SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 19, 1996
North Atlantic Technologies, Inc.
(Exact name of Registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation)
2-85984-C 41-1390785
(Commission File Number) (IRS Employer Identification No.)
8120 Penn Avenue South, Suite 435, Bloomington, Minnesota 55431
(Address of principal executive offices) (Zip Code)
(612) 888-8553
(Registrant's telephone number)
ITEM 3. BANKRUPTCY.
On February 1, 1996, North Atlantic Technologies, Inc. (the "Company")
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, District of Minnesota
(the "Bankruptcy Court"), case No. 3-96-0526. On April 19, 1996, the Bankruptcy
Court entered an Order confirming the Company's Amended Plan of Reorganization
dated March 8,1996 (the "Plan"), and the Company's Second Amended Disclosure
Statement dated March 13, 1996 (the "Disclosure Statement").
The Plan generally provides for secured claims to be confirmed with
their outstanding balances as of February 1, 1996, according to the same or
modified terms of repayment. Under the Plan, the Company's outstanding line of
credit balance with First Bank, N.A. (the "Line of Credit"), of approximately
$1,355,000, plus $100,000 in letters of credit outstanding, will be paid as
follows: (i) the issuance by the Company of a 5-year note in favor of First
Bank, N.A., in the principal amount of $500,000 bearing interest at a rate of up
to 12 percent per annum; and (ii) the balance, including an additional $200,000
in working capital financing which became available to the Company upon approval
of the Plan, under a new line of credit at comparable interest rates with
required monthly principal reductions of $25,000 commencing May 1, 1996.
Interest under the line of credit and note is payable monthly. It has been
subsequently agreed to defer reduction of the line of credit in $25,000
increments until August 1, 1996. Accordingly, the amount available to the
Company under its line of credit will be reduced from $1,155,000 to $1,130,000
on August 1, 1996, and an additional $25,000 each month thereafter. The line of
credit is for 13 months and must be renewed by the Company at that time. There
is no assurance that such line of credit will be renewed. The Company's mortgage
note issued to WDH Investments Co. (the "Mortgage Note") in principal amount of
approximately $493,000 will be paid in accordance with its original terms.
Unsecured trade creditors are intended to be paid in full as agreed between the
creditors and the Company.
The Company's issued and outstanding 12.5 percent Subordinated
Convertible Debentures ("Debentures") in the aggregate principal amount of
$1,993,000, together with accrued interest of approximately $177,000, will be
exchanged for a combination of common and preferred stock. Debenture Holders
will be issued one share of newly issued $0.01 par value common stock ("New
Common Stock") for each $1.50 of Debenture debt owed by the Company, for a total
of approximately 1,446,666 shares of New Common Stock. In addition, Debenture
Holders will receive one share of $0.01 par value voting Series A Convertible
Preferred Stock having a $25 redemption value per shares ("Preferred Stock") for
each $100 in Debenture debt owed to them by the Company, for a total of
approximately 21,700 shares of Preferred Stock. In the case of a liquidation of
the Company, holders of Preferred Stock will be entitled to receive up to $25 in
value from the assets available for distribution to equity stock holders before
any distribution may be made to holders of New Common Stock. Dividends will be
paid on the Preferred Stock at the discretion of the Board of Directors.
Dividends may not be paid, however, on New Common Stock unless like dividends
are paid on Preferred Stock. Each share of Preferred Stock is convertible into
one share of New Common Stock voluntarily through June 1, 1999, and
automatically becomes New Common Stock after June 1, 1999. The Company will
effect a 1-for-3 reverse split of its no par common stock ("Old Common Stock")
issued and outstanding as of the date of the Plan's confirmation into shares of
New Common Stock. On April 26, 1996, the Company filed a Motion to amend the
Plan of Reorganization which the Company expects will be granted. The proposed
amendment is not substantive, and deals only with the mechanics of the
contemplated transactions.
The Company's Articles of Incorporation, in current form and as
proposed to be amended pursuant to the Plan, authorize the Company to issue up
to 5,000,000 common voting shares and up to 2,000,000 undesignated shares. A
total of 3,292,689 shares of Old Common Stock and no undesignated shares are
issued and outstanding. Also issued and outstanding are Debentures in the
principal amount of $1,993,000, and accrued interest thereon of approximately
$177,000, which are convertible into shares of Old Common Stock at $5.00 per
share. After giving effect to the Plan and assuming the Debenture holders submit
their Debentures in exchange for New Common Stock, a total of approximately
2,544,229 shares of New Common Stock will be issued and outstanding, and the Old
Common Stock will be deemed to be void and cancelled. In addition approximately
21,700 shares of Preferred Stock will be authorized to be issued to Debenture
holders upon surrender of the Debenture certificates. Under the Plan, the
Debentures are no longer considered debt obligations of the Company. Debenture
holders who do not surrender their certificates for New Common Stock and
Preferred Stock within five years will lose all rights to receive New Common
Stock and Preferred Stock.
Unaudited information regarding the assets and liabilities of the
Company as of December 31, 1995, in the form presented to the Bankruptcy Court
in the Company's Second Amended Disclosure Statement dated March 13, 1996 is set
forth below.
A S S E T S
CURRENT ASSETS
Cash - Unrestricted
Petty Cash 304.97
Fist Bank - Checking 44,301.94
---------------
Cash - Unrestricted..........................................44,606.91
Accounts Receivable - Trade
J.J Services 1,250.00
R & R Machinery 1,000.00
Top All Roofing 350.00
Alternative Sourcing 5,500.00
Twin City Flame 450.00
Coats Rental 250.00
J.E.M. Trucking 100.00
Linders Specialty Inc. 2,900.00
Panel Specialties 21,242.00
2407 - Uhlig/Wuppertal 131,206.00
2427 - Uhlig/Wijster 553,190.68
2436 - Eastern Power 119,482.50
2447 - Uhlig/Ferrostahl 130,000.00
2447 - Uhlig/Wijster Insu. Cl 171,403.86
2482 - Pcc 4,980.00
2489 - Nebraska 7,500.00
2492 - B & W 4,500.00
2493 - Pet.Chem Unbilled Dec 40,600.00
2495 - Nalco 7,800.00
2497 - E - Product 16,900.00
2501 - Reckitte & Colman 1,019.04
2502 - Born 13,382.40
2504 - Crown Iron 21,000.00
2505 - DeSemt 48,000.00
4099 - Genex 25,625.00
---------------
Accounts Receivable - Trade ..............................1,329,731.48
Allowance for Doubtful Accts
Allowance for Doubtful Accts (90,000.00)
---------------
Allowance for Doubtful Accts................................(90,000.00)
Inventory
Materials in Stock 145,355.75
2498 - Subcontractors 112.50
2502 - Subcontractors 50.00
2503 - Freight 630.46
2503 - Materials 86,695.54
---------------
Inventory...................................................232.844.25
Other Current Assets
Employee Advances - Steve Co 500.00
Prepaid Exp 184.08
Prepaid Car Allowance 500.00
Prepaid Legal - Fred. & Byron 1,612.50
Prepaid Insurance - Liabilit 15,103.93
Prepaid Insurance - Work Com 11,128.85
VAT Refund Claim(47247DM) 0.01
---------------
Other Current Assets.........................................29,029.37
TOTAL CURRENT ASSETS...............................................1,546,212.01
FIXED ASSETS
Fixed Assets - Cost
Land (8.431 Acres) 92,510.00
Buildings (Office Bldg and Mfgs) 576,477.53
Plant Equipment 1,211,914.35
Plant Leasehold Imp. - Como ma 19,243.21
Plant L/H Imp. Como East 96,720.01
Plant Vehicles 11,666.31
Plant Tools 145,994.41
Plant Furn. + Off Equip. 26,125.36
Office Furn. + Equip. 127,819.16
---------------
Fixed Assets - Cost.......................................2,308,470.44
Fixed Assets - Accum. Deprec
A/D - Building (63,188.13)
A/D - Plant Equipment (973,915.55)
A/D - Plant L/H Imp - Como ma (19,243.21)
A/D - Plant L/H Como East (96,720.01)
A/D - Plant Vehicles (11,666.31)
A/D - Plant Tools (145,994.41)
A/D - Plant Furn. + Off Equip. (24,606.95)
A/D - Office Furn. + Equip. (116,010.56)
---------------
Fixed Assets - Accum. Deprec.............................(1,451,345.13)
TOTAL FIXED ASSETS...................................................857,125.31
OTHER ASSETS
Other Assets
Rent Deposit - Bobcat 356.00
Membership - Stonebrook 2,050.00
Rent Deposit - Houston Offic 245.00
Patent 300,000.00
A/A - 115,495; W/D - 184,505 (300,000.00)
---------------
Other Assets..................................................3,651.00
TOTAL OTHER ASSETS.....................................................3,651.00
TOTAL ASSETS.......................................................2,406,988.32
L I A B I L I T I E S
CURRENT LIABILITIES
Current Maturities
Captlzed Lease Komatsu F/L 3,537.54
Nsp.Light Fixture Loan 4,534.34
Mortgage Note Current 9,953.23
---------------
Current Maturities...........................................18,025.11
Notes Payable
First Bank - Line of Credit 1,050,000.00
---------------
Notes Payable.............................................1,050,000.00
Customers Progress Payments
2498 - Agrium 128,000.00
2502 - Born 13,382.40
2503 - Jgc 355,000.00
2504 - Crown Iron 21,000.00
2505 - DeSmet 48,000.00
---------------
Customers Progress Payments.................................565,382.40
Accounts Payable
Accounts Payable - Trade 228,793.54
A/P - Uhlig/Lentjes 311,310.90
A/P - Uhlig/Lentjes 400,822.41
A/P - Uhlig/Lentjes Transl.A 24,228.00
---------------
Accounts Payable............................................965,154.95
Como Prop. Rent Deposit
R & R Machinery 600.00
J & J Services 500.00
---------------
Como Prop. Rent Deposit.......................................1,100.00
Interest Payable
LOC Guarantor Fee 3,020.63
First Bank 10,068.75
Debentures - 1995 155,665.00
Mortgage Interest Pay 1,623.59
---------------
Interest Payable............................................170,377.97
Commissions Payable
Kruger 11,352.08
Combustion Kinetics 4,891.50
Lind berg Equipmt 887.25
Berg Johnson 887.25
Neukam Project Gesellsch 80,007.00
Power Technology Services 492.00
DrewTec Company 7,584.70
Gould - Kramer (PA) 313.80
Tompkins & Kramer (CL) 5,922.00
Gould - Kramer (CL) 2,454.27
Combustion & Energy 9,484.20
Energy Trans. 2,131.50
Liniger Western 443.00
Mazza/White Equipment Co. 418.40
Peter Matuszek 10,036.82
Controlled Environment 1,063.64
---------------
Commissions Payable.........................................138,369.51
Warranty
Warranty Reserve 200,000.00
---------------
Warranty....................................................200,000.00
Other Accrued Expenses
Accrued Bonuses - Hourly 353.03
Fed. Income Tax W/H 5,901.24
Minnesota State Income Tax W 2,093.35
FICA - Employer Portion Paya 2,218.04
FICA - Employee W/H 2,218.04
401(K) W/H 5,048.05
FUTA Payable 597.52
SUTA Payable 812.58
MN Sales Tax 1,378.00
Accrued Vacation Pay 4,647.08
Accrued Vacation Pay - Salarie 25,197.77
Directors Fees 11,000.00
401(K) Accrued Eplyr. Contr. 1,759.14
Accrued Legal 22,762.20
Accrued Accounting/Audit 25,600.00
Accrued Utilities - gas 7,447.81
Accrued Utilities - electric 4,000.00
Accrued Travel 45,808.71
Accrued R.E. Taxes 42,423.44
Clearance 12,376.35
---------------
Other Accrued Liabilities...................................224,642.35
TOTAL CURRENT LIABILITIES..........................................3,333,052.29
NON CURRENT LIABILITIES
Debentures
12 1/2 Sub. Conv. Debentures 1,993,000.00
L/T Lease Pay - Kometsu F/L 12,842.91
L/T Nsp.Light Fix. Loan 2,115.13
L/T Mortgage Note Non Current 483,889.58
---------------
Debentures................................................2,491.847.62
TOTAL NON CURRENT LIABILITIES......................................2,491,847.62
TOTAL LIABILITIES..................................................5,824,899.91
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
2.1 Amended Plan of Reorganization under Chapter 11 of the United States
Bankruptcy Code of North Atlantic Technologies, Inc., dated March 8,
1996, as confirmed by the United States Bankruptcy Court, District of
Minnesota on April 19, 1996, which includes the Second Amended
Disclosure Statement dated March 13, 1996 (without exhibits).
10.1 Notice of Hearing and Motion for an Order Authorizing Debtor to Modify
Debtor's Amended Plan of Reorganization, Authorization Limited Notice
and Expedited Hearing, dated April 25, 1996, and filed April 26, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH ATLANTIC TECHNOLOGIES, INC.
Dated: May 6, 1996 By: /s/ Bruce A. Watson
----------------------
Bruce A. Watson
President and Chief Executive Officer
NORTH ATLANTIC TECHNOLOGIES, INC.
CURRENT REPORT ON FORM 8-K
INDEX TO EXHIBITS
ITEM DESCRIPTION PAGE
2.1 Amended Plan of Reorganization under Chapter 11 of the
United States Bankruptcy Code of North Atlantic
Technologies, Inc. dated March 8, 1996, as confirmed by the
United States Bankruptcy Court, District of Minnesota on
April 19, 1996, which includes the Second Amended
Disclosure Statement dated March 13, 1996. (The Historical
Balance Sheet, Current Balance Sheet, Cash Flow
Projections, and Pro Forma Balance Sheet and Liquidation
Analysis attached to the Second Amended Disclosure
Statement as exhibits are not included and will be provided
to the Securities and Exchange Commission upon request.)
10.1 Notice of Hearing and Motion for an Order Authorizing
Debtor to Modify Debtor's Amended Plan or Reorganization,
Authorizing Limited Notice and Expedited Hearing, dated
April 25, 1996, and filed April 26, 1996.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
In re:
North Atlantic Technologies, Inc. Bky. No. 3-96-0526
Debtor. Chapter 11 Case
- --------------------------------------------------------------------------------
DEBTOR'S AMENDED PLAN OF REORGANIZATION
- --------------------------------------------------------------------------------
Debtor, North Atlantic Technologies, Inc. ("Debtor") proposes the
following Plan of Reorganization pursuant to the provisions of Chapter 11 of the
Bankruptcy Code.
ARTICLE I
DEFINITIONS
For purposes of this Plan, the following terms shall have the respective
meanings hereinafter set forth. Any terms contained in this Plan that are not
specifically defined shall have the meaning provided for in the Bankruptcy Code,
unless the context otherwise requires.
"Administrative Expense Claim" means a Claim or expense arising or
accruing on or after the Filing Date, which is entitled to priority in
accordance with ss.ss. 503(b) and 507(a)(1) of the Bankruptcy Code, including,
without limitation, all expenses of administration.
"Allowed Administrative Expense Claim" means an Administrative Expense
Claim that is an Allowed Claim.
"Allowed Claim" or "Allowed Interest" means a Claim or Interest to the
extent that:
(a) a proof of such Claim or Interest has been
(i) timely filed,
(ii) deemed filed pursuant to Bankruptcy Code ss. 1111(a),
(iii) deemed filed as an outstanding security of Debtor, or
(iv) late filed with leave of the Court after notice and
opportunity for hearing given to counsel for the Debtor and
Counsel for the Committee; and
(b) (i) that is not a Contested Claim, or
(ii) that is allowed (and only to the extent allowed) by a Final
Order.
A Claim asserted by any professionals seeking compensation in connection with
this case is an Allowed Claim only to the extent that the Claim is allowed by
order of the Court after notice and hearing as provided in the Bankruptcy Code.
"Bankruptcy Court" or "Court" means this Court, a unit of the United
States District Court for the District of Minnesota, or any other court having
competent jurisdiction to enter an order confirming the Plan.
"Claim" means:
(a) a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed or contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured; or
(b) a right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
A Claim that is secured by Collateral is a "Secured Claim" to the extent
provided in Bankruptcy Code ss. 506.
"Claimant" means the holder of an Allowed Claim.
"Class" means a group of Claims or Interests that are substantially
similar to each other, as classified pursuant to this Plan.
"Collateral" means any property in which the Debtor has an interest and
which secures an Allowed Claim.
"Unsecured Creditors Committee" means the Official Committee of Unsecured
Creditors, appointed by the U. S. Trustee.
"Debenture Trustee" means Norwest Bank N.A.
"Contested Claim" means an alleged claim against or interest in Debtor
listed as disputed, contingent or unliquidated on Debtor's Schedules, or as to
which an objection has been timely filed by a party in interest and which
objection has not been withdrawn or determined by Final Order of the Court.
"Debtor" means North Atlantic Technologies, Inc.
"Effective Date" means the first day of the first full calendar month
following the date on which a Final Order confirming this Plan is entered.
"Filing Date" means February 1,1996.
"Final Order" means an order of the Court that has not been reversed,
stayed, modified, or amended and as to which the time to appeal or to seek
review or rehearing has expired. Debtor may elect to waive provisions relating
to appeal, review, or rehearing and treat any order of this Court as a Final
Order and may distribute and otherwise proceed under this Plan, even if a motion
to extend time for appeal or an appeal is pending, unless the order is stayed.
"Interest" means the equity interest of any shareholder in Debtor.
"Patents" means the Debtor's interests in Patent Number 4,596,285 dated
June 24, 1986 for a Heat Exchanger with Resilient Corner Seals, Patent Number
4,442,886 dated April 17, 1984 for a Floating Plate Heat Exchanger, and Patent
No. 4,308,915 dated January 5, 1982 for a Thin Sheet Heat Exchanger.
"Plan" means this Chapter 11 plan of reorganization as amended
or modified.
"Pre-Petition Claims" means all Claims arising or accruing prior to the
Filing Date, including Claims arising from the rejection, after the Filing Date,
of executory contracts and unexpired leases.
"Pro-Rata Share" means, as to a Claimant, the amount determined by
multiplying the total amount of the Debtor's payment to a particular Class by a
fraction, the numerator of which is the amount of the Claimant's Allowed Claim
and the denominator of which is the total amount of all Allowed Claims in that
Class.
"Schedules" means the schedules of assets and liabilities of Debtor on
file with the Clerk of Bankruptcy Court for the District of Minnesota, as from
time to time amended in accordance with Bankruptcy Rule 1009.
"Manufacturing Plant" means the following described land situated in
Ramsey County, Minnesota, legally described as:
Parcel 1:
Lot 3, Block 1, ROSENTHAL ADDITION, lying West of the North-South Quarter
line of Section 25, Township 29, Range 23 and except that part overlying
Lots 3 and 4, Block 9, Foundry Addition to St. Paul. Lot 1, Block 2,
ROSENTHAL ADDITION.
Parcel 2:
Lot 3, Block 1, ROSENTHAL ADDITION, according to the recorded plat
thereof, and situated in Ramsey County, Minnesota, except that part lying
West of the North-South Quarter line of Section 25, Township 29, Range 23
and also except that part overlying Lots 3 and 4, Block 9, Foundry
Addition to St. Paul.
ARTICLE II
TREATMENT OF CERTAIN PRIORITY CLAIMS
Allowed Claims that are not classified shall be treated as follows:
(a) Allowed administrative expense claims, except as otherwise
classified herein, and including fees of professionals, including
the reasonable fees of the Debenture Trustee, shall be paid in full
in cash on the Effective Date or as soon as practicable thereafter,
or on such other date as the Court may fix, or in the ordinary
course of business as the claims mature, or upon such other terms as
may be agreed upon by each claimant and Debtor.
(b) Unpaid post-petition claims incurred in the ordinary course of
Debtor's business will be paid as such claims become due, as agreed
between each claimant and Debtor, or otherwise in the ordinary
course of Debtor's business.
(c) Executory contracts or unexpired leases that are assumed by Debtor
during the Chapter 11 case will be paid according to the terms of
the contracts or leases, or according to the terms of any order of
the Court approving assumption of such contract or lease or as
otherwise provided for in Debtor's Plan.
(d) Holders of allowed claims specified in Bankruptcy Code ss. 507(a)(7)
(certain taxes), other than real estate taxes, will be paid in equal
monthly installments commencing on the first day of the first
calendar quarter after the Effective Date and continuing through the
end of the sixth year after the date of assessment, with interest at
the current rate in effect under ss. 6621 of The Internal Revenue
Code on the Effective Date.
(e) Fees payable by Debtor under 28 U.S.C.ss.1930 will be paid in full
in cash on the Effective Date.
ARTICLE III
TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS
1. CLASS A CLAIMS -- PRIORITY WAGE CLAIMS.
This class consists of all allowed claims of Debtor's current employees
entitled to priority pursuant to Bankruptcy Code ss. 507(a)(3).
TREATMENT:
Debtor believes that the only claims in this class relate to unused and
unpaid vacation. Allowed claims in this class will be paid by allowing
these employees to use their vacation in the ordinary course.
2. CLASS B CLAIMS - SECURED CLAIM OF FIRST BANK NATIONAL ASSOCIATION.
This class consists of the Allowed Secured Claim of First Bank National
Association ("First"), secured by a valid and perfected first priority
lien on Debtor's inventory, equipment, accounts receivable and general
intangibles. The approximate amount of the claim is $1,355,000, plus the
value of $100,000.00 in certain letters of credit outstanding.
TREATMENT:
This Allowed Claim will be paid by:
a. A term note for $500,000, plus interest at a rate of 175 basis points
above First's OneMonth Reserve Adjusted Certificate of Deposit Rate,
amortized over 5 years, with monthly payments to be made at the rate
of $11,122.22, commencing on the first day of the first month
following the Effective Date of the Plan.
In the event that the interest rate of the bank is less than 12%, and
the monthly payment to the bank is less than the amount listed above,
the difference in the payment at that rate and the payment listed
above will be paid monthly to Willis D.
Heim by the Debtor as a guarantee fee.
b. The balance of the Allowed Claim will be paid by a renewed line of
credit, which will mature 13 months after the Effective Date of the
Plan. The line of credit will be paid by payments of interest at 175
basis points above First's One-Month Reserve Adjusted Certificate of
Deposit Rate, plus monthly principal reductions of $25,000.00
commencing May 1, 1996.
A fee consisting of 4% of the amount of the renewed line of credit,
in the amount of approximately $42,200, will be paid to Willis D.
Heim, payable by a promissory note which shall mature 90 days after
the Effective Date of the Plan of Reorganization, in consideration of
Heim's renewal of his personal guaranty of the line of credit note to
First.
An additional 4% of the amount of the renewed line of credit, of
approximately $30,200, will be paid to Willis D. Heim, if First
agrees to extend its line of credit at the end of the 13 months
provided herein.
c. Upon Confirmation of Debtor's Plan of Reorganization, First will lend
an additional $200,000.00 to Debtor, on its line of credit note,
which shall be personally guaranteed by Heim.
3. CLASS C CLAIMS - SECURED CLAIM OF WDH INVESTMENT CO.
This Class consists of the Allowed Secured Claim of WDH Investment Co.,
secured by a valid and perfected first mortgage on Debtor's Manufacturing
Plant. The approximate amount of the claim is $492,780.41, as of the date
of the filing of Debtor's petition.
TREATMENT:
The Allowed Claim will be paid in accordance with the terms of the
original mortgage, which provides for interest at the rate of 12%,
amortized over 15 years, by payments in the amount of $6,000.84, to be
applied to principal and interest at the annual rate of 12%, on the 19th
day of each month until June 19, 2000, when the entire unpaid principal
and accrued and unpaid interest shall be paid in full.
3. CLASS D CLAIMS - SECURED CONTINGENT CLAIM OF WILLIS D. HEIM
This Class consists of the Allowed Secured Contingent Claim of Willis D.
Heim which is secured by a valid and perfected lien junior to that of
First Bank on Debtor's inventory, equipment, accounts receivable, and
general intangibles, and by a first priority lien on debtor's patents.
This claim secures reimbursement to Heim for amounts he may be required to
pay pursuant to his guaranty of Debtor's obligations to First Bank
National Association and all amounts he expends or incurs in connection
with enforcement of his security agreement after default, and fees and
expenses associated with this case. The amount of the claim is Debtor's
indebtedness to First Bank National Association plus Mr. Heim's costs and
expenses incurred through the confirmation date.
TREATMENT:
The Allowed Claim will be paid only in the event that Debtor defaults on
its obligation under this Plan of Reorganization to First Bank National
Association.
In addition to the allowed contingent secured claim, Mr. Heim will be paid
a Standby Fee of 30% of the interest payable to First on the line of
credit, payable monthly at the same time the payment to the First is made,
following confirmation of Debtor's plan of reorganization. The amount of
this payment will commence at $2,373.75, assuming a 9% interest rate, and
reduce in amount as the principal of the debt reduces the amount of
interest to be paid to First.
4. CLASS E CLAIMS - SECURED CLAIM OF NSP
This Class consists of the Allowed Secured Claim of NSP, which is secured
by lighting fixtures. The approximate amount of the claim is $13,543.00.
TREATMENT:
The Allowed Secured Claim will be paid, together with interest at the rate
of 9% per annum, in monthly installments of $538.76 until paid in full.
5. CLASS F CLAIMS - UNSECURED TRADE CREDITORS
This Class consists of the claims of Debtor's Unsecured Trade Creditors.
The approximate amount of such claims is $350,000.00.
TREATMENT:
The Allowed Claims in this Class will be paid 100 percent of the Allowed
Claim in full on the Effective Date of the Plan or as otherwise agreed in
writing by the Debtor and the creditor.
6. CLASS G CLAIMS - SUBORDINATED DEBENTURE CLAIMS
This Class consists of the claims of holders of 12.5% Subordinated
Convertible Debentures. The claim consists of the principal amount of the
debentures of $1,993,000, together with accrued interest of approximately
$177,000, as of February 1, 1996.
TREATMENT:
The Allowed Claims of this Class will be paid by converting the debentures
into common stock of the Debtor at the rate of 1.0 shares of common stock
at no par value for each $1.50 of debenture debt owed by the Debtor.
Debenture holders must surrender their debentures to the debtor in order
to participate in the plan. Debentures not surrendered within five years
after the entry of the order confirming the plan will be canceled, and the
owners will receive nothing under the plan.
In addition, Debtor will issue one share of non-dividend, convertible
preferred stock at $0.01 par value for each $100 owed under the Debenture
to the Debenture Holder.
Fractional shares will not be issued.
Debtor, by action of its Board of Directors, will designate 21,700 of the
2,000,000 undistributed shares authorized by its Articles of
Incorporation, as Series A Convertible Preferred Shares (the "Preferred
Shares") having a par value of $0.01 per share.
Upon liquidation, merger or consolidation of the Debtor with another
corporation, or the sale of substantially all of the Debtor's assets, the
holders of Preferred Shares will be entitled to receive cash, property or
securities having a fair market value of up to $25 per share (subject to
certain normal and customary adjustments), before the holders of shares of
common stock receive any distribution with respect to their shares.
Each Preferred Share will be convertible into one share of common stock
(subject to certain normal and customary adjustments) voluntarily through
June 1, 1999, and automatically after June l, 1999. After June 1, 1999,
all outstanding Preferred Shares and all rights with respect thereto will
cease, and such shares shall become common stock. No holder of Preferred
Shares shall have any right, by record of the ownership of Preferred
shares, to acquire any securities issued by the Debtor, other than the
right to convert Preferred Shares into common stock.
Holders of Preferred Shares shall have the right to vote their shares on
all matters brought before the Debtor's capital shareholders, on a share
for share basis with the holders of common stock, with holders of
Preferred Shares and holders of common stock voting as if they are one
class. Except when voting by class is specifically required under
Minnesota Statutes. In addition, holders of Preferred Shares shall have
the right to vote as a class on the issuance of additional classes of
shares having the same or superior rights on liquidation, or to alter the
rights of Preferred Shares. Holders of Preferred Shares will not be
entitled to cumulate their votes in the election of members of the Board
of Directors or any other matters.
The Debtor may redeem Preferred Shares at any time prior to a conversion
into common stock at $25 per share (subject to certain normal and
customary adjustments).
Dividends will be paid on Preferred Shares only if declared by the
Debtor's Board of Directors. There are no mandatory dividends payable,
however, no dividend may be declared or paid on common stock unless a
comparable dividend (on a share for share basis) is declared or paid on
Preferred Shares.
7. CLASS H - EQUITY INTERESTS
This Class consists of the Allowed Interests of shareholders of Debtor's
common stock as of the Effective Date.
TREATMENT:
Each equity holder will be issued one share of common stock of the Debtor
in return for the cancellation of 3 shares presently owned by a
shareholder. Equity security holders must surrender their shares to the
debtor in order to participate under the plan. Shares not surrendered
within five years after the entry of the order confirming the plan will be
cancelled, and the owners will receive nothing under the plan.
ARTICLE IV
CLASSES OF CLAIMS AND INTERESTS IMPAIRED UNDER PLAN
The following classes of claims or interests are unimpaired under this
Plan: Classes A ,C, D and E. All other classes are impaired under the Plan.
ARTICLE V
GENERAL PROVISIONS
(a) Payments under this Plan will be made by check, mailed with first
class postage pre-paid, to the claimant at the address listed on its Proof of
Claim or, if no proof of claim has been filed by the date of the hearing on
confirmation, to the address listed on the Schedules.
(b) Payments and other distributions under this Plan will be made as soon
as practicable on or following the Effective Date, except as otherwise specified
in this Plan.
(c) In the event a payment is returned to Debtor unclaimed, with no
indication of claimant's forwarding address, Debtor will hold such payment for a
period of six months from the date of return. If not claimed by the claimant by
the end of that period, the payment shall become the property of Debtor.
(d) In the event this Plan is not confirmed under Bankruptcy Code ss.
1129(a), Debtor requests that this Plan be confirmed under Bankruptcy Code ss.
1129(b).
(e) Retiree Benefits, as that term is defined in Bankruptcy Code ss. 1114,
shall continue after the Effective Date for the period Debtor is obligated to
provide such benefits.
(f) Debtor reserves and retains the right after confirmation to pursue any
claims against third parties, including preference and fraudulent transfers.
(g) Debtor shall have the right to prepay any obligation under this Plan
without penalty.
ARTICLE VI
MEANS FOR EXECUTION OF PLAN
A. ARTICLES OF INCORPORATION AND BY LAWS
Debtor's Articles of Incorporation will be amended on the Effective Date
to provide for an increase in the number of authorized shares of Debtor's common
stock to accommodate the issuance of stock to the Subordinated Convertible
Debenture Holders. In addition, Debtor's Articles and Bylaws shall be amended to
include a provision that prohibits the issuance of nonvoting equity securities
to the extent required by Section 1123 (a)(6) of the Bankruptcy Code.
B. ISSUANCE OF STOCK
The transfer agent of Debtor's stock, or such other person as Debtor
designates, shall issue all shares of stock to be issued under the Plan on the
Effective Date or as soon thereafter as is practicable.
C. MANAGEMENT AND BOARD OF DIRECTORS
Debtor's President and Chief Executive Officer after Reorganization shall
be Bruce A. Watson. Debtor's Board of Directors shall be John O. Goodwyne,
Demetrius G. Jelatis, Louis R. Wagner, Bruce A. Watson. Other officers will
include: Stephen D. Banz, Vice President of Sales and Marketing; Michael L.
Pringle, Vice President of Manufacturing; and James M. Froemming, Vice President
of Engineering.
ARTICLE VII
CONTESTED CLAIMS
No payment shall be made under the Plan with respect to a contested claim,
unless estimated by the Court for such purposes, until that claim becomes an
allowed claim, by agreement of the parties to any claim disputed or by final
order of the Court. As soon as practicable after the allowed claim is
established by agreement or final order, Debtor shall pay to the holder of such
allowed claim the amount provided in the Plan.
If a contested claim is contained within a class that is to receive a
prorata distribution, Debtor will determine each claimant's prorata share by
treating the asserted amount of the contested claim as an allowed claim for
purposes of calculating the total of all allowed claims in the class. When all
contested claims in the class have been allowed or disallowed by a final order,
Debtor will make any additional distribution required because of the
disallowance of all or part of any contested claim or claims. Debtor may, at its
option, choose to make interim distributions as contested claims are resolved.
ARTICLE VIII
REJECTION AND ASSUMPTION
OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Executory contracts and unexpired leases, unless Debtor brings on a motion
to reject or assign a specific lease or executory contract on or before the
hearing on confirmation of the Plan, are hereby assumed. Leases to be assumed
include, but are not limited to:
1. Lease Agreement with Southtown Office Park ("Southtown") dated March 7,
1994, for office space located at 8120 Penn Avenue South, Bloomington,
Minnesota, which expires April 30, 1997. Monthly rent is $5,850. Willis D. Heim
is an affiliate of Southtown.
2. Lease with Citicorp Dealer Finance for forklift equipment dated
September 22, 1993. Monthly payments are $523.43
3. Lease with Clark Credit Corporation for a Bobcat utility trailer dated
November 19, 1993. Monthly payments are $357.67.
4. Month to Month Lease with The Woodlands Corporation for office space in
Houston, Texas. Monthly payments are $260.
5. Non-exclusive licensing agreement with Lentjes/Lurgi Gruppe AG to
market Debtor's products in Germany, subject to Debtor's defenses for prior
breach of the agreement by Lentjes/Lurgi Gruppe AG..
6. Exclusive licensing Agreement with Sumitomo Heavy Industries, Ltd. to
market Debtor's products in Japan and non-exclusive agreement in all countries
except the United States, Canada, Mexico, South Africa, Australia and Europe.
ARTICLE IX
DISCHARGE, RELEASE AND EFFECT OF CONFIRMATION
Confirmation of this Plan shall constitute a complete waiver and release
and satisfaction of all claims and interests of all creditors and shareholders
against Debtor except as provided in this Plan. The payments of, distributions
to, and other treatments of the claims of all claimants provided for in Article
II and III of this Plan shall be deemed to be in complete satisfaction,
discharge and release of such Claims. This discharge and release shall include
any purported liens, encumbrances or security interest claimed by a claimant or
any other entity against property of Debtor or property dealt with by the Plan
except such liens as are expressly stated to survive confirmation. On the
Effective Date, Debtor shall be restored to its full ownership of and dominion
over all property and assets owned by them, which property shall be property
dealt with by the Plan, pursuant to Bankruptcy Code ss. 1141(c).
ARTICLE X
MODIFICATION OF THIS PLAN
Debtor may amend or modify this Plan in the manner provided for under
Bankruptcy Code ss. 1127(a) or (b). Debtor shall give notice of any proposed
modification to Counsel for the Committee and to the United States Trustee and
to any other parties designated by the Court. Debtor also reserves the right to
make such modifications at any hearings on confirmation as are necessary to
permit this Plan to be confirmed under Bankruptcy Code ss. 1129(b).
ARTICLE XI
CONTINUING JURISDICTION
The Court shall retain jurisdiction until this Plan has been fully
consummated for the following purposes: classification of the claims of
creditors and allowance of the claims of creditors; allowance of claims for
damages from the rejection of executory contracts or unexpired leases;
determination of all questions and disputes regarding title to the assets of the
estate and determination of all causes of actions between Debtor and any other
party, including but not limited to any right of Debtor to recover assets
pursuant to the provisions of the Bankruptcy Code; any pending litigation,
correction of any defect, the curing of any omission or the reconciliation of
any inconsistency in this Plan or the order of confirmation as may be necessary
to carry out the purpose and intent of this Plan; interpretation and enforcement
of the terms of this Plan; shortening or extending, for cause, of any time fixed
for doing any act or thing under this Plan; entry of any order, including any
injunction, necessary to enforce the title, rights, and powers of Debtor; and
entry of an order concluding and terminating this case. The Court may exercise
its jurisdiction after notice and hearing or ex parte, as the Court determines
to be appropriate.
Dated: March 8, 1996 North Atlantic Technologies, Inc.
By /s/ Bruce A. Watson
Bruce A. Watson
Its President and Chief Executive Officer
/s/ William I. Kampf
William I. Kampf (#53387)
Elizabeth L. Zerby (#119921)
KAMPF & ASSOCIATES, P.A.
901 Foshay Tower
821 Marquette Avenue
Minneapolis, MN 55402
612/339-0522
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
In re:
North Atlantic Technologies, Inc. Bky. No. 3-96-0526
Debtor. Chapter 11 Case
- --------------------------------------------------------------------------------
DEBTOR'S SECOND AMENDED DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
Page
I. INTRODUCTION ....................................................... 1
II. NATURE AND HISTORY OF DEBTORS' BUSINESS AND
EVENTS LEADING TO THE FILING OF THE CHAPTER 11 ..................... 2
A. Organization and Operations .................................... 2
B. Financial History and Events Leading to Filing of Petition...... 4
C. Operations During Chapter 11.................................... 4
III. CLAIMS AGAINST OTHERS............................................... 5
A. Preferences..................................................... 5
B. Claims Against Insiders......................................... 5
C. Objections to Claims Against Debtor ............................ 5
IV. DESCRIPTION OF DEBTOR'S PLAN OF REORGANIZATION ..................... 5
A. Description and Treatment of Classes of Claims . .............. 5
B. Classes of Claims Impaired Under the Plan . .................... 6
C. Executory Contracts and Unexpired Leases . .................... 6
D. Summary of Plan and Means for Execution of the Plan ............ 6
V. POST-CONFIRMATION OPERATIONS .......................................12
VI. ALTERNATIVES TO THE PLAN OF REORGANIZATION .........................14
VII. COMMITTEE OF UNSECURED CREDITORS ...................................15
VIII. CONFIRMATION STANDARDS .............................................15
IX. CONCLUSION .........................................................16
EXHIBITS:
Exhibit A - Historical Balance Sheet
Exhibit B - Current Balance Sheet
Exhibit C - Cash Flow Projections & Pro Forma Balance Sheet
Exhibit D - Liquidation Analysis
I. INTRODUCTION
North Atlantic Technologies, Inc. ("Debtor") filed a case pursuant to
Chapter 11 of the United States Bankruptcy Code on February 1, 1996. Debtor is
filing this Disclosure Statement and Plan of Reorganization ("Plan") which have
been prepared for the Bankruptcy Court's approval for submission to the holders
of claims and interests with respect to Debtor and its assets. Capitalized terms
used in this Disclosure Statement shall have the meanings given to them in the
Plan or by the Bankruptcy Code unless the context otherwise requires.
It is beyond the scope of this Disclosure Statement to fully describe
the Chapter 11 process. Chapter 11 is the principal reorganization chapter of
the Bankruptcy Code. Debtor is protected by the automatic stay provisions of
Section 362 of the Bankruptcy Code while it attempts to restructure its business
and presents a plan of reorganization to its creditors and shareholders.
Debtor's Disclosure Statement is furnished pursuant to Section 1125 of
the Bankruptcy Code and is intended to provide all persons known to have claims
against Debtor with sufficient information to permit them to make an informed
judgment as to their votes to accept or reject the Plan. No representations
concerning Debtor, particularly as to its future business operations, the value
of its property or the value of any notes or stock to be issued under the Plan,
other than those set forth in this Disclosure Statement, are authorized by
Debtor.
ANY REPRESENTATIONS OR INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE WHICH
ARE OTHER THAN THOSE IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY
YOU IN ARRIVING AT YOUR DECISION, AND ANY SUCH ADDITIONAL REPRESENTATIONS OR
INDUCEMENTS SHOULD BE REPORTED TO COUNSEL FOR DEBTOR OR TO THE UNITED STATES
TRUSTEE, WHO, IN TURN, SHALL DELIVER THIS INFORMATION TO THE BANKRUPTCY COURT
FOR SUCH ACTION AS MAY BE DEEMED APPROPRIATE.
THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS
BEEN PROVIDED BY DEBTOR BUT HAS NOT BEEN INDEPENDENTLY AUDITED. ALL STATEMENTS
CONCERNING FINANCIAL DATA ARE MADE IN GOOD FAITH AND ARE INTENDED TO BE AS
COMPLETE AND AS ACCURATE AS POSSIBLE WITHIN THESE LIMITATIONS. BANKRUPTCY
COUNSEL FOR DEBTOR HAS NOT VERIFIED ANY OF THE INFORMATION SET FORTH IN THIS
DISCLOSURE STATEMENT.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN.
Definitions of terms used in this Disclosure Statement are provided in
Article 1 of Debtor's Plan of Reorganization, which is submitted herewith.
II.
NATURE AND HISTORY OF DEBTOR'S BUSINESS
AND EVENTS LEADING TO THE FILING OF THE CHAPTER 11 CASE
A. ORGANIZATION AND OPERATIONS.
Debtor designs, manufactures and sells custom heat recovery systems for
industrial applications. Founded in the early 1980's, the company based its
growth projections and strategic plans on the basis of high energy costs and
continued domestic industrial expansion. The company's products are used to
recapture heat which is exhausted from industrial processes (e.g. heaters and
boilers) as a means to reduce fuel utilization and costs. Debtor is a publicly
held corporation with headquarters in Bloomington, Minnesota, and manufacturing
facilities in St. Paul, Minnesota. Debtor employs 12 people in its corporate
offices and 26 in manufacturing.
1. PRODUCT
Debtor's product is a patented, non-welded heat exchanger
fabricated from a variety of metals to match the requirements of the
process conditions. Proprietary rights are held on the manner in which
the heat exchanger modules permit expansion and contraction over a
large range of operating temperatures. An average system sale is
approximately $100,000 with a practical minimum of $10,000. The largest
single sale to date is $3.3 million. While relatively small and compact
from a competitive perspective, individual modules can weigh up to
45,000 pounds and can reach 18 feet in length, 6 feet in width, and 8
feet in depth.
2. MARKET
Debtor's market is largely comprised of Fortune 500 industrial
accounts, primarily engaged in hydrocarbon processing, (Mobil, Shell),
food processing (Archer Daniels Midland, Cargill) and a variety of
OEM's providing process heaters, dryers, boilers, and fume
incinerators. International sales represent 33 to 50 percent of yearly
revenues. Until 1992, nearly all orders were for new installations. At
that time, Debtor made some strategic moves to develop a market in
retrofit application which now represent 50 percent of Debtor's annual
revenues.
Debtor's market is extremely cyclical and tends to track
energy costs (oil and gas pricing) with about a six-month lag. Order
activity is strong in the first and fourth quarters of the year, for
installation in quarters two and three. Sales of Debtor's products and
systems are dependent on capital expenditures of its prospective
clients. The cost of the equipment itself is high ($100,000 average)
with an equal amount in estimated installation costs. The cost of loss
of production of the client's process usually exceeds this combined
total; therefore, purchases and shipments are scheduled to coincide
with normal periodic process shutdowns. Debtor's revenues, which were
down in 1995 when oil prices dropped to under $15 per barrel, are now
improving as oil prices have increased to $19-20 per barrel and gas
prices have increased from $2 per million BTU to $3 per million BTU.
External factors also affect company sales performance. The
delay in the passage of the Clean Air Act in 1993 delayed a number of
projects due to uncertainty of potential emissions limits and
remediation costs. Currently, the regulatory strength and limits of the
Environmental Protection Agency have a large number of capital projects
on hold due to governmental inaction and mixed signals.
The company has a number of domestic and international
competitors. New construction projects tend to be competitive with
consequently lower margins than retrofit programs which require closer
interaction with end users and highly specific engineering design.
3. SALES AND MARKETING
Debtor utilizes independent representative organizations both
domestically and internationally. Debtor has a Vice President of Sales,
and two regional managers to provide support and guidance to these
organizations. Commissions are paid only on orders received.
Debtor's order cycles are 3 to 18 months after a project is
identified. Approximately 70 percent of the engineering effort required
for each project must be done at the proposal stage. Debtor does 400 to
500 proposals per year, 80 percent of which either don't materialize or
are indefinitely postponed. Since each prospective sale is for custom
designed units, Debtor must maintain a staff of several engineers to
support proposal activities.
Industrial standards for Debtor's product enjoy progress
billings on the normal basis of 20 percent of contract value upon
submittal of drawings, 40 percent upon receipt of major materials, and
40 percent upon shipment of product. Debtor pays its bills in 45 days
and is generally current with all trade vendors. Material purchases are
on a per project basis and therefore inventory is kept at a minimum.
4. MANUFACTURING
In the initial years, Debtor outsourced all manufacturing to
subcontractors. This practice became cost prohibitive and an inhouse
manufacturing operation began in 1988. This action improved both cost
and quality. Debtor leased its manufacturing facility until 1994 when
the owners of the property put the facility on the market for sale.
Debtor, which had no particular desire to own as opposed to lease, was
essentially forced to purchase the property as no acceptable
alternatives could be found. Debtor has the capability to perform a
number of heavy metal fabrication functions for other suppliers as well
as for itself.
B. FINANCIAL HISTORY AND EVENTS LEADING TO FILING OF PETITION.
Debtor has been generally unprofitable since its inception. During the
past 6 years, it has enjoyed some good years (1989, 1991, 1992). Debtor would
have been profitable in 1994 except for a disputed warranty claim, the effects
of which are still in negotiation. Sales increased from normally $1 to $2
million per year to as much as $8 million. However, during this same period,
Debtor has operated with a staggering debt load of approximately $500,000 per
year in interest payments. In 1995, Debtor had over $9 million in "soft order
commitments" that were postponed. This caused Debtor's manufacturing operation
to essentially shut down for much of 1995. Several of these projects have now
been reactivated and order activity and production are increasing rapidly in
1996.
Beginning in 1988, Willis D. Heim, an investor, has personally
guaranteed Debtor's line of credit at First Bank National Association ("First").
Mr. Heim is a former member of the Board of Directors, is Debtor's largest
shareholder, and a debenture holder.
Debtor lost its NASDAQ listing a number of years ago and is a
designated security. Debtor has no market makers and little or no trading in its
stock. There are approximately 207 shareholders of the Debtor owning
approximately 3,300,000 outstanding shares. Immediately prior to the filing of
Debtor's petition 750,000 shares were purchased by Bruce A. Watson, and 150,000
shares were issued to Michael L. Pringle in consideration of $.01 per share, and
an agreement of each of them to continue employment with Debtor for not less
than 5 years.
Debtor has issued Subordinated Convertible Debentures in the face
amount of $1,993,000 paying 12.5% interest semi-annually, convertible into an
aggregate of 398,600 common shares at $5.00 per share. There were approximately
117 debenture holders of record as of December 31, 1995. The Debentures matured
on November 15, 1995.
Debtor increased its line of credit with First, from $1.2 million to
$1.45 million, in March of 1995. The Twelfth Amendment dated October 31, 1995,
to the initial Credit Agreement expired on January 2, 1996.
Debtor was not able to generate sufficient cash flow to meet its
debenture repayment. On November 15, 1995, Debtor defaulted on the payment to
its $1,993,000.00 12.5% Subordinated Convertible Debentures.
Through careful cash management, Debtor has managed to keep current on
trade credit, and interest payments on its debentures for more than 9 years.
Debtor's historical and most recent balance sheets are attached as Exhibits A
and B.
C. OPERATIONS DURING CHAPTER 11.
During the pendency of this Chapter 11, Debtor's management as it
existed pre-petition has operated its business. This Plan of Reorganization is
being filed simultaneously with the Debtor's Petition, so there is no history of
operations during the pending Chapter 11.
1. Retention of Professionals.
Debtor has applied for the retention of several professionals.
William I. Kampf and Kampf & Associates, P.A. are Debtor's bankruptcy
counsel. Debtor has applied to retain Randy Sparling and Frommelt &
Eide, Ltd. as special counsel for corporate and securities matters.
Debtor has applied to retain DeLoite and Touche as its accountants.
2. Bar Date.
Debtor will apply to the Court to set a bar date for the
filing of claims within 60 days of Notice of the filing of Debtor's
Petition.
III.
CLAIMS AGAINST OTHERS
Claims against others may include preferences, fraudulent conveyances,
voidable transactions, and any other transaction giving rise to actions by
Debtor against third parties.
A. PREFERENCES.
Debtor does not believe there are any claims of preferences. Prior to
the filing of the case, Debtor paid its bills on a current basis. Debtor has
reviewed its records for insider preferences and does not believe that there are
any causes of action against insiders.
B. CLAIMS AGAINST INSIDERS.
Debtor granted a mortgage to WDH Investments Co. ("WDH"), an entity
wholly owned by Willis D. Heim, Debtor's major shareholder, during the year
prior to the filing of the case. WDH provided $500,000 in cash to the Debtor in
exchange for the mortgage. Debtor does not believe this transfer creates a claim
against WDH.
C. OBJECTIONS TO CLAIMS AGAINST DEBTOR.
Lentjes/Lurgi Gruppe AG, is Debtor's licensee in Germany. It has
asserted a claim against the Debtor in excess of $700,000, which is disputed by
the Debtor. This claim is subject to a counterclaim by the Debtor of more than
$900,000, and Debtor believes it will be eliminated by claim litigation.
IV.
DESCRIPTION OF DEBTOR'S PLAN OF REORGANIZATION
A. DESCRIPTION AND TREATMENT OF CLASSES OF CLAIMS.
The designation of classes of claims and the treatment of both
classified and unclassified claims is detailed in Debtor's Plan.
B. CLASSES OF CLAIMS IMPAIRED UNDER THE PLANS.
Classes A, C, D and E are unimpaired. All other classes are impaired
under the Plan. A claim or interest is impaired unless the provisions of the
plan leaves unaltered the legal, equitable, and contractual rights to which such
claim or interest entitles the holder of such claim or interest, or cures any
contractual default and compensates the holder for any damages incurred as a
result of the claimant's reasonable reliance on defaulted provisions, and does
not otherwise alter the legal, equitable, or contractual rights of the holder..
C. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
All executory contracts and unexpired leases will be assumed by Debtor
at confirmation, unless previously assumed or rejected by the Debtor pursuant to
court order. These contracts and unexpired leases include but are not limited
to:
1. Lease Agreement with Southtown Office Park ("Southtown")
dated March 7, 1994, for office space located at 8120 Penn Avenue
South, Bloomington, Minnesota, which expires April 30, 1997. Monthly
rent is $5,850. Willis D. Heim is an affiliate of Southtown.
2. Lease with Citicorp Dealer Finance for forklift equipment
dated September 22, 1993. Monthly payments are $523.43
3. Lease with Clark Credit Corporation for a Bobcat utility
trailer dated November 19, 1993. Monthly payments are $357.67.
4. Month to Month Lease with The Woodlands Corporation for
office space in Houston, Texas. Monthly payments are $260.
5. Non-exclusive licensing agreement with Lentjes/Lurgi Gruppe
AG to market Debtor's products in Germany, subject to Debtor's defenses
for prior breach of the agreement by Lentjes/Lurgi Gruppe AG..
6. Exclusive licensing Agreement with Sumitomo Heavy
Industries, Ltd. to market Debtor's products in Japan and non-exclusive
agreement in all countries except the United States, Canada, Mexico,
South Africa, Australia and Europe.
D. SUMMARY OF PLAN AND MEANS FOR EXECUTION OF THE PLAN.
1. Introduction.
Debtor's plan is based on the continued operations of the
business. Debtor's projections for future operations are attached as
Exhibit C. Under Debtor's Plan of Reorganization, all of the resources
of the Debtor will be utilized to generate the funds to make the
payments under the Debtor's Plan of Reorganization.
2. Unclassified Claims.
Unclassified Claims, which include Claims of the kind
specified in Section 507(a)(1) (Administrative Expense Claims) and
Section 507(a)(8) of the Bankruptcy Code (Certain Taxes), will be
satisfied as follows:
a. Expenses incurred in the ordinary course of business,
including inter alia, fees of the Debenture Trustee,
during the Chapter 11 case will be paid as due or as
the holders of these Claims and Debtor otherwise
agree.
b. Parties to executory contracts or unexpired leases
that are assumed by Debtor during the Chapter 11 case
will be paid according to the terms of the contracts
or leases or by the terms of any orders of the Court
approving the assumption of the contracts or leases,
or as the parties to the contracts or leases shall
otherwise agree.
c. Holders of other Claims specified in ss. 507(a)(1) of
the Bankruptcy Code, including fees or attorneys of
the Debtor or any Official Committee, accountants for
the Debtor, financial consultants for the Debtor, or
other professionals retained on application to the
court, and administrative fees of the U.S. Trustee's
office shall be paid in full on the Effective Date,
except as the holders may otherwise agree in writing.
3. Fees for professionals through confirmation are estimated
at $40,000.00 for bankruptcy counsel Kampf & Associates, P.A., of which
approximately $5,000 is held by Kampf & Associates as a retainer. Other
fees may be incurred by special counsel, accountants, and by any
attorney hired by the Committee of Unsecured Creditors.
a. Debtor believes that it is current on all tax claims
to the Internal Revenue Service, and the State of
Minnesota. To the extent that any claims are
outstanding as of the date of the filing of Debtor's
petition, such claims will be paid in within 30 days
of the Effective Date.
4. Classified Claims
a. Class A Claims - Priority Wage Claims.
This Class consists of all Allowed Claims of Debtor's
employees entitled to priority pursuant to Bankruptcy Code ss.
507(a)(3). Debtor believes that the only claims in this class
are those for accumulated vacation benefits of its employees,
which will be paid in the ordinary course of its business as
employees elect to utilize these benefits.
b. Class B Claims - Secured Claim of First.
This Class consists of the Allowed Claim of First, secured by
a lien upon Debtors inventory, equipment, accounts receivable
and general intangibles. The Allowed Amount of this claim is
$1,350,000.00, principal and accumulated interest of $5,000 as
of January 23, 1996, at the rate of 175 basis points above
First's One-Month Reserve Adjusted Certificate of Deposit
Rate. This Allowed Claim will be paid by:
(1) A term note for $500,000, plus interest at a rate of
up to 12% per annum, amortized over 5 years, with
monthly payments of $11,222.22, commencing on the
first day of the first month following the Effective
Date of the Plan.
In the event that the interest rate of the bank is
less than 12%, the difference between the payment at
that rate and the payment listed above will be paid
to Willis D. Heim as a guarantee fee.
(2) The balance of the Allowed Claim will be paid by a
renewed line of credit, which will mature 13 months
after the Effective Date of the Plan. The line of
credit will be paid by payments of interest at 175
basis points above First's One-Month Reserve Adjusted
Certificate of Deposit Rate, plus monthly principal
reductions commencing May 1, 1996.
A fee consisting of 4% of the amount of the renewed
line of credit, in the amount of approximately
$42,200, will be paid to Willis D. Heim, payable by a
promissory note which shall mature 90 days after the
Effective Date of the Plan of Reorganization, in
consideration of Heim's renewal of his personal
guaranty of the line of credit note to First.
An additional 4% of the amount of the renewed line of
credit, of approximately 30,200, will be paid to
Willis D. Heim, if First agrees to extend its line of
credit at the end of the 13 months provided herein.
(3) Upon Confirmation of Debtor's Plan of Reorganization,
First will lend an additional $200,000.00 to Debtor,
on its line of credit note, which shall be personally
guaranteed by Heim.
c. Class C Claims - Secured Claim of WDH Investments Co.
This Class consists of the claim of WDH, which is wholly owned
by Willis D. Heim, who is a former member of the Board of
Directors of Debtor and its largest shareholder. This Claim is
in the amount of approximately $492,780, as of the date of the
filing of Debtor's petition, secured by a first mortgage on
Debtor's Manufacturing Plant at 500 Como Avenue, St. Paul,
Minnesota. This mortgage was granted on June 16, 1995 in
return for $500,000 lent to Debtor by WDH contemporaneously
with the granting of the mortgage. The Allowed Amount of this
claim will be paid according to the terms of the agreement,
which call for 12% interest, payments amortized over 15 years,
by payments of $6,000.84 per month until June 19, 2000, at
which time the principal and accumulated interest will be paid
in full. Debtor will refinance the building at the time of the
maturation of the WDH mortgage note.
d. Class D Claims - Secured Claim of Willis D. Heim
This Class consists of the Allowed Secured Contingent Claim of
Willis D. Heim, pursuant to an Accommodation Security
Agreement, which includes payment of any expenses incurred by
Heim in enforcing his security interest, dated April 13, 1990,
which is secured by Debtor's inventory, equipment, accounts
receivable, Debtor's Patents and general intangibles, to
secure Mr. Heim's guaranty of Debtor's debt to First. The
Holder of the Allowed Secured Contingent Claim will be paid
only in event of default on Debtor's obligation to First.
Because of Mr. Heim's personal guarantee of the Debtor's debt
to First, Debtor has been able to obtain an interest rate
which is presently below the Bank's prime rate of interest.
This interest rate is of great value to the Debtor, and
because of Heim's willingness to guarantee the debt and obtain
this favorable interest rate, Debtor has agreed to pay a
"guarantee fee" which consists of the payments described in
the provisions of the payment of the claim in Class B above.
In addition to the allowed contingent secured claim, Mr. Heim
will be paid a Standby Fee of 30% of the interest payable to
First on the line of credit, payable monthly at the same time
the payment to the First is made, following confirmation of
Debtor's plan of reorganization. The amount of this payment
will commence at $2,373.75, assuming a 9% interest rate, and
reduce in amount as the principal of the debt reduces the
amount of interest to be paid to First. Mr. Heim will also be
paid his attorneys fees and expenses and Standby Fee during
the Chapter 11 as an administrative expense of the bankruptcy
case.
e. Class E Claims - Secured Claim of NSP
This Class consists of the Allowed Secured Claim of NSP, which
is secured by lighting fixtures. The approximate amount of the
claim is $13,543.00. The Allowed Secured Claim will be paid,
together with interest at the rate of 9% per annum, in monthly
installments of $538.76 until paid in full.
f. Class F Claims - General Unsecured Trade Creditors
This Class consists of all allowed unsecured Claims not
entitled to priority that are not classified elsewhere and
have not elected to be treated under any other class under the
Plan. Debtor estimates total claims in the Class of
approximately $350,000. The Allowed Claims of Trade Creditors
will be paid in full on the Effective Date of the Plan, or as
otherwise agreed upon by the Debtor and the creditor.
g. Class G Claims - Claims of Subordinated Convertible Debenture
Holders
This Class consists of the Allowed Claims of Subordinated
Convertible Debenture Holders. The claim consists of the
principal amount of the debentures of $1,993,000, together
with accrued interest of approximately $177,000. The Allowed
Claims of this Class will be paid by converting the debentures
into common stock of the Debtor at the rate of 1.0 shares of
common stock at no par value for each $1.50 of debenture debt
owed by the Debtor. No fractional shares will be issued.
Common stockholders have no pre-emptive or preferential
rights, and cumulative voting is not allowed by the Debtor's
By-Laws. Debenture holders must surrender their debentures to
the debtor in order to participate in the plan. Debentures not
surrendered within five years after the entry of the order
confirming the plan will be canceled, and the owners will
receive nothing under the plan.
In addition, Debtor will issue one share of non-dividend,
convertible preferred stock at $0.01 par value for each $100
owed under the Debenture to the Debenture Holder. Fractional
shares will not be issued.
Debtor, by action of its Board of Directors, will designate
21,700 of the 2,000,000 undistributed shares authorized by its
Articles of Incorporation, as Series A Convertible Preferred
Shares (the "Preferred Shares") having a par value of $0.01
per share.
Upon liquidation, merger or consolidation of the Debtor with
another corporation, or the sale of substantially all of the
Debtor's assets, the holders of Preferred Shares will be
entitled to receive cash, property or securities having a fair
market value of up to $25 per share (subject to certain normal
and customary adjustments), before the holders of shares of
common stock receive any distribution with respect to their
shares.
Each Preferred Share will be convertible into one share of
common stock (subject to certain normal and customary
adjustments) voluntarily through June 1, 1999, and
automatically after June l, 1999. After June 1, 1999, all
outstanding Preferred Shares and all rights with respect
thereto will cease, and such shares shall become common stock.
No holder of Preferred Shares shall have any right, by reason
of the ownership of Preferred shares, to acquire any
securities issued by the Debtor, other than the right to
convert Preferred Shares into common stock.
Holders of Preferred Shares shall have the right to vote their
shares on all matters brought before the Debtor's capital
shareholders, on a share for share basis with the holders of
common stock, with holders of Preferred Shares and holders of
common stock voting as if they are one class. Except when
voting by class is specifically required under Minnesota
Statutes. In addition, holders of Preferred Shares shall have
the right to vote as a class on the issuance of additional
classes of shares having the same or superior rights on
liquidation, or to alter the rights of Preferred Shares.
Holders of Preferred Shares will not be entitled to cumulate
their votes in the election of members of the Board of
Directors or any other matters.
The Debtor may redeem Preferred Shares at any time prior to a
conversion into common stock at $25 per share (subject to
certain normal and customary adjustments).
Dividends will be paid on Preferred Shares only if declared by
the Debtor's Board of Directors. There are no mandatory
dividends payable, however, no dividend may be declared or
paid on common stock unless a comparable dividend (on a share
for share basis) is declared or paid on Preferred Shares.
There are no other Preferred Shares presently outstanding. As
a result of the treatment of equity security holders in Class
H, the holders of the debentures will own approximately 55% of
the equity in the Debtor. The terms of this Plan with regard
to this class were negotiated with ASKAR, Inc., the
underwriter for the debentures.
Debtor's major shareholder, Willis D. Heim owns $25,000 in
debentures, Demetrius Jelatis, a director of the Debtor, owns
$100,000 in debentures, and Graceanne Deters, the wife of a
former office of Debtor, William Deters, owns $25,000
debentures. These holdings consist of 7.5% of the class of
Subordinated Convertible Debenture Holders.
In the event the members of Class G do not accept the Debtor's
Plan of Reorganization, the plan will be withdrawn by the
Debtor.
h. Class H Claims - Interests of Equity Security Holders
This Class consists of the interests of equity security
holders of the Debtor. There are approximately 3,400,000
shares outstanding as of January 26, 1996. Each equity holder
will be issued one share of common stock of the Debtor in
return for the cancellation of 3 shares presently owned by a
shareholder. Equity security holders must surrender their
shares to the debtor in order to participate under the plan.
Shares not surrendered within five years after the entry of
the order confirming the plan will be canceled, and the owners
will receive nothing under the plan.
Equity Security Holders of record as of the date of the entry
of the order approving the disclosure statement, will receive
a copy of Debtor's Plan of Reorganization and Disclosure
Statement at their address of record and be allowed to vote to
accept or reject Debtor's Plan of Reorganization.
EFFECT OF CLASS G AND CLASS H TREATMENT
PRE-CONFIRMATION Common Stock Debentures Preferred Stock
Shareholders 3,400,000
(Class H)
Debenture Holders $1,993,000
(Class G)
POST-CONFIRMATION
Shareholders 1,133,333
(Class H)
Debenture Holders 1,446,666 0 21,700
(Class G)
Total 2,579,999 0 21,180
Debtor is authorized to issue 5,000,000 shares of stock. No new
registration is required for the issuance of the shares provided for in this
Plan of Reorganization, which are issued under an exemption from state and
federal securities laws contained in section 1145 of the Bankruptcy Code. It is
Debtor's hope in the future to be listed on the NASDAQ exchange. This is not
feasible at the present time.
This Disclosure Statement will be distributed to the nominee holders of
Debtor's securities, with provisions that sufficient copies will be provided to
each nominee holder for distribution to all equity security holders of record
upon the date of the order approving this Disclosure Statement upon request.
V.
POST-CONFIRMATION OPERATIONS
Debtor has long recognized that it needs additional products, and has
investigated a number of opportunities for acquisition, joint venture, and
potential sale. Due in large part to its balance sheet and debt service levels,
Debtor has not been able to develop the financing via cash or equity to
successfully bring these investigations to fruition.
Debtor believes that a successful restructuring of the balance sheet
with a debt for equity conversion, combined with a successful 1996 will
dramatically improve the company balance sheet and permit further
diversification, or a profitable sale of the Debtor, and of return to its
stakeholders. Reduced debt service through the elimination of the debentures
will reduce company debt service by $250,000 per year and hopefully eliminate
the need for further cash infusions to cover working capital.
Debtor will continue the operations of its business as it was managed
prepetition. The resources of the Debtor will be utilized to make the payments
called for under its Plan of Reorganization. Debtor is current with reports it
is required to file with the Securities and Exchange Commission, including 10-K
and 10-Q reports, and intends to meet its obligations under the federal
securities laws.
Debtor's operations will be conducted by its present directors and
officers:
John O. Goodwyne Director
Mr. Goodwyne has been employed as President of J.N. Johnson
Sales and Service, Inc., of which he is the sole shareholder,
since 1974. J. Johnson Service, Inc., with offices in
Minneapolis, Minnesota, is engaged in the distribution and
servicing of fire extinguishing equipment, primarily in the
state of Minnesota.
Demetrius G.Jelatis Director
Mr. Jelatis was employed by Central Research Laboratories,
Inc., as a Vice President and Director of Research from 1945
until September 1984, when he retired from full-time
employment. Central Research Laboratories, Inc., is engaged in
the design and manufacture of specialized scientific
instruments in Red Wing, Minnesota.
Louis R. Wagner Director
Mr. Wagner has been Chairman of the Board since December 1988.
He also served as the Chief Executive Officer of Debtor from
December 1988 until March 1989. Mr. Wagner was employed by
Honeywell, Inc., Minneapolis, Minnesota, which is engaged in
the design, development, production and marketing of avionics
systems, from 1949 until June 1987, when he retired from
full-time employment. Mr. Wagner served as Director of Special
Projects, Avionics Systems Group of Honeywell, Inc. from 1984
until his retirement, and was responsible for the development
and management of the Avionics Systems Group's marketing plans
in Japan, the United Kingdom and Germany.
Bruce A. Watson Director, President and Chief
Executive Officer
Mr. Watson has been the President and Chief Executive Officer
of Debtor since March 1989. From August 1987 until December
1988, Mr. Watson was the Vice President and General Manager of
Tol-O-Matic, Inc., located in Minneapolis, Minnesota and
engaged in the design, manufacture and marketing of mechanical
and pneumatic fluid power and power transmission products for
original equipment manufacturers. From August 1978 until
August 1987, Mr. Watson was employed by Rosemount, Inc.,
located in Eden Prairie, Minnesota, and was its Director of
International Sales and Marketing from 1980 until August 1987.
Rosemount, Inc. is a manufacturer of measurement and control
devices for industry and the commercial and military aerospace
industry.
Stephen D. Banz Vice President of Sales and Marketing
Mr. Banz has been the Vice President - Sales and Marketing of
the Debtor since January 1993. Mr. Banz was Manager of Sales
and Marketing of the Debtor from October 1989 until January
1993. From May 1987 to August 1989, Mr. Banz was the Sales
Manager of Enkotec, Inc., a manufacture of nail-making
machines located in Middleburg, Ohio.
Michael L. Pringle Vice President of Manufacturing
Mr. Pringle has been the Vice President of Manufacturing of
the Debtor since January 1993. From November 1986 until
January 1993, Mr. Pringle was Manager of Manufacturing of the
Company. He was a principal shareholder and Vice President of
North Atlantic Technologies Engineering, Inc. ("NATE") from
September 1983 until December 1985. NATE, which terminated its
business in December 1985, was located in Calgary, Alberta,
Canada and installed the OCAP heat exchanger. NATE was not an
affiliate of the Debtor.
James M. Froemming Vice President of Engineering
Mr. Froemming has been the Debtor's Vice President of
Engineering since February 1995. He was a principal in the
engineering consulting firm of HRSG Engineering, Inc., located
in Minneapolis, Minnesota, from April 1994 until February
1995. From August 1986 to March 1994, he served as the
Marketing Manager of Deltak Corporation, located in
Minneapolis, Minnesota, and engaged in the design and
manufacture of waste heat boilers.
VI.
ALTERNATIVES TO THE PLAN OF REORGANIZATION
The Plan should be viewed in light of another alternative, conversion
of the reorganization proceeding to a liquidation proceeding under Chapter 7 of
the Bankruptcy Code. In liquidation, most of the assets of Debtor would be paid
to the secured creditors. IN LIQUIDATION, ASSETS AVAILABLE AFTER PAYMENT OF
SECURED CLAIMS AND ADMINISTRATIVE EXPENSE CLAIMS AND TAXES INCURRED AS A RESULT
OF LIQUIDATION, WOULD NOT ALLOW DEBTOR TO MAKE ANY PAYMENT TO UNSECURED
CREDITORS. THIS WOULD RESULT IN UNSECURED CREDITORS GETTING PAID APPROXIMATELY O
PERCENT OF THEIR CLAIMS UPON LIQUIDATION OF THE ASSETS. SUBORDINATED DEBENTURE
HOLDERS WOULD RECEIVE O PERCENT OF THEIR CLAIMS. A copy of Debtor's liquidation
analysis is attached as Exhibit D. The values of Debtor's assets on the
liquidation analysis were arrived at by appraisal of the assets by William A.
Cushman, MAI, of Appraisal Research Associates, Ltd. (real property) and Terry
Carr, Mark VI Machine Tool, Inc. and Gerald Brokaw, Plant Machinery & Equipment,
Inc.. This analysis indicates that in liquidation all of the proceeds of
liquidation would go to pay the secured creditors, First, and WDH Investments,
and the expenses of administration of the bankruptcy case.
VII.
COMMITTEE OF UNSECURED CREDITORS
A Committee of Unsecured Creditors has been appointed by the Office of
the United States Trustee. Members of the Committee are Steve Olson, Barry
Sewall Industrial Supply; Paul Staker, Keelor Steel; and Jim Rinn, Central Steel
& Wire Co.
VIII.
CONFIRMATION STANDARDS
Before confirmation, the Court must determine whether the Plan has been
accepted by the holders of claims in each class considered "impaired" by the
Plan. For a class of claims to accept the Plan, an affirmative vote must be cast
by those that vote at least two-thirds in amount and more than fifty percent in
number of allowed claims.
For a class of interests to accept the Plan, an affirmative vote of at
least two-thirds in amount of allowed interests must be cast by those who vote.
The purpose of this Disclosure Statement is to provide the holders of
such claims and interests with adequate information about Debtor and its Plan so
that they can make an informed judgment about the Plan's merits. It is possible
that the Bankruptcy Court's order approving the Disclosure Statement and setting
the date of the confirmation hearing may set a deadline date by which ballots
must be filed with the clerk of Bankruptcy Court which is earlier than the date
of the confirmation hearing. Creditors may vote on the Plan by filling out and
mailing the accompanying Ballot to the Bankruptcy Court, or, IF the deadline
date by which ballots must be filed allows, they may attend the hearing and
present the Ballot in person prior to the time set by the Bankruptcy Court.
Pursuant to Bankruptcy Rules 3001 to 3003, claims will be allowed to the extent
listed in the Schedules of Debtors, unless scheduled as disputed, contingent or
unliquidated or unless a timely proof of claim is filed.
As a creditor, your vote is important. The Plan can be confirmed by the
Bankruptcy Court IF it is accepted by the holders of two-thirds in amount and
more than one-half in number of the claims in each class voting on the Plan. In
the event that one or more classes reject the Plan, the Bankruptcy Court may
nevertheless confirm the Plan IF the Bankruptcy Court finds that the Plan
accords fair and equitable treatment to the class rejecting it. This means that,
pursuant to 11 U.S.C. ss. 1129(b), the Plan may be confirmed even IF a class of
claims or interests rejects the Plan so long as the Plan provides that, with
respect to each class of unsecured claims, (1) each holder of a claim or
interest in the rejecting class receives the value of that claim or interest; or
(2) no holder of a claim or interest junior to those held by members of the
rejecting class will receive or retain something under the Plan.
With regard to the equity security holders of this Debtor, they must receive the
liquidation value of their interest.
IX.
CONCLUSION
Debtor believes that acceptance of the Plan is in the best interest of
all parties. Debtor urges all holders of claims and interests to vote in favor
of the plans.
Dated: March 13, 1996 North Atlantic Technologies, Inc.
By /s/ Bruce A. Watson
Bruce A. Watson
Its President and Chief Executive Officer
/s/ William I. Kampf
William I. Kampf (#53387)
Elizabeth L. Zerby (#119912)
KAMPF & ASSOCIATES, P.A.
901 Foshay Tower
821 Marquette Avenue
Minneapolis, Minnesota 55402
(612) 339-0522
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
In re:
North Atlantic Technologies Inc. Bky. No. 3-96-0526
Chapter 11 Case
Debtor.
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NOTICE OF HEARING AND MOTION FOR AN ORDER
AUTHORIZING DEBTOR TO MODIFY DEBTOR'S AMENDED
PLAN OF REORGANIZATION, AUTHORIZING
LIMITED NOTICE AND EXPEDITED HEARING
- --------------------------------------------------------------------------------
TO: Parties in Interest as Specified in Local Rule 1204(a).
1. North Atlantic Technologies Inc., by its undersigned attorneys,
moves the Court for the relief requested below and gives notice of hearing.
2. The Court will hold a hearing on Debtor's motion at 2:30 p.m. on May
7, 1996, in Courtroom No. 228-A, U.S. Courthouse, 316 North Robert Street, St.
Paul, Minnesota.
3. Any response to this motion must be filed and delivered not later
than 2:30 p.m. on May 6 1996, which is 24 hours before the time set for hearing,
or filed and served by mail not later than May 4, 1996, which is three days
before the time set for the hearing. UNLESS A RESPONSE OPPOSING THE MOTION IS
TIMELY FILED, THE COURT MAY GRANT THE MOTION WITHOUT A HEARING.
4. This Court has jurisdiction over this motion pursuant to 28 U.S.C.
ss.ss. 157 and 1334, Rule 5005 of the Federal Rules of Bankruptcy Procedure
("Bankruptcy Rules"), and Local Rule 201. This is a core proceeding. The
petition commencing this Chapter 11 case was filed on February 1, 1996.
5. Debtor's Amended Plan of Reorganization was confirmed by this court
on April 19, 1996.
6. This motion arises under 11 U.S.C. ss. 1127(b) and (d). This motion
is filed under Bankruptcy Rule 9006(c) and 9014 and Local Rules 608 and 1201
through 1215.
7. Debtor requests an order allowing it to modify its Amended Plan of
Reorganization in accordance with Exhibit A attached hereto.
8. The modification to Article VI is necessitated by the fact that the
Secretary of State will not accept for filing the Amended Articles of
Incorporation of the Debtor without a meeting and vote of shareholders without
the changed language ordering her to accept for filing the Articles.
9. The modification to Article III, the treatment of Class H, is
preferable because of the difficulty of reporting to the National Association of
Securities Dealers, Inc. regarding an exchange of stock, which the plan
presently calls for, rather than a cancellation and reissuance of stock as
provided for in the modification.
10. An expedited hearing and limited notice on this motion are
necessary and appropriate under the circumstances, as the modifications have no
substantive effect on any creditor or equity security holder. The delay being
caused by the need for these amendments is preventing the Debtor from making
distribution to the creditors required by confirmed plan. Further delay could
cause the Debtor irreparable harm.
11. If the Court approves this modification, holders of claims and
equity security interests who have voted in favor of the confirmed plan will be
deemed to approve of this modification, unless objection thereto is made on or
before the due date of a response to this motion.
12. This motion is verified and is accompanied by a proposed order,
memorandum, and proof of service.
13. Pursuant to Local Rule 1202(c), Debtor gives notice that it may, if
necessary, call Bruce A. Watson, President of Debtor, whose business address is
North Atlantic Technologies Inc., 8120 Penn Avenue South, Bloomington MN 55431,
to testify regarding the facts raised by this motion.
WHEREFORE, Debtor moves the Court for an order waiving the notice
requirements of Local Rule 608, shortening the time requirement of Bankruptcy
Rule 2002(a)(6), deeming that any creditor that has accepted or rejected
debtor's confirmed plan of reorganization has accepted or rejected the
modifications, approving Debtor's Modifications to Amended Plan of
Reorganization, and ordering that distribution to Class F claims, and payments
to secured creditors in Class B, C and E commence upon entry of the Court's
order.
April 25, 1996 /s/ Elizabeth L. Zerby
William I. Kampf (#53387)
Elizabeth L. Zerby (#119912)
KAMPF & ASSOCIATES, P.A.
901 Foshay Tower
821 Marquette Avenue South
(612) 339-0522
Attorneys for Debtor
VERIFICATION
I, Bruce A. Watson, President of North Atlantic Technologies Inc., do
hereby declare under penalty of perjury that I have read the contents of the
foregoing motion and that the facts contained therein are true and correct to
the best of my knowledge, information and belief; and as to those matters stated
on information and belief, I believe them to be true.
Dated: April 25, 1996 /s/ Bruce A. Watson
Bruce A. Watson
EXHIBIT A
ARTICLE III, TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS, NO. 7 is amended to
read:
CLASS H - EQUITY INTERESTS
This Class consists of the Allowed Interests of shareholders of
Debtor's common stock as of May 21, 1996.
TREATMENT:
Each equity holder of record as of 11:59 p.m., Minneapolis, Minnesota
time May 21, 1996, will be issued one share of newly authorized $0.01
par value common stock for each three shares of no par value common
shares then held of record, and after such time (11:59 p.m.,
Minneapolis time, May 21, 1996) all no par value common shares shall be
deemed to be cancelled and all rights of the holders of no par value
common shares, as such, shall cease.
ARTICLE VI, A, AND B are amended as below, and C is relettered B.:
A. ARTICLES OF INCORPORATION AND BY LAWS AND ISSUANCE OF STOCK.
Debtor's Articles of Incorporation shall be amended on or
after the Effective Date, and the Secretary of State for the State of
Minnesota is directed to accept for filing, upon payment of the
appropriate filing fee, an amendment to the Articles of Incorporation
of the Debtor, whereby Article III of the Articles of Incorporation of
North Atlantic Technologies, Inc. shall be superseded and shall from
and after the effective time of such amendment read in its entirety as
follows:
"Article III
The Corporation shall have authority to issue an
aggregate of 5,000,000 shares of common stock having a par
value of $0.01 per share, and 2,000,000 undesignated shares.
The Board of Directors of the Corporation may, from
time to time, establish by resolution different classes or
series out of the undesignated shares, and fix the relative
rights and preferences of said classes or series; provided
that the Board of Directors may not establish any class or
series of shares from the undesignated shares which does not
provide the holders thereof with the right to vote on all
matters brought before the holders of the Corporation's
capital stock in such proportions and manner as the Board of
Directors may reasonably determine in any resolution
establishing such class or series."
The foregoing amendment to the Articles of Amendment of Debtor
shall be effective immediately after 11:59 p.m., Minneapolis, Minnesota
time, on May 21, 1996.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
THIRD DIVISION
In re:
North Atlantic Technologies Inc., Case No. 3-96-0526
Chapter 11 Case
Debtor.
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MEMORANDUM IN SUPPORT OF MOTION FOR AN ORDER AUTHORIZING
DEBTOR TO MODIFY AMENDED PLAN OF REORGANIZATION
- --------------------------------------------------------------------------------
INTRODUCTION
The Court should grant the motion of North Atlantic Technologies
Inc.("Debtor") and enter an order authorizing Debtor to modify its Amended Plan
of Reorganization because doing so clarifies and facilitates the effectuation of
two provisions of the Plan which will not adversely affect any creditor or
equity security holder. The court should waive the notice and time requirements
provided in Bankruptcy Rules 2002(a)(6) and Local Rule 608, to provide that
notice be provided only to the parties listed in Local Rule 1204(a)(2).
STATEMENT OF FACTS
Debtor is a Minnesota corporation engaged in the business of designing,
manufacturing and selling custom heat recovery systems for industrial
applications. Debtor's Amended Plan of Reorganization was confirmed by this
Court on April 19, 1996.
The amendment proposed by the debtor is necessitated by the fact that
certain provisions of the Debtor's confirmed Amended Plan of Reorganization
cannot be accomplished within the time presently provided in the Plan, and
certain actions can be accomplished more efficiently and effectively with the
same result.
First, the Minnesota Secretary of State has refused to accept for
filing amendments to the Debtor's Articles of Incorporation with the language
contained in the present Amended Plan of Reorganization. The amended language
orders the Secretary of State to accept the Amended Articles, and specifically
contains the language of the Amended Articles. This change does not
substantively change anything to be done under the Debtor's plan, nor affect the
rights of any creditor or equity security holder in a manner not contemplated by
the confirmed Amended Plan of Reorganization.
Second, the confirmed plan provides that equity security holders will
be issued new stock upon surrender of old shares. This provision is not
consistent with the needs of the markets who trade in the stock. The automatic
cancellation of the old stock, on a date certain, and issuance of new stock, as
provided for in the proposed modification to Article VI accomplishes what was
intended by the debtor in its Amended Plan of Reorganization, in a more
efficient and effective way. The reporting requirements of the National
Association of Securities Dealers, Inc. would be extremely difficult to meet
under the provision as it is presently phrased. This provision does not
adversely affect the rights of any shareholders or creditors.
The Debtor has not yet made any distributions under the confirmed plan.
Such distribution, however, is scheduled for the Effective Date, which is May 1,
1996. Debtor cannot make distribution until the court has acted upon the pending
motion to approve the modifications, thus the request for the court to order
distribution to be made upon entry of its order approving the modifications.
ARGUMENT
Bankruptcy Code ss. 1127(b) allows a debtor to modify its plan
following confirmation provided the modified plan continues to meet the
requirements of sections 1122 and 1123 of the Bankruptcy Code. 11 U.S.C.
ss.1127(b). The proposed modifications to the plan proposed by the Debtor do not
materially alter the provisions of the plan. Nothing in the changes requires
further disclosure to the creditors or equity security holders, since the
amendments merely allow the effectuation of the actions that the already
confirmed plan proposed.
Section 1127(b) allows changes in a confirmed plan "any time after
confirmation of such plan and before substantial consummation of such plan...."
11 U.S.C. Sec. 1127(b). Only substantial consummation of a plan prevents
modification in the bankruptcy judge's discretion. Metropolitan Life Insurance
Company v. Olsen (In re Olsen), 861 F.2d 188 (8th Cir. 1989).
Substantial consummation has three elements:
(A) transfer of all or substantially all of the
property proposed by the plan to be transferred;
(B) assumption by the debtor or by the successor to
the debtor under the plan of the business or of the management
of all or substantially all of the property dealt with by the
plan; and
(C) commencement of distribution under the plan. 11
U.S.C. ss.1101(2).
Debtor's plan has not been substantially consummated. No distributions
have yet been made under Debtor's plan, the effective date of which has not yet
occurred. None of the transfers of property proposed to be transferred, for
example the stock issuance to debenture holders and the exchange of shares of
equity security holders, have been made, and cannot be made until the Debtor's
Articles of Incorporation are amended. The management of the debtor, which is
the same as that management which was in place prior to confirmation of the
plan, has continued the management of the debtor.
Section 1127(b) provides that the plan as modified becomes the plan "if
circumstances warrant such modification and the court, after notice and a
hearing, confirms such plan as modified." 11 U.S.C. ss.1127(b) [emphasis
supplied]. This motion is being served on the accompanying service list of
interested creditors, but not on all creditors. If the creditors who have not
received notice of these non-material amendments, accepted the plan, the Court
may issue its order confirming the plan as modified is deemed accepted by
creditors who have previously accepted the plan. The Rules of Construction of
the Bankruptcy Code provides the court with leeway in determining what notice
and opportunity for hearing are appropriate in the particular circumstances. 11
U.S.C. ss.102. In these circumstances, notice to the list of parties in Local
Rule 1204(a)(2), is sufficient and appropriate.
Bankruptcy Rule 9006 provides that "when an act is required or allowed
to be done at or within a specified time by these rules or by a notice given
thereunder or by order of the court, the court for cause shown may in its
discretion with or without motion or notice order the period reduced."
Bankruptcy Rule 9006(c)(1). Bankruptcy Rule 2002(a)(6) requires 20 days notice
of the time to accept or reject modifications of a confirmed plan. In these
circumstances, where the modifications sought by the debtor have absolutely no
substantive effect on either the creditors or the equity security holders, it is
appropriate that the court allow the motion on the basis of the limited notice
provided by the debtor, and that the court determine that the prior votes of the
creditors and equity security holders either accepting or rejecting the debtors
Amended Plan of Reorganization are deemed to accept or reject Debtor's Modified
Amended Plan of Reorganization. Because the distributions required under the
already confirmed plan cannot be made until the modifications are made, and
delay will create a default by the debtor in making distribution, the notice
time should be shortened by the court under Bankruptcy Rule 9006(c)(1).
CONCLUSION
The proposed modification does not materially change the provisions of
the Amended Plan of Reorganization Plan. The court should allow the
modifications as proposed by the Debtor, and deem acceptances and rejections
received by those creditors and equity security holders without notice of the
modifications to be acceptances of the Modified Amended Plan of Reorganization.
April 25, 1995 /s/ Elizabeth L. Zerby
William I. Kampf (#53387)
Elizabeth L. Zerby (#119912)
KAMPF & ASSOCIATES, P.A.
901 Foshay Tower
821 Marquette Avenue South
Minneapolis, Minnesota 55402
(612) 339-0522
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
THIRD DIVISION
In re:
North Atlantic Technologies, Inc., Case No. 96-30526
Chapter 11 Case
Debtor.
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ORDER CONFIRMING DEBTOR'S MODIFIED AMENDED PLAN
OF REORGANIZATION, DEEMING ACCEPTANCES AND REJECTIONS
OF DEBTOR'S AMENDED PLAN OF REORGANIZATION TO BE
ACCEPTANCES AND REJECTIONS OF DEBTOR'S MODIFIED
AMENDED PLAN OF REORGANIZATION, LIMITING NOTICE,
EXPEDITING HEARING AND ORDERING DISTRIBUTION
- --------------------------------------------------------------------------------
Debtor's motion for an order allowing modification of its Amended Plan
of Reorganization in the form as filed on April , 1996, came on for hearing on
May , 1996. Appearances were as noted in the record. Based on the motion, the
arguments of counsel, and all the files and records herein,
IT IS HEREBY ORDERED:
(1) that the notice provided by Debtor of its motion is sufficient and
appropriate under the circumstances herein, and that an expedited
hearing on the motion is granted;
(2) that the acceptances and rejections of Debtor's Amended Plan of
Reorganization confirmed by this court on April 19, 1996 will be deemed
as acceptances and rejections of Debtor's Modified Amended Plan of
Reorganization, dated April , 1996.
(3) that Debtor's Modified Amended Plan of Reorganization is confirmed;
(4) that Debtor is hereby ordered to make distributions scheduled under
Debtor's Modified Amended Plan of Reorganization upon receipt of this
order.
Dated: ___________________________, 1996 ___________________________________
Dennis D. O'Brien
Chief Judge, U.S. Bankruptcy Court
