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As filed with the Securities and Exchange Commission on October 28, 1998
Registration No. ___
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10/A
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
________________
EBS LITIGATION, L.L.C.
(Exact name of registrant as specified in its charter)
________________
Delaware 13-3989964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
________________
Peter N. Wang
c/o Friedman, Wang & Bleiberg, P.C.
90 Park Avenue
New York, New York 10016
(212)682-7474
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Membership Units
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FORWARD-LOOKING STATEMENTS
This Registration Statement contains forward-looking statements
concerning the Class A Membership Units of EBS Litigation, L.L.C.
(the "Company"). Forward-looking statements are typically identified by the
words "believe," "expect," "anticipate," "intend," "seek," "estimate,"
"project" and similar expressions. These forward-looking statements are subject
to a number of risks and uncertainties, many of which are beyond the Company's
control. Actual results could differ materially from those contemplated by
these forward-looking statements as a result of many factors, including those
described below. In light of these risks and uncertainties, there can be no
assurance that the results and events contemplated by the forward-looking
information contained in this Registration Statement will in fact transpire.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates.
ITEM 1. BUSINESS
Unless otherwise noted, all references to "the Company" shall mean EBS
Litigation, L.L.C., a Delaware limited liability company.
Background
On September 9, 1997, the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court") entered an order in accordance
with section 1129 of the Bankruptcy Code, 11 U.S.C. (S)(S) 101-1330, et seq.,
(the "Bankruptcy Code") confirming the Amended Joint Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code (the "Plan") filed by Edison Brothers
Stores, Inc. ("Edison") and its affiliated debtors in possession (collectively
with Edison, the "Debtors"). The Plan became effective on September 26, 1997
(the "Effective Date").
The Company was established pursuant to the Plan and the EBS
Litigation, L.L.C. Members Agreement (the "Members Agreement"). Pursuant to the
Plan, each holder of an Allowed General Unsecured Claim (as defined in the Plan)
against Edison was entitled to receive a distribution on account of such claim
which included, among other consideration, the holder's pro rata share of the
Company's Class A Membership Units in the Company. The initial distribution date
under the Plan occurred on or about December 12, 1997 (the "Initial Distribution
Date"). Accordingly, in late December of 1997, holders of Allowed General
Unsecured Claims began receiving membership certificates evidencing their
ownership of Class A Membership Units in the Company. As of June 30, 1998,
there were 9,470,659 Class A Membership Units and 529,341 Class B Membership
Units of the Company issued and outstanding. Between September 25, 1997 and June
30, 1998, no transfers of beneficial ownership of Class A Membership Units in
the Company were recorded on the membership register maintained by Norwest Bank
Minnesota, N.A., the Company's Disbursing and Transfer Agent (in such capacity,
the "Transfer Agent"). See "Item 11. Description of Registrants Securities to
be Registered" for a description of the Class A Membership Units. Holders of
the Class A Membership Units are referred to hereinafter collectively as the
"Members" and individually as a "Member."
The Plan further provided for the Debtors' transfer to the Company of
their right, title and interest in and to all of the Debtors' potential
fraudulent transfer causes of action, under the Bankruptcy Code or applicable
state law, arising in connection with (a) the June 29, 1995 distribution by
Edison of approximately 4,404,560 shares of common stock (the "D&B Common
Stock") in Dave & Buster's Inc., a Missouri corporation ("Dave & Busters"), to
holders of Edison common stock (the "D&B Spinoff Stockholders") in the form of a
dividend; and (b) all related transactions (the "D&B Spinoff"). The causes of
action relating to the D&B Spinoff are referred to herein as the "Unresolved
Avoidance Claims." Following transfer of the Unresolved Avoidance Claims to the
Company, the Plan provided for the appointment of the Company as the
representative of the Debtors' estates for the purpose of retaining and
enforcing the Unresolved Avoidance Claims in accordance with section
1123(b)(3)(B) of the Bankruptcy Code and the Members Agreement.
The Plan further obligated the Debtors to transfer the "L.L.C. Funding
Amount," in an amount designated by the Official Committee of Unsecured
Creditors appointed in the Debtors' chapter 11 cases (the "Creditors'
Committee"), to the Company on the Effective Date. The Creditors' Committee
designated $2 million as the L.L.C. Funding Amount payable to the Company; such
L.L.C. Funding Amount was paid to the Company on October 16, 1997.
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Formation of the Company and Summary of
Certain Provisions of the Members Agreement
Formation
In accordance with the Plan, the Certificate of Formation of the
Company was filed on September 24, 1997 with the office of the Delaware
Secretary of State, for the purpose of forming the Company as a limited
liability company under the provisions and subject to the requirements of the
State of Delaware, and in particular the Delaware Limited Liability Company Act,
Del. Code Ann. tit.6, ch. 18 (the "Delaware Act"). The Certificate of Formation
became effective, thereby providing for the formation of the Company on
September 25, 1997 (the "Inception Date").
Purposes
The Company was organized for the exclusive purposes of (a)
prosecuting, settling and/or liquidating the Unresolved Avoidance Claims; (b)
receiving and administering all assets of the Company (i.e., the cash proceeds
of the Unresolved Avoidance Claims or "Avoidance Claim Proceeds" as well as
other property or proceeds received by the Company); and (c) distributing the
net Avoidance Claim Proceeds to holders of Membership Units in the Company
pursuant to the terms of the Members Agreement. The Company has no objective to
engage in the conduct of any trade or business. In essence, the Company
constitutes a vehicle for (a) converting the Unresolved Avoidance Claims to
cash, whether by means of the D&B Spinoff Settlement (as defined in the Plan) or
other settlement, or enforcement of a judgment ultimately obtained; and then (b)
distributing all net cash to holders of Membership Units in the Company. See
"-- Term of the Company."
Administration and the Manager
The Company Assets are administered, and the affairs of the Company
are managed, by the Manager. The Manager of the Company, as duly designated by
the Creditors' Committee, is Peter N. Wang (in such capacity, the "Manager").
The principal office of the Company is maintained at the principal office of the
Manager, which is the law office of Friedman, Wang & Bleiberg, P.C. ("FWB"), 90
Park Avenue, New York, New York 10016. The telephone number is (212) 682-7474.
In furtherance of the Company's purposes and subject to the retained
jurisdiction of the Bankruptcy Court as provided for in the Plan, the Manager is
obligated to make continuing efforts to (i) prosecute, settle and/or liquidate
the Unresolved Avoidance Claims, based upon the assessment of the Manager, with
the advice of counsel and consultants retained by the Manager, of (A) the
likelihood that the Company will prevail on the merits, (B) the possible
recovery on such litigation, (C) the estimated cost (and attendant delay) of
such litigation, (D) the offer of settlement, (E) the resources of the Company
that are available for prosecuting the Unresolved Avoidance Claims, and (F) any
other matters that the Manager deems to be relevant to such assessment, and (ii)
make distributions of Avoidance Claim Proceeds; in each case in an expeditious
but orderly manner intended reasonably to maximize the value of such
distributions to the Members, but subject to the judgment and discretion of the
Manager and the provisions of the Members Agreement. The Manager will not be
liable or accountable, in damages or otherwise, to the Company or to any Member
for any action or inaction, except in the case of his willful breach of a
material provision of the Members Agreement or gross negligence in connection
with the performance of his duties under the Members Agreement. See "Item 12.
Indemnification of Directors and Officers."
The Manager is empowered to retain (and make reasonable compensation
and reimbursement from the Company Assets to) such independent experts and
advisors (including, but not limited to, law firms, tax advisors, consultants,
or other professionals) as the Manager may select to aid in the performance of
his duties and responsibilities and to perform such other functions as may be
appropriate in furtherance of the intent and purpose of the Members Agreement.
The Members Agreement also requires the Manager to designate one of
the Members as the "Tax Matters Partner" (as defined in the Section 6231 of the
Internal Revenue Code). The Tax Matters Partner is required to represent the
Company (at the Company's expense) in connection with all examinations of the
Company's affairs by tax authorities and to expend Company funds for
professional services associated therewith. The Tax Matters
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Partner also arranges for the preparation and timely filing of all returns
required to be filed by the Company and the distribution of Form K-1 or other
similar forms to all Members. In accordance with the Members Agreement, the
Manager has designated Citibank, N.A., through its authorized representative
Randolph I. Thornton, Jr., to serve as the Tax Matters Partner of the Company.
The Manager has selected the law firm of Jones, Day, Reavis & Pogue
("Jones Day") to serve as counsel to the Company. Jones Day's principal duties
as counsel for the Company involve the prosecution of the D&B Spinoff Litigation
(as defined below) and related negotiations. Prior to the Effective Date, Jones
Day served as counsel to the Creditors' Committee. The Manager has selected
PricewaterhouseCoopers LLP to provide the Company with financial reporting and
consulting services as well as tax-related services. Norwest Bank Minnesota,
N.A., which serves as the Disbursing Agent under the Plan, maintains the
ownership registers of the Company and, at the direction of the Manager,
coordinates distributions to Members of the Company, is custodian of the
Company's funds and performs related administrative duties. Rubin, Brown,
Gornstein & Company, LLP serves as the Company's independent auditors.
Subject to the retained jurisdiction of the Bankruptcy Court as
provided for in the Plan, but without prior or further authorization, the
Manager may control and exercise authority over the Company's assets, over the
acquisition, management and disposition thereof and over the management and
conduct of the Company to the extent necessary to enable the Manager to fulfill
the intent and purposes of the Members Agreement. No person dealing with the
Company is obligated to inquire into the authority of the Manager in connection
with the acquisition, management or disposition of the Company's assets. In
connection with the administration of the Company's assets and the management of
the Company's affairs, the Manager has the power to take any and all actions as,
in the Manager's sole discretion, are necessary or advisable to effectuate the
purposes of the Company, including, without limitation, the power and authority
to (i) distribute the Company's assets to Members in accordance with the terms
of the Members Agreement, (ii) sell, convey, transfer, assign, liquidate or
abandon the Company's assets (including without limitation the Unresolved
Avoidance Claims), or any part thereof or any interest therein, upon such terms
and for such consideration as the Manager, in its sole discretion, may deem
desirable, (iii) endorse the payment of notes or other obligations of any person
or to make contracts with respect thereto, (iv) borrow such sums of money, at
any time and from time to time, for such periods of time, upon such terms and
conditions, from such persons, for such purposes as may be deemed advisable, and
(v) appoint, engage, supervise and compensate such officers, employees and
agents of the Company and such other persons, as may be deemed necessary or
desirable. The Manager will not at any time, on behalf of the Company or the
Members, enter into or engage in any trade or business, and no part of the
Company's assets will be used or disposed of by the Manager in furtherance of
any such trade or business. All decisions and actions taken by the Manager
under the authority of the Members Agreement will be binding upon all of the
Members and the Company. Without the consent of all of the Members, the Manager
may not (i) take any action in contravention of the Members Agreement; (ii) take
any action which would make it impossible to carry on the activities of the
Company; or (iii) possess property of the Company or assign the Company's rights
in specific property for other than Company purposes.
Term of the Company; Dissolution
The Company's existence will terminate (unless dissolved earlier) on
the third anniversary of the Effective Date unless extended by the Manager (with
the approval of the Bankruptcy Court) for one or more successive periods of two
years each if the Company's assets have not been fully liquidated and
distributed or all Disputed General Unsecured Claims (as defined in the Plan)
have not been resolved. The Company will be dissolved only upon the earlier to
occur of: (i) termination of the Company's existence; (ii) the entry of a final
judgment, order or decree of a court of competent jurisdiction adjudicating the
Company to be bankrupt and the expiration without appeal of the period, if any,
allowed by applicable law in which to appeal; or (iii) the unanimous written
agreement of all Members. In the event of the Company's dissolution, following
the payment of, or provision for, all debts and liabilities of the Company and
all expenses of liquidation, and subject to the right of the Liquidating Agent
(as defined in the Members Agreement) to set up reasonable cash reserves for any
contingent or unforeseen liabilities or obligations of the Company, all assets
of the Company (or the proceeds thereof) will be distributed to holders of Class
A Membership Units in accordance with their respective Capital Account (as
defined in the Members Agreement) balances. No Member will have any recourse
against Edison or any other Member for any distributions with respect to such
Member's Capital Account balances. See "Item 11. Description of Registrant's
Securities To Be Registered."
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THE COMPANY'S OPERATIONS SINCE INCEPTION
Commencement of Litigation
On September 29, 1997, the Company, as the assignee of the Unresolved
Avoidance Claims, filed a complaint (the "Complaint") with the Bankruptcy Court,
commencing the prosecution of all Unresolved Avoidance Claims against the D&B
Spinoff Stockholders, Dave & Busters, and their current management. The lawsuit
is pending before the Bankruptcy Court as Adversary Proceeding No. A-97-171 (the
"D&B Spinoff Litigation"). The Complaint filed by the Company alleged, among
other things, that Edison had not received reasonably equivalent value for the
D&B Common Stock and certain realty holdings valued at approximately $7.3
million in connection with the D&B Spinoff, and thus sought to recover the D&B
Common Stock, or the value thereof, from the D&B Spinoff Stockholders.
The Company also filed a Motion to Certify Defendant Class, requesting
that the Bankruptcy Court permit the Company to prosecute the D&B Spinoff
Litigation as a defendant class action. A defendant class action is a
procedural device whereby the plaintiff, in this case the Company, can identify
a limited number of qualified defendants to represent the interests of a larger
number of similarly situated defendants and upon prevailing, can take judgment
against all defendants. Certification of a defendant class and designation of
class representatives permits the plaintiff to obtain uniform relief from all
defendants by removing the inefficiencies and risks of inconsistent or varying
adjudications with respect to individual members of the class. The Company
initially identified 11 parties to serve as class representatives. See
"-- Status of D&B Spinoff Litigation as of June 30, 1998".
In addition to seeking recovery of the D&B Spinoff Stock or its value
from the D&B Spinoff Stockholders, the Complaint sought to recover approximately
$7.3 million which was transferred to insiders of Dave & Busters by subsidiaries
of Edison. Specifically, the Complaint alleged that Edison paid a $3.75 million
dividend to one subsidiary, and satisfied an antecedent debt of $3.55 million to
another subsidiary, for the sole purpose of providing cash to pay advances to
certain individual defendants. The Complaint sought recovery of these cash
transfers from defendants Dave & Busters, D&B Realty Holding, Inc., and the
named individuals (collectively, the "Spinoff-Related Defendants"). On October
30, 1997, the Spinoff-Related Defendants filed a joint answer, generally denying
the relevant allegations of the Complaint, setting forth certain affirmative
defenses and demanding a trial by jury. The Spinoff-Related Defendants also
filed a Motion for a Determination that the proceeding is a Core Proceeding
(which is a proceeding over which a bankruptcy court may preside in accordance
with 28 U.S.C.(S) 157(d)), which was granted without objection, as well as a
Motion for Withdrawal of Reference, seeking withdrawal of the D&B Spinoff
Litigation to the United States District Court for the District of Delaware (the
"District Court"). On August 10, 1998 EBS entered into a Settlement Agreement
with the Spinoff-Related Defendants and certain other interested parties,
wherein EBS released these parties from all Spinoff-Related claims in return for
a payment of $2.1 million. The action against the Spinoff-Related Defendants was
dismissed August 20, 1998, and the money was paid into the Disbursing Agent's
account August 26, 1998.
The D&B Spinoff Settlement
Notwithstanding commencement of the D&B Spinoff Litigation, each D&B
Spinoff Stockholder had the right to obtain a release of all Unresolved
Avoidance Claims against it by participating in the D&B Spinoff Settlement
provided for in the Plan. In order to participate in the D&B Spinoff
Settlement, a D&B Spinoff Stockholder was obligated to exercise one of three
settlement options outlined in the Plan. The three settlement options permitted
D&B Spinoff stockholders to participate by means of (a) exercising a specified
number of rights granted to Edison stockholders under the Plan; (b) paying cash
to the Company in an amount equal to the D&B Spinoff Release Minimum Purchase
Price described below; or (c) a combination of rights exercised and cash paid,
all as determined in accordance with formulas set forth in the Plan. Most of
the D&B Spinoff Stockholders who elected to participate in the D&B Spinoff
Settlement elected the settlement option (the "Direct Purchase Option")
involving the payment of
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the "D&B Spinoff Release Minimum Purchase Price," which was equal to the product
of (a) $5.6593, and (b) the number of shares of D&B Common Stock that such D&B
Spinoff Stockholder received in connection with the D&B Spinoff.
The Plan provided for the expiration of the D&B Spinoff Settlement
Period on the 30th day after the Effective Date. The Company elected to extend
such period for the Direct Purchase Option until March 30, 1998. It was
determined that such an extension was in the best interests of the Company, as
it permitted the recovery of approximately $4.5 million in D&B Spinoff
Settlement Proceeds from defendants who were not able to accept the D&B Spinoff
Settlement Offer by the initial deadline, for reasons including, without
limitation, (a) the time lag attendant to the transmission of settlement-related
documents from record holders to their beneficial holders, and (b) the desire of
certain D&B Spinoff Stockholders to consult with counsel or other advisors prior
to participating in the D&B Spinoff Settlement.
As of June 30, 1998, the D&B Spinoff Settlement Proceeds that had been
received by the Company aggregated approximately $12,800,000. This sum
represents the aggregate settlement amount paid by D&B Spinoff Stockholders of
approximately 2.4 million shares of D&B Common Stock. Holders of approximately
2 million remaining shares did not participate in the D&B Spinoff Settlement.
For procedural reasons, the Company is only seeking recovery against D&B Spinoff
Stockholders who received more than 55 shares of D&B Common Stock in the D&B
Spinoff.
STATUS OF D&B SPINOFF LITIGATION AS OF JUNE 30, 1998
On November 21, 1997, the Company temporarily withdrew its Motion to
Certify Defendant Class, in light of the fact that each of the proposed class
representatives had elected to participate in the D&B Spinoff Settlement.
Following efforts to identify adequate class representatives to replace the
initial proposed class representatives, on March 6, 1998, the Company filed (a)
its Motion to File Amended Class Complaint, requesting leave to file an amended
complaint (the "Amended Complaint") substantively similar to the Complaint but
identifying new proposed class representatives; and (b) a Renewed Motion to
Certify Defendant Class. On March 30, 1998, the Bankruptcy Court granted each
of these motions. The Bankruptcy Court's Order Certifying Defendant Class Action
(the "Class Certification Order") certified the following defendant class (the
"Defendant Class") as a mandatory defendant class pursuant to Rule 23(b)(1) of
the Federal Rules of Civil Procedure:
All persons or entities who were the beneficial or legal recipients of
at least 55 shares of the June 1995 transfer of 4,404,560 shares of Dave
and Busters stock from Edison except those persons or entities who have
obtained a release of Unresolved Avoidance Claims, as defined in the Plan,
that was confirmed on September 9, 1997.
The Class Certification Order designated the following entities
(collectively, the "Class Representatives") to represent the Defendant Class:
Barclays Global Investors, N.A.; Greentree Partners; Greenway Partners; Wilshire
Associates, Inc; and WKW Asset Management.
On May 22, 1998, Class Representative Wilshire Associates, Inc. filed
a motion under Federal Rule of Civil Procedure 12(b)(6), seeking the Bankruptcy
Court's determination that Wilshire Associates, Inc. is not a proper party to
the D&B Spinoff Litigation. Wilshire Associates, Inc. asserts that it merely
serves as the nominee record holder of D&B Spinoff Stock, for the benefit of a
number of persons who have not thus far been identified. The Company has filed a
response to such motion, indicating that it will consent to dismissal of
Wilshire Associates, Inc. from the D&B Spinoff Litigation if Wilshire
Associates, Inc. adequately identifies, voluntarily or in accordance with an
order of the Bankruptcy Court, the persons for whose benefit it holds D&B
Spinoff Stock.
The Class Representatives selected Edward McNally and the Wilmington,
Delaware law firm of Morris, James, Hitchens & Williams ("Class Counsel") to
represent the Defendant Class. On June 8, 1998, Class Counsel filed a motion
seeking payment of all fees and costs relating to the D&B Spinoff litigation.
The Bankruptcy Court has not yet ruled on the motion, which the Company opposes.
Following official appointment of Class Counsel by the Bankruptcy Court, Class
Counsel, on July 1, 1998, filed a motion requesting decertification of the
Defendant Class and a motion to withdraw reference from the bankruptcy court.
The Company filed its responses opposing the motions on July 14, 1998 and July
28, 1998, respectively. On July 17, 1998, the Defendant Class filed a motion to
dismiss the action. The Company's response opposing this motion was filed on
August 10, 1998. Each of the pending Class Motions is now fully briefed and
awaiting the Courts' ruling on request for oral argument.
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The Company intends to prosecute the D&B Spinoff Litigation
vigorously, and to pursue the maximum available recoveries. While there can be
no assurances as to the Company's ultimate total recovery given the
uncertainties associated with litigation, at this juncture it is estimated that
such recoveries will exceed the costs of further prosecuting the D&B Spinoff
Litigation.
ITEM 2. FINANCIAL INFORMATION
Selected Consolidated Financial Data
The following summary operating and balance sheet data sets forth
selected consolidated financial information of the Company as of and for the
period ended December 31, 1997, since the Inception Date and as of and for the
three months ended March 31, 1998 and as of and for the three and six month
periods ended June 30, 1998. The selected consolidated financial data at and for
the period ended December 31, 1997 has been derived from the Company's financial
statements, which were audited by Rubin, Brown, Gornstein & Company, LLP. The
selected consolidated financial data as of and for the three months ended March
31, 1998 and as of and for the three and six month periods ended June 30, 1998
has been derived from the Company's unaudited financial statements. The
following information should be read in conjunction with the Company's financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," presented below.
<TABLE>
<CAPTION>
Three Months Three Six Months
Period Ended Ended Months Ended Ended
December 31, March 31, 1998 June 30, 1998 June 30, 1998
1997/(1)/ (unaudited) (unaudited) (unaudited)
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Statement Data:
Defendant payment revenue/(2)/............... $ 9,991,975 $ 283,621 $2,571,856 $2,855,477
Interest income.............................. 106,048 147,849 98,579 246,428
Expenses..................................... 175,587 183,354 170,254 353,608
Net income (loss)............................ 9,922,436 248,116 $2,500,181 2,748,297
Distribution per Class A Membership Unit/(3)/ -0- -0- 0.70 0.70
Balance Sheet Data (at period end):
Property, plant and equipment, net........... -0- -0- -0- -0-
Total assets................................. $12,069,695 $12,352,282 $7,749,424 $7,749,424
Accrued expenses............................. 147,259 181,730 182,236 182,236
Working capital.............................. 11,922,436 12,170,552 7,567,188 7,567,188
Long-term debt............................... -0- -0- -0- -0-
Members' equity.............................. 11,922,436 12,170,552 7,567,188 7,567,188
</TABLE>
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(1) The Company's inception was September 25, 1997.
(2) On August 26, 1998, the Company received a total of $2.1 million of
settlement proceeds from Dave & Busters that will be available for future
distributions to Class A Membership Unit holders.
(3) On October 8, 1998, the Company distributed $6.6 million to all Class A
Membership Unit holders of record as of October 1, 1998.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion and analysis of the financial condition
at, and results of operations of the Company for, the period ended December 31,
1997 and the three months ended March 31, 1998 and of certain factors that may
affect the Company's prospective financial condition and results of operations.
The following should be read in conjunction with the Company's financial
statements and notes thereto appearing elsewhere herein. References herein to
the period ended December 31, 1997 are to the period from September 25, 1997 to
December 31, 1997.
The Company, which was formed pursuant to the Plan and the Members
Agreement, is a limited purpose entity which may not engage in any trade or
business. The Company was organized for the exclusive purposes of (a)
prosecuting, settling and/or liquidating the Unresolved Avoidance Claims, (b)
receiving and administering the Avoidance Claim Proceeds, and (c) distributing
the net Avoidance Claim Proceeds to holders of the Company's Class A Membership
Units pursuant to the terms of the Members Agreement.
On October 16, 1997, the Company received the L.L.C. Funding Amount of
$2 million. The Company recognizes income from amounts received from the
prosecution, settlement and liquidation of the Unresolved Avoidance Claims. To
date, the Company has only received settlement amounts. During the period ended
December 31, 1997, the Company received $10.0 million in D&B Spinoff Settlement
Proceeds. The D&B Spinoff Settlement Period was to initially expire on October
27, 1997, at which time the Company had received approximately $7,779,974
million in D&B Spinoff Settlement Proceeds. However, many defendants were not
able to accept the D&B Spinoff Settlement by the initial deadline for reasons
including, without limitation, (a) the time lag attendant to the transmission of
settlement-related documents from record holders to their beneficial holders,
and (b) the desire of certain D&B Spinoff Stockholders to consult with counsel
or other advisors prior to participating in the D&B Spinoff Settlement. The
Manager therefore decided that an extension of the D&B Spinoff Settlement Period
was in the best interests of the Company. The extension permitted the recovery
of additional D&B Settlement Proceeds of approximately $2.2 million between
October 27, 1997 and December 31, 1997 and approximately $284,000 in the three
months ended March 31, 1998. From March 31, 1998 through June 30, 1998, the
Company received $2.5 million of additional settlement amounts from D&B Spinoff
Stockholders (as defined in the Plan), which will be recognized as income in the
second quarter. The Company expects to recognize defendant payment revenue in
future periods as the Unresolved Avoidance Claims are prosecuted, settled
further, or both. However, there can be no assurance that the Company will
recognize any further defendant payment revenue.
The Company also recognizes income from interest earned on Avoidance
Claim Proceeds. The Company invests Avoidance Claim Proceeds in a money market
fund investing solely in direct obligations of the United States Government.
The Members Agreement permits all funds received by the Company to be
temporarily invested in United States treasury bills and notes with maturities
of 12 months or less, institutional money market funds, and demand or time
deposits with U.S. federal or state commercial banks having primary capital of
not less than $500 million. During the period ended December 31, 1997 and the
three months ended March 31, 1998, the Company recognized $106,000 and $148,000
of interest income, respectively. The amount of interest income recognized by
the Company in future periods will be dependent on, among other things, (i)
fluctuations in interest rates, (ii) the amounts and timing of any Avoidance
Claims Proceeds received in the future, (iii) the amounts and timing of any
distributions to holders of Class A Membership Units, and (iv) the amount and
timing of the Company's expenses.
The Company's expenses consist primarily of fees payable to the
Transfer Agent, the Manager, and the Company's lawyers and accountants and
insurance expenses. The Company had expenses of $176,000 and $183,000 for the
period ended December 31, 1997 and the three months ended March 31, 1998. These
expenses are expected to fluctuate in future periods based on, among other
factors, (i) the volume of transfers of Class B and Class A Membership Units,
and (ii) the activity in any period in the D&B Spinoff Litigation. The periodic
reporting requirements imposed on the Company under the Securities Exchange Act
of 1934 is expected to result in an increase in legal and accounting fees in
future periods.
The Company, together with EBS Pension, L.L.C. (another limited
liability company formed pursuant to the Plan), has agreed to indemnify the
Debtors and their present or former officers, directors and employees from and
against any losses, claims, damages or liabilities by reason of any actions
arising from or relating to the Company and any actions taken or proceeding
commenced by the Company (other than with respect to any Unresolved
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<PAGE>
Avoidance Claims that the Company may have against such persons other than in
their capacities as officers, directors or employees of the Debtors).
Indemnification must first be sought from any applicable officers' and
directors' insurance policy, and then from the $1.5 million reserve established
by EBS Pension L.L.C. Although to date there has not been any indemnification
claim, there can be no assurance such a claim will not be made in the future.
All liabilities of the Company, including the foregoing indemnification
obligations, will be satisfied from the Company Assets.
At December 31, 1997 and March 31, 1998, the Company had cash and cash
equivalents of $12.0 million and, $12.3 million, respectively. From March 31,
1998 to June 30, 1998, the Company received an additional $2.5 million of cash
resulting from additional settlements. On April 15, 1998, the Company
distributed an aggregate of $7.0 million to holders of Class A Membership Units
as of March 30, 1998. When deciding the amount and timing of the April
distribution, the Manager considered, among other things, (i) the terms of the
Members Agreement governing distributions (see "Item 11. Description of
Registrant's Securities to be Registered - Distributions of Avoidance Claim
Proceeds"), and (ii) the anticipated amount of future administrative and
litigation expenses. At the time of the April distribution, in accordance with
the Members Agreement, the Company reserved $492,844 for distribution to persons
who could become holders of Class A Membership Units after March 30, 1998. As
of June 30, 1998, the Company had cash and cash equivalents of $7.7 million.
The amount and timing of any future distributions of Avoidance Claim Proceeds
will be determined by the Manager in accordance with the terms of the Members
Agreement. There can be no assurance that any further distributions will be
made.
The Company is classified as a partnership for federal income tax
purposes and, therefore, does not pay taxes. Instead, the Members pay taxes on
their proportionate share of the Company's income. See "Item 11. Description of
Registrant's Securities to be Registered -- Taxation".
ITEM 3. PROPERTIES
The Company does not own or lease any properties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Class A Membership Units of persons owning
of record or known to the Company to be the beneficial owner of more than five
percent of the outstanding Class A Membership Units as of June 30, 1998. The
Manager does not own any Class A Membership Units.
<TABLE>
<CAPTION>
Number of Class A Nature of Beneficial
----------------- --------------------
Name and Address of Beneficial Membership Units Ownership Percent
------------------------------ ---------------- --------- -------
Owner
-----
<S> <C> <C> <C>
Citibank, N.A. 798,811 Sole Voting/Investment 7.99%
Hare & Co. 522,787 Sole Voting/Investment 5.23%
Morgens Waterfall Overseas Partners 614,739 Sole Voting/Investment 6.15%
Nomura Holding America, Inc. 718,035 Sole Voting/Investment 7.18%
Principal Mutual Life 766,665 Sole Voting/Investment 7.67%
Swiss Bank Corporation 1,522,582 Sole Voting/Investment 15.23%
</TABLE>
-9-
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company does not have any directors and the Manager, Peter N.
Wang, acts as the Company's sole executive officer. Mr. Wang is 49 years old
and has been a shareholder and officer of FWB for the past 20 years. The Manager
may resign at any time or be removed by the holders (the "Requisite Holders") of
65% or more of the outstanding Class A Membership Units (excluding such holders
against whom the Company holds Unresolved Avoidance Claims), with or without
cause, at any time, such resignation or removal to be effective upon the
appointment of a successor Manager. In the event of the death, resignation,
incompetency or removal of the Manager, the Requisite Holders may appoint a
successor Manager that is not affiliated with Edison. If such appointment does
not occur within 90 days, the Manager or the Manager's representative may
petition the Bankruptcy Court for the appointment of a successor Trustee.
ITEM 6. EXECUTIVE COMPENSATION
The Members Agreement provides that FWB will receive compensation for
the Manager's services to the Company at the standard hourly rates charged for
the Manager's services and the services of other persons at FWB who may assist
him with his duties. The Company is also obligated to reimburse FWB for
reasonable expenses incurred by the Manager and others at FWB in connection with
the performance of the Manager's duties to the Company.
With respect to services rendered from the Inception Date to December
31, 1997, FWB was paid $6,903.00 on account of the Manager's services,
$20,995.00 on account of the services of another attorney at FWB who assisted
him, and $218.44 in expense reimbursement.
With respect to services rendered during the six months ended June 30,
1998, FWB was paid $5,440.00 on account of the Manager's services to the Company
and $52,054.00 on account of the services of another attorney at FWB who
assisted him. The Company also paid $81.00 for the services of a paralegal at
FWB and $290.69 in expense reimbursement.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 8. LEGAL PROCEEDINGS
Other than the D&B Spinoff Litigation described throughout this
Registration Statement, the Company is not involved in any legal proceedings.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's Class
A Membership Units. As of June 30, 1998, there were 1,814 certificated holders
of record of the Class A Membership Units. See "Item 4. Security Ownership of
Certain Beneficial Owners and Management" for more information. See "Item 11.
Description of Registrants Securities to be Registered" for a discussion of
distribution provisions with respect to Avoidance Claim Proceeds in the Members
Agreement and restrictions on transfers of the Class A Membership Units.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
No securities of the Company which were not registered under the
Securities Act of 1933 (the "Securities Act") have been issued or sold by the
Company within the past three years, except that in connection with
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<PAGE>
the Plan, as of June 30, 1998, the Company issued 10,000,000 Class B Membership
Units to Edison pursuant to the Plan. As of June 30, 1998, the Company had
issued 9,470,659 Class A Membership Units upon the cancellation of an equivalent
number of Class B Membership Units. Section 1145(a)(1) of the Bankruptcy Code
exempts the offer and sale of securities under a plan of reorganization from
registration under the Securities Act and state securities laws if certain
requirements are met. The Company believes that it is a "successor" to Edison
under Section 1145(a)(1) of the Bankruptcy Code and that the offer and sale of
the Class A Membership Units pursuant to the Plan otherwise satisfies all of the
requirements of Section 1145(a)(1).
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The following summarizes certain provisions of the Members Agreement
relating to the Class A and Class B Membership Units. This summary does not
purport to be complete, and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Members Agreement, which has been
filed as an exhibit to this Registration Statement.
The Members and the Membership Units
The owners of the Company are known as Members. The ownership
interest of a Member is designated as a "Membership Unit." The Company has the
following classes of Membership Units: (i) "Class B Membership Units," which
initially represented all of the Company's ownership interests and which were
and are held by Edison pending the surrender thereof by Edison for cancellation
from time to time in exchange for an equivalent number of Class A Membership
Units to be distributed by Edison pursuant to the Plan, and (ii) "Class A
Membership Units," which have been and will continue to be distributed by Edison
from time to time to holders of Allowed General Unsecured Claims or persons who
validly exercise Rights issued pursuant to the Plan. Holders of Class A
Membership Units are sometimes referred to herein as "General Members."
Membership Units will be issued only as specifically provided for in the Members
Agreement and there shall be outstanding a total of 10,000,000 ownership
interests (whether Class A Membership Units or Class B Membership Units)
throughout the term of the Company's existence. Membership Units constitute
personal property and no Member will have a claim to or interest in specific
property of the Company.
Each Class B Membership Unit is represented solely by an entry in the
books for registration and transfer provided for in the Members Agreement. Each
Class A Membership Unit, including without limitation any Class A Membership
Unit that may be issued upon transfer of a Class A Membership Unit, will be
evidenced by, and subject to the terms of, a Membership Unit certificate (a
"Membership Certificate") in substantially the form set forth in the Members
Agreement, with such changes, marks of identification or designation, and such
legends, summaries, or endorsements printed thereon as the Company may deem
appropriate and are not inconsistent with the provisions of the Members
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto. The Membership Certificates will be
executed on behalf of the Company by the manual or facsimile signature of the
Manager.
The Company is entitled to treat the registered holder of any
Membership Certificate as the sole owner of the Class A Membership Units
represented thereby.
Distributions of Membership Units
In connection with each distribution of Class A Membership Units
required to be made pursuant to the Plan, Edison first instructs the Company or
the Transfer Agent that Edison desires to surrender for cancellation a specified
number of Class B Membership Units in exchange for the issuance and delivery to
Edison of a like number of Class A Membership Units, to be evidenced by
Membership Certificates in such denominations and registered in the names of
such holders of Allowed General Unsecured Claims or persons validly exercising
Rights (or the designees thereof) as may be specified in such instruction.
Following issuance of the requested Class A Membership Units, the Transfer Agent
cancels the appropriate number of Class B Membership Units and distributes the
Class A Membership Certificates, in accordance with Edison's instruction, to
the requesting holders of Allowed General Unsecured Claims. All Class A
Membership Units transferred by Edison to holders of Allowed General Unsecured
Claims or persons validly exercising Rights issued pursuant to the Plan on any
distribution date are deemed to have been issued in
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<PAGE>
exchange for Class B Membership Units and distributed at the end of the last day
of the preceding fiscal quarter. All holders of Class A Membership Units agree
to file all federal, state and local tax returns in a manner that is consistent
with the preceding sentence.
Capital Contributions; Capital Accounts
On the Effective Date, the Debtors transferred to the Company, in
accordance with the Plan, all of their respective rights, title and interest in
and to the Unresolved Avoidance Claims and the $2 million (the applicable
portion of the LLC Funding Amount), and such transfers are treated as
contributions by Edison to the capital of the Company. In consideration for
such initial contribution or the obligations of the Debtors to make such
additional contributions, 10,000,000 Class B Membership Units were issued to
Edison on the Commencement Date.
From and after the Effective Date, Class A Membership Units have been
and will continue to be issued and delivered to Edison for distribution to
holders of Allowed General Unsecured Claims or Persons validly exercising Rights
issued pursuant to the Plan. Upon such issuance and delivery, the persons in
whose name such Class A Membership Units are registered are admitted to the
Company as General Members. Similarly, each person to whom record ownership of
a Class A Membership Unit is subsequently transferred is admitted to the Company
as a General Member upon the registration of such transfer. See "-- Transfers
and Exchanges of Membership Units; Restrictions on Transfer" below for a
description of transfer restrictions of the Class A Membership Units.
No General Member has any obligation to, nor will any General Member
be entitled to, make any additional contributions to the capital of the Company.
No Member is entitled to withdraw any portion of its contribution or Capital
Account, or to receive any distribution from the Company, except as otherwise
provided in the Members Agreement.
A Capital Account is maintained for each Member in accordance with the
Members Agreement for purposes of calculating taxes payable by each Member with
respect to the Company's activities. See "-- Taxation" below.
Distributions of Avoidance Claim Proceeds
Subject to the application of funds and reserve provisions described
below, the Members Agreement requires the Manager to distribute to holders of
Class A Membership Units, in proportion to their respective Class A Sharing
Percentages (i.e. the percentage of all Class A Membership Units held by them),
any Avoidance Claims Proceeds (together with interest and proceeds thereon)
promptly following the Company's receipt thereof. Amounts available for
distribution are first applied to (i) pay related taxes and any administrative
and professional expenses, (ii) make certain payments to Edison with respect to
taxable income allocated to Edison (described below), (iii) repay any
outstanding loans, and (iv) reserve for the amount of future administrative and
litigation expenses for the term of the Company. In addition, at any time at
which Class B Membership Units remain outstanding, the Manager must withhold
from amounts distributed to holders of Class A Membership Units a percentage of
the amounts available equal to the percentage of Membership Units represented by
Class B Membership Units ("Reserved Amounts"). All Reserved Amounts are held by
the Manager separately for the benefit of Class A Membership Units thereafter
transferred by Edison pursuant to the Plan and are paid out of such separate
account, in proportion on to the percentage of Class B Membership Units to be
transferred on such date, as Class A Membership Units are issued. The Manager
is entitled to establish record dates for purposes of determining the Members
entitled to receive distributions.
The Company is obligated to make distributions to Edison with respect
to taxable income of the Company allocated to Edison on account of its ownership
of Class B Membership Units.
Transfers and Exchanges of Membership Units; Restrictions on Transfer
Except as described below, any Membership Certificate may be
transferred, split up, combined, or exchanged for another Membership Certificate
or Membership Certificates. Any Member desiring to transfer, split up, combine,
or exchange any such Membership Certificate must make such request in writing
delivered to the Manager, and must surrender the Membership Certificate or
Membership Certificates to be transferred, split up, combined, or exchanged,
with a form of assignment duly executed by the Member thereof, at the principal
office of
-12-
<PAGE>
the Transfer Agent. Thereupon or as promptly as practicable thereafter, the
Company or the Transfer Agent will prepare, execute, and deliver the Membership
Certificate or Membership Certificates, as the case may be, as so requested.
Neither the Company nor the Transfer Agent will be required to issue or deliver
any Membership Certificates in connection with any transfer, split up,
combination, or exchange of Membership Certificates unless and until the Member
requesting the issuance or delivery thereof has paid to the Manager the amount
of any tax or governmental charge that may be payable in connection with such
transfer, split up, combination, or exchange or has established to the
satisfaction of the Manager that any tax or governmental charge has been paid.
Upon receipt by the Company and the Manager of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Membership Certificate, and, in case of loss, theft, or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to the
Company and the Manager of all reasonable expenses incidental thereto, and upon
surrender to the Manager and cancellation of the Membership Certificate if
mutilated, the Manager or the Transfer Agent will prepare, execute, and deliver
a new Membership Certificate of like tenor to the Member in lieu of the
Membership Certificate so lost, stolen, destroyed, or mutilated.
All Membership Certificates surrendered for the purpose of transfer,
split-up, combination or exchange must be delivered to the Company or the
Transfer Agent for cancellation and will be canceled by the Company or the
Transfer Agent, and no Membership Certificates will be issued in lieu thereof
except as expressly provided in the Members Agreement.
A General Member may not transfer any beneficial interest in its Class
A Membership Unit, other than in an Unrestricted Transfer (as defined below).
Any purported transfer of a Class A Membership Unit by a General Member in
violation of the restrictions of the Members Agreement is null and void.
Any General Member may, upon providing (i) such evidence to the
Company as the Manager may reasonably require (including, if required by the
Manager, an opinion of counsel reasonably satisfactory to the Manager), to the
effect that such transfer will not result in the Company ceasing to be
classified as a partnership for federal income tax purposes, and (ii) such
assurances as the Manager may reasonably require with respect to the
reimbursement of any expenses that may be incurred by the Company in connection
with such transfer, transfer all or any portion of the record or beneficial
interests in the Class A Membership Units owned by such General Member to any
person. Subject to the foregoing and to applicable law, the following transfers
constitute "Unrestricted Transfers":
(i) A transfer or series of transfers by a Member within a
thirty-day period which involves the Transfer of more than 2% of
the outstanding Class A Membership Units;
(ii) A transfer or series of related transfers by one or more Members
(acting together) which involves the transfer of 50% or more of
the outstanding Class A Membership Units;
(iii) Transfers of Class A Membership Units effected through a
qualified matching service (withing the meaning of Treasury
Regulation (S) 1.7704-1(g)(2); or
(iv) Transfers in which the basis of the Membership Unit in the hand
of the transferee is determined, in whole or in part, by
reference to its basis in the hands of the transferor.
The Members have agreed that irreparable damage would occur in the
event that any Member transfers, or attempts to transfer, any equity interest in
the Company in violation of the Members Agreement and that the Company shall be
entitled to specific performance with respect to these transfer restrictions in
addition to recovering attorney's fees from the breaching party and any other
remedy at law or equity.
Taxation
The Company is classified as a partnership for federal income tax
purposes and the Members may not make any election or take any action that would
cause the relationship of the Members under the Members Agreement to be treated
as other than a partnership for federal income tax purposes. Each Member's
Capital Account is increased by certain amounts, including such Member's share
of the Company's income and gain, and decreased by certain amounts, including
distributions to such Member. No Member with a deficit balance in its Capital
Account
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<PAGE>
is obligated to restore or repay such deficit balance. The Company's income and
loss for any fiscal year is allocated to the Members as follows: (i) first, all
items of income consisting of interest or other earnings on Reserved Amounts is
allocated to the Class B Membership Units in proportion to their respective
Class B Sharing Percentages (i.e. the percentage of all Class B Membership Units
owned by them); and (ii) second, all other income and loss is allocated to the
Members in proportion to their Overall Sharing Percentages (i.e. the percentage
of all Class A and Class B Membership Units owned them). No interest is paid by
the Company with respect to the balance of any Capital Account.
Withdrawal
No Member may resign from the Company or effect a partial or complete
withdrawal from the Company.
Reports to Members
The Company will furnish to the Members, promptly after filing thereof
with the Securities and Exchange Commission (the "SEC") each Annual Report on
Form 10-K filed by the Company with the SEC (or, if the Company is not required
to file an Annual Report on Form 10-K in respect of a particular fiscal year,
will furnish to the Members, within a comparable time frame following the end of
such fiscal year, an annual report containing information substantially
identical to that which would have been included in an Annual Report on Form
10-K).
Jurisdiction and Venue
Except with respect to the matters specified in the Members Agreement
for which the Bankruptcy Court will have retained jurisdiction or for which
proceedings may be commenced in any court in which an Unresolved Avoidance Claim
is pending, any action or other legal proceeding brought under the Members
Agreement will be subject to the jurisdiction of the State of Delaware or the
courts of the United States located in the State of Delaware. Each of the
Members has consented to the jurisdiction of Delaware for actions or legal
proceedings brought by any other Member or the Company arising out of or
relating to Members Agreement and has waived any objection which it may have to
the laying of the venue of such suit, action or proceeding in any of such
courts.
Legal Proceedings; Indemnification
No Member has any right by virtue of any provision of the Members
Agreement to institute any action or proceeding in law or in equity against the
Debtors or any party other than the Company upon or under or with respect to the
Company's assets. If any Member becomes involved in legal proceedings unrelated
to the business of the Company in which the Debtors or the Company is called
upon to provide information, the Member will indemnify and hold harmless the
Debtors, the Company and the Manager against all costs and expenses, including,
without limitation, fees and expenses of attorneys and other advisors, incurred
by the Debtors, the Company or the Manager in preparing or producing the
required information or in resisting any request for production or obtaining a
protective order limiting the availability of the information actually provided
by the Company or the Manager.
Waivers
Each of the Members has irrevocably waived any right or power that
such Member might have to: (i) cause the Company or any of the Company's assets
to be partitioned; (ii) cause the appointment of a receiver for all or any
portion of the Company Assets; (iii) compel any sale of all or any portion of
the Company's assets; and (iv) file a complaint, or to institute proceeding at
law or in equity, to cause the dissolution or liquidation of the Company.
Meetings of Members
Meetings of the Members may be called and held at the Company's
expense for any purpose by the Manager in which event the Manager will designate
any place, within or without the State of Delaware, as the place for such
meeting. Written or printed notices stating the place, day and hour of the
meeting and the purpose or purposes for which such meeting is called, will be
delivered by the Company to each Member not less than ten (10) days nor
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<PAGE>
more than fifty (50) days before the meeting. If all of the Members meet at any
time and place, either within or without the State of Delaware, and consent to
the holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting any Company action may be taken.
At each meeting of the Members, the holders of record of a majority of
the Class A Membership Units, present in person or by proxy, shall constitute a
quorum for the transaction of Company business. In the absence of a quorum, any
Member present at such meeting in person or by proxy shall have the power to
adjourn such meeting until a quorum shall be constituted. Unless otherwise
provided by law or the Members Agreement, the affirmative vote of the holders of
record of a majority of the Class A Membership Units represented at a meeting at
which a quorum is present shall constitute an act of the Members. At any
meeting of the Members, a Member may vote by proxy executed in writing by such
Member or by his duly authorized representative. Such proxy shall be filed with
the Company before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
such proxy. Members may participate in any meeting through telephonic or
similar communications equipment by means of which all persons participating in
the meeting can hear one another, and such participation shall constitute
presence in person at such meeting.
Any action required to, or which may, be taken by the Members may be
taken without a meeting if consent thereto in writing, setting forth the action
so taken, shall be signed by the holders of record of a majority of the Class A
Membership Units. A written consent may be in one or more instruments, each of
which may be signed by one or more Members. No notice need be given of action
proposed to be taken by written action, or an approval given by written action,
unless specifically required by the Delaware Act.
The Manager is entitled to establish record dates for purposes of
determining the Members entitled to receive notices or exercise voting rights.
There have been no meetings of Members through June 30, 1998.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following summarizes certain provisions of the Members Agreement
relating to the indemnity of the Manager, the Company's sole executive officer.
This summary does not purport to be complete, and is subject to, and is
qualified in its entirety by reference to, all of the provisions of the Members
Agreement, which has been filed as an exhibit to this Registration Statement.
To the fullest extent permitted by the Delaware Act, the Company, to
the extent of its assets legally available for that purpose, will indemnify and
hold harmless the Manager from and against any and all loss, cost, damage,
expense (including without limitation fees and expenses of attorneys and other
advisors and any court costs incurred by the Manager) or liability by reason of
anything the Manager does or refrains from doing for, or in connection with the
affairs of, the Company, except to the extent that it is finally judicially
determined by a court of competent jurisdiction that the loss, cost, damage,
expense or liability resulted primarily from the Manager's gross negligence or
willful breach of a material provision of the Members Agreement which in either
event causes actual material damage to the Company. The Company may pay in
advance or reimburse reasonable expenses (including advancing reasonable costs
of defense) incurred by the Manager if he is or is threatened to be named or
made a defendant or a respondent in a proceeding concerning the affairs of the
Company.
To the extent future enactments or judicial decisions permit an
expansion of the rights of indemnification afforded to the Manager by the
Company, then the Members have expressed their intention and agreement to
automatically amend the Members Agreement to permit and authorize the
indemnification of the Manager by the Company to the maximum extent permitted by
law. The Members Agreement authorizes the Manager to execute, on behalf of all
Members, such amendments to the Members Agreement as may be appropriate to give
further effect to the agreement described in this paragraph.
To the extent commercially reasonable, the Manager will cause the
Company to purchase and maintain insurance, to the extent and in such amounts as
the Manager, in his sole discretion, deems reasonable, on behalf of the Manager,
against any liability that may be asserted against, or expenses that may be
incurred by, the
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<PAGE>
Manager in connection with the activities of the Company, regardless of whether
the Company would have the power to indemnify the Manager against such liability
under the provisions of the Members Agreement.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15 and pages F-1 to F-8.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statement and Schedules
Financial Statements. The following Financial Statements of the
Company and the Report of Independent Auditors are included at pages F-2 through
F-8 of this Registration Statement.
<TABLE>
<CAPTION>
Independent Auditor's Report F-2
<S> <C>
EBS Litigation, L.L.C.
Balance Sheet at December 31, 1997, March 31,
1998 (unaudited) and June 30, 1998 (unaudited) F-3
EBS Litigation, L.L.C.
Statement of Income for the periods ended
December 31, 1997, March 31, 1998 (unaudited)
June 30, 1998 (unaudited) F-4
EBS Litigation, L.L.C.
Statement of Changes in Members' Equity for the
periods ended December 31, 1997, March 31, 1998
(unaudited) and June 30, 1998 (unaudited) F-5
EBS Litigation, L.L.C.
Statement of Cash Flows for the periods ended
December 31, 1997, March 31, 1998 (unaudited)
and June 30, 1998 (unaudited) F-6
EBS Litigation, L.L.C.
Notes to Financial Statements F-7
</TABLE>
-16-
<PAGE>
*Exhibits
- ---------
<TABLE>
<CAPTION>
Exhibit
Number Item
- ------- ---------------------------------------------------------------------
<S> <C>
2.1 Amended Joint Plan of Reorganization of Edison Brothers Stores, Inc.
3.1 EBS Litigation, L.L.C. Certificate of Formation
3.2 EBS Litigation, L.L.C. Membership Agreement
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
* Exhibits previously filed with S.E.C on July 29, 1998 with the Form 10 and are
not attached hereto.
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York, on October 20, 1998.
EBS LITIGATION, L.L.C..
(Registrant)
By: /s/ PETER N. WANG
-----------------------------------
Peter N. Wang
Manager
-18-
<PAGE>
Index to Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report......................................................................F-2
EBS Litigation, L.L.C. Balance Sheet at December 31, 1997, March 31, 1998 (unaudited) and June
30, 1998 (unaudited).........................................................................F-3
EBS Litigation, L.L.C. Statement of Income for the periods ended December 31, 1997, March 31,
1998 (unaudited), and June 30, 1998 (unaudited)..............................................F-4
EBS Litigation, L.L.C. Statement of Changes in Members' Equity for the periods ended December
31, 1997, March 31, 1998 (unaudited) and June 30, 1998 (unaudited)...........................F-5
EBS Litigation, L.L.C. Statement of Cash Flows for the periods ended December 31, 1997,
March 31, 1998 (unaudited) and June 30, 1998 (unaudited).....................................F-6
EBS Litigation, L.L.C. Notes to Financial Statements..............................................F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Rubin, Brown, Gornstein & Co., LLP
230 South Bemiston Avenue
St. Louis, MO 63105
Members
EBS Litigation, L.L.C.
St. Louis, Missouri
We have audited the accompanying balance sheet of EBS Litigation, L.L.C., a
Delaware limited liability company, as of December 31, 1997 and the related
statements of operations, changes in members' equity and cash flows for the
period beginning September 25, 1997 and ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EBS Litigation, L.L.C. as of
December 31, 1997, and the results of its operations and its cash flows for the
period beginning September 25, 1997 and ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ RUBIN, BROWN, GORNSTEIN & CO., LLP
--------------------------------------
Rubin, Brown, Gornstein & Co., LLP
July 1, 1998
F-2
<PAGE>
EBS LITIGATION, L.L.C.
Balance Sheet
December 31, 1997, March 31, 1998 (unaudited) and June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1998
December 31, 1997 (unaudited) (unaudited)
----------------- -------------- -------------
<S> <C> <C> <C>
Assets:
Cash
Available for general operations $12,021,196 $12,252,164 $7,295,498
Available for future holders of Class B
Membership Units 399,293
Interest receivable 48,499 51,350 31,070
Prepaid insurance - 48,768 23,563
----------- ----------- ----------
Total assets $12,069,695 $12,352,282 $7,749,424
=========== =========== ==========
Liabilities:
Accrued expenses $ 147,259 $ 181,730 $ 182,236
----------- ----------- ----------
Total liabilities 147,259 181,730 182,236
----------- ----------- ----------
Members' equity:
Membership Units (Class A - 10,000,000
authorized, 9,064,140, 9,342,874 and
9,470,659 issued and outstanding at
December 31, 1997, March 31, 1998,
and June 30, 1998, respectively;
Class B - 935,860, 657,126 and 529,341
authorized, issued and outstanding at
December 31, 1997, March 31, 1998,
and June 30, 1998, respectively).
Paid-in capital 2,000,000 2,000,000 -
Retained earnings 9,922,436 10,170,552 7,567,188
----------- ----------- ----------
Total members' equity 11,922,436 12,170,552 7,567,188
----------- ----------- ----------
Total liabilities and members' equity $12,069,695 $12,352,282 $7,749,424
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE>
EBS LITIGATION, L.L.C.
Statement of Income
For the Periods Ended December 31, 1997, March 31, 1998 (unaudited)
and June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Period Ended Ended Ended Six Months Ended
December 31, March 31, 1998 June 30, 1998 June 30, 1998
1997 (unaudited) (unaudited) (unaudited)
------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Income:
Defendant payment revenue $ 9,991,975 $283,621 $2,571,856 $2,855,477
Interest 106,048 147,849 98,579 246,428
----------- -------- ---------- ----------
Total income $10,098,023 $431,470 $2,670,435 $3,101,905
----------- -------- ---------- ----------
Expenses:
Transfer agent and settlement
administration fees $ 67,224 $ 21,000 $ 26,451 $ 47,451
Legal and accounting fees 41,540 70,674 52,729 123,403
Manager fees 28,116 31,057 26,809 57,866
Insurance 26,575 24,657 25,205 49,862
Other 12,132 35,966 39,060 75,026
----------- -------- ---------- ----------
Total expenses 175,587 183,354 170,254 353,608
----------- -------- ---------- ----------
Net income $ 9,922,436 $248,116 $2,500,181 $2,748,297
----------- -------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE>
EBS LITIGATION, L.L.C.
Statement of Changes in Members' Equity
For the Periods Ended December 31, 1997, March 31, 1998 (unaudited)
and June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Class A Class B
Membership Membership Paid In Retained
Units Units Capital Earnings Total
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 25, 1997 - - $ - $ - $ -
Original capital contribution - 10,000,000 2,000,000 - 2,000,000
Units transferred 9,064,140 (9,064,140) - - -
Current period income - - - 9,922,436 9,922,436
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 9,064,140 935,860 2,000,000 9,922,436 11,922,436
Units transferred (unaudited) 278,734 (278,734) - - -
Current period income (unaudited) - - - 248,116 248,116
---------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 (unaudited) 9,342,874 657,126 2,000,000 10,170,552 12,170,552
Current period capital distribution (unaudited) - - (2,000,000) (5,103,545) (7,103,545)
Units transferred (unaudited) 127,785 (127,785) - - -
Current period income (unaudited) - - - 2,500,181 2,500,181
---------- ----------- ----------- ----------- -----------
Balance, June 30, 1998 (unaudited) $9,470,659 $ 529,341 $ -0- $ 7,567,188 $ 7,567,188
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE>
EBS LITIGATION, L.L.C.
Statement of Cash Flows
For the Periods Ended December 31, 1997, March 31, 1998 (unaudited)
and June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
Period Ended March 31, 1998 June 30, 1998
December 31, 1997 (unaudited) (unaudited)
----------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,922,436 $ 248,116 $ 2,748,297
Reconciliation of net income to cash flows
provided by operating activities:
Interest in prepaid insurance - (48,768) (23,563)
(Increase) decrease in interest receivable (48,499) (2,851) 17,429
Increase in accrued expenses 147,259 34,471 34,977
----------- ----------- -----------
Cash flows provided by operating activities 10,021,196 230,968 2,777,140
----------- ----------- -----------
Cash flows from financing activities:
Capital contribution 2,000,000 - -
----------- ----------- -----------
Capital distribution (7,103,545)
Cash flows provided by financing activities 2,000,000 - (7,103,545)
----------- ----------- -----------
Net increase in cash and cash equivalents 12,021,196 230,968 (4,326,405)
Cash and cash equivalents at beginning of period - 12,021,196 12,021,196
----------- ----------- -----------
Cash and cash equivalents at end of period $12,021,196 $12,252,164 $ 7,694,791
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE>
EBS LITIGATION, L.L.C.
Notes to Financial Statements
December 31, 1997, March 31, 1998, (unaudited) and June 30, 1998 (unaudited)
1. Description of business
EBS Litigation, L.L.C. (the "Company") is governed by a Members Agreement,
dated as of September 25, 1997 (the "Members Agreement"). Pursuant to the
Members Agreement, the Company's purposes are to (a) prosecute, settle and/or
liquidate the Unresolved Avoidance Claims relating to the distribution by
Edison Brothers Stores, Inc. ("Edison") of approximately 4.4 million shares
of common stock of Dave & Busters, Inc. to holders of Edison common stock in
the form of a dividend and all related transactions (the "Unresolved
Avoidance Claims"), (b) receive, and administer the cash proceeds of the
Unresolved Avoidance Claims, and (c) distribute the net proceeds to the
appropriate holders of Membership Units (the "Members") in accordance with
the Members Agreement.
2. Summary of significant accounting policies
This summary of significant accounting policies is presented to assist in
evaluating the Company's financial statements included in this report. These
principles conform to generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
which impact the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Basis of presentation
These financial statements include the accounts of the Company for the
periods from September 25, 1997 through December 31, 1997, January 1, 1998
through March 31, 1998, January 1, 1998 through June 30, 1998 and April 1,
1998 through June 30, 1998 (Statement of Income only).
The accompanying unaudited financial statements as of and for the three
months ended March 31, 1998 and as of and for the three and six month periods
ended June 30, 1998 include all adjustments necessary for a fair presentation
of the results for the interim periods presented. These adjustments are of a
normal recurring nature.
Cash and cash equivalents
Cash consists of amounts held in an account in the Company's name at a
highly-rated financial institution, along with U.S. Treasury Securities
purchased and held in the Company's name.
Accrued expenses
Accrued expenses includes amounts payable to service providers and other
vendors. Amounts are payable within one year.
Defendant payment revenue
Defendant payment revenue is determined on an accrual basis and represents
settlements with individual defendants of Avoidance Claims during the period.
Interest
Interest income is determined on the accrual basis. Interest receivable
includes amounts due to be received within one year.
Expenses
All expenses of the Company are recorded on the accrual basis of accounting.
F-7
<PAGE>
Income taxes
The Company is not subject to income taxes. Instead, the Members report their
distributive share of the Company's profits and losses on their respective
income tax returns.
3. Members' equity
On September 25, 1997, Edison transferred the rights, title and interest in
the Unresolved Avoidance Claims. In addition, as of September 25, 1997,
Edison was obligated to provide cash funding to the Company of $2.0 million,
which was subsequently paid on October 16, 1997. Such transfer and funding
were in exchange for 10,000,000 Class B Membership Units of the Company,
which represented all of the outstanding Membership Units of the Company. On
December 12, 1997, in accordance with the Company's Members Agreement and the
Plan of Reorganization, Edison exchanged 9,064,140 Class B Membership Units
for 9,064,140 Class A Membership Units of the Company and simultaneously
distributed such Class A Membership Units to holders of Allowed General
Unsecured Claims.
During February 1998, Edison exchanged an additional 278,734 Class B
Membership Units for 278,734 Class A Membership Units of the Company and
simultaneously distributed such Class A units to holders of Allowed General
Unsecured Claims. All outstanding Class B Membership Units will eventually be
exchanged and an equivalent number of Class A Membership Units distributed to
the holders of Allowed General Unsecured Claims as required by the Members
Agreement and Plan of Reorganization. At March 31, 1998, Edison held 657,126
Class B Membership Units.
(The information below has not been subjected to an audit).
On April 15, 1998, the Company distributed $7.0 million to all Class A
Membership Unit holders of record as of March 31, 1998. In addition, $0.1
million was distributed to the holders of the Class A Membership Units that
were distributed in June 1998. Additionally, $.5 million is being held back
for future holders of the remaining Class B Membership Units.
During June 1998, Edison exchanged an additional 127,785 Class B Membership
Units for 127,785 Class A Membership Units of the Company and simultaneously
distributed such Class A Membership Units to holders of Allowed General
Unsecured Claims.
4. Subsequent events (unaudited)
Receipt of Dave & Busters settlement revenue
On August 26, 1998, the Company received a total of $2.1 million of
settlement proceeds from Dave & Busters that will be available for future
distributions to Class A Membership Unit holders.
Cash on deposit as of August 31, 1998
As of August 31, 1998, the aggregate sum of $9.8 million was on deposit for
the account of EBS Litigation. Such sum represents the sum of aggregate D&B
Spinoff Settlement Proceeds, the L.L.C. funding amount and accrued interest
through August 31,1998, less disbursements through August 31,1998.
Distribution to members
On October 8, 1998, the Company distributed $6.6 million to all Class A
Membership Unit holders of record as of October 1, 1998. In addition, $.4
million is being held back for future holders of the remaining Class B
Membership Units.
F-8
