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EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
CROWN BOOKS CORPORATION, )
SUPER CROWN BOOKS CORPORATION, ) Case No. 98-1575 (RRM)
CROWN BOOKS EAST CORPORATION, )
CROWN BOOKS WEST CORPORATION, ) (Jointly Administered)
CROWN BOOKS NATIONAL CORPORATION, )
and CROWN DHC CORPORATION, )
)
Debtors. )
FIRST AMENDED DISCLOSURE STATEMENT FOR DEBTORS'
FIRST AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION
YOUNG CONAWAY STARGATT & TAYLOR, LLP
James L. Patton, Jr. (No. 2202)
S. David Peress (No. 2679)
Brendan Linehan Shannon (No. 3136)
Michael R- Nestor (No. 3 526)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Counsel to Debtors and Debtors-in-Possession
Dated: August 18, 1999
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TABLE OF CONTENTS
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I. INTRODUCTION AND SUMMARY...........................................................................................2
A. Overview....................................................................................................3
B. Solicitation................................................................................................4
C. Summary Of Plan Provisions..................................................................................4
1. Overview of Claims Addressed in , the Plan...........................................................4
2. Summary of Classification and Treatment of Claims and Interests......................................5
3. Conditions to Confirmation and the Occurrence of the Effective Date of the Plan......................7
II. BACKGROUND.........................................................................................................8
A. The Debtors' Business and Capital Structure.................................................................8
B. Events Preceding Commencement Of The Chapter 11 Cases.......................................................9
1. Rising Competition and Changes Within the Industry...................................................9
2. internal Controls and Systems Problems at Crown.....................................................10
3. Crown's Liquidity Crisis and The Decision to Commence the Chapter 11 Cases..........................11
III. THE CHAPTER 11 CASES..............................................................................................11
A. Continuation Of Business; Stay Of Litigation...............................................................11
B. Significant Events During The Chapter 11 Cases.............................................................12
1. First -Day Motions..................................................................................12
2. Retention of Additional Professionals...............................................................12
3. DIP Facility........................................................................................12
4. Appointment of Official Committee of Unsecured Creditors............................................13
5. Re-establishing Trade Credit with Certain Vendors; Section 546(g)* Programs.........................13
6. Assumption or Rejection of Leases; Going out of Business Sales......................................14
IV. THE BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES............................................................14
A. General....................................................................................................14
B. Holders Of Claims Entitled To Vote.........................................................................14
C. Vote Required For Class Acceptance.........................................................................15
D. Counting Of Ballots For Determining Acceptance Of The Plan.................................................15
E. Voting Deadline............................................................................................15
F. Voting Procedures..........................................................................................16
1. Defects, Irregularities, Etc........................................................................16
2. Temporary Allowance for Voting Purposes.............................................................16
G. Miscellaneous..............................................................................................16
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TABLE OF CONTENTS
(continued)
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V. THE PLAN..........................................................................................................17
A. General....................................................................................................17
B. Calculation Of Total Value.................................................................................18
C. Classification And Treatment Of Claims And Interests Under The Plan........................................20
1. Treatment of Administrative Expenses, Other Priority Claims And Priority Tax Claims.................20
D. Unexpired Leases And Executory Contracts...................................................................23
1. General.............................................................................................23
2. Treatment of Unexpired Leases and Executory Contracts Under the Plan................................23
E. Implementation Of The Plan.................................................................................24
1. Operations Between the Confirmation Date and the Effective Date.....................................25
2. Revesting and Transfer of Assets....................................................................25
3. Cancellation of Securities..........................................................................25
4. Listing of New Common Stock; Registration of Securities.............................................25
5. Allowance of Claims Subject to Section 502(d).......................................................26
6. Right of Setoff.....................................................................................26
F. Corporate Governance.......................................................................................26
G. Appointment Of Directors; Retention Of Officers............................................................27
H. Settlement with Ingram.....................................................................................27
I. Emergence Bonus and Incentive Plan.........................................................................28
J. Effects Of Plan Confirmation...............................................................................29
1. Discharge and Termination...........................................................................29
2. Complete Satisfaction...............................................................................29
3. Release of Debtors and Debtors in Possession........................................................29
4. Release by Holders of Claims and Interests..........................................................30
5. Release of Dart and Richfood........................................................................30
6. Exculpation.........................................................................................32
7. Injunction..........................................................................................33
K. Preservation Of Insurance..................................................................................33
L. Distributions Under The Plan...............................................................................33
1. Timing of Distributions.............................................................................33
2. New Common Stock....................................................................................33
3. New Common Stock Distributions......................................................................33
4. Fractional Shares...................................................................................34
5. Fractional Dollars..................................................................................34
6. Compliance with Tax Requirements....................................................................34
7. Persons Deemed Holders of Registered Securities.....................................................34
8. Distribution of Unclaimed Property..................................................................34
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TABLE OF CONTENTS
(continued)
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M. Procedures For Resolving Disputed Claims Under The Plan....................................................35
1. Objections to Claims................................................................................35
2. Procedure...........................................................................................35
3. Estimation..........................................................................................35
4. Miscellaneous Distribution Provisions...............................................................35
N. Miscellaneous Provisions...................................................................................36
1. Retention of Jurisdiction...........................................................................36
2. Binding Effect of the Plan..........................................................................38
3. Non-voting Stock....................................................................................38
4. Authorization of Corporate Action...................................................................38
5. Retiree Benefits....................................................................................38
6. Withdrawal of the Plan..............................................................................38
7. Final Order.........................................................................................38
8. Dissolution of Committee............................................................................39
9. Amendments and Modifications........................................................................39
10. Time................................................................................................39
11. Section 1145 Exemption..............................................................................39
12. Section 1146 Exemption..............................................................................39
O. Conditions to Confirmation.................................................................................39
P. Conditions To Occurrence Of Effective Date Of The Plan.....................................................40
VI. ACCEPTANCE AND CONFIRMATION OF THE PLAN...........................................................................40
A. Solicitation Of Acceptances................................................................................41
B. Confirmation Hearing.......................................................................................41
C. Requirements For Confirmation Of The Plan..................................................................41
1. The Plan Does Not Discriminate Unfairly.............................................................42
2. The Plan is Fair and Equitable......................................................................42
3. The Best Interests Test.............................................................................42
D. Nature And Timing Of Sale Process..........................................................................44
E. Discount Factor Applied To Assets..........................................................................44
F. Estimated Liquidation Expenses.............................................................................44
G. Estimated Claims...........................................................................................44
H. Recoveries Under The Plan vs. Recoveries In A Liquidation..................................................44
I. Feasibility................................................................................................45
VII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.........................................................45
A. Liquidation Under Chapter 7................................................................................45
B. Alternative Plan...........................................................................................45
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TABLE OF CONTENTS
(continued)
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VIII. RISK FACTORS......................................................................................................46
A. Business Risks.............................................................................................46
1. Industry Conditions.................................................................................46
2. Competition.........................................................................................46
3. Operating Cash Flow; Post-Confirmation Credit Facility..............................................47
4. Trade Credit........................................................................................47
5. Success of Business Plan............................................................................47
6. Tax Issues..........................................................................................48
7. Environmental Regulation and Litigation.............................................................48
B. Bankruptcy Risks...........................................................................................48
1. Objection to Classification.........................................................................48
2. Combined Properties.................................................................................49
3. Kemper Insurance Limited Objection,.................................................................49
4. Risk of Nonconfirmation of the Plan.................................................................49
5. Potential Effect of Bankruptcy Upon Certain Relationships...........................................49
C. Liquidity Risks............................................................................................50
1. Restrictions on Transfer............................................................................50
2. Potential Illiquidity of Plan Securities............................................................50
IX. DESCRIPTION OF POST-CONFIRMATION CREDIT FACILITY..................................................................50
X. DESCRIPTION OF SECURITIES TO BE ISSUED UNDER THE PLAN.............................................................50
XI. CERTAIN INFORMATION CONCERNING THE DEPTORS........................................................................51
A. Merchandising Strategy.....................................................................................51
B. Trade Customs And Practices................................................................................51
C. Advertising................................................................................................52
D. Properties52
E. Employees 52
F. Tradenames And Trademarks..................................................................................52
G. Competition................................................................................................52
H. Executive Officers.........................................................................................53
XII. FINANCIAL AND LEGAL ADVISORS; FEES AND EXPENSES...................................................................53
XIII. EXEMPTION FOR SECURITIES ACT RECISTRATION.........................................................................54
XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES...........................................................................55
A. In General.................................................................................................55
B. Federal Income Tax Consequences To Debtors.................................................................55
1. Cancellation of Indebtedness........................................................................55
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TABLE OF CONTENTS
(continued)
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2. Effect of Section 382 of the Tax Code...............................................................56
3. The Bankruptcy Exception............................................................................57
C. Federal Income Tax Consequences To Holders Of Allowed Claims...............................................58
1. In General..........................................................................................58
2. Accrued Interest on Allowed Claims..................................................................58
3. Holders of Allowed Claims Who Receive Cash..........................................................58
4. Information Reporting and Backup Withholding........................................................58
XV. CONCLUSION........................................................................................................60
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THE DEBTORS STRONGLY URGE ALL HOLDERS OF CLAIMS IN IMPAIRED
CLASSES TO ACCEPT THE PLAN.
THIS DISCLOSURE STATEMENT IS DESIGNED TO PROVIDE ADEQUATE
INFORMATION TO ENABLE HOLDERS OF CLAIMS AGAINST THE DEBTORS TO MAKE AN INFORMED
JUDGMENT ON WHETHER TO ACCEPT OR REJECT THE PLAN. ALL HOLDERS OF CLAIMS ARE
HEREBY ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN
THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. THE PLAN SUMMARY AND
STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE PLAN, WHICH IS INCLUDED HEREWITH AS APPENDIX A, OTHER
APPENDICES INCLUDED HEREWITH AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE
BANKRUPTCY COURT. FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION CONTAINED
HEREIN IS UNAUDITED. THERE CAN BE NO ASSURANCE THAT (A) THE INFORMATION AND
REPRESENTATIONS CONTAINED HEREIN WILL CONTINUE TO BE ACCURATE SUBSEQUENT TO THE
DATE HEREOF, OR (B) THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
ALL HOLDERS OF IMPAIRED CLAIMS SHOULD READ AND CONSIDER
CAREFULLY THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT AS A WHOLE,
INCLUDING THE SECTION ENTITLED "RISK FACTORS," PRIOR TO VOTING ON THE PLAN. IN
MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH CREDITOR MUST RELY ON ITS
OWN EXAMINATION OF THE DEBTORS AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE
TERMS OF THE PLAN, INCLUDING THE MERITS AND RISKS INVOLVED. IN ADDITION,
CONFIRMATION AND CONSUMMATION OF THE PLAN ARE SUBJECT TO CONDITIONS PRECEDENT
THAT COULD LEAD TO DELAYS IN CONSUMMATION OF THE PLAN. ALSO, THERE CAN BE NO
ASSURANCE THAT EACH OF THESE CONDITIONS WILL BE SATISFIED OR WAIVED OR THAT THE
PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS UNDER THE
PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR CREDITORS WHOSE CLAIMS ARE
DISPUTED.
NO PARTY IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE PLAN OTHER THAN THOSE WHICH ARE CONTAINED IN
THIS DISCLOSURE STATEMENT. NO STATEMENTS OR INFORMATION CONCERNING THE DEBTORS,
THEIR FUTURE BUSINESS OPERATIONS OR THE VALUE OF THEIR PROPERTIES HAVE BEEN
AUTHORIZED BY THE DEBTORS OTHER THAN AS SET FORTH HEREIN. ANY INFORMATION OR
REPRESENTATIONS GIVEN TO OBTAIN YOUR ACCEPTANCE OR REJECTION FOR THE PLAN WHICH
ARE DIFFERENT FROM OR INCONSISTENT WITH THE INFORMATION OR STATEMENTS CONTAINED
HEREIN AND IN THE PLAN SHOULD NOT BE RELIED UPON BY ANY CREDITOR IN VOTING ON
THE PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016(b) OF THE FEDERAL RULES OF
BANKRUPTCY PROCEDURE AND NOT IN ACCORDANCE WITH
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THE FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAW.
PERSONS OR ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR
TRANSFERRING CLAIMS AGAINST, OR SECURITIES OF, THE DEBTORS SHOULD EVALUATE THIS
DISCLOSURE STATEMENT IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS SUCH COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
WITH RESPECT TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND
OTHER PENDING OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE
INFORMATION CONTAINED HEREIN SHALL NOT BE CONSTRUED AS AN ADMISSION OR
STIPULATION, BUT RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS GOVERNED
BY RULE 408 OF THE FEDERAL RULES OF EVIDENCE AND ANY OTHER RULE OR STATUTE OF
SIMILAR IMPORT.
THIS DISCLOSURE STATEMENT SHALL NEIThER BE ADMISSIBLE IN ANY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY NOR BE CONSTRUED TO BE
ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE PLAN. EACH CREDITOR
SHOULD, THEREFORE, CONSULT WITH ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX
ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION OF VOTES, THE PLAN
OR THE TRANSACTIONS CONTEMPLATED THEREBY.
I. INTRODUCTION AND SUMMARY
Crown Books Corporation ("Crown"), Super Crown Books Corporation
("Super Crown"), Crown Books East Corporation ("Crown East"), Crown Books West
Corporation ("Crown West"), Crown Books National Corporation ("Crown National")
and Crown DHC Corporation ("Crown DHC') (each a "Debtor" and, collectively the
"Debtors"), as debtors and debtors in possession under Chapter 11 of title 11 of
the United States Code (the "Bankruptcy Code"), hereby propose and file this
First Amended Disclosure Statement (the "Disclosure Statement") to accompany the
Debtors' First Amended Joint Chapter 11 Plan of Reorganization dated June
30,1999 (as such maybe modified, amended or supplemented, the "Plan"). Except as
otherwise indicated, all capitalized terms used in this Disclosure Statement
have the meanings ascribed to such terms in the Plan, a copy of which is
included as Appendix A to this Disclosure Statement.
The following introduction and summary is qualified in its
entirety by, and should be read in conjunction with, the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Disclosure Statement.
The purpose of this Disclosure Statement is to provide the
Debtors' known creditors with adequate information of a kind, and in sufficient
detail, as far as is reasonably
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practical in light of the nature and history of the Debtors, upon which to base
an informed decision regarding whether to accept or reject the Plan.
This Disclosure Statement, the Plan included herewith as
Appendix A (and the other appendices hereto), the accompanying form of Ballot,
and the related materials delivered together herewith are being furnished to
holders of the Impaired Claims entitled to vote pursuant to Section 1125 of the
Bankruptcy Code, in connection with the solicitation of votes to accept or
reject the Plan (and the transactions contemplated thereby), as described
herein.
A. OVERVIEW
The Debtors believe that the Plan is fair in light of the
relative legal rights of their creditors and the critical need for the Debtors
to emerge from bankruptcy with an improved capital structure and sufficient
trade credit to operate in the ordinary course of business and to meet the
projections underlying the plan.
The Plan is being presented as a joint plan of reorganization of
the Debtors, and is predicated upon a substantive consolidation of the Chapter
11 cases and the Debtors' respective estates. Nothing herein or in the Plan
shall be otherwise construed. Accordingly, Claims against each Debtor are not
separately classified and treated.
The Plan provides that the holders of Allowed General Unsecured
Claims will convert their claims into equity in the Reorganized Debtor, such
that the Reorganized Debtor will have no long-term institutional indebtedness.
The Reorganized Debtor will refinance the existing DIP Facility (as hereinafter
defined) with the Post-Confirmation Credit Facility. Old Equity Interests,
including the Old Crown Common Stock, will be canceled and holders thereof will
receive nothing on account of such Old Equity Interests.
The Plan provides for equal treatment for all Allowed Class 2
General Unsecured Claims against the Debtors. Thus, the Plan provides that
holders of Allowed General Unsecured Claims in Class 2 will receive an
equivalent distribution with other similarly situated creditors asserting Claims
against any of the Debtors of the New Common Stock of the Reorganized Debtor to
be authorized and issued under the Plan. As described more fully below, each
holder of an Allowed Class 2 Claim will receive a distribution of a number of
shares of New Common Stock calculated by multiplying such Allowed Class 2 Claim
by the Equity Factor.
For purposes of projecting potential creditor recoveries, the
Debtors have estimated that the Reorganized Debtor will have an equity value of
$23.0 million as of the Effective Date. The use of this valuation for purposes
of illustrating creditor recoveries under the Plan shall not be binding on
creditors or the Reorganized Debtor for any other purposes. Based on the
projected $23.0 million valuation of the Reorganized Debtor, the Debtors
estimate that holders of Allowed General Unsecured Claims will receive
distributions of New Common Stock totaling in value approximately 38.3% of the
Allowed Amount of such Claims (prior to dilution associated with exercise of the
Management Options). The computation of the imputed value of the New Common
Stock is inherently imprecise, and the recovery on account of Allowed General
Unsecured Claims could be different from that estimated above if the Allowed
Amount of these Claims differs from the Debtors' estimate; if Allowed General
Unsecured Claims are
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greater than the Debtors' estimate, the percentage recovery for an Unsecured
Creditor could be lower. If Allowed General Unsecured Claims are less than the
Debtors' estimate, the percentage recovery could be greater. In addition,
although the Debtors have agreed to use their best efforts to cause the New
Common Stock to be listed or otherwise quoted on a national securities exchange,
the New Common Stock may nevertheless be illiquid, and it may not trade at a
price level equal to the value estimated by the Debtors.
Holders of Allowed Class 2 Claims will receive a distribution of
New Common Stock equal, in the aggregate, and on a fully diluted basis, to 100%
of the total amount of the New Common Stock issued as of the Effective Date,
subject to dilution to up to 85% of total ownership based upon the exercise of
certain options to purchase New Common Stock expected to be issued to management
pursuant to the Emergence Bonus and Incentive Plan. See "The Plan -
Distributions of New Common Stock to Management."
B. SOLICITATION
The Debtors are hereby soliciting (the "Solicitation") votes for
acceptance of the Plan under the Bankruptcy Code from the holders of (i) General
Unsecured Claims (Class 2) and (ii) Convenience Claims (Class 3). The Debtors
are not soliciting votes from holders of Secured Claims (Class 1), which are
Unimpaired by the Plan. The Debtors also are not soliciting votes from holders
of Old Crown Common Stock Interests (Class 4) or Old Equity Interests in the
Subsidiaries (Class 5), each of which will neither receive any distribution nor
retain any property under the Plan and, thus, are conclusively presumed to have
rejected the Plan pursuant to applicable provisions of the Bankruptcy Code. The
Bankruptcy Court has fixed 5:00 p.m. Eastern Standard Time on August 18, 1999 as
the record date for the determination of holders of Claims entitled to vote on
the Plan.
C. SUMMARY OF PLAN PROVISIONS
Set forth below is the summary of certain significant provisions
of the Plan. For a discussion of certain risks associated with implementation of
the Plan, see Article VIII, "RISK FACTORS."
1. OVERVIEW OF CLAIMS ADDRESSED IN THE PLAN
The Plan identifies several groups of creditors entitled to
distributions of Cash and/or new equity of the Reorganized Debtor: the holders
of Secured Claims, holders of General Unsecured Claims and holders of
Convenience Claims. For purposes of their calculations, the Debtors assume that
the Allowed Amounts of Claims of these groups would be as follows: Secured
Claims - - $0; General Unsecured Claims (Class 2) - - $60 million; and
Convenience Claims (Class 3) - - $110,1000.
As discussed more fully below, because the value of the
distributions to be made in respect of General Unsecured Claims and Convenience
Claims will be insufficient to satisfy such Claims in full, holders of Old Crown
Common Stock Interests and Old Equity Interests in the Subsidiaries will not
receive any distribution on account of such Interests.
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The Plan classifies the following classes of Claims and
Interests: "Class 1 Claims" shall consist of all Secured Claims against any of
the Debtors; "Class 2 Claims" shall consist of all General Unsecured Claims
against any of the Debtors; "Class 3 Claims shall consist of all Convenience
Claims against any of the Debtors; "Class 4 Interests" shall consist of all
shares of Old Crown Common Stock and any related rights, warrants and options;
"Class 5 Interests" shall consist of all Old Equity Interests in the
Subsidiaries, all of which are held by Crown.
2. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND
INTERESTS
The Plan specifies the manner in which the Claims and Interests
in each Class are to be treated. Administrative Expense Claims, Other Priority
Claims and Priority Tax Claims are not classified for purposes of voting under
the Plan, but the Plan does provide for the treatment of such Claims. The table
below provides a summary of the treatment of the various Classes of Claims
against and Interests in the Debtors. To the extent that the terms of the
Disclosure Statement vary from the terms of the Plan, the terms of the Plan will
control.
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ESTIMATED AMOUNT
TYPE OF CLAIM OR INTEREST CLASS OF ALLOWED CLAIMS TREATMENT
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Administrative Expense N/A $48.8 million The Reorganized Debtor shall pay each Allowed
Claims (other than Administrative Expense Claim in full and in cash on the
Section 546(g)* claims) later of (i) the Effective Date, (ii) as and when such
obligation becomes due and payable or (iii) such date and
time as may be mutually agreed upon by the parties.
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Section 546(g)* N/A $11.6 million Section 546(g)* Claims for credit extended to a Debtor
Claims by a holder of such Claim shall be paid or otherwise
treated, at the Reorganized Debtor's sole discretion, in
accordance with (i) the terms of any Order of the
Bankruptcy Court giving rise to such Claim or (ii) such
Ordinary and customary terms as may be agreed upon
between the holder of such Section 546(g)* Claim and the
relevant Debtor or the Reorganized Debtor, as
appropriate or (iii) in the case of the Section 546(g)*
Claim of Ingram, pursuant to the terms of the Ingram
Settlement
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Other Priority N/A $0 The Reorganized Debtor shall pay each Allowed Other
Claims Priority Claim in full and in cash (i) in accordance
with the provisions of Section 507 of the Bankruptcy
Code, or (ii) as otherwise authorized by the Bankruptcy
Court, except to the extent the holder of such claim
agrees to a less favorable treatment.
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Priority Tax N/A $2.0 million The holder of an Allowed Priority Tax Claim shall
Claims receive, on account of such Claim, a cash payment in the
amount of such Priority Tax Claim six years after the
assessment of the tax on which such claim is based, plus
simple interest annually in arrears. At the option of
the Reorganized Debtor, any Allowed Priority Tax Claim
may be (i) paid on such alternative terms as may be
agreed by Reorganized Debtor and the holder of such
Allowed Priority Tax Claim or (ii) prepaid in whole or
in part, without premium or penalty, at any time.
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Secured Claims 1 $0 Unimpaired. With regard to each Allowed Secured Claim,
on the Effective Date, at the. option of the Reorganized
Debtor, the Reorganized Debtor shall either (i) assume
such Claim and those legal, equitable and contractual
rights to which the holder of such Claim is entitled
shall not be altered by the Plan, or (ii) provide for
such Claim as will cause such Claim not to be impaired.
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General Unsecured 2 $60.0 million Impaired. Each holder of an Allowed Class 2 General
Claims Unsecured Claim shall receive on account of such Claim,
shares of New Common Stock in an amount calculated by
multiplying such Allowed Class 2 Claim by the Equity
Factor.
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Convenience 3 $110,000 Impaired. Each holder of an Allowed Convenience Claim
Claims shall receive Cash in an amount equal to 25 % of the
Allowed Amount of such Allowed Convenience Claim.
Convenience Claims shall consist of all Unsecured Claims
against the Debtors in the Amount of $1,000 or less, and
General Unsecured Claims which are voluntarily reduced
to that amount by such holder.
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Old Crown Common Stock 4 5,288,000 shares plus Impaired. The Old Crown Common Stock Interests shall be
warrants, options and canceled on the Effective Date, and the holders of such
related rights Interests shall not receive or retain any property under
the Plan on account of their Interests.
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Old Equity Interests 5 100 shares of Impaired. The Old Equity Interests in the Subsidiaries
in the Subsidiaries Common Stock in shall be canceled on the Effective Date, and the holder of
each of the such Interests shall not receive or retain any property
Subsidiaries under the Plan on account of such Interests.
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</TABLE>
For a more detailed description of the treatment of the
foregoing classes of Claims and Interests, see "The Plan - Classification and
Treatment of Claims and Interests Under the Plan."
3. CONDITIONS TO CONFIRMATION AND THE OCCURRENCE OF THE
EFFECTIVE DATE OF THE PLAN
The Plan will not be consummated immediately upon
confirmation, but only upon the Effective Date. The Effective Date shall not
occur and no obligations and rights set forth in the Plan as of the Effective
Date or thereafter will come into existence, unless various conditions to
confirmation and consummation are satisfied or waived by the Debtors. There is
no assurance, however, that the Debtors would waive any such conditions. The
Confirmation Order may be vacated if the conditions to the Effective Date are
not timely met or waived.
Because of the conditions to the Effective Date provided
in the Plan, a delay will occur between confirmation of the Plan and the
Effective Date. There is no assurance that the conditions to the Effective Date
will be fulfilled, or that any waivable condition which is not fulfilled will in
fact be waived. The Plan provides that it is a condition to consummation of
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the Plan that each of the conditions set forth in Sections 8.01 and 8.02 of the
Plan has been satisfied or waived in accordance with Section 8.03 of the Plan.
The implementation of the Plan entails certain risks
and, similarly, the business in which the Reorganized Debtor is and will
continue to be engaged involves certain risks. For a discussion of these risks,
see Article VIII, "RISK FACTORS."
The Debtors believe that all conditions to the Effective
Date of the Plan will likely be satisfied or waived within forty-five (45) days
of the Confirmation Date, and that the Effective Date of the Plan is likely to
occur by October 2, 1999.
II. BACKGROUND
A. THE DEBTORS' BUSINESS AND CAPITAL STRUCTURE
Crown. Crown is a discount retailer specializing in general
trade books and book-related products. Crown's operating network currently
consists of ninety-two stores in five markets (Washington, D.C.; Chicago; San
Francisco; Los Angeles; and San Diego). Crown is incorporated in Delaware, and
is headquartered in Landover, Maryland. See "Certain Information Concerning the
Debtors" for a more complete description of the business of the Debtors.
Equity. Crown's Old Common Stock formerly was listed on the
NASDAQ under the symbol "CRWNQ." The Old Common Stock was "de-listed" on
September 18, 1998. It is currently traded on the Over-the-Counter Bulletin
Board of NASDAQ.
Crown was incorporated in 1977 by the Dart Drug Company, and
Crown was a majority-owned subsidiary of The Dart Group, Inc. ("Dart"), which
was purchased by Richfood, Inc. ("Richfood") in April, 1998. Crown is now a
majority-owned subsidiary of Richfood through Dart and Richfood indirectly holds
approximately 52.3% of the Common Stock of Crown.
Super Crown, Crown East, Crown West, and Crown National are all
inactive wholly-owned subsidiaries of Crown. Crown DHC holds certain trademarks
and trade names of the Debtors, but otherwise has no business operations.
Debt. Prior to the Petition Date, Crown obtained working capital
to fund ongoing operations from The CIT Group/Business Credit, Inc. ("CIT")
under a $50 million Revolving Credit and Security Agreement, dated as of
September 12, 1996 (the "Pre-Petition Credit Facility). Crown's obligations in
respect of the Pre-Petition Credit Facility were secured by a lien on
substantially all of Crown's assets. Under the terms of the Pre-Petition Credit
Facility, Crown's maximum borrowings were limited to $25 million unless Crown
satisfied a covenant related to its tangible net worth. For at least several
months prior to the Petition Date, Crown was unable to meet the tangible net
worth covenant and therefore, Crown's maximum borrowings under the Pre-Petition
Credit Facility were limited to $25 million.
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As of the Petition Date, Crown owed CIT approximately $18.45
million principal plus accrued fees and interest under the Pre-Petition Credit
Facility. All of Crown's obligations to CIT have since been satisfied utilizing
the proceeds of Crown's debtor in possession financing. See Significant Events
during the Chapter 11 Cases - DIP Facility.
In addition, as of the Petition Date, the Debtors' total
unsecured debt amounted to $52 million, which sum includes approximately $25
million in unpaid trade debt.
B. EVENTS PRECEDING COMMENCEMENT OF THE CHAPTER 11 CASES
1. RISING COMPETITION AND CHANGES WITHIN THE INDUSTRY
The first Crown store opened in Rockville, Maryland in
September, 1977. Over the next few years, Crown opened a number of stores in the
Washington, D.C. area. Until Crown's introduction of discount pricing, customers
had to pay full list price for all books - even New York Times bestsellers. The
only significant competition came from the mall-based chain bookstores, B.
Dalton Bookseller and Waldenbooks.
Both Crown and its competitors opened numerous stores during the
late 1970's and throughout the 1980's, most of which were in the 2,000 and 4,000
square foot range. Nonetheless, a, combination of Crown's aggressive advertising
and the competition's lack of response to discount pricing led to Crown's
dominance of its market.
In the early 1980's, Crown expanded into additional markets in
Los Angeles, San Francisco, San Diego, and Chicago.. Several years later, Crown
moved into Houston and Seattle. Crown's main competitors were putting a few
stores in many markets, while Crown concentrated on opening many stores in a few
markets in order to achieve advantages in advertising, productivity and in
economics of field supervision. During this time, Crown's overhead costs as a
percent of sales were the lowest in the industry, and Crown was thus able, to
undersell the competition and generate healthy profits at the same time.
Until the late 1980's the average bookstore in the United States
was approximately 3,000 square feet. In the late 1980's, Borders, Inc.
("Borders") opened its first superstores, ranging in size from 12,000 to 15,000
square feet. Barnes & Noble, Inc. ("Barnes & Noble") followed this trend,
opening its first superstores in 1990. Crown launched its superstore strategy
shortly thereafter, opening stores that were between 6,000 and 8,000 square
feet.
In the last five years, both Barnes & Noble and Borders have
expanded their superstore concept. Their stores now average 28,000 square feet,
and typically include a cafe and a large area devoted to music. Some Borders
stores also include an area devoted to video sales. However, the retail space
devoted to books in these larger Borders and Barnes & Noble stores generally
does not exceed the book retail space in Crown superstores.
In 1995, with mature store sales in decline, Crown made the
strategic decision to lose approximately 100 of the smaller Crown stores and
replace them with larger superstores. Sixty-nine of these superstores were
opened over the following several years, ranging in size from 12,000 to 15,000
square feet Crown decided to continue with its books-only format, but
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changed its advertising and in-store signing to de-emphasize the difference
between Crown and its larger competitors, and reduced its standard discounts to
bring them closer to the competition's pricing. In the 1997 prototype store,
Crown also switched the interior decor of the store from a discount look to the
more upscale look of Barnes & Noble and Borders. The Debtors' current management
has determined that in implementing this strategy, Crown's former management
backed away from its key advantage in the marketplace and spent large amounts of
money to develop a smaller, less effective version of the competition.
Former management continued to open stores with this ineffective
combination of store design, interior signing, and marketing, the detrimental
result of which was magnified by the higher rental rates paid for the new
leases. Sales continued to slide over the eighteen months preceding the Petition
Date.
2. INTERNAL CONTROLS AND SYSTEMS PROBLEMS AT CROWN.
Crown's problems were exacerbated by its decision in April 1997
to implement a new computer system for handling merchandise and accounts payable
known as Evolution. Implementation of the new system was poorly planned and
poorly executed. Crown compounded its implementation problems when it attempted
to compress the implementation time frame to under 6 months, disregarding the
manufacturer's recommendation of an 18-month implementation period. Difficulties
in implementing and utilizing Evolution had a cascading effect throughout
Crown's overall operations. For example, incompatibility between Evolution and
Crown's computerized point-of-sale system interfered with Crown's ability to
maintain inventory levels at the stores, and handicapped its ability to monitor
sales and cash flow.
Moreover, as a result of these factors, Crown experienced
serious difficulty reconciling purchases and payments by vendor, maintaining
store-level inventory data, tracking average costs, tracking manufacturer list
price and otherwise creating and monitoring information essential to both the
day-to-day and long-term operation of their business. Since commencing the
implementation of Evolution in April 1997, Crown's information systems
organization has had to do the work that should have been done in the
pre-implementation time frame as well as keep control over the daily operations
at the store level. Accordingly, in 1997 and 1998 Crown was forced to devote an
inordinate amount of its financial and managerial resources to address the
following items:
- Regaining control over the Computer system's remaining
issues and stabilizing the development and testing
environments
- Implementing change management procedures, system
control procedures, and checks and balances to ensure
ongoing systems quality
- Implementing strategic management initiatives designed
to help regain control of the business
- Upgrading and testing key systems for Year 2000
compliance.
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During the last half of 1997, all of the Debtors' senior
management, including the Chief Executive Officer, Chief Financial Officer,
Chief Information Officer and the Vice President of Operations, left or were
removed, and a new executive team took over early in 1998.
The Debtors' new management team has directed its efforts over the past eighteen
months entirely toward stabilizing the Debtors' business operations and
repairing the damage caused by the computer problems described above.
3. CROWN'S LIQUIDITY CRISIS AND THE DECISION TO COMMENCE
THE CHAPTER 11 CASES
As a result of its financial difficulties, Crown became unable
to comply with its financial obligations as they became due. In an effort to
address the combined effects of a year of declining sales, runaway expenses, and
its inability to satisfy its trade payables to the book publishers, in January
1998, Crown instituted a book return program whereby it returned $37.0 million
of book inventory to the publishers for credit against outstanding payables. At
the same time, Crown closed its regional warehouses and increased its reliance
for the purchase of new book inventory upon a book wholesaler, Ingram Book
Company ("Ingram").
The effect of the book return program was to deplete the
inventory in Crown's stores. As a result of the erosion of its collateral base,
CIT reduced Crown's borrowing ability under its working capital line of credit
to $25 million in borrowings. Finally, Ingram, based on the alleged breach of a
promise by Dart to provide a credit enhancement to support additional trade
credit suspended shipments to Crown and commenced a lawsuit against Crown and
Dart in the United States District Court for the Middle District of Tennessee
seeking repayment of Crown's $12.6 million receivable and damages for breach of
contract, fraud and negligent misrepresentation (the "Ingram Lawsuit").
Plagued by mounting losses and a dearth of inventory, Crown
tried unsuccessfully to obtain additional credit. Ultimately, management
concluded that Crown's only chance for survival was the commencement of the
Chapter 11 cases. In preparation for the commencement of the Chapter 11 cases,
management identified under-performing stores or stores located in
under-performing markets which it would be desirable to close through going out
of business sales or otherwise. Management also successfully negotiated the
terms of a new working capital facility with Paragon Capital L.L.C. and Foothill
Capital Corporation (collectively, the "DIP Lenders") which would allow the
repayment of the Pre-Petition Credit Facility and increase Crown's borrowing
capacity through additional credit. Finally, management reached agreement with
Ingram on the terms of a post-petition trade credit facility predicated upon the
return to Ingram of $12.6 million of inventory from 41 of the stores Crown
determined to close.
III. THE CHAPTER 11 CASES
A. CONTINUATION OF BUSINESS; STAY OF LITIGATION
On July 14, 1998 (the "Petition Date"), the Debtors commenced
the Chapter 11 cases. Since the Petition Date, the Debtors have continued to
operate as debtors in possession subject to the supervision of the Bankruptcy
Court in accordance with the provisions of the
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Bankruptcy Code. Thus, the Debtors' management has continued to manage the
Debtors' affairs, and the Debtors are authorized to operate in the ordinary
course of business. Transactions outside the ordinary course of business have
required. Bankruptcy Court approval. In addition, the Bankruptcy Court has
approved the Debtors' employment of attorneys, financial advisors and other
professionals.
An immediate effect of the filing of the bankruptcy petitions
was the imposition of the automatic stay under the Bankruptcy Code which, with
limited exceptions, enjoined the commencement or continuation of (i) all
collection efforts by creditors, (ii) enforcement of liens against the Debtors
and (iii) litigation against the Debtors. This, injunction remains generally in
full force and effect.
B. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
1. FIRST DAY MOTIONS
On the Petition Date, the Debtors filed numerous "first day"
motions and applications which were granted after a hearing in the Bankruptcy
Court. The first day orders included, among others, (i) an order authorizing the
retention of Young Conaway Stargatt & Taylor, LLP as counsel to the Debtors,
(ii) an order authorizing the retention of Zolfo Cooper, L.L.C. as special
financial advisor to the Debtors, (iii) an order authorizing the Debtor to honor
obligations to employees, (iv) an order authorizing (1) continued use of bank
accounts and business forms, and (2) maintenance of the Debtors' cash management
system, (v) an order authorizing payment of certain pre-petition taxes, (vi) an
order restraining utility companies from discontinuing, altering or refusing
service, (vii) an order authorizing the Debtor to maintain and honor customer
benefits programs, (viii) an order establishing procedures for interim
compensation and reimbursement of expenses for professionals, (ix) an order
approving the rejection of certain leases, and (x) an order granting interim
authority to obtain post-petition financing.
2. RETENTION OF ADDITIONAL PROFESSIONALS
As noted above, on the Petition Date, the Bankruptcy Court
approved the retention of certain professionals by the Debtors. The Bankruptcy
Court subsequently approved the employment and retention of (i) Arthur Anderson,
as. accountants and auditors to the Debtors, (ii) Hughes Hubbard & Reed LLP and
Duane Morris & Heckscher, as co-counsel to the Committee, and (iii) M.R. Meiser
& Co., and subsequently, J.H. Cohn & Co., as financial advisor to the Committee.
In addition, the Bankruptcy Court also authorized the Debtors to retain Keen
Consulting, Inc. as the Debtors' real estate consultant.
3. DIP FACILITY
On July 15, 1998 and on August 14, 1998, the Bankruptcy Court
gave interim and final approval, respectively, for the Debtors to obtain secured
post-petition debtor-in-possession financing, pursuant to which DIP Leaders
agreed to provide the Debtors with debtor-in-possession financing in the form of
a $40 million revolving credit facility. As collateral for the DIP Facility, the
Debtors pledged substantially all of their assets. Pursuant to
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the Bankruptcy Court's approval of the DIP Facility, the DIP Lenders have an
administrative claim with priority over virtually all other Claims in the
Chapter 11 Cases, including Administrative Claims (subject to certain
carve-outs) and a lien that is senior to substantially all liens, claims,
interests, and encumbrances arising before or after the Petition Date. The DIP
Facility includes certain restrictive covenants that apply to the Debtors
including restrictions on other indebtedness, liens, sales of assets, dividends
and distributions, capital expenditures, mergers, acquisitions, divestitures,
reorganizations, payments of pre-petition debt (with certain exceptions) and
transactions with affiliates, and requirements regarding satisfaction of certain
financial ratios and insurance coverage. The DIP Facility also includes typical
events of default including entry of an order granting relief to prepetition
creditors from the automatic stay, a conversion of the Chapter 11 cases into
cases under Chapter 7 of the Bankruptcy Code and/or a change of ownership or
control of the Debtors.
The DIP Facility matures on the earlier of (i) August 14, 2000
or (ii) the effective date of a plan of reorganization.
4. APPOINTMENT OF OFFICIAL COMMITTEE OF UNSECURED CREDITORS
On July 28, 1998, the United States Trustee for the District of
Delaware appointed the following entities to the Committee: (i) Penguin Putnam,
Inc., (ii) Bantam Doubleday Dell Publishing Group, (iii) St. Martin's Press,
(iv) MacMillan Publishing USA, (v) William Morrow & Company, Inc., (vi)
Warminster Towne Center Associates, L.P., and (vii) Book Sales, Inc. The
Committee is currently represented by Hughes Hubbard & Reed LLP and Duane Morris
& Heckscher. J.H. Cohn & Co. is financial advisor to the Committee. Certain
members of the Committee have resigned during the Chapter 11 Cases as a result
of having sold their claims to Royalty Books Associates, LLC ("Royalty"). As a
result of such resignations, the United States Trustee reconstituted the
Committee in August, 1999. The Committee presently consists of the following
parties: (i) Book Sales, Inc.; (ii) W.W. Norton Inc.; (iii) The Innovative
Alliance, Inc.; (iv) Friedman/Fairfax Publishers, Inc.; (v) American Book
Company, Inc.; and (vi) the At-A-Glance Group.
5. RE-ESTABLISHING TRADE CREDIT WITH CERTAIN VENDORS;
SECTION 546(g)* PROGRAMS.
Immediately following the Petition Date, Crown sought to
re-establish trade credit relationships with its suppliers. On August 20, 1998,
and following extensive negotiations between Crown, Ingram and the Committee,
the Bankruptcy Court approved a Section 546(g)* agreement between the Debtors
and Ingram, as modified to address certain concerns raised by the Committee.
Under Section 546(g)* of the Bankruptcy Code, a debtor may return, with
Bankruptcy Court approval, goods purchased pre-petition for credit against the
pre-petition claim of the vendor of such goods. Often, a debtor seeks the
agreement of the vendor that in consideration of the satisfaction of the
vendor's pre-petition claim the vendor will provide a commensurate amount of
Post-Petition trade credit. Pursuant to the Debtor's agreement with Ingram,
Ingram accepted $12.6 million of returned book inventory and supplied a
commensurate amount of post-petition credit less certain restocking fees. The
post-petition credit from Ingram is repaid on a 2%/net 45-day basis. Ingram's
post-petition claim against the Debtors constitutes,
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subject to certain carve-outs, an administrative claim with priority over all
other Claims in the Chapter 11 cases except for: (i) the DIP Lenders' claim and
(ii) claims of any other vendors providing post-petition credit pursuant to a
Section 546(g)* program on the same or better terms.
In addition to the Section 546(g)* program with Ingram, the
Debtors successfully negotiated and implemented Section 546(g)* programs with
commensurate trade credit with substantially all of their periodical and
magazine vendors. Finally, on October 14, 1998, the Bankruptcy Court approved
the terms of a proposed Section 546(g)* program between the Debtors and the book
publishers. Although approved by the Bankruptcy Court, the Section 546(g)*
program with the publishers has never been implemented.
6. ASSUMPTION OR REJECTION OF LEASES; GOING OUT OF BUSINESS
SALES
As of the Petition Date, the Debtors operated 174 stores. On
August 14 1998, the Bankruptcy Court authorized the Debtors to close 79 stores.
Thirty-eight of the stores were closed after the liquidation of their inventory
via going-out-of-business sales (the "GOB Sales") conducted on the Debtors'
behalf by a joint venture consisting of the OZER Group LLC, Gordon Brothers
Retail Partners, LLC and Schottenstein Bernstein Capital LLC. The inventory in
the balance of the closed stores was returned to Ingrain under the 546(g)*
program. The GOB Sales resulted in $12.5 million in proceeds which were used to
reduce the Debtor's obligations under the DIP Facility. Additionally, the
Debtors have closed three other stores based on the expiration of their leases.
Presently, the Debtors are operating 92 stores. In connection with confirmation
of the Plan, the Debtors do not anticipate that they will close any more stores.
At the Confirmation Hearing, the Debtors will request the
Bankruptcy Court to approve (effective as of the Effective Date), the assumption
of the leases for those stores that have not previously been assumed or rejected
and that are not then subject to a pending motion to reject. The Debtors
estimate that they will incur approximately $1.2 million in costs related to the
assumption of the store leases.
IV. THE BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES
A. GENERAL
The Debtors are seeking the acceptance of the Plan by holders of
General Unsecured Claims (Class 2) and Convenience Claims (Class 3). Holders of
Secured Claims (Class 1) are Unimpaired under the Plan and are conclusively
presumed to have accepted the Plan. The solicitation of acceptances of the Plan
from holders of Interests in Classes 4 and 5 is not required because these
Classes will neither receive nor retain any property under the Plan and, under
the Bankruptcy Code, such holders are therefore conclusively presumed to have
rejected the Plan.
B. HOLDERS OF CLAIMS ENTITLED TO VOTE
As more fully described below, the Plan classifies different
types of Claims and interests. See "The Plan - Classification and Treatment of
Claims and Interests Under the Plan." Generally, a Claim or Interest as to which
legal, equitable or contractual rights are altered is
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"Impaired." The holder of an Allowed Impaired Claim or Interest that will
receive a distribution under the Plan is entitled to vote to accept or reject
the Plan. The holders of Impaired Claims in Classes 2 and 3 will receive
distributions under the Plan. Only the holders of Impaired Claims in Classes 2
and 3 that are Allowed at the time the vote on the Plan is solicited will have
their votes counted. Holders of Impaired Interests in Classes 4 and 5 will not
receive any distribution under the Plan, and thus, will be conclusively presumed
to have rejected the Plan and will not be entitled to vote thereon.
Any Claim as to which an objection is filed is not entitled to
vote, unless the Bankruptcy Court, upon application of the holder to whose Claim
an obligation is filed, temporarily allows such Claim in an amount it deems
proper for the purpose of accepting or rejecting the Plan. Any such application
for temporary allowance for voting purposes must be filed with the Bankruptcy
Court and served upon necessary parties as prescribed by the Bankruptcy Rules no
later than fifteen (15) days prior to the Confirmation Hearing.
A Ballot for purposes of voting to accept or reject the Plan has
been enclosed with this Disclosure Statement and mailed to holders of Impaired
Claims in Classes that will receive a distribution under the Plan. Accordingly,
this Disclosure Statement (and the appendices hereto), together with the
accompanying Ballot and the related materials delivered together herewith, are
being furnished to holders of Claims in Classes 2 and 3. Such materials may not
be relied upon or used for any purpose by such holders other than to determine
whether or not to vote to accept or reject the Plan.
C. VOTE REQUIRED FOR CLASS ACCEPTANCE
The Bankruptcy Court will determine whether sufficient
acceptances have been received to confirm the Plan. A Class of Impaired Claims
is deemed to have accepted a Chapter 11 plan if votes to accept the plan have
been cast by creditors (other than any entity designated under Section 1126(e)
of the Bankruptcy Code) that hold at least two-thirds in dollar amount and more
than one-half in number of the allowed claims of such Class which are held by
creditors (other than any entity designated under Section 1126(c) of the
Bankruptcy Code) that have accepted or rejected the plan. The Debtors also will
seek confirmation of the Plan under Section 1129(b) with respect to Classes 4
and 5 given that such Classes are deemed to reject the Plan.
D. COUNTING OF BALLOTS FOR DETERMINING ACCEPTANCE OF THE PLAN
Donlin Recano & Company ("Donlin Recano"), the Debtors' claims
and solicitation agent, will count all Ballots validly executed by the holders
of Allowed Claims, if received prior to the Voting Deadline (as defined below),
for purposes of determining whether each Impaired voting Class has accepted or
rejected the Plan.
E. VOTING DEADLINE
Ballots will not be accepted after 4:00 p.m., Eastern Standard
Time, on September 16,1999 (the "Voting Deadline"). Except to the extent
permitted by the Bankruptcy Court Ballots that are received after the Voting
Deadline will not be accepted or used by the
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Debtors in connection with the Debtors' request for confirmation of the Plan (or
any permitted modification thereof).
Consistent with the provisions of Rule 3018 of the Bankruptcy
Rules, the Bankruptcy Court has fixed the Record Date, i.e., the time and date
for the determination of holders of record of Claims who are entitled to vote on
the Plan, as of the close of the business, Eastern Standard Time, on August 18,
1999.
F. VOTING PROCEDURES
The Debtors are providing copies of this Disclosure Statement
and Ballots to all known holders of Impaired Claims entitled to vote on the
Plan. The following is a summary of the voting rules.
1. DEFECTS, IRREGULARITIES, ETC.
Unless otherwise directed to the Bankruptcy Court all questions
as to the validity, form, eligibility (including time of receipt), acceptance,
and revocation or withdrawal of Ballots will be determined by the Bankruptcy
Court after notice and a hearing, pursuant to Bankruptcy Rule 3018(a). Any
defects or irregularities in connection with deliveries of Ballots must be cured
within such time as the Bankruptcy Court determines. Neither the Debtors nor any
other person will be under any duty to provide notification of defects or
irregularities with respect to deliveries of Ballots nor will any of them incur
any liabilities for failure to provide such notification.
2. TEMPORARY ALLOWANCE FOR VOTING PURPOSES
Any Claim as to which an objection is filed is not entitled to
vote, unless the Bankruptcy Court, upon application of the holder to whose Claim
an objection is filed, temporarily allows such Claim in an amount it deems
proper for the purpose of accepting or rejecting the Plan. Any such application
for temporary allowance for voting purposes must be filed with the Bankruptcy
Court and served upon necessary parties as prescribed by the Bankruptcy Rules no
later than fifteen (15) days prior to the Confirmation hearing.
G. MISCELLANEOUS
No statements or information concerning the Debtors or the
Reorganized Debtor (particularly as to future business, results of operations or
financial condition, or the distributions to be made under the Plan) or any of
the assets or business of the Debtors or the Reorganized Crown have been
authorized by the Debtors or should be relied upon, other than as set forth in
this Disclosure Statement.
Any Ballots that fail to indicate acceptance or rejection of the
Plan will be counted as acceptances of the Plan.
IN ORDER FOR YOUR BALLOT TO BE COUNTED, YOUR BALLOT MUST BE
COMPLETED AS SET FORTH ABOVE AND RECEIVED BY THE VOTING
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DEADLINE OF 4:00 P.M., EASTERN STANDARD TIME, ON SEPTEMBER 16,1999. BALLOTS
SHOULD BE DELIVERED, BY FIRST CLASS UNITED STATES MAIL, OVERNIGHT COURIER OR
HAND DELIVERY, IN THE ENVELOPE PROVIDED WITH SUCH BALLOTS TO:
Donlin Recano & Company
419 Park Avenue South
New York, NY 10016
Attn: Crown Books Corporation Balloting
IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON
THE PLAN, PLEASE CONTACT:
Young Conaway Stargatt & Taylor, LLP
Attn: S. David Peress, Esquire
Brendan Linehan Shannon, Esquire
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, DE 19899-0391
V. THE PLAN
THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT PROVISIONS OF
THE PLAN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE PLAN WHICH IS FILED CONCURRENTLY WITH THIS
DISCLOSURE STATEMENT AS APPENDIX A. TO THE EXTENT THAT THE TERMS OF THIS
DISCLOSURE STATEMENT VARY FROM THE TERMS OF THE PLAN, THE TERMS OF THE PLAN WILL
BE CONTROLLING.
A. GENERAL
Chapter 11 is the principal business reorganization Chapter of
the Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself and its creditors and stockholders.
Formulation of a plan of reorganization is the principal
objective of a Chapter 11 reorganization case. In general, a Chapter 11 plan of
reorganization (i) divides claims and equity interests into discrete classes,
(ii) specifies the property that each Class is to receive under the plan, and
(iii) contains other provisions necessary to the reorganization of the debtor.
Chapter 11 does not require each holder of a claim or interest to vote in favor
of the plan of reorganization in order for the bankruptcy court to confirm the
plan. However, a plan of reorganization must be accepted by the holders of at
least one Class of Claims that is Impaired without considering the votes of
"insiders" within the meaning of the Bankruptcy Code.
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Upon Confirmation of the Plan, distributions to be made
thereunder will be made on the Initial Distribution Date or as soon thereafter
as is practicable, and at such other time or times specified in the Plan.
The Chapter 11 cases are jointly administered pursuant to an
order of the Bankruptcy Court, and the Plan is being presented as a joint plan
of reorganization of the Debtors. The Plan is predicated upon substantive
consolidation of the Chapter 11 cases. Claims against the various Debtors are
thus not separately classified in Article 11 of the Plan and treated, in Article
III of the Plan.
B. CALCULATION OF TOTAL VALUE
For purposes of the Plan and to assist the creditors in
assessing their respective recoveries under the Plan, the Debtors directed their
financial advisors, Zolfo Cooper, LLC ("ZC") to estimate the range of enterprise
value of the Reorganized Debtor as of October 2, 1999, the approximate expected
Effective Date.
In developing the estimated range of enterprise value, ZC
analyzed the information set forth in this Disclosure Statement, the Exhibits
hereto, and other information provided by management. Specifically, ZC
considered: (i) the Debtors' historical financial and operating information;
(ii) management-prepared prospective financial and operating data for the
on-going business of the Reorganized Debtor, including financial projections
through February 2, 2002 included in the Exhibits to this Disclosure Statement;
(iii) market values of certain publicly-traded companies whose operating
businesses are believed to be comparable to that of the Reorganized Debtor; (iv)
the selling price, to the extent available, of recently acquired companies whose
operating businesses are believed to be comparable to that of the Reorganized
Debtor; (v) general economic and industry conditions; (vi) the terms of the Plan
on a consensual basis; and (vii) such other information as ZC deemed necessary
or appropriate.
In performing the valuation, ZC used information provided by
management, other firms retained by the Debtors or publicly available
information without independent challenge or verification as to the completeness
or accuracy of such information. Thus, the range of enterprise value estimated
by ZC depends on the Reorganized Debtor's ability to meet its financial
projections, including its projected sales growth, improvements in gross
margins, earnings and cash flows, management of inventory and working capital,
expense achievement goals and other elements of such projections (prior to as
well as subsequent to the consummation of the Plan). Certain of the projected
results are materially better than recent historical results of operations. To
the extent that the analysis is dependent upon the Reorganized Debtor achieving
projections, the analysis must be considered speculative. The analysis
contemplates a successful reorganization of the Debtors' business and finances
in accordance with the terms of the Plan, the Debtors obtaining exit financing
on commercially acceptable terms and many other transactions and conditions as
set forth in management's financial projections including, but not limited to,
the continuity of the present senior management of the Debtors following
consummation of the Plan and that the general financial and market conditions as
of the expected Effective Date will not differ materially from those conditions
prevailing as of the date of this
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Disclosure Statement. Therefore, no assurance can be given that the projected
results will be achieved.
As a result of its analyses, discussions and other
considerations, ZC estimated that the enterprise value of the Reorganized Debtor
as of the expected Effective Date of the Plan would be approximately $31
million. ZC based its estimate of the range of reorganized enterprise value of
the Reorganized Debtor on a multiple of normalized EBITDA (earnings before
interest, taxes, depreciation and amortization). The reorganized enterprise
value represents the estimated going concern value of the Reorganized Debtor on
an unleveraged basis. Based upon the estimated reorganization enterprise value
of the Reorganized Debtor of $31 million, (i) less projected embedded debt of
approximately $16 million (that portion of the ongoing revolver facility that
remains after the seasonal cleanup of the facility), and (ii) less $2 million
for a tax note (as described herein), (iii) plus an increase in projected trade
credit of $10 million from current levels, the Debtors have assumed a
distributable equity value of approximately $23 million, or approximately $4.61
per share of New Common Stock, based upon a distribution of 5,000,000 shares of
New Common Stock on or about the Effective Date.
The reorganized enterprise value represents the estimated going
concern value of the Reorganized Debtors excluding short-term liabilities. The
Reorganized Debtor is initially expected to have total short-term liabilities of
$52 million which includes a balance on its Revolving Loan of $25.5 million. Of
this balance, the projected "permanent" portion is estimated at $8.0 million
(that portion of the ongoing revolver facility that remains after the seasonal
cleanup). This results in a net short-term liability balance of $44 million and
total book value of assets of $75 million ($31 million in enterprise value plus
the $44 million of short-term liabilities).
The value of an operating business such as the Debtors' is
subject to uncertainties and contingencies that are difficult to predict and
will fluctuate with changes in factors affecting the financial conditions and
prospects of such a business. As a result, the estimate of the reorganization
value set forth herein is not necessarily indicative of actual outcomes, which
may be significantly more or less favorable than those set forth herein. Because
such estimates are inherently subject to uncertainties, neither the Debtors, the
Reorganized Debtor, nor ZC nor any other person assumes responsibility for their
accuracy. Estimates of value do not purport to be appraisals or necessarily
reflect the values which may be realized if assets are sold. Such valuations
reflect computations of the estimated reorganization enterprise value of the
Reorganized Debtor derived through the application of various valuation
techniques and do not purport to reflect or constitute appraisals or estimates
of value that may be realized through the sale of any New Common Stock to be
issued pursuant to the Plan in public or private markets, to the extent one
exists which may be significantly different than the amounts set forth herein,
which amounts are based on the estimated reorganization enterprise value used by
the Debtors. The valuation of newly issued securities is subject to
uncertainties and contingencies, all of which are difficult to predict. Actual
market prices of such securities at issuance will depend upon prevailing
interest rates, market conditions and prospects, financial and otherwise of the
Debtors, including the anticipated initial securities holdings of prepetition
creditors some of which may prefer to liquidate their investment rather than
hold it on a long-term basis and other factors which generally influence the
price of securities. Actual market prices of such securities
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may be affected by the Debtors' history in the Chapter 11 cases or by other
factors not possible to predict.
MANY OF THE ANALYTICAL ASSUMPTIONS UPON WHICH THIS VALUATION IS
BASED ARE BEYOND THE DEBTORS' CONTROL AND THERE WILL BE VARIATIONS BETWEEN SUCH
ASSUMPTIONS AND ACTUAL FACTS. THESE VARIATIONS MAY BE MATERIAL. SEE "RISK
FACTORS TO BE CONSIDERED" FOR A DISCUSSION OF VARIOUS OTHER FACTORS WHICH COULD
MATERIALLY AFFECT THE VALUE OF THE NEW COMMON STOCK DISTRIBUTED PURSUANT TO THE
PLAN.
This valuation analysis includes an analysis of the projections
contained in the Debtors' business plan (see Appendix B), including its
underlying assumptions and conditions. The Debtors' management consider the
projections to be reasonable estimates of the Reorganized Debtor's future
operations.
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS UNDER THE
PLAN
Section 1122 of the Bankruptcy Code requires that a plan of
reorganization classify the claims of a debtors' creditors and the interests of
its equity holders. The Bankruptcy Code also provides that, except for certain
claims classified for administrative convenience, a plan of reorganization may
place a claim or interest of a creditor or equity holder in a particular class
only if such claim or interest is substantially similar to the other claims or
interests in such class. The Plan places the Secured Claims, General Unsecured
Claims, Convenience Claims and Interests in separate Classes.
The Debtors believe they have classified all Claims and
Interests in compliance with the provisions of Section 1122 of the Bankruptcy
Code. If the holder of a substantial Claim or Interest challenges such
classification of Claims or Interests and the Bankruptcy Court finds that a
different classification is required for the Plan to be confirmed, the Debtors,
to the extent permitted by the Bankruptcy Court, intend to make reasonable
modifications to the classification of Claims or Interests under the Plan to
provide for whatever classification might be required by the Bankruptcy Court
for Confirmation.
Except to the extent that such modification of classification
adversely affects the treatment of a holder of a Claim and requires
resolicitation, acceptance of the Plan by any holder of a Claim pursuant to this
solicitation will be deemed to be a consent to the Plan's treatment of such
holder of a Claim regardless of the Class as to which such holder of a Claim is
ultimately deemed to be a member.
The Bankruptcy Code also requires that a plan of reorganization
provide the same treatment for each claim or interest of a particular class,
unless the holder of a particular Claim or Interest agrees to a less favorable
treatment of its Claim or Interest. The Debtors believe that they have complied
with such standard. If the Bankruptcy Court finds otherwise, it could deny
confirmation of the Plan if the affected holders of Claims or Interests do not
consent to the treatment afforded them under the Plan.
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1. TREATMENT OF ADMINISTRATIVE EXPENSES, OTHER PRIORITY
CLAIMS AND PRIORITY TAX CLAIMS
a. ADMINISTRATIVE EXPENSES.
Administrative Expense Claims consist of any cost or
expense of administration of the Chapter 11 cases allowable under Section 503(b)
of the Bankruptcy Code including, without limitation, (i) a Claim under Section
330, 331 or 503(b) of the Bankruptcy Code for compensation for professional
services rendered and reimbursement of expenses in the Chapter 11 cases ("Fee
Claims"), (ii) any fees assessed against the Debtors' estates under 28 U.S.C.
Section 1930, (iii) the actual, necessary costs and expenses of preserving the
Estates and operating the business of the Debtors, incurred and payable in the
ordinary course of business by the Debtors after the Petition Date ("Ordinary
Course Administrative Expense Claims"), and (iv) any and all liabilities that
have, with the approval of the Bankruptcy Court, been assumed by or otherwise
become binding upon any of the Debtors during the Chapter 11 cases at any time
though the Effective Date including, so long as approved by the Bankruptcy
Court, (a) all agreements relating to any indebtedness incurred or credit
extended to any of the Debtors at any time during such period, (b) all contracts
and other obligations undertaken by or imposed upon the Debtors at any time
during such period, and (c) all unexpired leases and executory contract entered
into prior to the Petition Date and assumed by any of the Debtors at any time
during such period.
Assuming neither significant litigation nor objections are filed
with respect to the Plan, and assuming the Plan is confirmed by October 2, 1999,
the Debtors estimate that unpaid Administrative Expense Claims as of the
Effective Date will be approximately $48.8 million. This amount includes, inter
alia, repayment of the DIP Facility (expected to occur through the
Post-Confirmation Credit Facility in the amount of approximately $22.6 million),
ordinary course trade payables (approximately $14.7 million), and other
non-trade payables including rent, utilities, accrued benefits, and taxes, as
well as unpaid professional fees and expenses anticipated to aggregate
approximately $11.4 million. Such amount also includes the statutory fees
payable to the United States Trustee, which the Debtors estimate should not
exceed $25,000. Many of these expenses (e.g., trade payables) will not be
immediately due and payable on the Effective Date. Rather, they will be assumed
by the Reorganized Debtor and paid in the ordinary course of business.
Under the Plan, each holder of an Allowed Administrative Expense
Claim will receive payment in full in Cash by the Reorganized Debtor on the
latest of (i) the Effective Date, (ii) the date on which such obligation becomes
due and payable, or (iii) such other date as may be agreed upon by the parties.
b. PRIORITY TAX CLAIMS.
A Priority Tax Claim is any Claim against the Debtors of
the type specified in Section 507(a)(8) of the Bankruptcy Code. These Claims
consist of certain Unsecured Claims of governmental units for taxes, including
income taxes for a taxable year ending on or before the date of the filing of
the petition for which a tax return, if required, is last due, including
extensions, after three years before the date of the filing of the petition.
Total Priority
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Tax Claims currently on file against the Debtors equal approximately $4.4
million. The Debtors believe such Claims ultimately will be Allowed in the
amount of approximately $2 million.
Under the Plan, each holder of an Allowed Priority Tax
Claim will receive a Cash payment in the amount of such Priority Tax Claim six
years after the date of assessment of the tax on which such Claim is based, plus
simple interest paid annually in arrears on such amount from the Effective Date
through such day at the effective interest rate publicly quoted on the Effective
Date for obligations backed by the full faith and credit of the United States of
America maturing in 90 days. At the option of the Reorganized Debtor, any
Allowed Priority Tax Claim may be (i) paid on such alternative terms as may be
agreed by the Reorganized Debtor and the holder of such Allowed Priority Tax
Claim or (ii) prepaid in whole or in part, without premium or penalty, at any
time.
c. OTHER PRIORITY CLAIMS.
An Other Priority Claim is any Claim against the Debtors
entitled to priority treatment under Sections 507(a)(2)-(7) and (9) of the
Bankruptcy Code. The Debtors believe that such Claims ultimately will be Allowed
in an amount not to exceed $100,000.
Under the Plan, each holder of an Allowed Other Priority
Claim will be paid, at the sole election of the Debtors and the Reorganized
Debtors, (i) in accordance with Section 507 of the Bankruptcy Code, (ii) in the
ordinary course, as and when such Claims become due and payable, or (iii) as
otherwise authorized by the Bankruptcy Court, except to the extent the holder of
such Claim agrees to a less favorable treatment.
d. TREATMENT OF CLASS 1 CLAIMS.
(Secured Claims). Class 1 Claims are Unimpaired. On the
Effective Date, the legal, equitable and contractual rights of holders of Class
1 Claims shall remain unaltered, and the Secured Claims will be reinstated and
paid in full in accordance with their respective terms. The Debtors believe that
the amount of Allowed Secured Claims, if any, will be de minimis.
e. TREATMENT OF CLASS 2 CLAIMS.
(General Unsecured Claims). Class 2 Claims are Impaired.
The Debtors estimate that the total aggregate amount of Class 2 Claims that will
ultimately be Allowed is approximately $60 million. The largest Class 2 Claim,
in the approximate amount of $18 million, is held by Royalty.
On the Effective Date, or as soon thereafter as is
practicable, each holder of an Allowed Class 2 Claim will receive shares of New
Common Stock equal to the product of (a) such holder's Allowed Class 2 Claim
multiplied by (b) the Equity Factor. The Equity Factor was derived by taking the
maximum shares authorized for distribution to Class 2 claimants (5 million
shares) and dividing such number by the maximum amount of estimated Allowed
Class 2 Claims (currently estimated at $60 million) (hereinafter, the "Maximum
Estimated
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Class 2 Claims"). No distribution is expected to be made to the Richfood
Entities on account of any of their Class 2 Claims. See infra "Release of Dart
And Richfood."
Holders of Class 2 Claims shall not retain or receive
any additional property for or on account of their Class 2 Claims. The New
Common Stock to be issued and distributed in respect of the Class 2 Claims shall
represent 100% of the New Common Stock issued and outstanding as of the
Effective Date, subject to dilution to up to 85% of total ownership in the event
options to purchase New Common Stock are exercised by management pursuant to the
Emergence Bonus and Incentive Plan.
f. TREATMENT OF CLASS 3 CLAIMS.
(Convenience Claims). Class 3 Claims are Impaired. On
the Effective Date, holders of Allowed Convenience Claims will receive Cash in
an amount equal to 25% of the Allowed Amount of such Allowed Convenience Claim.
Holders of Allowed Convenience Claims shall not receive or retain any additional
property for or on account of their Class 3 Claims.
g. TREATMENT OF CLASS 4 INTERESTS.
(Old Crown Common Stock Interests). Class 4 Interests
are Impaired. On the Effective Date, (a) the Old Crown Common Stock, and all
related rights, warrants and options shall be canceled, and (b) any obligations
of Crown under agreements and/or instruments governing, or entered into in
connection with, the issuance or sale of the Old Crown Common Stock and such
related rights, warrants or options shall be discharged. Holders of Class 4
Interests will not receive or retain any consideration under the Plan.
Therefore, pursuant to Section 1126(g) of the Bankruptcy Code, this Class will
be deemed to have voted to reject the Plan.
h. TREATMENT OF CLASS 5 INTERESTS.
(Old Equity Interests in the Subsidiaries). Class 5
Interests are Impaired. On the Effective Date, all Old Equity Interests in the
Subsidiaries will be canceled and extinguished. The holder of Class 5 Interests
will not receive or retain any consideration under the Plan. Therefore, pursuant
to Section 1126(g) of the Bankruptcy Code, this Class will be deemed to have
rejected the Plan.
D. UNEXPIRED LEASES AND EXECUTORY CONTRACTS
1. GENERAL
Subject to the approval of the Bankruptcy Court, the Bankruptcy
Court empowers a debtor in possession to assume or reject executory contracts
and unexpired leases. Generally, an "executory contract" is a contract under
which material performance is due from both parties. If an executory contract or
unexpired lease is rejected by a debtor in possession, the other parties to the
agreement may file a claim for damages incurred by reason of the rejection,
which claim is treated as a prepetition claim (provided that such contract or
lease had not been assumed earlier
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in the proceedings). If an executory contract or unexpired lease is assumed by a
debtor in possession, the debtor in possession has the obligation to cure any
prepetition defaults thereunder, subject to exceptions specified in the
Bankruptcy Code.
2. TREATMENT OF UNEXPIRED LEASES AND EXECUTORY CONTRACTS
UNDER THE PLAN
Under the Plan, and except as otherwise provided in the Plan,
any unexpired lease or executory contract that has not been rejected or assumed
by the Debtors with the Bankruptcy Court's approval on or prior to the
Confirmation Date will be deemed to have been assumed by the Debtor as of the
Effective Date unless prior to the Confirmation Date there is pending before the
Bankruptcy Court a motion to reject such lease or contract or such lease or
contract is listed on the Schedule of Rejected Leases and contracts to be filed
with the Bankruptcy Court and served on interested parties at least ten (10)
days prior to the Confirmation Date.
As to any unexpired lease or executory contract assumed pursuant
to the Plan, the Reorganized Debtor shall, pursuant to the provisions of Section
1123(a)(5)(G) of the Bankruptcy Code, cure or provide adequate assurance of a
prompt cure of all defaults (except those specified in Section 365(b)(2) of the
Bankruptcy Code) existing under and pursuant to such executory contact or lease
by paying or demonstrating the ability to pay the amount, if any, of such
assumption claim. The Debtors shall file with the Bankruptcy Court and serve on
the counterparty to each such executory contract or unexpired lease, a schedule
setting forth the amount of each cure amount at least ten (10) days prior to the
date first scheduled for the Confirmation hearing. Any counterparty to an
executory contract or unexpired lease that does not agree with such cure amount
as scheduled by the Debtors, may file an objection to the amount so scheduled by
the Debtors no later than three (3) days prior to the date first scheduled for
the Confirmation hearing. If an objection to the amount of an assumption claim
is so filed, the assumption claim shall be deemed a Disputed Claim, and the
Bankruptcy Court shall determine the amount actually due and owing in respect of
the assumption claim or shall approve any settlement of such assumption claim.
Any scheduled assumption claim with respect to which an objection is not timely
filed will be paid on the Effective Date. Payment of any such cure claim shall
cure and be in full satisfaction, release and discharge of such cure claim and
all such defaults (including any other Claims filed by any such party as a
result of such defaults).
Each person that is a party to an executory contract or
unexpired lease that is rejected as of the Confirmation Date shall be entitled
to file, not later than thirty (30) days after the Confirmation Date (unless an
earlier date has been established by the Bankruptcy Court for such claimant in
which case such earlier date shall control), a proof of claim for damages
alleged to have arisen from the rejection of such executory contract or
unexpired lease, or be forever barred from asserting such Claim against the
Debtors and the Reorganized Debtor. Each Person that is party to an executory
contract or unexpired lease subject to a motion to reject that is pending before
the Bankruptcy Court on the Confirmation Date, shall be entitled to file, not
later than thirty (30) days after the date that the Bankruptcy Court approves
such motion, a proof of claim for damages alleged to have arisen from the
rejection of such executory contract or unexpired lease, or be forever barred
from asserting such Claim against the Debtor and the Reorganized Debtor. Nothing
in the Plan shall operate to bar any Claim which Dart may assert
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with respect to an assumed lease guaranteed by Dart in the event that, after the
Effective Date, the Reorganized Debtor defaults on such assumed lease. See infra
"Release of Dart and Richfood."
The Debtors estimate that rejection of executory contracts and
unexpired leases during the Chapter 11 cases will give rise to Allowed Class 2
General Unsecured Claims aggregating approximately $15.9 million.
E. IMPLEMENTATION OF THE PLAN
After the Plan becomes effective and subject to any further
order of the Bankruptcy Court the Reorganized Debtor will take such actions as
are necessary to implement the Plan. The Reorganized Debtor and/or the
Disbursing Agent will be authorized to admit, object to or contest any and all
Claims, to defend, protect and enforce any and all rights and interests, to make
any and all distributions required or permitted to be made under the Plan, to
file any and all reports, requests for relief or opposition thereto, and to take
any and all other actions necessary or appropriate to implement the Plan in
accordance with applicable law. The Debtor shall be authorized to pay any and
all claims, liabilities, losses, damages, costs and expenses incurred in
connection therewith or as a result thereof, subject to approval of the
Bankruptcy Court, as may be required under applicable provisions of the
Bankruptcy Code and the Bankruptcy Rules. The Debtors will be further authorized
to incur and pay all fees and expenses of their professionals accruing from and
after the Effective Date, without any application to or approval by the
Bankruptcy Court.
1. OPERATIONS BETWEEN THE CONFIRMATION DATE AND THE
EFFECTIVE DATE.
The Debtors shall continue to operate as debtors in possession,
subject to the supervision of the Bankruptcy Court, during the period from
Confirmation Date through and until the Effective Date; provided, however, that
the Debtors shall not be precluded from taking any steps that they deem
necessary or desirable to prepare for and effect the consummation of the Plan.
2. REVESTING AND TRANSFER OF ASSETS.
The property of the Estates of the Debtors that is not
specifically disposed of pursuant to the Plan shall revest in the Reorganized
Debtor on the Effective Date. Except as specifically provided in the Plan or in
the Confirmation Order, as of the Effective Date, the Reorganized Debtor may
operate its business and may use, acquire, and dispose of property free of any
restrictions of the Bankruptcy Code, the Bankruptcy Rules, and the Bankruptcy
Court. As of the Effective Date, all property of the Reorganized Debtor shall be
free and clear of all Claims and Interests, except as specifically provided in
the Plan or in the Confirmation Order.
3. CANCELLATION OF SECURITIES.
On the Effective Date, the Old Crown Common Stock and the Old
Equity Interests in the Subsidiaries shall be canceled, discharged and fully
satisfied by the Confirmation of the Plan.
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4. LISTING OF NEW COMMON STOCK; REGISTRATION OF SECURITIES.
The Reorganized Debtor shall use its best efforts to (i) to
become a reporting company under Section 12 of the 1934 Act as soon as
practicable after the Effective Date by causing to be filed with the Commission
and having declared effective on or prior to the Effective Date, a registration
statement on Form 10 under the 1934 Act with respect to registration of the New
Common Stock under the 1934 Act, (ii) to cause the shares of the New Common
Stock issued hereunder and all New Common Stock issued hereafter to be listed on
a national securities exchange or quoted in the NASDAQ national market or NASDAQ
smallcap market, as the case may be, (iii) to file and have declared effective
as soon as possible thereafter a registration statement under the Securities Act
for the offer and sale on a delayed or continuous basis the shares of the New
Common Stock held by Royalty on the Effective Date or issued thereafter (the
"Shelf Registration Statement"), (iv) to maintain the effectiveness of the Shelf
Registration Statement for a period of at least two years, and (v) enter into
Registration Rights Agreement with Royalty. Pursuant to the Plan, on the
Effective Date, the Reorganized Debtor will enter into a Registration Rights
Agreement for the benefit of Royalty, which will be receiving approximately
thirty (30%) percent of the aggregate amount of the New Common Stock being
issued under the Plan. Pursuant to the Registration Rights Agreement, Royalty
will have the right, exercisable at any time within five years after the
Effective Date, to demand on a maximum of three occasions the registration of
shares of the New Common Stock initially issued or otherwise held by Royalty
under the Securities Act. Royalty will also have unlimited piggyback rights with
respect to such shares of New Common Stock for a period of seven years. The form
of such Registration Rights Agreement will be included in the Plan Supplement to
be filed with the Bankruptcy Court.
5. ALLOWANCE OF CLAIMS SUBJECT TO SECTION 502(d).
Allowance of Claims shall be in all respects subject to the
provisions of Section 502(d) of the Bankruptcy Code.
6. RIGHT OF SETOFF.
Except for any Claim that is Allowed in an Amount set forth in
the Plan, the Reorganized Debtor shall have the right to set off against any
Claim and the distributions to be made pursuant to the Plan in respect of such
claim, any and all debts, liabilities and claims of every type and nature
whatsoever which the Estates or the Reorganized Debtor may have against the
holder of such Claim, and neither any prior failure to do so nor the allowance
of such Claim, whether pursuant to the Plan or otherwise, shall constitute a
waiver or release of any such right of setoff.
F. CORPORATE GOVERNANCE
Except where otherwise expressly provided in the Plan, the
corporate governance of the Reorganized Debtor and the election and appointment
of the directors and officers of the Reorganized Debtor shall be carried out in
accordance with the Amended Articles of Incorporation and Amended By-Laws of the
Reorganized Debtor, which documents will be filed with the Bankruptcy Court in
the Plan Supplement. As of the Effective Date, in accordance with
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the Amended Articles of Incorporation and Amended By Laws of the Reorganized
Debtor, the management, control and operation of the Reorganized Debtor will
become the general responsibility of the board of directors. The Amended and
Restated Certificate of Incorporation will also, among other things, prohibit
the issuance of non-voting equity securities to the extent required by Section
1123(a)(6) of the Bankruptcy Code and will (i) authorize the shares of New
Common Stock in amounts no greater than 10,000,000 shares, which shall be at
least sufficient to satisfy the Reorganized Debtor's obligations under the Plan,
(ii) a classified Board of Directors providing for staggered election of
Directors, and (iii) blank check preferred Stock provisions with no greater than
1,000,000 shares of preferred stock authorized.
G. APPOINTMENT OF DIRECTORS; RETENTION OF OFFICERS
It is currently contemplated by the Debtors that the board of
directors of the Reorganized Debtor will consist of five members, two of whom
will be chosen by the Debtors and three of whom will be chosen by Royalty. That
issue is still under discussion with the Committee and the individuals who will
be serving on the board of directors of the Reorganized Debtor as of the
Effective Date shall, pursuant to Section 1129(a)(5)(A) of the Bankruptcy Code,
be identified in the Plan Supplement to be filed with the Bankruptcy Court prior
to the Confirmation Hearing. Unless otherwise provided for by any of the
Debtors, the existing officers shall continue to hold their respective positions
with the Reorganized Debtor following the Effective Date.
By way of further disclosure, Royalty is affiliated with
Shenkman Capital Management, Inc., a New York corporation which is a registered
investment advisor regulated by the Securities Exchange Commission and currently
manages over $2.5 billion of assets.
The Reorganized Debtor will also be procuring a directors and
officers insurance policy for the benefit of the directors and officers of the
Reorganized Debtor.
H. SETTLEMENT WITH INGRAM.
The Debtors have reached an agreement in principle with Ingram
(the "Ingram Term Sheet") defining the terms under which Ingram will provide
trade credit to the Reorganized Debtor following Confirmation of the Plan. The
Ingram Settlement will be attached to the Plan Supplement filed with the
Bankruptcy Court pursuant to Section I.C of the Plan.
Under the Ingram Settlement, Ingram has committed to provide the
Reorganized Debtor with up to $11.6 million in trade credit through and
including December 31, 1999; after such date, Ingram's credit trade commitment
will be reduced to $9.6 million.
As security for Ingram's commitment to provide trade credit, the
Reorganized Debtor shall grant to Ingram a lien on all of its inventory,
subordinate to the liens to be granted under the Post-Confirmation Credit
Facility, securing trade credit extended by Ingram in amounts above $1.5
million. Other vendors extending more than $750,000 in trade credit to the
Reorganized Debtor may be granted a similar junior security interest for credit
extended in excess of $750,000.
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Ingram's commitment to provide trade credit as described above
is for a period of two years extending from the date of Confirmation of the
Plan.
As further security for Ingram' obligations under the Ingram
Settlement, the Reorganized Debtor will cause to be issued an irrevocable
standby letter of credit in the amount of $2 million, naming Ingram as the
beneficiary of such letter of credit to be drawn upon by Ingram in the event of
payment default or past due invoices.
The Ingram Settlement specifically requires the Debtors on
behalf of themselves and their respective estates to release Ingram from any and
all prepetition and postpetition claims (including preference claims) which the
Debtors may have against Ingram. In turn, with the exception of all current and
future trade debt and fees related thereto, Ingram shall release the Debtors
from any and all prepetition and postpetition claims which Ingram may have
against the Debtors other than claims related to goods sold.
Prior to entering into the above-referenced Settlement with
Ingram, the Debtors and ZC conducted a comprehensive analysis of claims of the
Debtors' estates against Ingram to recover certain potential preferential
transfers under Section 547 of the Bankruptcy Code. Those potential preferential
transfers related to the return of book inventory by Crown to Ingram for credit
and to certain payments made by Crown to Ingram in the 90 days prior to the
Petition Date. The Debtors' investigation also included an analysis of Ingram's
claims and causes of action against them, and potential affirmative defenses
which would likely be asserted by Ingram in connection with any preference
action. The Debtors have shared the results of this analysis with the members
and professionals of the Committee.
Based upon their investigation and analysis, the Debtors
ultimately concluded that, while their claims against Ingram may have merit, the
more prudent and productive course would be to enter into the Ingram Settlement
and, inter alia, enter into the mutual general releases with Ingram described
above. Although it necessarily contemplates the release of potentially valuable
causes of action by the Debtors, the Debtors have determined that the Ingrain
Settlement confers benefits of greater value than any potential recovery against
Ingram arising out of an avoidance action under applicable provisions of the
Bankruptcy Code.
As noted, the Debtors and their professionals have apprised the
Committee of the nature and extent of the claims and causes of action to be
released under the Ingram Settlement, as well as the Debtors' conclusions
regarding the benefits of the Ingram Settlement. The Committee has advised the
Debtors that it does not object to the Debtors' entry into the Ingram
Settlement.
The Ingrain Settlement contemplates that Ingrain and Dart will
likewise exchange mutual releases of any claims against each other, including
claims asserted in the Ingram lawsuit A condition of such release is the
reduction of the Ingram trade credit facility from $11.6 million to $9.6 million
on December 31, 1999. See also "Release of Dart and Richfood."
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I. EMERGENCE BONUS AND INCENTIVE PLAN
On the Effective Date, the Reorganized Debtor expects to
distribute options to purchase New Common Stock to certain members of the
Reorganized Debtor's senior management in accordance with the provisions of the
Emergence Bonus and Incentive Plan. Distributions of options would be based
upon, among other things, management exceeding financial projections of the
Reorganized Debtor. If fully exercised, the Management Options will entitle the
holders thereof to fifteen percent (15%) of the total amount of the New Common
Stock to be issued and outstanding on a fully diluted basis. Pursuant to the
provisions of Section I.C of the Plan, the Emergence Bonus and Incentive Plan
will be filed with the Bankruptcy Court as part of the Plan Supplement prior to
the Confirmation Hearing. In the event, however, that the terms of the Emergence
Bonus and Incentive Plan are not agreed upon so as to be included in the Plan
Supplement, it is currently contemplated that the board of directors of the
Reorganized Debtor will consider adoption of a similar plan after the Effective
Date.
J. EFFECTS OF PLAN CONFIRMATION
1. DISCHARGE AND TERMINATION.
Except for distributions under the Plan and as otherwise
provided in the Plan or in the Confirmation Order, on the Effective Date, the
Confirmation Order shall operate as a discharge, pursuant to Section 1141(d)(1)
of the Bankruptcy Code, and release of any and all debts (as such term is
defined in Section 101(12) of the Bankruptcy Code) of, and Claims against one or
more of the debtors that arose at any time before the Confirmation Date,
including, but not limited to, all principal and interest, whether accrued
before, on or after the Petition Date, regardless of whether (i) a proof of
claim in respect of such Claim has been Filed or deemed Filed, (ii) such Claim
has been Allowed pursuant to Section 502 of the Bankruptcy Code, or (iii) the
holder of such Claim has voted on the Plan, or has voted to reject the Plan. On
the Effective Date, the Debtors shall be discharged from any debt that arose
before the Confirmation Date, and any debt of a kind specified in Section
502(g), 502(h), or 502(i) of the Bankruptcy Code, to the fullest extent
permitted by Section 1141(d)(1)(A) of the Bankruptcy Code. Except as otherwise
specifically provided in the Plan, nothing in the Plan shall be deemed to waive,
limit or restrict in any manner the discharge granted upon Confirmation of the
Plan pursuant to Section 1141 of the Bankruptcy Code.
2. COMPLETE SATISFACTION.
Except as otherwise specifically provided by the Plan, the
distributions and rights that are provided in this Plan shall be in complete
satisfaction, discharge and release, effective as of the Confirmation Date (but
subject to the occurrence of the Effective Date) of (i) all claims and causes of
action against, liabilities of, liens on, obligations of and Interests in the
Debtors or Reorganized Debtor or the direct or indirect assets and properties of
the Debtors or Reorganized Debtor whether known or unknown, and (ii) all causes
of action (whether known or unknown, either directly or derivatively through the
Debtors or the Reorganized Debtor) against, claims (as defined in Section 101 of
the Bankruptcy Code) against, liabilities (as guarantor of a claim or otherwise)
of, liens on the direct or indirect assets and properties of, and obligations of
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successors and assigns of, the Debtors, the Reorganized Debtor and their
successors and assigns based on the same subject matter as any Claim or Interest
or based on any act or omission, transaction or other activity or security,
interest or other agreement of any kind or nature occurring, arising or existing
prior to the Effective Date that was or could have been the subject of any Claim
or Interest, in each case regardless of whether a proof of claim or interest was
filed, whether or not Allowed and whether or not the holder of the Claim or
Interest has voted on this Plan.
3. RELEASE OF DEBTORS AND DEBTORS IN POSSESSION.
On the Effective Date, the Debtors, in consideration for, among
other things, their voluntary resignation, support of the Plan and/or their
waiver of distributions under the Plan, shall release (i) all present and former
officers and directors of the Debtors either holding such office (x) immediately
prior to the Effective Date; or (y) on July 14, 1998; and (ii) the Richfood
Entities (collectively, the "Releasees") from any and all claims or liability
based upon any act or omission related to service prior to the Effective Date
with, for or on behalf of the Debtors or Debtors-in-Possession, except that the
Releasees shall not be released with respect to: (i) any indebtedness of any
such Releasee to the Debtors for money borrowed by such Releasee; (ii) any
setoff or counterclaim the Debtors may have or assert against any such Releasee,
provided that the aggregate amount thereof shall not exceed the aggregate amount
of any claims held or asserted by such Releasee against the Debtors or
Debtors-In-Possession, as the case may be.
4. RELEASE BY HOLDERS OF CLAIMS AND INTERESTS.
Except as otherwise specifically provided by this Plan, any
Entity accepting any distribution pursuant to this Plan shall be presumed
conclusively to have released the Debtors, the Reorganized Debtor, the Richfood
Entities and their respective successors and assigns from any claim or cause of
action based on the same subject matter as the Claim upon which the distribution
is received. The release described in the preceding sentence shall be
enforceable as a matter of contract against any Entity that accepts any
distribution pursuant to this Plan.
5. RELEASE OF DART AND RICHFOOD.
Dart has filed 5 proofs of claim in the Chapter 11 cases
aggregating approximately $30 million (the "Dart Claim"). Approximately $10
million of the Dart Claims relate to Dart's guaranty of certain store leases.
Another approximately $2 million of the Dart Claims relate to pre-petition
services and corporate expenses, including rent for Crown's Landover, Maryland
headquarters, allocated to Crown by Dart. The balance of the Dart Claims relate
to (i) Crown's remaining liability under the headquarters lease and (ii) Dart's
potential claim for contribution in the event a judgment is rendered against
Dart in the Ingram Lawsuit. Dart has agreed to waive any recovery on account of
the Dart Claims and to provide certain additional consideration including an
agreement related to the mutual termination of the headquarters lease in
exchange for the Debtors' agreement to release Dart, Richfood and their
respective officers, directors, agents and employees and their respective
successors and assigns, from any and all claims or causes of action which may
exist as of the Effective Date. Dart would retain its potential subrogation
claim with respect to any continued liability it might have for its guaranty of
leases assumed by Crown during the Chapter 11 cases. Moreover, Dart's potential
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contribution claim relating to the Ingram Lawsuit would not be released until
Dart received a release by Ingram from claims asserted in the Ingram Lawsuit.
See "Settlement with Ingram" supra . Dart has agreed to pay the Reorganized
Debtor $300,000 upon receipt of the release of the claims asserted in the Ingram
Lawsuit.
The Committee, through informal and Bankruptcy Court sanctioned
discovery, has investigated potential claims and causes of action against the
Richfood Entities. Specifically, based upon its investigation, the Committee
believes that the Debtors may have substantial claims in excess of $15 million
against three of the Debtors' former directors, and against one former officer,
based upon alleged gross mismanagement and breaches of fiduciary duty. In
addition, the Committee believes that the Debtors also may hold substantial
claims against Dart, the Debtors' ultimate controlling shareholder. The claims
against all of the officers and directors are believed by the Committee to be
covered by a $15 million Directors and Officers liability insurance policy.
Additionally, the claims against the directors are subject to an indemnification
agreement by Dart.
On or about August 16, 1999, the Committee moved for
authorization to commence an adversary proceeding (the "Adversary Proceeding")
on behalf of the Debtors' estates in the Bankruptcy Court against Lazar G.
Schafran, Douglas Bregman, Bonita Wilson (collectively, the "Directors"),
Stephen A. Stevens ("Stevens") and Dart seeking damages and costs against
Defendants therein. Generally, the Committee contends that the Directors failed
to exercise reasonable care in overseeing the implementation of major, strategic
initiatives by Stevens, with catastrophic consequences for the Debtors'
operations. Stevens is alleged (i) to have grossly mismanaged the Debtors'
prepetition operations through the implementation of the Evolution computer
system and the adoption of the superstore format and (ii) to have engaged in
personal and professional behaviors unsuited to his position as Crown's
president. For a further discussion of the consequences of adoption of the
Evolution system and the superstore concept, see "BACKGROUND - Events Preceding
Commencement of the Chapter 11 Cases." In addition, the Committee has alleged
that Stevens and the Directors abused corporate expense accounts and otherwise
failed to act in the best interests of the Debtors.
Finally, the Committee has alleged that Dart abused its position
as the Debtors' controlling shareholder by collecting excessive fees for
management services and by keeping Crown embroiled in litigation brought by
third parties against Dart, allegedly for the purpose of allocating to Crown a
portion of Dart's fees and expenses in such litigation.
Although, as discussed above, the Committee has identified
certain potential claims and causes of action against Dart and certain officers
and directors, the Debtors believe such potential claims and causes of action
are speculative in nature and significant hurdles to recovery exist. Among other
things, the Debtors believe the former officers and directors which may be
targets of claims and causes of action do not have significant assets from which
any judgment, if obtained, could be collected. Moreover, it is anticipated by
the Debtors that under the Directors and Officers Liability insurance policy
currently covering such directors and officers, claims brought by Crown against
other insureds may be excluded from coverage. Finally, the value of the claims
assertable against Dart would, if allowed, be subject to setoff
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against Dart's claims against the Debtors. However, the Committee contends that
Dart's indemnification obligations are indirect claims which would not be
subject to setoff.
Given the foregoing, the Debtors have concluded that the value
of the consideration to be provided by Dart and Richfood in respect of the
releases contemplated by the Plan exceeds the value of the speculative claims
which the Debtors might otherwise assert. Moreover, Stevens is not a Richfood
Entity and is not a beneficiary of the release of the Dart claims. Thus,
confirmation of the Plan and the effectuation of the releases contemplated
thereby would not deprive the Debtors' estates, or the Reorganized Debtor on
behalf of the Debtors' estates, from pursuing claims against Stevens. Given that
the damages related to the alleged mismanagement by the Directors and Stevens
are the same, under the Plan the Debtors' estates can obtain the benefits of
both the release of the Dart claims and the causes of action the Committee seeks
to pursue. Among other things, the release of the Dart Claims increases the
value of the distributions to be made under the Plan to unsecured creditors. The
release also facilitates the termination of Crown's headquarters lease on
acceptable terms without the incurrence of additional liability thereunder, and
the payment of $300,000 to the Reorganized Debtor.
As noted, the Committee does not support the proposed release of
the Richfood Entities and believes the claims against the Richfood Entities are
strong and valuable, and should therefore be vigorously pursued and not released
as presently contemplated under the terms of the Plan.
The Committee believes that if Dart is released, Dart will be
relieved of its obligation to indemnify the Directors, and the Debtors could be
left without a source of recovery for their substantial and valuable claims
against the Directors. The Committee believes that a potential judgment against
Stevens could be uncollectible. It is believed that Stevens has limited personal
assets and any recovery would be from the Directors and Officer liability
policy. To the extent that claims against Stevens are excluded from insurance
coverage, a judgment against Stevens would be uncollectible.
The Committee has advised the Debtors that in the Committee's
judgment, the Debtors' Chief Executive Officer is subject to a disabling
conflict of interest that makes it impossible for her to act on the Debtors'
behalf in any negotiations with the Richfood Entities. In the opinion of the
Committee, this conflict arises from the fact that Richfood employees hold two
of the three seats of the Debtors' Board of Directors, and the Debtors' Chief
Executive Officer, who is the third member of the Debtors' Board, holds her job
at the pleasure of the two directors affiliated with Richfood. For these
reasons, the Committee believes that only it, and not the Debtors' management,
can properly evaluate and pursue the claims against the Richfood Entities.
6. EXCULPATION.
Neither the Debtors, the Estates, the Reorganized Debtor, the
Committee nor any present officer, director, employee, agent, attorney,
accountant, investment banker or financial advisor to any of them, shall be
obligated in any manner under the Plan or in respect or by reason of the filing,
negotiation, prosecution, Confirmation, consummation or implementation of the
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Plan or the attempted restructuring of the indebtedness of the Debtors prior to
the Petition Date or any action taken or not taken in connection therewith, or
shall have or incur any liability to any holder of a Claim or Interest or any
other Person in respect of any such matters or any information provided or
statement made in the Disclosure Statement or omitted therefrom, except that (i)
the Debtors and the Reorganized Debtor shall fulfill the obligations expressly
set forth therefor in the Plan and (ii) each Person shall remain liable, to the
extent provided by law, for its own willful misconduct or gross negligence as
determined pursuant to Final Order of a court of competent jurisdiction. Each
such person shall be entitled to rely upon the advice of counsel with respect to
its duties and responsibilities under the Plan and shall be fully protected in
acting or in refraining from acting in accordance with such advice or in any
manner approved or ratified by the Bankruptcy Court.
7. INJUNCTION.
The discharge and release provided in the Plan shall also
operate as an injunction restraining any person from commencing or continuing
any action, suit or proceeding, or employing any process, or otherwise acting,
to collect, offset or recover arty claim discharged or related under the Plan to
the fullest extent authorized or provided by the Bankruptcy Court, including the
Sections 524 and 1141 thereof. The Confirmation Order shall constitute an
injunction enjoining any Person from enforcing or attempting to enforce any
cause of action against any present director, officer, employee, attorney,
accountant, financial advisor, investment banker or agent of any of the Debtors
based on, arising from or relating to, in whole or in part, any act, omission,
or other occurrence taking place on or prior to the Effective Date with respect
to or in any way relating to the Chapter 11 cases, all of which causes of action
will be deemed released on the Effective Date.
K. PRESERVATION OF INSURANCE
The Debtors' discharge provided in the Plan will not diminish or
impair the enforceability of any insurance policies that may cover claims
against the Debtors, the Reorganized Debtor, or any other Person.
L. DISTRIBUTIONS UNDER THE PLAN
1. TIMING OF DISTRIBUTIONS.
A distribution of property under the Plan shall be made by the
Reorganized Debtor or the Disbursing Agent on the Effective Date. Subsequent
interim distributions may be made from time to time in the reasonable discretion
of the Reorganized Debtor, but in no event less frequently than annually.
Furthermore, a final distribution of property shall be made by the Reorganized
Debtor no later than 120 days from the date that all Disputed Claims have been
resolved in accordance with the Plan.
2. NEW COMMON STOCK.
As of the Effective Date, the Reorganized Debtor shall be
authorized (i) to issue and distribute the New Common Stock on account of
Allowed Class 2 Claims, and (ii) to issue
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and distribute the Management Options and the shares of New Common Stock
underlying such Management Options to be distributed under the Emergence Bonus
and Incentive Plan pursuant to the Plan.
3. NEW COMMON STOCK DISTRIBUTIONS.
On the Effective Date, the Reorganized Debtor shall make
distributions of New Common Stock to holders of Allowed Class 2 Claims in
accordance with the terms of the Plan. On the Effective Date, the Reorganized
Debtor shall reserve 15% of the New Common Stock for issuance upon exercise of
the Management Options under the Emergence Bonus and Incentive Plan.
4. FRACTIONAL SHARES.
Fractional shares of New Common Stock shall not be issued under
the Plan. Whenever any distribution of a fraction of a share of New Common Stock
would otherwise be called for, the actual distribution made shall reflect a
rounding of such fraction to the nearest whole share (up or down), with half
shares being rounded down.
5. FRACTIONAL DOLLARS.
Notwithstanding any other provision of the Plan, payments of
fractions of dollars shall not be made. Whenever any payment of a fraction of a
dollar under the Plan would otherwise be called for the actual payment made
shall reflect a rounding of such fraction to the nearest whole dollar (up or
down), with half dollars being rounded down.
6. COMPLIANCE WITH TAX REQUIREMENTS.
In connection with each distribution with respect to which the
filing of an information return (such as an Internal Revenue Service Form 1099
or 1042) or withholding is required, the Reorganized Debtor shall file such
information return with the Internal Revenue Service and provide any required
statements in connection therewith to the recipients of such distribution or
effect any such withholding and deposit moneys so withheld as required by law.
With respect to any Person from whom a tax identification number, certified tax
identification number or other tax information required by law to avoid
withholding has not been received by the Reorganized Debtor, the Reorganized
Debtor may, at its option, withhold the amount required and distribute the
balance to such Person or decline to make such distribution until the
information is received. In any event, however, the Reorganized Debtor shall not
be obligated to liquidate New Common Stock to honor any withholding obligation.
7. PERSONS DEEMED HOLDERS OF REGISTERED SECURITIES.
Except as otherwise provided herein, the Reorganized Debtor
shall be entitled to treat the record holder of a registered security as the
sole holder of the Claim or Interest in respect thereof for purposes of all
notices, payments or other distributions under the Plan. No notice of transfer
of any such security shall be binding on the Reorganized Debtor, unless such
transfer has been property registered in accordance with the provisions of the
governing
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indenture or agreement on or prior to the date of the entry of the Order of the
Bankruptcy Court approving the Disclosure Statement. If there is any dispute
regarding the identity of the person entitled to any payment or distribution in
respect of any Claim under the Plan, no payment or distribution need be made in
respect of such claim until such dispute has been resolved by the parties or the
Bankruptcy Court resolves the dispute pursuant to a Final Order.
8. DISTRIBUTION OF UNCLAIMED PROPERTY.
Any claimant to whom a distribution of property is made under
the Plan that fails to claim such property within two years following the
distribution of such property by the Disbursing Agent shall have its Claim
expunged, and such property shall irrevocably revert to the Reorganized Debtor,
without regard to escheatment or other similar laws.
M. PROCEDURES FOR RESOLVING DISPUTED CLAIMS UNDER THE PLAN
1. OBJECTIONS TO CLAIMS.
Any party in interest may object to a Claim, except a Claim that
is Allowed as set forth in the Plan. Any such objection by a party in interest
other than the Debtors or the Reorganized Debtor must be filed and served not
later than the date first scheduled for the Confirmation Hearing. Following such
date, only the Reorganized Debtor may file and prosecute objections to claims
unless otherwise ordered by the Court. Objections to Claims, except Claims as to
which the Bankruptcy Court has set an earlier objection deadline, may be filed
and served by the Debtors or the Reorganized Debtor on the latest of (a) the
120th day following the Effective Date, (b) 90 days after the filing of the
proof of claim setting forth such Claim, or (c) any later date set by order of
the Bankruptcy Court, which the Debtors or the Reorganized Debtor may request on
an ex parte basis.
2. PROCEDURE.
Unless otherwise ordered by the Bankruptcy Court, the Debtors or
the Reorganized Debtor shall litigate the merits of each Disputed Claim until it
is abandoned or settled by the Debtors or the Reorganized Debtor, subject to any
required approval of the Bankruptcy Court.
3. ESTIMATION.
In order to effectuate distributions pursuant to the Plan and
avoid undue delay in the administration of the Estates, the Debtors (prior to
the Effective Date) and the Reorganized Debtor (after the Effective Date) shall
have the right to seek an order of the Bankruptcy Court after notice and a
hearing (which notice may be limited to the holder of such Disputed Claim and
which hearing may be held on an expedited basis), estimating a Disputed Claim
pursuant to Section 502(c) of the Bankruptcy Code.
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4. MISCELLANEOUS DISTRIBUTION PROVISIONS.
(a) Distributions of New Common Stock will be made
to holders of Allowed Class 2 Claims on the Effective Date or as soon thereafter
as practicable. Distributions to holders of Disputed Class 2 Claims will be
made, as and when appropriate, in accordance with Section 5.10(d) of the Plan.
On the Effective Date, the Debtors shall reserve 5 million shares of New Common
Stock to be issued to the holders of Class 2 Claims in accordance with the terms
of the Plan.
(b) Fluctuation in Value of New Common Stock. The
value of the New Common Stock held by the Reorganized Debtor in reserve on
account of Disputed Class 2 Claims is likely to fluctuate. The Reorganized
Debtor does not represent or warrant that the value of such New Common Stock
will not decline after the Effective Date and it does not otherwise assume any
liability or risk of loss which the holder of a Disputed Class 2 Claim which
becomes an Allowed Claim after the Effective Date may suffer by reason of any
decline in value of the New Common Stock pending determination, of the amount of
such Disputed Class 2 Claim. The risk or benefit of any appreciation or
depreciation in the value of any reserved New Common Stock shall be borne by the
party to whom such New Common Stock is ultimately distributed.
(c) Payment or Distribution on Account of Disputed
Class 2 Claims. No payment or distribution will be made in respect of a Disputed
Class 2 Claim unless and until such Disputed Class 2 Claim becomes an Allowed
Class 2 Claim.
(d) Timing of Payment or Distribution When a
Disputed Class 2 Claim Becomes an Allowed Class 2 Claim. Subject to the
provisions of the Plan, distributions with respect to each Disputed Class 2
Claim that becomes an Allowed Class 2 Claim that would have otherwise been made
had the Claim been an Allowed Claim on the Effective Date shall be made on the
next Distribution Date, as determined by the Reorganized Debtor.
(e) Excess Reserves. Shares of New Common Stock
that are reserved pursuant to Section 5.10 of the Plan for issuance but not
issued shall remain authorized but unissued New Common Stock.
(f) No Supplemental Distributions. In the event
that the New Common Stock authorized under Section 5.10(a) of the Plan exceeds
the total New Common Stock to be distributed to holders of Allowed Class 2
Claims (either as a result of the prosecution of objections to claims or
otherwise), such remaining New Common Stock shall revert irrevocably to the
Reorganized Debtor.
N. MISCELLANEOUS PROVISIONS
1. RETENTION OF JURISDICTION.
Notwithstanding the entry of the Confirmation Order or the
Effective Date having occurred, the Bankruptcy Court will retain jurisdiction of
the Chapter 11 cases for the following purposes:
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(a) To hear and determine any and all pending
applications for the rejection, assumption or assignment of executory contracts
and leases, any objections to Claims resulting therefrom, and the allowance of
any Claims resulting therefrom;
(b) To hear and determine any and all applications,
adversary proceedings, contested matters and other litigated matters pending on
the Effective Date or permitted to be commenced thereafter under the Bankruptcy
Code and the Bankruptcy Rules;
(c) To ensure that the distributions to holders of
Allowed Claims are accomplished as provided in the Plan;
(d) To hear and determine any objections to Claims
Filed both before and after Confirmation; to allow or disallow, in whole or in
part, any Disputed Claim; and to hear and determine other issues presented by or
arising under the Plan;
(e) To enter and implement such orders as may be
appropriate in regard to the Confirmation Order and the Plan;
(f) To hear and determine all applications of
professionals for compensation and reimbursement of expenses under Section 330,
331, or 503(b) of the Bankruptcy Code;
(g) To hear the Debtors' or the Reorganized
Debtor's application, if any, to modify the Plan in accordance with Section 1127
of the Bankruptcy Code (after Confirmation, the Debtor or the Reorganized Debtor
may also, so long as they do not adversely affect the interest of holders of
Allowed Claims, institute proceedings in the Bankruptcy Court to remedy any
defect or omission or reconcile any inconsistencies in the Plan or Confirmation
Order, in such manner as may be necessary to carry out the purposes and effects
of the Plan);
(h) To hear and determine disputes arising in
connection with the interpretation of the Plan or its implementation, including
disputes among holders of Allowed Claims and disputes arising under any other
agreements, documents or instruments executed in connection with the Plan;
(i) To construe and to take any action to enforce
the Plan and issue such orders and injunctions as may be necessary for the
consummation and implementation of the Plan;
(j) To determine such other matters and for such
purposes as may be provided in the Confirmation Order;
(k) To hear and determine any motions or contested
matters involving taxes, tax refunds, tax Claims, tax attribute and tax benefits
and similar or related matters, with respect to the debtors or the Estates
arising on or prior to the Effective Date or relating to the period of
administration of the Chapter 11 cases;
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(l) To hear and determine any other matters related
to the Plan and not inconsistent with Chapter 11 of the Bankruptcy Code;
(m) To enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified or vacated;
(n) To recover assets of the Debtors and property
of the estates, including preference claim or any other avoidance claims,
wherever located;
(o) To hear and determine matters concerning state,
local and federal taxes in accordance with Sections 346, 505 and 1146 of the
Bankruptcy Code; and
(p) To enter a final decree closing the Chapter 11
Cases.
2. BINDING EFFECT OF THE PLAN.
The provisions of the Plan shall be binding upon and inure to
the benefit of the Debtors, the Estates, the Reorganized Debtor, any holder of a
Claim or Interest treated in the Plan, and each of their respective
predecessors, successors, assigns, agents, officers and directors and, to the
fullest extent permitted under Section 1141(a) of the Bankruptcy Code and other
applicable law, each other Person affected by the Plan.
3. NON-VOTING STOCK
In accordance with Section 1123(a)(6) of the Bankruptcy Code,
the Amended Articles of Incorporation of the Reorganized Debtor shall contain
provisions prohibiting the issuance of nonvoting equity securities by the
Reorganized Debtor.
4. AUTHORIZATION OF CORPORATE ACTION.
The entry of the Confirmation Order shall constitute
authorization for the Debtors and the Reorganized Debtor to take or cause to be
taken all corporate actions necessary or appropriate to consummate and implement
the provisions of the Plan prior to, on and after the Effective Date, and all
such actions taken or caused to be taken shall be deemed to have been authorized
and approved by the Bankruptcy Court. All such actions shall be deemed to have
occurred and shall be in effect pursuant to applicable nonbankruptcy law and the
Bankruptcy Code, without any requirement of further action by the stockholders
or directors of the Debtors or the Reorganized Debtor. On the Effective Date,
the appropriate officers and directors of the Debtors and the Reorganized Debtor
are authorized and directed to execute and deliver the agreements, documents and
instruments contemplated by the Plan in the name and on behalf of the Debtors
and the Reorganized Debtor.
5. RETIREE BENEFITS.
On and after the Effective Date, the Reorganized Debtor shall
continue to pay any retiree benefits, as that term is defined in Section 1114(a)
of the Bankruptcy Code, to the extent required by Section 1129(a)(13) of the
Bankruptcy Code, without prejudice to the Reorganized
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Debtor's rights under applicable nonbankruptcy law to modify, amend or terminate
the foregoing arrangements.
6. WITHDRAWAL OF THE PLAN.
The Debtors reserve the right, at any time prior to the entry of
the Confirmation Order, to revoke or withdraw the Plan. If they do so, the Plan
shall be null and void.
7. FINAL ORDER.
Except as otherwise expressly provided in the Plan, any
requirement in the Plan for a Final Order may be waived by the Debtors or, after
the Effective Date, the Reorganized Debtor upon written notice to the Bankruptcy
Court. No such waiver shall prejudice the right of any party in interest to seek
a stay pending appeal of any order that is not a Final Order.
8. DISSOLUTION OF COMMITTEE.
On the Effective Date, the Committee shall cease to exist and
its members and agents (including attorneys, investment bankers, financial
advisors, accountants and other professionals) shall be released and discharged
from all further authority, duties, responsibilities and obligations relating
to, arising from or in connection with the Chapter 11 Cases.
9. AMENDMENTS AND MODIFICATIONS.
The Debtors or the Reorganized Debtor may modify the Plan both
before and after Confirmation in accordance with the provisions of Section 1127
of the Bankruptcy Code.
10. TIME.
Unless otherwise specified in the Plan, in computing any period
of time prescribed or allowed by the Plan, the day of the act or event from
which the designated period begins to run shall not be included. The last day of
the period so computed shall be included, unless it is not a Business Day, in
which event the period runs until the end of the next Business Day.
11. SECTION 1145 EXEMPTION.
To the fullest extent permitted under Section 1145 of the
Bankruptcy Code, the offer or sale under the Plan of the New Common Stock, shall
be and are exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, and any state or local law requiring
registration for offer or sale of a security or registration or licensing of an
issuer of, underwriter of, or broker or dealer in, such securities. The offer
and sale of the New Common Stock under the Plan are deemed to be a public
offering of the New Common stock.
12. SECTION 1146 EXEMPTION.
To the fullest extent permitted under Section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of any security under the
Plan, or the execution, delivery or
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recording of an instrument of transfer under the Plan, or the revesting,
transfer or sale of any real or other property of or to the Debtors or the
Reorganized Debtor under the Plan shall not be taxed under any state or local
law imposing a stamp tax, transfer tax or similar tax or fee. Consistent with
the foregoing, each recorder of deeds or similar official for any county, city
or governmental unit in which any instrument under the Plan is to be recorded
shall, pursuant to the Confirmation Order, be ordered and directed to accept
such instrument, without requiring the payment of any documentary stamp tax,
deed stamps, stamp tax, transfer tax, mortgage recording tax, intangible tax or
similar tax.
O. CONDITIONS TO CONFIRMATION
The following conditions shall be met prior to confirmation of
the Plan:
(a) An order finding that the Disclosure Statement
contains adequate information pursuant to Section 1125 of the Bankruptcy Code
shall have been entered.
(b) As of the Confirmation Date, General Unsecured
Claims against the Debtors (whether Disputed or Allowed), other than the General
Unsecured Claims asserted by any of the Richfood Entities, in the aggregate, do
not exceed $60 million.
(c) As of the Confirmation Date, the Debtors shall
have received commitments from trade vendors to provide, in the aggregate, at
least $5 million of post-Effective Date trade credit over and above the trade
credit to be supplied pursuant to the Ingram Settlement.
P. CONDITIONS TO OCCURRENCE OF EFFECTIVE DATE OF THE PLAN
The Plan shall not become effective, the Effective Date shall
not occur, and no obligations and rights set forth in the Plan as of the
Effective Date or thereafter shall come into existence, unless each of the
following conditions is met or waived by the Debtors on or before the Effective
Date:
(a) The Bankruptcy Court shall have confirmed the
Plan.
(b) The Confirmation Order shall have become a
Final Order.
(c) The Confirmation Order shall authorize and
approve substantive consolidation of the Debtors.
(d) The Registration Statement shall have been
filed with the Commission and no stop order in respect thereof shall have been
issued.
(e) The Debtors shall have sufficient Cash, through
implementation of the Post-Confirmation Credit Facility or otherwise, to satisfy
all Cash obligations under the Plan due on the Effective Date.
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(f) As of the Effective Date, General Unsecured
Claims against the Debtors (whether Disputed or Allowed), other than General
Unsecured Claims asserted by any of the Richfood Entities, in the aggregate, do
not exceed $60 million.
The Plan shall become effective, and the Effective Date shall
occur, when the conditions set forth in Section 8.02 of the Plan are met or
waived as provided therein. The Reorganized Debtor shall thereupon perform the
obligations required under the Plan to be performed by it on the Effective Date
or as soon thereafter as may be practicable.
VI. ACCEPTANCE AND CONFIRMATION OF THE PLAN
Described below are certain important considerations under the
Bankruptcy Code in connection with Confirmation of the Plan.
A. SOLICITATION OF ACCEPTANCES
The Debtors are soliciting the acceptance of the Plan from
holders of Claims in certain Classes of Claims that are "impaired" under the
Plan. The solicitation of acceptances from holders of Claims in Class 1 is not
required under the Bankruptcy Code because, as holders of Unimpaired Claims,
such holders are conclusively presumed to have accepted the Plan. The
solicitation of acceptances of the Plan from the holders of Impaired Interests
in Classes 4 and 5 is not required because under the Bankruptcy Code, such
holders are conclusively presumed to have rejected the Plan. The following
Classes are Impaired and are entitled to vote on the Plan:
Class 2 - General Unsecured Claims
Class 3 - Convenience Claims
The record date for determining whether holders of Impaired
Claims are entitled to vote on the Plan is August 18, 1999.
B. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy
Court, after notice, to hold a hearing to consider confirmation of the Plan (the
"Confirmation Hearing), Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of the Plan.
Notice of the Confirmation Hearing will be provided to all
holders of Claims and Interests and other parties in interest (the "Confirmation
Notice"). The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing or any adjournment thereon.
Objections to Confirmation of the Plan must be made in writing, specifying in
detail the name and address of the person objecting, the grounds for the
objection, and the nature and amount of the Claim or Interest held by the
objector. Objections must be filed with the Bankruptcy Court, together with
proof of service, and served upon the parties so designated in the Confirmation
Notice, on or before the time and date designated in the Confirmation Notice as
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being the last date for serving and filing objections to Confirmation of the
Plan. Objections to Confirmation of the Plan are governed by Bankruptcy Rules
3020(b) and 9014 and the Local Rules of the Bankruptcy Court.
C. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
As discussed below, the Debtors intend, if necessary, to request
Confirmation of the P tan pursuant to Section 1129(b) of the Bankruptcy Code.
Under Section 1129(b), the Bankruptcy Court will confirm the Plan despite the
lack of acceptance by an Impaired Class or Classes if the Bankruptcy Court finds
that (a) the Plan does not discriminate unfairly with respect to each
non-accepting Impaired Class, (b) the Plan is "fair and equitable" with respect
to each non-accepting Impaired Class, (c) at least one Impaired Class has
accepted the Plan (without counting acceptances by insiders) and (d) the Plan
satisfies the requirements set forth in Bankruptcy Code Section 1129(a) other
than Section 1129(a)(8).
The Debtors believe that. upon acceptance of the Plan by at
least one Impaired Class, determined without including any acceptance of the
Plan by any insider, the Plan will satisfy all the statutory requirements of
Chapter 11 of the Bankruptcy Code, that the Debtors have complied or will have
complied with all of the requirements of Chapter 11, and that the Plan has been
proposed in good faith.
1. THE PLAN DOES NOT DISCRIMINATE UNFAIRLY
The Bankruptcy Code requires that a plan not "discriminate
unfairly" with respect to each non-accepting Impaired Class. Essentially, this
means that each non-accepting Impaired Class must receive treatment reasonably
consistent with the treatment afforded to other Classes with similar legal
Claims against, or interests in, the Debtors.
2. THE PLAN IS FAIR AND EQUITABLE
The Bankruptcy Code establishes different "fair and equitable"
tests for holders of Unsecured Claims and Secured Claims. With respect to a
Class of Unsecured Claims that does not accept that Plan, the Debtors must
demonstrate to the Bankruptcy Court that either (a) each holder of an Unsecured
Claim of the objecting Class receives or retains under the Plan property of a
value equal to the Allowed Amount of its Unsecured Claim or (b) the holders of
Claims or Interests that are junior to the Claims of the holder of such
Unsecured Claims will not receive or retain any property under the Plan. With
respect to a Class of Secured Claims that does not accept the Plan, the Debtors
must demonstrate to the Bankruptcy Court that either (a) the holders of such
Claims are retaining the liens securing such Claims and that each holder of a
claim of such Class will receive deferred cash payments totaling at least the
Allowed Amount of such Claim, of a value at least equal to the value of such
holders' interest in its collateral, or (b) the holders of such Claims will
realize the indubitable equivalent of such Claims under the Plan.
3. THE BEST INTERESTS TEST
Irrespective of whether the Plan is accepted by each Impaired
Class of Claims entitled to vote on the Plan, in order to confirm the Plan the
Bankruptcy Court must, pursuant to
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Section 1129(a)(7) of the Bankruptcy Code, independently determine that the Plan
is in the best interests of each holder of a Claim or Interest Impaired by the
Plan if the Plan is not unanimously accepted by such Class. Thus, the Plan must
provide each holder of a Claim or Interest in such Impaired Class a recover on
account of such Claim or Interest that has a value, as of the Effective Date, at
least equal to the value of the distribution such holder would receive in a
liquidation of the Debtors under Chapter 7 of the Bankruptcy Code.
To determine the value that holders of Impaired Claims and
Interests would receive if the Debtors were liquidated under Chapter 7, the
Bankruptcy Court must determine the aggregate dollar amount that would be
generated from the liquidation of the Debtors' assets if the Debtors' Chapter 11
Cases were converted to Chapter 7 liquidation cases and the Debtors' assets were
liquidated by a Chapter 7 trustee (the "Liquidation Value"). The Liquidation
Value would consist of the net proceeds from the disposition of the Debtors'
assets, augmented by cash held by the Debtors and reduced by certain increased
costs and Claims that arise in a Chapter 7 liquidation case but that do not
arise in a Chapter 11 reorganization case.
Liquidation Value available for satisfaction of unsecured Claims
against and Interests in the Debtors would be reduced by: (a) Claims of the
Lenders under the DIP Facility, (b) the Claims of Secured Creditors to the
extent of the value of their collateral, and (c) the costs, fees and expenses of
the liquidation under Chapter 7, which would include: (i) the compensation of a
trustee and its counsel and another professionals retained, (ii) disposition
expenses, (iii) all unpaid expenses incurred by the Debtors during the Chapter
11 Cases (such as compensation for attorneys, financial advisors, investment
bankers, brokers, auctioneers and accountants and the costs and expenses of
members of the Committee), (iv) litigation costs, and (v) Claims arising from
the operation of the Debtors during the pendency of the Chapter 11 cases and the
Chapter 7 liquidation case. The liquidation itself would trigger certain Claims,
such as Claims for severance pay, and would accelerate other priority payments
which would otherwise be paid in the ordinary course. These Claims would be paid
in full out of the liquidation proceeds before the balance would be made
available to pay most other Claims or to make any distribution in respect of
Interests.
Liquidation would also involve the rejection of additional
executory contracts and unexpired leases of the Debtors and substantial
additional rejection damage Claims. The Debtors believe that the liquidation
could also generate an increase in other General Unsecured Claims.
To determine whether the Plan is in the best interests of each
Impaired Class, the present value of the distributions from the proceeds of the
liquidation of the Debtors' assets and properties, after subtracting the amounts
attributable to the foregoing Claims, costs, fees and expenses, would then be
compared to the value of the property offered to such Classes of Claims and
Interests under the Plan of the Effective Date.
a. THE DEBTORS' ESTIMATE OF LIQUIDATION VALUE
i. ASSUMPTIONS
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A liquidation analysis of the Debtors (the "Liquidation
Analysis") was prepared by Zolfo Cooper L.L.C. and the Debtors' management. This
Liquidation Analysis is detailed in Appendix C to this Disclosure Statement and
incorporated herein by reference.
The Liquidation Analysis is based on the forecasted assets and
liabilities of the Debtors as of October 2, 1999. Underlying the Liquidation
Analysis are a number of estimates and assumptions that are inherently subject
to significant uncertainties and contingencies, many of which are beyond the
control of the Debtors. Accordingly, there can be no assurances that the values
assumed in the following analysis would be realized if the Debtors were in fact
liquidated. Although the analysis that follows is necessarily presented with
numerical specificity, the actual liquidation values could vary significantly
from the amounts set forth on Appendix C. This analysis has been prepared solely
for the purposes of estimating proceeds in a hypothetical Chapter 7 liquidation,
and does not represent an analysis of values that is appropriate for any other
purpose. Variance from the estimates may be caused by, among others, the
following factors:
D. NATURE AND TIMING OF SALE PROCESS.
Under Section 704 of the Bankruptcy Code, a Chapter 7 trustee
must, along with its other duties, collect the property of the estate as
expeditiously as is compatible with the best interest of the parties. The
Liquidation Analysis assumes there would be pressure to complete the liquidation
of the Debtors' operating properties and financial assets over a period of
approximately 6-9 months. It is possible that the disposition of certain assets
could reasonably exceed 6 months, causing deterioration in the value of the
Debtors' Estates. The Liquidation Analysis assumes that the Debtors' business
has ceased, that assets are sold for their fair liquidation values on an
asset-by-asset basis, and that realization of any going-concern value is not
possible.
E. DISCOUNT FACTOR APPLIED TO ASSETS.
The precise discount attributable to assets in a Chapter 7 case
cannot be computed on the basis on any known empirical data. Accordingly, for
purposes of the Liquidation Analysis, assets are valued based on the Debtors'
best estimates, which would vary on an asset by asset (and category by category)
basis.
F. ESTIMATED LIQUIDATION EXPENSES.
Such expenses were estimated to be incurred upon liquidation of
the Debtors' assets, excluding cash and cash equivalents.
G. ESTIMATED CLAIMS.
A conversion to a Chapter 7 case would likely result in
additional Claims, including Claims resulting from the rejection of executory
contracts and unexpired leases that would not otherwise occur under the Plan.
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Liquidation values of major operating properties and
non-operating assets were based in part upon the financial projections prepared
by the Debtors, and assume a discount applied to each asset to account for the
nature and timing of the sales process. Zolfo Cooper L.L.C. applied a discount
to all assets, other than cash and cash equivalents, ranging from 0 to 100
percent of their respective going-concern values. The precise discount factors
attributable to a Chapter 7 liquidation are subject to various circumstances.
Total Chapter 7 expenses for professional and trustee fees were estimated to be
approximately $1.4 million. For purposes of the Liquidation Analysis, the
Debtors assumed that there would be no material post-petition tax liabilities.
H. RECOVERIES UNDER THE PLAN VS. RECOVERIES IN A LIQUIDATION.
The Liquidation Analysis concludes that, in a Chapter 7
liquidation, nothing would be available for distribution on account of
unsecured, non-priority prepetition Claims against the Debtors after
satisfaction of secured, administrative and priority claims. In contrast, under
the Plan, the holders of General Unsecured Claims will receive New Common Stock
with an estimated value(1) equal to 38.3% of the Allowed Amount of such Claims
prior to potential dilution by exercise of the Management Options.
I. FEASIBILITY
Even if the Plan is accepted by each Class of Claims voting on
the Plan, and even if the Bankruptcy Court determines that the Plan satisfies
the best interests test, the Bankruptcy Code requires that, in order for the
Plan to be confirmed by the Bankruptcy Court, it must be demonstrated that
confirmation of the Plan is not likely to be followed by the liquidation or the
need for further financial reorganization of the Debtors. For purposes of
determining whether the Plan meets this requirement, the Debtors have analyzed
their ability to meet their obligations under the Plan. As part of such
analysis, the Debtors have prepared forecasts of the Reorganized Debtors' cash
flow (assuming the Plan is consummated) through Fiscal 2002. These forecasts,
and the significant assumptions on which they are based, are set forth in
Appendix B hereto. Based on such forecasts, the Debtors believe that the
Reorganized Debtors will be able to make all payments required to be made
pursuant to the Plan.
VII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed by the Bankruptcy Court and
consummated, the alternatives to the Plan include (a) liquidation of the Debtors
under Chapter 7 of the Bankruptcy Code and (b) an alternative plan of
reorganization.
A. LIQUIDATION UNDER CHAPTER 7
If no plan can be confirmed, the Debtors' Chapter 11 Cases may
be converted to cases under Chapter 7 of the Bankruptcy Code, pursuant to which
a trustee would be appointed to liquidate the assets of the Debtors for
distribution to Claim and Interest holders in accordance
------------------------
(1) There can be no assurance that the New Common Stock can be sold for such
value.
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with the priorities established by the Bankruptcy Code. For the reasons
discussed above, under "Acceptance and Confirmation of the Plan - The Best
Interests Test," the Debtors believe that Confirmation of the Plan will provide
each holder of a Claim entitled to receive a distribution under the Plan with a
recovery that is not less (and is generally expected to be substantially more)
than it would receive pursuant to a liquidation of the Debtors under Chapter 7
of the Bankruptcy Code. See Liquidation Analysis annexed hereto as Appendix C.
B. ALTERNATIVE PLAN
If the Plan is not confirmed, the Debtors may be entitled to
file a different plan. Such a plan might involve a sale of substantially all of
the Debtors' assets, another form of reorganization and continuation of the
Debtors' business, or an orderly liquidation of the Debtors' assets. The Debtors
have explored various other alternatives in connection with the formulation and
development of the Plan. The Debtors believe that the Plan enables holders of
Claims to realize the most value under the circumstances. In a liquidation under
Chapter 11, the Debtors' assets would be sold in an orderly fashion over a more
extended period of time than in a liquidation under Chapter 7, possibly
resulting in somewhat greater (but indeterminate) recoveries at greater cost
than would be involved in a Chapter 7 liquidation. Although potentially
preferable to a Chapter 7 liquidation, the Debtors believe that liquidation
under Chapter 11 would still result in substantially lower recoveries than those
provided for by the Plan.
VIII. RISK FACTORS
HOLDERS OF CLAIMS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS
SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE
STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY
REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN.
A. BUSINESS RISKS
1. INDUSTRY CONDITIONS
There can be no assurance that the industry conditions under
which the Reorganized Debtor will operate will enable them to achieve the
merchandise sales revenues or the gross margins thereon which the Debtors have
relied upon to project the Reorganized Debtor's future business prospects.
Demand for books and book-related products and materials is subject to
fluctuations in consumer tastes. In addition, and as discussed at length below,
the industry in which the Debtors participate is in a state of heightened
competition, when compared with even a few years ago, as major industry players
such as Barnes & Noble and Borders develop new marketing and retailing
strategies to capitalize on their financial strength and name recognition.
Finally, no one can predict with certainty what the ultimate effect of on-line
internet booksellers such as Amazon.com will be on the retail book industry as a
whole, and on the Reorganized Debtor's operations in particular.
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2. COMPETITION
The retail publications market is highly competitive, as the
Debtors compete with, among others, (1) other large and small chain retailers,
(2) internet-based booksellers, (3) direct-mail programs like book clubs that
offer, for example, four books for a penny as an inducement to join, and (4)
smaller local operators.
Moreover, there has been a trend toward consolidation in the
retail book market, and several large regional retail chains, including Barnes &
Noble and Borders, have recently opened stores or expanded their retail store
presence in the markets in which the Debtors operate. Accordingly, it can be
expected that the Reorganized Debtor will in future periods experience increased
competition from companies with greater financial resources than those of the
Reorganized Debtor, and that such competition may result in continued pressure
on revenues and gross profit margins.
3. OPERATING CASH FLOW; POST-CONFIRMATION CREDIT FACILITY
The Post-Confirmation Credit Facility will impose financial and
operating covenants and prohibitions on the Reorganized Debtors. There can be no
assurance that the Reorganized Debtors will be able to achieve or maintain the
financial performances tests expected to be contained in the Post-Confirmation
Credit Facility documents. Failure to meet such financial tests or other
covenants would result in a default thereunder. If any such default were not
remedied or waived within the applicable grace period, if any, the lenders under
the Post-Confirmation Credit Facility documents would be entitled to declare the
amounts outstanding thereunder due and payable, accelerate the payment of all
such amounts and foreclose upon the assets of the Reorganized Debtors pledged as
collateral thereunder.
The pendency of the Chapter 11 cases has negatively affected the
operations of the Debtor and its results of operations, and adverse effects of
the Chapter 11 Cases may affect future periods as well. Accordingly, there can
be no assurance that the performance of the Reorganized Debtor and its ability
to satisfy its debt service obligations will not be adversely affected by one or
a combination of the above or other factors.
4. TRADE CREDIT
The Reorganized Debtor will rely on the resumption of trade
credit terms at levels historically extended to the Debtors by their suppliers.
Specifically, the Debtors anticipate the availability of $11.3 million of trade
credit under the Ingram Settlement, and it is a condition to confirmation of the
Plan that the Debtors obtain commitments from trade vendors for an additional $5
million in trade credit over and above that contemplated under the Ingram
Settlement. While many of these suppliers have extended trade credit to the
Debtors during the pendency of the Chapter 11 cases, there can be no assurance
that credit currently extended will be continued, or that sufficient additional
credit will be extended upon confirmation of the Plan.
The extension of less aggregate trade credit than relied upon by
the Debtors in formulating their projections would require the Reorganized
Debtor to utilize the Post-Confirmation Credit Facility to a greater extent than
is contemplated by the projections,
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with the added prerequisite that capacity would have to be available for such
additional drawings under the Post-Confirmation Credit Facility. Accordingly,
there can be no assurance that adequate capacity would be available under the
Post-Confirmation Credit Facility.
The failure of suppliers to extend credit to the Reorganized
Debtor in accordance with industry practice would further place the Reorganized
Debtor at a disadvantage vis-a-vis its principal competitors, which presumably
would have continued access to this valuable inventory funding medium.
5. SUCCESS OF BUSINESS PLAN
Successful implementation of the Debtors' business plan is
dependent on the interaction of many variables, including the effects of
changing industry conditions, competition, the extension of trade credit by the
Debtors' suppliers, and the adequacy of financing provided under the
Post-Confirmation Credit Facility. Other factors include the effects of general
economic trends influencing consumers' discretionary expenditures, the
effectiveness of the Debtors' tax planning strategies, and the ability of the
Reorganized Debtor to successfully execute its strategic initiatives. While the
Debtors believe that the projections filed concurrently herewith as Appendix B
are reflective of reasonable judgments in assessing those risks, there can be no
assurance that influences not foreseen by the Debtors would not adversely impact
the ability of the debtors to execute their business plan strategies. In
addition, certain of the projected results are materially better than recent
historical results of operations.
While the Debtors believe that the business plan projections are
in line with achievable performance levels, there can be no assurance that the
Reorganized Debtor will be able to obtain, and sustain, the projected sales
volume increases.
6. TAX ISSUES
For a discussion of certain federal income tax consequences of
the Plan to the Debtors, the Reorganized Debtor and holders of Allowed Claims
and Interests, see "Certain Federal Income Tax Consequences."
7. ENVIRONMENTAL REGULATION AND LITIGATION
a. ENVIRONMENTAL REGULATION
The Debtors are subject to extensive regulation under
environmental and occupational health and safety laws and regulations. In
addition, the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") generally imposes joint and several liability for clean-up and
enforcement costs, without regard to fault, on parties allegedly responsible for
contamination at a site. While the Debtors are not aware of any current
environmental liability, no assurance can be given that the Reorganized Debtor
will not be liable in the future.
b. CERTAIN LITIGATION
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Crown has been named as a defendant in a variety of
litigation. The Debtors expect that the Reorganized Debtor will continue to be
named as a defendant in future litigation, although the Debtors do not expect
such litigation to have a material adverse impact on the performance of the
Reorganized Debtor.
B. BANKRUPTCY RISKS
1. OBJECTION TO CLASSIFICATION
Section 1122 of the Bankruptcy Code provides that a plan may
classify a claim or an interest in a particular Class only if such claim or
interest is substantially similar to the other claims or interest of such class.
The Debtors believe that the classification of Claims and Interests under the
Plan complies with the requirements set forth in the Bankruptcy Code. However,
there can be no assurance that the Bankruptcy Court will reach the same
conclusion.
2. COMBINED PROPERTIES
On October 6, 1995, the Dart Group Corporation and its
affiliates and subsidiaries (including the Debtors) entered into a settlement
with Ronald S. Haft ("Haft"). That settlement is memorialized in part by a
Settlement Agreement, executed on October 6, 1995 (the "Settlement Agreement").
Under the Settlement Agreement, Haft is precluded from holding directly or
indirectly, inter alia, shares of Crown. Combined Properties, through an entity
controlled by Haft, holds Class 2 Claims upon which New Common Stock is expected
to be distributed. The parties are presently engaged in negotiations to resolve
Combined Properties' concerns. Nevertheless, the Plan may be objected to by Haft
on the grounds that it would cause him to violate the Settlement Agreement, and
such objections may be sustained by the Court.
3. KEMPER INSURANCE LIMITED OBJECTION
Kemper Insurance Company ("Kemper") has submitted a Limited
Objection to the Disclosure Statement stating that it does not consent to the
release of its claims against Dart relating to premiums and other charges under
the prepetition insurance policies jointly issued to Dart and Crown. Kemper may
object to confirmation of the Plan on the ground that such release is not
permitted under the Bankruptcy Code, and such objection may be sustained by the
Bankruptcy Court.
4. RISK OF NONCONFIRMATION OF THE PLAN
Even if all Classes of Claims that are entitled to vote accept
the Plan, the Plan might not be confirmed by the Bankruptcy Court. Section 1129
of the Bankruptcy Code sets forth the requirements for confirmation and
requires, among other things, that the confirmation of a plan of reorganization
is not likely to be followed by liquidation or the need for further financial
reorganization, and that the value of distributions to dissenting creditors and
equity security holders not be less than the value of distributions such
creditors and equity security holders would receive if a debtor were liquidated
under Chapter 7 of the Bankruptcy Code. The Debtors believe that the Plan
satisfies all the requirements for confirmation of a plan of reorganization
under the Bankruptcy Code. There can be no assurance, however, that the
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Bankruptcy Court will also conclude that the requirements for Confirmation of
the Plan have been satisfied.
5. POTENTIAL EFFECT OF BANKRUPTCY UPON CERTAIN
RELATIONSHIPS
The effect, if any, which the Chapter 11 cases may have upon the
operations of the Reorganized Debtor cannot be accurately predicted or
quantified. The Debtors believe that the filing of the Chapter 11 cases and
consummation of the Plan will have a minimal future effect on relationships with
employees, customers and suppliers. If confirmation and consummation of the Plan
do not occur expeditiously, however, the Chapter 11 cases could adversely affect
the relationships of the Reorganized Debtor with its customers, suppliers and
employees, resulting in a material adverse impact on its operations.
C. LIQUIDITY RISKS
1. RESTRICTIONS ON TRANSFER
Holders of the New Common Stock who are deemed to be
"underwriters" as defined in Section 1145(b) of the Bankruptcy Code, or who are
otherwise deemed to be "affiliates" or "control persons" of the Reorganized
Debtor within the meaning of the Securities Act, will be unable to offer or sell
their New Common Stock after the Effective date, except pursuant to registration
of such securities or an available exemption from registration under the
Securities Act and under the equivalent state securities or "blue sky" laws.
2. POTENTIAL ILLIQUIDITY OF PLAN SECURITIES
No established trading market exists for the New Common Stock
and no assurance can be given that such a trading market will develop following
the effectiveness of the Plan and, if a trading market develops, no assurance
can be given as to the liquidity of such a trading market. The Reorganized
Debtor will use its reasonable best efforts to cause the New Common Stock to be
listed or admitted to trading on the NASDAQ National market or another
nationally recognized securities exchange.
IX. DESCRIPTION OF POST-CONFIRMATION CREDIT FACILITY
Post-Confirmation Credit Facility. The Debtors have received a
commitment (the "Commitment Letter") from Paragon and Foothill to provide up to
$35 million in financing pursuant to the Post-Confirmation Credit Facility. The
Post-Confirmation Credit Facility will be used to refinance the Debtors'
obligations under the DIP Facility and to finance the future working capital
needs of the Reorganized Debtor. The maturity date for the revolving credit
facility is two years from the Effective Date. The Post-Confirmation Credit
Facility will be secured by first priority, perfected security interests in all
assets of the Reorganized Debtor.
A copy of the Commitment Letter will be included in the Plan
Supplement filed with the Bankruptcy Court pursuant to Section I.C of the Plan,
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X. DESCRIPTION OF SECURITIES TO BE ISSUED UNDER THE PLAN
All shares of the New Common Stock, when issued pursuant to the
Plan, will be fully paid and nonassessable. The holders of New Common Stock will
be entitled to such dividends (whether payable in Cash, property or capital
stock) as may be declared from time to time by the board of directors of the
Reorganized Debtor from funds, property or stock legally available therefore,
and will be entitled after payment of all prior claims, to receive all assets of
the Reorganized Debtor upon the liquidation, dissolution or winding up of the
Reorganized Debtor. Generally, holders of New Common Stock will have no
redemption, conversion or preemptive rights to purchase or subscribe for
securities of the Reorganized Debtor. However, as of the Effective Date, certain
holders of New Common Stock who, due to the magnitude of their holdings, may be
deemed to be "underwriters" pursuant to Section 1145(b) of the Bankruptcy Code,
will become parties with the Reorganized Debtor to a registration rights
agreement affording them certain limited registration and other rights, all as
more fully set forth therein.
Except as required by law, the respective holders of New Common
Stock will vote on all matters as a single class, and each holder of New Common
Stock will be entitled to one vote for each share of New Common Stock that it
owns. Holders of New Common Stock will not have cumulative voting rights. The
Reorganized Debtor will use its reasonable best efforts to cause the New Common
Stock to be listed or admitted to trading on the NASDAQ National Market or
another nationally recognized securities exchange.
XI. CERTAIN INFORMATION CONCERNING THE DEPTORS
Reference should be made to the Debtors' Audited Financial
Statements for the Fiscal year ended January 30, 1999, included as Appendix B to
this Disclosure Statement, which contain a description of the Debtors' financial
condition and results of operation. Also appended to Appendix B are the Debtors'
unaudited balance sheet, income statement and statement of cash flows through
June 30, 1999. These unaudited reports are subject to change in connection with
the Debtors' annual audit.
Crown is a Delaware corporation, and approximately 52.3% of its
common stock is owned, indirectly, by Richfood, Inc. The balance of Crown's
common stock is held publicly. The Old Common Stock was "de-listed" on September
18, 1998. It is currently traded on the Over-the-Counter Bulletin Board of
NASDAQ. Super Crown, Crown East, Crown West, Crown National and Crown DHC are
all wholly-owned subsidiaries of Crown with no significant assets or operations.
A. MERCHANDISING STRATEGY
The Debtors' current merchandising strategy is premised upon the
assumption that there will continue to be a need for discount book product
retailing, with an emphasis on broad product selection and excellent customer
service.
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B. TRADE CUSTOMS AND PRACTICES
The Debtors purchase the vast majority of its book product from
Ingram. In addition, approximately 25 other vendors account for an additional
20% of purchases. Historically, the Debtors have enjoyed trade terms that have
included a 2% discount for payments made within 45 days of invoice for the
majority of vendors, including Ingram, with exceptions for special discounts and
deals offered several times a year.
Most of the book product purchases of the Debtors are protected
by return policies offered by major manufacturers, including Ingram. The return
privilege generally exists for each title so long as that title remains in print
in the current catalog of a manufacturer. Catalog changes are generally made
only after advance notice, allowing the Debtors to return excess inventory
before a title is declared out of print and therefore ineligible for credit. The
major suppliers of the Debtors provide unlimited returns for full invoice
amounts. Ingram Book Company does charge a return fee for processing returns.
Pricing and return policies of the major distributors of the Debtors are subject
to change. The Debtors expect that the Reorganized Debtor will enjoy product
return privileges consistent with industry practice and their historical
practice.
C. ADVERTISING
The Debtors employ advertising, promotion, pricing, and
presentation in a coordinated manner to attract customers into the store and
improve conversion, with a secondary emphasis on promotional campaigns in
specific, pre-defined markets, designed to drive traffic and to increase
customer awareness of the Debtors as the "every day discounter." The Debtors
advertise on a regular and frequent basis in a variety of broadcast and print
media, including radio, newspaper, direct mail, newspaper inserts, and
magazines.
In the retail industry, publishing companies generally provide
funds on a title-by-title basis to promote new releases and, occasionally, on a
label-wide basis. The Debtors expect that the Reorganized Debtor will be able to
secure customary concessions in regard to cooperative advertising.
D. PROPERTIES
As of June 30, 1999, the Debtors operated 92 stores, all of
which are leased. The Debtors' office and headquarters are located in Landover,
Maryland and are leased by Crown.
The Debtors believe that none of their store leases is
individually material to the Debtors. Lease terms generally range from one to
ten years, with certain option renewal rights. The remaining terms of the
leases, including options, vary widely.
E. EMPLOYEES
As of June 30, 1999, the Debtors had approximately 1,600
full-time and part-time employees. The Debtors currently employ approximately 76
individuals at their corporate headquarters. The corporate headquarters staff is
responsible for executive and general operating
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management, buying, merchandising, advertising, finance, accounting, information
systems and real estate.
F. TRADENAMES AND TRADEMARKS
The Debtors' stores operate under the name "Crown Books." The
Debtors own and maintain registrations for various service marks with the United
States.
G. COMPETITION
The retail book market is highly competitive. In this market,
the Debtors compete with other chain retailers, discounters and other mass
merchandisers, direct mail programs such as book clubs, internet booksellers and
local operators. In addition, several major retail chains, including Barnes &
Noble and Borders have recently opened stores or expanded their retail store
presence in markets in which the Debtors operate, and have also announced plans
to continue that expansion. Accordingly, it can be expected that in future
periods the Debtors and the Reorganized Debtor will experience continued intense
competition, and that such competition may result in continued pressure on
revenues and gross profit margins.
H. EXECUTIVE OFFICERS
The names and titles of the executive officers of the Debtors
are set forth below.
Anna Currence
President and Chief Executive Officer
Steve Pate
Vice President of Operations
John Sutton
Vice President of Merchandising
Susan Harwood
Vice President of Information Systems
Stacy Meffen
Controller
The Debtor is currently negotiating an employment agreement with
Anna Currence, the President and Chief Executive Officer of the Debtor, to
become effective on the Effective Date. It is contemplated that the agreement
will be for a term of one or more years and will provide for, in addition to an
annual salary, the payment of bonuses (including stock options) in the event
certain of the Reorganized Debtors' financial projections are met or exceeded.
An outline of the terms of the employment agreement will be included in the Plan
Supplement. In the event however, that the terms are not agreed upon prior to
such time, it is expected that the board of directors of the Reorganized Debtor
will consider and approve an employment agreement with Anna Currence on or
shortly after the Effective Date.
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XII. FINANCIAL AND LEGAL ADVISORS; FEES AND EXPENSES
The Debtors have engaged Young Conaway Stargatt & Taylor, LLP as
counsel. The Debtors have also engaged Zolfo Cooper L.L.C. as special financial
advisor and bankruptcy consultant and Arthur Andersen L.L.P. as accountants.
The Committee, with the Debtors' consent and at their expense,
engaged Hughes Hubbard & Reed LLP and Duane Morris & Heckscher as co-counsel and
J.H. Cohn & Co., as financial advisor in connection with the Chapter 11 Cases.
Reasonable fees and expenses incurred on or after the Petition
Date by the professionals retained by the Debtors or the Committee with respect
to the Chapter 11 Cases, and which have not theretofore been paid or reimbursed,
will be paid by the Reorganized Debtor. (after application of any retainer held
by any of the Debtors' professionals) as an Administrative Expense Claim after
notice and a hearing.
The Debtors estimate that the aggregate amount of all such
professional fees and expenses incurred since the Petition Date will be
approximately $5.1 million as of the Effective Date. Pursuant to a Bankruptcy
Court order, the Debtors estimate that all but approximately $1.4 million of
this amount will have been paid prior to the Effective Date.
XIII. EXEMPTION FOR SECURITIES ACT RECISTRATION
The New Common Stock to be issued on the Effective Date will be
issued pursuant to the exemption for the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") (and of any state or
local laws) provided by Section 1145(a)(1) of the Bankruptcy Code. Under this
provision, the registration requirements of the Securities Act and of any state
and local laws do not apply to the offer or sale under a plan of securities of a
debtor, of an affiliate participating in a joint plan with the debtor, or of a
successor to the debtor under the plan (i) in exchange for a claim against, an
interest in, or a claim for an administrative expense in the case concerning,
the debtor, or (ii) "principally" in such exchange and "partly" for cash or
property. The Debtors believe that the issuance of the New Common Stock will
satisfy the aforementioned requirements.
The New Common Stock may be resold by the holders thereof
without registration unless, as more fully described below, any such holder is
deemed to be an "underwriter" with respect to such securities, as defined in
Section 1145(b)(1) of the Bankruptcy Code. Generally, Section 1145(b)(1) defines
an "underwriter" as any person who (a) purchases a claim against, interest in,
or claim for an administrative expense in the case concerning, a debtor, if such
purchase is with a view to distribution of any security received or to be
received in exchange for such claim or interest, (b) offers to sell securities
offered or sold under the plan for the holders of such securities, (c) offers to
buy securities offered or sold under the plan from the holders of such
securities, if such offer to buy is made with a view to distribution of such
securities and under an agreement made in connection with the plan, with the
consummation of the plan or with the offer or sale of securities under the plan,
or (d) is an issuer as used in Section 2(11) of the Securities Act with respect
to securities. Although the definition of the term "issuer" appears in Section
2(4) of the Securities Act, the reference (contained in
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Section 1145(b)(1)(D) of the Bankruptcy Code) to Section 2(11) of the Securities
Act, purports to include as "underwriters" all persons who, directly or
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with, an issuer of securities. "Control" (as such term
is defined in Rule 405 of Regulation C under the Securities Act) means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise. Certain holders of New Common Stock who,
due to the magnitude of their holdings as of the Effective Date, may be deemed
to be "underwriters" pursuant to Section 1145(b) of the Bankruptcy Code, will
become parties with the Reorganized Debtor to a registration rights agreement
affording them certain limited, registration and other rights, all as more fully
set forth therein.
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN NATURE AND HAS
BEEN INCLUDED IN THIS DISCLOSURE STATEMENT SOLELY FOR INFORMATIONAL PURPOSES.
THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING, AND DO NOT HEREBY PROVIDE ANY
OPINION OR ADVICE WITH RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS
DESCRIBED ABOVE. IN LIGHT OF THE COMPLEX AND SUBJECTiVE INTERPRETIVE NATURE OF
WHETHER A PARTICULAR RECIPIENT OF NEW COMMON STOCK MAY BE DEEMED TO BE AN
"UNDERWRitER" WiTHIN THE MEANING OF SECTION 1145(B)(1) OF THE BANKRUPTCY CODE
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND, CONSEQUENTLY, THE
UNCERTAINTY CONCERNING THE AVAILABILITY OF EXEMPTIONS FOR THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY STATE AND LOCAL LAWS, THE DEBTORS
ENCOURAGE EACH CREDITOR TO CONSIDER CAREFULLY AND CONSULT WITH ITS OWN LEGAL
ADVISORS WITH RESPECT TO SUCH (AND ANY RELATED) MATTERS.
XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. IN GENERAL
The following discussion is a summary of certain U.S. federal
income tax consequences expected to result from the implementation of the Plan.
This discussion is based on the Internal Revenue Code of 1986, as amended (the
"Tax Code"), as in effect on the date of this Disclosure Statement, and on
United States Treasury Regulations (the "Regulations") in effect (or in certain
cases, proposed) on the date of this Disclosure Statement, as well as judicial
and administrative interpretations thereof available on or before such date. All
of the foregoing are subject to change, which change could apply retroactively
and could affect the tax consequences described below. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view with
respect to one or mote of the issues discussed below, and no ruling from the IRS
has been or will be sought with respect to any issues that may arise under the
Plan.
The following summary is for general information only. The tax
treatment of a holder of an Allowed Claim or Interest may vary depending upon
such holder's particular
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situation. The following discussion does not address state, local or foreign tax
considerations that may be applicable to the Debtors and holders of an Allowed
Claim or Interest. Additionally, certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, traders,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. ACCORDINGLY, EACH
HOLDER OF AN ALLOWED CLAIM OR INTEREST SHOULD CONSULT, HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING, HOLDING AND
DISPOSING OF ALLOWED CLAIMS AND INTEREST, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
B. FEDERAL INCOME TAX CONSEQUENCES TO DEBTORS
1. CANCELLATION OF INDEBTEDNESS
A debtor will generally realize cancellation of indebtedness
("COD') income to the extent that a creditor receives from a debtor pursuant to
a plan of reorganization an amount of consideration in respect of an allowed
claim against the debtor that is less than the amount of such allowed claim.
However, because the Debtors will be subject to the Chapter 11 Cases at the time
the COD income is realized, the Debtors will be able to exclude the COD income
from gross income. Under Section 108 of the Tax Code, however, the Debtors will
be required to reduce certain tax attributes as a result of the debt discharge.
While not free from doubt, such attribute reduction should apply separately to
the particular Debtor whose debt is being discharged and not to the group as a
whole, even though the Debtors belong to a consolidated group for U.S. federal
income tax purposes.
Pursuant to Section 108 of the Tax Code, it is anticipated that
the Reorganized Debtor's tax attributes will be reduced as follows. The amount
of Crown's COD income realized pursuant to the Plan will first reduce Crown's
remaining net operating loss carryovers from previous tax years ("NOLs"), on a
dollar-for-dollar basis, after the tax liability for the taxable year of debt
discharge is determined and any net operating loss for the year of discharge. In
the event that the amount of such debt discharge exceeds the amount of Crown's
NOLs, and assuming that certain other tax attributes are not available, the
Reorganized Debtor will next be required to reduce the basis of any property
held on the first day of the taxable year following the taxable year of debt
discharge to the extent that the aggregate basis of its assets immediately after
the discharge exceeds the amount, if any, of the Reorganized Debtor's
liabilities remaining outstanding immediately after the discharge. The IRS,
however, may take the position that the attribute reduction should occur in a
different manner.
Once the basis reduction limits have been reached, all remaining
COD income should be eliminated.
2. EFFECT OF SECTION 382 OF THE TAX CODE.
Section 382 of the Tax Code imposes certain limitations upon the
carryforward of NOLs that remain after the reduction of tax attributes as a
result of COD income as described above and other tax attributes after an
"ownership change." Given the anticipated amount of
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COD income, the significance of these limitations will depend largely upon
whether any substantial portion of the consolidated NOL will remain after
attribute reduction under Section 108(b) of the Tax Code, as described above.
The Plan will cause an "ownership change" within the meaning of
Section 382 of the Tax Code on the Effective Date. In general, unless the
Bankruptcy Exception, as described below, applies, a corporation that
experiences an ownership change may utilize its pre-change NOLs (and possibly
certain built-in losses) only up to an annual amount equal to the "Section 382
limitation," which is calculated as the product of (i) the federal long-term
tax-exempt rate at the time of such ownership change (5.18% for changes
occurring in August 1999) and (ii) the fair market value of the stock of the
corporation, which for corporations in a bankruptcy proceeding will reflect the
increase in value resulting from any surrender or cancellation of claims, plus
certain built-in gains; recognized during the five year period following the
ownership change. Finally, if Section 382 of the Tax Code applies with respect
to an ownership change, and the continuity of business enterprise requirement of
Section 382 of the Tax Code is not satisfied during the two-year period
following the date of such ownership change, then the Section 382 limitation is
limited to recognized built-in gains while the Debtors expect to satisfy this
continuing requirement there can be no assurance that they will do so.
If the corporation's taxable income which would otherwise be
offset by NOLs in a given year exceeds the Section 382 limitation, the excess is
generally subject to federal income tax. NOLs not utilized in a given year by
virtue of this limitation remain available for use in future years until their
normal expiration dates. To the extent that a corporation's Section 382
limitation in a given year exceeds its taxable income for such year, the excess
amount will increase the Section 382 limitation for the following taxable year.
3. THE BANKRUPTCY EXCEPTION
Pursuant to the Bankruptcy Exception under Section 382(l)(5) of
the Tax Code, the general Section 382 limitation will not apply if the
stockholders and certain "qualified creditors" of such corporation immediately
before the ownership change own at least 50 percent of the stock of the
corporation, by vote and value, immediately after such change, by virtue of
their status as stockholders or "qualified creditors" immediately before such
change. For this purpose, subject to certain exceptions, stock transferred to a
creditor is taken into account only to the extent that such stock is transferred
in satisfaction of debt and only if such debt either (i) was held by the
creditor at least 18 months before the filing of the Chapter 11 case, or (ii)
arose in the ordinary course of the trade or business of the corporation and is
held by the person who at all times held the beneficial interest in such debt. A
loss corporation generally can treat a creditor as meeting the holding period
requirement, unless (i) the creditor becomes a five percent (5%) shareholder of
the loss corporation (directly or indirectly) immediately after the ownership
change; or (ii) such creditor's participation in the formulation of the
reorganization plan makes it evident to the Debtors that the creditor has not
owned the debt in question for the required period. If the Bankruptcy Exception
applies, however, the Debtors must reduce their NOLs and certain other tax
attributes by the amount of interest claimed as a deduction on any indebtedness
converted into stock during the three year period preceding the taxable year of
the ownership change and the pre-change portion of the taxable year in which the
ownership change occurs.
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The Bankruptcy Exception automatically applies to a plan of
reorganization that satisfies its requirements unless the Debtors "elect out" of
the Bankruptcy Exception. In such a case, the normal Section 382 limitation will
apply, and the NOLs will be subject to the annual limitation as described above.
Under the Plan holders of an Allowed Class 2 Claim will receive
shares of New Common Stock. It appears that more than 50% of the New Common
Stock will be issued to "qualified creditors" and thus the Bankruptcy Exception
should apply. In such case the entire amount of the NOL's remaining after
reduction by COD Income, less the amount of interest claimed as a deduction on
any Allowed Class 2 Claim converted into stock during the three year period
preceding the taxable year of the ownership change and the period of the taxable
year which includes the ownership change, should be available without regard to
the Section 382 limitation. However, it should be noted that if another
ownership change occurs within two years following an ownership change to which
the Bankruptcy Exception would otherwise apply, the Bankruptcy Exception will
not apply and the Section 382 limitation following the second change will be
zero. The Debtors will not impose any transfer restrictions upon the sale of New
Common Stock after the Effective Date. Accordingly, if there is an ownership
change during the 2-year period immediately following the issuance New Common
Stock, such ownership change would eliminate the remaining NOLs.
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLAIMS
1. IN GENERAL
A holder of an Allowed Claim will recognize gain or loss on the
exchange of such claim (other than a claim for accrued interest) for New Common
Stock. Subject to the discussion of accrued interest below, the amount of such
gain or loss will equal the difference between (i) the fair market value of New
Common Stock received in respect of such claim and (ii) the holder's tax basis
in such claim.
The aggregate tax basis in any New Common Stock received by a
holder of an Allowed Claim will equal the fair market value of such stock.
Should the holder subsequently recognize any gain on the sale or exchange of any
New Common Stock received pursuant to the Plan, the gain recognized by such
holder on such sale or exchange will be treated as ordinary income to the extent
of (i) any bad debt deduction attributable to the claim reduced by any income
recognized on receipt of the New Common Stock, or (ii) any ordinary loss claimed
with respect to the exchange of the claim for such stock (to the extent properly
attributable to such sale), and, thereafter, as capital gain, provided the stock
constitutes a capital asset in the holder's hands. The holder's holding period
for the stock will begin on the day following the exchange.
2. ACCRUED INTEREST ON ALLOWED CLAIMS
If a holder of an Allowed Claim who receives New Common Stock
pursuant to the Plan did not previously include in taxable income accrued but
unpaid interest, including original issue discount on its Allowed Claim, then
such portion of the New Common Stock that is allocable to such accrued but
unpaid interest will be recognized as ordinary income. The basis of a holder of
an Allowed Claim in any such New Common Stock received will be equal to the
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amount of interest income treated as satisfied therefor, and the holding period
for such New Common Stock will begin on the day after the Effective Date.
3. HOLDERS OF ALLOWED CLAIMS WHO RECEIVE CASH
Holders of Allowed Class 3 Claims, who will receive Cash
pursuant to the Plan, will recognize gain or loss measured by the difference
between the Cash received, to the extent not allocable to interest, and its tax
basis in the Claim. The character and taxation of any recognized gain or loss
will depend on the status of the holder, the nature of the Claim and the
holder's holding period.
4. INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the backup withholding rules of the Tax Code, holders of
Allowed Claims may be subject to backup withholding at the rate of 31 percent
with respect to payments made pursuant to the Plan unless, the holder (i) is a
corporation or comes within specified other exempt categories and, when
required, demonstrates this fact, or (ii) provides a correct taxpayer
identification number and certifies under penalties of perjury that the taxpayer
identification number is correct and that it is not subject to backup
withholding due to a failure to report all dividends and interest. Any amount
withheld under these rules is not an additional tax but will be credited against
the holder's U.S. federal income tax liability. Holders of Allowed Claims may be
required to establish an exemption from backup withholding or to make
arrangements with respect to the payment of backup withholding.
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN ARE COMPLEX
AND, IN MANY RESPECTS, UNCERTAIN. THE FOREGOING IS INTENDED TO BE A SUMMARY ONLY
AND, AS SUCH, DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR HOLDER OF AN ALLOWED CLAIM. ALL HOLDERS OF
ALLOWED CLAIMS AND INTERESTS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE PLAN RELEVANT TO THEIR PARTICULAR
CIRCUMSTANCES.
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XV. CONCLUSION
The Debtors believe that Confirmation of the Plan is desirable
and in the best interests of all holders of Claims. The Debtors therefore urge
you to vote to accept the Plan.
Dated: Wilmington, Delaware
June 30, 1999
CROWN BOOKS CORPORATION
Debtor and Debtor in Possession
By: /s/ Anna L. Currence
------------------------------
Anna L. Currence
Chief Executive Officer
SUPER CROWN BOOKS CORPORATION
Debtor and Debtor in Possession
By: /s/ Anna L. Currence
------------------------------
Anna L. Currence
Chief Executive Officer
CROWN BOOKS EAST CORPORATION
Debtor and Debtor in Possession
By: /s/ Anna L. Currence
------------------------------
Anna L. Currence
Chief Executive Officer
CROWN BOOKS WEST CORPORATION
Debtor and Debtor in Possession
By: /s/ Anna L. Currence
------------------------------
Anna L. Currence
Chief Executive Officer
CROWN DHC CORPORATION
Debtor and Debtor in Possession
By: /s/ Anna L. Currence
------------------------------
Anna L. Currence
Chief Executive Officer
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YOUNG CONAWAY STARGATT & TAYLOR, LLP
James L. Patton, Jr. (No. 2202)
S. David Peress (No. 2679)
Brendan Linehan Shannon (No. 3136)
Michael R. Nestor (No. 3 526)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Counsel to Debtors and Debtors-in-Possession
61
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EXHIBIT A
EXHIBIT A
JOINT PLAN OF REORGANIZATION
<PAGE> 69
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re: ) Chapter 11
)
CROWN BOOKS CORPORATION, )
SUPER CROWN BOOKS CORPORATION, ) Case No. 98-1575 (RRM)
CROWN BOOKS EAST CORPORATION, )
CROWN BOOKS WEST CORPORATION, ) (Jointly Administered)
CROWN BOOKS NATIONAL CORPORATION, )
and CROWN DHC CORPORATION, )
)
Debtors. )
</TABLE>
FIRST AMENDED JOINT
PLAN OF REORGANIZATION
YOUNG CONAWAY STARGATT & TAYLOR, LLP
James L. Patton, Jr. (No. 2202)
S. David Peress (No. 2679)
Brendan Linehan Shannon (No. 3136)
Michael R- Nestor (No. 3526)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Attorneys for Debtors
Dated: August 18, 1999
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS............................................................1
A. Defined Terms...........................................1
B. Other Terms.............................................8
C. Plan Supplement.........................................8
ARTICLE II CLASSIFICATION OF CLAIMS AND INTERESTS.................................8
2.01 "Class 1 Claims".............................................................8
2.02 "Class 2 Claims".............................................................9
2.03 "Class 3 Claims".............................................................9
2.04 "Class 4 Interests"..........................................................9
2.05 "Class 5 Interests"..........................................................9
ARTICLE III TREATMENT OF CLAIMS AND INTERESTS......................................9
3.01 Treatment of Administrative Claims...........................................9
3.02 Treatment of Intercompany Claims.............................................9
3.03 Treatment of Priority Tax Claims.............................................9
3.04 Treatment of Other Priority Claims...........................................9
3.05 Treatment of Class 1 Claims.................................................10
3.06 Treatment of Class 2 Claims.................................................10
3.07 Treatment of Class 3 Claims (Convenience Claims)............................10
3.08 Treatment of Class 4 Interests..............................................10
3.09 Treatment of Class 5 Interests..............................................10
ARTICLE IV METHOD OF DISTRIBUTION OF PROPERTY TO HOLDERS OF
ALLOWED CLAIMS........................................................10
4.01 Manner of Payment Under the Plan............................................10
4.02 Manner of Distribution of Other Property....................................10
4.03 Record Date.................................................................11
ARTICLE V IMPLEMENTATION OF THE PLAN............................................11
5.01 Issuance of New Securities and Execution of Related Documents...............11
5.02 Registration Rights.........................................................11
5.03 Cancellation of Existing Securities and Agreements..........................11
5.04 Listing of New Common Stock; Registration of Securities.....................11
5.05 Revesting of Assets.........................................................12
5.06 Substantive Consolidation...................................................12
5.07 Corporate Action............................................................12
5.08 Emergence Bonus and Incentive Plan..........................................12
5.09 Distributions...............................................................12
(a) Distributions to Holders of Allowed Administrative Claims and
Allowed Priority Tax Claims..........................................12
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
Page
<S> <C>
(b) Distributions to Holders of Allowed Other Priority Claims............12
(c) Distributions of New Common Stock....................................13
(d) Section 546(g)* Claims...............................................13
(e) Transmittal of distributed property and notices......................13
(f) Rounding; Fractional Shares..........................................13
(g) Unclaimed Property...................................................14
(h) Full and Final Satisfaction..........................................14
(i) Setoffs..............................................................14
(j) Disputed Claims......................................................14
5.10 Miscellaneous Distribution Provisions.......................................14
ARTICLE VI PROVISIONS RELATING TO CORPORATE STRUCTURE OF
THE REORGANIZED DEBTOR UPON CONSUMMATION..............................15
6.01 Charter.....................................................................15
6.02 Management of the Reorganized Debtor........................................15
ARTICLE VII EXECUTORY CONTRACTS AND UNEXPIRED LEASES..............................16
7.01 Assumption and Rejection of Executory Contracts and Unexpired Leases........16
ARTICLE VIII CONDITIONS TO CONFIRMATION OF THE PLAN................................16
8.01 Conditions to Confirmation..................................................16
8.02 Conditions to Effective Date of Plan........................................17
8.03 Waiver of Conditions........................................................17
ARTICLE IX WITHDRAWAL OR MODIFICATION OF THE PLAN................................17
9.01 Modification of Plan Before and After Confirmation Date.....................17
9.02 Withdrawal of the Plan......................................................18
ARTICLE X RETENTION OF JURISDICTION.............................................18
10.01 Retention of Jurisdiction in the Bankruptcy Court...........................18
ARTICLE XI DISCHARGE, RELEASES AND INDEMNIFICATION...............................19
11.01 Discharge of All Claims and Interests and Releases..........................19
11.02 Exculpation.................................................................21
11.03 Indemnification.............................................................21
11.04 Limitation of Liability.....................................................21
11.05 No Liability for Solicitation or Participation..............................21
11.06 Injunction..................................................................21
ARTICLE XII MISCELLANEOUS PROVISIONS..............................................21
12.01 Payment of Statutory Fees...................................................21
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
Page
<S> <C>
12.02 Saturday, Sunday, or Legal Holiday..........................................22
12.03 Severability of Provisions..................................................22
12.04 Rights of Action............................................................22
12.05 Committee...................................................................22
12.06 Headings....................................................................22
12.07 Binding Effect..............................................................22
12.08 Notices.....................................................................22
12.09 Governing Law...............................................................23
12.10 Filing of Additional Documents..............................................23
12.11 Withholding and Reporting Requirements......................................23
</TABLE>
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Crown Books Corporation, Super Crown Books Corporation, Crown
Books East Corporation, Crown Books West Corporation, Crown Books National
Corporation and Crown DHC Corporation propose the following First Amended
Joint Plan of Reorganization pursuant to the provisions of 11 U.S.C. 1101, et
seq.
ARTICLE I
DEFINITIONS
A. Defined Terms. As used in the Plan and the Disclosure Statement,
the following terms have the respective meanings ascribed to them below,
unless the context otherwise requires:
1. Administrative Claim: Any cost or expense of
administration of the Reorganization Cases allowed under section 503(b) of the
Bankruptcy Code and entitled to priority in payment under section 507(a)(1) of
the Bankruptcy Code, including, without limitation, any actual and necessary
expenses of preserving the estate of the Debtors, any actual and necessary
expenses of operating the business of the Debtors, any indebtedness or
obligations incurred or assumed by the Debtors during the pendency of the
Reorganization Cases in connection with the conduct of the business of, the
acquisition or lease of property by or the rendition of services to the
Debtors, all allowances of compensation or reimbursement of expenses to the
extent allowed by the Bankruptcy Court under section 330 or 503 of the
Bankruptcy Code, and any fees or charges assessed against the estate of the
Debtors under 28 U.S.C. Section 1930.
2. Allowed: Whenever in the Plan the word "Allowed" precedes
a defined term describing a Claim within a particular Class, that phrase will
mean an Allowed Claim of the type described in such Class.
3. Allowed Amount: The lesser of (a) the dollar amount of An
Allowed Claim or (b) the Disputed Claim Amount of such Claim. Unless specified
herein of by Final Order of the Bankruptcy Court the Allowed Amount of an
Allowed Claim shall not include interest accruing on such Allowed Claim from
and after the Petition Date.
4. Allowed Claim:
a. With respect to a Claim (other than an
Administrative Claim), any such Claim, proof of which was timely and properly
filed on or prior to the applicable Bar Date, if any, or, if no proof of claim
was filed or required to be filed, which has been or hereafter is listed by
the Debtors on its Schedules but is not listed as unliquidated in amount
disputed and/or contingent and, in either case, a Claim as to which no
objection to the allowance thereof, or motion to estimate for purposes of
allowance, shall have been filed on or before any applicable period of
limitation that may be fixed by the Bankruptcy Code, the Bankruptcy Rules
and/or the Bankruptcy Court, or as to which any objection, or any motion to
estimate for purposes of allowance, shall have been determined by a Final
Order to the extent such objection or motion is determined in favor of the
respective holder of such Claim; and
b. With respect to an Administrative Claim, any such
Administrative Claim as to which no objection to the allowance thereof has
been interposed on or before any
<PAGE> 74
applicable period of limitation that may be fixed by the Bankruptcy Code, the
Bankruptcy Rules and/or the Bankruptcy Court, or as to which any objection has
been determined by a Final Order to the extent such objection is determined in
favor of the respective holder of such Administrative Claim.
5. Amended and Restated Bylaws: The bylaws of the
Reorganized Debtor, which shall be substantially in the form as included in
the Plan Supplement.
6. Amended and Restated Certificate of Incorporation: The
certificate of incorporation of the Reorganized Debtor, as amended and
restated, as described in section 6.01 of the Plan, which shall be
substantially in the form included in the Plan Supplement.
7. Bankruptcy Code: Title I of the Bankruptcy Reform Act of
1978, as amended, set forth in title 11, sections 101 et seq., of the United
States Code.
8. Bankruptcy Court: The United States Bankruptcy Court for
the District of Delaware having jurisdiction over the Reorganization Cases
and, to the extent of any reference made pursuant to section 157 of title 28
of the United States Code, the unit of such District Court pursuant to section
151 of title 28 of the United States Code.
9. Bankruptcy Rules: The Bankruptcy Rules promulgated under
28 U.S.C. Section 2075, as amended from time to time, and the local rules of
the Bankruptcy Court.
10. Bar Date: January 29, 1999, and such other date or dates
set by the Bankruptcy Court as the last day for filing proofs of claim against
the Debtors.
11. Board: The Boards of Directors of the respective Debtor
entities prior to the Effective Date.
12. Business Day: Any day other than a Saturday, Sunday or
"legal holiday" as defined in Bankruptcy Rule 9006(a).
13. Cash: Cash or cash equivalents (including, but not
limited to, a check or cashier's check, wire transfers, bank deposits and
other similar items).
14. Claim: Any claim against one or more of the Debtors
within the meaning of Section 101(5) of the Bankruptcy Code.
15. Class: Any group of Claims or Interests, as classified
pursuant to Article II of the Plan.
16. Clerk of the Bankruptcy Court: The Clerk of the United
States Bankruptcy Court for the District of Delaware.
17. Commission: The Securities and Exchange Commission.
18. Confirmation: Confirmation of the Plan within the meaning
of Section 1129 of the Bankruptcy Code.
2
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19. Confirmation Date: The date upon which the Clerk of the
Bankruptcy Court enters the Confirmation Order.
20. Confirmation Order: An order of the Bankruptcy Court
confirming the Plan.
21. Contingent Claim: Any Claim which is contingent or
unliquidated. Wherever in the Plan the word "Contingent" precedes a defined
term describing a Claim within a particular class, that phrase will mean a
Contingent Claim of the type described in such class.
22. Convenience Claim: Allowed Unsecured Claims of Creditors
in the amount (a) equal to or less than $1,000, or (b) greater than $1,000,
but which is reduced to $1,000 by written election of the holder of such Claim
made on a validly executed and timely delivered ballot for voting of the Plan.
23. Creditor: Any Person who holds a Claim against any of the
Debtors.
24. Creditor Release: The release described in Section 11.02
of the Plan.
25. Crown: Crown Books Corporation, a Delaware corporation,
and one of the Debtors.
26. Crown DHC: Crown DHC Corporation, a Delaware corporation,
and one of the Debtors.
27. Crown East: Crown Books East Corporation, a Delaware
corporation, and one of the Debtors.
28. Crown National: Crown Books National Corporation, a
Delaware corporation, and one of the Debtors.
29. Crown West: Crown Books West Corporation, a Delaware
corporation, and one of the Debtors.
30. Dart: Dart Group, Inc.
31. Debtor or Debtors: Crown, Super Crown, Crown East, Crown
West, Crown National, and Crown DHC, individually, or, as the context
requires, collectively.
32. Debtors-in-Possession: Each of the Debtors as
debtors-in-possession pursuant to Chapter 11 of the Bankruptcy Code.
33. Delaware General Corporation Law: Title 8 of the Delaware
Code, as now in effect or hereafter amended.
34. DIP Facility: That certain secured post-petition
debtor-in-possession financing agreement entered into between the Debtors and
the Lenders, authorized and approved pursuant to orders of the Bankruptcy
Court and evidenced by the Loan and Security Agreement
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dated as of July 15, 1998 (and as subsequently amended) and related loan,
financing and security agreements between and among the Debtors and the
Lenders.
35. Disallowed Claim: Any Claim against the Debtors which has
been disallowed, in whole or part, by Final Order of the Bankruptcy Court, or
agreement of the Company and the holder of the Claim, or which has been
withdrawn, in whole or in part, by the holder thereof, in each case to the
extent disallowed or withdrawn.
36. Disbursing Agent: The Reorganized Debtor, or any other
entity or entities designated and authorized by the Debtors or the Reorganized
Debtor to distribute property under the Plan.
37. Disclosure Statement: The written statement, among other
things, describing the Plan and setting forth voting procedures and
consequences of the Plan, dated June 30, 1999, as amended, supplemented, or
modified from time to time, that is prepared and distributed in accordance
with sections 1125 and 1126(b) of the Bankruptcy Code and Bankruptcy Rule
3018.
38. Disputed Claim: Any Claim asserted against the Debtors (a)
which the Debtors believe is unliquidated, disputed, or contingent and which
has not been allowed by Final Order of the Bankruptcy Court or (b) as to which
an objection has been filed by a party in interest and which objection has not
been withdrawn or resolved. Wherever in the Plan the word "Disputed" precedes
a defined term describing a Claim within a particular Class, that phrase will
mean a Disputed Claim of the type described in such Class.
39. Distribution Date: The Effective Date and any other dates
selected by the Reorganized Debtor, other than the Effective Date, upon which
the Reorganized Debtor shall or may make distributions pursuant to the Plan.
40. Effective Date: The first Business bay on which all
conditions to effectiveness set forth in Article VIII of the Plan have been
satisfied, or, if permitted, waived.
41. Emergence Bonus and Incentive Plan: The Emergence Bonus
and Incentive Plan, which shall be substantially in the form as included in
the Plan Supplement.
42. Entity: Any individual, corporation, limited or general
partnership, joint venture association, joint stock company, limited liability
company, estate entity, trust, trustee, United States Trustee, unincorporated
organization, government governmental unit (as defined in the Bankruptcy
Code), agency or political subdivision thereof.
43. Equity Factor: .0833, or such greater number as the
Debtors and the Creditors' Committee jointly may determine on the Effective
Date.
44. Final Order: An order that has not been reversed,
modified, amended or stayed, and which is no longer subject to appeal,
certiorari proceeding or other proceeding for review, reargument, or
rehearing, and as to which no appeal, certiorari proceeding, or other
proceeding for review, reargument, or rehearing is then pending and the time
to file any such
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appeal, certiorari proceeding or other proceeding for review, reargument, or
rehearing has expired or as to which any right to appeal, petition for
certiorari, reargue, or rehear shall have been waived in writing in form and
substance satisfactory to the Debtors; provided, however, that the possibility
that a motion under Rule 59 or Rule 60 of the Federal Rules of Civil Procedure
or any analogous Bankruptcy Rule may be but has not been filed with respect to
such order, shall not cause such order not to be a Final Order.
45. Foothill: Foothill Capital Corporation.
46. Impaired: Any Claim which is impaired within the meaning
of section 1124 of the Bankruptcy Code.
47. Ingram: Ingram Book Company.
48. Ingram Settlement: The agreement between Ingram and the
Debtors whereby, among other things, the Debtors and Ingram have agreed to
exchange mutual releases, Ingram has agreed to provide $11.6 million of
post-Effective Date trade credit to the Reorganized Debtor; reducing to $9.6
million on December 31, 1999, and, upon the reduction of the credit line to
$9.6 million, Ingram has agreed to release Dart, which will be substantially
in the form included in the Plan Supplement.
49. Interests: Shall mean the equity interests and rights
related thereto represented by (a) the Old Crown Common Stock, (b) the stock
of Super Crown, Crown East, Crown West, Crown National, and Crown DHC, and (c)
related rights, warrants and options, if any, with respect to either (a) or
(b) above determined immediately prior to the Filing Date.
50. Management Options: The options to be issued to
management of the Reorganized Debtor pursuant to the Emergence Bonus and
Incentive Plan providing for the right to purchase shares of New Common Stock.
51. Lenders: Foothill and Paragon, as lenders under the DIP
Facility.
52. New Common Stock: The common stock of the Reorganized
Debtor, par value $.01 per share, authorized to be issued pursuant to the
Amended and Restated Certificate of Incorporation.
53. 1934 Act: The Securities Exchange Act of 1934, as
amended.
54. Old Crown Common Stock: The duly authorized, validly
issued, fully paid shares of common stock outstanding of Crown as of the
Filing Date, which are being eliminated pursuant to the Plan.
55. Old Equity Interests: Collectively, all interests in
Super Crown, Crown East, Crown West, Crown National, and Crown DHC, and all
related rights, warrants and options relating thereto.
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56. Other Priority Claims: Any Claims against the Debtors to
the extent entitled to priority in payment under Sections 507(a)(2)-(7) or
Section 507(a)(9) of the Bankruptcy Code.
57. Paragon: Paragon Capital, LLC.
58. Paragon Commitment Letter: The letter from Paragon and
Foothill to the Debtors committing to provide up to $35 million of financing
under the terms and conditions set forth therein.
59. Person: Any individual, corporation, partnership,
association, joint stock company, joint venture,
60. Petition Date: July 14, 1998, the date on which the
Debtors commenced the Reorganization Cases. estate, trust, unincorporated
organization or government or subdivision thereof or other entity.
61. Plan: This plan of reorganization under Chapter 11 of the
Bankruptcy Code, either in its present form or as amended, supplemented or
otherwise modified from time to time.
62. Plan Supplement: The documents described in Section 10
hereof.
63. Post-Confirmation Credit Agreement: The credit agreement
which is to be executed as of the Effective Date by the Reorganized Debtor and
which shall contain those terms set forth in the Paragon Commitment Letter and
any and all documents related thereto.
64. Post-Confirmation Credit Facility: The loans and other
financial accommodations provided to the Reorganized Debtor pursuant to the
Post-Confirmation Credit Agreement.
65. Pre-Petition: Arising or accruing prior to the Petition
Date.
66. Priority Claim: Any Claim against the Debtors to the
extent entitled to priority in payment under sections -507(a)(2)-(7) and (9)
of the Bankruptcy Code.
67. Priority Tax Claim: Any Claim against the Debtors to the
extent entitled to priority in payment under section 507(a)(8) of the
Bankruptcy Code.
68. Record Date: That date established by the Debtors for the
purpose of determining to whom distributions shall be made under the Plan.
69. Registration Rights Agreement: The registration rights
agreement, which shall be substantially in the form included in the Plan
Supplement, to be entered into on the Effective Date by and among the
Reorganized Debtor and certain holders of New Common Stock as of the Effective
Date.
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70. Registration Statement. A registration statement pursuant
to section 12 of the 1934 Act.
71. Reorganization Cases: Those cases under Chapter 11 of the
Bankruptcy Code, commenced by the Debtors, and styled "In re Crown Books
Corporation, et al., Case No. 98-1575 (RRM)".
72. Reorganized Board: The Board of Directors of the
Reorganized Debtor on and after the Effective Date. On the Effective Date, the
Reorganized Board shall consist of individuals identified in the Plan
Supplement or as modified at or prior to the Confirmation Hearing.
73. Reorganized Debtor: Crown Books Corporation, on and after
the Effective Date.
74. Richfood Entities: Richfood Holdings, Inc., Dart and
their respective present and former officers, directors, agents and employees
and their respective successors and assigns including Lazar G. Schafran,
Douglas Bregman and Bonita Wilson and specifically excluding Stephen A.
Stevens.
75. Schedules: The Debtors' Schedules of Assets and
Liabilities, filed with the Bankruptcy Court pursuant to Bankruptcy Rule 1007,
along with such amendments or modification relating thereto as may be made
from time to time.
76. Section 546(g)* Claims: Claims arising from the return of
goods shipped to a Debtor by a Creditor prior to the Petition Date, the offset
by the Creditor of the purchase price of such goods against such Creditor's
pre-petition Claim and the extension of post-petition credit to a Debtor
arising out of such transaction as authorized by an Order of the Bankruptcy
Court pursuant to Section 546(g)* of the Bankruptcy Code.
77. Secured Claim: A Claim which is an Allowed Claim to the
extent of the value, as determined by the Bankruptcy Court pursuant to
Bankruptcy Code Section 506(a), of any interest in property of the estate of
the Debtors securing such Allowed Claim.
78. Securities Act: The Securities Act of 1933, as amended.
79. Solicitation Materials: The Disclosure Statement and all
Exhibits thereto, including but not limited to the Plan, and all ballots and
instructions provided by the Debtors to all parties entitled to vote on the
Plan.
80. Subsidiaries: Collectively, Super Crown, Crown East,
Crown West, Crown National and Crown DHC. All the voting stock of the
subsidiaries is owned or controlled by Crown.
81. Super Crown: Super Crown Books Corporation, a Delaware
corporation, and one of the Debtors.
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82. Unimpaired: Any Claim that is not Impaired within the
meaning of Section 1124 of the Bankruptcy Code.
83. Unsecured Claim: Any Allowed Claim that is not a Secured
Claim, an Administrative Claim, a Priority Tax Claim, or Other Priority Claim.
84. Unsecured Creditor: The holder of an Unsecured Claim.
85. Unsecured Creditors' Committee: The Official Committee of
Unsecured Creditors appointed in the Reorganization Case by the United States
Trustee for the District of Delaware, as the membership of such Committee is
from time to time constituted and reconstituted.
B. Other Terms: Unless the context otherwise requires, any
capitalized terms used and not defined herein or elsewhere in the Plan but
that are defined in the Bankruptcy Code or Bankruptcy Rules will have the
respective meanings set forth therein. Wherever from the context it appears
appropriate, each term stated in either of the singular or the plural will
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender will include the masculine, the feminine and the
neuter. Unless otherwise expressly stated in the Plan, the words "herein,"
"hereof," "hereto," "hereunder" and others of similar inference refer to the
Plan as a whole and not to any particular section, subsection or clause
contained in the Plan. The term "including" shall not be deemed to be
exclusive and shall be deemed to mean "including, without limitation."
C. Plan Supplement: The Amended and Restated Bylaws, Amended and
Restated Certificate of Incorporation, Emergence Bonus and Incentive Plan,
Registration Rights Agreement, Paragon Commitment Letter, Ingram Settlement
and a list identifying the proposed directors of the Reorganized Debtor shall
be set forth in a separate volume (the "Plan Supplement"), which shall be
filed with the Clerk of the Bankruptcy Court at least ten (10) days prior to
the first day on which the Confirmation Hearing is scheduled to commence.
Holders of Claims against and Interests in the Debtors may obtain a copy of
the Plan Supplement upon written request to Young Conaway Stargatt & Taylor,
LLP, counsel for the Debtors, at the address set forth in Section 12.08
hereof. The Plan Supplement is incorporated into and is part of the Plan as if
fully set forth herein.
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS
Administrative Claims, Priority Tax Claims and Other Priority
Claims are unclassified. For purposes of the Plan, Claims and Interests are
classified as follows:
2.01 "CLASS 1 CLAIMS" shall consist of all Secured Claims. Status:
Unimpaired - not entitled to vote.
2.02 "CLASS 2 CLAIMS" shall consist of all General Unsecured Claims.
Status: Impaired - entitled to vote.
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2.03 "CLASS 3 CLAIMS" shall consist of all Convenience Claims.
Status: Impaired -entitled to vote.
2.04 "CLASS 4 INTERESTS" shall consist of all shares of Old Crown
Common Stock and, any related rights, warrants and options. Status: Impaired
- deemed to reject.
2.05 "CLASS 5 INTERESTS" shall consist of all Old Equity Interests in
the Subsidiaries, all of which are held by Crown. Status: Impaired - deemed
to reject.
ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS
3.01 TREATMENT OF ADMINISTRATIVE CLAIMS. Each holder of an Allowed
Administrative Claim shall be paid the Allowed Amount of its Claim in full, in
cash, at the sole option of the Debtors, (a) on the Effective Date, or (b) on
such other date as the Bankruptcy Court may fix, or (c) in the ordinary course
of business as said Claim matures except to the extent that the holder of such
Claim agrees to a less favorable treatment.
3.02 TREATMENT OF INTERCOMPANY CLAIMS. Intercompany Claims of any
Debtor against any other Debtor are not classified and are extinguished in
connection with the substantive consolidation of the Debtors pursuant to
Article V of the Plan.
3.03 TREATMENT OF PRIORITY TAX CLAIMS.
(a) Each holder of an Allowed Priority Tax Claim will receive
a Cash payment in the amount of such Priority Tax Claim six years after the
date of assessment of the tax on which such Claim is based, plus simple
interest paid annually in arrears on such amount from the Effective Date
through such day at the effective interest rate publicly quoted on the
Effective Date for obligations backed by the full faith and credit of the
United States of America maturing in 90 days. At the option of the Reorganized
Debtor, any Allowed Priority Tax Claim may be (i) paid on such alternative
terms as may be agreed by the Reorganized Debtor and the holder of such
Allowed Priority Tax Claim or (ii) prepaid in whole or in part, without
premium or penalty, at any time. The Debtors shall have the right to prepay
any Allowed Priority Tax Claim, in whole or in part, at any time, without
penalty and with interest accrued and unpaid thereon to the time of
prepayment.
3.04 TREATMENT OF OTHER PRIORITY CLAIMS. Each holder of an Allowed
Other Priority Claim will be paid, at the sole election of the Debtors, (i) in
accordance with the provisions of section 507 of the Bankruptcy Code, or (ii)
in the ordinary course, or (iii) as otherwise authorized by the Bankruptcy
Court, except to the extent the holder of such Claim agrees to a less
favorable treatment.
3.05 TREATMENT OF CLASS 1 CLAIMS (Secured Claims). Class 1 Claims are
Unimpaired. On the Effective Date, the legal, equitable and contractual
rights to which holders of Class 1 Claims are entitled shall remain unaltered.
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3.06 TREATMENT OF CLASS 2 CLAIMS (General Unsecured Claims). Class 2
Claims are Impaired. On the Effective Date, or as soon thereafter as is
practicable, each holder of an Allowed Class 2 Claim shall receive shares of
New Common Stock equal to the product of such holder's Allowed General
Unsecured Claim multiplied by the Equity Factor. Holders of Class 2 Claims
shall not retain or receive any additional property for or on account of their
Class 2 Claims. The New Common Stock to be issued and distributed in respect
of the Class 2 Claims shall represent 100% of the New Common Stock issued and
outstanding as of the Effective Date, subject to dilution upon the exercise of
the Management Options issued pursuant to the Emergence Bonus and Incentive
Plan. No distribution shall be made to the Richfood Entities on account of any
of their Class 2 Claims.
3.07 TREATMENT OF CLASS 3 CLAIMS (Convenience Claims). Class 3 Claims
are Impaired. On the Effective Date, holders of Allowed Convenience Claims
will receive Cash in an amount equal to 25% of the Allowed Amount of such
Allowed Convenience Claim.
3.08 TREATMENT OF CLASS 4 INTERESTS (Old Crown Common Stock
Interests). Class 4 Interests are Impaired. On the Effective Date, (a) the Old
Crown Common Stock, and all related rights, warrants and options shall be
canceled pursuant to Section 5.02 hereof and (b) any obligations of Crown
under agreements and/or instruments governing, or entered into in connection
with, the issuance or sale of the Old Crown Common Stock and such related
rights, warrants or options shall be discharged pursuant to Section 11.02
hereof. Holders of Class 4 Interests will not receive or retain any
consideration under the Plan. Therefore, pursuant to section 1126(g) of the
Bankruptcy Code, this Class will be deemed to have voted to reject the Plan.
3.09 TREATMENT OF CLASS 5 INTERESTS (Old Equity Interests in the
Subsidiaries). Class 5 Interests are Impaired - On the Effective Date, all Old
Equity Interests in the Subsidiaries will be canceled and extinguished. The
Holder of Class 5 Interests will not receive or retain any consideration under
the Plan. Accordingly, this Class will be deemed to have rejected the Plan
pursuant to section 1126(g) of the Bankruptcy Code.
ARTICLE IV
METHOD OF DISTRIBUTION OF PROPERTY TO
HOLDERS OF ALLOWED CLAIMS
4.01 MANNER OF PAYMENT UNDER THE PLAN. Any payment of Cash made by the
Reorganized Debtor, or its designee, pursuant to the Plan may be made either
by check or by wire transfer, at the option of the Reorganized Debtor.
4.02 MANNER OF DISTRIBUTION OF OTHER PROPERTY. Any distribution under
the Plan of property other than Cash shall be made by the Reorganized Debtor,
or its designee, in accordance with the terms of the Plan.
4.03 RECORD DATE. 5:00 p.m. (Prevailing Eastern Time) on August 18,
1999.
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ARTICLE V
IMPLEMENTATION OF THE PLAN
5.01 ISSUANCE OF NEW SECURITIES AND EXECUTION OF RELATED DOCUMENTS. On
the Effective Date, the Reorganized Debtor (i) shall authorize and reserve 5
million shares of New Common Stock to be issued to the holders of Class 2
Claims in accordance with the terms of the Plan and (ii) shall authorize and
reserve such shares of New Common Stock as may be necessary for distribution
pursuant to the terms of the Emergence Bonus and Incentive Plan upon exercise
of the Management Options.
5.02 REGISTRATION RIGHTS. On the Effective Date, the Reorganized
Debtor shall enter into the Registration Rights Agreement.
5.03 CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS. Except as
otherwise provided in the Plan, on the Effective Date, the Interests in the
Subsidiaries, the Old Crown Common Stock and any related rights, warrants and
options, and all obligations of the Debtors relating thereto, shall be
cancelled, extinguished and discharged.
5.04 LISTING OF NEW COMMON STOCK; REGISTRATION OF SECURITIES: The
Reorganized Debtor shall use its best efforts to (i) to become a reporting
company under section 12 of the 1934 Act as soon as practicable after the
Effective Date by causing to be filed with the Commission and having declared
effective on or prior to the Effective Date, a registration statement on Form
10 under the 1934 Act with respect to registration of the New Common Stock
under the 1934 Act, (ii) to cause the shares of the New Common Stock issued
hereunder and all New Common Stock issued hereafter to be listed on a national
securities exchange or quoted in the NASDAQ national market or NASDAQ smallcap
market, as the case may be, (iii) to file and have declared effective as soon
as possible thereafter a registration statement under the Securities Act for
the offer and sale on a delayed or continuous basis the shares of the New
Common Stock held by Royalty on the Effective Date or issued thereafter (the
"Shelf Registration Statement"), (iv) to maintain the effectiveness of the
Shelf Registration Statement for a period of at least two years, and (v) enter
into Registration Rights Agreement with Royalty. Pursuant to the Plan, on the
Effective Date, the Reorganized Debtor will enter into a Registration Rights
Agreement for the benefit of Royalty, which will be receiving approximately
thirty (30%) percent of the aggregate amount of the New Common Stock being
issued under the Plan. Pursuant to the Registration Rights Agreement, Royalty
will have the right, exercisable at any time within five years after the
Effective Date, to demand on a maximum of three occasions the registration of
shares of the New Common Stock initially issued or otherwise held by Royalty
under the Securities Act. Royalty will also have unlimited piggyback rights
with respect to such shares of New Common Stock for a period of seven years.
The form of such Registration Rights Agreement will be included in the Plan
Supplement to be filed with the Bankruptcy Court.
5.05 REVESTING OF ASSETS. The property of the estate of each of the
Debtors shall vest in the Reorganized Debtor on the Effective Date. On and
after the Effective Date, the Reorganized Debtor may operate its business, and
may use, acquire, and dispose of property free of any restrictions of the
Bankruptcy Code. As of the Effective Date, all property of the
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Reorganized Debtor shall be free and clear of all Claims and Interests of
Creditors and holders of Interests, except as provided herein.
5.06 SUBSTANTIVE CONSOLIDATION. On the Effective Date, pursuant to the
Plan and without need for further action by the Debtors, the estates of each
of the Subsidiaries shall be substantively consolidated with Crown. Pursuant
to Section 5.07 below, on the Effective Date the Reorganized Debtor shall take
such further action as is necessary to dissolve the corporate existence of
each of the Subsidiaries in accordance with applicable provisions of State
incorporation laws.
5.07 CORPORATE ACTION. On the Effective Date, the issuance of
securities pursuant to section 5.01 hereof, the election of directors and
officers of the Reorganized Debtor pursuant to section 6.02 hereof, and the
other matters provided under the Plan involving the corporate structure of the
Reorganized Debtor shall be deemed to have occurred and shall be in effect
from and after the Effective Date pursuant to section 303 of the Delaware
General Corporation Law and any other applicable law without any requirement
of further action by the stockholders or directors of the Reorganized Debtor.
Also on the Effective Date, the Boards of each of the Subsidiaries shall take
such action as is necessary to effect the dissolution of the corporate
existence of each of the Subsidiaries. On the Effective Date, all agreements
entered into pursuant to the Plan shall be legally valid, binding and
enforceable in accordance with their terms.
5.08 EMERGENCE BONUS AND INCENTIVE PLAN. On the Effective Date, the
Reorganized Debtor shall be deemed to have adopted and shall implement without
further corporate authority or action, the Emergence Bonus and Incentive Plan.
On the Effective Date, the Reorganized Debtor shall distribute the Management
Options to purchase New Common Stock to certain members of the Reorganized
Debtor's senior management in accordance with the provisions of the Emergence
Bonus and Incentive Plan. If fully exercised, the Management Options will
entitle the holders hereof to fifteen percent (15%) of the total amount of the
New Common Stock to be issued and outstanding on a fully diluted basis.
5.09 DISTRIBUTIONS.
(a) Distributions to Holders of Allowed Administrative Claims
and Allowed Priority Tax Claims. The Reorganized Debtor shall make
distributions to each holder of an Allowed Administrative Claim or an Allowed
Priority Tax Claim for which an Allowed Amount has been determined as of the
Effective Date in the manner described in sections 3.01 and 3.02 of the Plan.
(b) Distributions to Holders of Allowed Other Priority Claims.
The Reorganized Debtor shall make distributions to each holder of an Allowed
Other Priority Claim for which an Allowed Amount has been determined as of the
Effective Date in the manner described in section 3.03 of the Plan.
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(c) Distributions of New Common Stock.
(i) In accordance with Section 5.01 of the Plan, the
Reorganized Debtor shall distribute to each holder of an Allowed Class 2 Claim
the shares of New Common Stock (rounded in accordance with subsection 5.09(f)
of the Plan) to which such holder is entitled hereunder.
(ii) Distributions of the New Common Stock to holders of
such Allowed Class 2 Claims pursuant to this paragraph of the Plan or
otherwise will be made on the Effective Date or as soon thereafter as is
practicable.
(iii) The Reorganized Debtor shall hold the New Common
Stock as a distribution agent and will, as soon as practicable, economically
and administratively, in accordance with applicable law and this Plan, deliver
the shares of New Common Stock to each holder of an Allowed Class 2 Claim.
(d) Section 546(g)* Claims. On and after the Effective Date,
Section 546(g)* Claims for credit extended to a Debtor by a holder of such
claim shall be paid or otherwise treated, at the Reorganized Debtor's sole
discretion, in accordance with (i) the terms of any Order of the Bankruptcy
Court giving rise to such claim, (ii) such ordinary and customary terms as may
be agreed upon between the holder of such Section 546(g)* Claim and the
relevant Debtor or the Reorganized Debtor, as appropriate, or (iii) in the
case of the Section 546(g)* Claim of Ingram, pursuant to the terms of the
Ingram Settlement.
(e) Transmittal of distributed property and notices. Except as
may otherwise be agreed to by the Reorganized Debtor and the holder of a
particular Claim or Interest, any property or notice to which such holder may
become entitled under the provisions of the Plan, shall be delivered to such
holder by regular mail, postage prepaid, in an envelope addressed to such
holder as he or his authorized agent may direct in a request filed, on or
before the Effective Date, with the Bankruptcy Court (or filed, after the
Effective Date, with the Reorganized Debtor), but if no such request is filed,
to the address shown in the Debtors' Schedules or other records, or, if a
different address is stated in a proof of claim duly filed, to such address.
In all cases where delivery or distribution is effected by mail, the date of
delivery or distribution shall be the date of mailing. Property delivered in
accordance with this paragraph will be deemed delivered to the holder
regardless of whether such property is actually received by such holder.
Notwithstanding any provision of the Plan to the contrary, any payment or
other distribution which the Reorganized Debtor is required, by the Plan, to
make to the holder of an Allowed Claim on the Effective Date or on any other
Distribution Date, shall be deemed to be made timely if made on the Effective
Date or other Distribution Date, as the case may be, or within five (5)
Business Days thereafter.
(f) Rounding; Fractional Shares. Whenever any delivery of a
fractional share of New Common Stock shall otherwise be called for, no such
fractional shares shall be delivered, but rather, the actual distribution of
New Common Stock shall reflect a rounding to the nearest whole number of
shares (rounding down in the case of fractions of 0.5 or less).
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(g) Unclaimed Property. The Reorganized Debtor shall make
distributions of property to holders of Claims and Interests at those times
and in that manner set forth in the Plan. In the event that any distribution
of property remains unclaimed for a period of two years after it has been
delivered (or after such delivery has been attempted), or otherwise made
available in accordance with the Plan to the holder entitled thereto, such
unclaimed property shall be forfeited by such holder, whereupon all such
unclaimed property shall revert to and vest irrevocably in the Reorganized
Debtor.
(h) Full and Final Satisfaction. All payments and
distributions under this Plan shall be in full and final satisfaction,
settlement, release and discharge of all Claims and Interests.
(i) Setoffs. The Reorganized Debtor may, but shall not be
required to, set off against any Claim and the payments to be made pursuant to
the Plan in respect of such Claim, any claims of any nature whatsoever any of
the Debtors may have against the holder thereof, but neither the failure to do
so nor the allowance of any Claim hereunder shall constitute a waiver or
release by the Debtors or the Reorganized Debtor of any such claim the Debtors
or the Reorganized Debtor may, have against such holder.
(j) Disputed Claims. Notwithstanding any other provisions of
the Plan, no payments or distributions shall be made on account of any
Disputed Claim until such Claim becomes an Allowed Claim, and then only to the
extent that it becomes an Allowed Claim. The Debtors and the Reorganized
Debtor shall retain the right to compromise, settle, litigate or otherwise
resolve any such Disputed Claims in the ordinary course of its business
operations, either before or after the Effective Date, at the sole election of
the Debtors and the Reorganized Debtor. From and after the Effective Date,
only the Reorganized Debtor may file and prosecute objections to claims unless
otherwise ordered by the Court. Objections to Claims, except Claims as to
which the Bankruptcy Court has set an earlier objection deadline, may be filed
and served by the Debtors or the Reorganized Debtor on the later of (a) the
120th day following the Effective Date, (b) 90 days after the filing of the
proof of claim setting forth such Claim, or (c) any later date set by order of
the Bankruptcy Court, which the Debtors or the Reorganized Debtor may request
on an ex parte basis. All Disputed Claims which become Allowed Claims after
the Effective Date shall be entitled to distribution on account of such
subsequently Allowed Claims on the next Distribution Date.
5.10 MISCELLANEOUS DISTRIBUTION PROVISIONS. Distributions of New
Common Stock will be made to holders of Allowed Class 2 Claims on the
Effective Date or as soon thereafter as practicable. Distributions to holders
of Disputed Class 2 Claims will be made, as and when appropriate, in
accordance with Section 5.10(d) hereof.
(a) On the Effective Date, the Debtors shall reserve 5 million
shares of New Common Stock to be issued to the holders of Class 2 Claims in
accordance with the terms of the Plan.
(b) Fluctuation in Value of New Common Stock. The value of the
New Common Stock held by the Reorganized Debtor in reserve on account of
Disputed Class 2 Claims is likely to fluctuate. The Reorganized Debtor does
not represent or warrant that the value of such New Common Stock will not
decline after the Effective Date and it does not
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otherwise assume any liability or risk of loss which the holder of a Disputed
Class 2 Claim which becomes an Allowed Claim, after the Effective Date may
suffer by reason of any decline in value of the New Common Stock pending
determination of the amount of such Disputed Class 2 Claim. The risk or
benefit of any appreciation or depreciation in the value of any reserved New
Common Stock shall be borne by the party to whom such New Common Stock is
ultimately distributed.
(c) Payment or Distribution on Account of Disputed Class 2
Claims. No payment or distribution will be made in respect of a Disputed Class
2 Claim unless and until such Disputed Class 2 Claim becomes an Allowed Class
2 Claim.
(d) Timing of Payment or Distribution When a Disputed Class 2
Claim becomes an Allowed Class 2 Claim. Subject to the provisions of this
Plan, distributions with respect to each Disputed Class 2 Claim that becomes
an Allowed Class 2 Claim that would have otherwise been made had the Claim
been an Allowed Claim on the Effective Date shall be made on the next
Distribution Date, as determined by the Reorganized Debtor.
(e) Excess Reserves. Shares of New Common Stock that are
reserved pursuant to Section 5.10 hereof for issuance but not issued shall
remain authorized but unissued New Common Stock.
(f) No Supplemental Distributions. In the event that the New
Common Stock authorized under Section 5.10(a) exceeds the total New Common
Stock to be distributed to holders of Allowed Class 2 Claims (either as a
result of the prosecution of objections to claims or otherwise), such
remaining New Common Stock shall revert irrevocably to the Reorganized Debtor.
ARTICLE VI
PROVISIONS RELATING TO CORPORATE STRUCTURE
OF THE REORGANIZED DEBTOR UPON CONSUMMATION
6.01 CHARTER. On or prior to the Effective Date, the Reorganized
Debtor will file its Amended and Restated Certificate of Incorporation with
the Secretary of State of the State of Delaware in accordance with sections
228, 242 and 245 of the Delaware General Corporation Law. The Amended and
Restated Certificate of Incorporation of the Reorganized Debtor will, among
other things, prohibit the issuance of non-voting equity securities to the
extent required by section 1123(a)(6) of the Bankruptcy Code and will
authorize (i) the issuance of shares of New Common Stock in sufficient amounts
to satisfy the Reorganized Debtor's obligations under the Plan not greater
than 10 million shares; (ii) a classified Board of Directors providing for
staggered election of Directors, and (iii) blank check preferred stock
provisions in an amount not greater than I million shares of such preferred
stock.
6.02 MANAGEMENT OF THE REORGANIZED DEBTOR. On the Effective Date, the
operation of the Reorganized Debtor shall become the general responsibility of
the Reorganized Board, which shall, thereafter, have the responsibility for
the management, control, and operation of the Reorganized Debtor. The initial
officers of the Reorganized Debtor shall consist of those individuals
identified in the Plan Supplement or otherwise announced at or prior to the
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Confirmation Hearing. All such directors and officers shall be deemed elected
as of the Effective Date pursuant to the Confirmation Order. Those officers
and directors not continuing in office shall be deemed removed therefrom as of
the Effective Date pursuant to the Confirmation Order.
ARTICLE VII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.01 ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES. Except as otherwise provided in this Plan or in any order of the
Bankruptcy Courts on the Effective Date, all executory contracts or unexpired
leases (including any and all amendments, revisions or modifications thereto)
of each of the Debtors not listed on the schedule of rejected contracts to be
served and filed by the Debtors at least ten days before the Confirmation Date
or which is not the subject of a motion to reject as of the Confirmation Date,
will be deemed assumed in accordance with the provisions and requirements of
sections 365 and 1123 of the Bankruptcy Code subject to the same rights that
the Debtors or the Reorganized Debtor held or hold at, on, or after the
Petition Date to modify or terminate such contracts or leases under applicable
law. Entry of the Confirmation Order by the Clerk of the Bankruptcy Court
shall constitute approval of such assumptions and rejections pursuant to
sections 365(a) and 1123 of the Bankruptcy Code. The dollar amount of any
monetary default (as of the Confirmation Date) under a particular unexpired
lease or executory contract, as may be agreed to by the parties thereto or as
may be determined by the Bankruptcy Court, shall constitute an Administrative
Claim upon the assumption of such executory contract or unexpired lease.
Claims created by the rejection of executory contracts must be filed with the
Bankruptcy Court no later than thirty (30) days after the later of (a) a Final
Order authorizing such rejection and (b) the Effective Date. Any Claims not
filed within such time shall be forever barred from assertion against the
Reorganized Debtor, its properties and estate. Nothing in this paragraph or in
the Plan shall operate to bar any claim which Dart may assert with respect to
an assumed lease guaranteed by Dart in the event that after the Effective
Date, the Reorganized Debtor defaults on such assumed lease.
ARTICLE VIII
CONDITIONS TO CONFIRMATION OF THE PLAN
8.01 CONDITIONS TO CONFIRMATION. The following conditions shall be
met prior to confirmation of the Plan:
(a) An order finding that the Disclosure Statement contains
adequate information pursuant to section 1125 of the Bankruptcy Code shall
have been entered.
(b) As of the Confirmation Date, General Unsecured Claims
against the Debtors (whether Disputed or Allowed) other than General Unsecured
Claims asserted by any of the Richfood Entities, in the aggregate, do not
exceed $60 million.
(c) As of the Confirmation Date, the Debtors shall have
received commitments from trade vendors to provide, in the aggregate, at least
$5 million of
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post-Effective Date trade credit over and above the trade credit to be
provided pursuant to the Ingram Settlement.
8.02 CONDITIONS TO EFFECTIVE DATE OF PLAN. The following are
conditions precedent to the consummation of the Plan:
(a) The Bankruptcy Court shall have confirmed the Plan.
(b) The Confirmation Order shall have become a Final Order.
(c) The Confirmation Order shall authorize and approve
substantive consolidation of the Debtors.
(d) The Registration Statement shall have been filed with the
Commission and no stop order in respect thereof shall have been issued.
(e) The Debtors shall have sufficient Cash, through
implementation of the Post-Confirmation Credit Facility or otherwise, to
satisfy all Cash obligations under the Plan due on the Effective Date.
(f) As of the Effective Date, General Unsecured Claims against
the Debtors (whether Disputed or Allowed) other than General Unsecured Claims
asserted by any of the Richfood Entities, in the aggregate, do not exceed $60
million.
8.03 WAIVER OF CONDITIONS. The Debtors may waive, by a writing signed
by an authorized representative and subsequently filed with the Bankruptcy
Court, one or more conditions to confirmation or consummation of the Plan.
ARTICLE IX
WITHDRAWAL OR MODIFICATION OF THE PLAN
9.01 MODIFICATION OF PLAN BEFORE AND AFTER CONFIRMATION DATE. The
Debtors may alter, amend, or modify the Plan under section 1127 of the
Bankruptcy Code at any time prior to the Confirmation Date. In accordance with
Bankruptcy Rule 3019, any such alteration, amendment or modification that does
not materially and adversely affect the treatment of holders of any Claim that
votes to accept the Plan, may be approved by the Bankruptcy Court at a
Confirmation Hearing without the necessity of resoliciting votes. After the
Confirmation Date and prior to substantial consummation of the Plan, the
Reorganized Debtor and any party in interest may, so long as it does not
adversely affect the treatment of holders of any Claims under the Plan,
institute proceedings in the Bankruptcy Court to remedy any defect or omission
or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the
Confirmation Order, and to address such matters as may be necessary to carry
out the purposes and effects of the Plan.
9.02 WITHDRAWAL OF THE PLAN. The Debtors reserve the right to withdraw
and revoke the Plan at any time prior to Confirmation, in which case the Plan
will be deemed null and void. In the event of withdrawal or revocation of the
Plan by the Debtors, nothing contained in the Plan will be deemed to
constitute a waiver or release of any Claim by or against any of the
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Debtors or any other person or to prejudice in any manner the rights of any of
the Debtors or any other person.
ARTICLE X
RETENTION OF JURISDICTION
10.01 RETENTION OF JURISDICTION IN THE BANKRUPTCY COURT. The Bankruptcy
Court will retain and have exclusive jurisdiction over the Reorganization Case
for the following purposes:
(a) To hear and determine any and all pending applications for
the rejection, assumption or assignment of executory contracts and leases, any
objections to Claims resulting therefrom, and the allowance of any Claims
resulting therefrom;
(b) To hear and determine any and all applications, adversary
proceedings, contested matters and other litigated matters pending on the
Effective Date or permitted to be commenced thereafter under the Bankruptcy
Code and the Bankruptcy Rules;
(c) To ensure that the distributions to holders of Allowed
Claims are accomplished as provided in the Plan;
(d) To hear and determine any objections to Claims Filed both
before and after Confirmation; to allow or disallow, in whole or in part, any
Disputed Claim; and to hear and determine other issues presented by or arising
under the Plan;
(e) To enter and implement such orders as may be appropriate
in regard to the Confirmation Order and the Plan;
(f) To hear and determine all applications of professionals
for compensation and reimbursement of expenses under section 330, 331, or
503(b) of the Bankruptcy Code;
(g) To hear the Debtors' or the Reorganized Debtor's
application, if any, to modify the Plan in accordance with section 1127 of the
Bankruptcy Code (after Confirmation, the Debtor or the Reorganized Debtor may
also, so long as they do not adversely affect the interest of holders of
Allowed Claims, institute proceedings in the Bankruptcy Court to remedy any
defect or omission or reconcile any inconsistencies in the Plan or
Confirmation Order, in such manner as may be necessary to carry out the
purposes and effects of the, Plan);
(h) To hear and determine disputes arising in connection with
the interpretation of the Plan or its implementation, including disputes among
holders of Allowed Claims and disputes arising under any other agreements,
documents or instruments executed in connection with the Plan;
(i) To construe and to take any action to enforce the Plan and
issue such orders and injunctions as may be necessary for the consummation and
implementation of the Plan;
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(j) To determine such other matters and for such purposes as
may be provided in the Confirmation Order;
(k) To hear and determine any motions or contested matters
involving taxes, tax refunds, tax Claims, tax attribute and tax benefits and
similar or related matters, with respect to the debtors or the Estates arising
on or prior to the Effective Date or relating to the period of administration
of the Chapter 11 cases;
(l) To hear and determine any other matters related to the
Plan and not inconsistent with Chapter 11 of the Bankruptcy Code;
(m) To enter and implement such orders as may be appropriate
in the event the Confirmation Order is for any reason stayed, revoked,
modified or vacated;
(n) To recover assets of the Debtors and property of the
estates, including preference claims or any other avoidance claims, wherever
located;
(o) To hear and determine matters concerning state, local and
federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy
Code; and
(p) To enter a final decree closing the Chapter 11 Cases.
ARTICLE XI
DISCHARGE, RELEASES AND INDEMNIFICATION
11.01 DISCHARGE OF ALL CLAIMS AND INTERESTS AND RELEASES.
(a) Except as otherwise provided by this Plan, the
confirmation of this Plan (subject to the occurrence of the Effective Date)
shall discharge the Debtors and the Reorganized Debtor from any debt that
arose before the Confirmation Date, and any debt of the kind specified in
sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not a
proof of Claim is filed or is deemed filed; whether or not such Claim is an
Allowed Claim, and whether or not the holder of such Claim has voted on this
Plan.
(b) Except as otherwise specifically provided by this Plan,
the distributions and rights that are provided in this Plan shall be in
complete satisfaction, discharge and release, effective as of the Confirmation
Date (but subject to the occurrence of the Effective Date) of (i) all claims
and causes of action against, liabilities of, liens on, obligations of and
Interests in the Debtors or Reorganized Debtor or the direct or indirect
assets and properties of the Debtors or Reorganized Debtor whether known or
unknown, and (ii) all causes of action (whether known or unknown, either
directly or derivatively through the Debtors or the Reorganized Debtor)
against, claims (as defined in Section 101 of the Bankruptcy Code) against,
liabilities (as guarantor of a claim or otherwise) of, liens on the direct or
indirect assets and properties of, and obligations of successors and assigns
of, the Debtors, the Reorganized Debtor and their successors and assigns based
on the same subject matter as any Claim or Interest or based on any act or
omission, transaction or other activity or security, interest or other
agreement of any kind or nature occurring, arising or existing prior to the
Effective Date that was or could have been the subject
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of any Claim or Interest, in each case regardless of whether a proof of claim
or interest was filed, whether or not Allowed and whether or not the holder of
the Claim or Interest has voted on this Plan.
(c) Except as otherwise specifically provided by this Plan,
any Entity accepting any distribution pursuant to this Plan shall be presumed
conclusively to have released the Debtors, the Reorganized Debtor, the
Richfood Entities and their respective successors and assigns from any cause
of action based on the same subject matter as the Claim or Interest or which
the distribution is received. The release described in the preceding sentence
shall be enforceable as a matter of contract against any Entity that accepts
any distribution pursuant to this Plan.
(d) On the Effective Date, the Debtors, in consideration for,
among other things, their voluntary resignation, support of the Plan and/or
their waiver of distributions under the Plan and, in the case of Dart, the
payment of $300,000 to the Reorganized Debtor, hereby release (i) all present
and former officers and directors of the Debtors either holding such office
(x) immediately prior to the Effective Date; or (y) on July 14, 1998; and (ii)
the Richfood Entities (collectively, the "Releasees") from any and all claims
or liability based upon any act or omission related to service prior to the
Effective Date with, for or on behalf of the Debtors or Debtors-in-Possession,
except that the Releasees shall not be released with respect to: (i) any
indebtedness of any such Releasee to the Debtors for money borrowed by such
Releasee; (ii) any setoff or counterclaim the Debtors may have or assert
against any such Releasee, provided that the aggregate amount thereof shall
not exceed the aggregate amount of any claims held or asserted by such
Releasee against the Debtors or Debtors-In-Possession, as the case may be.
(e) Upon the occurrence of the Effective Date, in exchange for
the Releases provided by Section 11.02(c) and (d), the Releasees shall be
deemed to have waived any and all Claims and Administrative Expenses except in
the case of officers, but solely for direct or indirect compensation and
benefits and reimbursement of expenses relating to their employment; provided,
however, Dart shall retain its contingent claim for reimbursement or
contribution in respect of claims asserted against Dart by Ingram pending the
release of such claims in connection with the Ingram Settlement.
11.02 EXCULPATION: Neither the Debtors, the Estates, the Reorganized
Debtor, nor any present officer, director, employee, agent, attorney,
accountant, investment banker or financial advisor to any of them, shall be
obligated in any manner under the Plan or in respect or by reason of the
filing, negotiation, prosecution, Confirmation, consummation or implementation
of the Plan or the attempted restructuring of the indebtedness of the Debtors
prior to the Petition Date or any action taken or not taken in connection
therewith, or shall have or incur any liability to any holder of a Claim or
Interest or any other Person in respect of any such matters or any information
provided or statement made in the Disclosure Statement or omitted therefrom,
except that (i) the Debtors and the Reorganized Debtor shall fulfill the
obligations expressly set forth therefor in the Plan and (ii) each Person
shall remain liable to the extent provided by law, for its own willful
misconduct or gross negligence as determined pursuant to Final Order of a
court of competent jurisdiction. Each such person shall be entitled to rely
upon the advice of counsel with respect to its duties and responsibilities
under the Plan and shall be fully protected
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in acting or in refraining from acting in accordance with such advice or in
any manner approved or ratified by the Bankruptcy Court.
11.03 INDEMNIFICATION. Subject to the occurrence of the Effective Date,
the obligations of the Debtors to indemnify officers and directors, holding
such offices from and including the Petition Date through and including the
Confirmation Date, against any obligation pursuant to the Debtors' respective
Certificate of Incorporation, by-laws or applicable state laws shall survive
confirmation of the Plan, remain unaffected by this Plan, and not be
discharged.
11.04 LIMITATION OF LIABILITY. Neither the Reorganized Debtor, the
Subsidiaries, nor any of their employees, officers, directors, agents or
representatives, nor any professional persons employed by any of them, shall
have or incur any liability to any person or Entity for any act taken or
omission made in good faith in connection with or related to formulating,
implementing, confirming or consummating this Plan, the Solicitation Materials
and Disclosure Statement, or any contract, instrument, release or other
agreement or document created in connection with this Plan.
11.05 NO LIABILITY FOR SOLICITATION OR PARTICIPATION. As specified in
section 1125(e) of the Bankruptcy Code, persons that solicit acceptances or
rejections of the Plan and/or participate in the offer, issuance, sale or
purchase of securities offered or sold under the Plan, in good faith and in
compliance with applicable provisions of the Bankruptcy Code, shall not be
liable for violations of any applicable law, rule, or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer, issuance,
sale, or purchase of securities.
11.06 INJUNCTION: The discharge and release provided in the Plan shall
also operate as an injunction restraining any person from commencing or
continuing any action, suit or proceeding, or employing any process, or
otherwise acting, to collect, offset or recover any claim discharged or
related under the Plan to the fullest extent authorized or provided by the
Bankruptcy Court, including the Sections 524 and 1141 thereof. The
Confirmation Order shall constitute an injunction enjoining any Person from
enforcing or attempting to enforce any cause of action against any present
director, officer, employee, attorney, accountant, financial advisor,
investment banker or agent of any of the Debtors based on, arising from or
relating to, in whole or in part, any act, omission, or other occurrence
taking place on or prior to the Effective Date with respect to or in any way
relating to the Reorganization Cases, all of which causes of action will be
deemed released on the Effective Date.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 PAYMENT OF STATUTORY FEES. All fees payable pursuant to 28
U.S.C. Section 1930 shall be paid on or before the Effective Date.
12.02 SATURDAY, SUNDAY, OR LEGAL HOLIDAY. If any payment or act under
the Plan is required to be made or performed on a date that is not a Business
Day, then the making of such payment or the performance of such act may be
completed on the next succeeding Business Day, but shall be deemed to have
been completed as of the required date.
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12.03 SEVERABILITY OF PROVISIONS. If prior to Confirmation any term or
provision of the Plan which does not govern the treatment of Claims or
Interests or the conditions to the Effective Date is held by the Bankruptcy
Court to be invalid, void, or unenforceable, the Bankruptcy Court shall have
the power to alter and interpret such term or provision to make it valid or
enforceable to the maximum extent practicable, consistent with the original
purpose of the term or provision held to be invalid, void, or unenforceable,
and such term or provision shall then be applicable as altered or interpreted.
Notwithstanding any such holding, alteration or interpretation, the remainder
of the terms and provisions of the Plan will remain in full force and effect
and will in no way be affected, impaired, or invalidated by such holding,
alteration, or interpretation. The Confirmation Order shall constitute a
judicial determination and shall provide that each term and provision of the
Plan, as it may have been altered or interpreted in accordance with the
foregoing, is valid and enforceable pursuant to its terms.
12.04 RIGHTS OF ACTION. Any rights or causes of action accruing to the
Debtors shall vest in the Reorganized Debtor on the Effective Date. The
Reorganized Debtor may pursue or release all reserved tights of action, as
appropriate, in accordance with what is in the best interests, and for the
benefit, of the Reorganized Debtor.
12.05 COMMITTEE. The appointment of the Unsecured Creditors' Committee
shall terminate on the Effective Date.
12.06 HEADINGS. Headings are used in the Plan for convenience and
reference only, and shall not constitute a part of the Plan for any other
purpose.
12.07 BINDING EFFECT. The Plan shall be binding upon and inure to the
benefit of each of the Reorganized Debtor, its Creditors, the holders of
Interests, and their respective successors and assigns.
12.08 NOTICES. Any notice to the Debtors or to the Reorganized Debtor
required or permitted to be provided under the Plan or Disclosure Statement
shall be in writing and served by either (1) certified mal, return receipt
requested, postage prepaid, (2) hand delivery, or (3) reputable overnight
delivery service, freight prepaid, to be addressed as follows:
ATTN: Anna Currence
Crown Books Corporation
3300 75th Street
Landover, MD 20755
With a copy to:
S. David Peress, Esquire
Young Conaway Stargatt & Taylor, LLP
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
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12.09 GOVERNING LAW. Unless a rule of law or procedure is supplied by
federal law (including the Bankruptcy Code and Bankruptcy Rules) or the
Delaware General Corporation Law, the laws of the State of Delaware shall
govern the construction and implementation of the Plan and any agreements,
documents, and instruments executed in connection with the Plan.
12.10 FILING OF ADDITIONAL DOCUMENTS. On or before substantial
consummation of the Plan, the Reorganized Debtor shall file with the
Bankruptcy Court such agreements and other documents as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan.
12.11 WITHHOLDING AND REPORTING REQUIREMENTS. In connection with the
Plan and all instruments issued in connection therewith and distributions
thereon, the Debtors and the Reorganized Debtor (as appropriate) shall comply
with all withholding and reporting requirements imposed by any federal, state,
local, or foreign taxing authority and all distributions hereunder shall be
subject to any such withholding and reporting requirements.
CROWN BOOKS CORPORATION
By: /s/
----------------------------------------
Anna L. Currence
President
SUPER CROWN BOOKS CORPORATION
By: /s/
----------------------------------------
Anna L. Currence
President
CROWN BOOKS EAST CORPORATION
By: /s/
----------------------------------------
Anna L. Currence
President
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CROWN BOOKS WEST CORPORATION
By: /s/
----------------------------------------
Anna L. Currence
President
CROWN DHC CORPORATION
By: /s/
----------------------------------------
Anna L. Currence
President
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