<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Date of Report (For the quarterly period ended OCTOBER 31, 1998)
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
2CONNECT EXPRESS, INC
(exact name of registrant as specified in its charter)
FLORIDA 65-0674664
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2055 LAKE AVENUE S.E., SUITE A, LARGO, FL 33771-3738
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 584-7902
---------------
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share, 30,000 shares outstanding as of
December 11, 1998.
<PAGE> 2
2CONNECT EXPRESS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets of the Successor Company as of
October 31, 1998 and of the Predecessor Company as of October
26, 1998 and January 31, 1998 1
Condensed Statements of Operations of the Successor Company for the One
Week Ended October 31, 1998 and for the Predecessor Company for
the Twelve Weeks Ended October 26, 1998, the Thirty-Eight Weeks
Ended October 26, 1998, and the Thirty-Nine Weeks Ended October
31, 1997 2
Condensed Statements of Cash Flows of the Successor Company for the
One Week Ended October 31, 1998 and the the Predecessor Company for the
Twelve Weeks Ended October 26, 1998, the Thirty-Eight Weeks Ended
October 26, 1998, and the Thirty-Nine Weeks Ended October 31, 1997 3
Notes to condensed financial statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2CONNECT EXPRESS, INC.
Condensed Balance Sheets
October 31, October 26, and January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 26, JANUARY 31,
1998 1998 1998
SUCCESSOR PREDECESSOR PREDECESSOR
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ -- $ -- $ 218,068
Accounts Receivable, net of reserves -- -- 350,296
Inventory, net of reserves -- -- 1,277,913
Prepaid Expenses & Other Current Assets -- -- 118,086
----------- ----------- -----------
Total Current Assets -- -- 1,964,363
Property & Equipment, Net 175,000 175,000 394,000
Other Assets 1,789 1,789 86,806
----------- ----------- -----------
TOTAL ASSETS $ 176,789 $ 176,789 $ 2,445,169
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Prepetition $ -- $ -- $ 1,001,158
Accounts Payable - Postpetition (See Note Below) -- -- 44,557
Notes Payable -- -- 275,000
Accrued Expenses & Other Current Liabilities -- -- 134,300
Accrued Landlord Claims -- -- 781,826
Accrued Employee Contract Claims -- -- 540,815
Accrued Other Bankruptcy Claims -- -- 149,546
Current Maturities of long-term Debt 2,967 2,967 22,209
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 2,967 2,967 2,949,411
OTHER LIABILITIES
Long-term Debt & Capital Leases 7,871 7,871 8,803
----------- ----------- -----------
TOTAL LIABILITIES 10,838 10,838 2,958,214
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common Stock ($.01 par value. Authorized 25,000,000 Shares, 300 300 37,525
Issued & Outstanding 3,752,500 shares at January 31, 1998;
Authorized 25,000,000 Shares, Issued & Outstanding 30,000 shares
at October 31, 1998)
Paid-In-Capital 165,651 165,651 8,667,451
Retained Deficit -- -- (9,218,021)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 165,951 165,951 (513,045)
----------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 176,789 $ 176,789 $ 2,445,169
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE> 4
2Connect Express, Inc.
Condensed Statements of Operations
For the 1 Week Ended October 31, 1998, the 12 and
38 Weeks Ended October 26, 1998,
And the 13 and 39 Weeks Ended October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter
-------------------------------------------------
For the 1 For the 12 For the 13
Week Ended Weeks Ended Weeks Ended
October 31, October 26, October 31,
1998 1998 1997
Successor Predecessor Predecessor
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ -- $ 6,515 $ 1,163,694
Cost of sales -- 28 972,836
------------ ------------ ------------
Gross profit -- 6,487 190,858
General and administrative expenses:
Selling, general and administrative
expenses (excluding depreciation) -- 99,596 1,372,303
Depreciation and amortization -- -- 161,551
Preopening cost amortization -- -- (2,661)
------------ ------------ ------------
Operating Income (loss) -- (93,109) (1,340,335)
Other income (expense):
Interest income -- 5,276 53,839
Interest expense -- -- (439)
Restructuring charges and reserves -- (42,659) (158,188)
Other, net -- (2,882) --
------------ ------------ ------------
Net Income (loss) before
extraordinary item -- (133,374) (1,445,123)
Extraordinary items:
Cancel Common Stock and Eliminate Deficit -- 8,704,976 --
Gain on Debt Discharge -- 1,708,738 --
------------ ------------ ------------
Net Income (Loss) $ -- $ 10,280,340 $ (1,445,123)
============ ============ ============
Income (loss) per share $ -- $ 2.74 $ (0.39)
============ ============ ============
Number of shares used in calculating
Income (loss) per share 30,000 3,752,500 3,752,500
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year to Date
-------------------------------------------------
For the 1 For the 38 For the 39
Week Ended Weeks Ended Weeks Ended
October 31, October 26, October 31,
1998 1998 1997
Successor Predecessor Predecessor
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ -- $ 878,730 $ 2,411,797
Cost of sales -- 790,544 1,947,765
------------ ------------ ------------
Gross profit -- 88,186 464,032
General and administrative expenses:
Selling, general and administrative
expenses (excluding depreciation) -- 1,036,658 3,003,380
Depreciation and amortization -- 56,444 178,356
Preopening cost amortization -- 38,932 71,520
------------ ------------ ------------
Operating Income (loss) -- (1,043,848) (2,789,224)
Other income (expense):
Interest income -- 14,964 118,608
Interest expense -- (6,856) (1,198)
Restructuring charges and reserves -- (308,411) (158,188)
Other, net -- 148,458 --
------------ ------------ ------------
Net Income (loss) before
extraordinary item -- (1,195,693) (2,830,002)
Extraordinary items:
Cancel Common Stock and Eliminate Deficit -- 8,704,976 --
Gain on Debt Discharge -- 1,708,738 --
------------ ------------ ------------
Net Income (Loss) $ -- $ 9,218,021 $ (2,830,002)
============ ============ ============
Income (loss) per share $ -- $ 2.46 $ (0.75)
============ ============ ============
Number of shares used in calculating
Income (loss) per share 30,000 3,752,500 3,752,500
============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
2Connect Express, Inc.
Condensed Statement of Cash Flows
For the 1 Week Ended October 31, 1998, the 38 Weeks Ended October 26, 1998,
And the 39 Weeks Ended October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the 1 Week For the 38 Weeks For the 39 Weeks
Ended Ended Ended
October 31, 1998 October 26, 1998 October 31, 1997
Successor Predecessor Predecessor
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ -- $ 9,218,021 $ (2,830,002)
Adjustments to reconcile net Income (Loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 56,444 233,071
Preopening cost amortization -- 38,932 16,805
Changes in assets & liabilities:
Accounts receivable -- 350,296 (260,154)
Inventory -- 1,277,913 (1,920,731)
Prepaid expenses & other assets -- 162,382 (319,071)
Accounts payable - prepetition -- (301,148) 640,897
Accounts payable - postpetition -- (61,267) --
Accrued expenses -- (95,136) 221,472
Accrued landlord claims -- (162,364) --
Accrued employee contract claims -- (53,952) --
Accrued other bankruptcy claims -- (16,541) --
--------- ------------ ------------
Net cash provided by (used in) operating activities -- 10,413,580 (4,217,713)
--------- ------------ ------------
Changes due to reorganization activities:
Extraordinary gain on debt discharge -- (1,708,738) --
Cash transferred to escrow agent for claims settlement -- (262,105) --
Liabilities assumed by Sterne Agee and Leach -- 10,838 --
Issuance of new Common Stock -- 165,951 --
Cancellation of Common Stock and Deficit Elimination -- (8,704,976) --
--------- ------------ ------------
Net changes due to reorganization activitues -- (10,499,030) --
--------- ------------ ------------
Cash flows from investing activities:
Capital expenditures -- (175,000) (1,631,884)
Loss on closed store assets and reserve for asset liquidations -- 337,556 --
--------- ------------ ------------
Net cash provided by investing activities -- 162,556 (1,631,884)
--------- ------------ ------------
Cash flows from financing activities:
Decrease in notes payable - DIP facility -- (275,000) --
Net proceeds from issuance of common stock -- -- 5,358,631
Increase (decrease) in long-term debt -- (20,174) 12,012
--------- ------------ ------------
Net cash provided by (used in) financing activities -- (295,174) 5,370,643
--------- ------------ ------------
Net increase (decrease) in cash and cash equivalents -- (218,068) (478,954)
Cash and cash equivalents, beginning of period -- 218,068 1,449,167
--------- ------------ ------------
Cash and cash equivalents, end of period $ -- $ -- $ 970,213
========= ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
2CONNECT EXPRESS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying unaudited interim condensed financial statements have
been prepared in conformity with instructions to Form 10-QSB, and therefore, do
not include all the information and footnotes required by generally accepted
accounting principals for complete financial statements. Certain items included
in these statements are based upon management estimates. In the opinion of
management, the accompanying financial statements contain all adjustments
(consisting of normal recurring accruals, reserves and restructuring reserves)
necessary for fair presentation. The results of operations for the three months
and nine months ended October 31, 1998 are not necessarily indicative of the
operating results expected for the fiscal year ending January 30, 1999. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended January 31,
1998. Such financial statements for fiscal year ended January 31, 1998 have not
yet been issued, as the audit of such financial statements has not been
completed due to the Company's bankruptcy filing.
2) NET (PROFIT) LOSS PER COMMON SHARE
Net loss per common share has been determined by dividing net loss by
the weighted average number of shares of common stock outstanding during the
respective periods. Common stock equivalents were not included due to their
antidilutive effect.
3) STORE PROPERTY AND DEVELOPMENT COSTS
Costs incurred prior to the opening of a store and certain costs
related to the implementation of corporate sales programs are capitalized and
amortized over a period of twelve months starting with the month of commencement
of such programs and new stores. All such previously accrued "pre-opening" costs
have been written off to restructuring expense as part of the Company's
reorganization.
4) STOCK OFFERING
On May 2, 1997, the Company's Board of Directors declared a one-for-two
reverse split of the Company's issued and outstanding shares of common stock
effective May 6, 1997. The par value of each common share remained $.01 and a
total of $27,100 were reclassified from common stock to paid-in capital.
On May 9, 1997, the Company completed an initial public offering (the
"IPO") of 520,000 units of its Common Stock. Each unit consists of two shares of
Common Stock, par value $.01 per share (the "Common Stock"), and one Common
Stock Purchase Warrant (a "Warrant") of the Company. Each Warrant entitled the
holder to purchase one share of common stock at a purchase price of $6.00 per
share for a period of sixty days commencing one year from the date of the final
prospectus, May 9, 1997. Neither the share of Common Stock nor the Warrant
contained in the units were detachable or separately transferable from the units
until May 9, 1998, at which time the units automatically terminated. The units
were listed for quotation on the OTC Bulletin Board under the symbol CNTCU until
the units components were detached and then the Common Stock was listed for
quotation on the OTC Bulletin Board under the symbol CNTC until recently
qualified by the NASD Regulation, Inc. and given the symbol CNTCQ. The price to
the public was $12.50 per unit and the Company received gross proceeds of
$6,500,000 before underwriting discounts and offering expenses of approximately
$530,000 and $611,000, respectively.
4
<PAGE> 7
5) LEASE OBLIGATIONS
(a) Operating Leases:
The Company had entered into eleven (11) non-cancelable operating
leases for store locations, corporate office and security equipment as of
January 31, 1998. The Company filed a voluntary petition for protection under
Chapter 11 of the U.S. Bankruptcy Code on January 12, 1998, and subsequent to
the filing closed all but one of its' retail stores, relocated its' corporate
office to smaller space on a month to month basis, terminated all leases for
security equipment except for the one store which continued to operate, and
rejected all such leases. Only the retail store at Coral Square Mall, Coral
Springs, Florida remains open, operating under a Management Agreement with Bobby
Allison Cellular Systems of Florida, Inc. ("Bobby Allison") effective June 18,
1998, whereby Bobby Allison is responsible for the operations of this store
including all expenses related thereto, and is entitled to all resulting profits
(losses).
Minimum future rental payments for all non-cancelable operating leases consist
of the following:
Year ending
the Saturday closest
to January 31
- --------------------
1999....................................................... $ 13,594
2000....................................................... 54,374
2001....................................................... 57,882
2002....................................................... 57,882
2003....................................................... 57,882
Thereafter................................................. 242,052
----------
$ 483,666
==========
6) RESTRUCTURING AND BANKRUPTCY FILING
---------------------------------------------------------------
On January 12, 1998, the Company filed a voluntary petition for relief
("the Filing") under chapter 11 ("Chapter 11") of title II of the United States
Code ("the Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of Florida ("the Bankruptcy Court"). In Chapter 11, the
Company managed its affairs and operated its business as a debtor-in-possession
and developed a reorganization plan that restructured the Company and allowed
its emergence from Chapter 11. As a debtor-in-possession in Chapter 11, the
Company did not engage in transactions outside of the ordinary course of
business without approval, after notice and hearing, of the Bankruptcy Court.
In accordance with the Bankruptcy Code, the Company obtained court
approval for the rejection of executory contracts, including real property
leases. In connection with the Company's Chapter 11 proceeding, a review was
undertaken of all the Company's obligations under its executory contracts,
including real property leases. All store leases and executory contracts have
been rejected except for the Coral Square Mall (Coral Springs, Florida) store
lease and a related lease of electronic article surveillance equipment for that
store which were assumed prior to the Company's emergence from the Chapter 11
proceeding effective October 27, 1998. All re-seller agreements with service
providers were not rejected, except for an agreement with a telephone service
provider, which was terminated by mutual agreement between the parties.
5
<PAGE> 8
Subsequent to the bankruptcy filing, the Company reached an agreement
with Bay Tech Investments, Inc., to provide secured debtor-in-possession
financing in the form of a credit facility. The credit facility provided for
borrowings dependent upon the Company's level of inventory and accounts
receivable with maximum borrowings of $500,000. The agreement granted a security
interest in substantially all of the Company's assets. Advances under the
facility bore interest at 11%. The debtor-in-possession facility replaced a
Revolving Credit Facility provided by Bay Tech Investments, Inc. which had been
in existence pre-petition. At the time of the Chapter 11 petition, $275,000 was
borrowed on this facility, which balance rolled over to the debtor-in-possession
facility. The debtor-in-possession agreement was originally scheduled to
terminate on February 29, 1998. The Company requested and received a thirty-day
extension of the facility until March 28, 1998 unless further extended upon
request of the borrower with such extension to be at the option of the lender.
The interest rate on advances under the facility was changed to 12% for the
extension period only. On March 28, 1998 the Company voluntarily paid off the
balance owed on the debtor-in-possession facility plus accrued interest and did
not seek extension of the facility. The Company believed that cash raised
through liquidation of excess assets would provide sufficient liquidity through
the anticipated date that the Company expected to emerge from the proceeding.
Subsequent to the bankruptcy filing, the Company announced on March 3,
1998 that it had executed a Letter of Intent whereby Bobby Allison Cellular
Systems of Florida, Inc. ("Bobby Allison") would merge with and into the
Company. The transaction was contingent upon completion of a Merger Agreement,
which would be incorporated into a Plan of Reorganization to be filed with the
Bankruptcy Court and subsequent confirmation of that Plan by the court. The
surviving entity of the merger was expected to be financed principally by Sterne
Agee & Leach, Inc., an investment banking firm that was the managing underwriter
of the Company's initial public offering in May 1997. The merger and related
financing was anticipated to take place following the Company's emergence from
the bankruptcy proceeding.
The Company subsequently filed a Plan of Reorganization on April 14,
1998 and an accompanying Disclosure Statement. The Company also executed the
Merger Agreement with Bobby Allison on May 1, 1998. The Company executed a
Management Agreement with Bobby Allison on May 6, 1998, whereby Bobby Allison
would assume the operation of the Company's Coral Square Mall store and be
responsible for all expenses related thereto. The Court approved the Management
Agreement on June 16, 1998, which became effective June 18, 1998.
On August 27, 1998 the Company entered into an agreement ("Agreement")
with Sterne Agee whereby Sterne Agee would, as of the Effective Date of the Plan
of Reorganization of the Company filed with the U.S. Bankruptcy Court, Southern
District of Florida, acquire out of bankruptcy 100% of the equity interests of
the Company and the Company would retain the Coral Square Mall store lease and
certain store fixtures. In consideration for such acquisition, Sterne Agee would
make a new value contribution to the bankruptcy estate for the benefit of the
Company's creditors in the amount of $175,000, which funds were placed in
escrow. To effect this transaction and in accordance with the Plan of
Reorganization, as amended on August 7, 1998, upon the Effective Date, all of
the current and existing Common Stock of the Company would be forever
extinguished and canceled and the Company would issue new shares of Common Stock
to Sterne Agee which would constitute 100% of the issued and outstanding shares.
The existing shareholders of Common Stock would not retain any interest in the
post-bankruptcy entity or receive any distribution from the bankruptcy estate
for their extinguished and cancelled interests. The Bankruptcy Court scheduled a
hearing to confirm the Plan of Reorganization for October 14, 1998 and issued an
Order confirming such plan on October 16, 1998. The Effective Date of the Plan
of Reorganization was October 27, 1998. Sterne Agee made the new value
contribution in accordance with the Agreement.
Also pursuant to the terms of the Agreement and effective August 27,
1998, all of the members of the Company's Board of Directors, except for Marc D.
Fishman, resigned from the Board of Directors and Mr. Fishman, as the sole
remaining director, and in accordance with the Bylaws of the Company, appointed
James S. Holbrook, Jr., Craig R. Heyward and F. Eugene Woodham, each of whom are
employees of Sterne Agee, to fill three of the vacancies. The Board of Directors
has further resolved to appoint James S. Holbrook, Jr. as the Chairman of the
Board and, in accordance with the Bylaws of the Company, to designate that the
Chairman of the Board is the chief executive officer of the Company.
6
<PAGE> 9
The accompanying condensed financial statements have been prepared on a
limited going concern basis of accounting, after adjustments to inventory
valuation and asset values that are not anticipated to be included in the merger
described above, and also after adjustments to the assets to be included in the
merger. The assets included in the proposed merger, which was subject to
confirmation of the Plan of Reorganization by the Court, consist of one store
lease and its related store fixtures, certain fixtures from nine closed stores,
and a new value contribution made by Sterne, Agee & Leach, Inc. for the
business. The Company's historical losses from operations, which resulted in its
bankruptcy filing, partial liquidation, and the subsequent discontinuance of all
retailing operations, raise substantial doubt about its ability to continue as a
going concern. The appropriateness of using the limited going concern basis is
dependent upon, among other things, (i) confirmation of a Plan of Reorganization
under the Bankruptcy Code which was effective on October 27, 1998, (ii) the
ability to achieve profitable operations after such confirmation and under the
proposed merger with Bobby Allison, and (iii) the subsequent ability to generate
sufficient cash from operations to meet its obligations. The interim financial
information for the one week ended October 31, 1998 and as of October 26, 1998
and October 31, 1998 reflect application of the principles of "Fresh Start"
reporting in accordance with SOP 90-7, as discussed below.
(7) REORGANIZATION
On January 12, 1998 the Company filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). From that time
until October 27, 1998, the Company operated its business as
debtor-in-possession subject to the jurisdiction of the United States Bankruptcy
Court for the Southern District of Florida (the "Bankruptcy Court"). On October
27, 1998 (the "Effective Date"), the Company emerged from reorganization
proceedings under Chapter 11 pursuant to the confirmation order entered on
October 16, 1998 by the Bankruptcy Court confirming the Second Amended Plan of
Reorganization dated August 7, 1998 (the "Amended Plan").
The condensed financial statements of the Company during the bankruptcy
proceedings (the "Predecessor Company financial statements") are presented in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"). Pursuant to guidance provided by SOP 90-7, the
Company adopted fresh-start reporting as of October 27, 1998, the Effective
Date. Under "Fresh Start" reporting, a new reporting entity is deemed to be
created and the recorded amounts of assets and liabilities were adjusted to
reflect their estimated fair values at the Effective Date (hereinafter, the term
"Predecessor Company" refers to the Company prior to October 27, 1998 and the
"Successor Company" refers to the Company from and after October 27, 1998). A
black line has been drawn to separate the Successor Company financial statements
from the Predecessor Company financial statements because the respective
financial statements are those of different reporting entities which have not
been prepared on a comparable basis.
The Amended Plan provided for, among other things, on the Effective Date,
settlement and payment of all allowed administrative, secured, priority tax,
priority claims. Immediately thereafter, the Company (Predecessor) has and will
make pro rata distribution of the remaining available cash to the holders of
allowed unsecured claims, to the extent applicable, in amounts equal to their
respective pro rata share of the monies, if any, after the debtor completes the
objections to the claims process, which monies shall be distributed within ten
days after the entry of a Final Order on the last objection to claims. The
Amended Plan also provided for the termination, cancellation and extinguishment
of all pre-petition equity securities in the Company (Predecessor) on the
Effective Date upon payment of the new value contribution by Sterne, Agee &
Leach, Inc., which would thereafter own 100% of the equity in the Company
(Successor).
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OPERATIONS
General
The Company adopted the principles of fresh-start reporting as of the
Effective Date to reflect the impact of the Chapter 11 reorganization. As a
result of the application of fresh-start reporting, the financial condition and
results of operations of the Company for dates and periods subsequent to the
Effective Date will not be comparable to those prior to the Effective Date.
The Company's financial condition as of October 27, 1998, the Effective
Date, and the third quarter ended October 31, 1998 reflects the impact of the
recapitalization effected pursuant to the Amended Plan and the elimination of
all retailing operations with the exception of one store which is operated under
a Management Agreement by and between the Company and Bobby Allison.
The Company anticipates that it will merge with Bobby Allison, although
there can be no assurance that this event will take place. Unless the merger
takes place the Company will have no on-going operations.
Fresh Start Reporting
The interim financial information for the one week ended October 31, 1998
and as of October 26, 1998 and October 31, 1998 included in the financial
information herein reflects the effectiveness of the Amended Plan and the
application of the principles of "Fresh Start" reporting in accordance with SOP
90-7, which provides guidance for financial reporting by Chapter 11 debtors
during and upon emergence from Chapter 11 cases. SOP 90-7 is applicable because
the Company's pre-reorganization shareholders received none of the reorganized
Company's newly issued Common Stock and the enterprise value of the reorganized
Company is less than the total of all pre-petition allowed claims and
post-petition liabilities. Accordingly, such interim financial information is
not comparable to the Company's historical financial information included
elsewhere herein.
In adopting "Fresh Start" reporting, the Company was required to
determine its enterprise value, which represents the fair value of the entity
before considering its liabilities. The enterprise, or reorganization, value
used as a basis for the "Fresh Start" reporting was determined to be $175,000,
the new value contribution, based on the assumptions that (a) the fixtures
acquired through the new value contribution have a market value as "used" retail
fixtures of approximately $175,000; (b) the assumed lease is at market rental
rates and has no incremental value; (c) the business has no on-going value
unless it is subsequently merged with another operating entity that can utilize
the assets of the Company.
Estimates of value do not purport to be appraisals or necessarily reflect
the values which may be realized if the assets are sold. The estimates of value
represent hypothetical reorganization values of the Company as the continuing
owner of its business and assets. Such estimates reflect only the assumptions
above and do not purport to reflect or constitute appraisals, liquidation values
or estimates of the actual market value that may be realized through the sale of
any securities to be issued pursuant to the Amended Plan, which may be
significantly different than the amounts set forth herein.
"Fresh Start" accounting adjustments have been made to reflect the
estimated adjustments necessary to adopt "Fresh Start" reporting in accordance
with SOP 90-7. "Fresh Start" reporting requires that the reorganization value of
the Company be allocated to its assets in conformity with Accounting Principles
Bulletin opinion No. 16, "Business Combinations", for transactions reported on
the basis of the purchase method. Any reorganization value greater than the fair
value of specific tangible or identified intangible assets is to be included on
the Balance Sheet as Reorganization Value in Excess of Amount Allocable to
Identifiable Assets and amortized over time.
8
<PAGE> 11
The effect of the Amended Plan of Reorganization and Fresh Start
reporting on the Company's balance sheet as of October 27, 1998 is as follows
($ in thousands):
2CONNECT EXPRESS, INC.
Debt Discharge and Fresh Start Accounting
October 26, 1998 and October 27, 1998
(Unaudited)
<TABLE>
<CAPTION>
ADJUSTMENTS TO REFLECT CONSUMMATION OF THE PLAN
-----------------------------------------
OCTOBER 26, DEBT CANCELLATION FRESH OCTOBER 27,
1998 DISCHARGE OF STOCK START 1998
PREDECESSOR (A) (B) (C) SUCCESSOR
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 262,105 $ (262,105) $ -- $ -- $ --
Accounts Receivable, net of reserves -- -- -- -- --
Inventory, net of reserves -- -- -- -- --
Prepaid Expenses & Other Current Assets -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Current Assets 262,105 (262,105) -- -- --
Property & Equipment, Net -- -- -- 175,000 175,000
Other Assets 1,789 (1,789) -- 1,789 1,789
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 263,894 $ (263,894) $ -- $ 176,789 $ 176,789
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Prepetition $ 700,010 $ (700,010) $ -- $ -- $ --
Accounts Payable - Postpetition 22,454 (22,454) -- -- --
Notes Payable -- -- -- -- --
Accrued Expenses & Other Current Liabilities 65,573 (65,573) -- -- --
Accrued Landlord Claims 619,462 (619,462) -- -- --
Accrued Employee Contract Claims 486,863 (486,863) -- -- --
Accrued Other Bankruptcy Claims 67,432 (67,432) -- -- --
Current Maturities of long-term Debt 2,967 (2,967) 2,967 2,967
------------ ------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,964,761 (1,964,761) -- 2,967 2,967
OTHER LIABILITIES
Long-term Debt & Capital Leases 7,871 (7,871) 7,871 7,871
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 1,972,632 (1,972,632) -- 10,838 10,838
------------ ------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common Stock ($.01 par value. Authorized
25,000,000 Shares, Issued & Outstanding
3,752,500 shares at January 31, 1998; 37,525 (37,525) 300 300
Authorized 25,000,000 Shares, Issued &
Outstanding 30,000 shares at October 31, 1998) 8,667,451 -- (8,667,451) 165,651 165,651
Paid-In-Capital
Retained Deficit (10,413,714) 1,708,738 8,704,976 -- --
------------ ------------ ------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY (1,708,738) 1,708,738 -- 165,951 165,951
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 263,894 $ (263,894) $ -- $ 176,789 $ 176,789
============ ============ ============ ============ ============
</TABLE>
9
<PAGE> 12
Factors That May Affect Future Results
As stated above, pursuant to the Agreement, Sterne Agee acquired out of
bankruptcy 100% of the equity interests of the Company (Successor) and all
previous Common Stock of the Company (Predecessor) was forever extinguished and
cancelled. Consequently, the previous shareholders did not participate in the
Company's (Successor) future, and the Company's (Successor) future results are
therefore immaterial to the previous shareholders. The Management Discussion and
Analysis below is primarily historical.
Results of Operations
The Company (Predecessor) emerged from its Chapter 11 bankruptcy
proceeding on October 27, 1998, the Effective Date. As described above, at the
Effective Date the equity interest in the Company (Successor) was sold to Sterne
Agee in consideration for the new value contribution that will be disbursed to
creditors by the disbursing agent. The Company (Successor), after the Effective
Date, has no operations and only has retained a store lease, a lease on
electronic article surveillance equipment and store fixtures which are located
in the aforementioned store or in storage. The leased store is being operated
under a Management Agreement by Bobby Allison, which retains all profits and
losses related to the operations of that store.
The day prior to the Effective Date, on October 26, 1998, the Company
(Predecessor) recorded an extraordinary gain on debt discharge comprised of the
following elements:
2Connect Express, Inc. (Predecessor)
Analysis of Extraordinary Gain on Debt Discharge
As of October 26, 1998
Elements of Extraordinary Gain on Debt Discharge: Amount
Cash transferred to Disbursing Agent $ (262,105)
Security deposits assumed by Successor (1,789)
Accounts payable - pre petition 700,010
Accounts payable - post petition (16,710)
Accrued expenses 39,164
Accrued landlord lease rejection claims 619,462
Accrued employment contract claims 486,863
Accrued other bankruptcy claims 133,005
Liabilities (capital lease) assumed by Successor 10,838
-----------
Extraordinary gain on debt discharge $ 1,708,738
===========
The Company (Successor) did not have any operating activity after the
Effective Date to the end of the third quarter ended October 31, 1998.
Consequently, to facilitate a meaningful discussion of results of operations of
the Company (Predecessor), the information presented below does not include the
period from October 27, 1998 through October 31, 1998.
The Company's (Predecessor) net sales for the twelve weeks ended
October 26, 1998 were $6,515 versus $1,163,694 during the thirteen week third
quarter ended October 31, 1997. The Company (Predecessor) operated approximately
6.4 stores during the third quarter last year. The Company (Predecessor)
commenced operation of its first store on December 6, 1996 and subsequently
opened two stores in April 1997, three stores in August 1997, two stores in
September 1997 and two stores in November 1997. The Company (Predecessor) closed
its five worst performing stores immediately upon its bankruptcy filing on
January 12, 1998 and operated five stores at January 31, 1998. During the twelve
weeks ended October 26, 1998 the Company (Predecessor) did not operate any
stores. The Company's (Predecessor) only remaining leased store in Coral
Springs, Florida was operated starting June 18, 1998 by
10
<PAGE> 13
Bobby Allison under a Management Agreement in which Bobby Allison is responsible
for management and all resulting profits (losses).
The Company's (Predecessor) net sales for the thirty-eight weeks
ended October 26, 1998 were $878,730 versus $2,411,797 during the nine months
(thirty-nine weeks) ended October 31, 1997. The Company (Predecessor) operated
1.5 equivalent full-time stores in the first thirty-eight weeks of 1998 versus
3.5 equivalent full-time stores during the thirty-nine 1997 period. In the first
nine months of 1998 the Company (Predecessor) conducted inventory clearance and
liquidation sales at steep discounts and then sold remaining inventory and
defective merchandise which had been returned by customers in two public
auctions conducted by Stampler Auctions in April 1998. The first such auction
consisted of first quality merchandise and generated proceeds of $300,000 while
the second auction, consisting of customer returns, generated proceeds of
$34,500.
Gross profit for the twelve weeks ended October 26, 1998 was $6,487
(99% to sales) versus gross profit in the prior year third quarter (thirteen
weeks) ended October 31, 1997 of $190,858 (16.4% to sales). The gross profit in
the twelve weeks ended October 26, 1998 was due primarily to residual income on
previous sales of cellular plans and sales of small quantities of merchandise
taken as payment from vendors for credits issued by the vendors for returned
defective goods. The lower gross profit percent in the last year third quarter
ended October 31, 1997 was due to price driven promotional activity related to
new store openings and efforts to increase sales volume in previously opened
stores.
Gross profit for the thirty-eight weeks ended October 26, 1998 was
$88,186 (10% to sales) versus $464,032 (19.2%) for the thirty-nine week period
last year ended October 31, 1997. The lower gross profit dollars and percent in
1998 was due to the aforementioned retail store clearance sales and public
auctions, and reduced store count. The auction sales returned approximately 30%
of the merchandise inventory cost value and enabled to Company (Predecessor) to
immediately eliminate expenses of operating the stores where the inventory was
housed and allowed the Company (Predecessor) to reject those store leases. The
gross margin of 19.2% for the nine months (thirty-nine weeks) ended October 31,
1997 was adversely affected by grand opening promotions in connection with
opening of two stores during April 1997 and four stores in the third quarter of
1997 and heavy promotional advertising intended to create store awareness and
garner market share. In the first nine months (thirty-nine weeks) of 1997 the
Company (Predecessor) priced its products at or below competition and used
customer incentives to increase sales, which lowered average selling price per
unit and gross margin.
Selling, general and administrative expenses ("SG&A"), excluding
depreciation and amortization, for the twelve weeks ended October 26, 1998 was
$99,596 versus $1,372,303 (117.9% to sales) during the thirteen week third
quarter last year ended October 31, 1997. The decrease in SG&A expenses was due
to having no stores in operation during the twelve weeks ended October 26, 1998
and reduction of corporate expenses and personnel to skeleton levels. SG&A
expenses for the thirty-eight weeks ended October 26, 1998, excluding
depreciation and amortization, was $1,036,658 (118% to sales) versus $3,003,380
(124.5% to sales) for the last year thirty-nine weeks ended October 31, 1997.
The 1998 SG&A expenses included store closing expenses and expenses related to
the movement of merchandise from closed stores to operating stores and movement
of store fixtures and equipment to a warehouse awaiting subsequent sale. After
conducting the aforementioned auctions in April 1998, the Company (Predecessor)
reduced personnel headcount to five persons, including management, in its Coral
Springs store, prior to the effective date of the Management Agreement, and
initially to four and then to two in the corporate office. The 1997 SG&A
expenses included all management functions which had been anticipated for the
support of rapid store count growth and personnel used in the start-up of
telemarketing and direct outside sales functions.
Depreciation, amortization and amortization of pre-opening costs for
the twelve weeks ended October 26, 1998 was -0- versus $158,890 for the prior
year thirteen week third quarter ended October 31, 1997. The decrease was due to
the sale and write-off of fixed assets and pre-opening expenses in connection
with the Company's (Predecessor) bankruptcy filing. Depreciation, amortization
and amortization of pre-opening costs for the thirty-eight weeks ended October
26, 1998 was $95,376 versus $249,876 for the thirty-nine weeks last year ended
October 31, 1997.
11
<PAGE> 14
Net interest income (expense) for the twelve weeks ended October 26,
1998 was $5,276 versus $53,400 in the thirteen week prior year third quarter
ended October 31, 1997. For the thirty-eight weeks ended October 26, 1998 net
interest income (expense) was $8,108 versus $117,410 in the thirty-nine week
period ended October 31, 1997. The net interest income was due to available cash
for short-term investments due to asset liquidations in 1998 and the excess
proceeds of the Company's (Predecessor) initial public offering versus
cumulative expenditures during first thirty-nine weeks of 1997.
Restructuring charges and reserves in the twelve weeks ended October
26, 1998 were ($45,451) versus ($158,188) in the last year thirteen week third
quarter ended October 31, 1997. The net restructuring charges and reserve
adjustments included adjustments to previously established store closing
accruals, reserves for the disposition of assets and recoveries of accounts
receivable. Net restructuring charges, reserves and adjustments for the
thirty-eight weeks ended October 26, 1998 were ($159,953) versus ($158,188) in
the last year thirty-nine weeks ended October 31, 1997. The net expenses
recorded in 1998 included write-down to realized proceeds of merchandise
inventory and equipment sold to Bobby Allison under the aforementioned Merger
Agreement, assets (store selling fixtures) sold to Sterne Agee under the
Agreement dated August 27, 1998 and legal fees related to the Company's
(Predecessor) bankruptcy proceeding in excess of retainers previously paid to
the Company's (Predecessor) securities counsel, general and bankruptcy counsel
and professionals employed by the creditor's committee in the bankruptcy case.
Net loss before extraordinary items for the twelve weeks ended October
26, 1998 was ($133,374) versus ($1,445,123) for the last year thirteen week
third quarter ended October 31, 1997. The net loss before extraordinary items
was due to the shutdown of the Company's (Predecessor) retailing operations.
Although the Company (Predecessor) closed all of its stores and reduced
corporate headcount to skeleton levels, the Company (Predecessor) incurred
costs, expenses and losses until it emerged from bankruptcy. Net loss before
extraordinary items for the thirty-eight weeks ended October 26, 1998 was
($1,195,693) versus ($2,830,002) for the last year thirty-nine weeks ended
October 31, 1997. The 1998 loss was primarily due to losses sustained in the
liquidation of assets in the bankruptcy proceeding, expenses to conduct the
liquidations and manage the affairs of the Company (Predecessor) during the
bankruptcy. The 1997 loss was primarily due to store operating losses,
promotional expenses and corporate expenses which had been established in
anticipation of future store count growth.
The Company (Predecessor) recorded, at the Effective Date,
extraordinary items consisting of a gain on debt discharge and the cancellation
and extinguishment of common stock and elimination of deficit in the amounts of
$1,708,738 and $8,704,976, respectively, under Fresh Start reporting.
FINANCIAL CONDITION AND LIQUIDITY
The Company (Predecessor) paid through its disbursing agent, or
transferred to its disbursing agent for the subsequent payment of claims, all of
the Company's (Predecessor) cash at the Effective Date, including the new value
contribution received from Sterne, Agee & Leach, Inc. for the Company's
(Predecessor) equity and selected assets remaining at the Effective Date, which
included one store lease, fixtures and leased electronic article surveillance
equipment in that store and fixed assets in storage from nine previously closed
stores.
The Company (Successor) had no cash as of the Effective Date.
The Company (Predecessor) decreased its cash position by $735,749
during the third quarter ended October 26, 1998 (the day prior to the Effective
Date) from quarter ended August 1, 1998, and by $218,068 for the thirty eight
weeks from fiscal year ended January 31, 1998 to October 26, 1998. During that
thirty-eight week period the Company (Predecessor) repaid its $275,000
borrowings under its debtor-in-possession credit facility and accumulated cash
primarily due to the liquidation of excess merchandise inventory and inventory
from stores which were closed during the bankruptcy proceeding, the sale of
excess
12
<PAGE> 15
corporate office furniture and fixtures no longer required due to downsizing and
cessation of operations, settlement of a contractual dispute with a previous
cellular service provider whose plans were sold in the Company's (Predecessor)
retail stores, the collection of accounts receivable and $175,000 from the new
value contribution of Sterne Agee under the aforementioned Agreement. All of the
Company's (Predecessor) excess cash at the Effective Date of the Plan of
Reorganization was paid to creditors by the disbursing agent after confirmation
of the Company's (Predecessor) Plan of Reorganization by the court or
transferred to the disbursing agent of the Company (Predecessor) for payment to
creditors after a Final Order is issued on the last objection to claims. Also,
at the Effective Date, all of the Common Stock of the Company (Predecessor) was
forever extinguished and cancelled and the Company (Successor) issued new shares
of Common Stock to Sterne Agee, which now constitutes 100% of the issued and
outstanding shares. The shareholders of Common Stock of the Company
(Predecessor) did not retain any interest in the post-bankruptcy entity or
receive any distribution from the bankruptcy estate for their extinguished and
cancelled interests.
This form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical facts included in this
Form 10-QSB and located elsewhere herein regarding the Company's financial
position and business strategy may constitute forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable; it can give no assurance that such
expectations will prove to be accurate.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
- Exhibit 1 - Debtor's Amended Plan of Reorganization filed June 24,
1998
- Exhibit 2 - Second Amended Disclosure Statement for Amended Plan of
Reorganization filed June 24, 1998
- Exhibit 3 - First Modification to Amended Plan of Reorganization
dated August 7, 1998
- Exhibit 4 - First Modification to Second Amended Disclosure
Statement dated August 7, 1998
- Exhibit 5 - Second Modification to Amended Plan of Reorganization
filed August 28, 1998
- Exhibit 6 - Amended and Restated Articles of Incorporation for
2Connect Express, Inc., Filed December 1, 1998
(b) Reports on Form 8-K. Reports on Form 8-K have been filed during
the quarter ended October 31, 1998:
<TABLE>
<CAPTION>
Date of Report Date of Filing Description
-------------- -------------- -------------
<S> <C> <C>
August 17, 1998 August 18, 1998 Debtor's Monthly Financial Report
(Business) for the period
from July 5, 1998 to August 1, 1998.
August 27, 1998 September 1, 1998 Agreement by and between 2Connect
Express, Inc. and Sterne,
Agee & Leach, Inc. dated August 27, 1998
September 15, 1998 September 25, 1998 Debtor's Monthly Financial Report
(Business) for the period from August 2, 1998
to August 29, 1998.
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C> <C>
October 12, 1998 October 26, 1998 Debtor's Monthly Financial Report
(Business) for the period
from August 30, 1998 to October 3, 1998.
November 15, 1998 November 18, 1998 Debtor's Monthly Financial report (Business)
for the period from October 4, 1998 to
October 31, 1998.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
2CONNECT EXPRESS, INC.
(Registrant)
Date: December 11, 1998 /s/ James S. Holbrook, Jr.
---------------------------------------
James S. Holbrook, Jr., Chairman of the
Board and Chief Executive Officer
14
<PAGE> 1
EXHIBIT 1
Debtor's Amended Plan of Reorganization
Filed June 24, 1998
<PAGE> 2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
In re: CASE NO. 98-20169-BKC-RBR
CHAPTER 11
2CONNECT EXPRESS, INC.
Debtor.
____________________________________ /
DEBTOR'S AMENDED PLAN OF REORGANIZATION
2CONNECT EXPRESS, INC. (the "Debtor") hereby proposes its
Amended Plan of Reorganization (the "Plan") pursuant to 11 U.S.C.
Section 1121(b).
ARTICLE I.
DEFINITIONS AND RULES OF CONSTRUCTION
1.1 SCOPE OF DEFINITIONS. For purposes of this Plan, except as
expressly provided or unless the context otherwise requires, all capitalized
terms not otherwise defined shall have the meanings assigned to them in this
Article I of the Plan. Any term used in the Plan that is not defined herein, but
that is used in the Bankruptcy Code or the Bankruptcy Rules, shall have the
meaning assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
Whenever the context requires, such terms shall include the plural as well as
the singular number, the masculine gender shall include the feminine and the
feminine gender shall include the masculine.
1.2 TERMS. As used in this Plan, the capitalized
1
<PAGE> 3
terms utilized herein and set forth below shall have the following meanings:
(a) "Administrative Claim" shall mean a Claim against the
Debtor, which Claim is specified in Section 503(b) of the Bankruptcy Code and
entitled to priority under Section 507(a)(1) of the Bankruptcy Code, including,
without limitation, (i) the actual and necessary costs and expenses incurred
after the Petition Date of preserving the Debtor's estate and of operating the
business of the Debtor, (ii) Professional Fees; and (iii) all fees and charges
assessed against the Debtor's estate pursuant to 28 U.S.C. Section 1930(a).
(b) "Allowed Claim" shall mean a Claim or any portion thereof
to the extent such Claim is; (1) allowed by a Final Order, or (2) either (A)
scheduled by the Debtor pursuant to the Bankruptcy Code and Bankruptcy Rules in
a liquidated amount and that is not listed as contingent, unliquidated, or
disputed; or (B) for which a proof of claim has been timely filed with the
Bankruptcy Court and is not objected to within the period fixed by the
Bankruptcy Code, the Bankruptcy Rules, the Plan and applicable orders of the
Court. An Allowed Claim includes a Disputed Claim to the extent such Disputed
Claim becomes allowed after the Effective Date and shall be net of any related
offset claim, to the extent such set off has been exercised in accordance with
the provisions of this Plan or otherwise by order of the Bankruptcy Court.
2
<PAGE> 4
(c) "Allowed Administrative Claim" shall mean an
Administrative Claim which has been allowed by Final Order of the Bankruptcy
Court.
(d) "Allowed Interest" shall mean an Interest which has been
allowed by Final Order of the Bankruptcy Court.
(e) "Allowed Priority Claim" shall mean a Priority Claim which
has been allowed by Final Order of the Bankruptcy Court.
(f) "Allowed Secured Claim" shall mean a Secured Claim which
has been allowed by a Final Order of the Bankruptcy Court.
(g) "Allowed Unsecured Claim" shall mean an Unsecured Claim
which has been allowed by Final Order of the Bankruptcy Court.
(h) "Available Cash" shall mean and include (i) the Cash in
the possession of the Debtor on the Effective Date of the Plan, which Cash
represents the New Value Contribution, net Cash generated from operations after
payment of ordinary and necessary operating expenses, net Cash from the
sale/liquidation of assets, including the auction, either prior to or on the
Effective Date, net Cash from the assignment of leases/executory contracts, net
Cash from the collection of accounts receivables and net Cash from recoveries on
litigation claims, if any, and (ii) the net proceeds from those assets
identified in subsection (i) above which, as of the Effective Date, have not
been reduced
3
<PAGE> 5
to Cash, but will be liquidated thereafter for the benefit of creditors
hereunder.
(i) "Bankruptcy Code" shall mean the Title 11 of the United
States Code, 11 U.S.C. Section 101, ET SEQ., as now in effect or hereafter
amended.
(j) "Bankruptcy Court" shall mean (1) the United States
Bankruptcy Court for the Southern District of Florida having jurisdiction over
the Chapter 11 Case or any contested matter, adversary proceeding, controversy,
litigation, "core" or "non-core" proceeding arising in or related to the Chapter
11 Case to the extent that the Court is authorized to exercise jurisdiction
thereof, pursuant to Sections 152 and 1334 of Title 28, United States Code; (2)
to the extent that any party to the Chapter 11 Case, contested matter, adversary
proceeding, controversy, or litigation of any kind is entitled to seek to obtain
a withdrawal of the reference pursuant to Section 158(d) of Title 28, United
States Code, the United States District Court for the Southern District of
Florida; (3) to the extent that any party in interest in the Chapter 11 Case or
such contested matters, adversary proceeding, controversy or litigation is
entitled to seek to obtain a change of venue in respect thereof, the United
States Bankruptcy Court or the United States District Court, as the case may be,
for the District to which venue is transferred; or (4) in the event that neither
the Bankruptcy Court nor United States District Court described in (1), (2), and
(3) above has
4
<PAGE> 6
jurisdiction, any state, federal or foreign court, agency, tribunal or
administrative body having jurisdiction over such matters, proceedings,
controversies or litigation.
(k) "Bankruptcy Rules" shall mean the Federal Rules of
Bankruptcy Procedure and the local rules of the Bankruptcy Court (including any
applicable local rules of the United States District Court for the Southern
District of Florida), as now in effect or hereafter amended.
(l) "Bar Date" shall mean May 12, 1998, the last date for
creditors and holders of Equity Securities to file proofs of Claims or Interests
in the Chapter 11 Case.
(m) "Bay Tech Investments" shall mean Bay Tech Investments
Inc., a Florida corporation.
(n) "Bobby Allison Cellular" shall mean Bobby Allison Cellular
Systems of Florida, Inc., a Florida corporation.
(o) "Business Day" shall mean any day other than a Saturday,
Sunday or "legal holiday" as such term is defined in Bankruptcy Rule 9006(a).
(p) "Cash" shall mean cash, negotiable instruments, readily
marketable securities, deposit accounts, or other cash equivalents.
(q) "Chapter 11 Case" shall mean the proceedings under chapter
11 of the Bankruptcy Code for the liquidation and reorganization of the Debtor
which were commenced in the Bankruptcy Court on January 12, 1998, under case
number 98-20169-BKC-RBR.
5
<PAGE> 7
(r) "Claim" shall have the meaning provided for such term in
Section 101(5) of the Bankruptcy Code.
(s) "Class" shall mean a category of holders of Claims or
Interests as described in Article III.
(t) "Committee" shall mean the Official Committee of Unsecured
Creditors appointed in this Chapter 11 Case by the United States Trustee's
Office.
(u) "Confirmation Date" shall mean the date on which the
Bankruptcy Court enters the Confirmation Order on the Bankruptcy Court's docket.
(v) "Confirmation Order" shall mean an order of the Bankruptcy
Court confirming the provisions of this Plan pursuant to Section 1129 of the
Bankruptcy Code.
(w) "Coral Square Lease" shall mean that certain lease of
non-residential real property between the Debtor and Coral-CS/LTD Associates,
dated on or about January 15, 1997, for the lease of space located at Coral
Square Shopping Center, 9477 West Atlantic Blvd. Coral Springs Florida.
(x) "Debtor" shall mean 2Connect Express Inc., a Florida
corporation.
(y) "Deficiency Claim" shall mean a Claim equal to the amount,
if any, by which the total Allowed Claim of any creditor exceeds the sum of (i)
any setoff rights of the creditor against the Debtor provided for by applicable
law and preserved by
6
<PAGE> 8
Section 553 of the Bankruptcy Code; and (ii) the portion of such Allowed Claim
that is a Secured Claim.
(z) "Disclosure Statement" shall mean the Second Amended
Disclosure Statement for the Amended Plan of Reorganization proposed by the
Debtor, dated of even date herewith, that relates to this Plan and as approved
by the Bankruptcy Court pursuant to section 1125 of the Bankruptcy Code, as such
Disclosure Statement may be amended, modified or supplemented from time to time
(and all exhibits and schedules attached thereto or referred to therein).
(aa) "Disputed Claim" shall mean (i) a Claim against which an
objection is pending and which has not been allowed by a Final Order; (ii) a
Claim which is listed in the Schedules as disputed, contingent or unliquidated;
(iii) a contingent Claim; (iv) an unliquidated Claim.
(bb) "Distributions" shall mean the Pro Rata distributions of
Available Cash to holders of Allowed Claims in certain Classes pursuant to the
terms hereof on the Initial Distribution Date and thereafter, if applicable, at
such times as property of the estate remaining on the Effective Date is
liquidated.
(cc) "Distribution Date" shall mean (i) the Initial
Distribution Date with respect to the Initial Distribution, and (ii) with
respect to future Distributions, if any, within ten (10) days after the receipt
of proceeds from
7
<PAGE> 9
the liquidation of property of the estate remaining on the Effective Date, or
the entry of a Final Order on the last remaining objection to Claim.
(dd) "Distribution Reserve" shall mean the amount of Available
Cash that would have been distributed to holders of Disputed Claims or Pending
Claims in accordance with the terms hereof as of the Initial Distribution Date
or any future Distribution Date if such Disputed Claim or Pending Claim had in
fact been an Allowed Claim entitled thereto on the Initial Distribution Date or
any future Distribution Date.
(ee) "Effective Date" shall mean the date which is ten (10)
days after the Confirmation Order becomes a Final Order.
(ff) "Equity Security" shall have the meaning set forth in 11
U.S.C. Section 101(16).
(gg) "Executory Contracts" shall mean all contracts, oral or
written, to which the Debtor is a party and which are executory within the
meaning of Section 365 of the Bankruptcy Code.
(hh) "Final Order" shall mean an order or judgment of the
Bankruptcy Court that is appealable of right to the United States District Court
for the Southern District of Florida pursuant to Section 158(a) of Title 28,
United States Code, whether or not an appeal can be timely taken, is taken, or
is pending, unless the order is stayed pending appeal, and whether or not a
timely motion is filed under Bankruptcy Rules 7052(b) or
8
<PAGE> 10
9023, unless the order is stayed pending disposition of such motion; and shall
mean with respect to an order of the United States District Court for the
Southern District of Florida in respect of a matter as to which the reference
has been withdrawn pursuant to Section 157(d) of Title 28, United States Code,
that the order is appealable of right to the United States Court of Appeals for
the Eleventh Circuit pursuant to Section 158(d) or 1291 of Title 28, United
States Code, whether or not an appeal can be timely taken, is taken, or is
pending, unless the order is stayed pending appeal, and whether or not a timely
motion is filed under Bankruptcy Rules 7052(b) or 9023 or Rules 50, 52, 59 or 60
of the Federal Rules of Civil Procedure, unless the order is stayed pending
disposition of such motion.
(ii) "Final Report" shall mean the Final Report on
Distributions and Request for Entry of Final Decree Closing Case to be filed by
the Debtor within sixty (60) days after the Effective Date.
(jj) "Initial Distribution" shall mean the initial
Distribution of Available Cash to be made to holders of Allowed Claims hereunder
on the Initial Distribution Date.
(kk) "Initial Distribution Date" shall mean the Effective
Date.
(ll) "Insider" shall have the meaning set forth in section 101
(30) of the Bankruptcy Code.
(mm) "Interest" shall mean the legal, equitable
9
<PAGE> 11
and contractual rights of a holder of an Equity Security in the Debtor as of the
Petition Date.
(nn) "Late Filed Claim" shall mean a Claim which is filed
after the Bar Date, provided however, that such Late Filed Claim shall not
include a Professional Fee Claim.
(oo) "Lien" shall mean any valid and undisputed mortgage,
lien, charge, security interest, encumbrance or other security device of any
kind affecting any asset or property of the Debtor.
(pp) "Merger" shall have the meaning set forth in Section 6.4
herein.
(qq) "New Value Contribution" shall mean Cash in an amount
equal to $185,000 being contributed by Sterne Agee or its designees to the
Debtor on the Effective Date so as to enable the Debtor to emerge from this
Chapter 11 Case vested with the Coral Square Lease and store fixtures for all of
its former locations. The New Value Contribution shall be included in the
Available Cash to be distributed to the holders of Allowed Claims hereunder.
(rr) "Pending Claim" shall mean a Claim (1) which is not an
Allowed Claim but not a Disputed Claim, or (2) for which an application for
allowance under section 503 of the Bankruptcy Code is pending before the
Bankruptcy Court on the Confirmation Date, or for which an application for
allowance of professional fees and reimbursement of expenses is or may be filed
or allowed
10
<PAGE> 12
for services rendered in connection with the Chapter 11 Case either before or
after the Confirmation Date.
(ss) "Petition Date" shall mean January 12, 1998, the date on
which the Chapter 11 Case was commenced.
(tt) "Plan" shall mean this amended plan of reorganization in
its entirety, together with all addenda, exhibits, schedules and other
attachments hereto, in its present form or as it may be modified, amended or
supplemented from time to time.
(uu) "Priority Claim" shall mean a Claim entitled to priority
under Section 507(a)(3)-(7) and (9) of the Bankruptcy Code.
(vv) "Priority Tax Claim" shall mean a Claim entitled to
priority under Section 507(a)(8) of the Bankruptcy Code.
(ww) "Pro Rata" shall mean, at any time, the same proportion
that the face amount of a Claim in a particular Class bears to the aggregate
face amount of all Allowed Claims and Disputed Claims in such Class or in all of
the Classes at issue, unless the Plan provides otherwise.
(xx) "Professional" shall mean any professional, whether it be
a law firm, accounting firm, consultant, financial advisory firm or individual,
including any partner, shareholder, associate, attorney or employee thereof or
related thereto, authorized to be employed pursuant to Sections 327, 503(b)(3)
and
11
<PAGE> 13
(4) and 1102 of the Bankruptcy Code, by the Bankruptcy Court during the
Chapter 11 Case to represent or assist the Debtor or the Committee.
(yy) "Professional Fees" shall mean (i) a Claim of a
Professional for compensation or reimbursement of costs and expenses relating to
services incurred prior to and including the Effective Date, as, when and to the
extent approved by Final Order, pursuant to Sections 330, 331, 503(b) or 1103 of
the Bankruptcy Code, and (ii) a Claim for fees and expenses for substantial
contribution to the Debtor's estate, and awarded by Final Order pursuant to
Section 503(b)(3) of the Bankruptcy Code.
(zz) "Rejection Claim" shall mean a Claim arising under
Section 502(g) of the Bankruptcy Code from the rejection under Section 365 of
the Bankruptcy Code, or under this Plan, of an executory contract or unexpired
lease of the Debtor that has not been assumed.
(aaa) "Reorganized Debtor" shall mean 2Connect Express, Inc.
after the Effective Date of the Plan either (i) to continue its operations in
the event the New Value Contribution is made, or (ii) to liquidate any property
of the estate remaining on the Effective Date and distribute the proceeds
thereof to the holders of Allowed Unsecured Claims pursuant to the terms hereof
in the event the New Value Contribution is not made.
(bbb) "Schedules" shall mean the schedules and statement of
financial affairs filed by the Debtor pursuant to
12
<PAGE> 14
section 521(1) and section 1106(a)(2) of the Bankruptcy Code, as amended and
supplemented.
(ccc) "Secured Claim" shall mean a Claim which is secured by a
Lien encumbering property of the Debtor's estate, which is valid, perfected and
enforceable under applicable law, including Section 506 of the Bankruptcy Code,
and not subject to avoidance under the Bankruptcy Code or applicable
non-bankruptcy law.
(ddd) "Sterne Agee" shall mean Sterne Agee & Leach, Inc., an
Alabama corporation, which was the investment banking firm that handled the
Debtor's initial public offering in May 1997.
(eee) "United States Trustee" shall mean the Assistant United
States Trustee for Region 21.
(fff) "Unsecured Claim" shall mean any Claim against the
Debtor's estate, including Rejection Claims, but not including an Administrative
Claim, a Secured Claim, a Priority Claim and a Priority Tax Claim.
1.3 UNDEFINED TERMS. A term used but not defined herein shall have the
meaning given to it by the Bankruptcy Code or the Bankruptcy Rules, if used
therein.
1.4 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, paragraph, subparagraph or clause, unless the
context requires
13
<PAGE> 15
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; (iii) captions and headings to articles and paragraphs
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; and (iv) the rules of
construction set forth in section 102 of the Bankruptcy Code shall apply, unless
superseded herein or in the Confirmation Order.
I.5 COMPUTATION OF TIME. In computing any period of time prescribed or
allowed by the Plan, unless otherwise expressly provided, the provisions of
Bankruptcy Rule 9006(a) shall apply.
ARTICLE II
TREATMENT OF ADMINISTRATIVE CLAIMS, PRIORITY TAX CLAIMS
AND U.S. TRUSTEE FEES
The following Classes of Administrative Claims, Priority Tax Claims and
U.S. Trustee fees for the Debtor are not impaired under the Plan and will be
treated as follows:
II.1 ADMINISTRATIVE CLAIMS. Allowed Administrative Claims that
represent liabilities incurred by the Debtor in the ordinary course of business
during its Chapter 11 Case shall be paid upon the date on which such Claim
becomes due in the ordinary course of the Debtor's business and in accordance
with the terms
14
<PAGE> 16
and conditions of any agreement relating thereto, or upon such other
dates and terms as may be agreed upon the holder of such Allowed Administrative
Claims. All other holders of Allowed Administrative Claims (with the exception
of the Professionals who will be paid 100% of the amount allowed by the
Bankruptcy Court upon application to the Bankruptcy Court and those Claims
otherwise specifically dealt with in the Plan) shall be paid 100% of their
respective Allowed Administrative Claims in Cash, unless otherwise ordered by
the Bankruptcy Court, upon the later to occur of (i) the Effective Date, or (ii)
the date on which a Final Order approving payment of such respective Claim is
entered.
II.2 PRIORITY TAX CLAIMS. The holders, if any, of Allowed Priority Tax
Claims under Section 507(a)(8) of the Bankruptcy Code shall be paid 100% of the
amount of their Claims on the earlier to occur of (i) the Effective Date, or
(ii) the date on which a Final Order approving payment of such respective Claim
is entered.
III.3 U.S. TRUSTEE FEES
Notwithstanding any other provisions of the Plan to the contrary, the
Debtor shall pay the U.S. Trustee the appropriate sum required pursuant to 28
U.S.C. Section 1930(a)(6), within ten (10) days of the entry of the order
confirming this Plan, for pre- confirmation periods and simultaneously provide
to the U.S. Trustee an appropriate affidavit indicating the cash disbursements
for the relevant period. The Debtor, as a reorganized Debtor,
15
<PAGE> 17
shall further pay the U.S. Trustee the appropriate sum required pursuant to 28
U.S.C. Section 1930(a)(6) for post-confirmation periods within the time period
set forth in 28 U.S.C. Section 1930(a)(6), based upon all post-confirmation
disbursements made by the reorganized Debtor, until the earlier of the closing
of this case by the issuance of a Final Decree by the Bankruptcy Court, or upon
the entry of an Order by the Bankruptcy Court dismissing this case or converting
this case to another chapter under the United States Bankruptcy Code, and the
reorganized Debtor shall provide to Untied States Trustee upon the payment of
each post-confirmation payment an appropriate affidavit indicating all the cash
disbursements for the relevant period.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
III.1 For the purposes of this Plan, the classes of Claims and
Interests shall be separated as follows:
CLASS 1. The Allowed Secured Claim of Bay Tech
Investments:
CLASS 2. The Allowed Priority Claims;
CLASS 3. The Allowed Unsecured Claims, including
Rejection Claims; and
CLASS 4. The Allowed Interests in the Debtor.
16
<PAGE> 18
ARTICLE IV
CLASSES OF CLAIMS NOT IMPAIRED UNDER THE PLAN
IV.1 Each Class of Claims under the Plan is impaired.
ARTICLE V
TREATMENT OF CLASSES THAT ARE IMPAIRED UNDER
THE PLAN
V.1 CLASS 1 - ALLOWED SECURED CLAIM OF BAY TECH INVESTMENTS. Bay Tech
Investments shall receive on account of its Allowed Secured Claim payment of all
unpaid principal and accrued interest thereon either prior to or on the
Effective Date of the Plan. Bay Tech Investments shall retain its first priority
lien, mortgage and security interest in and on all of the assets of the Debtor
until its Allowed Secured Claim is paid in full, all in accordance with its
pre-petition loan and security documents and the DIP financing and cash
collateral orders entered in this Chapter 11 Case by the Bankruptcy Court.
V.2 CLASS 2 - ALLOWED PRIORITY CLAIMS. The holder of each Allowed
Priority Claim shall receive cash equal to the amount of each such Allowed
Priority Claim on the later to occur of (i) the Initial Distribution Date, or
(ii) within ten (10) days after each such Allowed Priority Claim is determined
by a Final Order of the Bankruptcy Court.
V.3 CLASS 3 - THE ALLOWED UNSECURED CLAIMS. Each holder of an Allowed
Unsecured Claim, including Rejection Claims, against the Debtor shall receive a
Distribution (i) on the Initial Distribution Date equal to their respective Pro
Rata share of the
17
<PAGE> 19
Available Cash after payment of all Allowed Administrative Claims, Allowed
Secured Claims, Allowed Priority Tax Claims and Allowed Priority Claims, and
(ii) thereafter, to the extent applicable, in an amount equal to their
respective Pro Rata share of the monies, if any, available after the Debtor
completes the objections to claims process, which monies shall be distributed
within ten (10) days after the entry of a Final Order on the last objection to
claims.
V.4 CLASS 4 - THE ALLOWED INTERESTS IN THE DEBTOR. Pursuant to
and as a result of the New Value Contribution, the Allowed Interests in the
Debtor shall be not be effected by the Plan. All holders of pre-petition Equity
Securities in the Debtor shall retain such Equity Securities on and after the
Effective Date in the same amount, in the same proportion and with the same
rights as existed on the Petition Date. In the event the New Value Contribution
is not made, then the pre-petition Equity Securities in the Debtor shall
terminate and be extinguished on the Effective Date.
18
<PAGE> 20
ARTICLE VI
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. VESTING OF PROPERTY OF THE ESTATE.
VI.1 On the Effective Date, if the New Value Contribution is made, then
all property of the estate shall be transferred to and vested in the Reorganized
Debtor, which property shall include without limitation any and all inventory,
store fixtures and the Coral Square Lease, which Lease is being assumed by the
Debtor pursuant to the terms of the Plan. If the New Value Contribution is not
made, then any and all remaining property of the estate, excluding Available
Cash, shall be transferred to and vest in the Reorganized Debtor to be
liquidated and distributed as provided in the Plan.
VI.2 On the Effective Date, the Committee will be dissolved and all
members thereof and Professionals engaged thereby shall be relieved of any and
all further responsibilities or duties hereunder.
B. RETENTION OF EQUITY SECURITIES.
VI.3 In addition, on the Effective Date, if the New Value Contribution
is made, then the holders of pre-petition Equity Securities shall retain such
Equity Securities unaffected by the Plan. If the New Value Contribution is not
made, then all pre- petition Equity Securities shall be cancelled and
extinguished.
19
<PAGE> 21
C. MEANS FOR IMPLEMENTATION OF PLAN.
VI.4 The Debtor, since the filing of this case, has been streamlining
its costs, downsizing its operations and liquidating excess assets. The Debtor
has completed such efforts by closing all of its remaining stores, with the
exception of the Coral Square store location, eliminating all but a small staff
at the corporate level and liquidating, through auction, all remaining excess
inventory, equipment and furniture. Prior to the Effective Date, the Debtor
anticipates that it will have liquidated and reduced to Cash all of its excess
assets with the exception of those assets which it will retain as a reorganized
Debtor pursuant to the terms hereof. In addition, the Debtor, together with the
Committee has negotiated and finalized the terms upon which Sterne Agee will
make the New Value Contribution on the Effective Date. The proceeds from the
liquidation of assets and the New Value Contribution shall be included in
Available Cash. If the New Value Contribution is not made per the terms of such
agreement, then the Debtor shall liquidate all of its remaining assets in a
manner which will provide the highest and best value to the estate. Any proceeds
therefrom shall be included in the Available Cash for distribution to creditors
hereunder.
On the Effective Date of the Plan, the Debtor will use the Available
Cash to pay the Allowed Administrative Claims, the Allowed Secured Claim, the
Allowed Priority Tax Claims and the Allowed Priority Claims. Immediately
thereafter, the Debtor will make a Pro Rata Distribution of the remainder of the
Available
20
<PAGE> 22
Cash to the holders of Allowed Unsecured Claims. To do so, the Debtor
will utilize the Cash on hand on the Effective Date, which Cash was generated
through operations, through the sale/liquidation of assets, collection of
accounts receivables and the New Value Contribution, if applicable. Thereafter,
and to the extent any such assets are not liquidated as of the Effective Date,
the Reorganized Debtor shall continue its liquidation efforts and shall, within
ten (10) days after receipt of the net proceeds from any such liquidation,
distribute the net proceeds therefrom Pro Rata to the holders of Allowed
Unsecured Claims pursuant to the terms of the Plan.
In addition, the Debtor will complete any and all objections to claims
filed or to be filed in these proceedings. If the Debtor is successful therein,
then any monies reserved on the Effective Date for such claims will be
re-distributed to all Allowed Unsecured Claims hereunder after the Debtor
obtains a Final Order on the last objection to claims.
Finally, in accordance with 11 U.S.C. Section 1123(a)(6) of the
Bankruptcy Code, the Debtor shall include a provision in its articles of
incorporation prohibiting the issuance of nonvoting equity securities.
D. THE NEW VALUE CONTRIBUTION.
VI.5 Sterne Agee has indicated to the Debtor a desire to make the New
Value Contribution in order that all holders of
21
<PAGE> 23
pre-petition Equity Securities shall be able to retain such Equity Securities
in connection with confirmation of the Plan. The Committee, with the Debtor's
assistance, has negotiated an agreement with Sterne Agee on the amount of the
New Value Contribution. Pursuant to the agreement reached by the Committee, the
New Value Contribution shall be $185,000, which amount shall be paid to the
Debtor on the Effective Date.
E. THE MERGER WITH BOBBY ALLISON CELLULAR.
VI.6 The Debtor has entered into a certain merger agreement with Bobby
Allison Cellular for the merger of Bobby Allison Cellular into the Debtor (the
"Merger"). However, the Merger is conditioned upon several events, including
without limitation, Sterne Agee making the New Value Contribution, the
confirmation of the Plan and the Debtor's emergence from this Chapter 11 Case.
As a result, the Merger, should it occur, will not take place until after the
Effective Date. Pursuant to the terms of the Plan, neither the Reorganized
Debtor nor Bobby Allison Cellular will be obligated to pay any Claims accruing
against the Debtor prior to the Effective Date. All holders of such Claims, upon
being allowed pursuant to the terms hereof, will share in the Available Cash. As
a result, the benefit of the Merger will inure to the holders of Equity
Securities in the Reorganized Debtor.
Bobby Allison Cellular is a privately owned company that operates
twelve retail locations in Central Florida
22
<PAGE> 24
specializing in the sale of cellular phones and related communications
equipment. Bobby Allison Cellular desires to expand its operations into new
markets and requires additional equity investment to do so. Sterne Agee believes
that it can and has agreed to attempt to raise such additional equity investment
for Bobby Allison Cellular but only in the event that the Merger is consummated
after the Effective Date.
F. POST-CONFIRMATION MANAGEMENT.
VI.7 Assuming the New Value Contribution is made, the Reorganized
Debtor proposes to continue to operate its business. The Reorganized Debtor
further proposes to consummate the Merger with Bobby Allison Cellular as set
forth above. As of the Effective Date, the Reorganized Debtor, assuming the New
Value Contribution is made, shall reconstitute its board of directors to include
those persons selected by Sterne Agee, which persons shall be identified prior
to the Confirmation Date.
G. PRESERVATION AND PROSECUTION OF CAUSES OF ACTION.
VI.8 The Reorganized Debtor shall have the right to pursue, prosecute
and settle any and all claims or causes of action, whether or not such claims or
causes of action have been commenced as of the Effective Date, causes of action
which are property of the estate under Section 541 of the Bankruptcy Code,
including causes of action relating to turnover, avoidance actions and voidable
transfers under Section 542 through 550 of the Bankruptcy Code. Any recoveries
from such causes of action shall
23
<PAGE> 25
be included in the Available Cash to be distributed to the creditors hereunder,
whether on the Initial Distribution Date or at such time as such recoveries
occur.
H. AUTOMATIC OPERATION OF CERTAIN PROVISIONS OF THE PLAN.
VI.9 As of the Effective Date, the following shall be accomplished and
effectuated, without any action by any affected entity and without further
action by the Bankruptcy Court:
(a) The rejection of the executory contracts and unexpired
leases of the Debtor's estate to be assumed or rejected under Article VII of the
Plan, with the exception of the Coral Square Lease;
(b) The assumption of the Coral Square Lease;
(c) The creation of the Distribution Reserve;
(d) The retention of the Allowed Interests in the Debtor in
accordance herewith, provided the New Value Contribution is made;
(e) The transfer and vesting of all property of the estate
into the Reorganized Debtor provided the New Value Contribution is made; and
(e) The reconstitution of the board of directors for the
Reorganized Debtor, provided the New Value Contribution is made.
24
<PAGE> 26
I. PROCEDURE WITH RESPECT TO THE FILING OF REJECTION CLAIMS.
VI.10 All Rejection Claims must be filed with the Bankruptcy Court on
or before thirty (30) days after the Confirmation Date.
J. OBJECTIONS TO CLAIMS.
VI.11 Objections to Claims shall be interposed no later than the last
date therefor pursuant to an order of the Bankruptcy Court. The failure of any
other party in interest to object to or examine any Claims for the purposes of
voting on this Plan shall not be deemed a waiver of the rights of such party in
interest to object to or reexamine such Claims in whole or in part or seek the
subordination of any of them.
K. UNCLAIMED DISTRIBUTIONS.
VI.12 If any Distribution pursuant to the Plan remains unclaimed for a
period of ninety (90) days after such Distribution has been delivered to the
holder entitled thereto, the allowed amount of the Claim upon which such
Distribution was made shall be deposited into the Registry of the Bankruptcy
Court.
VI.13 A distribution of funds is unclaimed, if, without limitation, the
holder of a Claim entitled thereto does not cash a check or returns a check or
if the check mailed to the holder at the address set forth in the Debtor's
Schedules or set forth in a proof of Claim filed by such holder is returned by
the United States Postal Service or any other country's postal service as
25
<PAGE> 27
undeliverable.
VI.14 Any funds unclaimed for the period described in paragraph 6.12 of
the Plan shall be forfeited by the holder otherwise entitled thereto, and all
rights, title and interest therein shall thereupon vest as described in
paragraph 6.12 of the Plan.
L. MISCELLANEOUS PROVISIONS REGARDING DISTRIBUTIONS UNDER THE PLAN.
VI.15 Except as otherwise expressly provided in the Plan, the
Reorganized Debtor may, with the prior approval of the Bankruptcy Court, setoff
against any Claim and the payments made pursuant to this Plan in respect of such
Claim, Claims of any nature whatsoever that the Debtor may have against the
holder of such Claim, but neither the failure to do so nor the allowance of any
Claim hereunder shall constitute a waiver or release by the Debtor of any Claim
that the Debtor may have against the holder of such Claim.
VI.16 Unless the holder of a Claim advises, as appropriate in time, the
Debtor or their attorneys in writing of a change of address, all Distributions
or notices shall be sent to the holder at his address as stated in the Debtor's
Schedules, as stated in a properly filed proof of Claim or to such creditor's
attorney of record in the Chapter 11 Case. The Debtor shall have no obligation
to locate the holder of a Claim whose distribution or notice is properly mailed
but nevertheless returned. Any
26
<PAGE> 28
Distribution that is returned because of the inability to locate such holder
shall be an unclaimed distribution as described in paragraph 6.12 of the Plan.
ARTICLE VII
PROVISIONS FOR ASSUMPTION AND REJECTION
OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. GENERALLY.
VII.1 Subject to Section 7.2 below, all executory contracts and
unexpired leases of the Debtor's estate not previously assumed or rejected under
Section 365 of the Bankruptcy Code with approval of the Bankruptcy Court are
hereby rejected by the Debtor as of the Confirmation Date. The holders of
Rejection Claims shall have a period of thirty (30) days after the Confirmation
Date to file such Claims. THE FAILURE TO FILE SUCH REJECTION CLAIMS SHALL
FOREVER BAR SUCH CLAIMS AND THE HOLDERS THEREOF SHALL NOT BE ENTITLED TO ANY
DISTRIBUTION UNDER THIS PLAN.
B. CORAL SQUARE LEASE.
VII.2 Pursuant to 11 U.S.C. Section 365, the Debtor hereby seeks
authority from the Court to assume the Coral Square Lease on the Effective Date
in conjunction with confirmation of the Plan. The Debtor asserts that it is
current in its pre- and post petition obligations to the landlord under the
Coral Square Lease and therefore the Debtor does not need to cure any defaults
thereunder. The Debtor has made all of the required rental payments under the
Coral Square Lease since the filing of these
27
<PAGE> 29
proceedings. If, however, any such defaults or arrearages exist, then the Debtor
proposes to pay such amounts on the Effective Date. The Debtor also asserts that
it complies with, or is able to comply with, the remaining provisions of Section
365 of the Bankruptcy Code so as to enable it to assume the Coral Square Lease.
ARTICLE VIII
ACCEPTANCE OR REJECTION OF PLAN AND EFFECT
OF REJECTION BY ONE OR MORE CLASSES OF CLAIMS
VIII.1 Each impaired Class shall be entitled to vote separately to
accept or reject the Plan.
28
<PAGE> 30
VIII.2 A Class of Claims shall have accepted the Plan if the Plan is
accepted by at least two-thirds in amount and more than one-half in number of
the Allowed Claims of such Class that have filed ballots accepting or rejecting
the Plan. A Class of Interests shall have accepted the Plan if the Plan is
accepted by at least two-thirds in amount of the Allowed Interests of such Class
that have filed ballots accepting or rejecting the Plan.
ARTICLE IX
PROVISIONS TO INVOKE CRAMDOWN
IX.1 If all of the applicable requirements of section 1129(a) of the
Bankruptcy Code, other than subparagraph 8 thereof, are determined to have been
satisfied by the Bankruptcy Court with respect to the Plan, then the Debtor may
seek confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code
(the "Cramdown Provisions"), either at the Confirmation hearing if appropriate
amendments or modification are made at or prior to such hearing or at the
continued confirmation hearing. For purposes of seeking confirmation of the Plan
under the Cramdown Provisions, the Debtor reserves the right to modify or vary
the terms of the Plan or the treatment of the Claims of those Classes that
rejected the Plan so as to comply with the requirements of the Cramdown
Provisions.
29
<PAGE> 31
ARTICLE X
MISCELLANEOUS
A. WITHDRAWAL OF THE PLAN.
X.1 The Debtor reserves the right to modify or revoke and withdraw the
Plan in their sole discretion, at any time before the Confirmation Date or, if
for any reason the Plan cannot be consummated after the Confirmation Date, at
any time up to and including the Effective Date. If the Plan is revoked and
withdrawn, then (a) nothing contained herein shall be deemed to constitute a
waiver or release of any Claims by or against the estate or to prejudice in any
manner the rights of any person in any further proceedings in the Chapter 11
Case or otherwise; and (b) any provision of the Confirmation Order shall be null
and void and all such rights of or against the estate shall exist as though the
Plan had not been filed and no actions were taken to effectuate it.
B. EXCLUSIVITY PERIOD.
X.2 The Debtor retains the exclusive right to amend the Plan and to
solicit acceptances thereof through and until the Effective Date.
C. MODIFICATION OF THE PLAN.
X.3 PRECONFIRMATION MODIFICATION. The Debtor 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.
X.4 POST-CONFIRMATION AMENDMENT NOT REQUIRING RESOLICITATION. After the
entry of the Confirmation Order, the
30
<PAGE> 32
Debtor may modify the Plan 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 (a) the approval
of the Bankruptcy Court for such modification is obtained, after notice and a
hearing; and (b) such modification shall not materially and adversely affect the
interests, rights, treatment or distributions of any class of Allowed Claims or
Allowed Interests under the Plan.
31
<PAGE> 33
X.5 POST-CONFIRMATION/PRE-CONSUMMATION AMENDMENT REQUIRING
RESOLICITATION. After the Confirmation Date and before the Effective Date, the
Debtor may modify the Plan in a way that materially or adversely affects the
interests, rights, treatment or distributions of a Class of Claims or Interests,
provided that (a) the Plan, as modified, meets applicable Bankruptcy Code
requirements; (b) the approval of the Bankruptcy Court is obtained for such
modification, after notice and a hearing; (c) 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 of Claims affected by such modification; (d) such
modification is accepted by at least two-thirds in amount of the Allowed
Interests voting in each Class of Interests affected by such modification; and
(e) the Debtor complies with section 1125 of the Bankruptcy Code with respect to
the Plan, as modified.
D. CONFIRMATION ORDER CONTROLS.
X.6 To the extent the Disclosure Statement or any agreement entered
into between or among the Debtor and any third party is inconsistent with the
Plan, the Plan shall control. To the extent that the Plan, the Disclosure
Statement or any agreement entered into between or among the Debtor and any
third party is inconsistent with the Confirmation Order, the Confirmation Order
shall control.
32
<PAGE> 34
E. EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS.
X.7 The 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.
F. SUBSTANTIAL CONSUMMATION OF THE PLAN
X.8 For purposes of any future analysis regarding appellate issues
(including the mootness of any appeal of the Confirmation Order which has not
been stayed), modification of the Plan, administration of the Plan and
jurisdiction of the Bankruptcy Court, the Plan shall be deemed to be
substantially consummated upon completion of the Effective Date and the
distributions thereon as required by the Plan. Nothing herein, however, shall
limit or affect the Bankruptcy Court's retention of jurisdiction under this
Plan.
G. TERMS OF THE PLAN ARE BINDING.
X.9 Pursuant to section 1141 of the Bankruptcy Code, the Plan and all
of its terms, when approved and confirmed by the Bankruptcy Court, shall be
binding upon, including, without limitation, the Debtor, the Debtor's estate,
all holders of Claims, allowed or not, all holders of Interests, allowed or not,
all parties in interest and their respective successors and assigns.
33
<PAGE> 35
H. SUCCESSORS AND ASSIGNS.
X.10 The rights, benefits and obligations of any person or entity named
or referred to in the Plan shall be binding upon, and shall inure to the benefit
of, the heir, executor, administrator or assign of such person or entity.
I. SECTION HEADINGS.
X.11 The section headings contained in the Plan are for reference
purposes only and shall not affect in any way the meaning or interpretation of
the Plan.
J. DETERMINATION OF THE EFFECTIVE DATE OF THE PLAN.
X.12 Evidence of the Effective Date of the Plan shall be a certificate
executed by the Debtor and filed with the Bankruptcy Court prior to or on the
Effective Date setting forth the date constituting the Effective Date by virtue
of the definition of that term in paragraph 1.1 of the Plan.
K. SERVICE.
X.13 All documents hereunder shall be served by first class or
international mail, postage prepaid. Service shall be complete upon mailing.
L. RETENTION OF JURISDICTION BY THE BANKRUPTCY COURT.
X.14 The Bankruptcy Court shall retain jurisdiction of these
proceedings after the Confirmation Date of this Plan until the entry of the
final decree pursuant to Bankruptcy Rule 3022 for the following purposes:
(i) To enable the Debtor to consummate the Plan and any
amended or modified Plan and to resolve any disputes arising with respect
thereto;
34
<PAGE> 36
(ii) To enable the Debtor to consummate any and all
proceedings that it may bring prior to entry of the Confirmation Order;
(iii) To determine all controversies relating to or concerning
the classification, subordination, allowance, valuation or satisfaction of
Claims;
(iv) To enable the Debtor to assume or reject executory
contracts and/or unexpired leases, including the determination of any defaults
thereunder;
(v) To liquidate or estimate for purposes of allowance all
contested, contingent, or unliquidated Claims;
(vi) To determine the validity, extent, and priority of all
liens, if any, against property of the estate;
(vii) To determine all assertions of an ownership interest in,
the value of, or title to, any property of the estate;
(viii) To determine all applications for compensation and
reimbursement and objections to Administrative Claims;
(ix) To determine all (1) adversary proceedings, contested or
litigated matters brought before the Bankruptcy Court, and (2) any and all
claims or causes of action asserted by the Debtor;
(x) Without limiting the generality of the preceding
35
<PAGE> 37
paragraph, to determine any avoidance action brought by the Debtor, whether
before or after the Confirmation Date;
(xi) To determine all controversies arising out of any
purchase, sale, or contract made or undertaken by the Debtor prior to the
Confirmation Date;
(xii) To enforce all agreements assumed, if any, and to
recover all property of the estate, wherever located;
(xiii) To determine any tax liability of the estate in
connection with the Plan, actions taken, distributions or transfers made
thereunder;
(xiv) To enforce any and all injunctions created pursuant to
the terms of the Plan;
(xv) To modify the Plan or to remedy any defect or omission or
reconcile any inconsistencies in the Plan either before or after the entry of
the Confirmation Order;
(xvi) To hear and determine all controversies, suits, and
disputes that may arise in connection with the interpre tation or enforcement of
the Plan;
(xvii) To make such orders as are necessary or appropriate to
carry out the provisions of the Plan; and
(xviii) To enter a final decree pursuant to Bankruptcy Rule
3022.
36
<PAGE> 38
Dated: June ____ , 1998
- ------------------------------
PAUL J. BATTISTA, ESQ.
Florida Bar No. 884162
CAMILLE A. COLELLA, ESQ.
Florida Bar No. 979460
Counsel to the Debtor
Kelley Drye & Warren LLP
2400 Miami Center
201 S. Biscayne Blvd.
Miami, FL 33131
(305) 372-2400
2CONNECT EXPRESS, INC.
By:
------------------------------------
Thomas H. Hicks
President
<PAGE> 1
EXHIBIT 2
---------
Second Amended
Disclosure Statement
for Amended
Plan of Reorganization
Filed June 24, 1998
<PAGE> 2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
In re: CASE NO. 98-20169-BKC-RBR
CHAPTER 11
2CONNECT EXPRESS, INC.
Debtor.
/
- --------------------------------
SECOND AMENDED DISCLOSURE STATEMENT FOR AMENDED PLAN OF
REORGANIZATION PROPOSED BY THE DEBTOR
2CONNECT EXPRESS, INC. (the "Debtor") proposes the following
Second Amended Disclosure Statement For Amended Plan of Reorganization (the
"Plan"), pursuant to sections 1121(b) and 1125, Title 11, United States Code
(the "Bankruptcy Code"):
GENERALLY
This Disclosure Statement has been prepared pursuant to
sections 1121 and 1125 of the Bankruptcy Code by the Debtor and describes, among
other things, the terms and provisions of the Plan filed in connection herewith.
The information contained herein has been prepared by the
Debtor in good faith, based upon information from (i) the Schedules filed by the
Debtor in this Chapter 11 Case, (ii) the books and records of the Debtor, (iii)
Debtor's management, and (iv) the court record in these bankruptcy proceedings.
The information contained herein has not been the subject of an audit or other
independent third party verification. The Debtor believes that the Disclosure
Statement complies with the requirements of the Bankruptcy Code and contains
sufficient
1
<PAGE> 3
information to enable all creditors to make an informed judgment concerning the
Plan. The statements contained in this Disclosure Statement generally are made
as of June 5, 1998, unless another time is specified herein, and delivery of
this Disclosure Statement shall not create an implication that there has been no
change in the information set forth herein since the date hereof and the date of
the materials relied upon in preparation of this Disclosure Statement.
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE
OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN, AND NOTHING CONTAINED HEREIN
SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE
ADMISSIBLE IN ANY PROCEEDING INVOLVING THE DEBTOR. CREDITORS AND INTEREST
HOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN PROFESSIONALS TO DETERMINE THE TAX
OR OTHER LEGAL EFFECTS ON THEM.
THIS DISCLOSURE STATEMENT MUST BE APPROVED BY ORDER OF THE
BANKRUPTCY COURT AS CONTAINING INFORMATION OF A KIND AND IN SUFFICIENT DETAIL TO
ENABLE A HYPOTHETICAL REASONABLE INVESTOR TYPICAL OF CREDITORS OF THE RELEVANT
CLASSES TO MAKE AN INFORMED JUDGMENT CONCERNING THE PLAN. HOWEVER, PLEASE BE
ADVISED THAT BANKRUPTCY COURT APPROVAL OF THIS DISCLOSURE STATEMENT WILL NOT
CONSTITUTE A RECOMMENDATION BY THE BANKRUPTCY COURT EITHER FOR OR AGAINST THE
PLAN.
ANY REPRESENTATIONS MADE IN ORDER TO SECURE AN ACCEPTANCE
OF THE PLAN THAT ARE NOT CONTAINED IN THE DISCLOSURE
2
<PAGE> 4
STATEMENT SHOULD BE REPORTED TO DEBTOR'S COUNSEL AND THE U.S. TRUSTEE FOR
APPROPRIATE ACTION.
A ballot accompanies this Disclosure Statement for use in
voting on the Plan. See Article II of the Disclosure Statement below. A sample
form of ballot is attached to this Disclosure Statement as Exhibit A.
Confirmation of the Plan depends, in part, upon the receipt of
a sufficient number of votes in favor of the Plan from persons holding Allowed
Claims entitled to vote under the Plan. Accordingly, if you hold an Allowed
Claim entitled to vote, your vote is important.
The Disclosure Statement describes distributions to creditors
under the Plan. YOU ARE URGED TO STUDY THE PLAN AND TO CONSULT YOUR COUNSEL
CONCERNING THE PLAN AND ITS IMPACT UPON YOUR LEGAL RIGHTS. THE PLAN IS A LEGALLY
BINDING ARRANGEMENT AND SHOULD BE READ IN ITS ENTIRETY, AS OPPOSED TO RELYING ON
THE SUMMARY IN THIS DISCLOSURE STATEMENT.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREWITH.
3
<PAGE> 5
ARTICLE I
INTRODUCTION
A. DEBTORS' HISTORICAL AND BACKGROUND INFORMATION.
The Debtor is a corporation organized and existing under the
laws of the state of Florida. The Debtor was formed in April 1996 and opened its
first store in December 1996. The Debtor is a specialty retailer of Internet,
cellular, PCS, paging, telephone, satellite and other communications related
services and products under the name "2Connect, America's Total Communications
Store." Since its incorporation, the Debtor continued to open new stores
throughout South Florida. At the time of the filing of the within bankruptcy,
the Debtor had ten (10) operating retail locations and one location under lease,
but not operating. With the exception of its Coral Square Store, all of the
Debtor's store locations were in power/strip centers.
In order to finance its operations and the expansion and
development of its stores, the Debtor conducted three private offerings of
common stock, which offerings raised in total an amount equal to $3,236,957. The
private offerings closed on each of May 15, 1996, May 17, 1996 and August 30,
1996. In addition, the Debtor, through its investment banking firm of Sterne
Agee & Leach, Inc. ("Sterne Agee"), completed an initial public offering of the
Debtor's common stock on May 9, 1997. The initial public offering was successful
and the Debtor received gross proceeds therefrom equal to $6.5 million. After
deducting offering
- ----------------------
(1) STERNE AGEE CURRENTLY OWNS 73,339 SHARES OF COMMON STOCK IN THE DEBTOR.
CERTAIN AFFILIATES OF STERNE AGEE OWN AN ADDITIONAL 114,789 SHARES OF COMMON
STOCK IN THE DEBTOR.
4
<PAGE> 6
expenses and the underwriting discount, the Debtor received net proceeds equal
to approximately $5.39 million.
Thereafter, in late 1997, the Debtor obtained a line of credit
in the maximum amount of $1 million from Bay Tech Investments, Inc. ("Bay Tech
Investments"). Bay Tech Investments is controlled by Mr. Allan Fishman, who is
the father of one of the founders of the Debtor, Mr. Marc Fishman. The line of
credit is secured by a first lien and security interest in all of the assets of
the Debtor. As of the filing of this bankruptcy case, the outstanding balance
of the line of credit was $275,000.
B. EVENTS LEADING UP TO THE FILING OF THE CHAPTER 11 CASE.
Since its inception, the Debtor has continued to open new
retail locations in power/strip centers throughout South Florida. The Debtor
expended significant amounts of money on (i) leasehold improvements for such
locations and (ii) inventory to be sold therein. The Debtor also expended
significant amounts of money on advertising so as to draw customers to such
locations. Of all of the Debtor's locations, only the Coral Square Store
operated at a reasonable profit without accounting for corporate overhead.
Certain of the other locations operated either at break-even or just above
break-even without accounting for corporate overhead. The remaining locations
lost money on an operating basis. In addition, the Debtor created and maintained
a corporate overhead structure that was too large and costly for its
5
<PAGE> 7
business operations. As a result, the Debtor was not able to earn a profit since
its inception. Further, by mid to late 1997, the equity monies raised by the
Debtor in its private offerings and the initial public offering were virtually
exhausted.
In order to continue funding its operations, the Debtor needed
to raise additional equity capital in mid to late 1997. The Debtor attempted to
do so through Sterne Agee and through the issuance of convertible debentures.
The Debtor was unsuccessful in doing so.
As a result, in December 1997 and early January 1998, the
Debtor considered the filing of a Chapter 11 bankruptcy. The bankruptcy filing
would allow the Debtor to (i) reject leases for non-performing store locations,
(ii) preserve cash and defer pre- petition liabilities, (iii) restructure its
liabilities, and (iv) provide a mechanism for the Debtor to be sold or for a new
equity infusion. The Debtor was also concerned about preserving its existing net
operating losses. For such reasons, the Debtor filed its voluntary petition on
January 12, 1998.
C. SUMMARY OF THE PROCEEDINGS IN THE CHAPTER 11 CASE.
On January 12, 1998, the Debtor filed a voluntary petition
under Chapter 11 of the Bankruptcy Code. Immediately thereafter, Marc Fishman,
the Debtor's pre-petition CEO and Chairman of the board of directors resigned
from such positions.
6
<PAGE> 8
The board of directors of the Debtor asked Thomas Hicks to assume such
responsibilities on an interim basis and Mr. Hicks agreed to do so. Within days
of the filing of the petition, the Debtor filed (i) an Ex-Parte Motion to Employ
Kelley Drye & Warren, LLP as counsel to the Debtor, (ii) an Ex-Parte Motion to
Employ Baker & McKenzie as special counsel to the Debtor, and (iii) a Motion to
Reject Certain Leases of Non Residential Real Property. The Court ultimately
granted such motions. On January 20, 1998, the Debtor filed an Ex-Parte
Application to Employ Strategic Advisory Group as Investment Bankers/Advisors to
the Debtor to assist the Debtor in raising equity capital. The Court ultimately
granted such motion on February 11, 1998. On March 17, 1998, the Debtor filed an
Ex- Parte Motion to employ the accounting firm of KPMG Peat Marwick, LLP in
order to prepare the Debtor's tax return and assist in the preparation of an
audit in connection with the filing of its Form 10K with the SEC. The Court
granted such motion.
On January 27, 1998, the Debtor filed an Ex-Parte Motion to
Extend the Time to file Schedules, which Motion the Court granted. On February
5, 1998, the Debtor filed its Schedules and Statement of Financial Affairs. In
addition, the Debtor filed separate motions to pay pre-petition warranty
contract premiums and to honor pre-petition customer refunds and
- ------------------------
(2) MR. HICKS WAS ENGAGED BY THE DEBTOR IN MID TO LATE 1997 AS A FINANCIAL
CONSULTANT. SOON THEREAFTER, HE BECAME A DIRECTOR OF THE DEBTOR AND ITS CHIEF
FINANCIAL OFFICER.
7
<PAGE> 9
pay pre-petition employee out of pocket expenses. The Court granted such
motions.
Prior to the filing of the bankruptcy, the Debtor met with Bay
Tech Investments in order to gain its consent to the post petition use of cash
collateral and to provide debtor in possession financing to the Debtor. Shortly
after the case was filed, the Debtor and Bay Tech Investments entered into a
stipulation whereby Bay Tech Investments agreed to the Debtor's use of cash
collateral and further agreed to provide debtor in possession financing to the
Debtor in a maximum amount equal to $500,000. The Court preliminarily approved
such stipulation on February 11, 1998 and finally approved it on March 2, 1998.
The Debtor, on February 25, 1998 filed (i) a motion to sell
certain excess inventory to Cellstar free and clear of all liens and
encumbrances, and (ii) a motion to sell certain excess inventory to Leon Katz
free and clear of all liens and encumbrances. The Debtor also filed a motion on
March 17, 1998 to sell certain excess inventory to Brightstar. The Debtor
requested hearings on such motions on shortened notice due to the price and
technology sensitive nature of the inventory being sold. The Court granted each
such motion and authorized the Debtor to sell such assets in accordance with the
terms thereof. The Debtor promptly consummated such sales.
Thereafter, the Debtor filed motions to reject several
employment contracts of certain pre and post petition management
8
<PAGE> 10
personnel, including Marc Fishman, Thomas Hicks, Kevin Killoran, Larry Pacey and
Jeff Manly. The Court granted each such motion.
On February 24, 1998, the United States Trustee's Office
appointed an Official Committee of Unsecured Creditors (the "Committee"), which
Committee is comprised of Robert E. Utsman, Harold Leitman and Dan Roe. The
Committee engaged Daniel L. Bakst of Bakst, Cloyd and Bakst, P.A. as its counsel
in this case. The Committee, although supportive generally of the Debtor's
efforts during the case, filed a motion to convert the case to a case under
Chapter 7 on April 4, 1998. The Debtor met with counsel to the Committee to
discuss the Debtor's proposed plan of reorganization, which plan is described
herein. Based upon the terms of the Plan, the Committee decided to withdraw its
motion to convert without prejudice to re-filing and having a hearing on 7 days
notice.
Finally, the Debtor filed a motion to engage an auctioneer and
to conduct an auction of its excess inventory. Since the three previous bulk
sales, the Debtor had not been able to locate any additional buyers. In
addition, the Debtor was not able to liquidate its excess inventory through its
retail locations. Finally, the Debtor believed that the excess inventory was
depreciating in value on a daily basis. As a result, the Debtor decided to
conduct an auction. The Debtor thereafter filed a motion for authority to
conduct an auction and to engage Stampler auctioneers to assist the Debtor
therein. On March 10,
9
<PAGE> 11
1998, however, the Court denied the Debtor's request to conduct an auction
partly on the basis that the Debtor had not filed a plan and the Court, like the
Committee above, did not know whether the Debtor could propose a feasible plan.
The Debtor sought reconsideration of such ruling. In the meantime, however, the
Debtor filed the initial version of the Plan. At the hearing on the motion for
reconsideration, the Court indicated that it had read the Plan and based in part
thereon decided to allow the Debtor to conduct the auction of its excess
inventory.
On April 22, 1997, the Debtor moved all of its excess
inventory to its Davie store location and conducted the auction through Stampler
Auctioneers. The Debtor believes that the auction was a success in that the
Debtor was able to recover an amount equal to approximately $335,500 net of all
fees paid to Stampler Auctioneers.
After the auction, the Debtor closed and moved out of all of
its remaining store locations with the exception of its Coral Square Lease. The
Debtor has rejected the nonresidential leases for all such locations with the
exception of the Coral Square location. The Debtor also moved out of its
corporate headquarters location because it no longer needed the space given its
much reduced operations. Mr. Hicks has sublet a significantly smaller amount of
space to the Debtor in order to allow the Debtor to continue its administrative
and financial reporting functions for the Coral Square location. The proposed
rent for such space
10
<PAGE> 12
was approximately $1000 per month compared to the rent at the original corporate
headquarters, which was in excess of $5,000 per month. The Debtor filed a motion
to approve such sublease and the Court granted the motion.
On April 15, 1998, the Debtor filed the initial version of the
Plan and Disclosure Statement. A hearing was set for the approval of the
Disclosure Statement on May 29, 1998. Since the filing of such Plan, however,
several events have occurred which necessitate amendments to the Plan. In
addition to the events described above, the Committee has negotiated and
finalized, along with the Debtor, an agreement with Sterne Agee & Leach for
Sterne Agee & Leach to make the New Value Contribution on the Effective Date in
an amount equal to $185,000. The Debtor has requested and expects to shortly
receive a total deposit on such agreement in an amount equal to $50,000. The
Debtor already has a $10,000 initial deposit.
In addition, the Debtor has entered into a Management
Agreement with Bobby Allison for the management and operation of the Coral
Square store location, which is the Debtor's last remaining store. The Debtor,
as a result of reduced merchandise assortments and advertising, is not able to
operate the Coral Square store on a profitable basis. The Debtor has been and
expects to continue losing approximately $12,000 per month operating such store.
As discussed in more detail in Article V(E) herein, the Debtor anticipates that
it will merge with Bobby
11
<PAGE> 13
Allison shortly after the Effective Date of the Plan. In connection therewith,
Bobby Allison is only interested in the Debtor maintaining operations in the
Coral Square store. As a result, Bobby Allison is willing to enter into the
Management Agreement and manage the Coral Square store. The Debtor filed a
motion to authorize it to enter into the Management Agreement, which motion was
granted by the Court at a hearing on June 16, 1998. Bobby Allison and the Debtor
have transitioned the management of the Coral Square store to Bobby Allison,
including taking a physical inventory of the inventory at such store. Following
transition of the Coral Square store to Bobby Allison, the Debtor has further
reduced its corporate personnel to four persons, namely, Thomas Hicks, Chip
Chalfant, M. Bolden and J. Kinsey. Mr. Hicks will be full time through the end
of June and then part time (20-30 hours per week) thereafter through
confirmation at an hourly rate of $100 per hour. Mr. Chalfant will work part
time (10 hours per week) through confirmation at a rate of $50 per hour. Ms.
Bolden will be full time through confirmation at a rate of $580.00 per week.
Finally, Ms. Kinsey will be part time (16 hours per week) at a rate of $14.50
per hour. The major tasks to be performed through confirmation include monthly
DIP reports, sales and other tax returns, account receivable collections, sales
of contracts and remaining assets, disbursement agent to creditors, transition
of the Coral Square store location and miscellaneous matters. Finally, the
Debtor will continue to engage Patty Silverman as a direct salesperson for
12
<PAGE> 14
Nextel, Sprint and Primeco as long as the gross margin from her sales exceeds
her weekly compensation. Finally, the Debtor has filed a motion to enforce the
automatic stay against BellSouth Cellular. The Debtor believes that BellSouth
violated the automatic stay when it terminated the Debtor's ability to activate
cellular phones through BellSouth. BellSouth asserts that it had a right to do
so 12 because the contract between the Debtor and BellSouth terminated by its
own terms. The Debtor asserts that such contract did not terminate and was in
full force and effect, thereby making BellSouth's action a direct and willful
violation of the automatic stay. The Debtor has also sought sanctions against
BellSouth for such conduct. BellSouth and the Debtor have settled this dispute
and the motion. The terms of the settlement provide that BellSouth will pay the
estate an amount equal to $66,000 and waive any claim it has against the
estate.3 In addition, the Debtor will issue a general release to BellSouth. The
Court approved this settlement at a hearing on June 16, 1998.
As a result of the termination of service from BellSouth,
however, the Debtor had to locate another provider so as to enable
it to continue its operations. The Debtor approached Bobby Allison
and requested that Bobby Allison allow the Debtor to activate
cellular phones through
13
<PAGE> 15
Bobby Allison and AT&T agreed to do so. Therefore, the Debtor has been
activating phones and continuing its business through AT&T.
The Debtor, due mainly to its corporate overhead and slow
sales in all but the Coral Square store location, has experienced losses during
this Chapter 11 Case. Attached hereto as Exhibit B are the pertinent pages from
the Debtor's DIP reports filed with the Court during these proceedings. As a
result of these losses, the Debtor has been focusing on closing all of its store
locations except the Coral Square store, liquidating its excess inventory,
reducing corporate overhead and expenses and negotiating the New Value
Contribution.
The Debtor is a public company with its Equity Interests
registered to trade in accordance with Section 12 of the Securities Exchange Act
of 1934. The Debtor was required to file an audited set of financial statements
for the year ended December 31, 1997. However, due to the lack of resources, the
Debtor was unable to have an audit of its books and records performed. As a
result, the Debtor could not complete its Form 10K for 1997. The Debtor
anticipates that it will become current in its filings with the Securities and
Exchange Commission after it emerges from these bankruptcy proceedings.
14
<PAGE> 16
D. CLAIMS AGAINST THE DEBTOR PROVIDED FOR IN THE PLAN
The Plan separately classifies the Claims and Interests into
four (4) Classes of Claims and Interests, which Classes are more specifically
set forth in Article III of the Plan. The Classes and the estimated amount of
Claims therein are set forth below. Such Claims are based upon the information
available to the Debtor, including, without limitation, the Debtor's schedules
and the proofs of claims filed in this case through the date hereof.
15
<PAGE> 17
CATEGORIES AND ESTIMATED CLAIMS
Class 1- Secured Claim of
Bay Tech Investments $ unknown(4)
Class 2- Priority Claims $ 44,496(5)
Class 3- Unsecured Claims $2,674,553(6)
Class 4- Interests 100% - pre-petition equity
Of the Claims listed above, the Debtor is only aware of five
claims of insiders. They consist of (i) the Secured Claim of Bay Tech
Investments, (ii) a Rejection Claim in the amount of $181,250 arising out of the
rejection of the employment contract of Marc Fishman, the Debtor's former CEO,
(iii) a Rejection Claim in the amount of approximately $8,876 arising out of the
rejection of the employment contract of Kevin Killoran, the former secretary
- ---------------------------
(4) THE DEBTOR PAID THE OUTSTANDING PRINCIPAL AND INTEREST OWING TO BAY TECH
INVESTMENTS ON OR ABOUT MARCH 30, 1998. HOWEVER, BAY TECH MAY STILL BE OWED
CERTAIN AMOUNTS, INCLUDING, WITHOUT LIMITATION ATTORNEYS' FEES AND EXPENSES.
(5) THE PRIORITY CLAIMS CONSIST OF ACCRUED VACATION PAY TO FORMER EXPLOYEES.
(6) THIS AMOUNT INCLUDES THE UNSECURED NON-PRIORITY CLAIMS SCHEDULED BY THE
DEBTOR AND THE PROOFS OF CLAIMS FILED AS THE BAR DATE IN THIS CASE. THE DEBTOR
BELIEVES THAT IT HAS VALID AND SUSTAINABLE OBJECTIONS TO APPROXIMATELY $1.75
MILLION OF THESE CLAIMS. IF SUCCESSFUL IN THESE OBJECTIONS, THEN THE DEBTOR
EXPECTS TO LIMIT THE TOTAL AMOUNT OF ALLOWED UNSECURED CLAIMS TO APPROXIMATELY
$2 MILLION. HOWEVER, SINCE CERTAIN LEASES OF NON-RESIDENTIAL REAL PROPERTY HAVE
ONLY RECENTLY BEEN REJECTED, ADDITIONAL REJECTION CLAIMS MAY BE FILED PRIOR TO
CONFIRMATION OF THE PLAN, THEREBY INCREASING THE TOTAL AMOUNT OF ALLOWED
UNSECURED CLAIMS.
(7) THE DEBTOR BELIEVES THAT THIS CLAIM WAS INCORRECTLY CALCULATED PURSUANT TO
THE LIMITATIONS CONTAINED IN 11 U.S.C. SECTION 502(b)(7). THE DEBTOR BELIEVES
THAT THE CORRECT AMOUNT OF SUCH CLAIM SHOULD EQUAL APPROXIMATELY $150,000
PURSUANT TO SECTION 502(b)(7). IN ADDITION, MR. FISHMAN FILED A PRIORITY CLAIM
IN THE AMOUNT OF $5,769.
16
<PAGE> 18
for the Debtor(8), (iv) a Rejection Claim in the amount of $244,235 arising out
of the rejection of the employment contract of Thomas Hicks, the Debtor's
current interim CEO, and for accrued vacation in the amount of $11,538 for Mr.
Hicks, and (v) a Rejection Claim in the amount of $105,625 arising out of the
rejection of the employment contract of Billy Fowler, the Debtor's former vice
president of store operations, and for accrued vacation in the amount of $5,625
for Mr. Fowler.
Other than the claims of insiders described above, the Debtor
is aware of only one transaction with an insider, which transaction was the loan
from Bay Tech Investments to the Debtors pre-petition as well as the DIP
financing that Bay Tech provided the Debtor with the approval of the Court, each
of which is discussed in detail above.
ARTICLE II
VOTING PROCEDURES AND REQUIREMENTS
A. MANNER OF VOTING ON THE PLAN.
Each creditor entitled to vote on the Plan may cast a vote by
completing, dating, and signing a ballot, and filing the ballot with the Clerk
of the Bankruptcy Court at the following address:
- -------------------------
(8) MR. KILLORAN ALSO FILED TWO PRIORITY CLAIMS, ONE IN THE AMOUNT OF $2,076 AND
ONE IN THE AMOUNT OF $420.
17
<PAGE> 19
Clerk, United States Bankruptcy Court
Southern District of Florida
United States Courthouse
Clerk's Office
51 S.W 1st Avenue
Miami, Florida 33131
All ballots must be sent directly to the Clerk of the Bankruptcy Court and
received within the time to be prescribed by the Bankruptcy Court.
18
<PAGE> 20
B. CREDITORS AND EQUITY SECURITY INTERESTS ENTITLED TO VOTE
Except as provided below, any holder of a claim or equity
security interest whose claim or interest is impaired under the Plan is entitled
to vote if either (i) its claim or interest has been scheduled by the Debtor and
such claim or interest is not scheduled as disputed, contingent or unliquidated,
or (ii) such holder of a claim or equity security interest has filed a proof of
claim or interest on or before the deadline for filing a ballot to be set by the
Court. A holder of a disputed, unliquidated or contingent claim or interest, or
the holder of a claim or interest that has been objected to, is not entitled to
vote on the Plan unless such claim or interest has been allowed prior to the
balloting deadline by the Bankruptcy Court after notice and a hearing or the
Bankruptcy Court estimates such claim or interest for voting purposes prior to
the balloting deadline. In addition, a vote may be disregarded if the Bankruptcy
Court determines that the acceptance or rejection of the Plan by a creditor was
not solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
C. DEFINITION OF IMPAIRMENT
Under section 1124 of the Bankruptcy Code, a class of claims
or interests is impaired under a plan unless, with respect to each claim or
interest of such class, the plan:
(1) leaves unaltered the legal, equitable, and
19
<PAGE> 21
contractual rights to which such claim or interest
entitles the holder of such claim or interest; or
(2) notwithstanding any contractual provision or appli
cable law that entitles the holder of such claim or
interest to demand or receive accelerated payment of
such claim or interest after the occurrence of a
default:
(A) cures any such default that occurred before
or after the commencement of the case under
this title, other than a default of a kind
speci fied in section 365(b)(2) of the
Bankruptcy Code;
(B) reinstates the maturity of such claim or
interest as such maturity existed before
such default;
(C) compensates the holder of such claim or
inter est for any damages incurred as a
result of any reasonable reliance by such
holder on such contractual provision or such
applicable law; and
(D) does not otherwise alter the legal,
equitable, or contractual rights to which
such claim or interest entitles the holder
of such claim or interest.
20
<PAGE> 22
D. CLASSES UNDER THE PLAN
The classes under the Plan are as follows:
(a) CLASS 1. The Allowed Secured Claim of Bay
Tech Investments against the
Debtor;
(b) CLASS 2. The Allowed Priority Claims
against the Debtor;
(c) CLASS 3. The Allowed Unsecured Claims
against the Debtor; and
(d) CLASS 4. The Allowed Interests in the
Debtor.
E. CLASSES IMPAIRED UNDER THE PLAN
All Classes of Claims and Interests are "impaired" under the
Plan and are entitled to vote to accept or reject the Plan. Any controversy as
to whether any creditor or class of creditors are impaired under the Plan shall,
after notice and a hearing, be determined by the Bankruptcy Court.
21
<PAGE> 23
F. VOTES REQUIRED FOR CLASS ACCEPTANCE
Section 1126(c) of the Bankruptcy Code defines acceptance of a
plan of reorganization or liquidation by a class of claims as the acceptance by
holders of at least two-thirds in amount and more than one-half in number of the
allowed claims of the class actually voting to accept or reject the proposed
plan. Section 1126(d) of the Bankruptcy Code defines acceptance of a plan of
reorganization or liquidation by a class of interests as the acceptance by
holders of at least two-thirds in amount of the allowed interests of the class
actually voting to accept or reject the proposed plan.
G. INFORMATION ON VOTING BALLOTS
Ballots are being forwarded to the holders of Claims and
Interests in all Classes.
ARTICLE III
CONFIRMATION OF THE PLAN
The Bankruptcy Code establishes certain procedural and
substantive requirements for confirmation of a plan of reorganization or
liquidation. In addition, the Bankruptcy Code provides a mechanism which enables
the Debtor to confirm such a plan, notwithstanding rejection thereof by a class
of creditors.
22
<PAGE> 24
A. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy
Court, after notice, to hold a hearing on confirmation of the Plan (the
"Confirmation Hearing"). Section 1128(b) of the Bankruptcy Code provides that
any party in interest may object to confirmation of the Plan. Any objection to
confirmation must be made in writing and filed with the Bankruptcy Court with
proof of service and served upon the following persons within ten (10) days
prior to the Confirmation Hearing:
Paul J. Battista, Esq.
Kelley Drye & Warren, LLP
201 South Biscayne Blvd., Suite 2400
Miami, Florida 33131
Daniel L. Bakst, Esq.
Bakst, Cloyd & Bakst
1551 Forum Place, Bldgs 200 & 400
West Palm Beach, Florida 33401
Steven R. Turner, Esq.
Senior Attorney-Advisor
U.S. Department of Justice
Office of the U.S. Trustee
51 S.W. First Avenue
Room 1204
Miami, FL 33130
unless an objection to confirmation is timely filed and served, it may
not be considered by the Bankruptcy Court.
23
<PAGE> 25
B. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
Section 1129 of the Bankruptcy Code sets forth the substan
tive requirements for confirmation of a plan of reorganization or liquidation.
At the Confirmation Hearing, the Bankruptcy Court will determine whether the
requirements of Section 1129 have been satis fied, in which event the Bankruptcy
Court will enter an order confirming the Plan. The relevant requirements of
section 1129 of the Bankruptcy Code include:
(1) The plan complies with the applicable provisions of
the Bankruptcy Code.
(2) The proponent of the plan has complied with the
applicable provisions of the Bankruptcy Code.
(3) The plan has been proposed in good faith and not by
any means forbidden by law.
(4) Any payment made or promised by a debtor or by a
person issuing securities or acquiring property under
the plan, for services or for costs and expenses in,
or in connection with the case, or in connection with
the plan and incident to the case, has been disclosed
to the court, and any such payment made before the
confirmation of the plan is reasonable, or if such
payment is to be fixed after confirmation of the
plan, such payment is subject to the approval of the
court as reasonable.
(5) The proponent of the plan has disclosed the identity
24
<PAGE> 26
and affiliations of any individual proposed to serve,
after confirmation of the plan, as a director,
officer, or voting trustee of a debtor, an affiliate
of a debtor participating in a plan with a debtor, or
a successor to the debtor under the plan, and the
appointment to, or continuance in, such office of
such individual is consistent with the interests of
creditors and with public policy, and each debtor has
disclosed the identity of any insider that will be
employed or retained by a reorganized debtor and has
disclosed the nature of any compensation for such
insider.
(6) With respect to each class of impaired claims or
interests --
(A) either each holder of a claim or interest of
such class has accepted the plan or will
receive or retain under the plan on account
of such claim or interest, property of a
value, as of the effec tive date of the
plan, that is not less than the amount that
such holder would so receive or retain if
the debtor was liquidated on such date under
chapter 7 of the Bankruptcy Code; or
(B) if section 1111(b)(2) of the Bankruptcy Code
applies to the claim of such class, each
holder
25
<PAGE> 27
of a claim of such class will receive or
retain under the plan on account of such
claim property of a value, as of the
effective date of the plan, that is not less
than the value of such holder's interest in
the estate's interest in the property that
secures such claim.
(7) Each class of claims or interests has either
accepted the plan or is not impaired under
the plan, or the requirements of section
1129(b) are satisfied.
(8) Except to the extent that the holder of a particular
claim has agreed to a different treatment of such
claim:
(A) The plan provides that administration
expenses and gap period claims will be paid
in full on the effective date.
(B) Priority claims (other than gap period
claims and tax claims) will receive, if such
class has accepted the plan, deferred cash
payments of a value equal to the allowed
amount of such claim or, if such class has
rejected the plan, payment in full on the
effective date.
(C) The plan provides that allowed unsecured
claims of governmental units for certain
kinds of taxes will be paid in deferred cash
payments, over a period not exceeding six
years after the date of
26
<PAGE> 28
assessment of such claim, of a value, as of
the effective date of the plan, equal to the
allowed amount of such claim.
(9) If a class of claims is impaired under the plan, at
least one class of impaired claims has accepted the
plan, determined without including any acceptance of
the plan by any insider holding a claim of such
class.
(10) Confirmation of the plan is not likely to be followed
by the liquidation, or the need for further financial
reorganization of the debtor or any successor to the
debtor under the plan, unless such liquidation or
reorganization is proposed in the plan.
(11) All fees payable under section 1930 of title 28,
United States Code, as determined by the Bankruptcy
Court at the hearing on confirmation of the plan,
have been paid or the plan provides for the payment
of all such fees on the effective date of the plan.
The Debtor believes that the Plan satisfies all the statutory
requirements of chapter 11 of the Bankruptcy Code, and that it has complied, or
will have complied, with all of the requirements of chapter 11.
27
<PAGE> 29
C. CRAMDOWN
The Bankruptcy Code provides for confirmation of a plan even
if it is not accepted by all impaired classes of claims if at least one impaired
class has voted to accept the plan. These so-called "cramdown" provisions for
confirmation are set forth in section 1129(b) of the Bankruptcy Code. If any
impaired class of claims does not accept the Plan, the Bankruptcy Court may
still confirm the Plan at the request of the Debtor if, as to each impaired
class which has not accepted the Plan, the Plan does not "discriminate unfairly"
and is "fair and equitable." The phrase "fair and equitable" has different
meanings for secured and unsecured claims and classes of interests. For secured
creditors, fair and equitable usually requires that such secured creditors
receive deferred cash payments equal to the allowed amount of their claim as of
the Effective Date. For unsecured creditors, fair and equitable means that no
class junior to the class of unsecured claims will receive any distribution
under the Plan. If one or more classes of impaired claims under the Plan rejects
the Plan, the Debtor reserves the right to request the Bankruptcy Court to
determine at confirmation whether the Plan is fair and equitable and does not
discriminate unfairly against any rejecting impaired class of claims so as to
allow confirmation despite the vote to reject the Plan. The Debtor also reserves
the right to amend the Plan at that time and in such a manner as to permit
confirmation over the vote of the rejecting impaired class.
28
<PAGE> 30
ARTICLE IV
PROPOSED TREATMENT OF CLASSES UNDER THE PLAN
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization shall classify the claims of a debtor's creditors and interest
holders. The Plan divides the claims of known creditors and the equity security
interests of stockholders into classes and sets forth the treatment offered each
class. Section 101(5) of the Bankruptcy Code defines "claim" as a "right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured" or a "right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment whether or
not such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured."
The Debtor is required under section 1122 of the Bankruptcy
Code to classify the claims and equity security interests into classes that
contain claims which are substantially similar to the other claims and interests
in such class. The Debtor believes that it has classified all claims and
interests in compliance with the provisions of section 1122. It is possible that
a creditor or equity security holder may challenge the Debtor's classification
of claims and interests, and the Bankruptcy Court may find that a different
classification is required for the Plan to be confirmed. In such event, it is
the present intention of the Debtor, to the extent
29
<PAGE> 31
permitted by the Bankruptcy Court, to make such reasonable modifications of the
classification under the Plan to provide for whatever reasonable classification
might be required by the Bankruptcy Court for confirmation and to use the Plan
acceptances received in this solicitation for the purpose of obtaining the
approval of the class or classes of which the accepting holder is ultimately
deemed to be a member.
A. UNCLASSIFIED CLAIMS.
The Bankruptcy Code does not require classification of certain
priority claims against a debtor, including Administrative Claims, Priority Tax
Claims of certain taxing authorities entitled to priority under section
507(a)(8) of the Bankruptcy Code and the U.S. Trustee Fees. In the instant
proceeding, Administrative Claims, Priority Tax Claims and U.S. Trustee Fees are
not classified. However, such Claims shall be treated in the following manner.
(i) ADMINISTRATIVE CLAIMS
An administrative claim ("Administrative Claim") is a claim
for payment of (i) actual and necessary expenses of preserving the Debtor's
estate after the Petition Date, (ii) compensation for professionals pursuant to
Sections 330 and 503 of the Bankruptcy Code, (iii) fees and charges assessed
against the estate pursuant to 28 U.S.C. ss.1930(a) and (b), and (iv)
compensation to professionals after the confirmation of the Plan.
Each holder of an Allowed Administrative Claim, unless
otherwise agreed to by such holder, will receive from the Debtor cash
30
<PAGE> 32
equal to the unpaid portion of such Allowed Administrative Claim on the earlier
of (a) the Confirmation Date, (b) the date on which an order approving payment
of such Claim is entered, or (c) for Administrative Claims that represent
liabilities incurred by the Debtor in the ordinary course of its business during
the Chapter 11 Case, the date on which such Claim becomes due in the ordinary
course of the Debtor's business and in accordance with the terms and conditions
of any agreements relating thereto.
As of the date of this Disclosure Statement, the Bankruptcy
Court has not authorized the payment of any Administrative Claims. The Debtor is
unable at this time to estimate exactly the amount of Administrative Claims
which will be payable in this case due to the amount of work that remains to be
accomplished and the uncertainty of the extent of the objections, if any, that
will be filed in opposition to the confirmation of the Plan, any amendments to
the Plan, or other issues that may arise in the instant proceeding after the
date of this Disclosure Statement. Notwithstanding such uncertainty, the Debtor
anticipates that an aggregate amount of $165,000 (exclusive of retainers to
Kelley Drye & Warren, LLP and Baker & McKenzie) in Administrative Claims will
have been incurred in the aggregate from the Petition Date through the
confirmation of the Plan by Kelley Drye & Warren LLP, as counsel to the Debtor,
Baker & McKenzie, as special counsel to the Debtor, Bakst Cloyd & Bakst, as
counsel to the Committee, KPMG Peat Marwick, as accountants to the Debtor and
Kapila & Company, as accountants to the Committee.
31
<PAGE> 33
(ii) PRIORITY TAX CLAIMS
The holders, if any, of Allowed Priority Tax Claims under
Section 507(a)(8) of the Bankruptcy Code shall be paid 100% of the amount of
their Claims in full on the later to occur of (i) the Initial Distribution Date,
or (ii) within ten (10) days after the date their Allowed Priority Tax Claim is
allowed by a Final Order of the Court. The Debtor estimates that are a total of
$15,941 in Priority Tax Claims filed or to be filed against the Debtor.
(iii) U.S. TRUSTEE FEES
Notwithstanding any other provisions of the Plan to the
contrary, the Debtor shall pay the U.S. Trustee the appropriate sum required
pursuant to 28 U.S.C. Section 1930(a)(6), within ten (10) days of the entry of
the order confirming this Plan, for pre- confirmation periods and simultaneously
provide to the U.S. Trustee an appropriate affidavit indicating the cash
disbursements for the relevant period. The Debtor, as a reorganized Debtor,
shall further pay the U.S. Trustee the appropriate sum required pursuant to 28
U.S.C. ss.1930(a)(6) for post-confirmation periods within the time period set
forth in 28 U.S.C. ss.1930(a)(6), based upon all post- confirmation
disbursements made by the reorganized Debtor, until the earlier of the closing
of this case by the issuance of a Final Decree by the Bankruptcy Court, or upon
the entry of an Order by the Bankruptcy Court dismissing this case or converting
this case to another chapter under the United States Bankruptcy Code, and the
reorganized Debtor shall provide to Untied States Trustee upon the
32
<PAGE> 34
payment of each post-confirmation payment an appropriate affidavit indicating
all the cash disbursements for the relevant period.
B. CLASSIFICATION OF CLAIMS AND INTERESTS.
The following describes the four Classes of Claims and
Interests as well as the Debtor's classification of those Claims against and
Interests in the Debtor that are required to be classified under the Bankruptcy
Code and the treatment that the holders of Allowed Claims or Allowed Interests
shall receive for such Claims or Interests:
1. CLASS 1 - ALLOWED SECURED CLAIM OF BAY TECH INVESTMENTS.
The Debtor scheduled Bay Tech Investments as having a secured claim in this
Chapter 11 Case in the principal amount equal to $275,000.00. Bay Tech
Investments shall receive on account of its Allowed Secured Claim payment of all
unpaid principal and accrued interest thereon either prior to or on the
Effective Date of the Plan. Bay Tech Investments shall retain its first priority
lien, mortgage and security interest in and on all of the assets of the Debtor
until its Allowed Secured Claim is paid in full, all in accordance with its
pre-petition loan and security documents and the DIP financing and cash
collateral orders entered in this Chapter 11 Case by the Bankruptcy Court.
2. CLASS 2 - ALLOWED PRIORITY CLAIMS. The holders of Allowed
Priority Claims shall receive cash equal to the amount of such Allowed Priority
Claims on the later to occur of (i) the Initial Distribution Date, or (ii)
within ten (10) days after such Allowed
33
<PAGE> 35
Priority Claims are determined by a Final Order of the Bankruptcy Court.
3. CLASS 3 - THE ALLOWED UNSECURED CLAIMS. Each holder of an
Allowed Unsecured Claim, including Rejection Claims, against the Debtor shall
receive a Distribution (i) on the Initial Distribution Date equal to their
respective Pro Rata share of the Available Cash after payment of all Allowed
Administrative Claims, Allowed Secured Claims, Allowed Priority Tax Claims and
Allowed Priority Claims, and (ii) thereafter, to the extent applicable, in an
amount equal to their respective Pro Rata share of the monies, if any, available
after the Debtor completes the objections to claims process, which monies shall
be distributed within ten (10) days after the entry of a Final Order on the last
objection to claims.
4. CLASS 4 - THE ALLOWED INTERESTS IN THE DEBTOR. Pursuant to
and as a result of the New Value Contribution, the Allowed Interests in the
Debtor shall be not be effected by the Plan. All holders of pre-petition Equity
Securities in the Debtor shall retain such Equity Securities on and after the
Effective Date in the same amount, in the same proportion and with the same
rights as existed on the Petition Date. In the event the New Value Contribution
is not made, then the pre-petition Equity Securities in the Debtor shall
terminate and be extinguished on the Effective Date.
34
<PAGE> 36
ARTICLE V
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. VESTING OF PROPERTY OF THE ESTATE.
On the Effective Date, if the New Value Contribution is made,
then all property of the estate shall be transferred to and vested in the
Reorganized Debtor, which property shall include without limitation any and all
inventory, store fixtures and the Coral Square Lease, which Lease is being
assumed by the Debtor pursuant to the terms of the Plan. If the New Value
Contribution is not made, then any and all remaining property of the estate,
excluding Available Cash, shall be transferred to and vest in the Reorganized
Debtor to be liquidated and distributed as provided in the Plan. On the
Effective Date, the Committee will be dissolved and all members thereof and
Professionals engaged thereby shall be relieved of any and all further
responsibilities or duties hereunder.
B. RETENTION OF EQUITY SECURITIES.
In addition, on the Effective Date, if the New Value
Contribution is made, then the holders of pre-petition Equity Securities shall
retain such Equity Securities unaffected by the Plan. If the New Value
Contribution is not made, then all pre-petition Equity Securities shall be
cancelled and extinguished.
C. MEANS FOR IMPLEMENTATION OF PLAN.
The Debtor, since the filing of this case, has been
streamlining its costs, downsizing its operations and liquidating excess assets.
The Debtor has completed such efforts by closing all of its remaining stores,
with the exception of the Coral Square store location, eliminating all but a
small staff at the corporate level
35
<PAGE> 37
and liquidating, through auction, all remaining excess inventory, equipment and
furniture. Prior to the Effective Date, the Debtor anticipates that it will have
liquidated and reduced to Cash all of its excess assets with the exception of
those assets which it will retain as a reorganized Debtor pursuant to the terms
hereof. In addition, the Debtor, together with the Committee has negotiated and
finalized the terms upon which Sterne Agee will make the New Value Contribution
on the Effective Date. The proceeds from the liquidation of assets and the New
Value Contribution shall be included in Available Cash. If the New Value
Contribution is not made per the terms of such agreement, then the Debtor shall
liquidate all of its remaining assets in a manner which will provide the highest
and best value to the estate. Any proceeds therefrom shall be included in the
Available Cash for distribution to creditors hereunder.
On the Effective Date of the Plan, the Debtor will use the
Available Cash to pay the Allowed Administrative Claims, the Allowed Secured
Claim, the Allowed Priority Tax Claims and the Allowed Priority Claims.
Immediately thereafter, the Debtor will make a Pro Rata Distribution of the
remainder of the Available Cash to the holders of Allowed Unsecured Claims. To
do so, the Debtor will utilize the Cash on hand on the Effective Date, which
Cash was generated through operations, through the sale/liquidation of assets,
collection of accounts receivables and the New Value Contribution, if
applicable. Thereafter, and to the extent any such assets are not
36
<PAGE> 38
liquidated as of the Effective Date, the Reorganized Debtor shall continue its
liquidation efforts and shall, within ten (10) days after receipt of the net
proceeds from any such liquidation, distribute the net proceeds therefrom Pro
Rata to the holders of Allowed Unsecured Claims pursuant to the terms of the
Plan.
Finally, the Debtor will complete any and all objections to
claims filed or to be filed in these proceedings. If the Debtor is successful
therein, then any monies reserved on the Effective Date for such claims will be
re-distributed to all Allowed Unsecured Claims hereunder after the Debtor
obtains a Final Order on the last objection to claims.
D. THE NEW VALUE CONTRIBUTION
Sterne Agee has indicated to the Debtor a desire to make the
New Value Contribution in order that all holders of pre-petition Equity
Securities shall be able to retain such Equity Securities in connection with
confirmation of the Plan. The Committee, with the Debtor's assistance, has
negotiated an agreement with Sterne Agee on the amount of the New Value
Contribution. Pursuant to the agreement reached by the Committee, the New Value
Contribution shall be $185,000, which amount shall be paid to the Debtor on the
Effective Date.
E. THE MERGER WITH BOBBY ALLISON CELLULAR.
The Debtor has entered into a certain merger agreement with
Bobby Allison Cellular for the merger of Bobby Allison Cellular into the Debtor
(the "Merger"). However, the Merger is conditioned upon
37
<PAGE> 39
several events, including without limitation, Sterne Agee making the New Value
Contribution, the confirmation of the Plan and the Debtor's emergence from this
Chapter 11 Case. As a result, the Merger, should it occur, will not take place
until after the Effective Date. Pursuant to the terms of the Plan, neither the
Reorganized Debtor nor Bobby Allison Cellular will be obligated to pay any
Claims accruing against the Debtor prior to the Effective Date. All holders of
such Claims, upon being allowed pursuant to the terms hereof, will share in the
Available Cash. As a result, the benefit of the Merger will inure to the holders
of Equity Securities in the Reorganized Debtor.
Bobby Allison Cellular is a privately owned company that
operates ten retail locations in Central Florida specializing in the sale of
cellular phones and related communications equipment. Bobby Allison Cellular
desires to expand its operations into new markets and requires additional equity
investment to do so. Sterne Agee believes that it can and has agreed to attempt
to raise such additional equity investment for Bobby Allison Cellular but only
in the event that the Merger is consummated after the Effective Date.
F. POST-CONFIRMATION MANAGEMENT.
Assuming the New Value Contribution is made, the Reorganized
Debtor proposes to continue to operate its business. The Reorganized Debtor
further proposes to consummate the Merger with Bobby Allison Cellular as set
forth above. As of the Effective Date, the Reorganized Debtor, assuming the New
Value Contribution is made, shall reconstitute its board of directors to include
those persons
38
<PAGE> 40
selected by Sterne Agee, which persons shall be identified prior to the
Confirmation Date.
G. PRESERVATION, PROSECUTION AND DEFENSE OF CAUSES OF ACTION.
The Reorganized Debtor shall have the right to pursue,
prosecute and settle any and all claims or causes of action, whether or not such
claims or causes of action have been commenced as of the Effective Date, causes
of action which are property of the estate under Section 541 of the Bankruptcy
Code, and causes of action relating to turnover, avoidance actions and voidable
transfers under Section 542 through 550 of the Bankruptcy Code. Any recoveries
from such causes of action shall be included in the Available Cash to be
distributed to the creditors hereunder, whether on the Initial Distribution Date
or at such time as such recoveries occur.
In addition to the above, the other claims and causes of
action which shall be transferred to and vest in the Reorganized Debtor pursuant
to the terms of the Plan shall include, but not be limited to, the following:
1. Any and all claims and causes of action against any and all
of the officers, directors, shareholders, principals, employees, agents and
affiliates of the Debtor in any way related to, including providing aid and
assistance in connection with, (i) the operation, management and financing of
the Debtor, including, without
- --------
(9) ANY RECOVERIES FROM SUCH LITIGATION WILL BE INCLUDED IN AVAILABLE CASH TO
BE DISTRIBUTED TO THE HOLDERS OF ALLOWED CLAIMS UNDER THE PLAN.
39
<PAGE> 41
limitation, breach of fiduciary duty, negligence, misrepresentation, and federal
or state statutory claims; (b) the sale, transfer, exchange or disposition of
any property of the Debtor either prior to or after the Petition Date; or (c)
the conversion, misappropriation or misapplication of property of the Debtor or
any proceeds or products thereof.
2. Any and all claims and causes of action against those
persons or entities who participated or had any involvement in, as transferor,
transferee, recipient or otherwise, the sale, transfer, exchange or disposition
of any property of the Debtor, or the products or proceeds thereof, including
without limitation under and pursuant to state fraudulent conveyance laws and
Sections 542 through 550 of the Bankruptcy Code.
ARTICLE VI
ALTERNATIVES TO THE PLAN
If the Plan is not approved and confirmed, then one
alternative would be the conversion of this Chapter 11 Case to a case under
chapter 7 of the Bankruptcy Code. Under Chapter 7, all of the assets of estate
will be liquidated by a chapter 7 bankruptcy trustee. However, distributions to
holders of Claims in Chapter 7, to the extent there are any, are usually delayed
for up to years so as to enable a Chapter 7 trustee to liquidate assets,
administer the estate, and adjudicate claims.
Further, and more important, the Debtor has already commenced
and, for the most part, completed the liquidation process
40
<PAGE> 42
of all of its assets, and has negotiated and obtained an agreement concerning
the New Value Contribution. The Debtor believes that it has achieved
significantly higher values for the assets being liquidated than what a Chapter
7 trustee could have achieved.
In addition, the Debtor has cut its costs and expenses
drastically in an effort to save Cash, which cuts have and will continue to
benefit the creditors herein. On the other hand, if this case is converted to a
Chapter 7, then a chapter 7 trustee will be entitled to be paid a fee for
his/her services and will more likely than not engage an attorney and an
accountant, whose fees will be paid prior to any distribution to the creditors
hereunder. The result will be a much lower dividend to creditors than projected
under this Plan.
Finally, if this case where converted to a Chapter 7, then
neither the Debtor nor the trustee will be able to obtain the New Value
Contribution because the condition precedent thereto is that the Debtor emerge
from this Chapter 11 Case as a reorganized debtor. Therefore, a Chapter 7
trustee will realize significantly less than the Debtor will under this Plan.
As a result, the Debtor believes, and the Liquidation Analysis
attached hereto as Exhibit C evidences, that all creditors, secured and
unsecured, can anticipate realizing substantially lower returns on their Allowed
Claims in the event of a conversion of this case to a Chapter 7 proceeding as
opposed to the liquidation and reorganization proposed in the Plan.
41
<PAGE> 43
The second alternative to the proposed Plan is the dismissal
of this Chapter 11 Case. In that event, the Debtor readily anticipates that the
creditors would immediately file suit to collect on the obligations owed to
them. Other creditors who have judgments will immediately commence execution
thereon. The court presiding over any particular state court proceeding would
not have jurisdiction over any other proceeding, meaning each creditor would be
free to undertake such collection activity as such creditor deemed appropriate,
all in what would amount to a "race to the courthouse" which bankruptcy is
designed to avoid. It is only through bankruptcy that all of the Debtor's
creditors can be treated in accordance with each creditor's rights.
Taken together, these factors indicate that the Debtor's
proposed Plan is superior to a liquidation under chapter 7 of the Bankruptcy
Code or dismissal of the bankruptcy case. The Debtor believes that the Plan
results in a fair balancing of all parties' rights, and again urges creditors
and holders of Interests to vote to accept the Plan.
ARTICLE VII
TAX IMPLICATIONS OF THE PLAN
The Debtor is not aware of any material adverse tax
consequences associated with the Plan. There is a possibility that the Debtor
may recognize forgiveness of indebtedness income from the reduction in unsecured
debt proposed under the Plan, provided however
42
<PAGE> 44
that such income will not be recognized to the extent the Debtor is determined
to be insolvent. However, the federal, state and local income and other tax
consequences of the Plan are complex and, in some cases, uncertain. Such
consequences may also vary based on the particular circumstances of each holder
of an Allowed Claim or the Reorganized Debtor. Accordingly, each holder of an
Allowed Claim is strongly urged to consult with his, her or its own tax advisor
regarding the Federal, state and local income tax and other tax consequences
under the Plan.
Also, the Debtor may be able to preserve its existing net
operating losses ("NOL") in the context of a reorganization hereunder.
The Internal Revenue Code ("IRC") provides various rules for disallowance of
favorable tax attributes, such as net operating loss carryovers, when stock
ownership of the loss corporation changes. Generally, the rules disallowing tax
attributes do not apply unless there is a change of ownership of more than 50
percentage points by value (known as an ownership change), caused by purchases
or redemptions involving at least one 5% stockholder (known as an owner shift).
Loss corporations must determine whether an "ownership change" has occurred
immediately after an "owner shift." An owner shift involving a 5% stockholder
consists of any change in the ownership of a corporation's stock that results in
a change in the percentage of stock owned by the person who is a 5% shareholder
before or after the change. Persons who hold less than 5% of the
43
<PAGE> 45
stock are aggregated and treated as one 5% stockholder.
If the restrictions apply, then the carryovers that can be
used in each subsequent year are limited. The amount of loss carryovers that can
be applied in any subsequent year is limited to the value of the loss
corporation multiplied by the long-term tax-exempt rate. In addition, net
operating loss carryovers are eliminated unless the loss corporation continues
its historic business. This is known as the "continuity of business"
requirement.
The rules are modified if the change of ownership occurs
during a Title 11 bankruptcy proceeding. The limitation on net operating loss
carryovers does not apply to a change of control if the corporation was in a
Title 11 (including a Chapter 11) proceeding immediately before the change, and
the shareholders and creditors of the corporation before the change own at least
50% of the stock (by value and voting power) after the change as a result of
being shareholders and creditors before the change. Stock that was obtained by
conversion of debt is considered in determining the 50% requirement only if (1)
the creditor held the debt for at least 18 months prior to filing ("old and
cold") or (2) the debt arose in the ordinary course of the corporation's trade
or business and is held by the person who at all times held the beneficial
interest in the debt.
Specifically, if the Plan is confirmed such that there is no
change in control of the Debtor, then the Debtor believes that its NOL will be
preserved. The Plan provides that the holders of pre-petition Equity Securities
will not be affected by the Plan and that
44
<PAGE> 46
they shall retain their respective interests. As a result, the Debtor believes
that as of the Effective Date, the Debtor will have preserved its NOL's.
ARTICLE VIII
PROCEDURE WITH RESPECT TO
FILING CLAIMS AND OBJECTIONS TO CLAIMS
(1) GENERALLY. The Bankruptcy Court fixed May 12, 1998 as the
last day for creditors to file proofs of claim. In order to share in the
distributions being made to any class of creditors, a creditor must have filed a
proof of claim on or before that date in the form required by the Bankruptcy
Rules, unless the creditor's Claim was listed in the Debtor's Schedules, and
that listing did not indicate the creditor's Claim as being disputed, contingent
or unliquidated. Each individual creditor has the duty to ascertain the accuracy
of its listing in the Schedules and to file a proof of claim in the event that
it disagrees with the manner scheduled by the Debtor, or in the event that it is
not scheduled at all by the Debtor.
(2) REJECTION CLAIMS. Certain Claims called Rejection Claims,
which arise from the rejection of unexpired leases or executory contracts must
be filed as set forth herein. The holders of Rejection Claims shall have a
period of thirty (30) days after the rejection of such unexpired lease or
executory contract to file such Claims.
(3) OBJECTIONS. The Debtor and any other party in
45
<PAGE> 47
interest have until the date fixed by the Bankruptcy Court to object to the
allowance of any Claim, including Rejection Claims, unless the Bankruptcy Court
extends the time for such objections.
The failure of the Debtor or any other party in interest to
object to or examine any claims for the purposes of voting on the Plan does not
waive, in any respect, the right of the Debtor or any party in interest to
object to such claims later or to seek any type of relief as might be
appropriate.
Since the Bar Date has only recently passed, the Debtor is
still in the process of analyzing the Claims that were filed. However,
notwithstanding the fact that the Debtor has not completed such analysis, the
Debtor has identified several material Claims that it will object to prior to
the date to be set by the Court. The Debtor estimates that it has valid and
sustainable objections to approximately $1 million to $1.1 million of the total
amount of Claims filed. In particular, the Debtor intends to object to and
succeed on the following material claims:
a. COLUMBIA BBB/WESTCHESTER - Columbia BBB/Westchester filed a
Rejection Claim in an amount equal to $332,979. However, pursuant to 11 U.S.C.
ss.502(b)(6), this Claim should be limited to approximately $73,000.
b. TOWN SQUARE ASSOCIATION - Town Square Association filed a
Rejection Claim in an amount equal to $328,037. However, pursuant to 11 U.S.C.
ss.502(b)(6), this Claim should be limited to approximately $51,000.
46
<PAGE> 48
c. LEASETEC - LeaseTec filed a Secured Claim in an amount
equal to $137,338. However, the assets for which LeaseTec claims a security
interest in were leased to the Debtor and the Debtor has returned all such
assets.
d. GREAT AMERICAN LEASING - Great American Leasing filed a
Secured Claim in an amount equal to $31,046. However, the assets for which Great
American Leasing claims a security interest in were leased to the Debtor and the
Debtor has returned all such assets.
e. SEVERAL MISCELLANEOUS CLAIMS - The Debtor intends to object
to several Claims that were filed in amounts inconsistent with the Debtor's
books and records.
ARTICLE IX
LIQUIDATION ANALYSIS
As discussed above, the Debtor must demonstrate, as a
condition of confirmation, that each impaired Class of creditors will receive at
least what it would receive in a chapter 7 proceeding. A Liquidation Analysis,
which compares the projected dividends under this Plan versus what the Debtor
believes the creditors could receive if they rejected the Plan and the Debtor
was required to liquidate in a Chapter 7, is attached hereto as Exhibit C. As
indicated in the Liquidation Analysis, the Debtor believes that the Plan will
provide a greater distribution to creditors and holders of Interests than would
be achieved if the cases were converted to cases under chapter 7 and liquidated.
47
<PAGE> 49
ARTICLE X
RISK FACTORS
Since the holders of Allowed Claims hereunder will not receive
any dividends from the future operations of the Debtor, the typical risk factors
present in reorganization cases are not present herein. The analysis is whether
the Debtor has and will continue to liquidate its assets under this Plan at a
higher value for less expense than a Chapter 7 trustee in the event this case is
converted to a Chapter 7. The Debtor asserts that it has now liquidated all of
its assets with the exception of the Coral Square Lease and the store fixtures
remaining from all of its previous locations. If the New Value Contribution is
made on the Effective Date, then such assets will vest in and be transferred to
the reorganized Debtor. If the New Value Contribution is not made, then such
assets will be liquidated and the proceeds thereof distributed to the creditors.
In addition, the creditors must consider the delay in receiving a dividend in
the event of a Chapter 7 versus receiving a dividend immediately upon
confirmation of this Plan. Finally, the creditors must consider the loss of the
New Value Contribution in the context of a Chapter 7. Pursuant to the
Liquidation Analysis attached as Exhibit C, the Debtor believes that it can
produce a higher dividend to creditors under this plan than that which can be
realized in a Chapter 7.
48
<PAGE> 50
ARTICLE XI
EXECUTORY CONTRACTS AND LEASES
A. GENERALLY.
Pursuant to the Bankruptcy Code, a debtor has the right,
subject to Bankruptcy Court approval, to assume or reject any executory contract
or unexpired lease entered into prior to the filing of the bankruptcy petition.
Any claim resulting from a rejection is treated as an unsecured claim arising
prior to the filing of the petition and is included in the appropriate class to
the extent such claim is allowed by the Bankruptcy Court.
With the exception of the Coral Square Lease, which is being
assumed pursuant to the terms of the Plan, the Debtor, as of the Confirmation
Date, shall be deemed to have rejected all executory contracts and leases
entered into by the Debtor prior to the Petition Date.
All Rejection Claims must be filed with the Bankruptcy Court
in accordance with and as provided in Article VII of the Plan.
ARTICLE XII
RETENTION OF JURISDICTION
The Plan provides that the Bankruptcy Court will retain
jurisdiction following the Confirmation Date solely for the following purposes:
(1) To enable the Debtor to consummate the Plan and any
amended or modified Plan and to resolve any disputes arising with respect
thereto;
49
<PAGE> 51
(2) To enable the Debtor to consummate any and all
proceedings that it may bring prior to entry of the Confirmation Order;
(3) To determine all controversies relating to or
concerning the classification, subordination, allowance, valuation or
satisfaction of Claims;
(4) To enable the Debtor to assume or reject executory
contracts and/or unexpired leases, including the determination of any defaults
thereunder;
(5) To liquidate or estimate for purposes of allowance
all contested, contingent, or unliquidated Claims;
(6) To determine the validity, extent, and priority
of all liens, if any, against property of the estate;
(7) To determine all assertions of an ownership
interest in, the value of, or title to, any property of the estate;
(8) To determine all applications for compensation and
reimbursement and objections to Administrative Claims;
(9) To determine all (1) adversary proceedings,
contested or litigated matters brought before the Bankruptcy Court,
and (2) any and all claims or causes of action asserted by the
Debtor;
(10) Without limiting the generality of the preceding
paragraph, to determine any avoidance action brought by the Debtor,
whether before or after the Confirmation Date;
(11) To determine all controversies arising out of
50
<PAGE> 52
any purchase, sale, or contract made or undertaken by the Debtor prior to the
Confirmation Date;
(12) To enforce all agreements assumed, if any, and to
recover all property of the estate, wherever located;
(13) To determine any tax liability of the estate in
connection with the Plan, actions taken, distributions or transfers
made thereunder;
(14) To enforce any and all injunctions created
pursuant to the terms of the Plan;
(15) To modify the Plan or to remedy any defect or
omission or reconcile any inconsistencies in the Plan either before or
after the entry of the Confirmation Order;
(16) To hear and determine all controversies, suits,
and disputes that may arise in connection with the interpretation or
enforcement of the Plan;
(17) To make such orders as are necessary or
appropriate to carry out the provisions of the Plan; and
(18) to enter a final decree pursuant to Bankruptcy
Rule 3022.
ARTICLE XIII
CONCLUSION
The Debtor believes that the proposed Plan is in the best
interests of the creditors and holders of Interests and therefore recommends
acceptance of the Plan.
51
<PAGE> 53
Dated: June ___, 1998
- ------------------------------
PAUL J. BATTISTA, ESQ.
Florida Bar No. 884162
CAMILLE A. COLELLA, ESQ.
Florida Bar No. 979460
Counsel to the Debtor
Kelley Drye & Warren LLP
2400 Miami Center
201 S. Biscayne Blvd.
Miami, FL 33131
(305) 372-2400
2CONNECT EXPRESS, INC.
By:
--------------------------
Thomas H. Hicks
President
<PAGE> 54
EXHIBIT A
FORM OF BALLOT
<PAGE> 55
EXHIBIT B
EXCERPTS FROM DIP REPORTS
<PAGE> 56
EXHIBIT C
LIQUIDATION ANALYSIS
<PAGE> 1
EXHIBIT 3
---------
First Modification to Amended
Plan of Reorganization
dated August 7, 1998
<PAGE> 2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
In re: CASE NO. 98-20169-BKC-RBR
CHAPTER 11
2CONNECT EXPRESS, INC.
Debtor.
/
- -------------------------------------
DEBTOR'S FIRST MODIFICATION TO AMENDED PLAN OF REORGANIZATION
2CONNECT EXPRESS, INC. (the "Debtor") files its First
Modification to Amended Plan of Reorganization, such Plan having been served on
all creditors and interested parties via First Class mail on July 17, 1998. The
Modifications contained herein apply only to those Articles and Subsections set
forth below. The relevant subsections are modified as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
1.1 SCOPE OF DEFINITIONS.
No modification.
1.2 TERMS.
(aq) "New Value Contribution" -- The following shall be added
to this subsection:
Notwithstanding anything herein to the contrary, if Sterne
Agee or its designee does not deposit the New Value Contribution into an escrow
account acceptable to the Debtor within three (3) days prior to the hearing on
confirmation of the Plan, then this Plan shall become a liquidating plan and the
Debtor shall file and serve a notice with respect thereto.
1
<PAGE> 3
(ay) "Professional Fees" -- The word "after" shall be
substituted in place of the word "including" at line three of this subsection.
(ba) "Reorganized Debtor" -- The following phrase shall
be added after the words "Effective Date" at line 5 of this
subsection: "including any litigation claims against Sterne Agee,"
ARTICLE V
TREATMENT OF CLASSES THAT ARE IMPAIRED UNDER THE PLAN
5.4 CLASS 4 - THE ALLOWED INTERESTS IN THE DEBTOR.
This Section shall be deleted and the following
substituted therefor:
The pre-confirmation Equity Securities in the Debtor shall
terminate and be extinguished on the Effective Date. In the event the New Value
Contribution is made on the Effective Date, then, in exchange therefor, New
Equity Securities in the Debtor shall be issued to Sterne Agee or their designee
on the Effective Date, which new Equity Securities shall consist of all of the
then- issued and outstanding Equity Securities of the Reorganized Debtor.
ARTICLE VI
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. VESTING OF PROPERTY OF THE ESTATE.
No modification.
B. NO RETENTION OF EQUITY SECURITIES.
This Section shall be deleted and the following
2
<PAGE> 4
substituted for Section 6.3:
On the Effective Date, the interests of all holders of
pre-petition Equity Securities and all such Equity Securities shall be deemed
cancelled and extinguished.
C. MEANS FOR IMPLEMENTATION OF PLAN.
This Section shall be deleted and the following
substituted for Section 6.4:
The Debtor, since the filing of this case, has been
streamlining its costs, downsizing its operations and liquidating excess assets.
The Debtor has completed such efforts by closing all of its remaining stores,
with the exception of the Coral Square store location, eliminating all but a
small staff at the corporate level and liquidating, through auction, all
remaining excess inventory, equipment and furniture. Prior to the Effective
Date, the Debtor anticipates that it will have liquidated and reduced to Cash
all of its excess assets with the exception of those assets which it will retain
as a reorganized Debtor pursuant to the terms hereof.
In addition, the Debtor and the Committee assert that they
have negotiated and finalized the terms upon which Sterne Agee will make a New
Value Contribution in the amount of $185,000 on the Effective Date. The Debtor
has already received $10,000 from Bobby Allison Cellular in connection
therewith. The proceeds from the liquidation of assets and the New Value
Contribution shall be included in Available Cash. Nevertheless, despite the
Debtor and the Committee believing they have reached such an
3
<PAGE> 5
agreement with Sterne Agee, Sterne Agee has recently indicated that it does not
currently have an obligation to go forward and perform its alleged obligation
thereunder. The Debtor and the Committee contend that Sterne Agee has
anticipatorily breached its agreement to fund the New Value Contribution. Sterne
Agee contends that it has not breached such agreement because the Debtor failed
to perform a condition precedent thereto. Also, Sterne Agee asserts that it
never agreed to make a New Value Contribution but only to purchase certain
assets in the event the Debtor complies with the conditions precedent. The
Debtor is preparing to file a lawsuit against Sterne Agee in these bankruptcy
proceedings (the "Adversary Complaint") based upon the assertion that Sterne
Agee has refused to perform and has breached such agreement. If Sterne Agee
ultimately does not comply with the obligations the Debtor and the Committee
believe it has and the New Value Contribution is not made per the terms of such
agreement, then the Debtor shall liquidate all of its remaining assets in a
manner which will provide the highest and best value to the estate. Such assets
shall include the lease of the Coral Square store and all remaining fixtures.
Any proceeds therefrom, including any net recoveries obtained from Sterne Agee
in connection with the Adversary Complaint, shall be included in the Available
Cash for distribution to creditors hereunder.
If the New Value Contribution is not deposited into an escrow account
acceptable to the Debtor so as to be available to the Debtor upon confirmation
of the Plan within three (3) days
4
<PAGE> 6
prior to the hearing on confirmation of the Plan, then the Debtor shall file
with the Court and serve a notice on all parties in interest that the Debtor
will seek confirmation of the Plan as a liquidating plan and that the Debtor
will not reorganize.
On the Effective Date of the Plan, the Debtor will use the
Available Cash to pay the Allowed Administrative Claims, to reserve for future
Allowed Administrative Claims, to pay the Allowed Secured Claim, the Allowed
Priority Tax Claims and the Allowed Priority Claims. Immediately thereafter, the
Debtor will make a Pro Rata Distribution of the remainder of the Available Cash
to the holders of Allowed Unsecured Claims. To do so, the Debtor will utilize
the Cash on hand on the Effective Date, which Cash was generated through
operations, through the sale/liquidation of assets, collection of accounts
receivables and the New Value Contribution, if applicable. Thereafter, and to
the extent any such assets are not liquidated as of the Effective Date, the
Reorganized Debtor shall continue its liquidation efforts and shall, within ten
(10) days after receipt of the net proceeds from any such liquidation, including
from the Adversary Complaint, distribute the net proceeds therefrom (after
payment of Allowed Administrative Claims) Pro Rata to the holders of Allowed
Unsecured Claims pursuant to the terms of the Plan.
The Debtor shall create a Distribution Reserve on the
Effective Date of the Plan from the Cash on hand so as to enable any
post-confirmation Allowed Administrative Claims to be paid, including those
incurred in connection with the prosecution of the
5
<PAGE> 7
Adversary Complaint.
Finally, the Debtor will complete any and all objections
to claims filed or to be filed in these proceedings. If the Debtor is successful
therein, then any monies reserved on the Effective Date for such claims will be
re-distributed to all Allowed Unsecured Claims hereunder after the Debtor
obtains a Final Order on the last objection to claims.
D. THE NEW VALUE CONTRIBUTION.
This Section shall be deleted and the following substituted
for Section 6.5:
The Committee and the Debtor assert that they have negotiated
an agreement with Sterne Agee on the amount and contribution of the New Value
Contribution. The Debtor and the Committee assert that pursuant to the alleged
agreement, the New Value Contribution is to be $185,000, which amount is to be
paid to the Debtor on the Effective Date. The Debtor has already received
$10,000 from Bobby Allison Cellular in connection therewith. Nevertheless,
despite the Debtor and the Committee believing they have reached such an
agreement with Sterne Agee, Sterne Agee has recently taken the position that it
has no current obligation to perform. The Debtor and the Committee contend that
Sterne Agee has anticipatorily breached its agreement to fund the New Value
Contribution. Sterne Agee contends that it has not breached such agreement
because the Debtor failed to perform a condition precedent thereto. Also, Sterne
Agee asserts that it never agreed to make a New Value Contribution but only to
purchase
6
<PAGE> 8
certain assets in the event the Debtor complies with the conditions precedent.
The Debtor is preparing to file a lawsuit against Sterne Agee in these
bankruptcy proceedings based upon Sterne Agee's anticipated refusal to perform.
E. THE MERGER WITH BOBBY ALLISON CELLULAR.
The following shall be added to Subsection 6.6:
If Sterne Agee does not comply with its obligation (as alleged
by the Debtor and the Committee) to fund the New Value Contribution prior to the
Effective Date, then the Debtor will cease to exist as of the Effective Date and
the estate will survive and continue so as to resolve all pending matters. As a
result, all business operations of the Debtor shall be discontinued and the
merger with Bobby Allison shall not go forward.
F. POST-CONFIRMATION MANAGEMENT.
The following shall be added to Subsection 6.7: If Sterne Agee
does not comply with its obligation (as alleged by the Debtor and the Committee)
to fund the New Value Contribution prior to the Effective Date, then the Debtor
will cease to exist as of the Effective Date and the estate will survive and
continue so as to resolve all pending matters. As a result, there will be no
post-confirmation management of the Debtor. However, Mr. Thomas Hicks and
certain administrative staff shall remain in order to finalize all matters which
pertain to the estate, including prosecution of the Adversary Complaint and
making of Distributions to creditors.
7
<PAGE> 9
G. PRESERVATION AND PROSECUTION OF CAUSES OF ACTION.
The following shall be added to Subsection 6.8:
The Debtor and the Debtor's estate shall preserve any and all
claims and causes of action that they have had, now have, or may in the future
have against Sterne Agee including without limitation those claims arising out
of Sterne Agee's alleged failure to fund the New Value Contribution.
H. AUTOMATIC OPERATION OF CERTAIN PROVISIONS OF THE PLAN.
(a) No modification.
(b) The following shall be added after the word "Lease":
provided the New Value Contribution is made;
(c) No modification.
(d) This subsection shall be deleted and the following
substituted therefor:
The extinguishment and cancellation of all pre-
confirmation Equity Securities in the Debtor in accordance herewith;
(e) The two consecutive Subsections identified as "(e)"
shall be re-lettered as subsections (f) and (g), respectively.
The following shall constitute Subsection (e):
If the New Value Contribution is made, then the
issuance of the new Equity Securities in the Reorganized Debtor to Sterne Agee
or its designee, which new Equity Securities shall consist of all of the issued
and outstanding Equity Securities in
8
<PAGE> 10
the Reorganized Debtor;
ARTICLE VII
PROVISIONS FOR ASSUMPTION AND REJECTION
OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. GENERALLY.
No modification.
9
<PAGE> 11
B. CORAL SQUARE LEASE.
The following shall be added to Subsection 7.2: If the New
Value Contribution is not made, then the Debtor seeks authority from the Court
to reject the Coral Square Lease on the Effective Date pursuant to 11 U.S.C.
Section 365, and shall liquidate all of its remaining assets.
Dated: August , 1998
------
- ------------------------------
PAUL J. BATTISTA, ESQ.
Florida Bar No. 884162
CAMILLE A. COLELLA, ESQ.
Florida Bar No. 979460
Counsel to the Debtor
Kelley Drye & Warren LLP
2400 Miami Center
201 S. Biscayne Blvd.
Miami, FL 33131
(305) 372-2400
10
<PAGE> 12
2CONNECT EXPRESS, INC.
By:___________________________
Thomas H. Hicks
President
11
<PAGE> 1
EXHIBIT 4
---------
First Modification to Second
Amended Disclosure
Statement dated August 7, 1998
<PAGE> 2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
In re:
CASE NO. 98-20169-BKC-RBR
2CONNECT EXPRESS, INC.,
CHAPTER 11
Debtor.
/
- ----------------------------------
FIRST MODIFICATION TO SECOND AMENDED DISCLOSURE STATEMENT
2CONNECT EXPRESS, INC. (the "Debtor"), files its First
Modification to Second Amended Disclosure Statement, such Disclosure Statement
having been served on all creditors and interested parties via First Class mail
on July 17, 1998. The Modification contained herein applies only to Article V,
subsections (B) through (G) of the Second Amended Disclosure Statement for
Amended Plan of Reorganization. The relevant subsections are modified as
follows:
ARTICLE V
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. VESTING OF PROPERTY OF THE ESTATE.
No modification.
B. RETENTION OF EQUITY SECURITIES.
This Section shall be deleted and the following
substituted therefor:
On the Effective Date, the interests of all holders of
pre-petition Equity Securities and all such Equity Securities shall be deemed
cancelled and extinguished.
<PAGE> 3
C. MEANS FOR IMPLEMENTATION OF PLAN.
This Section shall be deleted and the following
substituted therefor:
The Debtor, since the filing of this case, has been
streamlining its costs, downsizing its operations and liquidating excess assets.
The Debtor has completed such efforts by closing all of its remaining stores,
with the exception of the Coral Square store location, eliminating all but a
small staff at the corporate level and liquidating, through auction, all
remaining excess inventory, equipment and furniture. Prior to the Effective
Date, the Debtor anticipates that it will have liquidated and reduced to Cash
all of its excess assets with the exception of those assets which it will retain
as a reorganized Debtor pursuant to the terms hereof.
In addition, the Debtor and the Committee assert that they
have negotiated and finalized the terms upon which Sterne Agee will make a New
Value Contribution in the amount of $185,000 on the Effective Date. The Debtor
has already received $10,000 from Bobby Allison Cellular in connection
therewith. The proceeds from the liquidation of assets and the New Value
Contribution shall be included in Available Cash. Nevertheless, despite the
Debtor and the Committee believing they have reached such an agreement with
Sterne Agee, Sterne Agee has recently indicated that it does not currently have
an obligation to go forward and perform its alleged obligation thereunder. The
Debtor and the Committee contend that Sterne Agee has anticipatorily breached
its
2
<PAGE> 4
agreement to fund the New Value Contribution. Sterne Agee contends that
it has not breached such agreement because the Debtor failed to perform a
condition precedent thereto. Also, Sterne Agee asserts that it never agreed to
make a New Value Contribution but only to purchase certain assets in the event
the Debtor complies with the conditions precedent. The Debtor is preparing to
file a lawsuit against Sterne Agee in these bankruptcy proceedings (the
"Adversary Complaint") based upon the assertion that Sterne Agee has refused to
perform and has breached such agreement. If Sterne Agee ultimately does not
comply with the obligations the Debtor and the Committee believe it has and the
New Value Contribution is not made per the terms of such agreement, then the
Debtor shall liquidate all of its remaining assets in a manner which will
provide the highest and best value to the estate. Such assets shall include the
lease of the Coral Square store and all remaining fixtures. Any proceeds
therefrom, including any net recoveries obtained from Sterne Agee in connection
with the Adversary Complaint, shall be included in the Available Cash for
distribution to creditors hereunder.
If the New Value Contribution is not deposited into an escrow
account acceptable to the Debtor so as to be available to the Debtor upon
confirmation of the Plan within three (3) days prior to the hearing on
confirmation of the Plan, then the Debtor shall file with the Court and serve a
notice on all parties in interest that the Debtor will seek confirmation of the
Plan as a liquidating plan and that the Debtor will not reorganize.
3
<PAGE> 5
On the Effective Date of the Plan, the Debtor will use the
Available Cash to pay the Allowed Administrative Claims, to reserve for future
Allowed Administrative Claims, to pay the Allowed Secured Claim, the Allowed
Priority Tax Claims and the Allowed Priority Claims. Immediately thereafter, the
Debtor will make a Pro Rata Distribution of the remainder of the Available Cash
to the holders of Allowed Unsecured Claims. To do so, the Debtor will utilize
the Cash on hand on the Effective Date, which Cash was generated through
operations, through the sale/liquidation of assets, collection of accounts
receivables and the New Value Contribution, if applicable. Thereafter, and to
the extent any such assets are not liquidated as of the Effective Date, the
Reorganized Debtor shall continue its liquidation efforts and shall, within ten
(10) days after receipt of the net proceeds from any such liquidation, including
from the Adversary Complaint, distribute the net proceeds therefrom (after
payment of Allowed Administrative Claims) Pro Rata to the holders of Allowed
Unsecured Claims pursuant to the terms of the Plan.
The Debtor shall create a Distribution Reserve on the
Effective Date of the Plan from the Cash on hand so as to enable any
post-confirmation Allowed Administrative Claims to be paid, including those
incurred in connection with the prosecution of the Adversary Complaint.
Finally, the Debtor will complete any and all objections to
claims filed or to be filed in these proceedings. If the Debtor is successful
therein, then any monies reserved on
4
<PAGE> 6
the Effective Date for such claims will be re-distributed to all Allowed
Unsecured Claims hereunder after the Debtor obtains a Final Order on the last
objection to claims.
D. THE NEW VALUE CONTRIBUTION.
This Section shall be deleted and the following substituted
therefor:
The Committee and the Debtor assert that they have negotiated
an agreement with Sterne Agee on the amount and contribution of the New Value
Contribution. The Debtor and the Committee assert that pursuant to the alleged
agreement, the New Value Contribution is to be $185,000, which amount is to be
paid to the Debtor on the Effective Date. The Debtor has already received
$10,000 from Bobby Allison Cellular in connection therewith. Nevertheless,
despite the Debtor and the Committee believing they have reached such an
agreement with Sterne Agee, Sterne Agee has recently taken the position that it
has no current obligation to perform. The Debtor and the Committee contend that
Sterne Agee has anticipatorily breached its agreement to fund the New Value
Contribution. Sterne Agee contends that it has not breached such agreement
because the Debtor failed to perform a condition precedent thereto. Also, Sterne
Agee asserts that it never agreed to make a New Value Contribution but only to
purchase certain assets in the event the Debtor complies with the conditions
precedent. The Debtor is preparing to file a lawsuit against Sterne Agee in
these bankruptcy proceedings based upon
5
<PAGE> 7
Sterne Agee's anticipated refusal to perform.
E. THE MERGER WITH BOBBY ALLISON CELLULAR.
The following shall be added to this Subsection: If Sterne
Agee does not comply with its obligation (as alleged by the Debtor and the
Committee) to fund the New Value Contribution prior to the Effective Date, then
the Debtor will cease to exist as of the Effective Date and the estate will
survive and continue so as to resolve all pending matters. As a result, all
business operations of the Debtor shall be discontinued and the merger with
Bobby Allison shall not go forward.
F. POST-CONFIRMATION MANAGEMENT.
The following shall be added to this Subsection: If Sterne
Agee does not comply with its obligation (as alleged by the Debtor and the
Committee) to fund the New Value Contribution prior to the Effective Date, then
the Debtor will cease to exist as of the Effective Date and the estate will
survive and continue so as to resolve all pending matters. As a result, there
will be no post-confirmation management of the Debtor. However, Mr. Thomas Hicks
and certain administrative staff shall remain in order to finalize all matters
which pertain to the estate, including prosecution of the Adversary Complaint
and making of Distributions to creditors.
G. PRESERVATION, PROSECUTION AND DEFENSE OF CAUSES OF ACTION.
The following shall be added to this subsection:
The Debtor and the Debtor's estate shall preserve any and all
claims and causes of action that they have had, now have, or may in the future
have against Sterne Agee including without limitation those claims arising out
of Sterne Agee's alleged failure to fund the New Value Contribution.
6
<PAGE> 8
2CONNECT EXPRESS, INC.
By:
------------------------------
Thomas H. Hicks
President
9
<PAGE> 1
EXHIBIT 5
---------
Second Modification to
Amended Plan of
Reorganization dated
August 28, 1998.
<PAGE> 2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
In re: CASE NO. 98-20169-BKC-RBR
CHAPTER 11
RBR
2CONNECT EXPRESS, INC.
Debtor.
/
- -------------------------------------
DEBTOR'S SECOND MODIFICATION TO AMENDED PLAN OF REORGANIZATION
2CONNECT EXPRESS, INC. (the "Debtor") files its Second
Modification to Amended Plan of Reorganization, such Plan having been served on
all creditors and interested parties via First Class mail on July 17, 1998 and
amended by a First Modification thereto approved by the Court on August 5, 1998
(collectively, the "Plan"). The Modifications contained herein apply only to
those Articles and Subsections set forth below. Unless and to the extent amended
or modified herein, the Plan shall remain in full force and effect.
The relevant subsections are modified as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.2 of the Plan is hereby amended to add the following
definition thereto:
"Securities Claimant" shall mean any person or entity which
has a Claim against the Debtor arising out of or in any way related to the
purchase or sale of an Equity Security of the Debtor prior to the Confirmation
Date, including, without limitation, any Claims arising under or predicated on
the Securities Act of 1933, as amended, the Section 10(b) of the
1
<PAGE> 3
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder or any applicable state securities laws.
ARTICLE V
TREATMENT OF CLASSES THAT ARE IMPAIRED UNDER THE PLAN
Article V of the Plan is hereby amended to add the following
Class of Claims and the treatment thereof:
"5.3(a) CLASS 3A - THE ALLOWED CLAIMS OF THE SECURITIES
CLAIMANTS.
Each Allowed Class 3A Claim against the Debtor shall be
subordinated to those Claims contained in Classes 1, 2 and 3 above and shall
receive treatment identical to the treatment provided to the Class 4 Interests
pursuant to 11 U.S.C. Section 510(b). As a result, the holders of Allowed Class
3A Claims shall not receive any distribution under the Plan."
ARTICLE VI
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
Section 6.14 of Article VI is hereby deleted and the following
is substituted therefor:
"6.14 Any funds unclaimed for a period described in paragraph
6.12 of the Plan shall be deposited in the Registry of the Bankruptcy Court as
provided therein and the holders of the Claim entitled to such unclaimed funds
shall be required to comply with the procedures of the Registry of the
Bankruptcy Court in order to obtain such funds."
2
<PAGE> 4
ARTICLE X
MISCELLANEOUS
Section 10.1 of Article X is hereby amended to add the
following clause at the end of the first sentence thereof:
", provided however that the Debtor shall not be able to
revoke the Plan after the Confirmation Date without prior approval of the
Bankruptcy Court."
Section 10.1 of Article X is further amended to add the
following clause to the end of the second sentence thereof:
", provided however that the Confirmation Order shall only be
null and void as provided in further order of the Bankruptcy Court."
Dated: August , 1998
------
- ------------------------------
PAUL J. BATTISTA, ESQ.
Florida Bar No. 884162
CAMILLE A. COLELLA, ESQ.
Florida Bar No. 979460
Counsel to the Debtor
Kelley Drye & Warren LLP
2400 Miami Center
201 S. Biscayne Blvd.
Miami, FL 33131
(305) 372-2400
2CONNECT EXPRESS, INC.
By:
--------------------------------
Thomas H. Hicks
President
3
<PAGE> 1
EXHIBIT 6
---------
Amended and Restated
Articles of Incorporation
for 2Connect Express, Inc.
Filed December 1, 1998.
<PAGE> 2
(GREAT SEAL LOGO)
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
December 1, 1998
C T CORPORATION SYSTEM
TALLAHASSEE, FL
Re: Document Number P96000034309
The Amended and Restated Articles of Incorporation of 2CONNECT EXPRESS, INC.,
a Florida corporation, were filed on December 1, 1998.
Should you have any questions concerning this matter, please telephone (850)
487-6050, the Amendment Filing Section.
Thelma Lewis
Corporate Specialist Supervisor
Division of Corporations Letter Number: 098A00056879
Division of Corporations - P.O. BOX 6327 - Tallahassee, Florida 32314
<PAGE> 3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
2CONNECT EXPRESS, INC.
It is hereby certified that:
FIRST: The present name of the corporation is 2CONNECT
EXPRESS, INC. (hereinafter called the "Corporation"), which is the name under
which the Corporation was originally incorporated; and the date of filing of the
Corporation's original Articles of Incorporation with the Secretary of State of
the State of Florida was April 19, 1996.
SECOND: The Articles of Incorporation of the Corporation are
hereby amended by striking out Articles II, III, IV and V thereof and
substituting in lieu thereof new Articles II, III, IV and V, which are set forth
in the Amended and Restated Articles of Incorporation hereinafter provided for
and adding new Articles VI, VII, VIII, IX, X and XI.
THIRD: The amendments to the Articles of Incorporation have
been adopted as the date hereof pursuant to Section 607.1003 of the Florida
Business Corporation Act (the "Florida Act") and have been approved by unanimous
consent of the Shareholders of the Corporation.
FOURTH: The provisions of the Articles of Incorporation of the
Corporation are hereby restated and integrated into the single instrument which
is hereinafter set forth, and which is entitled Amended and Restated Articles of
Incorporation of 2Connect Express, Inc., which instrument supersedes the
Corporation's original Articles of Incorporation and all amendments thereto.
FIFTH: The amendment to and the restatement of the Articles of
Incorporation have been duly adopted in accordance with the provisions of
Sections 607.0120, 607.0202, 607.1003, 607.1006 and 607.1007 of the Florida Act.
SIXTH: The Articles of Incorporation are hereby restated as
follows:
<PAGE> 4
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
2CONNECT EXPRESS, INC.
ARTICLE I - NAME
The name of the corporation is 2Connect Express, Inc. (the
"Corporation").
ARTICLE II - DURATION
The Corporation shall have a perpetual existence which
commenced on the date of filing of the Corporation's original Articles of
Incorporation.
ARTICLE III - PURPOSE
The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the Florida Business Corporation Act.
ARTICLE IV - CAPITALIZATION
4.1 AUTHORIZED CAPITAL.
(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 25,000,320 shares, consisting of
(a) 320 shares of Preferred Stock, par value $1.00 per share (the "PREFERRED
STOCK"), 20 shares of which are hereby designated as 7.5% Series A Convertible
Preferred Stock (the "SERIES A PREFERRED STOCK"), 50 shares of which are hereby
designated as 7.5% Series B Convertible Preferred Stock ( the "SERIES B
PREFERRED STOCK"), and 250 shares of which are hereby designated as 7.5% Series
C Convertible Preferred Stock ( the "SERIES C PREFERRED STOCK") and (b)
25,000,000 shares of Common Stock, par value $.01 per share (the "COMMON
STOCK").
(b) All capitalized terms used in this Article IV, to the extent not
otherwise defined, shall have the meanings ascribed to them in Section 4.2 of
this Article IV.
(c) The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and the Common Stock are as set forth in this Article IV.
2
<PAGE> 5
4.2 SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK AND SERIES
C PREFERRED STOCK.
(a) CERTAIN DEFINITIONS. Unless the context otherwise requires, for
purposes of this Section 4.2(a), the terms defined in this Section 4.2(a) shall
have the meanings herein specified (with terms defined in the singular having
comparable meanings when used in the plural).
"CONVERSION VALUE" shall mean (i) in the case of Series A
Preferred Stock, the quotient of the Series A Initial Purchase Price
divided by the Series A Conversion Rate; (ii) in the case of Series B
Preferred Stock, the quotient of the Series B Initial Purchase Price
divided by the Series B Conversion Rate; (iii) in the case of Series C
Preferred Stock, the quotient of the Series C Initial Purchase Price
divided by the Series C Conversion Rate; and (iv) in the case of any
other series of preferred stock, the quotient of the initial purchase
price of such series divided by the conversion rate of such series of
preferred stock.
"DELINQUENT REDEMPTION PRICE" shall mean, with respect to each
share of Preferred Stock, the Series A Initial Purchase Price, Series B
Initial Purchase Price, or Series C Initial Purchase Price, as
applicable, plus an amount thereon accruing from the applicable
Mandatory Redemption Date at an annual rate equal to eight percent
(8%).
"DISPOSITION PROCEEDS" shall have the meaning set forth in
Section 4.2 (c)(iii).
"REQUIRED CONSENT" shall mean the affirmative vote of the
holders of at least 51% of the outstanding shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as
applicable, taken at a duly called meeting of the holders of such
series of Preferred Stock.
"SERIES A INITIAL ISSUE DATE" shall mean, with respect to each
separate certificate issued, the date that such certificate
representing shares of Series A Preferred Stock is issued.
"SERIES B INITIAL ISSUE DATE" shall mean, with respect to each
separate certificate issued, the date that such certificate
representing shares of Series B Preferred Stock is issued.
"SERIES C INITIAL ISSUE DATE" shall mean, with respect to each
separate certificate issued, the date that such certificate
representing shares of Series C Preferred Stock is issued.
"SERIES A INITIAL PURCHASE PRICE" shall mean $25,000 per share
(adjusted for stock dividends, stock splits, reverse stock splits,
combinations and the like).
"SERIES B INITIAL PURCHASE PRICE" shall mean $25,000 per share
(adjusted for stock dividends, stock splits, reverse stock splits,
combinations and the like).
3
<PAGE> 6
"SERIES C INITIAL PURCHASE PRICE" shall mean the price per
share paid by the holder of any Series C Preferred Stock which price
per share shall not be less than $25,000 (adjusted for stock dividends,
stock splits, reverse stock splits, combinations and the like).
"SERIES A LIQUIDATION PREFERENCE" shall have the meaning set
forth in Section 4.2(c)(iii) hereof.
"SERIES B LIQUIDATION PREFERENCE" shall have the meaning set
forth in Section 4.2(c)(iv) hereof.
"SERIES C LIQUIDATION PREFERENCE" shall have the meaning set
forth in Section 4.2(c)(v) hereof.
"SERIES A REDEMPTION PRICE" shall mean, with respect to each
share of Series A Preferred Stock, the Series A Initial Purchase Price
plus any accumulated but unpaid dividends.
"SERIES B REDEMPTION PRICE" shall mean, with respect to each
share of Series B Preferred Stock, the Series B Initial Purchase Price
plus any accumulated but unpaid dividends.
"SERIES C REDEMPTION PRICE" shall mean, with respect to each
share of Series C Preferred Stock, the Series C Initial Purchase Price
plus any accumulated but unpaid dividends.
"SUBORDINATE STOCK" shall mean any class or series of capital
stock of the Corporation, however designated, which is junior in right
to the Series A Preferred Stock, the Series B Preferred Stock and
Series C Preferred Stock, including without limitation the Common Stock
and any preferred stock that is not entitled to receive (i) any
dividends unless all dividends required to have been paid or declared
and set apart for payment on the Series A Preferred Stock, the Series B
Preferred Stock and Series C Preferred Stock shall have been so paid or
declared and set apart for payment; or (ii) any assets upon
liquidation, dissolution or winding up of the affairs of the
Corporation until the Series A Preferred Stock, the Series B Preferred
Stock and Series C Preferred Stock shall have received the entire
amount to which such stock is entitled upon such liquidation,
dissolution or winding up in accordance with Section 4.2(c) below.
(b) DIVIDENDS. The holders of the Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends at the annual rate
of seven and one-half percent (7.5%) based on the Series A Initial Purchase
Price, the Series B Initial Purchase Price and the Series C Initial Purchase
Price, as applicable. Such dividend shall accrue on a daily basis and shall be
payable in cash semi-annually commencing six (6) months following each of the
Series A Initial Issue Date, Series B Initial Issue Date or Series C Initial
Issue Date, as applicable, for so long as any of such
4
<PAGE> 7
series of Preferred Stock remains outstanding. Dividends on the Preferred Stock,
including, without limitation, any accrued and unpaid dividends and liquidating
distributions, shall be paid before any dividends or other distributions shall
be declared or paid or set aside for payment on any Subordinate Stock; provided
further, that any such dividends shall be paid on the Series A Preferred Stock
and Series B Preferred Stock before any dividends or other distributions shall
be declared or paid or set aside for payment on any Series C Preferred Stock.
(c) DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP.
(i) The Corporation shall deliver to each holder of
Preferred Stock notice of any "DISPOSITION" (as defined in
Section 4.2(c)(ii)) at least 90 days prior to such event,
which notice shall state all material facts and common terms
relating to such Disposition, including, without limitation,
(1) the nature of such Disposition, including, without
limitation, the amount, terms and conditions of payment to the
holders of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock and the holders of Common
Stock in connection with such Disposition; (2) the date on
which such Disposition shall occur; and (3) the procedures
that must be followed (and the latest date that such
procedures must be completed) in order for such holder to
effect a conversion of shares of Preferred Stock into shares
of Common Stock, if such a conversion is so desired.
(ii) The following events shall be considered a
Disposition under this Section 4.2:
(1) any consolidation or merger of the
Corporation with or into any other corporation or other entity
or person, or any other corporate reorganization, in which the
stockholders of the Corporation immediately prior to such
consolidation, merger or reorganization, own less than 50% of
the Corporation's voting power immediately after such
consolidation, merger or reorganization, or any transaction or
series of related transactions in which in excess of 50% of
the Corporation's voting power is transferred;
(2) a sale, lease or other disposition of
all or substantially all of the assets of the Corporation; or
(3) any voluntary or involuntary
liquidation, dissolution or other winding up of the affairs of
the Corporation.
(iii) In the event of any such Disposition, before
any payment or distribution shall be made to the holders of
the Series B Preferred Stock, the Series C Preferred Stock,
the Common Stock or any other Subordinate Stock, the holders
of Series A Preferred Stock shall be entitled to be paid out
of the proceeds of such Disposition received by the
Corporation (the "DISPOSITION PROCEEDS") in cash, or, if
5
<PAGE> 8
the Corporation does not have sufficient cash on hand to pay
such amounts, property of the Corporation at its fair market
value as determined by the Board of Directors, an amount (the
"SERIES A LIQUIDATION PREFERENCE") equal to the Series A
Initial Purchase Price plus any accrued but unpaid dividends.
If upon any such Disposition, the remaining assets of the
Corporation available for distribution to its shareholders
shall be insufficient to pay the holders of the Series A
Preferred Stock the full amount of the Series A Liquidation
Preference, the holders of the Series A Preferred Stock shall
share ratably among themselves in any distribution of the
remaining assets and funds of the Corporation in proportion to
the respective amounts that would otherwise be payable in
respect of the shares held by them upon such distribution if
all amounts payable on or with respect to such shares were
paid in full.
(iv) In the event of any such Disposition, after the
full amount of the Series A Liquidation Preference has been
paid to the holders of the Series A Preferred Stock and before
any payment or distribution shall be made to the holders of
the Series C Preferred Stock, the Common Stock or any other
Subordinate Stock, the holders of Series B Preferred Stock
shall be entitled to be paid out of the Disposition Proceeds
in cash, or, if the Corporation does not have sufficient cash
on hand to pay such amounts, property of the Corporation at
its fair market value as determined by the Board of Directors,
an amount (the "SERIES B LIQUIDATION PREFERENCE") equal to the
Series B Initial Purchase Price plus any accrued but unpaid
dividends. If upon any such Disposition, the remaining assets
of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the
Series B Preferred Stock the full amount of the Series B
Liquidation Preference, the holders of the Series B Preferred
Stock shall share ratably among themselves in any distribution
of the remaining assets and funds of the Corporation in
proportion to the respective amounts that would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
(v) In the event of any such Disposition, after the
full amount of the Series A Liquidation Preference has been
paid to the holders of the Series A Preferred Stock, after the
full amount of the Series B Liquidation Preference has been
paid to the holders of the Series B Preferred Stock and before
any payment or distribution shall be made to the holders of
the Common Stock or any other Subordinate Stock, the holders
of Series C Preferred Stock shall be entitled to be paid out
of the Disposition Proceeds in cash, or, if the Corporation
does not have sufficient cash on hand to pay such amounts,
property of the Corporation at its fair market value as
determined by the Board of Directors, an amount (the "SERIES C
LIQUIDATION PREFERENCE") equal to the Series C Initial
Purchase Price plus any accrued but unpaid dividends. If upon
any such Disposition, the remaining assets of the Corporation
available for distribution to its shareholders shall be
insufficient to pay the holders of the Series C Preferred
Stock the full amount of the Series C
6
<PAGE> 9
Liquidation Preference, the holders of the Series C Preferred
Stock shall share ratably among themselves in any distribution
of the remaining assets and funds of the Corporation in
proportion to the respective amounts that would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
(d) CONVERSION RIGHTS.
(i) CONVERSION AT THE OPTION OF THE HOLDER.
(1) The holders of the Preferred Stock shall
have the right, at their option, to convert shares of
Preferred Stock into shares of Common Stock of the Corporation
at any time and from time to time, without the payment of
additional consideration, into four thousand one hundred
sixty-six (4,166) shares of fully paid and nonassessable
shares of Common Stock (the "CONVERSION RATE"). For purposes
of this Section 4.2, the "CONVERSION RATE" shall be subject to
adjustment as provided in Sections 4.2(d)(ii)(2) and
4.2(d)(ii)(3) below.
(2) The Corporation shall not issue, in
connection with the conversion of shares of Preferred Stock,
certificates for fractional shares, but in lieu thereof shall
pay to any person who would otherwise be entitled thereto an
amount of cash equal to such fraction multiplied by the
greater of (i) fair value of one share of Common Stock, as
determined by the Board of Directors, whose determination
shall be conclusive or (ii) the applicable Conversion Value.
(3) In order for any holder of shares of
Preferred Stock to convert the same into Common Stock, such
holder shall surrender the certificate or certificate
therefor, duly endorsed, at the office of the Corporation and
shall give written notice to the Corporation that such holder
elects to convert all or part of the shares represented by the
certificate or certificates and shall state in writing therein
the name or names in which such holder desires the certificate
or certificates for Common Stock to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver to
such holder of shares of Preferred Stock, or to such holder's
nominee or nominees, certificates for the full number of
shares of Common Stock to which such holder shall be entitled
as aforesaid. Shares of Preferred Stock shall be deemed to
have been converted as of the date of the surrender of such
shares for conversion as provided above, and the person or
persons entitled to receive Common Stock issuable upon such
conversion shall be treated for all purposes as the record
holder or holders of such Common Stock on such date.
(4) If a holder converts shares of Preferred
Stock, the Corporation shall pay any documentary stamp tax or
similar issue, excise or transfer tax due on the issue of
shares of Common Stock upon the conversion; PROVIDED, HOWEVER,
that
7
<PAGE> 10
the holder shall pay any such tax that is due because the
shares are issued in a name other than the holder's name
pursuant to Section 4.2(d)(i)(4).
(ii) CERTAIN MATTERS WITH RESPECT TO CONVERSION.
(1) The Corporation has reserved and shall
continue to reserve out of its authorized but unissued Common
Stock or its Common Stock held in treasury sufficient shares
of Common Stock to permit the complete and full conversion
into Common Stock of the outstanding Preferred Stock. All
shares of Common Stock that may be issued upon conversion of
Preferred Stock shall be duly authorized, validly issued,
fully paid and nonassessable.
(2) The Conversion Rate shall be subject to
adjustment as follows:
(a) In case the Corporation shall
(i) pay a dividend or make a distribution on its Common Stock
in shares of Common Stock of the Corporation, (ii) subdivide
or split its outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, the
Conversion Rate following the effective date of such event
shall be such number of shares (calculated to the nearest
whole share) equal to the product of the applicable Conversion
Rate in effect immediately prior to such adjustment multiplied
by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock outstanding immediately prior to such event. If the
event results in the Conversion Rate including fractional
shares, then such fractional share shall be paid in cash at
the time of conversion in accordance with Section
4.2(d)(i)(2).
(b) In the event the Corporation at
any time or from time to time shall make or issue, or fix a
record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable
in securities of the Corporation other than shares of Common
Stock, then and in each such event, provision shall be made so
that the holders of Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of
the Corporation that they each would have received had the
Preferred Stock been converted into Common Stock on the date
of such event and had they each thereafter, during the period
from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments
called for during such period under this Section 4.2 with
respect to the rights of the holders of Preferred Stock;
PROVIDED, HOWEVER, that no such adjustment shall be made if
the holders of Preferred Stock simultaneously receive a
dividend or other distribution of such securities as they
would have received if all outstanding
8
<PAGE> 11
shares of Preferred Stock had been converted into Common Stock
on the date of such event.
(c) If Common Stock issuable upon
the conversion of Preferred Stock shall be changed into the
same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of
each such share of Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which
such share of Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
(3) Adjustments to the Conversion Rate also
shall be made for certain dilutive issuances of additional
shares of capital stock by the Corporation as set forth in
this Section 4.2(d)(ii)(3).
(a) SPECIAL DEFINITIONS. For
purposes of this Section 4.2(d)(ii)(3), the following
definitions shall apply:
(i) "OPTION" shall mean
rights, options, warrants or other securities
convertible into or exchangeable or exercisable for
shares of Common Stock or Preferred Stock.
(ii) "ADDITIONAL SHARES OF
STOCK" shall mean (i) all shares of Common Stock
issued by the Corporation after any Series A Initial
Issue Date, any Series B Initial Issue Date or any
Series C Initial Issue Date for which the
consideration per share (determined pursuant to
Section 4.2(d)(ii)(3)(c) below) is less than the
applicable Conversion Value in effect on the date of,
and immediately prior to, the issuance of such
Additional Shares of Stock, other than shares of
Common Stock issued or issuable:
(A) upon exercise of any
Options outstanding on the date of filing of this Amended and
Restated Articles of Incorporation with the Florida Secretary
of State ("Filing Date"); PROVIDED, HOWEVER, that if the
Corporation, after the Filing Date, amends the exercise price
or the number of shares covered by any Options outstanding on
the Filing Date, then such Options, as so amended, shall be
deemed to have been issued after the Filing Date;
9
<PAGE> 12
(B) by reason of a dividend,
stock split, split-up or other distribution on shares of
Common Stock that is covered by Section 4.2(d)(ii)(2)(a)
above;
(C) upon exercise of Options
granted to employees or directors of, or consultants to, the
Corporation pursuant to any stock option plan approved by the
Board of Directors of the Corporation and that, in the
aggregate, are not exercisable for more than ten percent (10%)
of the outstanding Common Stock at such time; or
(b) ADJUSTMENT OF CONVERSION RATE
UPON ISSUANCE OF ADDITIONAL SHARES OF STOCK. In the event the
Corporation shall at any time issue one or more Additional
Shares of Stock, then and in such event, the Conversion Rate,
shall be increased, concurrently with such issuance, to such
number of shares of Common Stock (calculated to the nearest
whole share) determined by multiplying the Conversion Rate
then in effect by a fraction:
(i) the denominator of which
shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2)
the number of shares of Common Stock that the
aggregate consideration received or to be received by
the Corporation for the total number of Additional
Shares of Stock so issued would purchase at the
applicable Conversion Value; and
(ii) the numerator of which
shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the
number of such Additional Shares of Stock so issued.
(c) DETERMINATION OF CONSIDERATION.
For purposes of this Section 4.2(d)(ii)(3)(c), the
consideration per share received by the Corporation for the
issue of any Additional Shares of Stock shall be computed as
follows:
(i) in case of the issuance of
shares of Common Stock for cash, the consideration
shall be the amount of such cash, provided that in no
case shall any deduction be made for any commission,
discounts or other expenses incurred by the
Corporation for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the
issuance of shares of Common Stock for a
consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to
be the fair market value
10
<PAGE> 13
thereof as determined by the Board of Directors in
its reasonable judgment exercised in good faith
(irrespective of the accounting treatment thereof);
and
(iii) in the case of the
issuance of Options, the aggregate consideration
received therefor shall be deemed to be the
consideration received by the Corporation for the
issuance of such Options plus the additional minimum
consideration, if any, to be received by the
Corporation upon the conversion or exchange or
exercise thereof (the consideration in each case to
be determined in the same manner as provided in
clauses (i) and (ii) of this Section
4.2(d)(ii)(3)(c)).
(4) Whenever the number of shares of Common
Stock into which each share of Preferred Stock is convertible
is adjusted, the Corporation shall promptly mail to holders of
the Preferred Stock, first class, postage prepaid, a notice of
the adjustment. The Corporation shall file with the transfer
agent, if any, for the Preferred Stock a certificate from the
Corporation's independent public accountants briefly stating
the facts requiring the adjustment and the manner of computing
it. Subject to Section 4.2(d)(ii)(10) below, the certificate
shall be conclusive evidence that the adjustment is correct.
(5) The adjustments herein provided for
shall be made successively when the event giving rise to such
adjustment occurs and shall become effective immediately
following the record date for any event for which a record
date is designated and on the effective date for any other
event.
(6) Shares of Preferred Stock that have been
converted as provided herein shall revert to the status of
authorized but unissued shares of Preferred Stock.
(7) In any case in which this Section
4.2(d)(ii) shall require that an adjustment as a result of any
event become effective from and after a record date, the
Corporation may elect to defer until after the occurrence of
such event (a) the issuance to the holder of any shares of
Preferred Stock converted after such record date and before
the occurrence of such event of the additional shares of
Common Stock issuable upon such conversion over and above the
shares issuable immediately prior to adjustment; and (b) the
delivery of a check for any remaining fractional shares as
provided in Section 4.2(d)(i)(3) above.
(8) Except as provided in the immediately
following sentence, any determination that the Corporation or
its Board of Directors must make pursuant to this Section
4.2(d)(ii) shall be conclusive. Whenever the Corporation or
its Board of Directors shall be required to make a
determination under this Section 4.2(d)(ii), such
determination shall be made in good faith and may be
challenged in good faith
11
<PAGE> 14
by the holders of a majority of each affected series of
Preferred Stock, as applicable, and any dispute shall be
resolved promptly (and in no event later than 90 days after
any challenge), at the Corporation's expense, by an
independent public accounting firm selected by the Corporation
and acceptable to such holders of such Preferred Stock. Any
such determination shall be deemed approved if the requisite
holders have not notified the Corporation of any challenge
within 30 days after receiving notice (including a statement
in reasonable detail of the bases therefor) of such
determination.
(e) REDEMPTION BY THE CORPORATION.
(i) MANDATORY REDEMPTION. To the extent the
Corporation shall have funds legally available for such
payment, the Corporation shall redeem each share of Series A
Preferred Stock, each share of Series B Preferred Stock and
each share of Series C Preferred Stock on each date which is
five (5) years after the Series A Initial Issue Date, the
Series B Initial Issue Date and Series C Initial Issue Date
(the "MANDATORY REDEMPTION DATE"). Payment shall be made in
immediately available funds payable to the holder on the
Mandatory Redemption Date. Any payment made after the
Mandatory Redemption Date shall be at the Delinquent
Redemption Price.
(ii) VOLUNTARY REDEMPTION BY LOT. To the extent the
Corporation shall have funds legally available for such
payment, the Board of Directors, may, in its sole and absolute
discretion, at any time and from time to time, cause the
Corporation to redeem BY LOT, or such other reasonable method
as the Board of Directors shall direct, any one or more series
or portion of any series of Preferred Stock.
(iii) EFFECT OF REDEMPTION. Shares of Preferred Stock
that have been issued and converted or reacquired in any
manner, including as a result of redemption, shall revert to
the status of authorized and unissued shares of Preferred
Stock, and may be redesignated and reissued as part of any
series of Preferred Stock of the Corporation.
(f) VOTING RIGHTS. Except as otherwise set forth in this Section
4.2(f) or as otherwise required by law, no share of Preferred Stock issued and
outstanding shall have the right to vote on any matters presented to the holders
of the Common Stock for vote.
(i) In addition to any vote or consent of
shareholders or directors required by law or these Amended and
Restated Articles of Incorporation, so long as any Series A
Preferred Stock, or Series B Preferred Stock remains
outstanding, the Required Consent of the holders of the Series
A Preferred Stock and Series B Preferred Stock shall be
necessary for effecting, validating or permitting:
12
<PAGE> 15
(1) any amendment, alteration or repeal of
any of the provisions of (a) these Amended and Restated
Articles of Incorporation of the Corporation affecting the
rights, power and preferences of either series of Preferred
Stock, or (b) the provisions of Article IV hereof; or
(2) any consolidation or merger involving
the Corporation (other than a consolidation or merger in which
the Corporation is the surviving entity and no change in the
capital stock or ownership or control of the Corporation
occurs), any transaction or series of transactions in which an
excess of 50% of the Corporation's voting power is
transferred, or any reclassification or recapitalization of
any capital stock of the Corporation or any dissolution,
liquidation, or winding up of the Corporation, or any sale of
all or more than 50% of the assets of the Corporation, or any
agreement to become so obligated; or
(3) any agreement to do any of the
foregoing.
(ii) SERIES A PREFERRED STOCK. The Required Consent
of the holders of the Series A Preferred Stock shall be
necessary for validating or permitting any authorization,
issuance, creation or increase in the authorized shares of any
class or series of equity security of the Corporation ranking
senior to or in parity with the Series A Preferred Stock or
the issuance of any debt securities. Debt securities shall not
mean commercial debt incurred in the ordinary course of
business.
(iii) SERIES B PREFERRED STOCK.
(1) The holders of Series B Preferred Stock,
voting as single class, shall have the right to elect
one-third (1/3) of the members of the Board of Directors of
the Corporation (the "SERIES B DIRECTORS") rounded up or down
to the nearest whole number.
(2) The Required Consent of the holders of
Series B Preferred Stock shall be necessary for validating or
permitting any authorization, issuance, creation or increase
in the authorized shares of any class or series of equity
security of the Corporation ranking senior to or in parity
with the Series B Preferred Stock or the issuance of any debt
securities. Debt securities shall not mean commercial debt
incurred in the ordinary course of business.
(iv) SERIES C PREFERRED STOCK. The Required Consent
of the holders of the Series C Preferred Stock shall be
necessary for validating or permitting any authorization,
issuance, creation or increase in the authorized shares of any
class or series of equity security of the Corporation ranking
senior to or in parity with the Series C Preferred Stock or
the issuance of any debt securities. Debt securities shall not
mean commercial debt incurred in the ordinary course of
business.
13
<PAGE> 16
(v) The rights of the holders of the Series B
Preferred Stock and, to the extent applicable, the holders of
the Series A Preferred Stock, set forth in this Section 4.2(f)
may be exercised either at a special meeting of the holders of
each series of Preferred Stock, called as hereinafter
provided, or at any annual meeting of stockholders held for
the purpose of electing directors, and thereafter at such
annual meetings, special meetings or by the unanimous written
consent of the holders of Series A Preferred Stock or Series B
Preferred Stock, as applicable.
(vi) A special meeting of the holders of Preferred
Stock for purposes of voting on matters with respect to which
the holders of such shares are entitled to vote as a class may
be called by the Secretary of the Corporation or by a holder
of Preferred Stock designated in writing by the holders of
record of 10% of the shares of such series of Preferred Stock
then outstanding. Such meeting may be called at the expense of
the Corporation by any such person. At any meeting of the
holders of the Series B Preferred Stock, the presence in
person or by proxy of the holders of a majority of the shares
of such series of the Series B Preferred Stock then
outstanding shall constitute a quorum of the Series B
Preferred Stock for the purpose of electing the Series B
Directors. The directors to be elected pursuant to Section
4.2(f)(iii)(1) hereof shall be elected by a plurality of the
holders of the Series B Preferred Stock present in person or
by proxy at any such meeting.
(vii) If any of the Series B Directors shall cease to
serve as a director before his or her term shall expire, the
holders of Series B Preferred Stock, then outstanding may, at
a special meeting of the holders called as provided above or
by unanimous written consent, elect a successor to hold office
for the unexpired term of the such Series B Director.
(viii) In the event of the failure of the Corporation
to pay any dividend as required by Section 4.2(b) or any
redemption as required by Section 4.2(e), then such failure
shall cause all of the shares of that series of Preferred
Stock to automatically, and without any action on the part of
any holder of such series of Preferred Stock, become fully
voting Preferred Stock (as if fully converted into Common
Stock) on all matters upon which the Common Stock may vote.
Such Preferred Stock will still have preferential voting
rights on the matters referred to in this Section 4.2(f).
(g) MISCELLANEOUS.
(i) HEADINGS OF SECTIONS. The headings of the various
subdivisions hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions
hereof.
14
<PAGE> 17
(ii) SEVERABILITY OF PROVISIONS. If any voting
powers, preferences and relative, participating, optional and
other special rights of the Preferred Stock and
qualifications, limitations and restrictions thereof set forth
herein (as may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule
of law or public policy, all other voting powers, preferences
and relative, participating, optional and other special rights
of Preferred Stock and qualifications, limitations and
restrictions thereof set forth herein (as so amended) that can
be given effect without the invalid, unlawful or unenforceable
voting powers, preferences and relative, participating,
optional and other special rights of Preferred Stock and
qualifications, limitations and restrictions thereof shall,
nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or
other special rights of Preferred Stock and qualifications,
limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers,
preferences and relative, participating, optional or other
special rights of Preferred Stock and qualifications,
limitations and restrictions thereof unless so expressed
herein.
4.3 COMMON STOCK.
(a) Each holder of shares of Common Stock shall be entitled to
one vote for each share of Common Stock held on all matters as to which holders
of Common Stock shall be entitled to vote.
(b) Any member of the Board of Directors of the Corporation
selected by the holders of a majority of all classes of stock of the Corporation
entitled to vote thereon may be removed only by the holders of a majority of
such classes of stock of the Corporation voting as a single class. In the event
of a vacancy on the Board of Directors of any of the directors elected by the
holders of a majority of all classes of stock of the Corporation entitled to
vote thereon, the holders of a majority of all classes of stock of the
Corporation voting as a single class will have the immediate right to designate
a successor to fill that vacancy.
(c) Each share of Common Stock issued and outstanding shall be
identical in all respects, one with the other, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment. Except for and subject to
those rights expressly granted to the holders of the Preferred Stock, or except
as may be provided by the laws of the State of Florida, the holders of Common
Stock shall have exclusively all other rights of stockholders including, but not
by way of limitation, (1) the right to receive dividends, when and as declared
by the Board of Directors of the Corporation out of assets lawfully available
therefor, and (2) in the event of any distribution of assets upon liquidation,
dissolution or winding-up of the Corporation or otherwise, the right to receive
pro rata all the assets and funds of the Corporation remaining after the payment
to the holders of the Preferred Stock of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding-up of the
Corporation as herein provided.
15
<PAGE> 18
ARTICLE V - REGISTERED OFFICE AND AGENT AND CORPORATE ADDRESS
The address of the Corporation's registered office in the
State of Florida is 315 South Hyde Park Avenue, Tampa, Florida 33606, and the
name of the Corporation's registered agent at such address is Christopher H.
Norman, Esq. The principal place of business of the Corporation is 2055 Lake
Avenue, S.E., Suite A, Largo, Florida 33771.
ARTICLE VI - BOARD OF DIRECTORS
The affairs of the Corporation shall be managed by a Board of
Directors. The number of directors may be increased from time to time in the
manner provided by the By-Laws, but shall never be less than one nor more than
nine. The election of directors shall be done in accordance with Section
4.2(f)(iii)(1) and Section 4.3 of these Amended and Restated Articles of
Incorporation.
ARTICLE VII - BY-LAWS
The By-Laws of the Corporation may be adopted, altered,
amended or repealed by either the stockholders or directors as permitted by the
By-Laws.
ARTICLE VIII - INDEMNIFICATION
The Corporation shall indemnify and hold harmless any
director, officer, employee or agent of the Corporation from and against any and
all expenses and liabilities that may be imposed upon or incurred by him or her
in connection with, or as a result of, any proceeding in which he or she may
become involved, as a party or otherwise, by reason of the fact that he or she
is or was such a director, officer, employee or agent of the Corporation,
whether or not he or she continues to be such at the time such expenses and
liabilities shall have been imposed or incurred, to the extent permitted by the
laws of the State of Florida, as they may be amended from time to time.
ARTICLE IX - AMENDMENT
The Corporation reserves the right to amend or repeal any
provisions contained in these Amended and Restated Articles of Incorporation, in
accordance with the provisions of the General Corporation Act of the State of
Florida.
ARTICLE X - BOOKS, OFFICES AND ELECTIONS
Except as otherwise required by the laws of the State of
Florida, the stockholders and directors shall have the power to hold their
meetings and to keep the books, documents and papers of the corporation outside
of the State of Florida, and the Corporation shall have the power to have one or
more offices within or without the State of Florida, at such places as may be
from time to time designated by the By-laws or by resolution of the stockholders
or directors. Elections of directors need not be by ballot unless the By-laws of
the Corporation shall so provide.
16
<PAGE> 19
ARTICLE XI - BREACH OF DUTY
Except as otherwise provided by the laws of the State of Florida, as
they may be amended from time to time, a director of the Corporation shall not
have personal liability to the Corporation or to any of the Corporation's
stockholders for monetary damages for breach of fiduciary duty as a director of
the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of November, 1998.
/s/ James S. Holbrook, Jr.
-------------------------------
James S. Holbrook, Jr.
Chairman of the Board
Attest:
/s/ F. Eugene Woodham
- -----------------------------
F. Eugene Woodham, Secretary
17
<PAGE> 20
ACCEPTANCE OF APPOINTMENT AS REGISTERED AGENT
Having being named as registered agent for 2CONNECT EXPRESS, INC. ("the
Corporation"), a Florida corporation, and being familiar with the duties and
responsibilities of a registered agent, I, on behalf of the Corporation, hereby
agree to accept service of process for the Corporation, to keep open the office
of the registered agent, and to comply with any and all statutes relative to the
complete and proper performance of the duties of registered agent, including
Florida Statute Section 607.0505.
/s/ Christopher H. Norman
------------------------------
Christopher H. Norman, Esquire
Registered Agent
