee or the Plan Administrator retains the right
to decline to honor a request by the holder of an Allowed Secured Claim to
attempt to sell such Collateral.
Section 5.06 Class 4: Priority Claims.
(a) Impairment. Holders of Allowed Claims in Class 4 are not impaired.
Each holder of an Allowed Priority Claim in Class 4 is not entitled to vote to
accept or reject the Plan in its capacity as a holder of such Claim.
(b) Treatment. Each holder of an Allowed Claim in Class 4 shall receive
Cash in an amount equal to the amount of such Allowed Claim on the later of (i)
the Effective Date, or (ii) for Claims in Class 4 that were Disputed Claims and
have become Allowed Claims, the Quarterly Distribution Date, or as soon
thereafter as is practicable.
Section 5.07 Class 5: Bank Group Claims, Senior Notes Claims, and
General Unsecured Claims.
(a) Impairment. Holders of Allowed Claims in Class 5 are impaired and
are entitled to vote to accept or reject the Plan.
(b) Treatment. Subject to this Section 5.07, on either (i) the
Effective Date, or (ii) the Quarterly Distribution Date for Claims in Class 5
that were Disputed Claims and have become Allowed Class 5 Claims, or as soon
thereafter as is practicable, each holder of an Allowed Claim in Class 5 shall
receive a Ratable Share of (a) Class 5 Cash, and (b) 9,860,000 Liquidating Trust
Units representing an undivided interest in the Trust Assets transferred to the
Liquidating Trust by the Debtors pursuant to the Plan and the Liquidating Trust
Agreement.
(c) Preference Stipulation. In addition to the Distribution provided
for in Section 5.07(b) hereof, each holder of an Allowed General Unsecured Claim
shall receive a Ratable Share of the funds to be distributed to such holders
pursuant to the Preference Stipulation. For the purpose of calculating such
Ratable Share, only the
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aggregate Face Amount of General Unsecured Claims shall be included in the
denominator of the equation.
(d) Settlement Debtors Premium. In addition to the Distribution
provided for in Section 5.07(b) and (c) above, on the Initial Distribution Date,
a Ratable Share of the Settlement Debtors Premium Initial Distribution shall be
distributed to holders of Allowed General Unsecured Claims against the
Settlement Debtors and the Disputed Claims Reserve Trust on account of Disputed
General Unsecured Claims against the Settlement Debtors. Thereafter, the
remaining Settlement Debtors Premium (i.e., the Settlement Debtors Premium minus
the Settlement Debtors Premium Initial Distribution) shall be distributed, when
practicable, on Quarterly Distribution Dates, in accordance with the Settlement
Debtors Premium Adjustment. For the purpose of calculating such Ratable Share,
only the aggregate Face Amount of General Unsecured Claims against the
Settlement Debtors shall be included in the denominator of the equation.
(e) Unofficial Committees Fees. Upon the Effective Date, the Unofficial
Noteholders' Committee Fees and the Bank Group Committees Fees shall be paid by
the Debtors to the extent such fees have not been paid by the respective members
of such committees. The aggregate amount of Class 5 Cash to be otherwise
distributed to the holders of Allowed Senior Notes Claims and Allowed Bank Group
Claims in accordance with Section 5.07(b) hereof shall be reduced, in an amount
equal to the Unofficial Noteholders' Committee Fees and Bank Group Committee
Fees, respectively.
(f) Creditors Electing Convenience Class Treatment. Each holder of an
Allowed General Unsecured Claim may elect on its Ballot, contemporaneously with
such holder's vote to accept or reject the Plan, to be included in Class 6
rather than Class 5 and receive the Distributions provided for in Section 5.08
hereof.
Section 5.08 Class 6: Convenience Claims.
(a) Impairment. Holders of Allowed Claims in Class 6 are not impaired.
Each holder of an Allowed Class 6 Claim is not entitled to vote to accept or
reject this Plan.
(b) Treatment. Each holder of an Allowed Convenience Claim in Class 6
shall receive Cash in an amount equal to the lesser of (a) one-hundred percent
(100%) of such Allowed Convenience Claim or (b) $1,000 on the later of (i) the
Effective Date, or (ii) for Claims in Class 6 that were Disputed Claims and have
become Allowed Claims, the Quarterly Distribution Date, or as soon thereafter as
is practicable
Section 5.09 Class 7: Subordinated Claims.
(a) Impairment. Holders of the Subordinated Claims in Class 7 are
impaired. For purposes of the Plan, each holder of a Subordinated Claim in Class
7 is conclusively presumed to have rejected this Plan and is not entitled to
vote to accept or reject this Plan.
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(b) Treatment. Holders of Subordinated Claims shall receive no
Distribution under the Plan.
Section 5.10 Class 8: Equity Interests.
(a) Impairment. The holders of the Equity Interests in Class 8 are
impaired. For purposes of the Plan, each holder of an Equity Interest in Class 8
is conclusively presumed to have rejected this Plan and is not entitled to vote
to accept or reject this Plan.
(b) Treatment. Holders of Equity Interests in Class 8 shall receive no
Distribution under the Plan and the Old Common Stock shall be cancelled.
ARTICLE VI.
ESTABLISHMENT OF TRUSTS; IMPLEMENTATION OF PLAN
Section 6.01 The Liquidating Trust.
(a) Establishment of the Trust. On the Effective Date, the Debtors, on
their own behalf and on behalf of holders of Allowed Class 5 Claims, shall
execute the Liquidating Trust Agreement and shall take all other steps necessary
to establish the Liquidating Trust. The Liquidating Trust Agreement shall
contain provisions customary to trust agreements utilized in comparable
circumstances, including, but not limited to, any and all provisions necessary
to ensure the treatment of the Liquidating Trust as a liquidating trust for
federal income tax purposes. On the Effective Date, the Debtors shall transfer
(as described in Section 6.01(c) hereunder) to the Liquidating Trust all of
their right, title, and interest in all of the Trust Assets, including, among
others, Cash (less any Cash transferred to the Disputed Claims Reserve Trust as
required by Section 6.04 hereof), Distributed ESRs, Causes of Action and the
stock of the Surviving Special Purpose Entities, free and clear of any Lien,
Claim or Interest in such property of any other Person or entity except as
provided in this Plan. Title to all Trust Assets shall vest in the Liquidating
Trust on the Effective Date. The Debtors or such other Persons that may have
possession or control of such Trust Assets shall transfer possession or control
of such Trust Assets to the Liquidating Trustee and shall execute documents or
instruments necessary to effectuate such transfers.
(b) Purpose of the Liquidating Trust. The Liquidating Trust shall be
established for the sole purpose of liquidating the Trust 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. Subject to definitive guidance
from the IRS, all parties shall treat the Liquidating Trust as a liquidating
trust for all federal income tax purposes.
(c) Transfer of Assets.
(i) The transfer of the Trust Assets to the Liquidating Trust shall be
made, as provided herein, for the benefit of the holders of Allowed Class 5
Claims, whether allowed on or after the Effective Date. In this regard, the
Trust Assets will be transferred
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to such holders of Allowed Class 5 Claims and, in respect of any Disputed Claims
to the Disputed Claims Reserve Trust, to be held, in each case, by the Debtors
on their behalf. Immediately thereafter, on behalf of holders of Allowed Class 5
Claims, the Debtors shall transfer such Trust Assets to the Liquidating Trust in
exchange for Liquidating Trust Units for the benefit of holders of the Allowed
Class 5 Claims in accordance with the Plan. The Liquidating Trustee shall then
distribute the Liquidating Trust Units to the holders of the Allowed Class 5
Claims in exchange for their claims and to the Plan Administrator (to be held in
the Disputed Claims Reserve Trust for the benefit of holders of Disputed
Claims), subject to the conditions set forth in the Liquidating Trust Agreement.
Upon the transfer of the Trust Assets, the Debtors shall have no further
interest in or with respect to the Trust Assets or the Liquidating Trust.
(ii) For all federal income tax purposes, all parties (including,
without limitation, the Debtors, the Liquidating Trustee, the holders of Allowed
Class 5 Claims, and the Plan Administrator) shall treat the transfer of Trust
Assets to the Liquidating Trust, in accordance with the terms of the Plan, as a
transfer to the holders of Allowed Class 5 Claims (and in respect of any
Disputed Claims, to the Plan Administrator) followed by a transfer by such
holders to the Liquidating Trust, and the beneficiaries of the Liquidating Trust
(or Disputed Claims Reserve Trust) shall be treated as the grantors and owners
thereof.
(d) Valuation of Assets. As soon as possible after the Effective Date,
but in no event later than thirty (30) days thereafter, (i) the Liquidating
Trust Committee shall inform, in writing, the Liquidating Trustee of the fair
market value of the Trust Assets transferred to the Liquidating Trust, based on
the good faith determination of the Liquidating Trust Committee, and (ii) the
Liquidating Trustee shall apprise, in writing, the holders of the Liquidating
Trust Units of such valuation. The valuation shall be used consistently by all
parties (including, without limitation, the Debtors, the Liquidating Trustee,
the holders of Allowed Class 5 Claims and the Plan Administrator) for all
federal income tax purposes.
(e) Termination. The Liquidating Trust shall 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
Liquidating Trust if it is necessary to the liquidation of the Trust Assets.
Notwithstanding the foregoing, multiple extensions can be obtained so long as
Bankruptcy Court approval is obtained at least six (6) months prior to the
expiration of each extended term; provided, however, that the aggregate of all
such extensions shall not exceed three (3) years, unless the Liquidating Trustee
receives a favorable ruling from the IRS that any further extension would not
adversely affect the status of the trust as a liquidating trust within the
meaning of Treas. Reg. ss.301.7701-4(d) for federal income tax purposes.
Section 6.02 Appointment of Liquidating Trustee and Liquidating Trust
Committee. On or prior to the Confirmation Date, the Bank Group Committee and
the Unofficial Noteholders' Committee shall appoint a Liquidating Trustee and
Liquidating Trust Committee in accordance with the provisions set forth in the
Liquidating Trust
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Agreement. Neither the Liquidating Trustee nor any individual appointed to the
Liquidating Trust Committee may serve on any of the boards of directors of the
Surviving Special Purpose Entities. The individuals who serve on the Liquidating
Trust Committee may also serve on the Plan Administration Committee. The same
person who serves as Liquidating Trustee may also serve in a separate capacity
as the Plan Administrator. Appropriate compensation for each member of the
Liquidating Trust Committee shall be negotiated by the Liquidating Trustee and
each member of the Liquidating Trust Committee. The Liquidating Trustee shall
have all powers and responsibilities specified in the Liquidating Trust
Agreement incorporated herein, including, without limitation, the powers of a
trustee and debtor in possession under Sections 1106 and 1107 of the Bankruptcy
Code.
Section 6.03 Liquidating Trust Units, Applicability of Securities Laws
and Reporting Requirements.
(a) Securities Laws. Under section 1145 of the Bankruptcy Code, the
issuance of Liquidating Trust Units under the Plan shall be exempt from
registration under the Securities Act of 1933 and applicable state and local
laws requiring registration of securities. If the Liquidating Trustee
determines, with the advice of counsel, that the Liquidating Trust is required
to comply with the registration and reporting requirements of the Securities and
Exchange Act of 1934, as amended, or the Investment Company Act of 1940, as
amended, then the Liquidating Trustee shall take any and all actions to comply
with such reporting requirements and file necessary periodic reports with the
Securities and Exchange Commission.
(b) Transferability. Upon issuance thereof, the beneficial interests
represented by the Liquidating Trust Units shall be transferable, subject to the
conditions set forth in the Liquidating Trust Agreement. The Liquidating Trustee
shall not seek to have the Liquidating Trust Units listed on a nationally
recognized stock exchange after the Effective Date.
Section 6.04 Disputed Claims Reserve Trust.
(a) Establishment of Disputed Claims Reserve Trust. On the Effective
Date, and after making all Distributions required to be made on the Effective
Date, the Debtors shall execute the Plan Administration Agreement and establish
the Disputed Claims Reserve Trust which shall be administered by the Plan
Administrator.
(b) [Intentionally Omitted]
(c) Appointment of Plan Administrator and Plan Administration
Committee. On or prior to the Confirmation Date, the Bank Group Committee and
the Unofficial Noteholders' Committee shall appoint the Plan Administrator and
Plan Administration Committee as provided in the Plan Administration Agreement.
The responsibilities and powers of the Plan Administrator and the Plan
Administration Committee shall be as set forth in the Plan Administration
Agreement which is incorporated as if fully set forth herein. The person who
serves as the Liquidating
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Trustee may also serve in a separate capacity as the Plan Administrator. The
individuals who serve on the Liquidating Trust Committee may also serve on the
Plan Administration Committee. Neither the Plan Administrator nor any individual
appointed to the Plan Administration Committee, nor any agent or employee of
such persons, may serve on the boards of directors of the surviving Special
Purpose Entities. Compensation for each member of the Plan Administration
Committee shall be negotiated by the Plan Administrator and each respective
member of the Plan Administrator Committee. The Plan Administrator, under the
direction of the Plan Administration Committee, shall (i) hold and administer
the Disputed Claims Reserve Trust, (ii) object to, settle or otherwise resolve
Disputed Claims, (iii) make Distributions to holders of Disputed Claims that
subsequently become Allowed Claims in accordance with the Plan, (iv) distribute
any remaining assets of the Disputed Claims Reserve Trust, after resolving all
Disputed Claims, to holders of previously Allowed Claims for Ratable
distribution in accordance with the Plan and (v) wind up the remaining affairs
of and dissolve the Debtors.
(d) Transfer of Assets. On the Effective Date, the Debtors shall fund
the Disputed Claims Reserve Trust with Liquidating Trust Units and Cash in an
amount to be determined by the Liquidating Trustee, Plan Administrator, the
Unofficial Noteholders' Committee's financial advisors and the Bank Group
Committee's financial advisors, with the advice of the Debtors for (a) the costs
and expenses projected to be incurred in connection with the resolution of
Disputed Claims and the Distribution of the proceeds thereof, in accordance with
the Plan, (b) costs and expenses projected to be incurred in connection with the
winding up of the affairs of the Debtors and their dissolution and (c) the
reasonable compensation of the Plan Administrator and the Plan Administration
Committee. Cash and other property shall be placed into the Disputed Claims
Reserve Trust and shall be held in separate interest bearing accounts in trust
by class for the benefit of the holders of Allowed Claims entitled thereto under
the terms of the Plan. Any payment made to the holder of an Allowed Claim which
was previously a Disputed Claim from the Disputed Claims Reserve Trust, shall
include any accrued interest thereon, at the rate earned in such interest
bearing account less any expenses, including, without limitation, applicable
taxes. The Disputed Claims Reserve Trust shall be terminated by the Plan
Administrator, upon the filing with the Bankruptcy Court of a written
certification of the Plan Administrator that all Distributions and other
dispositions of all Cash and/or Liquidating Trust Units required herein to be
made have been made in accordance with the terms of this Plan. Such written
certification shall be sent by the Plan Administrator to the Liquidating Trustee
within 15 days of the satisfaction of the condition set forth in the immediately
preceding sentence. With respect to the Liquidating Trust Units held in the
Disputed Claims Reserve Trust, neither the Plan Administrator, nor any other
party, shall be entitled to vote any of the Liquidating Trust Units held in the
Disputed Claims Reserve Trust. In the event that any matter requires the
approval of the holders of Liquidating Trust Units prior to the Distribution of
the Liquidating Trust Units held in the Disputed Claims Reserve Trust, solely
with respect to such vote, the Liquidating Trust Units held by the Plan
Administrator shall be deemed not to have been issued. The Plan Administrator
shall hold in reserve the Settlement Debtors Premium (less the Settlement
Debtors Premium Initial Distribution which had previously been distributed in
accordance with Section 5.07(d) of the Plan) and any
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proceeds or Distributions thereof, which proceeds shall be held in a separate
interest bearing account pending Distribution in accordance with Section 5.07(d)
of the Plan.
(e) Net Liquidating Trust Recovery/Affirmative Obligations:
(i) Net Judgment. Notwithstanding anything contained herein to the
contrary, in the event that any creditor or a defendant in a litigation brought
by the Liquidating Trustee for and on behalf of the Liquidating Trust (a
"Defendant") (1) is required by a Final Order to make payment to the Liquidating
Trust (the "Judgment Amount"), and (2) has a right of setoff under section 553
of the Bankruptcy Code or applicable non-bankruptcy law, has a claim for
contribution or reimbursement or has incurred costs and expenses which would
give rise to an enforceable claim against the Debtors or the Liquidating Trust
(other than Subordinated Claims), each as determined by a Final Order (the
aggregate amount of all such rights, claims, costs and expenses being referred
to herein as the "Offset Amount"), such Defendant shall be obligated to pay only
the excess, if any, of the amount of the Judgment Amount over the Offset Amount.
(ii) Affirmative Obligations. Notwithstanding anything contained herein
to the contrary, in the event that a Defendant (1) has an Offset Amount and (2)
the Offset Amount is in excess of the Judgment Amount, if any, (i) the Judgment
Amount shall be setoff against the Offset Amount and shall not be paid to the
Liquidating Trust by such Defendant and (ii) the Defendant shall be deemed to
have a Disputed Claim that has become an Allowed Claim (in the amount of the
excess of the Offset Amount over the Judgment Amount) and shall be entitled to
receive the appropriate distribution from the Disputed Claims Reserve Trust and
subsequent Distributions from the Liquidating Trust in accordance with the class
of Claim as provided for under this Plan, and (iii) the Liquidating Trust shall
have no liability with respect to such Offset Amount. In the event that the
Disputed Claims Reserve Trust contains insufficient Cash and/or Liquidating
Trust Units on account of Offset Amounts, then the Liquidating Trust may
transfer Cash and/or Liquidating Trust Units to the Disputed Claims Reserve
Trust for the benefit of any Defendant as if the Offset Amount was a Disputed
Claim.
Section 6.05 Distributions To Holders Of Claims And Interests.
(a) Initial Distributions. On the Initial Distribution Date, the
Liquidating Trustee shall make a Distribution to: (i) each holder of an Allowed
Claim in an amount equal to its Ratable Share (calculated as of the applicable
Initial Distribution Date) of Cash and/or Liquidating Trust Units in accordance
with the terms of the Plan; (ii) each Paying Agent in an amount equal to the
aggregate Ratable Share (calculated as of the Initial Distribution Date) of Cash
or Liquidating Trust Units in accordance with the terms of the Plan, that such
Paying Agent shall distribute to holders of Allowed Claims in the relevant
Class; and (iii) if applicable, the Disputed Claims Reserve Trust in an amount
equal to the remaining Cash and Liquidating Trust Units allocated in accordance
with the terms of this Plan. Subject to Section 6.05(b) below, the amount of
Cash to be paid on the Initial Distribution Date to holders of Allowed Claims
will be calculated as if each Disputed Claim were an Allowed Claim in its Face
Amount.
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(b) Estimation of Claims. The Plan Administrator may, at any time,
request that the Bankruptcy Court estimate any Claim subject to estimation under
section 502(c) of the Bankruptcy Code and for which the Debtors may be liable
under this Plan, including any Claim for taxes, to the extent permitted by
section 502(c) of the Bankruptcy Code, regardless of whether any party in
interest previously objected to such Claim; and the Bankruptcy Court will retain
jurisdiction to estimate any Claim pursuant to section 502(c) of the Bankruptcy
Code at any time during litigation concerning any objection to any Claim. In the
event that the Bankruptcy Court estimates any contingent or unliquidated Claim,
that estimated amount will constitute either the Allowed amount of such Claim or
a maximum limitation on such Claim, as determined by the Bankruptcy Court. If
the estimated amount constitutes a maximum limitation on such Claim, the Plan
Administrator may elect to pursue any supplemental proceedings to object to any
ultimate allowance on such Claim. All of the aforementioned Claims objection,
estimation and resolution procedures are 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.
(c) Resolution of Disputed Claims. No Distribution or payment shall be
made on account of a Disputed Claim until such Disputed Claim becomes an Allowed
Claim. No Distribution or payment shall be made to any holder of an Allowed
General Unsecured Claim who is also a potential defendant in an avoidance action
under chapter 5 of the Bankruptcy Code. For purposes of the Plan, such
Distribution or payment on account of such Allowed General Unsecured Claim shall
be held in the Disputed Claims Reserve Trust as if it were a Disputed Claim.
Unless otherwise ordered by the Bankruptcy Court, after the Effective Date, the
Plan Administrator, under the direction of the Plan Administration Committee,
shall have the exclusive right to make and file objections to and settle,
compromise or otherwise resolve Claims, except that as to applications for
allowances of compensation and reimbursement of expenses under sections 330 and
503 of the Bankruptcy Code, objections may be made in accordance with the
applicable Bankruptcy Rules by parties-in-interest. The Plan Administrator shall
file and serve a copy of each objection upon the holder of the Claim to which an
objection is made and the Liquidating Trustee, as soon as practicable, but in no
event later than (i) one hundred-twenty days after the Effective Date, or (ii)
such other time as may be fixed or extended by the order of the Bankruptcy
Court. After the Effective Date, the Plan Administrator may settle or compromise
any Disputed Claim without approval of the Bankruptcy Court. The Liquidating
Trustee shall have standing and be entitled to contest the settlement,
compromise or resolution of any Disputed Claim.
(d) Distributions when a Disputed Claim Becomes an Allowed Claim; or
when a Disputed Claim is Subsequently Disallowed. On the first Quarterly
Distribution Date from and after the Initial Distribution Date, or as soon
thereafter as practicable, the Plan Administrator shall make Ratable
Distributions, in accordance with the provisions of this Plan (calculated as of
such Quarterly Distribution Date), of Cash and/or Liquidating Trust Units
reserved for any Disputed Claim that has become an Allowed Claim during the
preceding calendar quarter, to the holder of such Allowed Claim or the relevant
Paying Agent, as the case may be. Holders of Disputed Claims that are ultimately
Allowed will also be entitled to receive any Distributions received on and
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after the Effective Date on account of the Liquidating Trust Units distributed
to such holder on account of its Allowed Claim. Any Distributions held in the
Disputed Claims Reserve Trust for the benefit of a holder of a Disputed Claim,
which is subsequently Disallowed, in whole or part, shall be distributed on a
Ratable basis to holders of previously Allowed Claims and to the Disputed Claims
Reserve Trust on account of Disputed Claims as if such amounts had been
distributed on the Effective Date.
(e) Additional Quarterly Distributions on Account of Liquidating Trust
Units. On each Quarterly Distribution Date, the Liquidating Trustee shall
distribute from the Liquidating Trust to each holder of a Liquidating Trust
Unit, or to the relevant Paying Agent, as the case may be, on account of such
Liquidating Trust Unit a Ratable Share of Available Cash. Notwithstanding
anything to the contrary herein, no Distribution shall be made on any Quarterly
Distribution Date, unless the aggregate Distribution on such Quarterly
Distribution Date would be in excess of $10,000 in value (as such value is set
forth herein and/or in the Disclosure Statement).
(f) Late Claims. Except as otherwise expressly provided in this Plan,
any Claim not deemed filed pursuant to section 1111(a) of the Bankruptcy Code or
timely filed pursuant to the Bankruptcy Code, Bankruptcy Rules or any applicable
order of the Court, shall (a) not be treated as an Allowed Claim; and (b) be
expunged from the Claims register in the Chapter 11 Cases without need for any
further notice, motion, objection or order.
Section 6.06 Miscellaneous Distribution Provisions.
(a) Method of Cash Distributions. Cash payments made pursuant to the
Plan shall be in United States dollars by checks drawn on a domestic bank
selected by the Liquidating Trustee or Plan Administrator, as the case may be,
or by wire transfer from a domestic bank, at the option of the Liquidating
Trustee or Plan Administrator, as the case may be; provided, however, that cash
payments made to foreign creditors, if any, holding Allowed Claims may be paid,
at the option of the Liquidating Trustee or Plan Administrator, as the case may
be, in such funds and by such means as are necessary or customary in a
particular foreign jurisdiction.
(b) Distributions on Non-Business Days. Any payment or Distribution due
on a day other than a Business Day shall be made, without interest, on the next
Business Day.
(c) Accrual of Postpetition Interest. Unless otherwise provided for in
the Plan, no holder of a pre-petition Allowed Claim shall be entitled to the
accrual of interest on account of such Claim.
(d) No Distribution Pending Allowance. Notwithstanding any other
provision of this Plan, no Cash or other property shall be distributed under
this Plan on account of any Disputed Claim, unless and until such Claim becomes
an Allowed Claim. No Distribution or payment shall be made to any holder of an
Allowed General Unsecured Claim who is also a potential defendant in an
avoidance action under chapter
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5 of the Bankruptcy Code. For purposes of the Plan, such Distribution or payment
on account of such Allowed General Unsecured Claim shall be held in the Disputed
Claims Reserve Trust as if it were a Disputed Claim.
(e) No Distribution of Fractional Liquidating Trust Units.
Notwithstanding any other provisions of the Plan, only whole numbers of
Liquidating Trust Units shall be issued. When any Distribution on account of an
Allowed Claim would otherwise result in the issuance of a number of Liquidating
Trust Units that is not a whole number, the Liquidating Trustee shall aggregate
and, if possible, sell all Fractional Liquidating Trust Units otherwise then
distributable in accordance with the Plan at then prevailing prices and
distribute the net proceeds to the Persons otherwise entitled thereto. If such
sale is not possible then such aggregated Liquidating Trust Units shall be
extinguished. Notwithstanding the foregoing, if a Person holds more than one
Claim, the Fractional Liquidating Trust Units that such Person otherwise would
be entitled to on account of each such Claim held by such Person shall be
aggregated and, after taking into account such aggregation, such Person shall
receive on account thereof (in addition to any whole number of Liquidating Trust
Units or other Distribution such Person is entitled to under this Plan prior to
such aggregation) (i) any resulting whole number of shares of Liquidating Trust
Units and (ii) the net proceeds for any remaining Fractional Liquidating Trust
Units sold in accordance with this Section 6.06(e).
(f) No Distribution in Excess of Allowed Amount of Claim.
Notwithstanding anything to the contrary herein, no holder of an Allowed Claim
shall receive in respect of such Claim any Distribution (of a value set forth
herein or in the Disclosure Statement) in excess of the Allowed amount of such
Claim, except that the foregoing shall not limit holders of Disputed Claims from
receiving accrued interest as provided in this Plan, if such holders Disputed
Claims become Allowed.
Section 6.07 De Minimis Distributions. Notwithstanding anything to the
contrary contained in the Plan, the Liquidating Trustee or Plan Administrator,
as the case may be, shall not be required to distribute Cash to the holder of an
Allowed Claim if the amount of cash to be distributed on account of such Claim
is less than $25. Any holder of an Allowed Claim on account of which the amount
of Cash to be distributed is less than $25 shall have such Claim discharged and
shall be forever barred from asserting any such Claim against the Debtors, the
Liquidating Trust, or their respective property. Any Cash not distributed
pursuant to this provision shall be the property of the Liquidating Trust, free
of any restrictions thereon.
Section 6.08 Setoffs. The Debtors, the Liquidating Trustee or the Plan
Administrator, as the case may be, are authorized, pursuant to section 553 of
the Bankruptcy Code, to set off against any Allowed Claim and the Distributions
to be made on account of such Allowed Claim, the claims, rights and Causes of
Action of any nature that the Debtors may hold against the holder of such
Allowed Claim; provided, however, that neither the failure to effect such a
setoff nor the allowance of any Claim hereunder shall constitute a waiver or
release by the Debtors of any such claims, rights and Causes of Action that the
Debtors may possess against such holder.
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Section 6.09 Intercompany Claims. In accordance with the Compromise and
Settlement provided for herein, the Intercompany Claims shall be deemed
released, waived and discharged as of the Effective Date.
Section 6.10 Unclaimed Property.
(a) Escrow of Unclaimed Property. Unclaimed Property (and all interest,
dividends, and other Distributions thereon) shall be delivered promptly to the
Liquidating Trustee or Plan Administrator, as the case may be, by each Paying
Agent. The Liquidating Trustee or Plan Administrator, as the case may be, shall
deposit such Unclaimed Property in trust (for the benefit of the holders of
Allowed Claims entitled thereto under the terms of this Plan) in a subaccount of
the Liquidating Trust or the Disputed Claims Reserve Trust, as the case may be.
For a period of one year following the Effective Date, Unclaimed Property,
including any interest, dividends, and other Distributions thereon shall be: (i)
held in such subaccount solely for the benefit of the holders of Allowed Claims
that have failed to claim such property; and (ii) released from such subaccount
and delivered to the holder of an Allowed Claim upon presentation of proper
proof by such holder of its entitlement thereto. The Liquidating Trustee or Plan
Administrator, as the case may be, shall pay, or cause to be paid, out of the
funds held in the Liquidating Trust or the Disputed Claims Reserve Trust, as the
case may be, including, without limitation, the subaccount, any tax imposed by
any federal, state or local taxing authority on the income generated by the
funds held in such subaccount. The Liquidating Trustee or the Plan
Administrator, as the case may be, shall also file, or cause to be filed any tax
or information return related to such accounts. All Cash held in each such
subaccount shall be invested in accordance with section 345 of the Bankruptcy
Code, as modified by the relevant Orders of the Court for investments made by
the Debtors during the Chapter 11 Cases. The earnings on such investments shall
be held in trust as an addition to the balance of the subaccount for the benefit
of the holders of Allowed Claims entitled to such Unclaimed Property, and shall
not constitute property of the Liquidating Trust.
(b) Distribution of Unclaimed Property. At the end of one year
following the relevant Distribution Date of Cash and/or Liquidating Trust Units,
the holders of Allowed Claims theretofore entitled to Unclaimed Property shall
cease to be entitled thereto (such holders, the "Unclaimed Holders"), and the
Unclaimed Property for each Unclaimed Holder shall then be distributed on a
Ratable basis to the holders of Liquidating Trust Units in accordance with this
Plan.
Section 6.11 Exemption from Transfer Taxes. Pursuant to section 1146(c)
of the Bankruptcy Code, the assignment or surrender of any lease or sublease, or
the delivery, making, filing, or recording of any deed or other instrument of
transfer, or the issuance, transfer, or exchange of any security, including,
without limitation, the Liquidating Trust Units, under, in furtherance of, or in
connection with this Plan, whether arising prior or subsequent to the
Confirmation Date, including any deeds, bills of sale or assignments executed in
connection with any disposition of assets contemplated by this Plan shall not be
subject to any stamp, real estate transfer, mortgage, recording or other similar
tax, including, but not limited to, any transfers of assets to the Liquidating
Trust
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or Disputed Claims Reserve Trust on or shortly after the Effective Date by
the Debtors, holders of Allowed Class 5 Claims or the Plan Administrator.
Section 6.12 Cancellation of Capital Stock. As of the Effective Date,
by virtue of the Plan and in all events without any action on the part of the
holders thereof, each share of Old Common Stock issued and outstanding or held
in treasury, shall be cancelled and retired and no consideration will be paid or
delivered with respect thereto. Notwithstanding anything herein to the contrary,
holders of Old Common Stock shall not be required to surrender such stock to the
Debtors.
Section 6.13 Cancellation of Senior Notes and Agreements. On the
Effective Date, except as otherwise provided for in the Plan, the Senior Notes
and any other note, bond, indenture or other instrument or document evidencing
or creating any indebtedness or obligation of the Debtors (the "Instruments")
will be deemed cancelled and of no further force or effect without any further
action on the part of the Bankruptcy Court, or any Person including, but not
limited to, governmental agencies. The holders of such cancelled Senior Notes
and Instruments will have no claims against the Debtors for payment of such
Senior Notes or Instruments, except for the rights provided pursuant to the
Plan, including, without limitation, the rights provided for pursuant to Section
5.07(b).
Following the Effective Date, holders of Senior Notes will receive from
the respective indenture trustee, agent, servicer or the Liquidating Trustee,
specific instructions regarding the time and manner in which the Senior Notes
are to be surrendered, if requested by the Liquidating Trustee. All
Distributions under this Plan in respect of Allowed Senior Notes Claims (after
giving effect to Section 5.07(e) of the Plan) shall be made to the Indenture
Trustee for the benefit of such holders, and shall be subject to any rights or
liens that the Indenture Trustee may have for fees, costs, expenses and
indemnification under the respective Indentures or other agreement.
Any Senior Note which is lost, stolen, mutilated or destroyed, shall be
deemed surrendered when the holder of a Claim based thereon delivers to the
applicable indenture trustee, agent, servicer or the Liquidating Trustee (a)
evidence satisfactory to the indenture trustee, agent, servicer or the
Liquidating Trustee of the loss, theft, mutilation or destruction of such
instrument or certificate, and (b) such security or indemnity as may be required
by the indenture trustee, agent, servicer or the Liquidating Trustee to hold
each of them harmless with respect thereto.
Each indenture or other agreement that governs the rights of the holder
of a Claim and that is administered by an indenture trustee, an agent or a
servicer, shall continue in effect solely for the purposes of (a) allowing such
indenture trustee, agent or servicer to make the Distributions to be made on
account of such Claims under this Plan, (b) permitting such indenture trustee,
agent or servicer to maintain any rights or liens it may have for fees, costs,
expenses and indemnification under such indenture or other agreement and to be
paid or reimbursed for such prepetition and postpetition fees, costs, expenses
and indemnification only from the Distributions (until payment in full of such
fees, costs, expenses or indemnification) that are governed by the respective
indenture or
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other agreement in accordance with the provisions set forth therein; provided,
however, that the foregoing shall not affect the discharge of Debtors'
liabilities under the Bankruptcy Code and the Confirmation Order or result in
any expense or liability to the Debtors or the Liquidating Trust.
Nothing herein shall constitute a waiver or affect the ability of
holders of Senior Notes or Instruments to assert claims on account of the Senior
Notes or Instruments against third parties.
Section 6.14 Disputed Payments. If any dispute arises as to the
identity of a holder of an Allowed Claim who is to receive any Distribution, the
Liquidating Trustee or Plan Administrator, as the case may be, or relevant
Paying Agent may, in lieu of making such Distribution to such Person, make such
Distribution into an escrow account to be held in trust for the benefit of such
holder and shall not constitute property of the Debtors, their Estates or the
Liquidating Trust. Such Distribution shall be held in escrow until the
disposition thereof shall be determined by order of the Bankruptcy Court or
other court of competent jurisdiction or by written agreement among the
interested parties to such dispute.
Section 6.15 Withholding Taxes. In connection with the Plan, to the
extent applicable, the Liquidating Trustee and Plan Administrator shall comply
with all withholding and reporting requirements imposed on it by federal, state
and local taxing authorities, and all Distributions shall be subject to such
withholding and reporting requirements.
Section 6.16 Obligations Incurred After the Confirmation Date. Payment
obligations incurred after the date and time of entry of the Confirmation Order,
including, without limitation, the Professional fees of the Debtors through the
Effective Date, shall not be subject to application or proof of claim and may be
paid by the Debtors or the Liquidating Trust, as the case may be, in the
ordinary course of business and without further Bankruptcy Court approval, as
Administrative Claims.
Section 6.17 Instructions to Liquidating Trustee or Plan Administrator.
Prior to any Distribution on account of any Senior Notes, the indenture trustee,
agent or servicer of the Senior Notes shall (a) inform the Liquidating Trustee
or Plan Administrator, as the case may be, as to the amount of properly
surrendered Senior Notes and (b) instruct the Liquidating Trustee or Plan
Administrator, as the case may be, in a form and manner that the Liquidating
Trustee or Plan Administrator, as the case may be, reasonably determines to be
acceptable, of the names of the holders of Senior Notes with Allowed Class 5
Claims who are to receive Distributions in respect of such Allowed Class 5
Claims in exchange for properly surrendered Senior Notes.
Section 6.18 Record Date for Distributions to Holders of Senior Notes.
At the close of business on the Confirmation Date, the transfer ledgers of the
indenture trustees, agent and servicers of the Senior Notes shall be closed, and
there shall be no further changes in the record holders of the Senior Notes. The
Debtors, the Liquidating Trust, the Liquidating Trustee, and the indenture
trustees, agents and servicers for such
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Senior Notes shall have no obligation to recognize any transfer of such Senior
Notes occurring after the Confirmation Date. The Debtors, the Liquidating Trust,
the Liquidating Trustee, and the indenture trustees, agents and servicers for
such Senior Notes shall be entitled instead to recognize and deal for all
purposes hereunder with only those record holders stated on the transfer ledgers
as of the close of business on the Confirmation Date.
Section 6.19 Dissolution. From and after the Effective Date, the Plan
Administrator shall use its reasonable best efforts to dissolve the Debtors and
any affiliates of the Debtors that are not surviving Special Purpose Entities as
quickly as is reasonably practical. In that connection, the Plan Administrator
shall prepare and file all corporate resolutions, statements, notices, tax
returns and other documents necessary to accomplish their dissolution, and the
Confirmation Order shall provide for the appointment of the Plan Administrator
as the authorized signatory to execute on behalf of each Debtor any and all
documents necessary to accomplish such dissolution.
ARTICLE VII.
EFFECT OF THE PLAN ON CLAIMS AND INTERESTS
Section 7.01 Jurisdiction of Court. Until the Effective Date, the Court
shall retain jurisdiction over the Debtors and their Estates. Thereafter,
jurisdiction of the Court shall be limited to the subject matters set forth in
Article XI of this Plan.
Section 7.02 Binding Effect. Except as otherwise provided in section
1141(d) of the Bankruptcy Code, on and after the Confirmation Date, the
provisions of this Plan shall bind any holder of a Claim against, or Equity
Interest in, the Debtors and their respective successors and assigns, whether or
not the Claim or Equity Interest of such holder is impaired under this Plan and
whether or not such holder has accepted this Plan.
Section 7.03 Term of Injunctions or Stays. Unless otherwise provided
herein, all injunctions or stays provided for in the Chapter 11 Cases pursuant
to sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, shall remain in full force and effect until the later of:
(1) Final Claims Resolution Date or (2) the Effective Date.
Section 7.04 Rights of Action. On the Effective Date, the Liquidating
Trust shall be deemed to have taken an assignment of, and shall thereafter,
retain and have the right to enforce any and all present or future rights,
claims or Causes of Action, against any Person and with respect to any rights of
the Debtors that arose before or after the Petition Date, including, but not
limited to, rights, claims and Causes of Action. All present or future rights,
claims or Causes of Action against any Person that existed prior to the
Effective Date are preserved and are deemed assigned to the Liquidating Trust,
including, without limitation, such claims, rights or Causes of Action
identified in the Disclosure Statement. The Liquidating Trust may pursue,
abandon, settle or release any or all such claims, rights or Causes of Action,
as it deems appropriate.
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Section 7.05 Discharge.
(a) Scope. Except as otherwise provided in the Plan or Confirmation
Order, in accordance with section 1141(d)(1) of the Bankruptcy Code, when the
Confirmation Order becomes a Final Order, the Plan and the Confirmation Order
shall discharge, effective as of the Effective Date, all debts of, Claims
against, Liens on, and Interests in each of the Debtors, their assets, or
properties, which debts, Claims, Liens, and Interests arose at any time before
the entry of the Confirmation Order. The discharge of the Debtors shall be
effective as to each Claim or Interest, regardless of whether a proof of Claim
or Interest therefor was filed, whether the Claim is an Allowed Claim, or
whether the holder thereof votes to accept the Plan. On the Effective Date, as
to every discharged Claim and Interest, any holder of such Claim or Interest
shall be precluded from asserting against any Debtor formerly obligated with
respect to such Claim or Interest, or against such Debtor's assets or
properties, any other or further Claim or Interest based upon any document,
instrument, act, omission, transaction, or other activity of any kind or nature
that occurred before the Confirmation Date.
(b) Injunction. Except as otherwise provided in the Plan or
Confirmation Order, as of the Effective Date, all entities that hold a Claim
that is discharged pursuant to Section 7.05(a) or an Interest or other right of
an equity security holder that is terminated pursuant to the terms of the Plan,
are permanently enjoined from taking any of the following actions on account of
any such discharged Claims or terminated Interests or rights: (1) commencing or
continuing in any manner any action or other proceeding against the Debtors, the
Liquidating Trust or the Disputed Claims Reserve Trust or their respective Trust
Assets or other property; (2) enforcing, attaching, collecting or recovering in
any manner any judgment, award, decree or order against the Debtors, the
Liquidating Trust or the Disputed Claims Reserve Trust or their respective Trust
Assets or other property; (3) creating, perfecting or enforcing any Lien or
encumbrance against the Debtors, the Liquidating Trust or the Disputed Claims
Reserve Trust or their respective Trust Assets or other property; and (4)
asserting a setoff, right of subrogation or recoupment of any kind against any
obligation due to the Debtors, the Liquidating Trust, or the Disputed Claims
Reserve Trust or their respective Trust Assets or other property.
(c) Release of Collateral. Unless a particular Secured Claim is
Reinstated or the holder thereof receives a return of its Collateral in respect
of such Claim under this Plan: (i) each holder of: (A) a Secured Claim; and/or
(B) a Claim that is purportedly secured, shall on or immediately before the
Effective Date: (x) turn over and release to the Liquidating Trust any and all
property that secures or purportedly secures such Claim; and (y) execute such
documents and instruments as the Debtors or the Liquidating Trust requires to
evidence such claimant's release of such property; and (ii) on the Effective
Date, all claims, right, title and interest in such property shall revert to the
Liquidating Trust, free and clear of all Claims and Interests, including
(without limitation) Liens, charges, pledges, encumbrances and/or security
interests of any kind. No Distribution hereunder shall be made to or on behalf
of any holder of such Claim unless and until such holder executes and delivers
to the Debtors or the Liquidating Trust such release of Liens. Any such holder
that fails to execute and deliver such release of
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Liens within 180 days of the Effective Date shall be deemed to have no further
Claim and shall not participate in any Distribution hereunder. Notwithstanding
the immediately preceding sentence, any holder of a Disputed Claim shall not be
required to execute and deliver such release of Liens until the time such Claim
is Allowed or Disallowed.
(d) Cause of Action Injunction. On and after the Effective Date, for
cause shown, (a) all Persons other than the Liquidating Trustee will be
permanently enjoined from commencing or continuing in any manner any action or
proceeding (whether directly, indirectly, derivatively or otherwise) on account
of, or respecting any, Claim, debt, right or Cause of Action that the
Liquidating Trust retains sole and exclusive authority to pursue, in accordance
with the Liquidating Trust Agreement, and (b) all Persons other than the
Liquidating Trustee will be permanently enjoined from commencing or continuing
in any manner any action or proceeding (whether directly, indirectly,
derivatively or otherwise) on account of or respecting any Causes of Action.
Section 7.06 Preservation of Insurance. The provisions of this Plan
shall not diminish or impair in any manner the enforceability and coverage of
any insurance policies that may cover Claims against the Debtors or any other
Person including, without limitation, the D&O Insurance.
ARTICLE VIII.
EXECUTORY CONTRACTS
Section 8.01 Executory Contracts and Unexpired Leases. As of the
Effective Date, all executory contracts and unexpired leases of each Debtor
shall be deemed rejected by such Debtor pursuant to the provisions of section
365 of the Bankruptcy Code, except: (a) any executory contract or unexpired
lease that has been or is the subject of a motion to assume or assume and assign
filed pursuant to section 365 of the Bankruptcy Code by any of the Debtors
before the Effective Date; (b) any executory contract or unexpired lease listed
in the "Schedule of Assumed and Assumed and Assigned Executory Contracts and
Unexpired Leases" to be Filed by the Debtors as Exhibit E to the Plan on or
before the Exhibit Filing Date; (c) any executory contract or unexpired lease
assumed or assumed and assigned pursuant to the provisions of this Plan; (d) any
agreement, obligation, security interest, transaction or similar undertaking
that the relevant Debtor believes is not executory or is not a lease, and which
is later determined by the Court to be an executory contract or unexpired lease
that is subject to assumption or rejection under section 365 of the Bankruptcy
Code.
Section 8.02 Cure. At the election of the relevant Debtor, any monetary
defaults under each executory contract and unexpired lease to be assumed under
this Plan shall be satisfied pursuant to section 365(b)(1) of the Bankruptcy
Code, in one of the following ways: (a) by payment of the default amount in Cash
on the Effective Date; or (b) on such other terms as agreed to by the parties to
such executory contract or unexpired lease. In the event of a dispute regarding:
(i) the amount of any cure payments; (ii) the ability of the Debtor that is a
party thereto to provide adequate assurance of future performance under the
contract or lease to be assumed; or (iii) any
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other matter pertaining to assumption, then the cure payments required by
section 365(b)(1) of the Bankruptcy Code shall be made following the entry of a
Final Order resolving the dispute and approving assumption.
Section 8.03 Rejection Damages Bar Date. If the rejection by any
Debtor, pursuant to the Plan or otherwise, of an executory contract or unexpired
lease, results in a Claim, then such Claim shall be forever barred and shall not
be enforceable against such Debtor or the Liquidating Trust or the properties of
either of them unless a proof of claim is filed with the clerk of the Bankruptcy
Court and served upon counsel to the Debtors, Liquidating Trustee and the Plan
Administrator on or before the earlier of (i) the later of the applicable Bar
Date or within thirty (30) days after the date of service of an order of the
Court authorizing such rejection including this Confirmation Order, (ii) thirty
(30) days after such rejection becomes effective if such rejection occurred by
reason of expiration of a time period fixed by the Court, or (iii) such other
period set by the Court.
Section 8.04 Executory Contracts and Unexpired Leases Entered Into and
Other Obligations Incurred After the Petition Date. Executory contracts and
unexpired leases entered into and other obligations incurred after the Petition
Date by any Debtor shall be performed by the Liquidating Trust. Accordingly,
such executory contracts, unexpired leases and other obligations shall survive
and remain unaffected by entry of the Confirmation Order.
ARTICLE IX.
CONDITIONS TO CONFIRMATION
AND OCCURRENCE OF EFFECTIVE DATE
Section 9.01 Conditions to Confirmation. This Plan may not be confirmed
unless each of the conditions set forth below is satisfied. Except as provided
in Section 9.03 below, any one or more of the following conditions may be waived
at any time by the Debtors with the consent of each of the Unofficial
Committees.
(a) The Disclosure Statement Order shall have been entered and be a
Final Order.
(b) The Confirmation Order shall be in a form reasonably acceptable to
the Debtors and each of the Unofficial Committees.
(c) the Compromise and Settlement and all other provisions embodied in
this Plan shall not have been modified.
Section 9.02 Conditions to Occurrence of Effective Date. The Effective
Date for this Plan may not occur unless each of the conditions set forth below
is satisfied. Except as provided in Section 9.03 below, any one or more of the
following conditions may be waived at any time by the Debtors with the consent
of each of the Unofficial Committees.
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(a) The Confirmation Order which, inter alia, approves the Compromise
and Settlement shall have been entered and be a Final Order.
(b) The Liquidating Trustee, the Liquidating Trust Committee, the Plan
Administrator and the Plan Administration Committee each shall have been
properly nominated and appointed and each shall have accepted to act in such
capacity.
(c) The Liquidation Trust Agreement and the Plan Administration
Agreement shall be in a form acceptable to each of the Unofficial Committees.
Section 9.03 Waiver of Conditions to Confirmation and Occurrence of
Effective Date. Each of the conditions to confirmation of this Plan or to the
occurrence of the Effective Date is for the benefit of the Debtors. Other than
the requirement that the Disclosure Statement Order and the Confirmation Order
must be entered, the requirement that a particular condition be satisfied may be
waived in whole or part, as set forth in this Plan.
Section 9.04 Effect of Nonoccurrence of the Conditions to Occurrence of
Effective Date. If each of the conditions to the occurrence of the Effective
Date have not been satisfied or duly waived on or before the date which is no
later than the first Business Day after sixty (60) days after the Confirmation
Order is entered, or by such later date as is approved, after notice and a
hearing, by the Court, then upon motion by any party in interest made before the
time that each of the conditions has been satisfied or duly waived, the
Confirmation Order may be vacated by the Court; provided, however, that,
notwithstanding the filing of such a motion, the Confirmation Order shall not be
vacated if each of the conditions to occurrence of the Effective Date is either
satisfied or duly waived before the Court enters an order granting the relief
requested in such motion. If the Confirmation Order is vacated pursuant to this
Section, the Plan shall be null and void in all respects, and nothing contained
in the Plan shall: (a) constitute a waiver or release of any Claims by or
against, or Interests in, the Debtors; or (b) prejudice in any manner the rights
of any of the Debtors or of any other party in interest, including, without
limitation, the right to seek a further extension of the exclusivity periods
under section 1121(d) of the Bankruptcy Code.
ARTICLE X.
CONFIRMABILITY AND SEVERABILITY
OF A PLAN AND CRAMDOWN
Section 10.01 Confirmability and Severability of a Plan. The Debtors,
with the consent of each of the Unofficial Committees, reserve the right to
alter, amend, modify, revoke or withdraw the Plan as it applies to any
particular Debtor. The Debtors, with the consent of each of the Unofficial
Committees, reserves the right to make non-substantive changes in the Plan,
which changes may be necessary to facilitate the withdrawal of another Debtor
from the Plan. Any such revocation or withdrawal by a Debtor (only with the
consent of each of the Unofficial Committees) shall not affect this Plan as the
plan of reorganization of the other Debtors. If a Debtor revokes or withdraws
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from this Plan (only with the consent of each of the Unofficial Committees): (a)
nothing contained herein shall be deemed to constitute a waiver or release of
any Claims by or against such Debtor, or to prejudice in any manner the rights
of such Debtor or any persons in any further proceedings involving such Debtor;
and (b) any provisions of any Confirmation Order with respect to such Debtor
shall be null and void (and such Debtor shall not be benefited by the
Confirmation Order) and all such rights of or against such Debtor shall exist as
though this Plan had not been filed and no actions taken to effectuate it. A
determination by the Bankruptcy Court that the Plan, as it applies to any
particular Debtor, is not confirmable pursuant to section 1129 of the Bankruptcy
Code shall not limit or affect: (1) the confirmability of the Plan (only with
the consent of each of the Unofficial Committees) as it applies to any other
Debtor; or (2) the Debtors' ability to modify the Plan (only with the consent of
each of the Unofficial Committees), as it applies to any particular Debtor, to
satisfy the confirmation requirements of section 1129 of the Bankruptcy Code.
Each provision of this Plan shall be considered separable and, if for any reason
any provision or provisions herein are determined to be invalid and contrary to
any existing or future law, the balance of this Plan shall be given effect
without relation to the invalid provision.
Section 10.02 Cramdown. The Debtors shall request the Bankruptcy Court
to confirm in accordance with section 1129(b) of the Bankruptcy Code only as to
Classes 7 and 8.
ARTICLE XI.
ADMINISTRATIVE PROVISIONS
Section 11.01 Retention of Jurisdiction. Notwithstanding confirmation
of this Plan or occurrence of the Effective Date, the Court shall retain
jurisdiction for all purposes permitted under applicable law, including, without
limitation, the following purposes:
(a) Determination of the allowability of Claims upon objection to such
Claims by Debtors or the Plan Administrator, as the case may be, and the
validity, extent, priority and nonavoidability of consensual and nonconsensual
Liens and other encumbrances;
(b) Determination of tax liability pursuant to section 505 of the
Bankruptcy Code;
(c) Approval, pursuant to section 365 of the Bankruptcy Code, of all
matters related to the assumption, assumption and assignment, or rejection of
any executory contract or unexpired lease of any of the Debtors;
(d) Determination of requests for payment of administrative expenses
entitled to priority under section 507(a)(1) of the Bankruptcy Code, including
compensation of parties entitled thereto under section 330 of the Bankruptcy
Code;
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(e) Resolution of controversies and disputes regarding the
interpretation of this Plan;
(f) Implementation of the provisions of this Plan and entry of Orders
in aid of confirmation and consummation of this Plan, including, without
limitation, appropriate Orders to protect the Debtors and their successors from
actions by creditors and/or Interest holders of the Debtors or any of them and
resolving disputes and controversies regarding property of the Estates, the
Liquidating Trust, the Disputed Claims Reserve Trust or powers of the
Liquidating Trustee and the Plan Administrator;
(g) Modification of the Plan pursuant to section 1127 of the Bankruptcy
Code;
(h) Adjudication of any Causes of Action;
(i) Entry of a Final Order closing the Chapter 11 Cases.
Section 11.02 Governing Law. Except to the extent the Bankruptcy Code,
Bankruptcy Rules, or other federal laws apply and except for Reinstated Secured
Claims governed by another jurisdiction's law, the rights and obligations
arising under this Plan shall be governed by the laws of the State of New York,
without giving effect to principles of conflicts of law.
Section 11.03 Administrative Bar Date.
(a) General Provisions. Except as provided below in Section 11.03(b)
for Administrative Claims of Professionals requesting compensation or
reimbursement of expenses and in Section 11.03(c) for liabilities incurred by a
Debtor in the ordinary course of its business, requests for payment of
Administrative Claims must be Filed no later than 30 days after the Effective
Date. Holders of Administrative Claims who are required to File a request for
payment of such Claims and who do not File such requests by the applicable Bar
Date, shall be forever barred from asserting such Claims against the Debtors,
the Liquidating Trust or their respective property.
(b) Professionals. All Professionals or other entities requesting
compensation or reimbursement of expenses pursuant to sections 327, 328, 330,
331, 503(b) and 1103 of the Bankruptcy Code for services rendered before the
Confirmation Date (including compensation requested by any Professional or other
entity for making a substantial contribution in the Chapter 11 Cases but
excluding professionals retained pursuant to the Ordinary Course Professionals
Orders) shall File an application for final allowance of compensation and
reimbursement of expenses no later than 45 days after the Confirmation Date.
Objections to applications of Professionals or other entities for compensation
or reimbursement of expenses must be Filed no later than 75 days after the
Confirmation Date. All compensation and reimbursement of expenses allowed by the
Bankruptcy Court shall be paid to the applicable Professional immediately
thereafter. Each Professional that intends to seek payment for compensation or
reimbursement of expenses from the Debtors (including compensation requested by
any Professional or other entity for making a substantial contribution in the
Chapter 11 Cases) shall provide
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the Debtors with a statement, by no later than the Confirmation Date, of the
amount of estimated unpaid fees and expenses that each such Professional has
incurred or expects to incur through the Confirmation Date. The Debtors or the
Liquidating Trustee, as the case may be, shall establish a reserve in an
appropriate amount for the payment of any such unpaid fees and expenses of such
Professionals.
(c) Ordinary Course Liabilities. Holders of Administrative Claims based
on liabilities incurred by a Debtor in the ordinary course of business,
including, without limitation, professionals retained pursuant to the Ordinary
Course Professionals Orders, shall not be required to File any request for
payment of such Claims. Such Administrative Claims shall be assumed and paid by
the Liquidating Trust pursuant to the terms and conditions of the particular
transaction giving rise to such Administrative Claim, without any further action
by the holders of such Claims or the Court.
(d) Payment of Statutory Fees. All fees payable pursuant to section
1930 of title 28 of the United States Code, as determined by the Court on the
Confirmation Date, shall be paid on the Effective Date. Any statutory fees
accruing after the Confirmation Date shall be paid in accordance with Article IV
of this Plan.
Section 11.04 Effectuating Documents and Further Transactions. Each
Debtor shall be authorized to execute, deliver, file, or record such documents,
contracts, instruments, releases, and other agreements and take such other
action as may be necessary to effectuate and further evidence the terms and
conditions of the Plan.
Section 11.05 Limitation of Liability. None of the Debtors, the Bank
Group Committee, the Indenture Trustee, the Unofficial Noteholders' Committee
(including the present and former members), their respective officers and
directors, employees, agents (acting in such capacity), representatives nor any
professional employed by any of them (collectively, the "Affected Parties")
shall have or incur any liability to any Person or entity for any action taken
or omitted to be taken in connection with or related to (i) the formulation,
preparation, dissemination, implementation, confirmation, or consummation of the
Plan, the Disclosure Statement, or any contract, release, or other agreement or
document created or entered into, or any other action taken or omitted to be
taken in connection with the Plan, and (ii) actions taken or omitted to be taken
in connection with the Chapter 11 Cases or the operations or administration of
the Debtors during the Chapter 11 Cases that arose out of or relate to the
period from the Petition Date through the Effective Date. Notwithstanding
anything in this Section 11.05 to the contrary, the provisions of this Section
11.05 shall (i) not limit in any way whatsoever the liability of any Person or
entity that would otherwise result from any action or omission to the extent
that such action or omission is determined in a Final Order to have constituted
gross negligence, willful misconduct, or breach of fiduciary duty; (ii) be of no
force or effect as to the Liquidating Trustee, including, without limitation,
his power and authority to investigate, commence and prosecute Causes of Action,
if any, against any of the Affected Parties and no Affected Party shall be
entitled to rely upon or assert this Section 11.05 as a defense to any such
Causes of Action brought by the Liquidating Trustee; and (iii) not effect the
rights of any party-in-interest pursuant to Section 11.03(b) of this Plan. If
this Section 11.05 is deemed in any way to
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limit, impair, or constitute a defense to any such Causes of Action brought by
the Liquidating Trustee, such portion or all of this Section 11.05 shall be
deemed null and void and of no force and effect.
Section 11.06 Amendments.
(a) Preconfirmation Amendment. The Debtors, with the consent of each of
the Unofficial Committees, may modify the Plan at any time prior to the entry of
the Confirmation Order provided that the Plan, as modified, and the Disclosure
Statement pertaining thereto meet applicable Bankruptcy Code requirements of
Section 1125, among others.
(b) Post-confirmation Amendment Not Requiring Resolicitation. After the
entry of the Confirmation Order, the Debtors may modify the Plan, with the
consent of each of the Unofficial Committees, to remedy any defect or omission
or to reconcile any inconsistencies in the Plan or in the Confirmation Order, as
may be necessary to carry out the purposes and effects of the Plan, provided
that: (i) the Debtors obtain approval of the Bankruptcy Court for such
modification, after notice and a hearing; and (ii) such modification shall not
materially and adversely affect the interests, rights, treatment, or
Distributions of any Class under the Plan.
(c) Post-confirmation Amendment Requiring Resolicitation. After the
Confirmation Date and before the Effective Date of the Plan, the Debtors may
modify the Plan, with the consent of each of the Unofficial Committees, in a way
that materially or adversely affects the interests, rights, treatment, or
Distributions of a class of Claims or Interests provided that: (i) the Plan, as
modified, meets applicable Bankruptcy Code requirements; (ii) the Debtors obtain
Bankruptcy Court approval for such modification, after notice and a hearing;
(iii) such modification is accepted by at least two-thirds in amount, and more
than one-half in number, of Allowed Claims voting in each class affected by such
modification; and (iv) the Debtors comply with section 1125 of the Bankruptcy
Code with respect to the Plan as modified.
Section 11.07 Successors and Assigns. The rights, benefits, and
obligations of any Person named or referred to in the Plan shall be binding
upon, and shall inure to the benefit of, the heir, executor, administrator,
successor or assign of such Person.
Section 11.08 Confirmation Order and Plan Control. To the extent the
Confirmation Order and/or this Plan is inconsistent with the Disclosure
Statement, any other agreement entered into between or among any Debtor(s), or
any of them and any third party, this Plan controls the Disclosure Statement and
any such agreements and the Confirmation Order (and any other orders of the
Court) controls this Plan.
Section 11.09 Headings. Headings are used in this Plan for convenience
and reference only, and shall not constitute a part of this Plan for any other
purpose.
41
<PAGE>
Section 11.10 Notices. Any notice required or permitted to be provided
under the Plan shall be in writing and served by either (a) certified mail,
return receipt requested, postage prepaid, (b) hand delivery or (c) overnight
delivery service, freight prepaid, and addressed as follows:
For the Debtors
ContiFinancial Corporation
277 Park Avenue
New York, New York 10172
(212) 208-2800
Attn: Alan H. Fishman
with copies to:
Dewey Ballantine LLP
Attorneys for the Debtors
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
Attn: Richard S. Miller, Esq.
Togut, Segal & Segal LLP
Attorneys for the Debtors
One Penn Plaza
New York, New York 10169
(212) 594-5000
Attn: Albert Togut, Esq.
For the Bank Group Committee
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Attn: Marvin E. Jacob, Esq.
Judy G. Z. Liu, Esq.
42
<PAGE>
For the Unofficial Noteholders' Committee
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
(212) 872-1000
Attn: Daniel H. Golden, Esq.
Ira S. Dizengoff, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE>
Dated: New York, New York
November 9, 2000
Respectfully Submitted,
CONTIFINANCIAL CORPORATION, ET AL.
Debtors and Debtors-in-Possession
By: /s/
Alan H. Fishman
Authorized Signatory
By: /s/
--------------------------------------------
Robert D. Davis
Authorized Signatory
By: /s/
--------------------------------------------
Michael T. Conrad
Authorized Signatory
By: /s/
--------------------------------------------
Hal Willard
Authorized Signatory
44
<PAGE>
EXHIBIT A
LIQUIDATING TRUST AGREEMENT
TO BE FILED ON OR BEFORE THE
EXHIBIT FILING DATE.
FOR COPIES OF THE LIQUIDATING
TRUST AGREEMENT IN DRAFT FORM
PLEASE CONTACT:
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 259-8000
ATTN: JORIAN ROSE, ESQ.
<PAGE>
EXHIBIT B
PLAN ADMINISTRATION AGREEMENT
TO BE FILED ON OR BEFORE THE
EXHIBIT FILING DATE.
FOR COPIES OF THE LIQUIDATING
TRUST AGREEMENT IN DRAFT FORM
PLEASE CONTACT:
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 259-8000
ATTN: JORIAN ROSE, ESQ.
<PAGE>
EXHIBIT C
DISTRIBUTED ESRS
TO BE FILED ON OR BEFORE THE
EXHIBIT FILING DATE.
<PAGE>
EXHIBIT D
SURVIVING NON-DEBTOR AFFILIATES
TO BE FILED ON OR BEFORE THE
EXHIBIT FILING DATE.
<PAGE>
EXHIBIT E
ASSUMED EXECUTORY CONTRACTS AND UNEXPIRED LEASES
TO BE FILED ON OR BEFORE THE
EXHIBIT FILING DATE.
<PAGE>
EXHIBIT F
SCHEDULE OF DISPUTED CLAIMS
TO BE FILED ON OR BEFORE THE
EXHIBIT FILING DATE.
