UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
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IN RE:
Chapter 7
EDISON BROTHERS STORES, INC., et al.,
Case Nos. 99-529 through
Debtors 536 (MFW)
Jointly Administered
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MOTION OF ALAN M. JACOBS, CHAPTER 7 TRUSTEE,
PURSUANT TO SECTIONS 105, 363 AND 704 OF THE BANKRUPTCY CODE
FOR ORDER AUTHORIZING (i) DISTRIBUTION POOL INSURANCE
FOR THE AMOUNTS TO BE DISTRIBUTED BY THE DEBTORS' ESTATES TO
HOLDERS OF ALLOWED CLAIMS AND (ii) OPTIONAL ACCELERATED
FINAL DISTRIBUTIONS TO UNSECURED CREDITORS
TO THE HONORABLE MARY F. WALRATH,
UNITED STATES BANKRUPTCY JUDGE:
Alan M. Jacobs, chapter 7 trustee (the "Trustee") of Edison Brothers
Stores, Inc. ("Edison") and its seven (7) affiliates (collectively, with Edison,
the "Debtors"), hereby submits this Motion pursuant to sections 105, 363, and
704 of the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101, et seq. (the
"Bankruptcy Code"), for entry of an order authorizing (i) distribution pool
insurance for the amounts to be distributed by the Debtors' estates to holders
of allowed claims and (ii) optional accelerated final distributions to unsecured
creditors; and respectfully represents as follows:
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PRELIMINARY STATEMENT
1. Under Bankruptcy Code ss. 704(1), one of the primary duties of a
Chapter 7 trustee is to "collect and reduce to money the property of the estate
for which such trustee serves, and close such estate as expeditiously as is
compatible with the best interests of parties in interest." By this Motion, the
Trustee seeks to comply with this duty by procuring an insurance policy (the
"Policy") from Bankers Standard Fire and Marine Insurance Company (the
"Insurer") , a member of the ACE Group of Insurance and Reinsurance Companies
(collectively, "ACE"), that will insure distributions from the Debtors' estates
and, subject to the Trustee's direction, assume the financial burden of
administering the Debtors' estates and resolving disputed claims, thereby
expediting the administration of these estates. The Trustee will transfer all
assets of the estates as the premium for the Policy. The Trustee believes that
the Policy will be beneficial to creditors because it will:
o afford all consenting unsecured creditors an option to receive a
final cash payment of (i) 16 cents on the dollar on their allowed
claims payable on or before March 5, 2001, and (ii) an additional
one cent on the dollar in the event that the total amount of cash
and non-cash assets that are recovered and converted to cash on or
before the first anniversary of the Policy Effective Date (as
defined below) exceeds a specified threshold (discussed below);
o pay all non-consenting unsecured creditors their pro rata share of
cash (based on the amount of their allowed claims) that would have
been distributable to them had the assets not been sold to the
Insurer; and
o pay all allowed administrative expenses and priority claims.
2. In insurance terminology, the transaction is called "risk finance,"
whereby the Insurer both finances cash flow required to service known
liabilities and assumes the risk associated with their ultimate value. In this
transaction, the Insurer, through the issuance of the Policy, will (i) use its
financial resources to pay distributions to all allowed creditors (priority,
administrative and unsecured) and the costs and expenses associated with the
ongoing
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administration of the estate (including the costs of outside professionals and
claims resolution), (ii) assume the risk of the timing and amount of recovery of
the unliquidated assets of the estate, and (iii) assume the risk of the ultimate
amount of priority, administrative and unsecured claims.
3. The proposed transaction,1 which is modeled after the transaction
recently approved in the Montgomery Ward Holding Corp. case, No. 97-14909 (PJW)
(Bankr. D. Del.), benefits those creditors who want cash now, without impairing
the rights of any other parties in interest. Creditors electing to participate
will do so based on full disclosure of all material facts, as set forth in this
Motion. (To the extent the Court determines, at the hearing on this Motion, that
additional or revised disclosures are needed, the Trustee will promptly serve
such supplemental disclosures on all unsecured creditors, long before their
election deadline.) A critical element of the transaction is that it is
voluntary and non-electing creditors will suffer no prejudice from the
transaction. Accordingly, the Trustee submits that this insurance arrangement is
in the best interests of the Debtors' estates and their respective creditors.
JURISDICTION
4. This Court has jurisdiction to consider this Motion pursuant to 28
U.S.C. ss.ss. 157 and 1334. This matter is a core proceeding pursuant to 28
U.S.C. ss. 157(b). Venue is proper before this Court pursuant to 28 U.S.C.
ss.ss. 1408 and 1409.
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1 Allan E. Reznick, who is a partner in the law firm of Kramer Levin
Naftalis & Frankel LLP ("Kramer Levin"), special counsel to the Trustee,
is one of the two inventors (the "Inventors") who applied for a business
method patent for a "Method For Insolvency Claims Resolution" (the "Patent
Application") with the United States Patent and Trademark Office. The
Patent Application, if granted as filed, may give the Inventors a
proprietary interest in future transactions similar to the one described
in this Motion. Allan E. Reznick and Kramer Levin hereby renounce any
claim to compensation on account of the Patent Application for the Policy
described in this Motion. Notwithstanding the foregoing, Kramer Levin will
continue to represent the Trustee in these Chapter 7 cases.
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BACKGROUND
5. On March 9, 1999 (the "Commencement Date"), the Debtors filed voluntary
petitions for relief under chapter 11 of the Bankruptcy Code.
6. On or about March 22, 1999, the Office of the United States Trustee
(the "U.S. Trustee") appointed a committee of unsecured creditors (the
"Committee") in the Debtors' chapter 11 cases.
7. The Debtors completed the liquidation of the great bulk of their assets
by the end of August 1999. Unsecured creditors, however, have yet to receive any
distributions on their claims.
8. On or about April 28, 2000, the Debtors and the Committee filed a
Motion for an Order Directing Appointment of a Chapter 11 Trustee Pursuant to
Section 1104 of the Bankruptcy Code. On May 16, 2000, the Court conducted a
hearing on the motion and thereafter entered an order granting it.
9. On May 30, 2000, the United States Trustee applied for an order
appointing Alan M. Jacobs as trustee (the "Chapter 11 Trustee") in the chapter
11 cases. The Court granted the application on the day it was filed.
10. On June 16, 2000, the Chapter 11 Trustee moved pursuant to sections
1112(a) and (b) of the Bankruptcy Code to convert the cases to cases under
chapter 7. On July 5, 2000 the Court granted the motion to convert, the United
States Trustee appointed the Chapter 11 Trustee to serve as the Chapter 7
Trustee, and the Court granted the Trustee's motion for authority to
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conduct limited administrative operations utilizing the Debtors' employees
pursuant to section 721 of the Bankruptcy Code.2
THE PROPOSED TRANSACTION
11. As noted above, unsecured creditors have yet to receive any
distribution on their claims, even though many of the assets of the Debtors'
estates were converted to cash by the end of August 1999. The conversion of this
case to Chapter 7, the uncertainty in fixing the amount of administrative,
priority, and unsecured claims, and other factors set forth more fully below
have rendered the Trustee unable to make any distributions to unsecured
creditors to date. The Trustee expects that, in the absence of the Policy, he
would be able to make an initial distribution in the Spring of 2001, but such a
distribution would not exceed 5 cents on the dollar.
12. The Trustee proposes to expedite distributions by acquiring the
Policy. The Trustee will transfer all of the assets of the Debtors' estates
(including cash and cash equivalents) to the Insurer as the premium for its
issuance of the Policy. Under the Policy, as more fully described below, the
Trustee will continue to be responsible for the liquidation of the Debtors'
estates, and the Insurer will make payments to the Debtors' allowed secured,
administrative, priority and unsecured claims as follows:
Secured Claims: The collateral securing each secured claim will be
sold and the proceeds distributed to the holder of the secured claim
(to the extent of the amount of each such secured claim) when it is
allowed.
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2 The Trustee has been appointed Chapter 7 trustee for all of the Debtors'
estates. Because (i) the operations and finances of the various Debtors
are closely intertwined and would be difficult or impossible to
disentangle and (ii) the benefits of substantive consolidation outweigh
the harm or prejudice to creditors of the Debtors' estates, the Trustee
has moved to have the Debtors' estates substantively consolidated.
Substantive consolidation will also facilitate the transaction proposed
herein, and it is a condition to the effectiveness of the Policy.
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Administrative Expenses and Priority Claims: The Insurer will
pay these claims when they are allowed.
Consenting Unsecured Claims: Holders of unsecured claims have the
option of receiving 16 cents, or possibly 17 cents, for every dollar
of their allowed claim. Any creditor who accepts such offer will be
required to assign its claim to the Insurer and will receive, as a
final payment for its allowed claim, a final cash payment of (i) 16
cents on the dollar on its allowed claim payable on or before March
5, 2001, and (ii) an additional one cent on the dollar in the event
that the total amount of cash and non-cash assets that are recovered
and converted to cash on or before the first anniversary of the
Policy Effective Date (as defined below) exceeds a specified
threshold (discussed below).
Non-Consenting Unsecured Claims: The Insurer will insure that any
unsecured creditor who does not elect to participate in the Policy
will receive, when its claim is allowed, its pro rata share of cash
available for distribution to unsecured claims after payment of
secured claims, administrative expenses and priority claims. The
Insurer will pay these creditors whatever distributions they would
have received as if the Policy were never issued. Those
distributions may be less than, equal to or more than 16 cents on
the dollar; the timing of these distributions will depend on how
quickly administrative expenses, priority claims and unsecured
claims are allowed and how fast the estates can convert to
distributable cash the remaining assets of the Debtors' estates.
13. The Trustee has set forth below (i) a detailed description of the
proposed transaction; (ii) a summary of the Debtors' assets and liabilities
being sold to and assumed by the Insurer (to illustrate the benefits to the
Debtors of the transaction and the risks and benefits to individual creditors of
accepting the Accelerated Distribution (as defined below)); and (iii) a
description of certain of the risks associated with the proposed transaction.
A. Terms of the Policy
14. A copy of the Policy is attached as Exhibit A and incorporated herein
by reference.3 Certain terms of the Policy are not yet finalized, and a final
version of the Policy will be presented to the Court not less than (5) days
before a hearing of this Motion. The material terms of the Policy may be
summarized as follows:
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3 Terms not defined herein shall have the meaning attributed to them in the
Policy.
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15. The Policy will be issued by the Insurer. The Insurer is one of the
ACE Group of Insurance and Reinsurance Companies and is rated A+ by Standard &
Poor's Rating Services and A2 by Moody's Investor Services, Inc.4
16. The Insurer, to the extent and on the terms set forth in the Policy,
will insure the Debtors' estates (which will be the "Insured" under the Policy)
as represented by the Trustee. The Trustee will continue to serve as Chapter 7
trustee and will make all distributions to holders of allowed claims; his
responsibilities and the exercise of his fiduciary duties will in no way be
diminished by this transaction. To the extent there are insufficient amounts in
the Debtors' estates to make distributions, including payment of Accelerated
Distributions (as defined below), the Insurer will pay, subject to the liability
limitations contained in the Policy, to the Debtors' estates amounts sufficient
to make such distributions.
17. The claims that will be covered by the Policy are secured,
administrative, priority and unsecured claims that are either presently allowed
or disputed as set forth on the list of claims maintained by Claudia King &
Associates and will be attached to the final version of the Policy as Schedule 1
(the "Claims List"). The Policy requires that the Insurer, the Trustee and the
Debtors' estates shall be entitled to rely upon the Claims List as the
conclusive list of presently allowed and disputed claims and, with respect to
any claim for which an amount is stated, the maximum amount of such claim. In
order to provide finality to the Claims List and the liability of the Insurer,
the Policy also provides that, except as otherwise ordered by the Bankruptcy
Court during the 90-day period following the Policy Effective Date (as defined
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4 Information regarding the ACE Group of Companies can be found in the
annual report of ACE Limited, a NYSE listed company, which can be obtained
at www.acelimited.com or by contacting Investor Relations --Phone: (441)
299-9283, Fax: (441) 292-8675 and e-mail:
[email protected].
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below) and only after application of standards for relieving creditors of orders
and the requirements of a bar date (i.e., the last date for filing a proof of
claim against a debtor), no claims may be added to the Claims List, and the
status and maximum amount of each such claim on the Claims List (other than
disallowance of claims or allowance of disputed claims) may not be changed after
the ninetieth (90th) day following the Policy Effective Date. Thus as part of
the approval of the Policy, the Trustee requests that the order granting this
Motion contain provisions permitting reliance on the Claims List and cutting off
(after expiration of the 90-day period referenced above) any ability to file
tardy claims that may otherwise be permitted under Bankruptcy Code ss. 726.5
18. The Policy will become effective on the date (the "Policy Effective
Date") that the following conditions have been either satisfied or waived by the
Insurer:
(a) the Accelerated Distribution (as defined below) shall have been
accepted by at least 80% in amount of holders of all covered
unsecured claims;
(b) Covered claims relating to the Internal Revenue Service shall have
been settled to the satisfaction of the Insurer;
(c) no material adverse change to the Claims List shall have occurred
prior to the entry of the order granting this Motion;
(d) a final order granting this Motion in form and substance acceptable
to the Insurer shall have been entered by the Court;
(e) an Administrative Claim Bar Date for certain claims has been set for
a date that is on or about January 15, 2001;
(f) entry of a Final Order granting the Motion of Alan M. Jacobs,
Chapter 7 Trustee, Pursuant to Section 363 of the Bankruptcy Code
For Order Authorizing the
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5 The Trustee does not believe that any creditor of the estate will suffer
unfair prejudice from the elimination of the ability to file tardy claims
under ss. 726. All known creditors of this estate have already received
notice of (i) the Chapter 11 bar date; (ii) the Chapter 7 bar date; and
(iii) the cut off date requested pursuant to this motion. Thus every
creditor will have had three chances to file its claim and deserves no
further grace for tardiness.
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Termination of the Debtors' Overfunded Retirement Plans shall have
been entered by the Court;
(g) all documents necessary to terminate the Debtors' retirement plans
have been prepared and filed with the PBGC and any other appropriate
governmental agency, person or institution on or before December 29,
2000;
(h) evidence satisfactory to the Insurer demonstrating that the amount
of overfunding of the Debtors' retirement pension and 401(k) plans
(prior to any deduction for taxes, costs or expenses) is at least
$15 million (then current market value);
(i) evidence satisfactory to the Insurer demonstrating that all amounts
that constitute the overfunding of the Debtors' retirement plans
shall have been deposited into money market accounts (or similar
investments) on or before December 15, 2000;
(j) a final order substantively consolidating the Debtors' estates shall
have been entered by the Court; and
(k) the insurer shall have completed due diligence.6
19. The Policy will afford creditors holding Allowed Unsecured Claims (as
defined in the Policy) the option to obtain a final lump sum payment (the
"Accelerated Payment"). The Accelerated Payment will have one, and possibly two,
components. First, each creditor accepting the Accelerated Payment will receive
a cash payment of 16 cents on the dollar on their allowed claims payable on or
before March 5, 2001. Second, accepting creditors will receive an additional one
cent on the dollar if, but only if, on or before the first anniversary of the
Policy Effective Date, at least $62.9 million (i) has been recovered and (if a
non-cash asset) converted to cash by the Trustee; and (ii) either has been
distributed to secured or unsecured creditors, or is available for distribution
to such creditors, or would be available for distribution to such creditors if
not required to be reserved on account of disputed claims.7
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6 Because each of the items listed in this paragraph is a condition
precedent to the proposed transaction, the Policy provides no reduction of
risk as to these circumstances.
7 The details of the $62.9 million trigger discussed above are still being
negotiated by the Trustee and the Insurer. A final and definitive
statement of the circumstances under which accepting creditors will be
entitled to receive the supplemental one cent distribution will be
furnished to creditors in a subsequent mailing.
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20. In order to receive an Accelerated Distribution, an unsecured creditor
must return by January 29, 20018 a response form (the "Response Form"), the form
of which has been submitted to the Court for approval in connection with the
Trustee's motion for a Scheduling Order, indicating such creditor's election to
receive the Accelerated Distribution. Holders of Senior Notes must also tender
their original Senior Notes9 either at the time of the submission of the
Response Forms or before the Senior Note Tender Date (as defined below). In
consideration for the Accelerated Distribution, each unsecured creditor who
elects to receive such Accelerated Distribution must assign to the Insurer or
its designee all right, title and interest in and to such creditor's Allowed
Unsecured Claim. Each creditor's assignment of claims other than those arising
under the Senior Notes shall be irrevocable and absolute after January 29, 2001,
subject only to the creditor's receipt of the Accelerated Distribution. Each
creditor's assignment of claims arising under the Senior Notes shall be
irrevocable and absolute on February 26, 2001 if the creditor has tendered the
Senior Notes on or before the Senior Note Tender Date (February 20, 2001) (see
below). Each unsecured creditor who elects to receive an Accelerated
Distribution must also release the Debtors, the Trustee and the Insurer,
together with each of their respective officers, directors, employees, attorneys
and agents, from all liability arising out of or relating to the Accelerated
Distribution, the Policy or the Motion.
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8 In the motion for a Scheduling Order in connection with this Motion,
Debtors requested that creditors return the Response Form by December 15,
2001. The Insurer has since agreed to accept Response Forms through
January 29, 2001.
9 Any issues relating to lost, destroyed, mutilated or stolen Senior Notes
will be dealt with as provided in the Indenture.
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21. The 80% threshold is deemed a condition to the effectiveness of the
Policy, although the Insurer may, in its sole and absolute discretion, elect to
proceed if acceptances are received with respect to less than 80% in amount of
holders of all unsecured claims.
22. Accelerated Distributions with respect to claims allowed as of the
Policy Effective Date (other then claims arising under the Senior Notes) will be
made on or before March 5, 2001. Holders of Senior Notes that have timely
submitted Response Forms must tender their notes on or before February 20, 2001
(the "Senior Note Tender Date"). Such tender will be accepted by the Insurer and
irrevocable unless withdrawn prior to February 26, 2001. Distributions to
holders of Senior Notes that tender by the Senior Note Tender Date shall be made
promptly thereafter, but no later than March 1, 2001.
23. The Policy also will relieve the Debtors' estates of the financial
burden of both the administering of the claims resolution process and the making
of distributions to holders of allowed claims. Under the Policy, these costs
will be borne by the Insurer. Ongoing claims administration will be governed by
the terms of a claims administration agreement (the "Claims Administration
Agreement")10 that will be entered into between the Trustee and the Insurer
pursuant to which the financial and administrative burdens of claims
administration will be assumed by the Insurer, subject to the Trustee's ongoing
supervision. Among other things, the Claims Administration Agreement will
contain appropriate indemnification provisions for the benefit of the Trustee.
The Trustee, however, will continue his supervisory responsibilities with
respect to all aspects of estate administration.
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10 A copy of the Claims Administration Agreement will be filed with the Court
prior to the hearing on this Motion.
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24. Holders of unsecured claims that are not yet allowed as of the Policy
Effective Date or did not elect to receive the Accelerated Distribution will
have the option to accept the Accelerated Distribution, provided that such
claims are allowed on or before June 30, 2001 and the election to receive the
Accelerated Distribution is also made within such period. Payments will be made
within 30 business days of June 30, 2001 for those holders of unsecured claims
that elect to accept the Accelerated Distribution on or before June 30, 2001. In
addition, the Trustee and the Insurer may, to the extent necessary, set
additional dates during such period ending June 30, 2001 by which holders of
Senior Notes can tender their notes for payment. Notice of any such additional
dates will be given to record holders of Senior Notes who had not yet tendered
their notes and by appropriate filings under section 14(e) of the Securities
Exchange Act of 1934, as amended, and the rules adopted thereunder.
25. Significantly, under the terms of the proposed transaction, no
creditor will be prejudiced. The Policy will provide (subject to the Policy's
liability limit) that any creditor that does not transfer its claim will be
paid, by the Insurer, the same amount that such a creditor would have received
as if the Policy were never issued.
26. Prior to making any distributions to nonconsenting claimholders, the
Trustee and the Insurer will establish a reserve for disputed claims (the
"Disputed Claims Reserve"). The Trustee does not believe that he will be in a
position to establish a Disputed Claims Reserve until at least 30 days following
February 19, 2001 -- the date established for governmental units to file claims
in these cases.11 The Trustee will propose appropriate reserves for disputed and
unliquidated claims and will seek an order estimating such claims pursuant to
section 502(c) of
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11 The last date for unsecured creditors to file claims in these cases was
November 22, 2000.
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the Bankruptcy Code for reserve purposes. In addition, the Trustee will
establish appropriate reserves for disputed administrative and priority claims,
future administrative expenses (including taxes, professional fees, fees for the
Chapter 7 Trustee and any charges or fees that may be required by the Office of
the U.S. Trustee), and potential claims that may be filed prior to the 90-day
period contained in the Policy (i.e., scheduled claims for which no proof of
claim has yet to be filed). Once the amount of the reserves is established, the
Trustee will then be in a position to make a pro rata distribution to holders of
allowed claims calculated as if the Policy were not in place (i.e., provided
that in the absence of the Policy there would have been sufficient free assets
then on hand for that distribution). At the appropriate time, the Trustee
intends to file a separate motion with the Court seeking approval of the
specific amounts of reserves discussed herein and the calculation of the initial
distribution to nonconsenting holders of allowed unsecured claims.
27. The Insurer's limit of liability (the "Policy Limit of Liability")
shall be as set forth in the final version of the Policy and shall be a limit in
the aggregate for all claims made thereunder; no payments will be made for any
claims after such limit is reached. Amounts available under the Policy at any
particular time will be automatically reduced by any payments made under the
Policy. The Policy Limit of Liability is being negotiated by the Trustee to
represent an amount estimated to, at a minimum, be able to provide for payment
in full of allowed secured, administrative and priority claims, a 16%
distribution in respect to consenting allowed unsecured claims, and payment to
nonconsenting creditors of the amount that they would have received had the
Policy never been issued.
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28. The coverage under the Policy will commence on the Policy Effective
Date and continue until the earlier of an entry of an order approving the
Trustee's final accounting and closing the Estates or the exhaustion of the
Policy Limit of Liability.
29. In consideration of the coverage provided by the Policy, a premium
equal to the balance of funds in the Debtors' Estates, all remaining assets (to
the extent legally permissible), and the proceeds of such assets on the Policy
Effective Date will be transferred and assigned to the Insurer free and clear of
any liens. The holders of claims secured by the transferred property, however,
will get a replacement lien on the proceeds of the Policy to the extent of the
value of their collateral (not to exceed the amount of their claim).
B. Assets of and Claims Against the Debtors' Estates
30. As stated above, the Policy offers creditors an Accelerated
Distribution of a final cash payment of (i) 16 cents on the dollar on their
allowed claims payable on or before March 5, 2001, and (ii) an additional one
cent on the dollar in the event that the total amount of cash and non-cash
assets that are recovered and converted to cash on or before the first
anniversary of the Policy Effective Date exceeds a specified threshold
(described above). The Policy benefits the Debtors' estates and those creditors
who accept the offer of an Accelerated Distribution to the extent that it allows
such creditors to avoid both the risk that distributions without the Policy will
be less than 16 cents on the dollar and the risk and cost of delay in receiving
future distributions. The risks avoided (and the benefit to the estates and
accepting creditors) depend on the probable amount of claims against the Debtors
(including administrative expense and priority claims that must be paid prior to
unsecured claims), the cash value of the Debtors' assets and when such cash will
be available for distribution. Accordingly, the following sets forth a summary
of (i) the remaining assets of the Debtors' estates and (ii) the claims asserted
against the Debtors' estates.
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DISCLAIMER
The following summary contained in paragraphs 31 - 54 is based upon
information presently available to the Trustee, including claims data compiled
by the Debtors' claims agent, Claudia King & Associates. The Trustee cannot and
does not warrant the accuracy of this information. In addition, the summary
below necessarily includes projections as to future events; the Trustee can give
no assurances as to the accuracy of the projections.
In addition to the Trustee's reliance on information provided to him by
the Debtors and Claudia King & Associates, to the extent any discussion in this
Motion of the Debtors' business and operations includes forward-looking
statements, such statements are based upon the Trustee's good faith assumptions
relating to the financial, market, operating and other relevant environments
that may exist and affect the Debtors' estates in the future.
No assurance can be made that the assumptions upon which the Trustee based
any such forward-looking statements will prove to be correct, or that the
Debtors' estates will not be affected in any substantial manner by other factors
not currently foreseeable by the Trustee or beyond the Trustee's control. All
forward-looking statements involve risks and uncertainty. The Trustee undertakes
no obligation to publicly release the result of any revisions to any
forward-looking statements contained herein that might be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events, including those described in this Motion. Such statements
shall be deemed in the future to be modified in their entirety by the Trustee's
public pronouncements, including those contained in all future filings with this
Court and the Securities and Exchange Commission.
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(1) Assets Available for Distribution
31. The Debtors' remaining assets principally consist of the following:
(i) unencumbered cash and cash equivalents in the amount of $30.3 million; (ii)
pension plan overfunding of approximately $15.9 million and overfunded matching
account for a 401(k) savings plan (the "Savings Plan") of approximately $2.6
million before deduction of expenses and the imposition of a 20% excise tax and
the payment of any other tax liabilities; (iii) cash collateral relating to
outstanding customs bonds of approximately $9.4 million; (iv) cash securing a
letter of credit issued in connection with general liability and workers
compensation policies of approximately $1.1 million; (v) real estate; (vi)
uncollected receivables; and (vii) causes of action against third parties. The
Trustee discusses these assets (other than item "i" which requires no
discussion) in turn below.
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32. Pension Plan and 401(k) Savings Plan overfunding. As a result of,
among other things, the transfer of approximately $ 38.8 million in excess
assets from the Debtors' terminated prior pension plan, the Pension Plan
presently is overfunded -- i.e., it contains more than sufficient assets to
satisfy all obligations to participants thereunder. As of September 1, 2000, the
Pension Plan had assets aggregating approximately $18.9 million and an accrued
benefit obligation to Pension Plan participants aggregating approximately $3
million. Thus, the excess or surplus funds in the Pension Plan aggregate
approximately $15.9 million (the "Pension Plan Gross Excess Funds"). The Pension
Plan Gross Excess Funds will vary between September 1, 2000 and the date upon
which the Pension Plan and its underlying trust are terminated due to investment
experience and Pension Plan distributions in the ordinary course. When the
Savings Plan was established and received a contribution of approximately $2.91
million from Debtors' terminated prior pension plan, the Internal Revenue Code
required the Debtors to establish a suspense account within the Savings Plan's
underlying trust to hold the contribution, from which Debtors would annually
allocate a certain portion of the suspense account to Savings Plan participants.
Since the establishment of the suspense account, the Debtors have made annual
allocations therefrom in the form of employer matching contributions. The
Internal Revenue Code requires that the suspense account be allocated within
seven (7) years of the establishment of the account, to the extent permitted
under applicable Internal Revenue Code limits. The Debtors' proposed Savings
Plan termination will occur prior to the expiration of the seven (7) year
allocation period, which, combined with applicable Internal Revenue Code limits,
will result in an amount remaining in the suspense account which exceeds the
amounts that may be allocated to participants. As of September 1, 2000, the
Savings Plan held approximately $10.85 million in total assets (the "Savings
Plan Assets") (collectively the Pension Plan Assets and the Savings Plan Assets
are referred to as the "Retirement Plan Assets"). As of September 1, 2000, the
Debtors estimate that $2.64 million will be available for reversion to the
Debtors' estate upon termination of the Savings Plan (the "Savings Plan Gross
Excess Funds") (collectively the Pension Plan Gross Excess Funds and the
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Savings Plan Gross Excess Funds are referred to as the "Retirement Plan Gross
Excess Funds"). All other assets, approximately $8.21 million, will be
distributed to participants. The Savings Plan Gross Excess Funds will vary
between September 1, 2000 and the date upon which the Savings Plan and its
underlying trust are terminated due to investment experience and Savings Plan
distributions in the ordinary course and be subject to reduction as discussed
below.
33. The amount of this overfunding will be reduced by the federal
excise tax of 20% and fees and expenses of approximately $500,000 that relate to
the plans, as well as any income tax that may be applicable. While the Trustee
is proceeding as expeditiously as possible to obtain the overfunded amounts, it
is not possible to determine the exact date that the money would be available
for creditors. Although the Trustee is now authorized to terminate the plans, he
must prepare and file appropriate documents with the Pension Benefit Guaranty
Corporation (the "PBGC"). Delays could arise if either the PBGC or IRS raise any
issues or objections to termination. The timing of the PBGC's approval is
uncertain. In addition, the amounts necessary to purchase annuities as part of
the termination are sensitive to interest rate fluctuations. The timing and net
amount that ultimately will be available to the estates is uncertain at this
time.
34. Cash securing customs bonds. The Trustee anticipates that,
absent unforeseen circumstances, most of the cash relating to the customs bonds
will be recovered in the next three to four months. The Trustee is aware of some
outstanding claims for custom duties; but these
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<PAGE>
known claims duties are minimal. The Trustee must obtain a release of the funds
from the bonding companies. This release may require the consent of U.S. Customs
Authorities.
35. Cash securing letter of credit. As noted above, the Debtors hold
approximately $1.1 million of cash securing a letter of credit issued in
connection with the Debtors' general liability and workers' compensation
coverage. The insurance carrier has the right to draw upon the letter of credit
to satisfy the Debtors' obligations under the policies (excluding retained
liabilities under deductibles that are general unsecured or administrative
claims against the estates). Accordingly, the Trustee must obtain a release from
the insurance carriers before any of the cash securing this letter of credit are
assets available for distribution to creditors. It is uncertain as to when, if
ever, any amount would be returned to the estate.
36. Real property. The only real property currently owned by the Debtors
is the Washington, Missouri distribution center and the St. Louis, Missouri
warehouse. The Debtors have contracted to sell both pieces of real property.
(See P. P. 45-47 below). Both properties are subject to secured claims. (See P.
45-47 below).
37. Uncollected receivables and escrows. The Debtors' books reflect
approximately $4.0 million in receivables due from third parties and amounts in
escrow accounts. The receivables are months overdue, many are disputed, and the
collectibility of these receivables is uncertain. The timing and risk of setoff
with respect to the funds held in escrow have yet to be determined. If the
Trustee succeeds in collecting these receivables, the Insurer and any
non-consenting creditors will benefit from such collections.
38. Causes of action. The Trustee is still in the process of determining
whether any claims exist against third parties. While such claims could have
substantial value, thereby
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increasing the distribution available to unsecured creditors, it is not possible
to attribute any absolute value to these claims at this time.
(2) Claims Asserted Against the Debtors
39. Claims asserted against the Debtors fall into four classes: (i)
administrative claims, (ii) priority claims, (iii) secured claims and (iv)
unsecured claims. In order to provide for a distribution to unsecured creditors,
all administrative and priority claims must be satisfied in full and secured
claims must be satisfied to the extent of the value of any assets securing such
secured claims.
40. Administrative claims. There are approximately $8.9 million of
asserted and estimated administrative claims, of which $6.9 million is disputed.
Also, there are potential additional administrative claims which cannot
presently be estimated. Further, the bar date for filing administrative claims
has been set for January 15, 2001. Thus, the final amount of administrative
claims may increase.
41. Of the $8.9 million, $6.9 million represents a reserve for a claim
brought by EBS Pension LLC. EBS Pension LLC's claim arises out of the Debtors'
1997 chapter 11 plan. The 1997 chapter 11 plan provided for the termination of
the Debtors' overfunded pension plan and the payment of surplus, less a reserve
to pay taxes, to EBS Pension LLC. The Debtors reserved $5.7 million to pay taxes
on their books, but established no separate account for such reserve or
otherwise segregated funds with respect to such amount. and failed to pay the
money to EBS Pension LLC when the IRS issued a ruling that no taxes were
payable. When the Debtors filed for chapter 11 relief a second time, EBS Pension
sued, claiming a "constructive trust" on the Debtors' cash to the extent of $5.7
million, plus interest. On January 9, 2000, this Court
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<PAGE>
rendered a decision denying summary judgment to the Debtors on the issue of
whether EBS Pension LLC could impress a constructive trust. On October 16, 2000,
the Trustee moved for entry of a judgment that such funds were property of the
estate, and EBS Pension LLC moved for the entry of judgment that such funds were
held in constructive trust and for prejudgment interest of $1.2 million,
increasing the total amount of the claim to $6.9 million. Nonetheless, the Court
(by denying the Debtors' motion for summary judgment) has already ruled in favor
of EBS Pension LLC, and the claim of EBS Pension LLC may increase in the event
that prejudgment interest is ultimately awarded. Although the Trustee has asked
the Court to reconsider its ruling in connection with final judgment, an appeal
to the United States District Court and thereafter to the United States Court of
Appeals for the Third Circuit may be required for the Trustee to prevail in this
litigation. Accordingly, any amount of the $6.9 million reserved for EBS Pension
LLC's claim that became available to fund additional distributions to
non-consenting creditors would become available only after an extensive and
uncertain period of time. Any victory in such litigation would benefit the
Insurer and non-consenting creditors.
42. Further, the Trustee estimates that outstanding costs of
administering the estate presently total approximately $2.0 million, including
$500,000 in postpetition taxes that are due or will become due, $1.1 million for
estimated accrued professional fees and $400,000 for personnel and other general
costs of the estate. However, there are many potential administrative claims for
which no estimated amount can presently be ascertained, including, postpetition
personal injury claims, unpaid cure claims, claims arising from asset sales, and
other claims. Only after the establishment of an administrative bar date and an
evaluation of claims filed thereunder will the Trustee be able to estimate the
total amount of administrative claims against the Debtors' estates.
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43. The Trustee estimates that, in the absence of the Policy, future costs
of administering the estates would be offset to a great extent by interest
gained on estate funds until the first distribution to unsecured creditors.
However, the Trustee can give no assurance that the future costs of
administering the estates would not exceed such earnings.
44. It is a condition to the effectiveness of the Policy that the amount
of administrative expense claims filed by the administrative bar date not
materially exceed $8.9 million (which number includes the $6.9 million claimed
by EBS Pension LLC). Any reduction in the allowed amount of such claims would
benefit the Insurer and non-consenting creditors.
45. Priority claims. Until recently, the claims register compiled by
Claudia King & Co., the claims agent retained in the Debtors' chapter 11 cases,
reflected priority claims in the total approximate amount of $48.3 million. Of
this amount, $44 million relates to one claim filed by the Internal Revenue
Service. The IRS has recently filed new proofs of claims totaling approximately
$3.8 million. While the new proofs of claims do not, on their face, purport to
amend or supersede the IRS' prior claims, the Trustee believes that is what is
intended and will seek clarification from the IRS. Limitation of the IRS Claims
to an amount satisfactory to the Insurer is a condition to the effectiveness of
the Policy. The Insurer will not assume any risk relating to the amount of the
IRS Claims unless it waives this condition.
46. The balance of priority claims relate to other tax claims and
employee-related claims. If all of the remaining priority claims (excluding the
reduced IRS claim) are allowed, the register would reflect priority claims
totaling approximately $3 million.
47. Secured claims. The Debtors' books reflect two substantial secured
claims: a $6.9 million claim under industrial development revenue bonds secured
by the Debtors'
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distribution center in Washington, Missouri and claims under the Debtors' 11%
Senior Notes secured by a warehouse in St. Louis, Missouri. Pursuant to
Bankruptcy Code ss. 506, a secured claim is defined as the lesser of the claimed
amount and the proceeds received from the sale of the collateral securing the
claim. Any excess of the claimed amount over the collateral proceeds will be an
unsecured claim.
48. The Debtors have contracted to sell the Washington distribution center
for approximately $6.3 million. The proposed buyer has delayed closing of the
sale of the property three times. If the sale does not close, the Trustee may be
forced to locate a new buyer. Pursuant to a stipulation and order signed by the
Bankruptcy Court, the Debtors have made several adequate protection payments to
the IRB, which has a claim secured by the distribution center. As of November 1,
2000, these adequate protection payments totaled $200,000. If the Debtors net
proceeds from the sale of the warehouse are greater than $5,400,000, the
adequate protection payments previously paid to the IRB shall be deemed
prepayments on the IRB secured claim. If the Debtors net proceeds from this sale
are less than $5,400,000, then (i) the amount of adequate protection payments
equal to the difference between the amount of net proceeds and $5,400,000 shall
be retained by the IRB as compensation for diminution in the value of its
secured claim and (ii) the remaining amount of such adequate protection payments
shall be deemed prepayments on IRB's secured claim.
49. The Debtors have contracted to sell the St. Louis warehouse for
approximately $875,000. The proceeds of the sale, net of any expenses of sale,
will be remitted to The Bank of New York as indenture trustee for the 11%
Noteholders. After deducting its indenture trustee fees, The Bank of New York
will distribute approximately 96% of those proceeds to the 11% Noteholders, and
the remaining funds will be distributed to the Debtors' estates. If the sale
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<PAGE>
closes before the Noteholders tender their notes, the proceeds will reduce the
amount of the claim under the Notes that will be eligible to receive the
Accelerated Distribution. If the sale closes after the Noteholders tender their
notes to the Insurer under the Policy, the Noteholders will already have
received at a minimum 16% of the gross amount of their claim without any
reduction for the value of their collateral. Accordingly, the Insurer (who will
already have funded the Accelerated Distribution to tendering Noteholders) will
be entitled to retain at a minimum 16% of the tendering Noteholders' share of
the proceeds of the St. Louis warehouse.
50. Unsecured claims. The claims register as adjusted as of November 16,
2000 (not including claims that have been withdrawn, expunged, or reduced by
agreement or an order of the Bankruptcy Court) reflects unsecured claims filed
in the Debtors' chapter 11 case of approximately $222 million (excluding EBS
Pension LLC's claim of $5.7 million without interest). Some of these claims may
be duplicative; others may have no basis in fact; and others may be contingent
or unliquidated for which no amount is reflected at this time. No assurance can
be given that claims will not exceed the upper bound of the range given above.
However, the Trustee believes that legal proceedings and settlements could
reduce claims.
51. Unsecured claims include, but are not limited to, the following:
a. $113.5 million of Senior Notes issued as part of the Debtors'
first Chapter 11 case,12 which are unsecured except for a lien on a warehouse
under contract to be sold13 for $875,000. The sale will reduce the Senior Notes'
unsecured claim by approximately $800,000
----------
12 The Senior Notes were issued pursuant to that certain Indenture dated
September 26, 1997 (the "Indenture"). The Bank of New York serves as
indenture trustee.
13 If the sale is consummated after the Effective Date of the Policy.
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<PAGE>
(see "Secured Claims" at P. 45 above). While the sale is under contract, the
Trustee can offer no assurances that the sale will close as expected.
b. $7 million in claims that were scheduled by the Debtors in their
Chapter 11 case and for which no proofs of claim have yet been filed. The
Chapter 7 bar date for unsecured claims has been set for November 22, 2000. The
Trustee and the claims administrator are still processing and reviewing claims
received by the bar date. Thus, the total amount of asserted unsecured claims
may increase or decrease, depending on the claims filed in the chapter 7 case.
c. $38 million in claims filed by landlords representing damages
arising from the Debtors' rejection of the relevant leases (the "Rejection
Claims"). Over 500 such Rejection Claims have been filed. To the extent a
Landlord has re-let the relevant premises, the resultant mitigation of that
Landlord's damages may reduce its Rejection Claim. Landlords may attempt to
amend their claims, which may result in an increase in the ultimate amount of
claims against the estate.
d. One of the largest unsecured claims relates to the settlement
between the Debtors and the statutory committee of retired employees (the
"Retirees' Committee"). Under the settlement, a Voluntary Employees' Beneficiary
Association ("VEBA") trust was established. The retirees were allowed one
unsecured claim in the amount of $14.5 million (the "Retiree Claim"). All
distributions to be made to retirees on account of the Retiree Claim are to be
made to the VEBA on their behalf. Two initial distributions totaling $1.45
million (less unpaid premiums for COBRA benefits) have been made to the VEBA
under the settlement. Additional distributions are to be made to the VEBA at
such time as holders of general unsecured claims have received distributions
totaling at least 15%, at which time a catch-up
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<PAGE>
distribution will be made on account of the Retiree Claim equal to the
difference between the 10% initial distributions and the percentage recovery
being paid to other unsecured creditors. Thereafter, the Retiree Claim will be
pari passu with all other unsecured creditors and will be entitled to receive a
pro rata share of any further distributions.
C. Certain Risks Associated With Tendering
Claims to the Insurer
As discussed above, the Trustee believes that the proposed transaction is
in the best interests of unsecured creditors because it will substantially
expedite distributions to creditors and eliminates the uncertainty as to the
amount distributed to consenting creditors. Nevertheless, creditors who accept
an Accelerated Distribution in full satisfaction of their claim run the risk
that this Accelerated Distribution may be less than the pro rata distribution
they would eventually receive from the estates had they not transferred their
claim to the Insurer. Any of a variety of factors, including, but not limited
to, the following, might make this a potential outcome:
o Claim Disallowance and Reduction -- The aggregate amount of allowed
unsecured, priority, and administrative claims against the estates
may turn out to be substantially lower than that presently set forth
in the claims register. The Trustee is continuing to investigate and
challenge claims against the estates, and there remains the
possibility that a substantial number and amount of claims that have
been filed against the estates will be reduced or disallowed. For
example, as noted above, the $37 million of claims filed by
landlords claiming damages arising from the Debtors' rejection of
leases could be reduced to the extent these landlords have mitigated
their damages by re-letting the premises.
o EBS Pension LLC Litigation -- Victory in the EBS Pension LLC
litigation would make available for distribution to unsecured
creditors $6.9 million in additional cash (although the total
unsecured claim pool would increase by $5.7 million, as EBS Pension
LLC would have a prepetition claim in that amount). As noted above,
such a victory is unlikely to be obtained before the exhaustion of
appeals to the United States Court of Appeals for the Third Circuit.
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<PAGE>
o Uncollected Receivables -- Recoveries above amounts presently
anticipated would increase cash distributable to unsecured
creditors.
o Estates' Causes of Action -- The estates may possess causes of
action against third parties of which the Trustee is not presently
aware. Recoveries on such causes of action could increase cash
distributable to unsecured creditors.
53. On the other hand, creditors accepting the Accelerated Payment in
exchange for their claims will not only have their distributions paid
immediately, but they will be protected from the risk that the amounts
ultimately distributed to nonconsenting unsecured creditors will be less than
the Accelerated Payment. There are a variety of factors that could lead to such
a result, including, but not limited to, the following:
o Pension Plan and 401(k) Overfunding -- The IRS and PBGC may raise
legal and other issues in connection with the estates' ability to
obtain the overfunding, which may substantially delay the estates'
ability to distribute the overfunding to creditors.
o Cash Collateral -- The estates have more than $10 million in cash
tied up in collateral accounts to secure a letters of credit
relating to customs bonds and insurance policies. It is not clear
when cash will be released for distribution to unsecured creditors,
or in what amounts.
o Decrease in Value of Real Estate -- Sale of the estates' remaining
real property, which secures certain claims, may yield less net
proceeds than anticipated, giving the secured creditors deficiency
claims in excess of anticipated amounts, which would increase the
aggregate amount of unsecured claims.
o Increases in Unsecured Claims -- Due to new claims or amendments to
existing claims, the allowed amount of unsecured claims may
increase.
o Increases in Priority and Administrative Claims - The bar dates for
administrative and governmental unit claimants are January 15, 2001
and February 19, 2001, respectively. Thus, there may be increases in
administrative and priority claims.
o EBS Pension LLC Victory -- A victory by EBS Pension LLC in its
litigation with the Trustee may result in a claim greater than the
$6.9 million in the event that prejudgment interest is allowed to
accrue postpetition.
o Delays in Payment -- The Trustee can make no guarantee as to when
distributions will be made to nonconsenting unsecured creditors.
26
<PAGE>
54. For the reasons noted above, the ultimate distribution that allowed
unsecured claims will receive from the estate cannot be determined at this time.
As described in the preceding paragraphs, the final distribution depends on many
factors, including, but not limited to, the timing and amount of noncash asset
recovery; the aggregate amount of allowed, priority, secured, and administrative
claims (including costs, expenses and other ongoing obligations incurred by the
estate); the results of pending litigation; and the final amount of allowed
unsecured claims. If the Policy were not in effect and the Trustee made initial
distributions to unsecured creditors some time during the first half of 2001,
the Trustee would be required to use conservative estimates with respect to the
cash available for distribution, reserves necessary to pay administrative and
priority claims, and the total amount of unsecured claims that would eventually
be allowed. The Trustee expects that any such initial distribution would be less
than 5 cents on the dollar. The timing and exact amount of such a distribution
cannot be determined at this time.
55. From the Insurer's perspective, the Policy will produce three (3)
possible economic outcomes. The Insurer may (i) suffer a loss on the Policy;
(ii) break even on the Policy; or (iii) make a profit on the Policy. These
outcomes depend on (i) the number of consenting unsecured creditors; (ii) the
ultimate amount of allowed claims; (iii) the aggregate value of the Debtors'
assets; and (iv) administrative and other costs borne by the Insurer.
APPROVAL OF THE PROPOSED TRANSACTION
IS IN THE BEST INTERESTS OF CREDITORS
56. The Trustee respectfully requests that the Court approve and authorize
the Policy and all related transactions. Based on the information currently
available, it appears that implementation of the Policy will enable the Trustee
to make expedited distributions to holders
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<PAGE>
of allowed claims in an amount much greater than he would otherwise be able to
make in the next several months (and possibly greater than the total amount of
eventual distributions to unsecured creditors), will enable him to expeditiously
administer and close these estates, and is therefore in the best interests of
creditors.
57. Perhaps most important, no creditors will be harmed by the proposed
transaction. The Policy provides (subject to its liability limit) that creditors
that decline to participate will receive the same distributions they would
receive in the absence of the Policy. Creditors that elect to participate will
receive benefits of potentially great value - namely, a prompt distribution in a
guaranteed amount. In electing whether or not to participate, creditors will
have the benefit of full disclosure - subject to the Court's review and approval
-- of all material terms of the Policy, as well as of the risks associated with
participation in the Policy as set forth above.
58. As noted above, under Bankruptcy Code ss. 704(1), one of the primary
duties of a Chapter 7 trustee is to "collect and reduce to money the property of
the estate for which such trustee serves, and close such estate as expeditiously
as is compatible with the best interests of parties in interest." Indeed,
several courts have viewed the trustee's duty to "expeditiously" close the
estate as being the main duty of a trustee. See, e.g., In re Hutchinson, 5 F.3d
750, 754 (4th Cir. 1993); In re Riverside -Linden Invest. Co., 925 F.2d 320, 322
(9th Cir. 1991). In this case, the Trustee seeks to comply with this duty by
utilizing the assets of the estates to obtain insurance that will insure prompt
distributions to holders of allowed claims and expedite the administration of
these estates.
59. Section 363(b)(1) of the Bankruptcy Code provides that "[t]he trustee,
after notice and a hearing, may use, sell or lease, other than in the ordinary
course of business, property of the estate." 11 U.S.C. ss. 363(b)(1). In
determining whether the use, sale or lease of property of a
28
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debtor's estate outside the ordinary course of business is appropriate under
section 363(b)(1), the applicable principle of law is that the approval of such
use, sale or lease is appropriate in circumstances where the transaction
represents a reasonable business judgment on the part of a trustee. See
Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722
F.2d 1063, 1071 (2d Cir. 1992); see also In re Stroud Ford, Inc., 163 B.R. 730,
732 (Bankr. M.D. Pa. 1993); In re Industrial Valley Refrigeration and Air
Conditioning Supplies, Inc., 77 B.R. 15, 19 (Bankr. E.D. Pa. 1987).
60. The Trustee submits that the purchase of the Policy is a reasonable
exercise of his business judgment and is entirely consistent with his duty under
section 704(1) to expeditiously close these estates. The Trustee believes that
the Policy provides an opportunity for creditors to realize a fair and
reasonable recovery on these claims without any further delays.
61. If the Policy were not in place, creditors would be entitled to
receive only their respective pro rata amounts at such time as the Trustee has
sufficient free assets for distribution. It is uncertain at this time as to what
the final distribution percentage will be and when a final distribution will be
made. As noted above, there could be delays in realizing upon certain assets as
well as new claims being filed in the future. The Policy will enable creditors
holding allowed unsecured claims to have certainty today and receive a final
distribution of (i) 16 cents on the dollar on their allowed claims payable on or
before March 5, 2001 and (ii) an additional one cent on the dollar in the event
that the total amount of cash and non-cash assets that are recovered and
converted to cash on or before the first anniversary of the Policy Effective
Date exceeds a specified threshold (discussed above).
62. It is critical to note that participation in the Accelerated
Distribution is strictly voluntary. If an unsecured creditor wishes to receive
pro rata distributions from the Debtors'
29
<PAGE>
estates as if no Accelerated Distributions had been made, such creditor need
only to indicate this election on the Response Form. Subject to the 80%
condition precedent noted above, participation of all creditors is not
necessary.
63. The Accelerated Distribution and the Policy are very similar to the
distribution pool insurance provided by the Insurer that was recently approved
in the Montgomery Ward Holding Corp. case, Case No. 97-1409 (PJW) (Bankr. D.
Del.). A copy of the order that was entered in the Montgomery Ward Holding Corp.
case is attached hereto as Exhibit B. The Trustee understands from the Insurer
that over 90% in amount of all unsecured creditors elected to participate in the
Montgomery Ward program. The Trustee believes that this type of insurance
provides an opportunity for creditors that otherwise would not be available --
prompt payment of claims. Whether the proceeding is a Chapter 11 case (as with
the Montgomery Ward case) or Chapter 7 case, the value of creditor recoveries is
negatively impacted by delay.
64. Accordingly, the Trustee respectfully requests that the Court enter an
order that provides for, among other things:
o Approval of and authorization to implement the Policy and the making
of Accelerated Distributions as in the best interests of creditors
of the Debtors' estates;
o Payment of the Policy premium;
o Assignment to the Insurer (or its designee) of claims by the holders
of such claims who elect to receive Accelerated Distributions and
the waiver of the requirements of Bankruptcy Rule 3001(e) in
connection therewith;
o Approval of the Claims Administration Agreement, including the
provisions requiring the Insurer to pay all administrative claims,
including indemnification claims that may be asserted by the Trustee
(to the extent permitted by the Policy);
o Authorization to rely on the Claims List;
o Limitation of the Insurer's liability to the amount of the Policy;
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o A finding by the Court that the disclosure contained herein,
including the disclosure concerning the terms of the transaction,
the estates' assets and liabilities, and the risks associated with
transferring or refusing to transfer a claim, is fair and adequate
under the circumstances; and
o A finding that the notice given to creditors (as set forth below) is
fair and adequate under the circumstances.
NOTICE
65. Notice of this Motion has been given in accordance with the Scheduling
Order. Notice of this Motion also will be provided by publication in the
national edition of at least one major news publication. The Trustee submits and
requests that the Court find that no other or further notice is necessary or
required.
66. No previous motion for the relief requested herein has been made to
this or any other court.
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<PAGE>
WHEREFORE, the Trustee respectfully requests that the Court enter
an Order approving and authorizing the Policy and granting such other relief
as the Court may deem just and proper.
Dated: Wilmington, Delaware
November 29, 2000
THE BAYARD FIRM
--------------------------------
Neil B. Glassman (No. 2087)
Charlene D. Davis (No. 2336)
P.O. Box 25130
Wilmington, Delaware 19899
Tel.: (302) 655-5000
Fax: (302) 658-6395
KRAMER, LEVIN, NAFTALIS &
FRANKEL LLP
Thomas Moers Mayer
Allan E. Reznick
Philip Bentley
919 Third Avenue
New York, New York 10022
Tel: (212) 715-9100
Fax: (212) 715-8000
Attorneys for the Trustee
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Exhibit A
Policy No. AFS
Bankers Standard 2000-2
Fire and Marine Company
DISTRIBUTION POOL
INSURANCE POLICY
Section 1. In consideration of the premium set forth in Section 5 below, Bankers
Standard Fire and Marine Company ("BSF&M" or the "Insurer") agrees with the
Insured (defined below) as follows: Definitions: As used in this Policy, all
capitalized terms shall have the meanings assigned in this Section unless
otherwise specifically provided.
"Accelerated Claim Payment(s)" means insurance payments made under Section
2.1(ii) or (iii) of this Policy.
"Administrative Claim" means any Claim for an administrative expense of the kind
described in Section 503(b) of the Bankruptcy Code, including, without
limitation, the actual and necessary costs and expenses of preserving the
Debtors' Estate incurred after the commencement of the Bankruptcy Cases; Claims
for fees and expenses pursuant to Sections 330 and 331 of the Bankruptcy Code;
and fees, if any, due to the United States Trustee under 28 U.S.C. ss.
1930(a)(6).
"Administrative Claim Bar Date" means the last date or dates fixed by the
Bankruptcy Court for filing proofs of certain Administrative Claims pursuant to
Rule 3003(c)(3) of the Bankruptcy Rules and the Final Order or Orders issued
thereunder.
"Allowed Amount" means:
(a) with respect to any Administrative Claim (i) if the Claim is
based upon a fee application, the amount of such fee application that has been
approved by a Final Order of the Bankruptcy Court; (ii) if the Claim is based
upon any indebtedness or obligation incurred in the ordinary course of business
of the Debtors and is not otherwise subject to an Administrative Claim Bar Date,
the amount of such Claim that has been agreed to by the Trustee in writing and
such creditor, failing which, the amount thereof as fixed by a Final Order of
the Bankruptcy Court; or (iii) if the Holder of such Claim was required to file
and has filed proof thereof with the Bankruptcy Court prior to an Administrative
Claim Bar Date: (1) the amount stated in such proof if no objection to such
proof of claim was interposed within the applicable period of time fixed by the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, or (2) the amount
thereof as fixed by Final Order of the Bankruptcy Court if an objection to such
proof was interposed within the applicable period of time fixed by the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court; and
<PAGE>
(b) with respect to any Priority Claim, Secured Claim or Unsecured
Claim, if the Holder of such Claim has filed proof thereof with the Bankruptcy
Court within the applicable period of time fixed by the Bankruptcy Court
pursuant to Sections 105(a) and 501 of the Bankruptcy Code and Rules 1019 and
3002 of the Bankruptcy Rules and a Final Order issued thereunder: (1) the amount
stated in such proof if no objection to such proof of claim was interposed
within the applicable period of time fixed by the Bankruptcy Court, (2) the
amount thereof as fixed by Final Order of the Bankruptcy Court if an objection
to such proof was interposed within the applicable period of time fixed by the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court or (3) such amount
as agreed upon between the Trustee and the Claimholder in writing.
"Allowed Claim" means any Covered Claim for which and to the extent an Allowed
Amount has been determined.
"Ancillary Documentation" means such documents as are necessary to transfer
and/or assign assets of the Estate to the Insurer.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended, as set
forth in Title 11 of the United States Code, 11 U.S.C. ss.ss. 101 et seq., as
now in effect or hereafter amended.
"Bankruptcy Court" means the United States Bankruptcy Court for the District of
Delaware or any other court with jurisdiction over the Case.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure promulgated
pursuant to 28 U.S.C. ss. 2075, as now in effect or hereinafter amended,
together with the local rules of the Bankruptcy Court.
"Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day
on which banking institutions in the state of Pennsylvania are authorized or
required by law or executive order to remain closed.
"Case" means Jointly Administered Chapter 7 Case Nos. 99-529 through 536
(MFW) pending in the Bankruptcy Court.
"Claim" means any claim against any of the Debtors within the meaning of Section
101(5) of the Bankruptcy Code.
"Claims Administration Agreement" means the agreement between the Insurer and
the Trustee concerning the administration and resolution of covered claims.
"Claimholder(s)" means the legal holder of a Covered Claim.
"Claims List" means the list of Covered Claims on the register annexed to, and
made part of, this Policy as Schedule 1.
"Consenting Claimholder(s)" means each Claimholder of an Allowed Claim on or
before the Effective Date (but only with respect to such Allowed Claim), which
consents to accept receipt
-2-
<PAGE>
of an Accelerated Claim Payment on its Allowed Claim by delivering the written
response and assignment provided pursuant to Section 2.4 of this Policy.
"Covered Claims" means Claims listed on the Claims List which are either Allowed
Claims or Disputed Claims as provided in Section 2.1 of this Policy, including
(i) scheduled Administrative, Priority, Secured and Unsecured Claims listed on
the claims schedule attached to and made part of the Policy (to be agreed by the
Insurer before the Effective Date and currently composed of those Claims
appearing on the list of claims maintained by Claudia King & Associates), (ii)
Unsecured Claims filed with the Bankruptcy Court on or before November 20, 2000,
(iii) Administrative Claims (except Estate Administration Claims) filed with the
Bankruptcy Court on or before December 20, 2000, (iv) claims filed by
governmental units on or before February 19, 2001, and (v) any additional
Unsecured Claims allowed by the Bankruptcy Court where the claimant has filed
such claim within ninety (90) days of the Effective Date (defined below) and
prevailed in demonstrating "excusable neglect" or such similar legal standard
for Unsecured Claims filed after the bar date under applicable Federal
bankruptcy laws.
"Debtor" means the substantively consolidated captioned debtors in the Case.
"Disputed Claim" means a Covered Claim that is not an Allowed Claim.
"Effective Date" means the date on which all conditions precedent to the
issuance of this Policy, as provided in Section 7 below, are fully satisfied or
waived.
"Estate" means the substantively consolidated Chapter 7 estates of the
Debtors.
"Estate Administration Claims" means the costs and expenses incurred by the
Estate and approved by the Bankruptcy Court relating to the administering of the
Estate, claims administration and the final accounting and closure of the
Estate.
"Final Order" means a judgment, order, ruling or other decree issued and
entered by the Bankruptcy Court or by any state or other federal court or other
tribunal which judgment, order, ruling or other decree has not been reversed,
stayed, modified or amended and as to which (a) the time to appeal or petition
for review, rehearing or certiorari has expired and as to which no appeal or
petition for review, rehearing or certiorari is pending or (b) any appeal or
petition for review, rehearing or certiorari has been finally decided and no
further appeal or petition for review, rehearing or certiorari can be taken or
granted.
"Governmental Unit Bar Date" means February 19, 2001, the last date for
governmental units to file Claims.
"Insured" means the Estate.
"Material Adverse Change" means the occurrence of any of the following events
prior to the Effective Date: (i) a reduction in the net value of assets of the
Estate as stated as of November 28, 2000 by three percent (3%) or more; (ii) the
assertion of Priority and/or Administrative Claims totaling $1,000,000 or more;
or (iii) the assertion of Unsecured Claims totaling $3,000,000 or more.
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"Non-Consenting Claimholder" means each Claimholder of an Allowed Claim which
does not consent (but only with respect to such Allowed Claim), on or before the
last day of the Post-Effective Election Period, to accept receipt of an
Accelerated Claim Payment on its Allowed Claim by delivering the written
response and assignment provided pursuant to Section 2.4 of this Policy.
"Post-Effective Consenting Claimholder(s)" means each Claimholder (other than a
Consenting Claimholder) of an Allowed Claim on or before the last day of the
Post-Effective Election Period (but only with respect to such Allowed Claim),
which consents, on or before the last day of the Post-Effective Election Period,
to accept receipt of the Accelerated Claim Payment on its Allowed Claim by
delivering the written response and assignment pursuant to Section 2.4 of this
Policy.
"Post-Effective Election Period" means the period beginning 12.01 a.m. New
York time, the day after the Effective Date and ending at 11.59 p.m. New York
time on June 30, 2001.
"Priority Claim" means any Claim, other than an Administrative Claim, to the
extent entitled to priority under Section 507(a) of the Bankruptcy Code.
"Retirement Plans" means, collectively, the Edison Brothers Stores, Inc.
Retirement Account Plan and the Edison Brothers Stores, Inc. Savings Plan.
"Secured Claim" means any Claim of any person that is secured by a lien on
property in which the Debtors have, or any of them or any Estate has, an
interest or that is subject to setoff under Section 553 of the Bankruptcy Code,
to the extent of the value of such Person's interest in the Debtors', any
Debtor's or any Estate's interest in the property, determined pursuant to
Section 506(a) of the Bankruptcy Code.
"Senior Note Tender Date" means February 19, 2001, and such later dates that may
be set by the Insurer and the Trustee to permit Holders of Senior Notes to
tender such notes and receive an Accelerated Payment.
"Senior Notes" means the notes issued pursuant that certain Indenture between
Edison Brothers Stores, Inc. and The Bank of New York, Trustee, dated as of
September 26, 1999.
"Term" means the Term of this Policy as set forth in Section 4 below.
"Trustee" means Alan M. Jacobs, Chapter 7 Trustee for the Estate.
"Unsecured Claims" means a Claim against any of the Debtors other than (a) a
Secured Claim, (b) a Priority Claim or (c) an Administrative Claim.
Section 2. Insuring Agreements:
2.1 Coverage. The coverage provided by this Policy shall be limited to
the amount of the Covered Claims. The Claims List shall be
conclusive and binding as to the number of Covered Claims and the
maximum amount of each such Covered Claim. Except as otherwise
ordered by the Court during the ninety (90) day
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<PAGE>
period following the Policy Effective Date based only upon the
standards applicable to relieving creditors of orders and the
requirements of a bar date (i.e., the last date for filing a proof
of claim against a debtor) and except with respect to Claims filed
by governmental units on or before the Governmental Unit Bar Date,
no claim may be added to the Claims List and no change may be made
to the status or maximum amount of any claim on the Claims List
(other than the disallowance or allowance of Disputed Claims) after
the Policy Effective Date.
Subject to the Policy Limit of Liability and to the extent there are
insufficient funds in the Estate therefor, BSF&M hereby agrees to
pay the Insured:
(i) 100% of the Allowed Amount of Administrative, Secured (to the
extent of proceeds of collateral securing such Secured Claim)
and Priority Covered Claims;
(ii) Sixteen percent (16%) of the amount of Allowed Unsecured
Claims of all Consenting Claimholders, minus any and all
amounts that had been distributed on account of such Allowed
Claim from the Estate;
(iii) Sixteen percent (16%) of the amount of Allowed Unsecured
Claims of all Post-Effective Consenting Claimholders, minus
any and all amounts that had been distributed on account of
such Allowed Claim from the Estate;
(iv) One percent (1%) of the amount of Allowed Unsecured Claims of
all Consenting Claimholders and Post-effective Consenting
Claimholders payable only if on or before the first
anniversary of the Effective Date all cash and non-cash assets
that are recovered converted into cash (with respect to
non-cash assets) and transferred and paid over to the Insurer
are equal to or greater than $62.9 million on a present value
basis as of the Effective Date of this Policy utilizing a 6%
discount rate.
(v) The amount equal to that which would have been paid (as and
when payments) on account of the Allowed Claims of
Non-Consenting Claimholders from the Estate pursuant Section
2.3 below as if this Policy had not been issued and no
payments hereunder had been made; and
(vi) Estate Administration Claims.
Payment by BSF&M under this Policy to the Insured shall, to the
extent thereof, discharge the obligation of BSF&M under this Policy.
Upon disbursement from the Estate in respect of an Allowed Claim to
a Consenting Claimholder or Post-Effective Consenting Claimholder,
BSF&M, or its designee, shall become the holder of such Allowed
Claim and retain all right, title and interest of Claimholder to
receive payments from the Insured as provided in Section 2.2(iii)
hereof with respect to such Allowed Claim.
2.2 Timing of Claim Payments. BSF&M will make payments as provided in
this Policy to the Insured as follows:
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(i) The amount of payments due on account of Allowed
Administrative and Priority Claims will be funded thirty (30)
Business Days after the Effective Date;
(ii) The amount of the Accelerated Claim Payments due on account of
the Consenting Claimholders will be funded as soon after March
1, 2001 as is practicable;
(iii) The amount of the Accelerated Claim due from the Estate to
Holders of Senior Notes who are Consenting Claimholders and
who have tendered their Senior Notes to either the Indenture
Trustee or the Insurer on or before the Senior Note Tender
Date will be forwarded within three (3) business days after
the Effective Date;
(iv) The amount of Accelerated Claim Payments due from the Estate
to Post-Effective Consenting Claimholders will be funded
thirty (30) Business Days after the end of the Post-Effective
Election Period;
(v) The amount of funds necessary to fund pro rata distributions
to Non-Consenting Claimholders as and when the Trustee and
Insurer determine to make such payments during the Term; and
(vi) the date on which an Estate Administration Claim is due.
2.3 Calculation of Policy Payment Amounts to Non-Consenting
Claimholders. At such times as the Trustee and Insurer determine
that there is sufficient cash available to distribute, but in no
event not sooner than the ninetieth (90th) Business Day following
March 31, 2001, BSF&M and the Trustee will determine subject to
Bankruptcy Court approval the amount of the claim payment under this
Policy to be paid in respect of Section 2.2(v) hereof.
2.4 Claimholders' Claim, Consent and Assignment. In order to make a
claim for an Accelerated Claim Payment from the Insured, a
Consenting Claimholder or Post-Effective Consenting Claimholder must
complete and deliver to the Insured the claim forms attached hereto
as Exhibits A and B respectively, and thereby affirmatively consent
to and accept the Accelerated Claim Payment and assign all of its
rights to receive any further distributions from the Estate on
account of such Claim to BSF&M or its designee. It shall be a
condition precedent to the making of each payment under Sections 2.1
and 2.2 hereof that each claim form for each Accelerated Claim
Payment shall be received by BSF&M or its designee.
Section 3. Policy Limit of Liability: BSF&M's liability under this Policy is
expressly limited to [$70,000,000] in the aggregate for all claims hereunder,
and no payment will be made hereunder for any claim after the limit has been
reached. The amount available at any particular time to be paid to the Insured
under this Policy shall automatically be reduced by any payment made under this
Policy. The amount available under this Policy shall not be reinstated for any
reason whatsoever.
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<PAGE>
Section 4. Term and Cancellation:
4.1 Term. Coverage under this Policy shall commence on the Effective
Date and end on the date the Bankruptcy Court enters an order
approving the Trustee's final accounting and closing the Estate.
4.2 Cancellation. After the Effective Date, this Policy may not be
cancelled for any reason.
Section 5. Premium: In consideration of the coverage provided under this
Policy, by order of the Bankruptcy Court, a premium equal to, and being, the
entire balance of funds in the Estate's accounts and all assets (and proceeds
thereof) held by or on behalf of the Estate as of the Effective Date shall be
irrevocably transferred, assigned and/or paid over to the Insurer. All documents
necessary to effectuate the assignment, transfer and payment of all assets of
the Estate must be delivered to the Insurer on the Effective Date.
Section 6. Exclusions: The Insurer can deny coverage under this Policy for fraud
or material misrepresentation or omission or manifest error made by any person
(including any Claimholder) in presenting a claim for an Accelerated Claim
Payment, or any other payment, provided for under this Policy.
Section 7. Conditions Precedent: This Policy shall not become effective, and the
coverage provided for hereunder shall not attach, unless and until: (i) a final
non-appealable order of the Bankruptcy Court, in form and substance acceptable
to the Insurer is entered approving and authorizing, among other things, this
Policy, the payment of the Premium, the Claims Administration Agreement, the
assignment of claims to BSF&M or its designee, the limitations on liability
provided in this Policy and the reliance on the Claims List, (ii) Claimholders
holding at least 80% in amount of unsecured claims have elected to accept an
Accelerated Claim Payment, (iii) completion of such other Ancillary
Documentation, in form and substance acceptable to BSF&M, necessary to implement
the Policy, (iv) all Covered Claims relating to the Internal Revenue Service
have been settled to the satisfaction of the Insurer, (v) an Administrative
Claim Bar Date has been set for a date that is no later than January 15, 2001;
(vi) entry of a Final Order substantively consolidating the Debtors' Estate on
or before December 20, 2000; (vii) entry of a Final Order granting the motion of
Alan M. Jacobs, Chapter 7 Trustee, pursuant to section 363 of the Bankruptcy
Code authorizing the termination of the Debtors' overfunded Retirement Plans on
or before December 20, 2000; (viii) all documents necessary to terminate the
Debtors' Retirement Plans have been prepared and filed with the Pension Benefit
Guaranty Corporation and any other appropriate governmental agency, person or
institution on or before December 29, 2000; (ix) the Trustee provides the
Insurer with evidence satisfactory to the Insurer demonstrating that the gross
amount of overfunding of the Debtors' Retirement Plans is at lest $15 million
(the then current market value); (x) the Insurer determines that there has not
been a Material Adverse Change in the claims database; and(xi) execution and
delivery of all documents necessary to transfer and/or assign all assets of the
Estate to the Insurer. If the foregoing conditions are not satisfied or waived
on or before February 28, 2001, then this Policy shall be null and void.
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<PAGE>
Section 8. General Provisions:
8.1 Applicable Law: This Policy shall be governed by and construed in
accordance with the laws of Pennsylvania, without regard to
principles regarding choice of law.
8.2 Currency. All payments under this Policy shall be in United States
currency
8.3 Claims Administration Agreement. In connection with this Policy, the
Insurer and the Trustee will enter into the Claims Administration
Agreement which will provide, among other things, that the Insurer
will take over the administration and resolution of all claims
asserted against the estate, the Trustee will continue to serve as
Chapter 7 Trustee and supervise the administration of the Estate and
the Trustee will receive appropriate indemnifications.
8.4 Entire Agreement. This Policy and the Claims Administration
Agreement supersede any and all prior discussions and agreements
between the parties with respect to the subject matter of this
Policy, and this Policy and the Claims Administration Agreement,
including any schedules, exhibits or endorsements hereto, contain
the sole and entire agreement between the Insured and the Insurer
with respect to the subject matter hereof.
8.5 Notice. Any notice required to be delivered to the Insurer under
this Policy shall be given or mailed by first class certified mail,
return receipt requested, or by an overnight courier service,
addressed to Bankers Standard Fire and Marine Insurance Company, c/o
ACE Financial Solutions, 1133 Avenue of the Americas, 32nd Floor,
New York, NY 10036 (Attn: Alan Roseman). Any notice required to be
delivered to the Insured under this Policy shall be given or mailed
by first class certified mail, return receipt requested, or by an
overnight courier service, addressed to Edison Brothers Stores,
Inc., c/o Alan M. Jacobs, AMJ Advisors LLC, 999 Central Avenue,
Suite 208, Woodmere, New York 11598.
8.6 Severability. Except with respect to provisions relating to coverage
and the conditions precedent to the effectiveness of, and payment of
claims under, this Policy, unless otherwise waived by the Insurer in
writing, if any other provision of this Policy is held to be
illegal, invalid or unenforceable under any present or future law or
if determined by a court of competent jurisdiction to be
unenforceable, such provision shall be fully severable, and this
Policy will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Policy,
and the remaining provisions of this Policy shall remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
8.7 Waivers and Amendments. Any term or condition of this Policy may be
waived at any time by the party that is entitled to the benefit
thereof. Such waiver must be in writing and must be executed by a
duly authorized officer of such party. A waiver on one occasion will
not be deemed to be a waiver of the same or any
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<PAGE>
other term or condition on a future occasion. This Policy may not be
supplemented, amended or changed except by a written endorsement
made and executed by the Insurer.
8.8 Transfer of Interest in this Policy. The Insured's rights and duties
under this Policy may not be assigned or delegated without the
Insurer's prior written consent. In the absence of such consent, any
such assignment or delegation shall be null and void.
8.9 No Third Party Rights. Except as specifically provided herein with
respect to the Trustee, this Policy is solely between the Insured
and the Insurer and confers no right, power or obligation on any
Claimholder, person, entity or organization other than the Insured
and the Insurer.
8.10 Headings. The Section headings contained in this Policy are for
purposes of reference and convenience only and do not limit or
otherwise affect the meaning of any provisions of this Policy.
8.11 Attachment. This Policy is made and accepted subject to the
foregoing terms and conditions, together with such other terms and
conditions as are made part hereof by endorsement, as provided in
this Policy.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed on its
behalf by its duly authorized officer.
BANKERS STANDARD FIRE AND MARINE
COMPANY
By:___________________________________
Authorized Officer
One of the ACE Group of Insurance and
Reinsurance Companies
SWORN TO BEFORE ME THIS ____ DAY OF
____________, 2001 IN WILMINGTON, DELAWARE
-----------------------------------------
Notary Public
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Bankers Standard Policy No. AFS 2000-2
Fire and Marine Company
SCHEDULE 1 TO
DISTRIBUTION POOL
INSURANCE POLICY
<PAGE>
Exhibit B
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
----------------------------------------------------
IN RE:
Chapter 7
EDISON BROTHERS STORES, INC., et al.,
Case Nos. 99-529 through
Debtors 536 (MFW)
Jointly Administered
----------------------------------------------------
ORDER GRANTING MOTION OF ALAN M. JACOBS, CHAPTER 7 TRUSTEE,
PURSUANT TO SECTIONS 105, 363 AND 704 OF THE BANKRUPTCY CODE
FOR ORDER AUTHORIZING (I) DISTRIBUTION POOL INSURANCE FOR
THE AMOUNTS TO BE DISTRIBUTED BY THE DEBTORS' ESTATES TO
HOLDERS OF ALLOWED CLAIMS AND (II) OPTIONAL ACCELERATED
FINAL DISTRIBUTIONS TO UNSECURED CREDITORS
------------------------------------------
Upon the Motion (the "Motion") of Alan M. Jacobs, Chapter 7 trustee
(the "Trustee") of the above-captioned debtors (the "Debtors") seeking the entry
of an Order authorizing and approving Motion Of Alan M. Jacobs, Chapter 7
Trustee, pursuant to sections 105, 363 and 704 of the Bankruptcy Code for order
authorizing (i) distribution pool insurance for the amounts to be distributed by
the Debtors' estates to holders of allowed claims and (ii) optional accelerated
final distributions to unsecured creditors; and no objections to the relief
sought in the Motion having been filed or served; and the Court
<PAGE>
HAVING FOUND THAT
A. On March 9, 1999 (the "Commencement Date"), the Debtors filed
voluntary petitions for relief under chapter 11 of the Bankruptcy Code.
B. On or about March 22, 1999, the Office of the United States
Trustee (the "U.S. Trustee") appointed a committee of unsecured creditors (the
"Committee") in the Debtors' chapter 11 cases.
C. On or about April 28, 2000, the Debtors and the Committee filed a
Motion for an Order Directing Appointment of a Chapter 11 Trustee Pursuant to
Section 1104 of the Bankruptcy Code (the "Trustee Appointment Motion"). On May
16, 2000, the Court conducted a hearing on the Trustee Appointment Motion and
thereafter entered an order granting it.
D. On May 30, 2000, the United States Trustee applied for an order
appointing Alan M. Jacobs as trustee (the "Chapter 11 Trustee") in the chapter
11 cases. The Court granted the application on the day it was filed.
E. On June 16, 2000, the Chapter 11 Trustee moved pursuant to
sections 1112(a) and (b) of the Bankruptcy Code to convert the cases to cases
under chapter 7 (the "Conversion Motion"). The Court granted the Conversion
Motion on July 5, 2000 (the "Conversion Date"). On the Conversion Date, the
United States Trustee appointed the Chapter 11 Trustee to serve as the Chapter 7
Trustee, and the Court granted the Trustee's motion for authority to conduct
limited administrative operations utilizing the Debtors' employees pursuant to
section 721 of the Bankruptcy Code.
F. On July 25, 2000, the Court entered an order approving the form
of notice regarding conversion of cases, first meeting of creditors, claims bar
date and notice procedures, pursuant to which (i) November 20, 2000 was fixed as
the last date to file proofs of claim (the "Chapter 7 Unsecured Bar Date") and
(ii) February 19, 2001 was fixed as the last date for
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<PAGE>
governmental units to file proofs of claim (the "Governmental Unit Bar Date").
The bar date for filing administrative claims has been set for January 15, 2001.
G. On November [__], 2000, the Court entered an order (the
"Scheduling Order") scheduling the hearing to Consider the Motion and approving
the form and manner thereof.
H. On December 20, 2000, the Court entered an order substantively
consolidating the Debtors' estates.
I. Notice of the Motion was given in accordance with the Scheduling
Order. In addition, notice of the Motion was published once in each of The Wall
Street Journal (National edition) and the St. Louis Dispatch. Such notice is
good and sufficient notice of the Motion and no other or further notice being
necessary or required.
J. The Motion contains adequate information about the Policy and the
Debtors' assets and liabilities .
K. The issuance of the Policy is in the best interests of the
Debtors, their estates and creditors as it will enable unsecured creditors to
have the option to receive accelerated distributions and will expedite the
administration of the Debtors' estates.
NOW, THEREFORE, after due consideration and good and sufficient
cause having been shown therefor, IT IS HEREBY ORDERED THAT:
1. Granting of the Motion. The Motion is granted as set forth
herein.
2. Approval of the Policy. The Policy, substantially in the form
attached hereto as Exhibit A, is hereby approved in all respects and the Debtors
are authorized to execute all documents necessary to implement the Policy. The
Policy shall become effective on the date (the "Policy Effective Date") that all
conditions precedent to issuance of the Policy have been satisfied, including
that this Order shall have become final and non-appealable. Amounts
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<PAGE>
available under the Policy Limit of Liability (as defined in the Motion) shall
be reduced without further notice, hearing or approval of the Court to the
extent payments are made on account of Allowed Claims.
3. Accelerated Payment. Any unsecured creditor who desires to accept
the Accelerated Payment (as defined in the Motion) must return the Response Form
(as defined in the Motion) on or before January 29, 2001 indicating their
election to receive an Accelerated Payment. Such unsecured creditors shall
receive the Accelerated Payment on or before March 4, 2001. Holders of Senior
Notes also must to tender their original Notes to the Insurer on or before
February 20, 2001 in order to receive an Accelerated Payment. Such tender will
be accepted by the Insurer and irrevocable unless withdrawn prior to February
26, 2001. Holders of Senior Notes that tender their notes as provided herein
shall receive the Acclerated Payment on or before March 1, 2001. Holders of
Unsecured Claims that are not yet Allowed as of the Policy Effective Date shall
have the option to accept the Accelerated Payment after the Policy Effective
Date, provided that such claims are Allowed on or before June 30, 2001 and the
election to receive the Accelerated Payment is also made within such period. In
addition, any Holder of an Allowed Unsecured Claim that failed to elect to
receive the Accelerated Payment, shall have the option to elect to receive the
Accelerated Payment on or before June 30, 2001. Any Unsecured Creditor who does
not elect to receive an Accelerated Payment shall have its Claim treated as if
the Policy Effective Date had not occurred and no Accelerated Payments had been
made.
4. Assignment of Claims. All Unsecured Creditors holding Allowed
Claims that elect to receive the Accelerated Payment shall be required to assign
to the Insurer or its designee all right, title and interest in and to each such
Unsecured Claim held by such Unsecured Creditor for which such election has been
made. Such assignment shall be irrevocable and absolute and shall be a condition
precedent to the payment of any Accelerated Payment. Upon
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<PAGE>
the negotiation or cashing of any check issued as payment of an Accelerated
Payment, such Unsecured Creditor to whom such check was issued shall be deemed
to have accepted such payment as full and final consideration for the absolute
and irrevocable assignment of their Unsecured Claim to the Insurer or its
designee, which shall have the exclusive right to receive all future
distributions in respect of such Unsecured Claim. The provisions of Bankruptcy
Rule 3001(e) are hereby waived and dispensed with as it relates to all such
assignments of Unsecured Claims to the Insurer or its designee. Claudia King &
Associates, Inc. shall record all such assignments to the Insurer.
5. Policy Term. The coverage provided by the Policy shall commence
on the Policy Effective Date and end on the date the Court enters an order
approving the Trustee's final accounting and closing the Debtors' Estates.
6. Policy Premium. The Premium for the Policy shall be the entire
balance of funds in the Estate's accounts and all assets (and proceeds, thereof)
held by or on behalf of the Estate as of the Policy Effective Date. The Trustee
is authorized to execute all documents necessary to effectuate the transfer and
assignment of all such assets as well as the proceeds thereof. The Premium and
all documents necessary to effectuate the transfer and/or assignment of all
interests in and to all assets of the Debtors' Estates shall be delivered,
transferred and paid over to the Insurer by the Trustee on the Policy Effective
Date.
7. Claims Administration Agreement. The Claims Administration
Agreement, substantially in the form attached hereto as Exhibit B, is hereby
approved. The Trustee is authorized to execute the Claims Administration
Agreement and such other documents as may be necessary to effectuate the terms
thereof.
8. Covered Claims/Reliance on Claims List. The Claims that will be
covered by the Policy are Claims that are either presently Allowed or Disputed
as set forth on the list of
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<PAGE>
Claims maintained by Claudia King & Associates, Inc. ("CKA") that are filed on
or before the Chapter 7 Bar Date and attached to the Policy as Schedule 1 (the
"Claims List"). The Insurer and the Trustee shall be entitled to rely upon the
Claims List as the conclusive list of presently Allowed and Disputed Claims as
well as, with respect to Disputed Claims, the maximum amount of such claims.
Except as otherwise ordered by the Court during the ninety (90) day period
following the Policy Effective Date based only upon the standards applicable to
relieving creditors of orders and the requirements of a bar date, and except
with respect to Claims filed by governmental units on or before the Governmental
Unit Bar Date, no claim may be added to the Claims List and no change may be
made to the status or maximum amount of any claim on the Claims List (other than
the disallowance or allowance of Disputed Claims) after the Policy Effective
Date. After 90th day following the Policy Effective Date and notwithstanding the
provisions of Section 726 of the Bankruptcy Code, no claims (new, amended or
otherwise) may be filed with or served upon any of the Court, the Debtors, the
Trustee or CKA.
9. Limitation of Liability. The Insurer shall not be liable for any
claim of any kind in excess of the amount set forth on the Claims List and, in
the aggregate, the Policy Limit of Liability (as defined in the Motion) then in
effect. From and after the Policy Effective Date, the Insurer, the Debtors, and
the Trustee and their respective officers, directors, employees, advisors,
attorneys or other representatives shall not have nor shall they incur any
liability to any Holder of a Claim or Interest for any act or omission in
connection with, related to, or arising out of, the negotiation and
implementation of the Policy or the administration of claims, except for willful
misconduct or gross negligence. The Trustee shall be entitled to assert an
administrative expense claim up to the amount of the Premium, which shall be
proportionally reduced along with the Policy Limitation of Liability (as set
forth in the Policy), for any claims in connection with, related to, or arising
out of, the negotiation and implementation of the Policy or the
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<PAGE>
administration of claims, except for willful misconduct or gross negligence. The
foregoing shall not impair any creditor's right to receive distributions to
which they are entitled.
10. Retention of Jurisdiction. This Court shall retain exclusive
jurisdiction to determine any disputes relating to the Policy.
Dated: Wilmington, Delaware
December ___, 2000
-------------------------------------
United States Bankruptcy Judge
