Securities and Exchange Commission
Washington, DC 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 12, 1999
United Petroleum Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-25006 13-3103494
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5800 N.W. 74th Avenue
Miami, Florida 33166
(Address of principal (Zip Code)
executive offices)
(305) 592-3100
(Registrant's telephone number, including area code)
2620 Mineral Springs Road, Suite A
Knoxville, Tennessee 37917
(Former name or former address, if changed since last report)
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This form 8-K/A amends and restates in its entirety the Registrant's
Current Report on Form 8-K dated November 12, 1999 and filed November 29, 1999.
ITEM 1. CHANGE IN CONTROL OF REGISTRANT.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
As previously reported, on January 14, 1999, United Petroleum
Corporation (the "Registrant" or the "Company") filed a petition for relief
under chapter 11 of title 11 of the United States Code (11 U.S.C. ss.101 et.
seq., the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On July 23, 1999, the Company
filed with the Bankruptcy Court its second amended plan of reorganization (the
"Plan", a copy of which, together with the Second Amended Disclosure Statement,
are filed as Exhibits 99.1 and 99.2, respectively, and are incorporated herein
by reference).
On September 29, 1999, as contemplated by the Plan and subject to,
among other things, its confirmation, the Company, United Petroleum Group, Inc.
("UPG"), a newly-formed, wholly-owned subsidiary of the Company (f/k/a United
Petroleum Subsidiary, Inc.), and F.S. Convenience Stores, Inc. ("FSCI"), entered
into an Agreement and Plan of Merger (the "Merger Agreement", a copy of which is
filed as Exhibit 99.3 and is incorporated herein by reference) pursuant to which
FSCI agreed to merge with and into UPG, with UPG as the surviving entity (the
"Merger"). Pursuant to the Plan and the Merger Agreement, among other things:
(i) all of the Company's securities in existence immediately prior to the
Effective Date (as defined in the following paragraph), including, but not
limited to, shares of the Company's issued and outstanding classes of common
stock ("Old Common Stock"), preferred stock ("Old Preferred Stock"), stock
options and warrants would be canceled, (ii) the shareholders of FSCI would
receive 48% of the newly issued and outstanding shares of New Common Stock (as
defined below) of the reorganized Company, 50% of the newly issued and
outstanding shares of New Preferred Stock (as defined below) of the reorganized
Company, and $3 million in cash, (iii) the Company would issue shares of New
Common Stock to its existing holders of Old Common Stock, Old Preferred Stock
and debentures ("Debentures"), and (iv) the Company would issue 50% of its newly
issued and outstanding shares of New Preferred Stock to the holders of certain
secured indebtedness of the Company.
On October 7, 1999, the Bankruptcy Court entered an order (the
"Confirmation Order", a copy of which is filed as Exhibit 99.4 and is
incorporated herein by reference) confirming the Plan. The transactions
contemplated by the Plan, as modified by the Confirmation Order and the Merger
Agreement, were substantially consummated and the Plan became effective on
November 12, 1999 (the "Effective Date").
On the Effective Date, pursuant to the Plan, the Confirmation Order,
and the Merger Agreement, the following transactions and other events occurred:
1) FSCI merged with and into UPG. As a result, UPG acquired FSCI's
walk-in convenience store business, and now operates 90 walk-in
convenience stores in the State of Florida. Of these stores, 69 sell
gasoline (of which 60 are leased from third parties to, and 9 are
owned by, the Company's subsidiaries), and 21 (all of which are leased
from third parties to F.S.Non-Gas Subsidiary, Inc., a wholly-owned
subsidiary of UPG) do not sell gas. All of these convenience stores do
business under the licensed trade name "Farm Stores." In addition,
UPG, through its subsidiary, F.S. Non-Gas Subsidiary, Inc., owns a 10%
interest in Farm Stores Grocery, Inc., a Delaware corporation, which
operates 109 drive-thru specialty retail stores in Florida and which
owns and licenses to the Company and UPG the trade name "Farm Stores"
pursuant to that certain License Agreement dated as of November 12,
1999, a copy of which is filed as Exhibit 99.5 and is incorporated
herein by reference.
2) All of the Company's issued and outstanding securities, including all
pre-Merger Old Common Stock, Old Preferred Stock, Debentures, options,
warrants and other rights to acquire securities, were canceled.
3) The Company amended and restated its Certificate of Incorporation (a
copy of which is filed as Exhibit 3(i) and is incorporated herein by
reference) to (i) authorize 10 million shares of common stock, par
value, $.01 per share ("New Common Stock") and 300,000 shares of Class
A 9% preferred stock ("New Preferred Stock"); (ii) prohibit the
issuance of non-voting equity securities by the Company (as required
by the Bankruptcy Code), (iii) opt out of Section 203 of the Delaware
General Corporation Law, and (iv) restrict, for a period of two years,
purchases and sales of its stock by beneficial owners of 5% or more of
the total fair market value of the Company's stock. Pursuant to the
Company's Certificate of Designation - Class A 9% Preferred Stock (a
copy of which is filed as Exhibit 4 and is incorporated herein by
reference), the New Preferred Stock issued by the Company in
connection with the Plan and Merger is subordinate to all debts of the
Company. Each share of New Preferred Stock carries a dividend rate of
9%. The dividends are cumulative and payable in cash or, at the
Company's option, in additional shares of New Preferred Stock. Each
share of New Preferred Stock has a liquidation preference over the
Company's New Common Stock in the amount of $100 (plus cumulative
unpaid dividends thereon), payable out of net proceeds (after payments
to all creditors but before payments in respect of the Company's New
Common Stock) from any liquidation or sale of the Company's assets. In
addition, the Company amended and restated its Bylaws, a copy of
which is filed as Exhibit 3(ii) and is incorporated herein by
reference.
4) The Company issued a total of 5,000,000 shares of New Common Stock and
140,000 shares of New Preferred Stock. Holders of the following debt
and equity securities of the Company received the following aggregate
amounts of New Common Stock in exchange for their pre-Merger holdings:
Percent of Shares
Number of Shares of of New Common Stock
Holdings Exchanged New Common Stock Issued Issued and Outstanding
Debentures 1,750,000 shares 35.00%<F1>
Old Preferred Stock 650,000 shares 13.00%<F1>
Old Common Stock 200,000 shares 4.00%
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1 Certain holders of the Company's securities have asserted a right to
receive distributions as the holders of Debentures, even though such holders
previously exchanged their Debentures for Old Preferred Stock. The Company has
disputed such claims. Pending their resolution, the Company has reserved 365,273
shares of New Common Stock that would otherwise be available for distribution to
the holders of Debentures.
5) The shareholders of FSCI, consisting of Mr. Joe Bared and Miriam
Bared, his wife, were issued (i) 2,400,000 shares of New Common Stock,
representing 48% of the issued and outstanding shares of New Common
Stock, (ii) 70,000 shares of New Preferred Stock, representing 50% of
the issued and outstanding shares of New Preferred Stock, and (iii) $3
million in cash.
6) Infinity Investors Limited, a Nevis, West Indies corporation
("Infinity") was issued (i) 1,360,862 shares of New Common Stock,
representing 27.2% of the issued and outstanding shares of New Common
Stock (which amount is included in the table set forth in Paragraph 4,
above) in exchange for the Debentures and Old Preferred Stock held by
it, and (ii) 70,000 shares of New Preferred Stock of the Company,
representing 50% of the issued and outstanding shares of New Preferred
Stock, in exchange for satisfaction of the obligations of the Company
and its wholly-owned subsidiaries, Calibur Systems, Inc. and
Jackson-United Petroleum Corporation, under secured notes dated August
5, 1998 in the original principal amounts of $4,200,000 and $2,800,000
and related agreements. Seacrest Capital Limited, and Fairway Capital
Limited, both Nevis, West Indies corporations and wholly-owned
subsidiaries of Infinity (collectively, the "Infinity Parties") were
each issued 62,731 shares of New Common Stock, each representing 1.3%
of the issued and outstanding shares of New Common Stock of the
Company (which amounts are included in the table set forth in
Paragraph 4, above), in exchange for the Debentures and Old Preferred
Stock held by them. As a result of these exchanges, the Infinity
Parties own an aggregate of 1,486,324 shares of New Common Stock,
representing approximately 29.7% of the issued and outstanding shares
of New Common Stock of the Company. Upon resolution of the disputed
claims described in footnote 1 to the table set forth in Paragraph 4,
above, the Company expects the Infinity Parties to be issued an
additional 334,538 shares of New Common Stock, which would increase
their aggregate ownership of New Common Stock to 1,820,862 shares,
representing approximately 36% of the issued and outstanding shares of
New Common Stock of the Company.
7) A trust (the "UPC Trust") is being created and funded with 200,000
shares of New Common Stock, representing 4.00% of the issued and
outstanding shares of New Common Stock of the Company, which shares
would otherwise have been issued to Infinity and are included in the
table set forth in Paragraph 4, above. All Infinity Securities Claims
(as defined in the Plan), except for those asserted in the lawsuit
styled Pisacreta vs. Infinity Investors Limited, et al., Civil Action
No. 3:97-CV-226 in the United States District Court for the Eastern
District of Tennessee were channeled and transferred to the UPC Trust.
Infinity has released the Company, its affiliates, and their
respective officers, directors and employees from all claims,
including but not limited to claims for contribution and indemnity, in
respect of the Infinity Securities Claims.
8) The Company reconstituted its Board of Directors as follows:
Mr. Joe P. Bared:
Mr. Joe Bared, 57 years old, was born in Havana, Cuba and arrived in
the United States in 1960. In 1967, he founded The Bared Company,
Inc., which grew to become one of the top 50 mechanical engineering
companies in the United States. In 1992, Mr. Bared led an investor
group which purchased the assets of Farm Stores out of bankruptcy. He
has served as Chief Executive Officer of that company since the
purchase. Mr. Bared was a director of Republic Banking Corporation of
Florida from 1970 until 1999, the year that bank was sold, where he
served on various board committees, including the executive committee
and audit committee. Mr. Bared has been a Trustee of the University of
Miami since 1978, and is a member of the Board of Governors of the
Sylvester Comprehensive Cancer Center of the University of Miami.
Together with his wife, Miriam Bared, Mr. Joe Bared owns 48% of the
issued and outstanding New Common Stock of the Company and 50% of its
issued and outstanding New Preferred Stock. Mr. Joe Bared is the
father of Mr. Carlos Bared. In addition to serving as Chairman of the
Board of Directors of the Company, Mr. Bared serves as the Company's
President and Chief Executive Officer.
Mr. Carlos E. Bared:
Mr. Carlos Bared, 31 years old, attended Loyola University and
received a BBA degree in finance. He earned his MBA degree in 1995
from the University of Miami. Mr. Bared joined Farm Stores in 1997, as
Chief Financial Officer. From 1992 to 1997, he was the President and
Chief Financial Officer for the operations of The Bared Company, Inc.
Mr. Bared was the president of the Construction Financial Management
Association from 1994 to 1997 and was a director from 1993 to 1997.
Mr. Bared is a director and treasurer of the not-for-profit Miami
Childrens Museum and a founder of the not-for-profit Network Miami,
Inc. Mr. Carlos Bared is the son of Mr. Joe Bared. In addition to
serving on the Board of Directors of the Company, Mr. Bared serves as
the Company's Senior Vice-President, Chief Financial Officer, and
Secretary.
Mr. Clark K. Hunt:
Mr. Clark Hunt, 34, is a manager of HW Capital, L.P. and related
investment advisory companies. Prior to co-founding these entities,
Mr. Hunt was an analyst at Goldman, Sachs & Co. in New York and Los
Angeles. At Goldman Sachs, he participated in financing transactions
with an aggregate value in excess of $1 billion. These transactions
included mergers, acquisitions, initial public offerings,
cross-currency swaps and leveraged buy-outs. Mr. Hunt attended
Southern Methodist University, where he graduated first in his class
with a BBA and was a two-time recipient of the University's highest
academic award, the Provost Award for Outstanding Scholar. Since
returning to Dallas, Mr. Hunt has built a money-management firm that
oversees and actively manages assets for a diverse clientele.
Mr. Stuart J. Chasanoff:
Mr. Stuart Chasanoff, 34, is a 1990 cum laude graduate of the Fordham
University School of Law and a 1987 graduate of the University of
Virginia. Mr. Chasanoff currently serves as Vice President of Business
Development, General Counsel and Secretary of eVentures Group, Inc., a
communications company in the business of using "next generation"
technology to transmit voice, data and video over the same
transmission lines. Additionally, since 1996, Mr. Chasanoff has served
as Senior Vice President and in-house corporate counsel to H.W.
Partners, L.P., a Texas limited partneship that serves as advisor to
Infinity. Between 1994 and 1996, Mr. Chasanoff served as in-house
counsel at PepsiCo, Inc., effecting mergers and acquisitions, and
between 1990 and 1994 he was an asssociate corporate attorney with the
New York office of White & Case, dealing with mergers/acquisitions,
corporate reorganizations and financial services.
Mr. L. Grant ("Jack") Peeples:
Mr. Jack Peeples, 68 years old, has been of counsel to the law firm of
White & Case in Miami, Florida since 1994. Prior to that time, he was
a partner at Peeples, Earl & Blank, specializing in legislative and
administrative practice. After graduating from the University of
Florida College of Law in 1957, and before returning to private
practice in 1961, Mr. Peeples worked at the law firm of former Florida
Governor Leroy Collins in Tallahassee, was Legislative Counsel to
Governor Collins in 1958 and was appointed to the cabinet office of
State Beverage Director in 1959. From 1969 until 1975, Mr. Peeples
served as Senior Vice President, Director and General Counsel of the
Deltona Corporation. From 1976 until 1980, he served as Chairman of
the Board and Chief Financial Officer of the Roma Corporation. He was
General Counsel to Alandco, a wholly owned subsidiary of Florida Power
& Light Company, and served as counsel to various Murchison Family
interests from 1975 until 1981. Mr. Peeples was the Campaign Chairman
and Chairman of Transition Team for Florida Governor Lawton Chiles and
Legislative and Senior Counsel to the Governor, Vice-Chairman of the
Governor's Commission on Governance, Vice-Chairman of the Governor's
Commission on the Homeless, Chairman of the Florida Aviation
Commission, Co-Chairman of the Dade County Homeless Trust, and
representative of the Governor and Cabinet on the Downtown Development
Authority.
9) The Company entered into employment agreements with Mr. Joe Bared and
Mr. Carlos Bared, each for a term of three years. Copies of these
agreements are filed as Exhibits 99.6 and 99.7, respectively, and are
incorporated herein by reference. The employment agreements include
provisions for severance pay upon termination without cause (as
defined in the agreements), and confidentiality and non-compete
arrangements that are binding after certain terminations of the
agreements. The employment agreements provide for base annual salary,
annual bonuses in the discretion of the Board of Directors,
reimbursement of business expenses and executive benefits. The
employment agreements do not provide for compensation in the form of
additional stock, or options to buy stock, of the Company.
10) The Company, the Infinity Parties, and Joe P. and Miriam Bared (the
"Bareds") entered into a Stockholders Agreement dated as of November
3, 1999 (the "Stockholders Agreement"), a copy of which is filed as
Exhibit 99.8 and is incorporated herein by reference. Pursuant to the
Stockholders Agreement, among other things, the Bareds, on the one
hand, and the Infinity Parties, on the other hand, agreed to vote
their shares of New Common Stock so that the Board of Directors of the
Company will continue to consist of two representatives selected by
the Bareds (the "Bared Directors"), two representatives selected by
the Infinity Parties (the "Infinity Directors"), and an independent
director initially designated as Mr. L. Grant Peeples. Currently, the
Bared Directors are Joe P. Bared and Carlos E. Bared, his son, and the
Infinity Directors are Clark K. Hunt and Stuart J. Chasanoff. The
Stockholders Agreement also provides that, by majority vote of the
Company's stockholders at a duly called meeting of stockholders, the
Board can be expanded and/or the independent director changed. The
Stockholders Agreement also contains other provisions restricting
disposition of the shares of New Common Stock held by the Bareds and
the Infinity Parties, including a two year period in which the shares
cannot be transferred without the consent of the parties to the
Stockholders Agreement, as well as certain provision granting certain
registration and other rights relating to the New Common Stock.
11) UPG and Farm Stores Grocery, Inc. ("FSG") entered into a Management
Agreement dated as of November 12, 1999 (a copy of which is filed as
Exhibit 99.9 and is incorporated herein by reference) pursuant to
which UPG will manage and provide all general and administrative
services for FSG's business and operations, in exchange for management
fees FSG pays to UPG based on the number of stores FSG operates.
Prior to the Merger, and as a condition to its consummation, the
Company, UPG, FSCI, and related entities (collectively, the "Borrowers") entered
into a Loan Agreement dated November 9, 1999 (a copy of which is filed as
Exhibit 99.10 and is incorporated herein by reference) pursuant to which the
Borrowers received a loan in the aggregate principal amount of $23 million from
Hamilton Bank, N.A., secured by their respective assets. FSCI borrowed $17
million of this amount and used the proceeds to purchase the interest of its
former partner in the walk-in convenience store and gasoline station operations
which they conducted in Florida, and to purchase from an affiliate of the same
former partner its interest in the walk-in convenience stores without gasoline
station operations and a 10% interest in the drive-thru specialty grocery
business, both conducted in Florida with an affiliate of FSCI. The consideration
for these transactions and the Merger was determined by arms' length
negotiations between the Bareds and the former partner in the Farm Stores
business, and between the Bareds and the Company. The negotiations between Mr.
Bared and his former partner considered the relative values of Farm Stores and
their respective interests therein, and the negotiations between the Bareds and
the Company considered the value of the Farm Stores walk-in business, the 10%
interest in FSG, the terms of the Management Agreement, and the real estate and
other values of the Company's businesses.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The financial statements required pursuant to this Item will be filed as
soon as they are available, on an amendment to this report on Form 8-K, as
amended, not later than 60 days after the date that this report on Form 8-K
must be filed.
(b) The pro forma financial information required pursuant to this Item will be
filed as soon as it is available, on an amendment to this report on Form
8-K, as amended, not later than 60 days after the date that this report on
Form 8-K must be filed.
(c) Exhibits
3(i) Amended and Restated Certificate of Incorporation of United
Petroleum Corporation
3(ii) Amended and Restated Bylaws of United Petroleum Corporation
4 Certificate of Designation - Class A 9% Preferred Stock
99.1 Second Amended Plan of Reorganization of United Petroleum
Corporation dated July 23, 1999
99.2 Second Amended Disclosure Statement of United Petroleum
Corporation dated July 23, 1999
99.3 Agreement and Plan of Merger dated September 29, 1999
99.4 Findings of Fact, Conclusions of Law and Order Confirming Amended
Plan of Reorganization dated October 7, 1999
99.5 License Agreement dated as of November 12, 1999 among Farm Stores
Grocery, Inc., United Petroleum Corporation and United Petroleum
Group, Inc.
99.6 Employment Agreement dated as of November 3, 1999 between United
Petroleum Corporation and Joe P. Bared
99.7 Employment Agreement dated as of November 3, 1999 between United
Petroleum Corporation and Carlos Bared
99.8 Stockholders' Agreement dated as of November 3, 1999 by and among
United Petroleum Corporation, Infinity Investors Limited, Fairway
Capital Limited, Seacrest Capital Limited, and Joe Bared and
Miriam Bared
99.9 Management Agreement dated as of November 12, 1999 between United
Petroleum Group, Inc. and Farm Stores Grocery, Inc.
99.10 Loan Agreement dated November 9, 1999 among United Petroleum
Corporation, United Petroleum Group, Inc., F.S. Convenience
Stores, Inc., et al., as Borrowers, and Hamilton Bank, N.A., as
Lender
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED PETROLEUM CORPORATION
(Registrant)
By:/s/ Carlos E. Bared
---------------------------------
Date: November 30, 1999 Carlos E. Bared
Sr. Vice President and CFO
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3(i) Amended and Restated Certificate of Incorporation of United Petroleum
Corporation
3(ii) Amended and Restated Bylaws of United Petroleum Corporation
4 Certificate of Designation Class A 9% Preferred Stock
99.1 Second Amended Plan of Reorganization of United Petroleum Corporation
dated July 23, 1999
99.2 Second Amended Disclosure Statement of United Petroleum Corporation
dated July 23, 1999
99.3 Agreement and Plan of Merger dated September 29, 1999
99.4 Findings of Fact, Conclusions of Law and Order Confirming Amended Plan
of Reorganization dated October 7, 1999
99.5 License Agreement dated as of November 12, 1999 among Farm Stores
Grocery, Inc., United Petroleum Corporation, and United Petroleum
Group, Inc.
99.6 Employment Agreement dated as of November 3, 1999 between United
Petroleum Corporation and Joe P. Bared
99.7 Employment Agreement dated as of November 3, 1999 between United
Petroleum Corporation and Carlos Bared
99.8 Stockholders Agreement dated as of November 3, 1999 by and among
United Petroleum Corporation, Infinity Investors Limited, Fairway
Capital Limited, Seacrest Capital Limited, and Joe Bared and Miriam
Bared
99.9 Management Agreement dated as of November 12, 1999 between United
Petroleum Group, Inc. and Farm Stores Grocery, Inc.
99.10 Loan Agreement dated November 9, 1999 among United Petroleum
Corporation, United Petroleum Group, Inc., F.S. Convenience Stores,
Inc., et al., as Borrowers, and Hamilton Bank, N.A., as Lender
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
UNITED PETROLEUM CORPORATION
United Petroleum Corporation, a Delaware Corporation (the
"Corporation"), hereby certifies as follows:
The name of the Corporation is United Petroleum Corporation.
The name under which this Corporation was originally incorporated was Don Reid
Productions, Inc., and the date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was May 19,
1970. The original Certificate of Incorporation was amended pursuant to
Certificates of Amendment filed with the Secretary of State of Delaware on
August 14, 1970, February 19, 1971, April 2, 1971, March 7, 1986, December 14,
1992, April 23, 1993, and March 18, 1997, by a Certificate of Merger filed with
the Secretary of State of the State of Delaware on November 12, 1982, and by
Certificates of Preferred Stock Designation filed with the Secretary of State of
the State of Delaware on April 29, 1997 and September 29, 1997. On January 14,
1999, the Corporation filed a petition for relief under chapter 11 of title 11
of the United States Code and this Amended and Restated Certificate of
Incorporation was duly adopted in accordance with Sections 242, 245, and 303 of
the Delaware General Corporation Law in accordance with a chapter 11 plan of
reorganization of the Corporation approved by order dated October 7, 1999 of the
United States Bankruptcy Court for the District of Delaware in In re: United
Petroleum Corporation, Chapter 11 Case No. 99-88(PJW). The Certificate of
Incorporation of this Corporation is hereby amended and restated to read in its
entirety as follows:
FIRST: The name of the Corporation is United Petroleum
Corporation.
SECOND: The registered office of the Corporation in the State
of Delaware is located at 1013 Centre Road, Wilmington, New Castle County,
Delaware 19805, and the name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of this Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law ("DGCL").
FOURTH: The aggregate number of shares of all classes of
capital stock that this Corporation shall have authority to issue is (i) ten
million (10,000,000) shares of common stock, $0.01 par value per share (the
"Common Stock"), and (ii) three hundred thousand (300,000) shares of Preferred
Stock, $0.01 par value per share (the "Preferred Stock").
(A) All shares of Common Stock to be issued must be voting
securities and, as to all Common Stock, voting power must be appropriately
distributed by the Board of Directors of the Corporation on a proportional
one-vote-per-share basis.
(B) Shares of Preferred Stock may be issued from time to time
in one ore more classes or one or more series within any class and the Board of
Directors of the Corporation is hereby authorized, subject to the limitations
provided by law, to establish and designate such classes or series of the
Preferred Stock, to fix the number of shares constituting each class or series
and to fix by resolution or resolutions the voting power, full or limited, and
such designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof, and to
increase or decrease the number of shares constituting each class or series.
(C) The Corporation shall not have the power or authority to
issue any shares of capital stock without voting power.
FIFTH: In order to preserve certain federal income tax
attributes of the Corporation, on or before November 9, 2001, without the
written approval of the Corporation's Board of Directors, no stockholder who
beneficially owns, directly or indirectly, five percent (5%) or more of the
total fair market value of the Corporation's stock or who, upon the purchase,
sale, or other transfer of any shares of the Corporation's stock, would
beneficially own, directly or indirectly, or would cause any other person or
entity to beneficially own, directly or indirectly, five percent (5%) or more of
the total fair market value of the Corporation's stock may sell or purchase any
shares of the Corporation's stock (or any option, warrant, or similar right to
acquire shares of the Corporation's stock or any securities issued by the
Corporation that are convertible into or exchangeable for shares of the
Corporation's stock). For purposes of this Article FIFTH, "stock" means shares
of the Corporation's Common Stock and any other interests in the Corporation
that would be treated as "stock" of the Corporation under the provisions of
Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder. The provisions of this Article FIFTH shall
be subject to waiver or modification only upon the vote of a majority of the
issued and outstanding Common Stock. The Corporation may place transfer
restriction legends on the certificates representing the foregoing stock.
SIXTH: Provisions for the management of the business and for
the conduct of the affairs of this Corporation and provisions creating,
defining, limiting and regulating the powers of this Corporation, the directors
and the stockholders are as follows:
(A) The initial members of the Board of Directors of the
Corporation, appointed pursuant to the Second Amended Plan of Reorganization of
United Petroleum Corporation, dated July 23, 1999 (the "Plan") and as confirmed
by order dated September 29, 1999 of the United States Bankruptcy Court for the
District of Delaware, shall be: Jose P. Bared, Carlos E. Bared, Clark Hunt,
Stuart J. Chasanoff and L. Grant Peeples.
(B) The Board of Directors shall have the power to make,
adopt, alter, amend and repeal the bylaws of this Corporation without the assent
or vote of the stockholders, including, without limitation, the power to fix,
from time to time, the number of directors that shall constitute the whole Board
of Directors of this Corporation subject to the right of the stockholders to
alter, amend and repeal the bylaws made by the Board of Directors.
(C) Election of directors of this Corporation need not be by
written ballot unless the bylaws so provide.
(D) The directors, in their discretion, may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the purpose of
considering any such act or contract, and any contract or act that shall be
approved or be ratified by the vote of the holders of a majority of the stock of
this Corporation that is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and as binding upon this
Corporation and upon all the stockholders as though it had been approved or
ratified by every stockholder of this Corporation, whether or not the contract
or act would otherwise be open to legal attack because of directors' interest,
or for any other reason.
(E) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the board of directors of this
Corporation is hereby expressly empowered to exercise all such powers and to do
all such acts and things as may be exercised or done by this Corporation;
subject, nevertheless, to the provisions of the statutes of the State of
Delaware and of this Certificate of Incorporation as each may be amended,
altered or changed from time to time and to any bylaws from time to time made by
the directors or stockholders; provided, however, that no bylaw so made shall
invalidate any prior act of the board of directors that would have been valid if
such bylaw had not been made.
(F) Whenever this Corporation shall be authorized to issue
more than one class of stock, the holders of the stock of any class that is not
otherwise entitled to voting power shall not be entitled to vote upon the
increase or decrease in the number of authorized shares of such class.
(G) Pursuant to Section 203(3)(b)(1) of the DGCL, the
Corporation elects not to be governed by Section 203 of the DGCL.
(H) Any transaction between an officer and director of the
Corporation and their affiliates on the one hand, and the Corporation on the
other hand, shall be approved by a majority of the directors who have no direct
or indirect interest in the transaction in order for such transaction to be
valid. For purposes of this subparagraph (H), a transaction shall also include
(i) actions to amend, modify or terminate a contract or agreement by and between
the Corporation and an officer, director or one of their affiliates or (ii) the
failure of the Corporation to enforce any of its rights under a contract or
agreement by and between the Corporation and an officer, director or one of
their affiliates.
SEVENTH: To the fullest extent permitted by the DGCL,
including, without limitation, as provided in Section 102(b)(7) of the DGCL, as
the same exists or may hereafter be amended, a director of this Corporation
shall not be personally liable to this Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. If the DGCL is
amended after approval by the stockholders of this provision to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of this Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended. Any repeal or modification of this Article SEVENTH by the stockholders
of this Corporation shall not adversely affect any right or protection of a
director of this Corporation existing at the time of such repeal or modification
or with respect to events occurring prior to such time.
EIGHTH: (A) Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding") by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another Corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as such director or officer or
additionally in the case of another Corporation, as an employee or agent or in
any other capacity while serving as such director, officer, employee or agent
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, other
expenses and losses, amounts paid or to be paid in settlement, and excise taxes
or penalties arising under the Employee Retirement Income Security Act of 1974)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Corporation. The right to indemnification conferred in
this Article EIGHTH shall be a contract right and shall include the right to be
paid by the Corporation the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, which undertaking shall itself be sufficient
without the need for further evaluation of any credit aspects of the undertaking
or with respect to such advancement, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
by a final, non-appealable order of a court of competent jurisdiction that such
director or officer is not entitled to be indemnified under this Article EIGHTH
or otherwise.
(B) If a claim under paragraph (A) of this Article EIGHTH is
not paid in full by the Corporation within sixty (60) days after a written
claim, together with reasonable evidence as to the amount of such expenses, has
been received by the Corporation, except in the case of a claim for advancement
of expenses (including attorneys' fees), in which case the applicable period
shall be twenty (20) days, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall also be entitled to be paid
the expense, including attorneys' fees, of prosecuting such claim. It shall be a
defense to any such action, other than an action brought to enforce a claim for
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation, that the claimant has not met
the standards of conduct which make it permissible under the DGCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or a committee thereof,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Corporation
(including its board of directors or a committee thereof, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article EIGHTH or otherwise shall be on the
Corporation.
(C) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article EIGHTH shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(D) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another Corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
(E) In the case of a claim for indemnification or advancement
of expenses against the Corporation under this Article EIGHTH arising out of
acts, events or circumstances for which the claimant, who was at the relevant
time serving as a director, officer, employee or agent of any other entity at
the request of the Corporation, may be entitled to indemnification or
advancement of expenses pursuant to such other entity's certificate of
incorporation or bylaws or a contractual agreement between the claimant and such
entity, the claimant seeking indemnification hereunder shall first seek
indemnification and advancement of expenses pursuant to any such certificate of
incorporation, bylaw or agreement. To the extent that amounts to be indemnified
or advanced to a claimant hereunder are paid or advanced by such other entity,
the claimant's right to indemnification and advancement of expenses hereunder
shall be reduced.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of the DGCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of the DGCL, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
TENTH: This Corporation reserves the right to restate this
Amended and Restated Certificate of Incorporation and to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by law, and all rights
and powers conferred herein on the stockholders, directors and officers are
subject to this reserved power.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by an authorized officer of this corporation on
this __th day of November, 1999.
UNITED PETROLEUM CORPORATION
By:_______________________________
Name:
Title:
AMENDED AND RESTATED
UNITED PETROLEUM
CORPORATION
BYLAWS
ADOPTED AS OF NOVEMBER 12, 1999
UNITED PETROLEUM CORPORATION
BYLAWS
<PAGE>
BYLAWS
OF
UNITED PETROLEUM CORPORATION
ARTICLE I. OFFICES
Section 1. Registered Office. The address of the registered office of
the corporation in the State of Delaware shall be 1013 Centre Road, Wilmington,
County of New Castle, State of Delaware 19805, and the registered agent at such
address in charge thereof shall be The Prentice-Hall Corporation System, Inc.,
all of which shall be subject to change from time to time as permitted by law.
Section 2. Other Offices. The corporation may also have an office or
offices or place or places of business within or without the State of Delaware
as the board of directors may from time to time designate.
ARTICLE II. MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the purpose of transacting such other proper
business shall be held within or without the State of Delaware on such date and
at such time and place as may be designated by resolution of the board of
directors from time to time.
Section 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time (i) by the board of directors,
(ii) by a committee of the board of directors whose power and authority, either
as expressly provided in the resolution of the board of directors, or as may be
provided in these bylaws, includes the power to call such meetings or (iii) upon
the request to the board of directors in writing of stockholders of record
holding a majority of votes which could be cast by the holders of all
outstanding shares having the right to vote at such meeting.
Section 3. Time and Place of Special Meetings. Special meetings of the
stockholders shall be held at such times and at such places, within or without
the State of Delaware, as may from time to time be designated by the board of
directors, with regard to special meetings called by it or called upon the
request of stockholders, or as may be otherwise designated by the committee
calling such meeting.
Section 4. Notice. Written notice of all stockholders' meetings,
stating the place, date and hour thereof, and the purpose or purposes thereof,
shall be given to each stockholder of record entitled to notice of or to vote at
such meeting. If mailed, such notice shall be deemed to have been given when
deposited in the United States mails, postage prepaid, addressed to the
stockholder at his address as it appears on the records of the corporation.
Section 5. Quorum. Except as may otherwise be provided by law, the
certificate of incorporation or these bylaws, the presence, in person or by
proxy, at each meeting of stockholders, of the holders of shares of stock having
a majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall constitute a quorum, but,
in the absence of a quorum and until a quorum is secured, either the chairman of
the meeting or a majority of the votes cast at the meeting by holders who are
present, in person or by proxy, may adjourn the meeting, from time to time,
without further notice if the time and place of the adjourned meeting are
announced at the meeting at which the adjournment is taken.
Section 6. Adjournment. Any meeting of stockholders may be adjourned at
the meeting from time to time, either by the chairman of the meeting, for an
announced proper purpose, or by the stockholders, for any reason, to reconvene
at a later time and at the same or some other place, and, unless otherwise
provided by law, notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the stockholders may transact any business
which might have been transacted at the original meeting. If a quorum is present
at any meeting, any adjournment of such meeting by the chairman of the meeting
may be overruled by the vote of the holders of shares of stock having a majority
of the votes which could be cast by the holders of all outstanding shares of
stock entitled to vote thereon which are present in person or by proxy at the
meeting.
Section 7. Organization of Meetings. Meetings of stockholders shall be
presided over by the chairman of the meeting who shall be the Chairman of the
board, if any, or in his absence, the President, if any, or Chief Executive
Officer, or in his absence, by a Vice President, or in the absence of the
foregoing persons or persons with functionally equivalent executive titles, by
the person so designated by the board of directors or in the absence of any such
designation, by a chairman chosen by the stockholders at the meeting. The
Secretary, if any, shall act as secretary of the meeting, but in his absence,
the chairman of the meeting shall appoint a secretary of the meeting.
Section 8. Voting and Record Date. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote shall, at every
meeting of the stockholders, be entitled to one vote, in person or by proxy, for
each share of voting stock held by him, but no proxy shall be voted on after
three years from its date, unless it provides for a longer period. A stockholder
may revoke any proxy which is not irrevocable by attending the meeting and
voting in person or by tendering to the corporation at or before the meeting
either an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date. Voting at meetings need not be by written ballot and
need not be conducted by inspectors of election unless otherwise required by law
(e.g., 8 Del. C. Section 231) as prescribed in accordance with Section 9 of this
Article II. At all meetings of stockholders for the election of directors, a
plurality of the votes cast shall be sufficient to elect directors. Unless
otherwise provided by law, the certificate of incorporation or these bylaws, all
other elections and matters shall be determined by the vote of the holders of
record of outstanding shares of stock comprising a majority of the votes which
could be cast and which are present at the meeting, in person or by proxy, and
entitled to vote at such meeting. The fixing of a record date for the
determination of stockholders entitled to vote shall be as provided by law.
Section 9. Conduct of Meeting. Subject to and to the extent permitted
by Delaware law, the board of directors of the Corporation may adopt by
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with law or such rules and regulations as adopted by the board of directors, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the board of
directors or prescribed by the chairman of the meeting, may include, without
limitation, the following: (i) the establishment of an agenda or order of
business for the meeting and announcement of the date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting; (ii) rules and procedures for maintaining order at the
meeting and the safety of those present; (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the Corporation, their
duly authorized and constituted proxies or such other persons as the chairman of
the meeting shall determine; (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof; (v) limitations on the time allotted to
questions or comments by participants; and (vi) appointment of inspectors of
election and other voting procedures, including, without limitation, those
procedures set out in 8 Del. C. Section 231. Unless and to the extent determined
by the board of directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
Section 10. Action Without Meeting. Any action permitted or required to
be taken at any meeting of shareholders may be taken by written consent without
a meeting subject to and to the extent permitted by applicable Delaware law.
ARTICLE III. DIRECTORS
Section 1. Number. The entire board of directors shall initially
consist of five (5) directors and, thereafter, from time to time, such number as
shall be established by resolution of the board of directors; provided, however,
that the number of directors shall be increased to seven (7) directors in the
event that the Corporation shall fail to pay dividends on its Class A Preferred
Stock for eight (8) consecutive full quarter-annual periods as specified in the
Certificate of Designation filed by the Corporation with the Office of the
Secretary of State of the State of Delaware on August __, 1999 (the "Certificate
of Designation"). The two (2) additional directors added upon the failure of the
conditions set forth in the Certificate of Designation are herein referred to as
the "Default Directors."
Section 2. Term, Qualification, Vacancies and Newly Created
Directorships. The directors shall hold office until the next annual election
and until their successors are elected and qualify or until their earlier
resignation or removal. Directors need not be stockholders. Directors shall be
elected by a plurality of votes cast at a meeting of the stockholders, except
that if there be a vacancy in the board by reason of death, resignation or
otherwise, or if there be any newly created directorships resulting from an
increase in the authorized number of directors, such vacancy or directorship
shall be filled by a majority of the directors then in office, although less
than a quorum; provided, however, that the Default Directors, if any, shall be
elected solely by a plurality of votes cast at a meeting of the holders of the
Class A 9% Non-Voting Preferred Stock of the Corporation and any vacancy arising
with respect to a Default Director shall be filled by a plurality vote of the
Class A 9% Non-Voting Preferred Stock of the Corporation. Any director chosen by
reason of such vacancy or such newly created directorship shall hold office
until the next annual meeting and until his successor is elected and qualified
or until his earlier resignation or removal.
When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective and each director so chosen shall hold office as provided in these
bylaws in the filling of other vacancies.
Section 3. Removal. Any director or directors may be removed, either
with or without cause, at any time by the affirmative vote of the holders of
shares of stock having a majority of the votes which could be cast by the
holders of all outstanding shares entitled to vote thereon at a meeting called
for that purpose at which a quorum is present; provided, however, that any
Default Director shall may only be removed, either with or without cause, at any
time by the affirmative vote of the holders of shares of the Class A 9%
Non-Voting Preferred Stock of the Corporation.
Section 4. Powers. The board of directors shall manage the property and
the business and affairs of this corporation and shall have all such powers and
authority, as may be exercised by the board of directors of a corporation
organized under the General Corporation Law of the State of Delaware.
Section 5. Meetings of Directors. Regular meetings of the board of
directors may be held within or without the State of Delaware at such time and
place as may be fixed from time to time by resolution of the board. No notice of
regular meetings shall be required.
Special meetings of the board of directors may be called by the
President, any Vice President, the Secretary or any director. Notice of the
date, time and place of the meeting shall be given by or at the direction of the
person or persons calling the meeting, and unless otherwise stated in the notice
thereof, any and all business may be transacted at any meeting without
specification of such business in the notice. Unless the board of directors
prescribes different periods of time for notice, notice shall be provided to
each director at least 24 hours in advance of the special meeting if notice is
by personal service, telephone, facsimile copier or in person and at least seven
days in advance if notice is by means of mail, telegram, cablegram or radiogram.
Special meetings of the directors may be held within or without the State of
Delaware as is indicated in the notice or waiver of notice thereof.
Section 6. Quorum. A majority of the total authorized number of
directors constituting the entire board of directors shall constitute a quorum
for the transaction of business, but a smaller number may adjourn from time to
time, without further notice, until a quorum is secured.
Section 7. Vote Necessary to Act and Participation by Conference
Telephone. The vote of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the board of directors, except as
may otherwise be provided by law, the certificate of incorporation or these
bylaws. Participation in a meeting by conference telephone or similar means by
which all participating members of the board can hear each other shall
constitute presence in person at such meeting.
Section 8. Executive and Other Committees.
(A) The board of directors may, by resolution passed by a majority of
the total authorized number of, or whole board or directors, designate an
executive committee and/or one or more other committees, each committee to
consist of two or more members of the board of directors. Any such committee, to
the extent provided in the resolution or in these bylaws, shall have and may
exercise the powers and authority of the board of directors in the management of
the business and affairs of the corporation, except in reference to powers or
authority expressly forbidden such a committee by applicable statutory law, and
may authorize the seal of the corporation to be fixed to all papers which may
require it.
(B) In the absence or disqualification of any member of such committee
or committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
(C) The executive committee shall have and shall exercise, between the
meetings of the board of directors, the full power and authority of the board in
the management of the business and affairs of the corporation, including,
without limitation, the power and authority to declare a dividend, to call
meetings of shareholders and to authorize the issuance of stock, except in
reference to power and authority expressly forbidden by applicable statutory
law, and may authorize the seal of the corporation to be affixed to all papers
which require it; provided, however, that the executive committee shall not have
the power or authority to fill vacancies in its own membership which vacancies
shall be filled by the board of directors.
(D) The executive committee and such other committees shall meet at
stated times or on notice to all of their own number. They shall fix their own
rules of procedure. A majority shall constitute a quorum, but the affirmative
vote of a majority of the whole committee shall be necessary to act in every
case.
(E) Such other committees shall have and may exercise the powers and
authority of the board of directors to the extent provided in such resolution or
resolutions.
Section 9. Compensation. The board of directors shall fix the
compensation of directors.
Section 10. Rules of Procedure. Subject to applicable law, the
certificate of incorporation and these bylaws, the board of directors shall fix
its own rules of procedure and conduct from time to time.
Section 11. Action Without Meeting. Any action permitted or required to
be taken at any meeting of the board of directors may be taken by unanimous
written consent without a meeting subject to and to the extent permitted by
applicable Delaware law.
ARTICLE IV. OFFICERS
Section 1. Officers. The board of directors shall elect a President,
Secretary and Treasurer (by those or any other functionally equivalent executive
titles) and may elect other officers and agents, including one or more Vice
Presidents. In addition, the board of directors may elect a Chairman from among
its members. All officers of this corporation shall be chosen by the board of
directors by the vote of a majority of the directors present at a meeting at
which a quorum is present or by written consent pursuant to applicable statutory
law. No officer need be a stockholder.
Section 2. Number Of Offices. Any number of offices may be held by the
same person.
Section 3. Terms. The officers of the corporation shall hold office
until their successors are chosen and qualify or until their earlier resignation
or removal. Any officer chosen or appointed by the board of directors may resign
at any time by written notice to the corporation and may be removed immediately,
either with or without cause, at any time, by affirmative vote of a majority of
the total authorized number, or whole board of directors. If the office of any
officer or agent becomes vacant for any reason, the vacancy may be filled by the
board of directors in the same manner as any officer or agent of this
corporation is chosen.
Section 4. Duties of the Executive Officers. The officers of this
corporation shall have such powers and shall perform such duties, executive or
otherwise, as from time to time may be prescribed or assigned to them by the
board of directors, and to the extent not so provided, as generally pertain to
their respective offices, subject to the control of the board of directors. The
board of directors shall assign to one officer the duty to record the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose.
ARTICLE V. INDEMNIFICATION
Section 1. Right of Indemnification.
(A) This corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of this corporation), by
reason of the fact that he is or was a director or officer of this corporation,
or is or was serving at the request of this corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such act, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
this corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of this
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(B) This corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of this
corporation, or is or was serving at the request of this corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of this
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to this corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
(C) Expenses (including attorneys' fees) incurred by an officer or
director in defending a civil or criminal action, suit or proceeding shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon the receipt of an undertaking, which undertaking shall itself
be sufficient without the need for further evaluation of any credit aspects of
the undertaking or with respect to such advancement, by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
Section 145 of the Delaware General Corporation Law. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(D) The right of indemnification provided by this Article V shall apply
as to action by any person in his official capacity and as to action in another
capacity while holding such office and shall continue as to a person who has
ceased to be such director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(E) Notwithstanding the foregoing provisions of this Article V, the
right of indemnification provided hereunder shall not apply with respect to an
action, suit or proceeding (or part thereof) initiated by a director, officer or
other indemnified person unless the initiation of such action, suit or
proceeding (or part thereof) was authorized by the board of directors of this
corporation; provided, however, that this Paragraph (E) shall not limit the
right of an indemnified person to recover the expenses of suit with respect to a
suit by such indemnified person against this corporation to recover the unpaid
amount of a claim for indemnification under Paragraph (A) or Paragraph (B) of
this Article V, or the unpaid portion of a claim for advancement of expenses
under Paragraph (C) of this Article V, or the defense of a suit by this
corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, to the extent that the indemnified person is successful in
prosecuting or defending such suit.
(F) The right of indemnification provided by this Article V shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
(G) The right of indemnification provided by this Article V shall be
deemed to be a contract between this corporation and each director and officer
of this corporation who serves in such capacity, both as to action in his
official capacity and as to action in another capacity while holding such
office, at any time while this Article V and the relevant provisions of the
General Corporation Law of the State of Delaware and other applicable law, if
any, are in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of facts.
(H) Notwithstanding any provision of this Article V to the contrary,
this corporation may, but shall not be obligated to, purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of this corporation, or is or was serving at the request of this
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not this corporation would have the power to
indemnify him against such liability.
(I) For purposes of this Article V, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries, and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
V.
ARTICLE VI. MISCELLANEOUS
Section 1. Certificates of Stock. Certificates of stock shall be
signed, manually or by facsimile signature, by the President or a Vice President
and either the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary
(or the executive titles functionally equivalent thereto). If a certificate of
stock be allegedly lost, stolen or destroyed, another may be issued in its stead
upon proof of loss, theft or destruction and the giving of a satisfactory bond
of indemnity in an amount sufficient to indemnify the corporation against any
claim or loss. A new certificate may be issued without requiring bond when, in
the judgment of the board of directors, it is proper to do so.
Section 2. Transfer of Stock. All transfers of stock of the corporation
shall be made upon its books by the holder of the shares in person or by his
lawfully constituted representative, upon surrender of certificates of stock,
duly endorsed or with acceptable power attached thereto, for cancellation.
Section 3. Stockholders of Record. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of Delaware.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its incorporation and the words
"Corporate Seal Delaware".
Section 5. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the board of directors.
Section 6. Books and Records. The books, records and accounts of the
corporation, except as may otherwise be required by the laws of the State of
Delaware, may be kept within or without the State of Delaware, at such place or
places as may from time to time be designated by the Bylaws or by resolution of
the directors.
Section 7. Notices. Any written waiver of notice, signed by the person
entitled to notice, whether before or after the event with respect to which such
waiver pertains, shall be deemed equivalent to proper notice. Attendance of a
person at a meeting shall constitute waiver of notice of such meeting, except
where attendance is for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VII. AMENDMENT OF BYLAWS
These bylaws may be amended, altered, repealed or added to by the board
of directors but this power shall not divest or limit the power of the
stockholders to adopt, amend or repeal these bylaws.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.OFFICES............................................................1
Section 1.Registered Office............................................1
Section 2.Other Offices................................................1
ARTICLE II.MEETINGS OF STOCKHOLDERS..........................................1
Section 1.Annual Meeting...............................................1
Section 2.Special Meetings.............................................1
Section 3.Time and Place of Special Meetings...........................2
Section 4.Notice.......................................................2
Section 5.Quorum.......................................................2
Section 6.Adjournment..................................................2
Section 7.Organization of Meetings.....................................3
Section 8.Voting and Record Date.......................................3
Section 9.Conduct of Meeting...........................................4
Section 10.Action Without Meeting......................................5
ARTICLE III.DIRECTORS........................................................5
Section 1.Number.......................................................5
Section 2.Term, Qualification, Vacancies and Newly Created
Directorships....................................................5
Section 3.Removal......................................................6
Section 4.Powers.......................................................7
Section 5.Meetings of Directors........................................7
Section 6.Quorum.......................................................7
Section 7.Vote Necessary to Act and Participation by Conference
Telephone........................................................7
Section 8.Executive and Other Committees...............................8
Section 9.Compensation.................................................9
Section 10.Rules of Procedure..........................................9
Section 11.Action Without Meeting......................................9
ARTICLE IV.OFFICERS..........................................................9
Section 1.Officers.....................................................9
Section 2.Number Of Offices...........................................10
Section 3.Terms.......................................................10
Section 4.Duties of the Executive Officers............................10
ARTICLE V.INDEMNIFICATION...................................................10
Section 1.Right of Indemnification....................................10
ARTICLE VI.MISCELLANEOUS....................................................14
Section 1.Certificates of Stock.......................................14
Section 2.Transfer of Stock...........................................15
Section 3.Stockholders of Record......................................15
Section 4.Corporate Seal..............................................15
Section 5.Fiscal Year.................................................15
Section 6.Books and Records...........................................15
Section 7.Notices.....................................................15
ARTICLE VII.AMENDMENT OF BYLAWS.............................................16
UNITED PETROLEUM CORPORATION
CERTIFICATE OF DESIGNATION
CLASS A 9% PREFERRED STOCK
($0.01 par value)
The undersigned, , in his capacity as the duly elected Secretary of
United Petroleum Corporation, a Delaware corporation (hereinafter
"Corporation"), pursuant to the provisions of Sections 103 and 151 of the
General Corporation Law of the State of Delaware does hereby make this
Certificate of Designation under the corporate seal of the Corporation and does
hereby state and certify that pursuant to the authority expressly vested in the
Board of Directors of the Corporation by the Certificate of Incorporation, the
Board of Directors duly adopted the following resolutions:
RESOLVED, that, pursuant to Article FOURTH of the Corporation's
Certificate of Incorporation (that authorizes three hundred thousand (300,000)
shares of Preferred Stock, $0.01 par value), the Board of Directors hereby fixes
the voting powers, designation, preferences, and relative participating,
optional and other special rights, qualifications, limitations, and restrictions
of Preferred Stock.
RESOLVED, that each share of the Class A 9% Preferred Stock shall rank
equally in all respects and shall be subject to the following provisions:
1. Number and Designation. Three hundred thousand (300,000) shares of
the Preferred Stock of the Corporation shall be designated as Class A 9%
Preferred Stock (the "Class A Preferred Stock").
2. Rank. The Class A Preferred Stock shall, with respect to rights on
liquidation, winding up and dissolution, rank prior to all classes or series of
equity securities heretofore and hereafter issued by the Corporation, including
the Common Stock (as defined below).
3. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, winding up of the affairs of the Corporation, or a
sale of all or substantially all of the assets of the Corporation, the record
holders of Class A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders an aggregate amount equal to one hundred dollars ($100.00) (the
"Preference Amount") for each share of Class A Preferred Stock then held by such
record holders of Class A Preferred Stock, before any payment shall be made or
any assets distributed to the holders of any shares of any class of equity
securities heretofore or hereafter issued by the Corporation, including the
Common Stock. The Preference Amount shall be paid at such time and upon such
terms as payments are received by the Corporation upon any liquidation,
dissolution, winding up of the affairs of, or sale of all or substantially all
of the assets of the Corporation.
4. Dividends. The holders of the shares of Class A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors of
the Corporation, out of funds legally available therefor, cumulative dividends
("Dividends") on the shares of Class A Preferred Stock equal to nine percent
(9%) per annum of the Preference Amount. Dividends on shares of the Class A
Preferred Stock shall be payable in equal quarterly installments on January 15,
April 15, July 15, and October 15 of each year, commencing on October 15, 1999.
In the Corporation's discretion, Dividends on the Class A Preferred Stock shall
be paid either in cash or additional shares of Class A Preferred Stock, valued
at the time of payment. Dividends on the Class A Preferred Stock shall be paid
in preference to and in priority over dividends on the Corporation's Common
Stock. Such Dividends shall be paid to the holders of record of the Class A
Preferred Stock at the close of business on the date specified by the Board of
Directors of the Corporation at the time such Dividend is declared. Dividends on
the Class A Preferred Stock shall be fully cumulative and shall accrue (whether
or not earned or declared and, to the extent permitted by law, whether or not
there are unrestricted funds of the Corporation legally available for the
payment of Dividends) from the initial date of issuance of the Class A Preferred
Stock. Dividends with respect to the Class A Preferred Stock, whether or not in
arrears, may be declared and paid at any time, without reference to any regular
payment date, to holders of record of shares of Class A Preferred Stock as of
the close of business on a date, not more than sixty (60) days nor less than ten
(10) days preceding the payment date thereof, specified by the Board of
Directors of the Corporation at the time the payment of such Dividends is
declared. The amount of Dividends accrued for any shares of Class A Preferred
Stock for any period that is less than a full year shall be calculated on the
basis of nine percent (9%) per annum of the Preference Amount for the actual
number of days elapsed from the later of the date of issuance of such Class A
Preferred Stock and the last date on which accrued and unpaid Dividends were
declared and paid with respect to such Class A Preferred Stock, to and including
the date as of which such calculation is made, (based on a three hundred
sixty-five (365) day year), as the case may be, and the actual number of days
elapsed.
5. Voting Rights. In the event that Dividends shall remain unpaid and
in arrears for a total of eight (8) consecutive full quarterly periods, the
number of directors constituting the Board of Directors of the Corporation shall
be increased from five (5) to seven (7) and holders of the Class A Preferred
Stock, as a class, shall have the right to elect two (2) directors to the
Corporation's Board of Directors.
6. Redemption.
(a) At the option of the Corporation, shares of the Class A
Preferred Stock shall be redeemable, in whole or in part, by the Corporation, at
any time and from time to time, at a redemption price, payable in cash, equal to
the Preference Amount plus, in each case, an amount equal to accrued and unpaid
Dividends thereon (whether or not earned or declared), if any, to the date fixed
for redemption.
(b) Whenever shares of Class A Preferred Stock are to be
redeemed pursuant to Section 6(a), a notice of such redemption shall be mailed,
by registered or certified mail (return receipt requested), postage prepaid, or
delivered by hand to each holder of Class A Preferred Stock at such holder's
address as the same appears on the stock transfer books of the Corporation. Such
notice shall be mailed or delivered not less than ten (10) days and not more
than sixty (60) days prior to the date fixed for redemption. Each such notice
shall state: (i) the date fixed for redemption (the "Redemption Date"); (ii) the
number of shares of Class A Preferred Stock to be redeemed; (iii) the redemption
price (including the amount of accrued and unpaid Dividends to the Redemption
Date); (iv) the place or places where such shares of the Class A Preferred Stock
are to be surrendered for payment of the redemption price ( including the amount
of accrued and unpaid Dividends to the Redemption Date); and (v) that Dividends
on the shares to be redeemed will cease to accrue on the Redemption Date. If
fewer than all share of the Class A Preferred Stock held by a holder are to be
redeemed, the notice mailed to such holder shall specify the number of shares to
be redeemed from such holder. Except as required by applicable law, no defect in
the notice of redemption or in the mailing thereof shall affect the validity of
the redemption proceedings.
(c) Notice having been mailed as described in Section 6(b),
and if, on or before the Redemption Date specified in such notice, an amount in
cash sufficient to redeem in full on the Redemption Date and at the applicable
redemption price, together with accrued and unpaid Dividends to such Redemption
Date, all shares of the Class A Preferred Stock called for redemption shall have
been irrevocably set apart so as to be available for such purpose and only for
such purpose, or shall have been paid to the holders thereof, then effective as
of the close of business on such Redemption Date, Dividends on the shares Class
A Preferred Stock so called for redemption shall cease to accrue, said shares
shall no longer be deemed to be outstanding, said shares shall have the status
of authorized but unissued shares of Class A Preferred Stock, and all rights of
the holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the redemption price and any accrued and unpaid
Dividends to the Redemption Date) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate of like
terms and having the same date of original issuance shall be issued representing
the unredeemed shares without cost to the holder thereof.
(d) Nothing contained in this Certificate of Designation shall
limit any legal right of the Corporation or any of its subsidiaries or
affiliates to purchase or otherwise acquire any shares of Class A Preferred
Stock at any price, whether higher or lower than the redemption price, so long
as the holder thereof shall agree thereto.
7. General Provisions. The section headings in the paragraphs,
subparagraphs, clauses and subclauses of this Certificate of Designation are for
convenience of reference only and shall not define, limit or affect any of the
provisions hereof.
IN WITNESS WHEREOF, United Petroleum Corporation has caused this
Certificate of Designation to be signed and attested by the undersigned this __
day of _________, 1999.
UNITED PETROLEUM CORPORATION
By:______________________________________
Name:
Title: Secretary
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: )
) Chapter 11
)
UNITED PETROLEUM CORPORATION, )
)
) Case No. 99-88 (PJW)
)
Debtor. )
)
- -----------------------------------------------------
SECOND AMENDED PLAN OF REORGANIZATION UNDER CHAPTER 11 OF
THE BANKRUPTCY CODE FOR UNITED PETROLEUM CORPORATION
Dated: July 23, 1999
<PAGE>
Pursuant to section 1121(c) of the Bankruptcy Code, United Petroleum
Corporation proposes this chapter 11 plan:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
1.1. Definitions.
The capitalized terms used herein shall have the respective meanings
set forth below:
(a) "Administrative Expense Claim" means a Claim incurred by
the Debtor (or its Estate) on or after the Petition Date and before the
Effective Date for a cost or expense of administration in the Chapter
11 Case entitled to priority under sections 503(b) and 507(a)(1) of the
Bankruptcy Code.
(b) "ADR" means the Alternative Dispute Resolution Procedure
for Treatment of Securities Claims pursuant to the Plan as attached to
the Plan as Appendix II.
(c) "Affiliate" means, with respect to any Person, all Persons
that would fall within the definition assigned to such term in section
101(2) of the Bankruptcy Code, if such Person was a debtor in a case
under the Bankruptcy Code.
(d) "Allowed," when used
(i) with respect to any Claim, except for a Claim
that is an Administrative Expense Claim or a Securities Claim,
means such Claim (A) to the extent it is not a Contested Claim
as of the Effective Date; (B) to the extent it may be set
forth pursuant to any stipulation or agreement that has been
approved by Final Order of the Bankruptcy Court; (C) to the
extent it is a Contested Claim as of the Effective Date, proof
of which was filed timely with the Bankruptcy Court, and (I)
as to which no objection was filed by the Objection Deadline
(as specified in Section 10.1 of the Plan), unless such Claim
is to be determined in a forum other than the Bankruptcy
Court, in which case such Claim shall not become Allowed until
determined by Final Order of such other forum and allowed by
Final Order of the Bankruptcy Court; or (II) as to which an
objection was filed by the Objection Deadline, to the extent
allowed by a Final Order; or (D) which otherwise becomes an
Allowed Claim as provided in the Plan;
(ii) with respect to any Securities Claim, means a
Securities Claim to the extent (A) it has become "Allowed"
pursuant to the ADR or (B) it may be set forth pursuant to any
stipulation or agreement that has been approved by Final Order
of the Bankruptcy Court; or
(iii) with respect to an Administrative Expense
Claim, means an Administrative Expense Claim, that has become
"Allowed" pursuant to the procedures set forth in Article V of
the Plan; or
(iv) with respect to any Equity Interest, means an
Equity Interest, proof of which was timely and properly filed
or, if no proof of interest was filed, which has been or
hereafter is listed by the Debtor on its Schedules as fixed in
amount and not disputed or contingent, and, in either case, as
to which no objection to the allowance thereof has been
interposed on or before the Effective Date, or as to which any
objection has been determined by a Final Order to the extent
such objection is determined in favor of the holder of such
Equity Interest.
(e) "Ballot" means the form or forms that will be distributed
along with the Disclosure Statement to holders of Allowed Claims and
Equity Interests in classes that are Impaired under the Plan and
entitled to vote, which the holders of Impaired Claims and Equity
Interests may use to vote to accept or reject the Plan.
(f) "Bankruptcy Code" means the Bankruptcy Reform Act of 1978,
as amended, and codified at title 11 of the United States Code and as
applicable to the Chapter 11 Case.
(g) "Bankruptcy Court" means the Bankruptcy Court unit of the
United States District Court for the District of Delaware, or such
other court having jurisdiction over the Chapter 11 Case.
(h) "Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure, as prescribed by the United States Supreme Court pursuant to
section 2075 of title 28 of the United States Code and as applicable to
the Chapter 11 Case.
(i) "Bar Date" means March 30, 1999, the date set by the
Bankruptcy Court as the last day for the filing of proofs of claim
against the Debtor.
(j) "Business Day" means any day on which commercial banks are
open for business in both New York, New York and Knoxville, Tennessee.
(k) "Calibur" means Calibur Systems, Inc., a Tennessee
corporation, which is a wholly-owned subsidiary of UPC.
(l) "Cash" means legal tender of the United States of America
or cash equivalents.
(m) "Calibur A Note" means that certain promissory note, dated
August 5, 1998, made payable by Calibur, UPC and Jackson to Infinity in
the original principal amount of $4,200,000, the payment of which is
(i) guaranteed by UPC's President, Michael Thomas, and (ii) secured by
a lien in and to assets of UPC, Calibur and Jackson that is pari passu
with the liens that secure payment of the Calibur B Note.
(n) "Calibur B Note" means that certain promissory note dated
August 5, 1998, made payable by Calibur, UPC and Jackson to Infinity in
the original principal amount of $2,800,000, the payment of which is
secured by a lien in and to assets of UPC, Calibur and Jackson that is
pari passu with the liens that secure payment of the Calibur A Note.
(o) "Causes of Action" means all claims, rights, actions,
causes of action, liabilities, obligations, suits, debts, remedies,
dues, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages or judgments, whether known or unknown and whether
asserted or unasserted.
(p) "Chapter 11 Case" means the Debtor's case under chapter 11
of the Bankruptcy Code pending before the Bankruptcy Court and styled
In re United Petroleum Corporation, Case No. 99-88(PJW).
(q) "Claim" means (i) any right to payment from the Debtor,
whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; (ii) any right to
an equitable remedy for breach of performance if such breach gives rise
to a right of payment from the Debtor, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured or (iii) any
right under section 502(h) of the Bankruptcy Code.
(r) "Collateral" means any Estate Asset subject to a Lien.
(s) "Common Equity Interest" means any share or other
instrument (including, without limitation, the Old UPC Common Stock)
evidencing a common stock ownership interest in the Debtor, whether or
not transferable or denominated "stock", or similar security, and any
warrant or right, other than a right to convert, to purchase, sell, or
subscribe to a common stock ownership interest in the Debtor.
(t) "Confirmation Date" means the date on which the Clerk of
the Bankruptcy Court enters the Confirmation Order on the docket with
respect to the Chapter 11 Case.
(u) "Confirmation Hearing" means the hearing held by the
Bankruptcy Court, as it may be continued from time to time, on
confirmation of the Plan.
(v) "Confirmation Order" means the order of the Bankruptcy
Court confirming the Plan.
(w) "Contested," when used
(i) with respect to a Claim, other than a Securities
Claim, means a Claim (A) that is listed in the Schedules as
disputed, contingent, or unliquidated, in whole or in part;
(B) that is listed in the Schedules as undisputed, liquidated,
and not contingent and as to which a proof of claim has been
filed with the Bankruptcy Court, to the extent the proof of
claim amount exceeds the scheduled amount; (C) that is not
listed in the Schedules, but as to which a proof of claim has
been filed with the Bankruptcy Court; or (D) as to which an
objection has been filed before the Effective Date, provided,
that a Claim that is Allowed by Final Order or pursuant to the
Plan on or before the Effective Date shall not be a Contested
Claim; and
(ii) with respect to a Securities Claim, means such
Claim to the extent it has not become an Allowed Claim
pursuant to the ADR; provided, that a Claim that is Allowed by
Final Order or pursuant to the Plan on or before the Effective
Date shall not be a Contested Claim.
(x) "Debentures" means, collectively, the following
debentures, together with all amendments thereto, and all documents,
instruments, and agreements executed and delivered in connection
therewith:
(i) The Debtor's six percent (6%) convertible
debentures that matured on August 1, 1998;
(ii) The Debtor's seven percent (7%) convertible
debentures that mature on September 1, 1999; and
(iii) The Debtors eighteen percent (18%) convertible
debentures that matured on February 28, 1998.
(y) "Debenture Claim" means a Claim arising under or relating
in any way to the Debentures, including any Claim for accrued and
unpaid interest.
(z) "Debtor" or "UPC" means United Petroleum Corporation, a
Delaware corporation, the debtor and debtor in possession in this
Chapter 11 Case.
(aa) "Deficiency Amount" means, with respect to a Secured
Claim, the amount by which the Claim exceeds the sum of (i) any set-off
rights of the holder of such Claim against the Debtor under Bankruptcy
Code sections 506 and 553, plus (ii) the net proceeds realized by the
holder of such Claim from the disposition of the Collateral securing
such Claim or, if such Collateral is not liquidated to Cash, the value
of the interest of the holder of the Claim in the Debtor's interest in
such Collateral, as determined by the Bankruptcy Court under Bankruptcy
Code section 506; provided, that if the holder of a Claim that is
secured by a Lien on Collateral makes the election provided in
Bankruptcy Code section 1111(b), there shall be no Deficiency Amount in
respect of such Claim.
(bb) "Disallowed," when used with respect to a Claim, means a
Claim that has been disallowed by a Final Order of the Bankruptcy
Court.
(cc) "Disbursing Agent" means any Person designated by the
Proponent to make distributions required under the Plan which may
include, without limitation, UPC, any financial institution of
recognized standing, or such other disbursing agent as may be approved
by the Proponent.
(dd) "Disbursing Agreement" means, with respect to any
Disbursing Agent (other than UPC), the agreement referenced in Article
XI of the Plan which shall govern the rights and obligations of the
Disbursing Agent. The Disbursing Agreement will be in substantially the
form thereof filed as a Plan Document, unless UPC serves as the
Disbursing Agent, in which case, the Plan shall be the Disbursing
Agreement.
(ee) "Disclosure Statement" means the disclosure statement
respecting the Plan, as approved by the Bankruptcy Court as containing
adequate information in accordance with Section 1125 of the Bankruptcy
Code, all exhibits and annexes thereto and any amendments or
modifications thereof.
(ff) "Distribution Date" means, (i) for any Claim that is an
Allowed Claim on the Effective Date, as soon as practicable after the
occurrence of the Effective Date; (ii) for any Claim that is neither a
Disallowed Claim nor an Allowed Claim on the Effective Date, the first
Business Day after such Claim becomes an Allowed Claim, or as soon as
practicable thereafter; provided, that with respect to Securities
Claims, the Distribution Date shall be determined by the UPC Trustee,
consistent with the ADR and UPC Trust.
(gg) "Distribution Record Date" means the record date fixed
for voting on the Plan.
(hh) "Effective Date" means (i) the first Business Day after
the Confirmation Date upon which the transactions consummated by the
Merger Agreement are consummated, or (ii) a Business Day selected by
the Debtor after the first Business Day which is ten (10) days after
the Confirmation Date on which (y) the Confirmation Order is not stayed
and (z) all conditions to the entry of the Confirmation Order and the
occurrence of the Effective Date have been satisfied or waived as
provided in Article XIII of the Plan.
(ii) "Equity Interest" means (a) the legal, equitable,
contractual and other rights of any Person with respect to Old UPC
Common Stock, Old UPC Preferred Stock, or any other equity security of
the company and (b) the legal, equitable, contractual or other rights
of any Person to acquire or receive any of the foregoing.
(jj) "Estate" means the estate of the Debtor created by
section 541 of the Bankruptcy Code upon the commencement of the Chapter
11 Case.
(kk) "Estate Asset" means any property, right, or interest in
property that is included in the Estate of the Debtor.
(ll) "Estimated Claims Order" means any order of the
Bankruptcy Court estimating any Claim or the aggregate amount of all
Claims in any class created under the Plan to aid in the confirmation
of the Plan, or the calculation of distributions under the Plan.
(mm) "Fairway" means Fairway Capital Limited, a Nevis, West
Indies corporation.
(nn) "Farm Stores" means all of the ninety-two (92) walk-in
convenience stores owned or leased by various entities in which the
FSCI Shareholder has a partnership interest, and all inventory,
fixtures, equipment, merchandise, accounts and general intangibles
associated therewith, except as otherwise provided in the Merger
Agreement.
(oo) "Farm Stores Assets" shall mean all of the assets held by
FSCI, as more fully described in the Merger Agreement, immediately
preceding consummation of the Merger, including, but not limited to,
partnership and other interests in the Farm Stores, the Farm Stores
Real Estate, and the Farm Stores License.
(pp) "Farm Stores License" means the royalty-free license to
use the "Farm Stores" name and all related trademarks in connection
with the operation of the Farm Stores Assets. The Farm Stores License
shall be in substantially the form attached as an Exhibit to the Merger
Agreement.
(qq) "Farm Stores Real Estate" means the real property owned
by various entities in which the FSCI Shareholder has a partnership
interest and used in connection with nine (9) of the Farm Stores.
(rr) "FSCI" means F.S. Convenience Stores, Inc., a Florida
corporation.
(ss) "FSCI Shareholder" means the holder or holders of 100%
of the equity interest of FSCI.
(tt) "FSG" means Farm Stores Grocery, Inc., a Florida
corporation.
(uu) "FSG Equity Interest" means a ten percent (10%) ownership
interest in FSG.
(vv) "Fee Application" means an application of a Professional
Person under section 330 or 503 of the Bankruptcy Code for allowance of
compensation and reimbursement of expenses in the Chapter 11 Case.
(ww) "Fee Claim" means a Claim under section 330 or 503 of the
Bankruptcy Code for allowance of compensation and reimbursement of
expenses in the Chapter 11 Case.
(xx) "Final Order" means (i) an order or judgment of the
Bankruptcy Court or any other court or adjudicative body as to which
the time to appeal, petition for certiorari, or move for reargument or
rehearing has expired and as to which no appeal, petition for
certiorari, or other proceedings for reargument or rehearing shall then
be pending or, (ii) in the event that an appeal, writ of certiorari,
reargument, or rehearing thereof has been sought, such order of the
Bankruptcy Court or any other court or adjudicative body shall have
been affirmed by the highest court to which such order was appealed, or
certiorari has been denied, or from which reargument or rehearing was
sought, and the time to take any further appeal, petition for
certiorari or move for reargument or rehearing shall have expired;
provided, that no order shall fail to be a Final Order solely because
of the possibility that a motion pursuant to Rule 60 of the Federal
Rules of Civil Procedure or Rule 7024 of the Bankruptcy Rules may be
filed with respect to such order.
(yy) "General Unsecured Claim" means any Claim that is not an
Administrative Expense Claim, a Priority Tax Claim, a Priority Non-Tax
Claim, the Infinity Secured Claim, a Secured Claim, a Debenture Claim
or a UPC Securities Claim.
(zz) "Infinity" means Infinity Investors Limited, a Nevis,
West Indies corporation.
(aaa) "Infinity Party" means Infinity, Fairway, and Seacrest,
and each of their respective Affiliates, officers, directors, managers,
stockholders, investors, agents, attorneys and representatives,
including, without limitation, Clark K. Hunt.
(bbb) "Infinity Secured Claim" means the Secured Claims of
Infinity under the Calibur A Note and the Calibur B Note (and all
related security agreements, instruments and documents).
(ccc) "Infinity Securities Claim" means any Cause of Action
against the Infinity Parties arising from or in connection with the
sale, offer, exchange, conversion, or issuance of, or any transaction
involving, the Common Equity Interests, including without limitation,
the Causes of Action asserted in the Pisacreta/Tucci Action, but
excluding derivative Causes of Action that are property of the Estate.
(ddd) "Infinity Settlement Agreement" means the agreement
dated as of the Effective Date among the Debtor, the Infinity Parties
and The UPC Trust, providing for the settlement of all Causes of Action
that have been, are, or may be asserted by or on behalf of any of the
parties thereto against any of the parties thereto as set forth in
Section 14.1 of the Plan. The Infinity Settlement Agreement shall be
substantially in the form thereof filed as a Plan Document.
(eee) "Jackson" means Jackson-United Petroleum Corporation, a
Kentucky corporation, which is a wholly-owned subsidiary of UPC.
(fff) "Lien" shall have the meaning assigned to it in section
101(37) of the Bankruptcy Code.
(ggg) "Management Agreement" means the agreements to be
entered into as of the Effective Date between the management of UPC and
UPC Merger Sub and FSG regarding the management of FSG from and after
the Effective Date. The Management Agreement shall be in substantially
the form thereof filed as a Plan Document.
(hhh) "Merger" means the combination of FSCI with and into UPC
Merger Sub, with UPC Merger Sub being the surviving corporation, upon
the terms and conditions set forth in the Merger Agreement.
(iii) "Merger Agreement" means the agreement and plan of
merger to be entered into by and among UPC, UPC Merger Sub and FSCI.
The Merger Agreement shall be in substantially the form attached hereto
as Appendix I.
(jjj) "Merger Consideration" consideration means the
consideration to be received by the FSCI Shareholders under the Merger
Agreement, to wit, (i) $3 million Cash Payment delivered to the FSCI
Shareholder; (ii) 2,400,000 shares of New UPC Common Stock delivered to
the FSCI Shareholder, and, (iii) 70,000 shares New UPC Preferred Stock
delivered to the FSCI Shareholder.
(kkk) "Merger Financing" means the financing, as contemplated
in the Merger Agreement, in the original principal amount of up to
$23.0 million, secured by a Lien on the Farm Stores Assets, the
proceeds of which shall be used, inter alia, to pay the Merger
Consideration and to execute and perform the $17 million obligation
under the Toni Option. Upon consummation of the Merger, the Merger
Financing shall be an obligation of UPC Merger Sub.
(lll) "New UPC Bylaws" means the Bylaws of United Petroleum
Corporation, as amended and restated pursuant to the Plan. The New UPC
Bylaws shall be in substantially the form thereof filed as a Plan
Document.
(mmm) "New UPC Charter" means the Certificate of Incorporation
for United Petroleum Corporation, as amended and restated pursuant to
the Plan. The New UPC Charter shall be in substantially the form
thereof filed as a Plan Document.
(nnn) "New UPC Common Stock" means the 10,000,000 shares of
UPC common stock which shall be authorized for issuance under the New
UPC Charter; 5,000,000 of which shares shall be issued and outstanding
on the Effective Date pursuant the transactions to occur thereon under
the Plan and the Merger Agreement.
(ooo) "New UPC Preferred Stock" means the 300,000 shares of
UPC Class A Preferred Stock which shall be authorized for issuance
under the New UPC Charter; 70,000 of which shares shall be issued to
Infinity on the Effective Date in full satisfaction of the obligations
under the Calibur A Note and the Calibur B Note, and 70,000 of which
shares shall be issued to the FSCI Shareholder in conjunction with the
transactions contemplated in the Merger Agreement.
(ppp) "Old UPC Common Stock" means the issued and outstanding
shares of common stock of UPC immediately before the occurrence of the
Effective Date; to wit 30,565,352 shares.
(qqq) "Old UPC Preferred Stock" means the issued and
outstanding shares of preferred stock of UPC immediately before the
occurrence of the Effective Date; to wit 9,912 shares of Class A
Preferred Stock of UPC and 1,833 shares of Class B Preferred Stock of
UPC.
(rrr) "Penalty Claims" means Claims and Causes of Action for
noncompensatory, statutory, exemplary, or punitive damages, or
penalties.
(sss) "Person" means an individual, corporation, partnership,
joint venture, trust, estate, unincorporated association,
unincorporated organization, governmental entity, or political
subdivision thereof, or any other entity.
(ttt) "Petition Date" means January 14, 1999.
(uuu) "Pisacreta/Tucci Action" means that certain lawsuit
entitled Pisacreta v. Infinity Investors Limited et al., Civil
Action No. 3:97-CV-226 in the United States District Court for
the Eastern District of Tennessee, as amended to include the
allegations originally asserted in the Tucci Action.
(vvv) "Plan" means this chapter 11 plan, as it may be
modified from time to time in compliance with the Bankruptcy Code
and the Bankruptcy Rules.
(www) "Plan Documents" means the documents that aid in
effectuating the Plan as specifically identified as such herein,
including but not limited to, the Merger Agreement, the
Management Agreement and the Farm Stores License.
(xxx) "Preferred Equity Interest" means any (1) shares or
other instruments (including, without limitation, the Old UPC
Preferred Stock) evidencing a preferred stock ownership interest
in the Debtor, whether or not transferable or denominated
"stock,"; (2) Cause of Action arising under or in any way
relating to a share or shares of Old UPC Preferred Stock; or (3)
unpaid dividends with respect to a share or shares of Old UPC
Preferred Stock.
(yyy) "Post-Confirmation Interest" means simple interest at
the rate of 6.00% per annum or such other rate as the Bankruptcy
Court may determine at the Confirmation Hearing is appropriate;
such interest to accrue from the date of the entry of an order
allowing a Claim until such Claim is paid.
(zzz) "Priority Non-Tax Claim" means any Claim accorded
priority in right of payment under section 507(a)(3), (4), (5),
(6), or (7) of the Bankruptcy Code.
(aaaa) "Priority Tax Claim" means a Claim of a governmental
unit of the kind specified in section 507(a)(8) of the Bankruptcy
Code.
(bbbb) "Professional Person" means a Person retained or to
be compensated pursuant to section 327, 328, 330, 503(b), or 1103
of the Bankruptcy Code.
(cccc) "Proponent" means the Debtor.
(dddd) "Pro Rata Share" means the proportion that the amount
of an Allowed Claim or Equity Interest in a particular class of
Claims or Equity Interests bears to the aggregate amount of all
Claims or Equity Interests in such class, including Contested
Claims and Equity Interests, but not including Disallowed Claims
and Equity Interests, (i) as calculated by the Disbursing Agent,
or the UPC Trustee, as applicable, on or before any Distribution
Date; or (ii) as determined by the Bankruptcy Court in an
Estimated Claims Order, if such an order is sought and obtained.
(eeee) "Schedules" means the schedules of assets and
liabilities and the statements of financial affairs filed by the
Debtor as required by section 521 of the Bankruptcy Code and
Bankruptcy Rule 1007, as such schedules and statements have been
or may be supplemented or amended.
(ffff) "Seacrest" means Seacrest Capital Limited, a Nevis,
West Indies corporation.
(gggg) "Secured Claim" means (i) a Claim secured by a Lien
on any Estate Asset, which Lien is valid, perfected, and
enforceable under applicable law and is not subject to avoidance
under the Bankruptcy Code or other applicable non-bankruptcy law,
and which is duly established in the Chapter 11 Case, but only to
the extent of the value of the Collateral that secures payment of
the Claim; (ii) a Claim that is subject to a valid right of
setoff under section 553 of the Bankruptcy Code; and (iii) a
Claim allowed under the Plan as a Secured Claim.
(hhhh) "Securities Claim" means either a UPC Securities Claim
or an Infinity Securities Claim.
(iiii) "Securities Claims Resolution Facility" means the
facility to be established or designated by the UPC Trustee for
the purpose of liquidating Securities Claims as specified in the
ADR.
(jjjj) "Toni" means Toni Gas & Food Stores, Inc.
(kkkk) "Toni Option" means that certain agreement between,
among others, Toni and FSCI, under which, FSCI has the option of
purchasing from Toni, for $17 million, all partnership and other
interests which relate to the Farm Stores, and which are not
already owned by FSCI or the FSCI Shareholder.
(llll) "Thomas Guarantee" means the guarantee of the Calibur
A Note by UPC's president, Michael Thomas.
(mmmm) "UPC Merger Sub" means United Petroleum Subsidiary,
Inc., a Delaware corporation and the wholly-owned subsidiary of
UPC created for the purpose of consummating the Merger.
(nnnn) "UPC Securities Claim" means any Cause of Action
against the Debtor arising from or in connection with the sale,
offer, exchange, conversion or issuance of, or any transaction
involving, the Common Equity Interests, including without
limitation, any Causes of Action asserted against the Debtor in
the Pisacreta/Tucci Action.
(oooo) "UPC Trust" means the trust to be established pursuant
to Section 7.1 of the Plan and the UPC Trust Agreement.
(pppp) "UPC Trust Agreement" means the trust agreement
between the Debtor, Infinity and the UPC Trustee, dated as of the
Effective Date. The UPC Trust Agreement shall be in substantially
the form thereof filed as a Plan Document.
(qqqq) "UPC Trustee" means the Person that is duly appointed
and qualified to serve as the trustee of the UPC Trust pursuant
to the terms and conditions of the Plan and the UPC Trust
Agreement and as approved by the Bankruptcy Court.
1.2. Interpretation.
Unless otherwise specified, all section, article, and exhibit
references in the Plan are to the respective section in, article of, or exhibit
to, the Plan, as the same may be amended, waived, or modified from time to time.
The headings in the Plan are for convenience of reference only and shall not
limit or otherwise affect the provisions of the Plan. Words denoting the
singular number shall include the plural number and vice versa, and words
denoting one gender shall include the other gender. The Disclosure Statement may
be referred to for purposes of interpretation to the extent any term or
provision of the Plan is determined by the Bankruptcy Court to be ambiguous.
1.3. Application of Definitions and Rules of
Construction Contained in the Bankruptcy Code.
Words and terms defined in section 101 of the Bankruptcy Code shall
have the same meaning when used in the Plan, unless a different definition is
given in the Plan. The rules of construction contained in section 102 of the
Bankruptcy Code shall apply to the construction of the Plan.
1.4. Other Terms.
The words "herein," "hereof," "hereto," "hereunder," and others of
similar import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan. A term used herein that is not
defined herein shall have the meaning ascribed to that term, if any, in the
Bankruptcy Code.
1.5. Appendices and Plan Documents.
All Appendices to the Plan and the Plan Documents are incorporated into
the Plan by this reference and are a part of the Plan as if set forth in full
herein.
ARTICLE II.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
2.1. Claims and Equity Interests Classified.
For purposes of organization, voting, and all confirmation matters,
except as otherwise provided herein, all Claims (except for Administrative
Expense Claims, and Priority Tax Claims) and all Equity Interests shall be
classified as set forth in this Article II of the Plan.
2.2. Administrative Expense Claims and Priority Tax Claims.
As provided in section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims shall not be classified
for purposes of voting or receiving distributions under the Plan. Rather, all
such Claims shall be treated separately as unclassified Claims on the terms set
forth in Article V of the Plan.
2.3. Claims and Equity Interests.
The Plan classifies the Claims against and Equity Interests in the
Debtor as follows:
(a) Class 1: Priority Non-Tax Claims
(b) Class 2: Infinity Secured Claim
(c) Class 3: Secured Claims (other than the Infinity
Secured Claim)
(d) Class 4: General Unsecured Claims
(e) Class 5: Debenture Claims
(f) Class 6: Preferred Equity Interests
(g) Class 7: Common Equity Interests
(h) Class 8: UPC Securities Claims
2.4. Separate Classification of Secured Claims.
Although placed in one category for purposes of convenience, each Claim
that is determined to be a Secured Claim shall be treated as though in a
separate class (to be designated as Class 3A, Class 3B, Class 3C, etc.) for
purposes of voting and receiving distributions under the Plan.
ARTICLE III.
IDENTIFICATION OF IMPAIRED
CLASSES OF CLAIMS AND EQUITY INTERESTS
3.1. Unimpaired Classes of Claims and Equity Interests.
Class 1 -- Priority Non-Tax Claims, Class 3 -- Secured Claims (if any),
and Class 4 -- General Unsecured Claims, are not impaired under the Plan.
3.2. Impaired Classes of Claims and Equity Interests.
With the exception of the unimpaired classes specified in Section 3.1
of the Plan, all classes of Claims and Equity Interests are impaired under the
Plan.
3.3. Impairment Controversies.
If a controversy arises as to whether any Claim or Equity Interest, or
any class of Claims or class of Equity Interests, is impaired under the Plan,
the Bankruptcy Court shall, after notice and a hearing, determine such
controversy.
ARTICLE IV.
PROVISIONS FOR TREATMENT OF CLAIMS
AND EQUITY INTERESTS UNDER THE PLAN
4.1. Treatment of Claims and Equity Interests.
The classes of Claims against and Equity Interests in the Debtor shall
be treated under the Plan as follows:
(a) Class 1 -- Priority Non-Tax Claims. Each holder of an
Allowed Priority Non-Tax Claim shall be unimpaired under the Plan and,
pursuant to section 1124 of the Bankruptcy Code, all of the legal,
equitable and contractual rights of each holder of an Allowed Priority
Non-Tax Claim in respect of such Claim shall be fully reinstated and
retained as though the Chapter 11 Case had not been filed.
(b) Class 2 -- Infinity Secured Claim. The Infinity Secured
Claim shall be Allowed pursuant to the Plan and on the Effective Date
the holder of the Infinity Secured Claim shall receive 70,000 shares of
New UPC Preferred Stock in full satisfaction and release of the
Infinity Secured Claim.
(c) Class 3 -- Secured Claims (Other than the Infinity Secured
Claim). Each holder of an Allowed Secured Claim shall be unimpaired
under the Plan and, pursuant to section 1124 of the Bankruptcy Code,
all of the legal, equitable, and contractual rights of each holder of a
Secured Claim in respect of such Claim shall be fully reinstated and
retained as though the Chapter 11 Case had not been filed.
Notwithstanding the foregoing, the Debtor and any holder of an Allowed
Secured Claim may agree to any alternate treatment of such Secured
Claim which treatment may include preservation of such holder's Lien;
provided, that such treatment shall not provide a return to such holder
having a present value as of the Effective Date in excess of the amount
of such holder's Allowed Secured Claim.
(d) Class 4 -- General Unsecured Claims. Each holder of an
Allowed General Unsecured Claim shall be unimpaired under the Plan and,
pursuant to section 1124 of the Bankruptcy Code, all of the legal,
equitable and contractual rights of each holder of an Allowed General
Unsecured Claim in respect of such Claim shall be fully reinstated and
retained as though the Chapter 11 Case had not been filed.
(e) Class 5 -- Debenture Claims. The Debenture Claims shall be
Allowed pursuant to the Plan and on the Effective Date each holder of
an Allowed Debenture Claim shall receive a Pro Rata Share of 1,750,000
shares (35%) of New UPC Common Stock in full satisfaction and release
of the Debenture Claims.
(f) Class 6 -- Preferred Equity Interests. The Preferred
Equity Interests shall be Allowed pursuant to the Plan and on the
Effective Date each holder of an Allowed Preferred Equity Interest
shall receive a Pro Rata Share of 650,000 shares (13%) of New UPC
Common Stock in full satisfaction and release of the Preferred Equity
Interests.
(g) Class 7 -- Common Equity Interests. All Common Equity
Interests will be canceled, annulled and extinguished as of the
Effective Date. In full satisfaction and release of the Common Equity
Interests, each holder of an Allowed Common Equity Interests evidenced
by Old UPC Common Stock as of the Distribution Record Date shall
receive (i) a Pro Rata Share of 200,000 shares (4%) of New UPC Common
Stock, and (ii) the right to receive a Pro Rata Share of one-half (1/2)
of any of the assets initially contributed to the UPC Trust pursuant to
Sections 7.2 and 7.3 of the Plan, which remain after all distributions
have been made by the UPC Trust under the Plan in respect of Allowed
Securities Claims.
(h) Class 8 -- UPC Securities Claims. In full satisfaction and
release of the UPC Securities Claims, the UPC Securities Claims shall
have the right to be liquidated and allowed pursuant to the ADR,
together with the Infinity Securities Claims, except that, under no
circumstance will any Person other than the UPC Trust be liable to the
holder of a UPC Securities Claim on account of such UPC Securities
Claim. On the Distribution Date, each holder of an Allowed UPC
Securities Claim shall receive a distribution from the UPC Trust as
provided for by Article VII of the Plan, the UPC Trust Agreement and
the ADR.
ARTICLE V.
PROVISIONS FOR TREATMENT
OF UNCLASSIFIED CLAIMS UNDER THE PLAN
5.1. Treatment of Administrative Expense Claims.
All Administrative Expense Claims shall be treated as follows:
(a) Time for Filing Administrative Expense Claims. The holder
of an Administrative Expense Claim, other than (i) a Fee Claim, (ii) a
liability incurred and paid in the ordinary course of business by the
Debtor, or (iii) an Administrative Expense Claim that has been allowed
on or before the Effective Date, must file with the Bankruptcy Court
and serve on the Debtor and its counsel, notice of such Administrative
Expense Claim within twenty (20) days after service of notice of entry
of the Confirmation Order. Such notice must include at a minimum (1)
the name of the holder of the Claim, (2) the amount of the Claim, and
(3) the basis of the Claim. Failure to file this notice timely and
properly shall result in the Administrative Expense Claim being forever
barred and discharged.
(b) Time for Filing Fee Claims. Each Professional Person or
other entity that holds or asserts an Administrative Expense Claim that
is a Fee Claim incurred before the Effective Date shall be required to
file with the Bankruptcy Court, and serve on all parties required to
receive notice, a Fee Application within forty-five (45) days after the
Effective Date. The failure to file timely the Fee Application shall
result in the Fee Claim being forever barred and discharged.
(c) Allowance of Administrative Expense Claims. An
Administrative Expense Claim with respect to which notice has been
properly filed pursuant to Section 5.1(a) of the Plan shall become an
Allowed Administrative Expense Claim if no objection is filed within
sixty (60) days after the deadline for filing and serving a notice of
such Administrative Expense Claim specified in Section 5.1(a) hereof,
or such later date as may be approved by the Bankruptcy Court on motion
of the Debtor, without notice or a hearing. If an objection is filed
within such sixty-day period (or any extension thereof), the
Administrative Expense Claim shall become an Allowed Administrative
Expense Claim only to the extent allowed by Final Order. An
Administrative Expense Claim that is a Fee Claim, and with respect to
which a Fee Application has been properly filed pursuant to Section
5.1(b) of the Plan, shall become an Allowed Administrative Expense
Claim only to the extent allowed by Final Order.
(d) Payment of Allowed Administrative Expense Claims. Each
holder of an Allowed Administrative Expense Claim shall receive (i) the
amount of such holder's Allowed Claim in one Cash payment on the
Distribution Date, or (ii) such other treatment as may be agreed upon
in writing by the Debtor and such holder; provided, that an
Administrative Expense Claim representing a liability incurred in the
ordinary course of business of the Debtor may be paid at the Debtor's
election in the ordinary course of business by the Debtor. All Allowed
Administrative Expense Claims shall be paid by, and shall be the sole
responsibility of, UPC.
5.2. Treatment of Priority Tax Claims.
Each holder of an Allowed Priority Tax Claim shall receive from UPC in
full satisfaction of such holder's Allowed Priority Tax Claim, (i) the amount of
such holder's Allowed Claim, with Post-Confirmation Interest thereon, in equal
annual Cash payments on each anniversary of the Distribution Date, until the
sixth anniversary of the date of assessment of such Claim (provided that the
Debtor may prepay the balance of any such Allowed Priority Tax Claim at any time
without penalty); (ii) a lesser amount in one Cash payment as may be agreed upon
in writing by such holder; or (iii) such other treatment as may be agreed upon
in writing by such holder. The Confirmation Order shall constitute and provide
for an injunction by the Bankruptcy Court as of the Effective Date against any
holder of a Priority Tax Claim from commencing or continuing any action or
proceeding against any responsible person or officer or director of the Debtor
that otherwise would be liable to such holder for payment of a Priority Tax
Claim so long as UPC is not in default of its obligations with respect to such
Claim under this Section 5.2 of the Plan.
ARTICLE VI.
ACCEPTANCE OR REJECTION OF THE PLAN;
EFFECT OF REJECTION BY ONE OR MORE
CLASSES OF CLAIMS OR EQUITY INTERESTS
6.1. Classes Entitled to Vote.
Each impaired class of Claims shall be entitled to vote separately to
accept or reject the Plan. All unimpaired classes of Claims shall be deemed to
have accepted the Plan.
6.2. Class Acceptance Requirement.
A class of Claims shall have accepted the Plan if it is accepted by at
least two-thirds (2/3) in amount and more than one-half (1/2) in number of the
Allowed Claims in such class that have voted on the Plan. A class of Equity
Interests shall have accepted the Plan if it is accepted by holders of at least
two-thirds (2/3) of the Allowed Equity Interests in such class that have voted
on the Plan.
6.3. Confirmation Without Acceptance by All Impaired Classes.
If any impaired class of Claims or Equity Interests shall fail to
accept the Plan in accordance with section 1129(a) of the Bankruptcy Code, the
Plan shall constitute a request that the Bankruptcy Court confirm the Plan over
such rejection in accordance with section 1129(b) of the Bankruptcy Code.
ARTICLE VII.
TRANSFERS OF PROPERTY TO AND
ASSUMPTION OF CERTAIN LIABILITIES BY THE UPC TRUST
7.1. Creation of UPC Trust and Appointment of Trustee.
(a) On the Effective Date, the UPC Trust will be created
pursuant to the UPC Trust Agreement for the benefit of all holders of
Securities Claims. The UPC Trust or the fund established for transfer
to the UPC Trust may be a "designated settlement fund" or "qualified
settlement fund" pursuant to section 468B of the Internal Revenue Code
and related regulations.
(b) The UPC Trust shall be administered by an independent
trustee who shall be an individual designated by the Debtor, subject to
approval of the Bankruptcy Court. The terms of the compensation to be
payable to the UPC Trustee shall also be subject to approval of the
Bankruptcy Court.
(c) No person shall be eligible to be appointed as the UPC
Trustee who, within the five (5) years preceding such appointment, had
any business or professional affiliation with the Debtor or any holder
of a Claim, or any attorney representing any of the foregoing. The
appointment of the UPC Trustee and the terms of his/her compensation
shall be subject to the approval of the Bankruptcy Court.
7.2. Transfers of Certain Property of the Debtor to the UPC Trust.
(a) As of the Effective Date, the Debtor shall transfer and
assign (or deliver, as applicable) to the UPC Trust in accordance with
the UPC Trust Agreement, all Causes of Action of the Debtor for
contribution and indemnity with respect to Securities Claims against
any Person, excluding the Infinity Parties.
(b) On or as soon as practicable after the Effective Date, the
Debtor shall transfer to the UPC Trust all of its documents and records
relating to the transactions and events that purportedly give rise to
Securities Claims, except those documents necessary for the Debtor's
continuing operations. As of the date of such transfer, the UPC Trust
shall assume any and all obligations related to the storage of such
documents and records. The Proponent shall retain a right of access to
all documents and records transferred to the UPC Trust.
7.3. Transfers of Certain Property of the
Infinity Parties to the UPC Claims Trust.
The Infinity Parties shall transfer and assign (or deliver, as
applicable) or cause to be transferred and assigned (or deliver, as applicable)
to the UPC Trust in accordance with the UPC Trust Agreement, effective as of the
Effective Date, the following:
(a) 200,000 shares of New UPC Common Stock;
(b) all Causes of Action of the Infinity Parties for
contribution and indemnity with respect to Securities Claims against
any Person, excluding the Debtor, its affiliates and their respective
officers, directors, attorneys and representatives.
7.4. Distribution of Assets by the UPC Trust.
The UPC Trustee shall make distributions from the assets in the UPC
Trust to the holders of Allowed Securities Claims, in the full amount of such
Allowed Securities Claims. Upon the termination of the channeling injunction in
favor of the Infinity Parties pursuant to Section 16.2(d) of the Plan, holders
of Securities Claims that have been timely asserted shall be permitted to assert
such claims directly against the Infinity Parties. After the satisfaction of all
Allowed Securities Claims, any assets remaining in the UPC Trust shall be
allocated and distributed in accordance with the Infinity Settlement Agreement
50% to the Infinity Parties and 50% to the holders of Allowed Common Equity
Interests.
7.5. Assumption of Certain Liabilities by the UPC Trust.
(a) In consideration for the property transferred and the
payments made to the UPC Trust pursuant to Sections 7.2 and 7.3 of the
Plan, the UPC Trust shall assume all Securities Claims against the
Debtor and the Infinity Parties.
(b) As of the Effective Date, the UPC Trust shall (i)
establish the Securities Claims Resolution Facility and assume
responsibility for the liquidation of all Securities Claims as
specified in the ADR, (ii) assume the defense of all Causes of Action
against the Debtor and the Infinity Parties that constitute or may give
rise to Securities Claims, (iii) assume the defense of all Causes of
Action against any Person that may give rise to an indemnification
liability against the Infinity Parties; and (iv) prosecute the Causes
of Action of the Debtor and the Infinity Parties that have been
transferred and assigned to the UPC Trust as the UPC Trustee shall
determine is appropriate under the circumstances. Except as otherwise
provided in the UPC Trust Agreement and the Infinity Settlement
Agreement, the UPC Trust shall have all defenses, cross claims, Causes
of Action, and rights to liens, offsets and recoupments that the Debtor
and the Infinity Parties would have had against any Person under
applicable non-bankruptcy law with respect to the Securities Claims.
7.6. Certain Property Held in Trust by the Debtor and the Infinity Parties.
If for any reason after the Effective Date the Debtor and the Infinity
Parties shall retain or receive any property that is owned by the Debtor or the
Infinity Parties and which is to be transferred to the UPC Trust, then the
Debtor and the Infinity Parties shall segregate and hold such property (and any
proceeds thereof) in trust for the benefit of the UPC Trust, and shall take such
actions with respect to such property at the expense and for the account of the
UPC Trust as the UPC Trustee shall direct in writing.
7.7. Obligations of the UPC Trust with Regard to Claims Over.
The rights and entitlement of the UPC Trust in respect of its
prosecution of Causes of Action, rights, and claims are subject to the
obligations and conditions set forth in subparagraphs (a) and (b) below.
(a) When the UPC Trust asserts a Cause of Action, that was
transferred or assigned to the UPC Trust by the Debtor or the Infinity
Parties, the UPC Trust shall as soon as practicable deliver to the
Person designated by each of the Debtor and Infinity to receive notice
(the "Notice Party"), a copy of the complaint asserting such Cause of
Action. Notwithstanding the injunctions provided pursuant to Section
16.12 of the Plan and the discharge provided pursuant to Section 16.11
and 16.13 of the Plan, if a party to such action asserts therein a
counterclaim or cross claim (a "Claim Over") against the Debtor,
Infinity or any other Person specified in the Infinity Settlement
Agreement (a "Named Party"), the UPC Trust shall as soon as practicable
deliver to the Notice Party a copy of the pleading asserting such Claim
Over.
(b) If the UPC Trust obtains a settlement with respect to or
judgment against a party who has made a Claim Over in respect of such
settlement or judgment, the UPC Trust shall:
(i) in the event of any settlement, obtain, as part
of such settlement, a release of each Named Party or a
withdrawal with prejudice of any Claim Over against each Named
Party; and
(ii) in the event of any judgment rendered other than
by reason of settlement:
(A) in the event that the Claim Over is
adjudicated, reduce, in satisfaction of such Claim
Over, any such judgment obtained against the party
asserting the Claim Over by the amount, if any,
necessary to eliminate and satisfy such Claim Over
without any further obligation of the relevant Named
Party or Parties with respect to such Claim Over;
provided, that (without limiting its obligations for
indemnification) in no event shall reduction in
respect of such Claim Over exceed the amount of the
judgment obtained by the UPC Trust against the party
asserting such Claim Over, or
(B) indemnify and hold the Named Parties
harmless in respect of such Claim Over if such Claim
Over has not been adjudicated.
(c) If a Claim Over has been asserted by any party against any
Named Party, the UPC Trust shall fully indemnify and hold harmless the
relevant Named Party from and against any and all liabilities, losses,
penalties, damages, and all other reasonable costs and expenses or
disbursements (including legal fees) incurred in connection with, or
related to, the defense of the Claim Over.
7.8. Powers and Duties of the UPC Trustee.
(a) Subject to the terms and provisions of the UPC Trust
Agreement, as approved by the Bankruptcy Court, the UPC Trustee shall
have the duty and authority to take all actions, including, but not
limited to, the retention of professionals, deemed by the UPC Trustee
to be necessary or appropriate (i) to implement the Plan, including
without limitation, executing, entering into and implementing (A) the
UPC Trust Agreement, (B) the Infinity Settlement Agreement, and (B) any
other document, instrument or agreement necessary, or appropriate to
implement the Plan, (ii) to assert, enforce, or settle the rights and
claims of the UPC Trust under the Plan, the UPC Trust Agreement, any
order of the Bankruptcy Court, any agreement, instrument, or document,
and applicable law, (iii) to protect, maintain, liquidate to Cash, and
maximize the value of the assets transferred to the UPC Trust, (iv) to
liquidate and resolve the Securities Claims pursuant to the ADR, (v) to
make distributions to the holders of Allowed Securities Claims pursuant
to the Plan, and (vi) to prepare and make available to the Debtor,
Infinity and holders of Claims and Equity Interests periodic reports
regarding the results of the UPC Trust's operations.
(b) Except as otherwise provided in this Section 7.8, the UPC
Trustee, together with his/her officers, directors, employees, agents,
and representatives, are hereby exculpated by all Persons, holders of
Claims and Equity Interests, and parties in interest, from any and all
Causes of Action, and other assertions of liability (including breach
of fiduciary duty) arising out of the discharge of the powers and
duties conferred upon the UPC Trustee by the UPC Trust Agreement, the
Plan, any Final Order of the Bankruptcy Court entered pursuant to or in
the furtherance of the Plan, or applicable law, except solely for
actions or omissions arising out of the UPC Trustee's willful
misconduct. No holder of a Claim or an Equity Interest, or
representative thereof, shall have or pursue any claim or cause of
action against the UPC Trustee or his/her officers, directors,
employees, agents, and representatives for making payments in
accordance with the Plan, or for liquidating assets to make payments
under the Plan.
ARTICLE VIII.
MEANS FOR IMPLEMENTATION OF THE PLAN
8.1. Continued Corporate Existence.
UPC shall continue to exist after the Effective Date as a separate
corporate entity, with all corporate powers, in accordance with the laws of the
State of Delaware and pursuant to the New UPC Charter and the New UPC Bylaws,
which shall become effective upon the occurrence of the Effective Date.
8.2. The Merger .
Pursuant to the terms and conditions set forth in the Merger Agreement,
(a) FSCI will receive and disburse $17 Million from the Merger Financing to
exercise and perform under the Toni Option, (b) UPC Merger Sub and FSCI shall
merge on the Effective Date, with UPC Merger Sub being the surviving
corporation, (c) the FSCI Shareholder shall receive the Merger Consideration
such that the UPC Merger Sub will own 100% of the Farm Stores Assets and 10% of
the equity in FSG.
8.3. Vesting of Assets.
(a) Upon the occurrence of the Effective Date, title to the
Estate Assets shall vest in UPC, free and clear of all Liens, Claims,
Causes of Action, and interests, except as expressly provided in the
Plan. On and after the occurrence of the Effective Date, UPC may
operate its business and may use, acquire and dispose of its assets
free of any restrictions of the Bankruptcy Code.
(b) Upon the occurrence of the Effective Date, and pursuant to
the Merger Agreement, title to the Farm Stores Assets shall vest in UPC
Merger Sub, subject to a lien securing payment of the Merger Financing.
On and after the occurrence of the Effective Date, UPC Merger Sub may
operate its business and may use, acquire and dispose of its assets
free of any restrictions of the Bankruptcy Code.
8.4. Management.
Upon the occurrence of the Effective Date, the management, control, and
operation of UPC shall become the general responsibility of the board of
directors of UPC, as reconstituted pursuant to the Plan and Merger Agreement.
Additionally, pursuant to the terms of the Management Agreement, UPC shall
provide the management for FSG. Entry of the Confirmation Order shall ratify and
approve all actions taken by the board of directors of UPC from the Petition
Date through and until the Confirmation Date.
8.5. Reconstitution of UPC Board of Directors.
The initial board of directors of UPC shall be composed of the
individuals identified in the Disclosure Statement or as otherwise identified at
or prior to the Confirmation Hearing, to hold such positions.
8.6. Officers.
The officers of UPC immediately following the Effective Date, shall be
those parties identified in the Disclosure Statement or otherwise identified
prior to the conclusion of the Confirmation Hearing.
8.7. The New UPC Charter and Bylaws.
Upon the occurrence of the Effective Date, UPC's charter and bylaws
shall be amended and restated as specified herein. In addition to containing
provisions that are currently contained in UPC's charter and bylaws, the New UPC
Charter and the New UPC Bylaws shall provide for, among other things, a
prohibition against the issuance of nonvoting equity securities as required by
section 1123(a)(6) of the Bankruptcy Code.
8.8. Issuance of New UPC Common Stock.
(a) All existing shares of Old UPC Common Stock and Old UPC
Preferred Stock shall be deemed canceled, annulled, and extinguished as
of the Effective Date.
(b) On the Effective Date, UPC shall issue and distribute
5,000,000 shares of New UPC Common Stock as follows:
(i) 2,400,000 shares will be issued to the FSCI
Shareholder;
(ii) 1,750,000 shall be issued to the holders of
Allowed Debenture Claims;
(iii) 650,000 shall be issued to the holders of Allowed
Preferred Equity Interests; and
(iv) 200,000 shall be issued to the holders of
Allowed Common Equity Interests.
(c) Each share of New UPC Common Stock shall have a par value
of $0.01. The New UPC Common Stock shall have one vote per share on all
matters.
8.9. Issuance of New UPC Preferred Stock.
(a) On the Effective Date, UPC shall issue and distribute
140,000 shares of New UPC Preferred Stock as follows:
(i) 70,000 shares shall be issued to the FSCI
Shareholder; and
(ii) 70,000 shares shall be issued to the holder of the
Infinity Secured Claim.
(b) The New UPC Preferred Stock shall be issued pursuant to a
certificate of designation in substantially the form to be filed with
the Bankruptcy Court as a Plan Document, pursuant to which each share
of New UPC Preferred Stock shall
(i) entitle the holder to receive cumulative quarterly
dividends at the annual rate of approximately nine percent
(9%), dividends payable in cash out of funds legally
available for the payment thereof, or, at the election of
the Board of Directors, New UPC Common Stock having an
equivalent market value;
(ii) have a preference of $100.00, plus accrued and
unpaid dividends upon any voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of
the Debtor; and
(iii) provide that at any time or times dividends shall
be in arrears and unpaid on an amount equal to eight (8)
consecutive full quarterly dividend periods, then the number
of directors constituting the board of directors, without
further action, shall be increased by two (2) and the
holders of shares of New UPC Preferred Stock shall have the
exclusive right, voting separately as a class, to elect the
directors to fill such newly-created directorships.
8.10. Cancellation of Instruments and Agreements.
Upon the occurrence of the Effective Date, except as otherwise provided
herein, all promissory notes, share certificates, instruments, indentures, or
agreements evidencing, giving rise to, or governing any Claim or Equity Interest
shall be deemed canceled and annulled without further act or action under any
applicable agreement, law, regulation, order, or rule, and the obligations of
the Debtor under such promissory notes, share certificates, instruments,
indentures, or agreements shall be discharged.
8.11. Effectuating Documents.
On or before ten (10) business days prior to the deadline for parties
to vote to accept or reject the Plan, the Proponent shall file with the
Bankruptcy Court substantially final forms of the agreements and other documents
that have been identified herein as Plan Documents, which documents and
agreements shall implement and be controlled by the Plan. Entry of the
Confirmation Order shall authorize the officers of UPC to execute, enter into,
and deliver all documents, instruments and agreements, including, but not
limited to, the Plan Documents, and to take all actions necessary or appropriate
to implement the Plan. To the extent the terms of any of the Plan Documents
conflict with the terms of the Plan, the Plan shall control.
8.12. Treatment of Affiliate Claims.
Except for valid intercompany payables and receivables between and
among the Debtor, Jackson and Calibur, which shall be unaffected by the Chapter
11 Case, all rights, claims, Causes of Action, obligations, and liabilities
between and among the Debtor and its Affiliates shall be waived, released, and
discharged upon the occurrence of the Effective Date.
8.13. Retention of Causes of Action.
Except as otherwise provided in the Plan, all Causes of Action
assertable by the Debtor including, without limitation, those Causes of Action
assertable pursuant to sections 542, 543, 544, 545, 547, 548, 549, 550, or 553
of the Bankruptcy Code, shall be retained by the Debtor and shall be vested in
the Debtor upon the occurrence of the Effective Date. Any net recovery realized
by the Debtor on account of such Causes of Action shall be property of the
Debtor.
8.14. Indemnification.
The entry of the Confirmation Order shall constitute a permanent
injunction against the prosecution of all claims and Causes of Action of any
Person against the officers, directors, employees and attorneys of the Debtor as
of the Confirmation Date to the extent such claims or Causes of Action (a) are
based in whole or in part on events occurring on or before the Confirmation
Date, and (b) have been indemnified by the Debtor under its charter, its bylaws,
applicable state law or any other agreement between the Debtor and such other
parties, or any combination of the foregoing.
8.15. Employee Benefits.
Except as may be otherwise provided in a motion filed with the
Bankruptcy Court prior to entry of the Confirmation Order, all employment and
severance practices, policies, and agreements, and all compensation and benefit
agreements, plans, policies, and programs of the Debtor applicable to its
directors, officers, or employees, including, without limitation, all savings
plans, health care plans, severance benefit plans, incentive plans, employment
agreements, workers' compensation programs, and life, disability, and other
insurance plans, to the extent in full force and effect on the date of the
commencement of the Confirmation Hearing, and excluding all Retiree Benefit
Plans, are treated as executory contracts under the Plan, and the Plan
constitutes and incorporates a motion to assume all such practices, policies,
agreements, plans, and programs pursuant to section 365(a) of the Bankruptcy
Code. The Confirmation Order shall represent and reflect an order of the
Bankruptcy Court approving such assumptions as of the Effective Date; provided,
that the confirmation and consummation of the Plan shall not constitute a change
of control or triggering event under any employment agreement.
8.16. Appointment of the Disbursing Agent.
Unless prior to the conclusion of the Confirmation Hearing the Debtor
specifically identifies a Person to serve as the Disbursing Agent under the
Plan, the Debtor shall serve as the Disbursing Agent.
8.17. Transactions on the Effective Date.
On the Effective Date, unless otherwise provided by the Confirmation
Order of the Bankruptcy Court, the following shall occur, shall be deemed to
have occurred simultaneously, and shall constitute substantial consummation of
the Plan:
(a) the New UPC Charter and Bylaws shall become effective;
(b) The Merger Agreement shall become effective and the
transactions contemplated by the Merger Agreement shall be
consummated;
(c) all payments and other distributions to be made on, or as
soon as practicable after, the Effective Date by the Debtor or the UPC
Trust pursuant to Articles IV and V of the Plan shall be made or duly
provided for;
(d) the UPC Trustee shall be duly appointed and qualified to
serve;
(e) the Debtor, the UPC Trustee and Infinity shall enter into the
Infinity Settlement Agreement and the transactions contemplated
thereby shall be consummated;
(f) the Debtor shall issue the shares of New UPC Common Stock and
New UPC Preferred Stock to be issued under the Plan; and
(g) the UPC Trustee, the Debtor, and Infinity shall enter into
and execute the UPC Trust Agreement, the UPC Trust shall be
established, and the property to be transferred to the UPC Trust
pursuant to Sections 7.2 and 7.3 of the Plan shall automatically vest
in the UPC Trust without further action on the part of the Debtor,
Infinity or the UPC Trustee, with the execution, delivery and filing
or recording as necessary of appropriate documents of conveyance and
physical delivery of such property occurring as soon thereafter as
practicable.
8.18. Sources of Cash for Plan Distributions.
All Cash necessary for the Debtor to make payments and distributions to
pursuant to the Plan shall be obtained from existing Cash balances, from funds
made available pursuant to Merger Financing, and the operations of the Debtor
and its subsidiaries, including UPC Merger Sub. All Cash necessary for the UPC
Trust to make payments to the holders of Allowed Securities Claims shall be
obtained from the assets contributed to the UPC Trust pursuant to the Plan, or
the proceeds thereof.
ARTICLE IX.
PROVISIONS GOVERNING DISTRIBUTIONS
9.1. Date of Distributions.
Any distributions and deliveries to be made under the Plan on account
of an Allowed Claim shall be made on the Distribution Date with respect to such
Allowed Claim, as otherwise provided for herein, or as may be ordered by the
Bankruptcy Court.
9.2. Disbursing Agent/UPC Trustee.
The Disbursing Agent shall make or direct all distributions required
under this Plan, except for distributions to the holders of Allowed Securities
Claims, which shall be made by the UPC Trustee.
9.3. Means of Cash Payment.
Cash payments made pursuant to the Plan shall be in US funds, by check
drawn on a domestic bank, or by wire transfer from a domestic bank, except that
payments made to foreign trade creditors holding Allowed Claims or to foreign
governmental units holding Allowed Priority Tax Claims shall be in such funds
and by such means as are customary or as may be necessary in a particular
foreign jurisdiction.
9.4. Delivery of Distributions.
Subject to Bankruptcy Rule 9010, distributions and deliveries to
holders of Allowed Claims shall be made at the address of each such holder (a)
as set forth on the proofs of Claim filed by such holders, (b) as set forth in
the Verification Form (as defined in the ADR), with respect to holders of
Allowed Securities Claims, or (c) at the last known address of such holders if
the Disbursing Agent, or the UPC Trustee (as applicable) have been notified of a
change of address, except as otherwise provided in this Article IX of the Plan.
If any holder's distribution is returned as undeliverable, no further
distributions to such holder shall be made unless and until the Disbursing Agent
(or the UPC Trustee, as applicable) receives notification of such holder's then
current address, at which time any missed distributions shall be made to such
holder without interest. Amounts in respect of undeliverable distributions shall
be returned to the Disbursing Agent (or the UPC Trustee, as applicable) until
such distributions are claimed. All claims for undeliverable distributions shall
be made on or before the second anniversary of the Distribution Date. After such
date all unclaimed property shall (a) in the case of distributions to holders of
Administrative Expense Claims, Priority Tax Claims, Class 1 -- Priority Non-Tax
Claims, the Class 2 -- Infinity Secured Claim, Class 3 -- Secured Claims, and
Class 4 -- General Unsecured Claims, Class 5 -- Debenture Claims, Class 6 --
Preferred Equity Interests and Class 7 -- Common Equity Interests revert to UPC,
and (b) in the case of Securities Claims, revert to the UPC Trust; and, in any
case, the Claim or Equity Interest of any holder with respect to such property
shall be discharged and forever barred.
9.5. Surrender of Notes, Instruments, and Securities.
As a condition to receiving distributions provided for by the Plan,
each holder of a promissory note, share certificate, or other instrument
evidencing a Claim or Equity Interest shall surrender such promissory note,
share certificate, or instrument to the Disbursing Agent (or, in the case of the
holders of Securities Claims, to the UPC Trustee) within sixty (60) days of the
Effective Date. All promissory notes, share certificates, and other instruments
surrendered pursuant to the preceding sentence shall be marked "Compromised and
Settled only as provided in Debtor's Plan of Reorganization." Unless waived by
the Disbursing Agent (or the UPC Trustee in the case of the holders of
Securities Claims), any person seeking the benefits of being a holder of an
Allowed Claim or Equity Interest evidenced by a promissory note, share
certificate, or other instrument, who fails to surrender such promissory note,
share certificates, or other instrument must (a) establish the unavailability of
such promissory note, share certificate, or other instrument to the reasonable
satisfaction of the Disbursing Agent (or the UPC Trustee, in the case of the
holders of Securities Claims), and (b) provide an indemnity bond in form and
amount acceptable to the Disbursing Agent (or the UPC Trustee, in the case of
the holders of Securities Claims) holding harmless the Debtor and the Disbursing
Agent (or the UPC Trustee, in the case of the holders of Securities Claims) from
any damages, liabilities, or costs incurred a result of treating such Person as
a holder of an Allowed Claim or Equity Interest, as applicable. Thereafter, such
Person shall be treated as the holder of an Allowed Claim or Equity Interest for
all purpose under the Plan. Notwithstanding the foregoing, any holder of a
promissory note, share certificate, or other instrument evidencing a Claim or
Equity Interest that fails within one year of the Effective Date to surrender to
the Debtor (or the UPC Trustee, as applicable) such note or other instrument, or
alternatively, to satisfy the requirements of the second sentence of this
Section 9.5 shall be deemed to have forfeited all rights, Claims against, and
Equity Interests in, the Debtor and shall not be entitled to receive any
distribution under the Plan.
9.6. Expenses Incurred On or After the Effective Date
and Claims of the Disbursing Agent and the UPC Trustee.
Except as otherwise ordered by the Bankruptcy Court, the amount of any
expenses incurred by the Disbursing Agent or the UPC Trustee on or after the
Effective Date (including, but not limited to, taxes) and any compensation and
expenses (including any post-confirmation fees, costs, expenses, or taxes) to be
paid to or by the Disbursing Agent or the UPC Trustee shall be borne by the
Debtor and the UPC Trust, respectively. Professional fees and expenses incurred
by the Disbursing Agent and the UPC Trustee after the Effective Date in
connection with the effectuation of the Plan shall be paid by each in the
ordinary course of business.
9.7. Time Bar to Cash Payments.
Checks issued by the Disbursing Agent or the UPC Trustee in respect of
Allowed Claims shall be null and void if not negotiated within ninety (90) days
after the date of issuance thereof. Requests for reissuance of any check shall
be made directly to the Disbursing Agent or the UPC Trustee, as applicable, by
the holder of the Allowed Claim with respect to which such check originally was
issued. Any claim in respect of such a voided check shall be made on or before
the later of (a) the second anniversary of the Distribution Date or (b) ninety
(90) days after the date of issuance of such check. After such date, all Claims
in respect of void checks shall be discharged and forever barred.
9.8. Initial and Interim Distributions.
Initial distributions and interim distributions, if any, under the Plan
to the holders of Allowed Securities Claims shall be made on the Distribution
Dates and be based on the UPC Trustee' calculation or estimate of the amount of
Allowed Securities Claims, unless upon the timely request of a party in
interest, the Bankruptcy Court determines that a different estimate is
appropriate. Final distributions shall be based on the actual amount of Allowed
Securities Claims.
9.9. Effect of Distributions on Account of Securities Claims.
The making of a final distribution under the Plan on account of an
Allowed Securities Claim shall effect, without the need to take any further
action, the assignment of all right, title, claim, and interest in and to such
Allowed Securities Claim to the UPC Trust.
ARTICLE X.
PROCEDURES FOR RESOLVING AND TREATING
CONTESTED CLAIMS AND EQUITY INTERESTS
10.1. Objection Deadline.
As soon as practicable, but in no event later than sixty (60) days
after the Effective Date (subject to being extended by the Bankruptcy Court upon
motion of the Debtor without notice or a hearing), objections to Claims (except
Securities Claims) shall be filed with the Bankruptcy Court and served upon the
holders of each of the Claims to which objections are made; provided, that no
objection may be filed with respect to any Claim that is Allowed on or before
the Effective Date pursuant to Section 1.1(d)(i)(A), (B) or (D) of the Plan.
10.2. Prosecution of Objections.
After the date of entry of the Confirmation Order, only the Disbursing
Agent shall have authority to file, litigate, settle, or withdraw objections to
Claims (except for Securities Claims). All disputes regarding the existence
amount and treatment of Securities Claims shall be resolved pursuant to ADR,
except as otherwise provided in the Plan.
10.3. No Distributions Pending Allowance.
Notwithstanding any other provision of the Plan, no payment or
distribution shall be made with respect to any Claim or Equity Interest to the
extent it is Contested unless and until such Contested Claim becomes an Allowed
Claim or Equity Interest.
10.4. Distributions After Allowance.
Payments and distributions to each holder of a Contested Claim or
Equity Interest, to the extent that such Claim or Equity Interest ultimately
becomes Allowed, shall be made in accordance with the provision of the Plan
governing the class of Claims or Equity Interests to which the respective holder
belongs.
10.5. Estimation of Claims.
The Disbursing Agent (or the UPC Trustee, as applicable) may, at any
time, request that the Bankruptcy Court estimate any Contested Claim or Equity
Interest pursuant to section 502(c) of the Bankruptcy Code regardless of whether
the Disbursing Agent (or the UPC Trustee, as applicable) has previously objected
to such Claim or Equity Interest or whether the Bankruptcy Court has ruled on
any such objection, and the Bankruptcy Court will retain jurisdiction to
estimate any Claim or Equity Interest at any time during litigation concerning
any objection to any Claim, including during the pendency of any appeal relating
to any such objection. In the event that the Bankruptcy Court estimates any
Contested Claim or Equity Interest, that estimated amount will constitute either
the allowed amount of such Claim or Equity Interest or a maximum limitation on
such Claim or Equity Interest, as determined by the Bankruptcy Court. If the
estimated amount constitutes a maximum limitation on such Claim or Equity
Interest, the Disbursing Agent (or the UPC Trustee, as applicable) may elect to
pursue any supplemental proceedings to object to any ultimate payment on such
Claim or Equity Interest. All of the objection, estimation, settlement, and
resolution procedures set forth in the Plan are cumulative and not necessarily
exclusive of one another. Claims or Equity Interests may be estimated and
subsequently compromised, settled, withdrawn or resolved by any mechanism
approved by the Bankruptcy Court.
ARTICLE XI.
POWERS AND DUTIES OF THE DISBURSING AGENT
11.1. Exculpation.
Except as otherwise provided in this Section 11.1, the Disbursing
Agent, together with its officers, directors, employees, agents, and
representatives, are hereby exculpated by all Persons, holders of Claims and
Equity Interests, and parties in interest, from any and all Causes of Action,
and other assertions of liability (including breach of fiduciary duty) arising
out of the discharge of the powers and duties conferred upon the Disbursing
Agent by the Disbursement Agreement, the Plan, any Final Order of the Bankruptcy
Court entered pursuant to or in the furtherance of the Plan, or applicable law,
except solely for actions or omissions arising out of the Disbursing Agent's
willful misconduct. No holder of a Claim or an Equity Interest, or
representative thereof, shall have or pursue any claim or cause of action (i)
against the Disbursing Agent or its officers, directors, employees, agents, and
representatives for making payments in accordance with the Plan, or for
liquidating assets to make payments under the Plan, or (ii) against any holder
of a Claim or an Equity Interest for receiving or retaining payments or
transfers of assets as provided for by the Plan. Nothing contained in this
Section 11.1 shall preclude or impair any holder of an Allowed Claim or Equity
Interest from bringing an action in the Bankruptcy Court against the Debtor to
compel the making of distributions contemplated by the Plan on account of such
Claim or Equity Interest.
11.2. Powers and Duties of the Disbursing Agent.
Pursuant to the terms and provisions of the Disbursement Agreement and
the Plan, the Disbursing Agent shall be empowered and directed to (a) take all
steps and execute all instruments and documents necessary to make distributions
to holders of Allowed Claims (except Securities Claims); (b) make distributions
contemplated by the Plan; (c) comply with the Plan and the obligations
thereunder; (d) employ, retain, or replace professionals to represent it with
respect to its responsibilities; (e) object to Claims (except Securities Claims)
as specified in Article X hereof, and prosecute such objections; (f) compromise
and settle any issue or dispute regarding the amount, validity, priority,
treatment, or Allowance of any Claim (except Securities Claims) without further
notice or hearing, and without the need for an order of the Bankruptcy Court
approving such compromise or settlement; (g) make annual and other periodic
reports regarding the status of distributions under the Plan to the holders of
Allowed Claims that are outstanding against the Debtor at this time; such
reports to be made available upon request to the holders of any Contested Claim;
and (h) exercise such other powers as may be vested in the Disbursing Agent
pursuant to the Disbursement Agreement, order of the Bankruptcy Court, or the
Plan.
ARTICLE XII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
12.1. Assumed If Not Rejected.
The Plan constitutes and incorporates a motion to reject all
prepetition executory contracts, and all prepetition unexpired leases to which
the Debtor is a party, except for an executory contract or lease that (a) has
been assumed or rejected by Final Order of the Bankruptcy Court; or (b) is the
subject of a motion to assume or reject that is pending before the Bankruptcy
Court on the Effective Date. The Confirmation Order shall represent and reflect
an order of the Bankruptcy Court approving such rejections and assumptions of
executory contracts and leases as of the Effective Date.
12.2. Cure Payments.
Any monetary amounts by which the contracts and leases to be assumed
under the Plan are in default shall be satisfied (a) by delivery of one Cash
payment on the Distribution Date in the amount of such default, or (b) as
otherwise agreed by the parties or ordered by the Bankruptcy Court.
12.3. Bar to Rejection Damages.
If the rejection of an executory contract or unexpired lease by the
Debtor results in damages to the other party or parties to such contract or
lease, a Claim for such damages, if not heretofore evidenced by a filed proof of
Claim, shall be forever barred and shall not be enforceable against the Debtor,
or its properties or agents, successors, or assigns, unless a proof of Claim is
filed with the Bankruptcy Court and served upon counsel for the Debtor on or
before thirty (30) days after service of notice of entry of the Confirmation
Order.
ARTICLE XIII.
CONDITIONS PRECEDENT TO CONFIRMATION
OF THE PLAN AND THE OCCURRENCE OF THE EFFECTIVE DATE
13.1. Conditions Precedent to Confirmation.
(a) It is a condition to confirmation of the Plan that the
Clerk of the Bankruptcy Court shall have entered an order or orders on
the docket in the Chapter 11 Case, which may be the Confirmation Order,
approving the Plan Documents, authorizing the Debtor to execute, enter
into, and deliver the Plan Documents and to execute, implement, and
give effect to, the transactions contemplated thereby.
(b) It is a condition to confirmation of the Plan that the
Clerk of the Bankruptcy Court shall have entered an order or orders on
the docket in the Chapter 11 Case, which may be the Confirmation Order,
approving the Merger Agreement and authorizing the Debtor, UPC Merger
Sub and FSCI to consummate the Merger.
(c) It is a condition to confirmation of the Plan that the
Clerk of the Bankruptcy Court shall have entered an order or orders on
the docket in the Chapter 11 Case, which may be the Confirmation Order,
approving the compromises and settlements described in Section 14.1 of
the Plan.
(d) It is a condition to confirmation of the Plan that the
Clerk of the Bankruptcy Court shall have entered an order or orders on
the docket in the Chapter 11 Case, which may be the Confirmation Order,
issuing the injunctions described in Section 16.12 of the Plan.
13.2. Conditions Precedent to the Occurrence of the Effective Date.
(a) It is a condition to the occurrence of the Effective Date
that the Confirmation Order shall have been entered by the Clerk of the
Bankruptcy Court on the docket in the Chapter 11 Case, be in full force
and effect and be in form and substance satisfactory to Infinity and
FSCI.
(b) It is a condition to the occurrence of the Effective Date
that (i) the Merger Financing shall have been obtained and (ii) FSCI
shall have acquired and hold 100% ownership interest in and to the Farm
Stores Assets.
(c) It is a condition to the occurrence of the Effective Date
that all necessary and material consents, authorizations and approvals
shall have been given or waived for the transfers and transactions
described in the Merger Agreement.
(d) It is a condition to the occurrence of the Effective Date
that all necessary and material consents, authorizations and approvals
shall have been given or waived for the transfers of property and the
payments described in Sections 7.2 and 7.3 of the Plan, as applicable.
13.3. Waiver of Conditions.
The Proponent (with the consent of Infinity and FSCI) may waive any of
the conditions set forth in Sections 13.1 and 13.2 of the Plan in a writing
executed by each of them.
ARTICLE XIV.
COMPROMISE AND SETTLEMENT
OF CERTAIN CAUSES OF ACTION
14.1. Compromise and Settlement Between and Among the Debtor, the UPC Trust
and the Infinity Parties.
The Plan constitutes a motion pursuant to Bankruptcy Rule 9019 for the
entry of an order authorizing and approving the following compromise and
settlement between and among the Debtor, the UPC Trust and the Infinity Parties:
(a) For and in consideration of the undertakings and other
agreements of the Infinity Parties under and in connection with the
Plan and the Infinity Settlement Agreement, as of the Effective Date,
the Debtor shall: (i) issue 70,000 shares of New UPC Preferred Stock to
Infinity, or its designee, and (ii) release the Infinity Parties from
any and all Causes of Action arising in whole or in part from conduct
or events that occurred prior to the Effective Date (including, without
limitation, derivative claims which the Debtor otherwise has legal
power to assert, compromise or settle in connection with the Chapter 11
Case), except as otherwise provided in the Plan and the Infinity
Settlement Agreement.
(b) For and in consideration of the undertakings and
agreements of UPC under and in connection with the Plan and the
Infinity Settlement Agreement, as of the Effective Date, the Infinity
Parties shall (i) waive and release all of their rights, interests and
claims (including, without limitation, as to UPC, Calibur, Jackson and
under the Thomas Guarantee) in and under the Calibur A Note and the
Calibur B Note, (ii) contribute 200,000 shares of New UPC Common Stock
to the UPC Trust as provided in Section 7.3 of the Plan, and (iii)
release the Debtor, and its Affiliates, and their respective past and
present directors, officers, employees, agents, sales representatives,
and attorneys from any and all Causes of Action and Claims Over arising
in whole or in part from conduct or events that occurred prior to the
Effective Date, except as otherwise provided in the Plan and the
Infinity Settlement Agreement.
(c) As of the Effective Date, the Infinity Parties and the
Debtor shall release the UPC Trust and the UPC Trustee from any and all
Causes of Action arising in whole or in part from conduct or events
that occurred prior to the Effective Date, except as otherwise provided
in the Plan and the Infinity Settlement Agreement.
ARTICLE XV.
RETENTION OF JURISDICTION
15.1. Scope of Jurisdiction.
Notwithstanding the entry of the Confirmation Order and the occurrence
of the Effective Date, the Bankruptcy Court shall retain such jurisdiction over
the Chapter 11 Case after the Effective Date as legally permissible, including,
but not limited to, jurisdiction to:
(a) Allow, disallow, determine, liquidate, classify, estimate
or establish the priority or secured or unsecured status of any Claim,
including the resolution of any request for payment of any
Administrative Expense Claim and the resolution of any and all
objections to the allowance or priority of Claims;
(b) Grant or deny any applications for allowance and payment
of any Fee Claim for periods ending on or before the Effective Date;
(c) Resolve any matters related to the assumption, assumption
and assignment or rejection of any executory contract or unexpired
lease to which the Debtor is a party or with respect to which the
Debtor may be liable and to hear, determine and, if necessary,
liquidate, any Claims arising therefrom, including those matters
related to the amendment after the Effective Date pursuant to Article
XVI of the Plan to add any executory contracts or unexpired leases to
Appendix II hereto;
(d) Ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of the Plan, including ruling
on any motion filed pursuant to Article XII;
(e) Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny
any applications involving the Debtor that may be pending on or
commenced after the Effective Date;
(f) Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan, the Merger
Agreement and all contracts, instruments, releases, indentures and
other agreements or documents created in connection with the Plan or
the Disclosure Statement, including without limitation the UPC Trust
Agreement and the Infinity Settlement Agreement, including to correct
any defect, cure any omission or reconcile any inconsistency, except as
provided in Section 15.1(g) or elsewhere herein;
(g) Resolve any cases, controversies, suits, or disputes that
may arise in connection with the consummation, interpretation or
enforcement of the Plan or the UPC Trust Agreement or any entity's
obligations incurred in connection with the Plan or the UPC Trust
Agreement, or any other agreements governing, instruments evidencing or
documents relating to any of the foregoing, including the
interpretation or enforcement of any rights, remedies or obligations
under any of the foregoing;
(h) Issue injunctions, enter and implement other orders or
take such other actions as may be necessary or appropriate to restrain
interference by any entity with Consummation or enforcement of the
Plan, except as otherwise provided herein;
(i) Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified,
stayed, reversed, revoked or vacated;
(j) Determine any other matters that may arise in connection
with or relate to the Plan, the Disclosure Statement, the Confirmation
Order or any contract, instrument, release, indenture or other
agreement or document created in connection with the Plan or the
Disclosure Statement, including without limitation the UPC Trust
Agreement, except as provided in Section 15.1(g) or elsewhere herein;
and
(k) Enter a Final Decree as contemplated by Bankruptcy Rule
3022.
ARTICLE XVI.
MISCELLANEOUS PROVISIONS
16.1. Notice of Entry of Confirmation Order and Relevant Dates.
Promptly upon entry of the Confirmation Order, the Debtor shall publish
as directed by the Bankruptcy Court and serve on all known parties in interest,
holders of Claims, and holders of Equity Interests, notice of the entry of the
Confirmation Order and all relevant deadlines and dates under the Plan,
including, but not limited to, the deadline for filing notice of Administrative
Expense Claims (Section 5.1 hereof), and the deadline for filing rejection
damage claims (Section 12.3 hereof).
16.2. Payment of Statutory Fees.
All fees payable pursuant to section 1930 of title 28 of the United
States Code, as determined if necessary by the Bankruptcy Court at the hearing
pursuant to section 1128 of the Bankruptcy Code, shall be paid on or before the
Effective Date.
16.3. No Interest or Attorneys' Fees.
Except as expressly stated in the Plan, or as allowed by the Bankruptcy
Court, no interest, penalty or late charge arising after the Petition Date, and
no award or reimbursement of attorneys fees or related expenses or
disbursements, shall be allowed on, or in connection with, any Claim.
16.4. Modification of the Plan.
Modification of the Plan may be proposed in writing by the Proponent at
any time before confirmation, provided that the Plan, as modified, meets the
requirements of section 1122 and 1123 of the Bankruptcy Code, and the Debtor
shall have complied with section 1125 of the Bankruptcy Code. The Proponent may
modify the Plan (with the consent of Infinity and FSCI) at any time after
confirmation and before substantial consummation, provided that the Plan, as
modified, meets the requirements of sections 1122 and 1123 of the Bankruptcy
Code and the Bankruptcy Court, after notice and a hearing, confirms the Plan as
modified, under section 1129 of the Bankruptcy Code, and the circumstances
warrant such modifications. A holder of a Claim that has accepted or rejected
the Plan shall be deemed to have accepted or rejected, as the case may be, such
plan as modified, unless, within the time fixed by the Bankruptcy Court, such
holder changes its previous acceptance or rejection.
16.5. Revocation of Plan.
The Proponent reserves the right to revoke and withdraw the Plan after
the Confirmation Date and prior to the occurrence of the Effective Date (with
the consent of Infinity and FSCI). If the Proponent revokes or withdraws the
Plan, or if the Effective Date does not occur, then, the Plan and all
settlements set forth in Article XIV of the Plan shall be deemed null and void
and nothing contained herein shall be deemed to constitute a waiver or release
of any Claims by or against the Proponent or any other person or to prejudice in
any manner the rights of the Proponent or any person in any other further
proceedings involving the Debtor.
16.6. Exemption From Transfer Taxes.
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer, or exchange of notes or equity securities under the Plan, the creation
of any mortgage, deed of trust, or other security interest, the making or
assignment of any lease or sublease, or the making or delivery of any deed or
other instrument of transfer under, in furtherance of, or in connection with,
the Plan, including, without limitation, the Merger Agreements or any agreements
of consolidation, deeds, bills of sale, or assignments executed in connection
with any of the transactions contemplated under the Plan shall not be subject to
any stamp, real estate, transfer, mortgage recording, or other similar tax.
16.7. Setoff Rights.
In the event that the Debtor has a claim of any nature whatsoever
against the holder of a Claim, the Debtor may, but is not required to, setoff
against the Claim (and any payments or other distributions to be made in respect
of such Claim hereunder) the Debtor's claim against the holder, unless any such
claim is or will be released under the Plan, subject to the provisions of
section 553 of the Bankruptcy Code. Neither the failure to set off nor the
allowance of any Claim under the Plan shall constitute a waiver or release by
the Debtor of any claim that the Debtor has against the holder of a Claim.
16.8. Subordination Rights.
All Claims against and Equity Interests in the Debtor, based upon any
claimed subordination rights against the Debtor or rights to avoid payments or
transfers of property by the Debtor pursuant to any provision of the Bankruptcy
Code or other applicable law, shall be deemed satisfied as to the Debtor by the
distributions under the Plan to holders of Allowed Claims and Allowed Equity
Interests having such subordination rights and any rights to avoid payments or
transfers of property. As proposed in the Plan, the distributions to the various
classes of Claims hereunder shall not be subject to levy, garnishment,
attachment, or like legal process by any holder of a Claim or Equity Interest by
reason of any claimed subordination rights or otherwise of the holder of a Claim
or Equity Interest against the holder of another Claim or Equity Interest,
except as otherwise provided herein. Distributions under the Plan shall be
subject to and modified by any order pursuant to which a party in interest
obtains a Final Order directing distributions other than as provided in the
Plan, which distributions take into account the subordination rights of holders
of Claims and Equity Interests between and among themselves.
16.9. Compliance with Tax Requirements.
In connection with the Plan, the Debtor, and the Disbursing Agent, and
the UPC Trustee shall comply with all withholding and reporting requirements
imposed by federal, state, local, and foreign taxing authorities and all
distributions hereunder shall be subject to such withholding and reporting
requirements. Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer, or exchange of promissory notes, equity securities, or other
instruments under the Plan, the creation of any mortgage, deed of trust, or
other security interest, the making or assignment of any lease or sublease or
the making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan, including, without limitation,
any merger agreements or agreements of consolidation, deeds, bills of sale, or
assignments executed in connection with any of the transactions contemplated
under the Plan shall not be subject to any stamp, real estate transfer, mortgage
recording, or other similar tax.
16.10. Recognition of Guaranty Rights.
The classification of and manner of satisfying all Claims under the
Plan take into consideration (a) the existence of guaranties by the Debtor of
obligations of other Persons, and (b) the fact that the Debtor may be a joint
obligor with other Persons with respect to an obligation. All Claims against the
Debtor based upon any such guaranties or joint obligations shall be discharged
in the manner provided in the Plan; provided, that no creditor shall be entitled
to receive more than one recovery with respect to any of its Allowed Claims.
16.11. Compliance With All Applicable Laws.
If notified by any governmental authority that it is in violation of
any applicable law, rule, regulation, or order of such governmental authority
relating to its businesses, the Debtor, shall take whatever action as may be
required to comply with such law, rule, regulation, or order; provided, that
nothing contained herein shall require such compliance if the legality or
applicability of any such requirement is being contested in good faith, and, if
appropriate, an adequate reserve for such requirement has been set aside.
16.12. Discharge of Claims.
Except as otherwise provided herein or in the Confirmation Order, the
rights afforded in the Plan and the payments and distributions to be made
hereunder shall discharge all existing debts and Claims of any kind, nature, or
description whatsoever against the Debtor or the Estate Assets to the extent
permitted by section 1141 of the Bankruptcy Code; upon the Effective Date, all
existing Claims shall be, and shall be deemed to be discharged; and all holders
of Claims shall be precluded from asserting against the Debtor, or any of the
Estate Assets, any other or further Claim based upon any act or omission,
transaction, or other activity of any kind or nature that occurred prior to the
Effective Date, whether or not such holder filed a proof of Claim.
16.13. Injunctions.
(a) On the Effective Date, all Persons who have been, are, or
may be holders of Claims against or Equity Interests in the Debtor
shall be enjoined from taking any of the following actions against or
affecting the Debtor, its Estate, or its assets and property with
respect to such Claims or Equity Interests (other than actions brought
to enforce any rights or obligations under the Plan and appeals, if
any, from the Confirmation Order):
(i) commencing, conducting or continuing in any
manner, directly or indirectly, any suit, action or other
proceeding of any kind against the Debtor, its Estate, or its
assets or property, or any direct or indirect successor in
interest to the Debtor, or any assets or property of such
transferee or successor (including, without limitation, all
suits, actions, and proceedings that are pending as of the
Effective Date, which must be withdrawn or dismissed with
prejudice);
(ii) enforcing, levying, attaching, collecting or
otherwise recovering by any manner or means whether directly
or indirectly any judgment, award, decree or order against the
Debtor, its Estate, or its assets or property, or any direct
or indirect successor in interest to the Debtor, or any assets
or property of such transferee or successor;
(iii) creating, perfecting or otherwise enforcing in
any manner, directly or indirectly, any Lien against the
Debtor, its Estate, or its respective assets or property, or
any direct or indirect successor in interest to any of the
Debtor, or any assets or property of such transferee or
successor other than as contemplated by the Plan;
(iv) asserting any setoff, right of subrogation or
recoupment of any kind, directly or indirectly against any
obligation due the Debtor, its Estate, or its respective
assets or property, or any direct or indirect successor in
interest to any of the Debtor, or any assets or property of
such transferee or successor; and
(v) proceeding in any manner in any place whatsoever
that does not conform to or comply with the provisions of the
Plan or the settlement set forth in Article XIV of the Plan to
the extent such settlements have been approved by the
Bankruptcy Court in connection with confirmation of the Plan.
(b) Except as provided herein, as of the Effective Date, all
Persons are permanently enjoined from commencing or continuing in any
manner, any action or proceeding (including, without limitation, the
Causes of Action asserted in the Pisacreta/Tucci Action), whether
directly, derivatively, on account of or respecting any Claim, debt,
right, Cause of Action or liability released or to be released pursuant
to the Plan.
(c) From and after the Effective Date, any Infinity Securities
Claim shall channel and transfer to the UPC Trust, and all Persons who
have been, are, or may be holders of any such Infinity Securities Claim
shall be enjoined from taking any of the following actions against or
affecting Infinity or its assets and property with respect to such
Infinity Securities Claim (other than actions brought to enforce any
rights or obligations under the Plan, the UPC Trust Agreement and the
Infinity Settlement Agreement):
(i) commencing, conducting or continuing in any
manner, directly or indirectly, any suit, action or other
proceeding of any kind against any Infinity party or its
assets or property, or its direct or indirect successors in
interest, or any assets or property of such transferee or
successor (including, without limitation, all suits, actions,
and proceedings that are pending as of the Effective Date,
which must be withdrawn or dismissed with prejudice);
(ii) enforcing, levying, attaching, collecting or
otherwise recovering by any manner or means whether directly
or indirectly any judgment, award, decree or order against any
Infinity Party or its assets or property, or its direct or
indirect successors in interest, or any assets or property of
such transferee or successor;
(iii) creating, perfecting or otherwise enforcing in
any manner, directly or indirectly, any Lien against any
Infinity Party or its assets or property, or its direct or
indirect successors in interest, or any assets or property of
such transferee or successor;
(iv) asserting any set-off, right of subrogation or
recoupment of any kind, directly or indirectly against any
obligation due any Infinity Party, or its assets or property,
or its direct or indirect successors in interest, or any
assets or property of such transferee or successor; and
(v) proceeding in any manner in any place whatsoever
that does not conform to or comply with the provisions of the
Plan, or the settlements set forth in Article XIV of the Plan,
the UPC Trust Agreement or the Infinity Settlement Agreement.
(d) The injunction provided by Section 16.12(c) shall
terminate and be of no further force or effect if at any time or from
time to time the UPC Trustee file with the Bankruptcy Court and serve
upon the Infinity Parties a notice that the UPC Trust assets have been
fully expended and that additional Allowed Securities Claims exists or
that all Securities Claims have not yet been resolved and the Infinity
Parties, within thirty (30) days after the filing of such notice, fail
to make an additional contribution to the UPC Trust in an aggregate
amount equivalent to (A) not less than $100,000 (provided that such
amount must be at least enough to satisfy all outstanding Allowed
Securities Claims in full and provide at least $25,000 to fund the
expenses of the UPC Trust in liquidating any remaining Securities
Claims) or (B) such lesser amount as may be agreed to by the UPC
Trustee.
16.14. Discharge of the Debtor.
Any consideration distributed under the Plan shall be in exchange for
and in complete satisfaction, discharge, and release of all Claims of any nature
whatsoever against the Debtor and any of its assets or properties; and, except
as otherwise provided herein, upon the Effective Date, the Debtor shall be
deemed discharged and released to the extent permitted by section 1141 of the
Bankruptcy Code from any and all Claims, including but not limited to demands
and liabilities that arose before the Effective Date, and all debts of the kind
specified in section 502(g), 502(h), or 502(i) of the Bankruptcy Code, whether
or not (a) a proof of Claim based upon such debt is filed or deemed filed under
section 501 of the Bankruptcy Code; (b) a Claim based upon such debt is allowed
under section 502 of the Bankruptcy Code; or (c) the holder of a Claim based
upon such debt has accepted the Plan. Except as provided herein, the
Confirmation Order shall be a judicial determination of discharge of all
liabilities of the Debtor. As provided in section 524 of the Bankruptcy Code,
such discharge shall void any judgment against the Debtor at any time obtained
to the extent it relates to a Claim discharged, and operates as an injunction
against the prosecution of any action against the Debtor, or its property, to
the extent it relates to a Claim discharged.
16.15. Exculpation.
Neither the Proponent, Infinity, FSCI, any of their respective
Affiliates, nor any of their respective members, officers, directors, managers,
employees, agents, or professionals shall have or incur any liability to any
holder of a Claim or Equity Interest for any act, event, or omission in
connection with, or arising out of, the preparation and dissemination of the
Disclosure Statement, the solicitation of votes with respect to the Plan, the
Chapter 11 Case, the confirmation of the Plan, the consummation of the Plan, or
the administration of the Plan or the property to be distributed under the Plan,
except for willful misconduct.
16.16. Binding Effect.
The Plan shall be binding upon and inure to the benefit of the Debtor,
Infinity, the holders of all Claims and Equity Interests, and their respective
successors and assigns.
16.17. Notices.
Whenever service is required in the Plan, such service shall be made
upon the following parties so as to be received by 5:00 p.m. eastern time on or
before the date required:
The Debtor:
Attn: President
United Petroleum Corporation
2620 Mineral Springs Road, Suite A
Knoxville, Tennessee 37917
Facsimile: (423) 688-3463
with a copy to:
Laura Davis Jones, Esquire
Young Conaway Stargatt & Taylor, LLP
Rodney Square North, 11th Floor
P.O. Box 391
Wilmington, Delaware 19899-0391
Facsimile: (305) 571-1254
David A. Wood, Esquire
Wood, Exall & Bonnet, L.L.P.
12222 Merit Drive, Suite 880
Dallas, Texas 75251
Facsimile: (972) 991-9261
Infinity:
Infinity Investors Limited
38 Hertford Street
London, England WIY-7T6
Facsimile:
with a copy to:
Stuart J. Chasanoff, Esquire
HW Finance LLC
1601 Elm Street, Suite 4000
Dallas, Texas 75201
Facsimile: (214)720-1667
Thomas E Lauria, Esquire
White & Case
First Union Financial Center
200 South Biscayne Boulevard
Miami, FL 33131
Facsimile: (305) 358-5744
16.18. 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 or the Chapter 11 Case, including the Plan
Documents, except as may otherwise be provided in such agreements, documents,
instruments, and Plan Documents.
<PAGE>
16.19. Severability.
SHOULD THE BANKRUPTCY COURT DETERMINE THAT ANY PROVISION OF THE PLAN IS
UNENFORCEABLE EITHER ON ITS FACE OR AS APPLIED TO ANY CLAIM OR EQUITY INTEREST
OR TRANSACTION, THE PROPONENT (WITH THE CONSENT OF INFINITY) MAY MODIFY THE PLAN
IN ACCORDANCE WITH SECTION 16.5 OF THE PLAN SO THAT SUCH PROVISION SHALL NOT BE
APPLICABLE TO THE HOLDER OF ANY CLAIM OR EQUITY INTEREST. SUCH A DETERMINATION
OF UNENFORCEABILITY SHALL NOT (A) LIMIT OR AFFECT THE ENFORCEABILITY AND
OPERATIVE EFFECT OF ANY OTHER PROVISION OF THE PLAN OR (B) REQUIRE THE
RESOLICITATION OF ANY ACCEPTANCE OR REJECTION OF THE PLAN.
Dated: July ___, 1999
Respectfully submitted,
UNITED PETROLEUM CORPORATION
By:
Its:
<PAGE>
APPENDICES
Appendix I -- The Merger Agreement.
Appendix II -- Alternative Dispute Resolution Procedures For Treatment of
Securities Claims Pursuant to The Plan of Reorganization Under
Chapter 11 of the United States Bankruptcy Code For United
Petroleum Corporation.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS AND INTERPRETATION.................................................1
1.1. Definitions..............................................................1
1.2. Interpretation..........................................................12
1.3. Application of Definitions and Rules of
Construction Contained in the Bankruptcy Code...........................12
1.4. Other Terms.............................................................12
1.5. Appendices and Plan Documents...........................................12
ARTICLE II
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS.................................12
2.1. Claims and Equity Interests Classified..................................12
2.2. Administrative Expense Claims and Priority Tax Claims...................13
2.3. Claims and Equity Interests.............................................13
2.4. Separate Classification of Secured Claims...............................13
ARTICLE III
IDENTIFICATION OF IMPAIRED
CLASSES OF CLAIMS AND EQUITY INTERESTS........................................13
3.1. Unimpaired Classes of Claims and Equity Interests.......................13
3.2. Impaired Classes of Claims and Equity Interests.........................14
3.3. Impairment Controversies................................................14
ARTICLE IV.
PROVISIONS FOR TREATMENT OF CLAIMS
AND EQUITY INTERESTS UNDER THE PLAN...........................................14
4.1. Treatment of Claims and Equity Interests................................14
ARTICLE V.
PROVISIONS FOR TREATMENT
OF UNCLASSIFIED CLAIMS UNDER THE PLAN.........................................15
5.1. Treatment of Administrative Expense Claims..............................15
5.2. Treatment of Priority Tax Claims........................................16
ARTICLE VI.
ACCEPTANCE OR REJECTION OF THE PLAN;
EFFECT OF REJECTION BY ONE OR MORE
CLASSES OF CLAIMS OR EQUITY INTERESTS.........................................17
6.1. Classes Entitled to Vote................................................17
6.2. Class Acceptance Requirement............................................17
6.3. Confirmation Without Acceptance by All Impaired Classes.................17
ARTICLE VII.
TRANSFERS OF PROPERTY TO AND
ASSUMPTION OF CERTAIN LIABILITIES BY THE UPC TRUST............................18
7.1. Creation of UPC Trust and Appointment of Trustee........................18
7.2. Transfers of Certain Property of the Debtor to the UPC Trust............18
7.3. Transfers of Certain Property of the
Infinity Parties to the UPC Claims Trust................................18
7.4. Distribution of Assets by the UPC Trust.................................19
7.5. Assumption of Certain Liabilities by the UPC Trust......................19
7.6. Certain Property Held in Trust by the Debtor and the Infinity Parties...19
7.7. Obligations of the UPC Trust with Regard to Claims Over.................20
7.8. Powers and Duties of the UPC Trustee....................................21
ARTICLE VIII.
MEANS FOR IMPLEMENTATION OF THE PLAN..........................................22
8.1. Continued Corporate Existence...........................................22
8.2. The Merger..............................................................22
8.3. Vesting of Assets.......................................................22
8.4. Management..............................................................22
8.5. Reconstitution of UPC Board of Directors................................23
8.6. Officers ...............................................................23
8.7. The New UPC Charter and Bylaws..........................................23
8.8. Issuance of New UPC Common Stock........................................23
8.9. Issuance of New UPC Preferred Stock.....................................24
8.10. Cancellation of Instruments and Agreements..............................24
8.11. Effectuating Documents..................................................24
8.12. Treatment of Affiliate Claims...........................................25
8.13. Retention of Causes of Action...........................................25
8.14. Indemnification.........................................................25
8.15. Employee Benefits.......................................................25
8.16. Appointment of the Disbursing Agent.....................................26
8.17. Transactions on the Effective Date......................................26
8.18. Sources of Cash for Plan Distributions..................................26
ARTICLE IX.
PROVISIONS GOVERNING DISTRIBUTIONS............................................27
9.1. Date of Distributions...................................................27
9.2. Disbursing Agent/UPC Trustee............................................27
9.3. Means of Cash Payment...................................................27
9.4. Delivery of Distributions...............................................27
9.5. Surrender of Notes, Instruments, and Securities.........................28
9.6. Expenses Incurred On or After the Effective Date
and Claims of the Disbursing Agent and the UPC Trustee..................28
9.7. Time Bar to Cash Payments...............................................29
9.8. Initial and Interim Distributions.......................................29
9.9. Effect of Distributions on Account of Securities Claims.................29
ARTICLE X.
PROCEDURES FOR RESOLVING AND TREATING
CONTESTED CLAIMS AND EQUITY INTERESTS.........................................29
10.1. Objection Deadline......................................................29
10.2. Prosecution of Objections...............................................29
10.3. No Distributions Pending Allowance......................................30
10.4. Distributions After Allowance...........................................30
10.5. Estimation of Claims....................................................30
ARTICLE XI.
POWERS AND DUTIES OF THE DISBURSING AGENT.....................................30
11.1. Exculpation.............................................................30
11.2. Powers and Duties of the Disbursing Agent...............................31
ARTICLE XII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.........................31
12.1. Assumed If Not Rejected.................................................31
12.2. Cure Payments...........................................................32
12.3. Bar to Rejection Damages................................................32
ARTICLE XIII.
CONDITIONS PRECEDENT TO CONFIRMATION
OF THE PLAN AND THE OCCURRENCE OF THE EFFECTIVE DATE..........................32
13.1. Conditions Precedent to Confirmation....................................32
13.2. Conditions Precedent to the Occurrence of the Effective Date............33
13.3. Waiver of Conditions....................................................33
ARTICLE XIV.
COMPROMISE AND SETTLEMENT
OF CERTAIN CAUSES OF ACTION...................................................33
14.1. Compromise and Settlement Between and Among
the Debtor, the UPC Trust and the Infinity Parties......................33
ARTICLE XV.
RETENTION OF JURISDICTION.....................................................34
15.1. Scope of Jurisdiction...................................................34
ARTICLE XVI.
MISCELLANEOUS PROVISIONS......................................................36
16.1. Notice of Entry of Confirmation Order and Relevant Dates................36
16.2. Payment of Statutory Fees...............................................36
16.3. No Interest or Attorneys'Fees...........................................36
16.4. Modification of the Plan................................................36
16.5. Revocation of Plan......................................................36
16.6. Exemption From Transfer Taxes...........................................37
16.7. Setoff Rights...........................................................37
16.8. Subordination Rights....................................................37
16.9. Compliance with Tax Requirements........................................37
16.10. Recognition of Guaranty Rights.........................................38
16.11. Compliance With All Applicable Laws....................................38
16.12. Discharge of Claims....................................................38
16.13. Injunctions............................................................38
16.14. Discharge of the Debtor................................................39
16.15. Exculpation............................................................41
16.16. Binding Effect.........................................................41
16.17. Notices42
16.18. Governing Law..........................................................43
16.19. Severability...........................................................44
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
UNITED PETROLEUM CORPORATION, ) Case No. 99-88 (PJW)
)
Debtor. )
SECOND AMENDED DISCLOSURE STATEMENT
WITH RESPECT TO SECOND AMENDED PLAN OF
REORGANIZATION OF UNITED PETROLEUM CORPORATION
Young Conaway Stargatt & Taylor, LLP
Laura Davis Jones (No. 2436)
Joel A. Waite (No. 2925)
Brendan L. Shannon (No. 3136)
Rodney Square North
11th Floor
P.O. Box 391
Wilmington, Delaware 19899-0391
Attorneys for United Petroleum
Corporation, et. al., Debtors
in Possession
Dated: Wilmington, Delaware
July 23, 1999
<PAGE>
DISCLAIMERS
ALL CREDITORS AND INTEREST HOLDERS ARE ADVISED AND ENCOURAGED TO READ
THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY. PLAN SUMMARIES AND
STATEMENTS MADE IN THIS DISCLOSURE STATEMENT, INCLUDING THE FOLLOWING EXECUTIVE
SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, THE EXHIBITS
ANNEXED TO THE PLAN, AND THIS DISCLOSURE STATEMENT AS A WHOLE. THE STATEMENTS
CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF, AND
THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN WILL BE CORRECT
AT ANY TIME AFTER THE DATE HEREOF.
ALL CREDITORS AND INTEREST HOLDERS ARE ADVISED THAT THIS DISCLOSURE
STATEMENT AND RELATED PLAN ARE PREMISED ON A PROPOSED MERGER TRANSACTION WITH
FSCI, WITH RESPECT TO WHICH THE DEBTOR AND FSCI HAVE NOT COMPLETED THEIR DUE
DILIGENCE. CONSUMMATION OF THE PLAN AND THE MERGER AGREEMENT HAS THUS BEEN MADE
EXPRESSLY CONTINGENT UPON THE SATISFACTION OF THE PARTIES THERETO CONTINUING DUE
DILIGENCE INVESTIGATIONS. THE DEBTOR HAS BEEN ASKED TO SUPPORT THE PROPOSED
MERGER TRANSACTION BY ITS SECURED LENDER, INFINITY. INFINITY BROUGHT THE
PROPOSED TRANSACTION TO THE DEBTOR FOR CONSIDERATION. INFINITY HAS BEEN ACTIVELY
INVOLVED IN THE NEGOTIATIONS WITH FSCI. A SUBSTANTIAL AMOUNT OF THE INFORMATION
CONTAINED HEREIN HAS BEEN PROVIDED EITHER BY INFINITY OR FSCI AND THEIR ADVISORS
AND HAS NOT YET BEEN FULLY REVIEWED OR EVALUATED BY THE DEBTOR OR ITS ADVISORS.
THE DEBTOR INTENDS TO CONDUCT FURTHER DUE DILIGENCE WITH RESPECT TO THE PROPOSED
MERGER AGREEMENT PRIOR TO THE COURT'S APPROVAL OF THE PLAN. IF SUFFICIENT DUE
DILIGENCE CANNOT BE COMPLETED BY THE DEBTOR PRIOR TO THE HEARING TO CONSIDER
APPROVAL OF THE PLAN, THE DEBTOR MAY NOT BE ABLE TO PROCEED TO OBTAIN COURT
APPROVAL OF THE PLAN. THE DEBTOR MAKES NO REPRESENTATIONS WHATSOEVER REGARDING
THE ACCURACY AND COMPLETENESS OF THE INFORMATION HEREIN REGARDING FSCI, ITS
ASSETS, OR ITS HISTORICAL OR PROJECTED FINANCIAL INFORMATION AND DISCLAIMS ANY
LIABILITY WITH RESPECT THERETO. THE DEBTOR HAS DETERMINED THAT PROCEEDING AT
THIS TIME WITH SOLICITING VOTES ON THE PLAN UNDER THESE CIRCUMSTANCES IS
APPROPRIATE IN LIGHT OF THE FACT THAT THE PROPOSED MERGER REPRESENTS THE ONLY
KNOWN POSSIBILITY OF PROVIDING A SUBSTANTIAL RECOVERY TO THE DEBTOR'S CREDITORS
AND INTEREST HOLDERS AND IN LIGHT OF THE CRITICAL TIMING ISSUES ASSOCIATED WITH
THE PROPOSED MERGER DISCUSSED THROUGHOUT THIS DISCLOSURE STATEMENT. THE DEBTOR
DOES NOT PRESENTLY HAVE THE MEANS TO CONFIRM A PLAN WITHOUT THE SUPPORT OF
INFINITY. ABSENT THE PROPOSED MERGER, THE DEBTOR WOULD LIKELY BE FORCED TO
LIQUIDATE ITS ASSETS, WHICH WOULD PRODUCE LITTLE OR NO RECOVERY FOR ANY CREDITOR
OTHER THAN INFINITY.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 3016(c) OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS. THIS
DISCLOSURE STATEMENT HAS NEITHER BEEN APPROVED NOR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC"), NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THIS DISCLOSURE STATEMENT WAS
PREPARED TO PROVIDE HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR WITH
"ADEQUATE INFORMATION" (AS DEFINED IN SECTION 1125 OF THE BANKRUPTCY CODE) SO
THAT THEY CAN MAKE AN INFORMED JUDGMENT ABOUT THE PLAN. PERSONS OR ENTITIES
TRADING IN, OR OTHERWISE PURCHASING, SELLING, OR TRANSFERRING, SECURITIES OF THE
DEBTOR SHOULD NOT RELY UPON THIS DISCLOSURE STATEMENT FOR SUCH PURPOSES AND
SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE
FOR WHICH THEY WERE PREPARED.
THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN
ADMISSION OF ANY FACT OR LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS A
STATEMENT MADE IN SETTLEMENT NEGOTIATIONS. NOR SHALL THE STATEMENTS SET FORTH
HEREIN BE USED AS EVIDENCE OR BIND ANY PARTY IN CONNECTION WITH THE
PISACRETA/TUCCI ACTION.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED
HEREIN FOR PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN AND MAY NOT BE RELIED
UPON FOR ANY PURPOSE OTHER THAN TO MAKE A JUDGMENT WITH RESPECT TO, AND
DETERMINE HOW TO VOTE ON, THE PLAN.
THE DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NON-BANKRUPTCY
PROCEEDING INVOLVING THE DEBTOR OR ANY OTHER PARTY, NOR SHALL IT BE CONSTRUED TO
BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, OR OTHER LEGAL EFFECTS OF THE
LIQUIDATION OR PLAN AS TO HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN, THE
DEBTOR.
DISCLAIMER CONCERNING BUSINESS PLANS, PROJECTIONS
AND OTHER FORWARD-LOOKING STATEMENTS
This Disclosure Statement includes "forward-looking statements" as that
term is used under the Securities Exchange Act of 1934, as amended ("Exchange
Act"). All statements other than statements of historical facts included in this
Disclosure Statement, including without limitation, statements under "Certain
Risk Factors to be Considered" and statements regarding the Debtor's, Farm
Stores'(R) or any other company's financial position, business strategy and
plans and objectives for future operations, including those found in the section
entitled "Business Plan and Projections," are forward-looking statements. The
forward-looking statements herein regarding Farm Stores(R) and the projected
financial performance of the combined reorganized Debtor have been prepared by
F.S. Management and its advisors. Although F.S. Management believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Certain of
the factors that could affect such forward looking statements are described in
Section XII, "Certain Risk Factors to be Considered".
<PAGE>
EXECUTIVE SUMMARY
On January 14, 1999 (the "Petition Date")<F9> United Petroleum
Corporation, a Delaware corporation ("UPC" or the "Debtor") filed a petition for
relief under chapter 11 of title 11 of the United States Code (11 U.S.C. ss.ss.
101 et. seq.) (the "Bankruptcy Code"). On July 23, 1999 the Debtor filed its
second amended plan of reorganization (the "Plan"), which sets forth how claims
against and interests in the Debtor will be treated. This Disclosure Statement
describes certain aspects of the Plan, the Debtor's operations, significant
events occurring in the Debtor's Chapter 11 Case and other related matters. This
Executive Summary is intended solely as a summary of the distribution provisions
of the Plan and certain matters related to the Debtor's businesses. FOR A
COMPLETE UNDERSTANDING OF THE PLAN, YOU SHOULD READ THE DISCLOSURE STATEMENT,
THE PLAN AND THE EXHIBITS AND SCHEDULES THERETO IN THEIR ENTIRETY.
- ---------------------
<F9> All capitalized terms used herein but not defined herein shall have the
meanings attributed to such terms in the Plan.
Capitalized terms used in this Executive Summary and not otherwise
defined herein have the meanings ascribed to them in the Disclosure Statement
and the Plan.
The Plan is intended, among other things, to materially reduce the
Debtor's overall indebtedness and the related drain on the Debtor's cash flow
from servicing its debt obligations. As described in greater detail in the
Disclosure Statement, the Debtor is proposing the Plan to achieve changes in its
financial structure that it believes are necessary to alleviate the problems
caused by the Debtor's excessive debt levels and fixed charges (including its
obligations to make payments in respect of interest and dividends), to enable
the Debtor to continue to implement its revised business strategy and to assure
the Debtor's long-term viability. An important feature of the Plan is the
Debtor's contemplated merger with a chain of 92 walk in convenience stores, and
Debtor's acquisition of 10% of the equity in a chain of drive-thru stores, all
located in Florida and presently owned and operated by a group of related
entities doing business as "Farm Stores"(R).
Time is of the essence in order to effect the merger. The walk-in and
drive-thru Farm Stores(R) are currently beneficially owned by two different
entities, which are controlled by a Mr. Joe Bared and the Isaias family (see
"General information -- Farm Stores"). The Isaias family and Mr. Bared, however,
have entered into an agreement whereby Mr. Bared has the option, but only until
August 25, 1999, to purchase all of the interest held by the Isaias family.
Thus, if the Debtor is unsuccessful in consummating the Plan and acquiring the
Merger Financing by August 25, 1999, this option will expire and neither Bared,
nor the Debtor would have the right to acquire the Isaias's interest in the
business. To insure that it could satisfy the requirements under the Bankruptcy
Code regarding the length of notice that must be provided prior to a hearing on
the Disclosure Statement and confirmation of the Plan, the Debtor is proceeding
with soliciting votes on the Plan, prior to entering into the Merger Agreement
(which shall be in substantially the form attached to the Plan as Annex I) or
completion of its due diligence. Nevertheless, among other things, the Merger
Agreement contemplates the parties' need to complete due diligence and
conditions closing of the Merger on the parties' satisfaction with their due
diligence investigations.
The Plan has been carefully designed and structured to preserve the
going-concern value of the Debtor's business enterprise and the businesses of
Farm Stores(R) to be acquired by Debtor, materially enhance the Debtor's
operational viability on a prospective basis, channel and resolve all disputes
relating to certain existing and potential litigation, and create a mechanism
for the settlement of Securities Claims. Given the inability of the Debtor,
standing alone, to fund the achievement of such an outcome, the Plan includes
the acquisition of new businesses (as described above) and incorporates a
settlement with Infinity, pursuant to which Infinity's Claims against and
Interests in the Debtor will be restructured and all Securities Claims will be
channeled to a trust funded by Infinity and the Debtor.
Under the Plan, Claims against and Interests in the Debtor are divided
into Classes. Certain unclassified Claims, including Administrative Claims and
Priority Tax Claims, will receive payment in full in cash on or before the
Effective Date. All other Allowed Claims and Interests are divided into 8
classes and will receive the distributions and recoveries described in the table
below. This summary is qualified in its entirety by reference to the balance of
this Disclosure Statement and the provisions of the Plan, a copy of which is
attached hereto as Exhibit "A".
SUMMARY OF ANTICIPATED DISTRIBUTIONS UNDER THE PLAN<F1>
This summary of distributions under the Plan includes estimated
recoveries for certain classes of creditors of the Debtor. These estimates are
based, in whole or in part, on various assumptions and projections, including
among others: that the Merger with Farm Stores will be consummated; that the
businesses combined in the Merger will perform as well as is anticipated; that
the actual value of the stock issued in the reorganization will not be
significantly different from the value determined for it on the basis of
available financial and business information and assumptions used in estimating
its value; and that post-Merger UPC will have sufficient income to repay the
obligations of the Farm Stores' business acquired in the Merger, bank debt
incurred in connection with the Merger, and the obligations of UPC that arise
later. The assumptions and projections on which the estimates below are based
are subject to numerous risks and uncertainties, and actual values and recovery
may differ from these estimates. For a description of certain of these risks,
see " Section XII Certain Risk Factors to be Considered."
Class Description Treatment Under the Plan
Class 1 - Priority Non-Tax Claims Unimpaired
Estimated Allowed Amount: Pursuant to section 1124 of the Bankruptcy
Approximately $10,000 Code, all of the legal, equitable and
contractual rights of a holder of an
Allowed Priority Non-Tax Claim shall be
fully reinstated and retained as though
the Chapter 11 Case had never been filed.
Estimated Recovery: 100%
Class 2 - Infinity Secured Impaired
Estimated Allowed On the Effective Date the holder of the
Amount: $7,300,000 Infinity Secured Claim shall receive
70,000 shares of New UPC Preferred Stock,
in full satisfaction and release of the
Infinity Secured Claim.
Class 3 - Secured Claims Unimpaired
Estimated Allowed Amount: Pursuant to section 1124 of the Bankruptcy
Approximately $908,045 Code, all of the legal, equitable and
contractual rights of a holder of a
Secured Claim (other than an Infinity
Secured Claim) shall be fully reinstated
and retained as though the Chapter 11 Case
had never been filed.
Estimated Recovery: 100%
Class 4 General Unsecured Claims Unimpaired
Estimated Allowed Amount: Pursuant to section 1124 of the Bankruptcy
Approximately $250,000 Code, all of the legal, equitable and
contractual rights of a holder of an
Allowed General Unsecured Claim shall be
fully reinstated and retained as though
the Chapter 11 Case had never been filed.
Estimated Recovery: 100%
Class 5 - Debenture Claims Impaired
Estimated Allowed Amount: On account of and in full satisfaction of
Approximately $7,500,000 its Allowed Debenture Claim, the holder of
such a claim shall receive its Pro Rata
Share of 1,750,000 shares (35%) of New UPC
Common Stock.
Estimated Recovery: 87.9%
(based upon the valuation of the New UPC
Common Stock provided by F.S. Management,
see "Valuation of New UPC Common Stock")
Class 6 Preferred Equity Interests Impaired
Estimated Allowed Amount: On account of and in full satisfaction of
Approximately $13,800,000 its Allowed Preferred Equity Interest, the
holder of such an interest shall receive
its Pro Rata Share of 650,000 shares (13%)
of New UPC Common Stock.
Estimated Recovery: 17.3%
(based upon the valuation of the New UPC
Common Stock provided by F.S. Management,
see "Valuation of New UPC Common Stock")
Class 7 Common Equity Interests Impaired
Estimated Allowed Amount: On account of and in full satisfaction of
Approximately 30,565,352 Shares its Allowed Common Equity Interest, the
holder of such an interest shall receive
its Pro Rata Share of (i) 200,000 shares
(4%) of New UPC Common Stock, and (ii) 1/2
of any assets remaining in the UPC Trust
after all distributions have been made
under the Plan in respect of all
Securities Claims.
Estimated Value of Recovery: $754,000
(based upon the valuation of the New UPC
Common Stock provided by F.S. Management,
see "Valuation of New UPC Common Stock"),
plus 1/2 of remaining assets initially
contributed to UPC Trust
Class 8 UPC Securities Claims All UPC Securities Claims will be liqui-
Estimated Allowed Amount: dated pursuant to the ADR (annexed as
Zero Appendix I to the Plan) together with the
Infinity Securities. Each holder of an
allowed UPC Securities Claim shall
receive, on account of and in full
satisfaction and release of such
Securities Claim, a Distribution from the
UPC Trust, as provided for by the UPC
Trust Agreement and the ADR.
COMPROMISE AND SETTLEMENT WITH INFINITY PARTIES
The Plan is the result of protracted negotiations between the Debtor
and the Infinity Parties, which commenced approximately one year ago when the
Debtor encountered a working capital short fall and sought additional financing
from various sources, including Infinity. After reviewing the Debtor's financial
conditions and operations, Infinity concluded that it would only be willing to
provide the requested financing in conjunction with an overall restructuring of
the Debtor's capital and a final resolution of various contingent matters.
Without the loans made by Infinity in the approximate amount of $7.0 million in
contemplation of the Debtor's reorganization and the substantial concessions
being made by the Infinity Parties under the Plan, the Debtor would have been
unlikely to maintain its operations or to reorganize and would most likely be
forced to liquidate its assets - presumably for the sole benefit of the Infinity
Parties. See "Confirmation of the Plan - Requirements for Confirmation of the
Plan; Application of Section 1129(a)(7) of the Bankruptcy Code."
In addition to being the Debtor's largest unsecured creditor and holder
of preferred stock, the Infinity Parties hold mature claims secured by
substantially all of the Debtor's assets in the approximate amount of $7.3
million. Instead of exercising its right to foreclose on the Debtor's assets,
which would most likely result in there being no recovery to unsecured creditors
and Interest holders, the Infinity Parties have agreed, among other things, to
convert their entire secured claim of $7.3 million into equity, to allow for the
payment in full of allowed General Unsecured Claims, to allow for the
distribution of 4.0% of the equity of the reorganized Debtor to existing common
stockholders, to share pro rata approximately 35% of the equity of the
reorganized Debtor with existing holders of Debentures, to share pro rata
approximately 13% of the equity of the reorganized Debtor with existing holders
of Preferred Stock, to release any and all claims or causes of action that the
Infinity Parties may hold against the Debtor, and to contribute 200,000 shares
(4.0% of the equity in the reorganized Debtor) to the UPC Trust for liquidation
and payment of Securities Claims. See "The Plan - Compromise and Settlement
Between and Among the Debtor, the Infinity Parties and the UPC Trust" and
"Comparison of Rights in Securities to be Issued Under the Plan to Rights Held
in Prepetition Securities."
Among other things and as more fully disclosed in the Disclosure
Statement and the Plan, in consideration of the concessions made by the Infinity
Parties and to ensure the feasibility of the Debtor's reorganization, the Plan
provides for (i) the mutual release and compromise of any and all claims or
causes of action against one another by the Debtor, the Infinity Parties, and
their respective officers, directors, employees and agents and (ii) the
establishment of the UPC Trust and channeling injunction for the liquidation and
payment of all Securities Claims.
Infinity has been actively involved in the Debtor's efforts to
reorganize for several months. The Debtor initially intended to accomplish its
reorganization through a prepackaged bankruptcy. In that regard, the Infinity
Parties' involvement included, among other things initially drafting the
Debtor's Plan, Disclosure Statement, the ADR procedures and certain other
documents, in consultation with the Debtor's management and its professional
advisors at that time. In August, 1998, in connection with the refinancing of
the Debtor's secured debt, Infinity's counsel, White & Case LLP, was paid
$300,000 by the Debtor for legal fees incurred in connection with restructuring
the loans and for drafting the Plan, Disclosure Statement and other documents.
As the major stakeholder in this case, Infinity, through its counsel
has continued to be actively involved since the Petition Date in the Debtor's
efforts to successfully complete this chapter 11 case including, without
limitation, conducting due diligence with respect to the proposed merger
transaction, being actively involved in the negotiations and drafting of the
Merger Agreement and is actively involved in efforts to obtain the financing
necessary to close under the Merger Agreement.
SECURITIES CLAIMS AND THE UPC TRUST
All UPC Securities Claims and Infinity Securities Claims (as defined in
the Plan, Securities Claims include all non-derivative claims arising in
connection with the purchase, sale, exchange or issuance of a UPC security,
including without limitation, claims asserted in the Pisacreta/Tucci Action (but
only to the extent such Claims are not derivative claims) described under
"General Information-Legal Proceedings") will be settled and liquidated pursuant
to an alternative dispute resolution procedure (the "ADR," a true and correct
copy of which is attached to the Plan as Appendix II) and satisfied from the UPC
Trust, which is being funded by Infinity and the Debtor for the purpose of
paying Securities Claims.
Under the Plan, the UPC Trust shall assume full responsibility for the
liquidation and satisfaction of all Securities Claims. In particular, the
trustee of the UPC Trust (the "UPC Trustee"), whose appointment and terms of
compensation are subject to Bankruptcy Court approval, shall establish a
Securities Claims Resolution Facility that incorporates and adopts the ADR, for
the efficient and expeditious settlement and liquidation of all Securities
Claims.
The UPC Trust will be funded initially with, among other things,
200,000 shares of New UPC Common Stock, to be transferred by Infinity, and all
of the Debtor's causes of action for contribution or indemnity against any party
in connection with the Securities Claims other than the Infinity Parties, such
causes of action to be prosecuted by the UPC Trustee. See "The Plan -- Means for
Implementation of the Plan; Establishment and Funding of the UPC Trust."
Based on the Debtor's current assessment of the aggregate amount of all
Securities Claims and the value of the assets to be initially contributed to the
UPC Trust, the Debtor believes that the UPC Trust will be sufficiently funded to
pay all Allowed Securities Claims in full. In that regard, the Debtor believes
that the claims asserted in the Pisacreta/Tucci Action seek relief that is
derivative in nature, that belong to the Debtor's chapter 11 estate and that are
among the claims being resolved pursuant to the Settlement between the Debtor
and the Infinity Parties contained in Article XIV of the Plan. Such contention
is disputed by the plaintiff in the Pisacreta/Tucci Action. Any excess assets
from those initially contributed, pursuant to Sections 7.2 and 7.3 of the Plan,
held by the UPC Trust after satisfaction of all Securities Claims and related
expenses shall be allocated and distributed 50% to Infinity or its affiliates
and 50% to holders of currently issued and outstanding shares of Common Stock.
In order to give effect to the UPC Trust and make possible the
contribution of 200,000 shares of New UPC Stock by Infinity, upon confirmation
of the Plan and for so long as assets remain in the UPC Trust, any person who
has been, is, or may be a holder of a Securities Claim shall be enjoined from
taking any action against or affecting the Debtor or the Infinity Parties or
their respective assets and property with respect to such Securities Claim. In
the event that the assets of the UPC Trust are exhausted and there exists
additional unpaid Allowed Securities Claims or additional Securities Claims that
have not been resolved, then the channeling injunction will terminate as to the
Infinity Parties unless the Infinity Parties contribute additional funds to the
UPC Trust to enable the UPC Trustee to continue to perform their duties and pay
all Allowed Securities Claims in full.
Merger with Farm Stores
The centerpiece of the Plan is the Debtor's proposed merger ("Merger")
with a Florida based chain of walk-in convenience stores and Drive-thru
specialty retail stores operating under the tradename Farm Stores(R). The Debtor
has entered into a letter of intent and intends to execute that certain
agreement and plan of merger substantially in the form attached to the Plan as
Annex I (the "Merger Agreement") with F.S. Convenience Stores, Inc. ("FSCI").
Prior to consummation of the Merger Agreement, the assets of FSCI shall include
(a) a chain of 65 Farm Stores(R) walk-in convenience stores that sell gasoline
and 23 walk-in convenience stores that do not sell gasoline, (b) 10% of the
stock of Farm Stores Grocery, Inc., a Delaware corporation ("FSG") that will own
or lease a chain of 108 specialty grocery drive-through stores, and (c) a
royalty free license to use the Farm Stores(R) name and related trademarks.
Pursuant to the Merger Agreement, FSCI will merge with and into a newly
formed subsidiary of the Debtor ("UPC Merger Sub"). Upon consummation of the
Merger, (a) the former shareholder of FSCI (the "Farm Stores' Shareholder") will
receive 48% of the New UPC Common Stock, 50% of the New UPC Preferred Stock and
$3 Million; (ii) UPC Merger Sub and FSCI will borrow (either directly or by
assumption of debt incurred by FSCI in connection with the transaction) up to
$23 million ("Merger Financing"), secured by the Farm Stores(R) walk-in
convenience stores; (iii) FSCI will use some of the proceeds of the Merger
Financing to perform under an agreement to purchase for $17 million (x) all of
the interests not already held by FSCI in the Farm Stores(R) walk-in convenience
stores that sell gasoline (such that FSCI will own or lease 100% of Farm
Stores(R) walk-in convenience stores that sell gasoline); (y) 100% of 23 Farm
Stores(R) walk-in convenience stores that do not presently sell gasoline; and
(z) a 10% of the equity of Farm Stores Grocery, Inc. ("FSG"), a corporation
recently formed to own and operate 108 Farm Stores Express(R) drive-through
specialty grocery stores; (iv) UPC Merger Sub will license the Farm Stores(R)
name for use in connection with its walk in convenience stores from FSG, and (v)
UPC Merger Sub and FSG will enter into a Management Agreement, providing for UPC
Merger Sub to provide general, administrative, and management services to FSG
and for FSG to pay management fees to UPC Merger Sub therefor<F1>. Additionally,
during the first year, after the Merger, UPC Merger Sub may acquire up to an
additional 15% of the equity of FSG at the fixed amount of $1 million per 2%.
- ---------------------
<F1> Alternatively, management services may be provided through a separate
entity or other means. None of these alternatives will materially effect
the economics of the management agreement.
I. INTRODUCTION
United Petroleum Corporation (referred to herein alternatively as the
"Debtor" or "UPC"), the debtor and debtor in possession in the above-referenced
chapter 11 case (the "Chapter 11 Case"), submits this Second Amended Disclosure
Statement Pursuant to Section 1125 of the United States Bankruptcy Code with
Respect to the Second Amended Plan of Reorganization Under Chapter 11 of the
United States Bankruptcy Code for United Petroleum Corporation (the "Disclosure
Statement"). This Disclosure Statement is to be used in connection with the
solicitation of acceptances of the Second Amended Plan of Reorganization Under
Chapter 11 of the United States Bankruptcy Code for United Petroleum
Corporation, dated July 23, 1999 (the "Plan"), filed by the Debtor with the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). A copy of the Plan is attached hereto as Exhibit "A." UNLESS OTHERWISE
DEFINED HEREIN, TERMS USED HEREIN HAVE THE MEANING ASCRIBED THERETO IN THE PLAN
(SEE ARTICLE 1 OF THE PLAN ENTITLED "DEFINITIONS AND INTERPRETATIONS").
II. NOTICE TO HOLDERS OF CLAIMS AND EQUITY INTERESTS
The purpose of this Disclosure Statement is to enable you, as a
creditor whose Claim is impaired under the Plan or as a stockholder whose Equity
Interest is impaired under the Plan, to make an informed decision in exercising
your right to accept or reject the Plan. See "Confirmation of the Plan --
Solicitation of Votes; Parties Entitled to Vote" and "Definition of Impairment."
THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT INFORMATION THAT MAY BEAR
UPON YOUR DECISION TO ACCEPT OR REJECT THE PLAN PROPOSED BY THE DEBTOR. PLEASE
READ THIS DOCUMENT WITH CARE.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN.
On July 23, 1999, after notice and a hearing, the Bankruptcy Court
entered an order pursuant to section 1125 of the United States Bankruptcy Code,
11 U.S.C. ss. 101, et seq. (the "Bankruptcy Code"), approving this Disclosure
Statement (the "Disclosure Statement Order") as containing information of a
kind, in sufficient detail, and adequate to enable a hypothetical, reasonable
investor typical of the solicited classes of Claims against and Equity Interests
of the Debtor to make an informed judgment with respect to the acceptance or
rejection of the Plan (a true and correct copy of the Disclosure Statement Order
is attached hereto as Exhibit "B," and should be referred to for details
regarding the procedures for the solicitation of votes on the Plan).
APPROVAL OF THIS DISCLOSURE STATEMENT BY THE BANKRUPTCY COURT DOES NOT
CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT OF THE FAIRNESS OR MERITS OF
THE PLAN OR OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT.
Each holder of a Claim or Equity Interest entitled to vote to accept or
reject the Plan should read this Disclosure Statement and the Plan in their
entirety before voting. No solicitation of votes to accept or reject the Plan
may be made except pursuant to this Disclosure Statement and section 1125 of the
Bankruptcy code. Except for the Debtor and its professionals, no person has been
authorized to use or promulgate any information concerning the Debtor, its
businesses, or the Plan other than the information contained in this Disclosure
Statement. You should not rely on any information relating to the Debtor, its
businesses, and the Plan other than that contained in this Disclosure Statement
and the Plan and the exhibits hereto and thereto.
After carefully reviewing this Disclosure Statement, including the
attached exhibits, please indicate your acceptance or rejection of the Plan by
voting in favor of or against the Plan on the enclosed ballot and return the
same to the address set forth on the ballot, in the enclosed return envelope so
that it will be actually received by the Debtor's tabulation agent, Logan &
Company, Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030 no
later than 4:00 p.m., Prevailing Eastern Time, on August, 20, 1999.
You may be bound by the Plan if it is accepted by the requisite holders
of Claims or Equity Interests, even if you do not vote to accept the Plan. See
"Confirmation of the Plan -- Solicitation of Votes; Vote Required for Class
Acceptance," "-- Requirements for Confirmation of the Plan," and "--
Confirmation Without Acceptance of All Impaired Classes."
TO BE SURE YOUR BALLOT IS COUNTED, YOUR BALLOT MUST BE ACTUALLY
RECEIVED NO LATER THAN 4:00 P.M., PREVAILING EASTERN TIME, ON August 20, 1999.
For a general description of the voting instructions and the name, address and
phone number of the person you may contact if you have questions regarding the
voting procedures, see "Confirmation of the Plan -- Solicitation of Votes."
Pursuant to section 1128 of the Bankruptcy Code, the Bankruptcy Court
has scheduled a hearing to consider confirmation of the Plan (the "Confirmation
Hearing") on August 24, 1999, at 3:00 p.m., Prevailing Eastern Time, in the
United States Bankruptcy Court, District of Delaware. The Bankruptcy Court has
directed that objections, if any, to confirmation of the Plan be filed and
served on or before 4:00 p.m. on August 20, 1999, in the manner described under
the caption, "Confirmation of the Plan -- Confirmation Hearing."
III. EXPLANATION OF CHAPTER 11
A. Overview of Chapter 11
Chapter 11 is the principal reorganization chapter of the Bankruptcy
Code. Pursuant to chapter 11, the debtor in possession attempts to reorganize
its business for the benefit of the debtor, its creditors, its stockholders, and
other parties in interest. The present chapter 11 Case commenced with the filing
by the Debtor of a voluntary petition for protection under chapter 11 of the
Bankruptcy Code on January 14, 1999. The Chapter 11 Case has been assigned Case
No. 99-88(PJW) by the clerk of the Bankruptcy Court.
The commencement of a chapter 11 Case creates an estate comprising all
the legal and equitable interests of the debtor in property as of the date the
petition is filed. Sections 1101, 1107, and 1108 of the Bankruptcy Code provide
that a debtor may continue to operate its business and remain in possession of
its property as a "debtor in possession" unless the bankruptcy court orders the
appointment of a trustee. In the present Chapter 11 Case, the Debtor has
remained in possession of its property and continues to operate its businesses,
as a debtor in possession. See "The Chapter 11 Case -- Commencement of the
Chapter 11 Case."
The filing of a chapter 11 petition also triggers the automatic stay
provisions of the Bankruptcy Code. Section 362 of the Bankruptcy Code provides,
among other things, for an automatic stay of all attempts to collect prepetition
claims from the debtor or otherwise interfere with its property or business.
Except as otherwise ordered by the bankruptcy court, the automatic stay remains
in full force and effect until the effective date of a confirmed plan of
reorganization.
The formulation of a plan of reorganization is the principal purpose of
a chapter 11 Case. The plan sets forth the means for satisfying the holders of
claims against and interests in the debtor. Unless a trustee is appointed, only
the debtor may file a plan during the first 120 days of a chapter 11 Case (the
"Exclusive Period"). However, section 1121(d) of the Bankruptcy Code permits the
court to extend or reduce the Exclusive Period upon a showing of "cause." After
the Exclusive Period has expired, a creditor or any other party in interest may
file a plan, unless the debtor has filed a plan within the Exclusive Period, in
which case, the debtor is given 60 additional days (the "Solicitation Period")
during which it may solicit acceptances of its plan. The Solicitation Period may
also be extended or reduced by the court upon a showing of "cause."
B. Plan of Reorganization
Although referred to as a plan of reorganization, a plan may provide
anything from a complex restructuring of a debtor's business and its related
obligations to a simple liquidation of the debtor's assets. In either event,
upon confirmation of the plan, it becomes binding on the debtor and all of its
creditors and equity holders, and the obligations owed by the debtor to such
parties are compromised and exchanged for the obligations specified in the plan.
In the present Chapter 11 Case, the Plan, as proposed by the Debtor, provides
for the continuance of the Debtor as a separate corporate entity in essentially
its current form, with all of the existing Equity Interests in the Debtor being
canceled, and new common stock being issued to the holders of certain Allowed
Claims and Interests. See "The Plan -- Classification and Treatment of Claims
and Interests." The Plan contemplates that the recoveries of creditors will be
based on the Debtor's going concern value (which will provide recoveries
substantially in excess of liquidation recoveries), and that the Debtor's
business will be continued as a viable business enterprise. See "Valuation of
the New UPC Common Stock."
After a plan of reorganization has been filed, the holders of claims
against and interests in a debtor are permitted to vote to accept or reject the
plan. Before soliciting acceptances of the proposed plan, section 1125 of the
Bankruptcy Code requires the debtor to prepare a disclosure statement containing
adequate information of a kind, and in sufficient detail, to enable a
hypothetical reasonable investor to make an informed judgment about the plan.
This Disclosure Statement is presented to holders of Claims against and Equity
Interests in the Debtor to satisfy the requirements of section 1125 of the
Bankruptcy Code in connection with the Debtor's solicitation of votes on the
Plan.
If all classes of claims and equity interests accept a plan of
reorganization, the bankruptcy court may confirm the plan if the court
independently determines that the requirements of section 1129 of the Bankruptcy
Code have been satisfied. See "Confirmation of the Plan -- Requirements for
Confirmation of the Plan." Section 1129 sets forth the requirements for
confirmation of a plan and, among other things, requires that a plan meet the
"best interests" of creditors test and be "feasible." The "best interests" test
generally requires that the value of the consideration to be distributed to the
holders of claims or equity interests under a plan may not be less than those
parties would receive if the debtor were liquidated pursuant to a hypothetical
liquidation occurring under chapter 7 of the Bankruptcy Code. Under the
"feasibility" requirement, the court generally must find that there is a
reasonable probability that the debtor will be able to meet its obligations
under its plan without the need for further financial reorganization. The Debtor
believes that the Plan satisfies all the applicable requirements of section
1129(a) of the Bankruptcy Code, including, in particular, the best interests of
creditors test and the feasibility requirement.
Chapter 11 does not require that each holder of a claim or interest in
a particular class vote in favor of a plan of reorganization in order for the
bankruptcy court to determine that the class has accepted the plan. See
"Confirmation of the Plan -- Solicitation of Votes; Vote Required For Class
Acceptance." Rather, a class of claims will be determined to have accepted the
plan if the court determines that the plan has been accepted by a majority in
number and two-thirds in amount of those claims actually voting in such class.
Similarly, a class of equity interests (equity securities) will have accepted
the plan if the court determines that the plan has been accepted by holders of
two-thirds of the number of shares actually voting in such class. In the present
case, only the holders of Claims or Equity Interests who actually vote will be
counted as either accepting or rejecting the Plan.
In addition, classes of claims or equity interests that are not
"impaired" under a plan of reorganization are conclusively presumed to have
accepted the plan and thus are not entitled to vote. See "Confirmation of the
Plan -- Solicitation of Votes; Definition of Impairment" and "Classes Impaired
Under the Plan." Accordingly, acceptances of a plan will generally be solicited
only from those persons who hold claims or equity interests in an impaired
class. A class is "impaired" if the legal, equitable, or contractual rights
associated with the claims or equity interests of that class are modified in any
way under the plan. Modification for purposes of determining impairment,
however, does not include curing defaults and reinstating maturity or payment in
full in cash on the effective date of the plan. Except for Classes 1, 3 and 4,
all classes of Claims and Equity Interests are impaired under the Plan, and thus
entitled to vote on the Plan.
The bankruptcy court may also confirm a plan of reorganization even
though fewer than all the classes of impaired claims and equity interests accept
it. For a plan of reorganization to be confirmed despite its rejection by a
class of impaired claims or equity interests, the proponent of the plan must
show, among other things, that the plan does not "discriminate unfairly" and
that the plan is "fair and equitable" with respect to each impaired class of
claims or equity interests that has not accepted the plan.
See "Confirmation of the Plan -- Cramdown."
Under section 1129(b) of the Bankruptcy Code, a plan is "fair and
equitable" as to a rejecting class of claims or equity interests if, among other
things, the plan provides: (a) with respect to secured claims, that each such
holder will receive or retain on account of its claim property that has a value,
as of the effective date of the plan, equal to the allowed amount of such claim;
and (b) with respect to unsecured claims and equity interests, that the holder
of any claim or equity interest that is junior to the claims or equity interests
of such class will not receive or retain on account of such junior claim or
equity interest any property at all unless the senior class is paid in full.
A plan does not "discriminate unfairly" against a rejecting class of
claims or equity interests if (a) the relative value of the recovery of such
class under the plan does not differ materially from that of any class (or
classes) of similarly situated claims or equity interests, and (b) no senior
class of claims or equity interests is to receive more than 100% of the amount
of the claims or equity interests in such class.
The Plan has been structured so that it will satisfy the foregoing
requirements as to any rejecting class of Claims or Equity Interests, and can
therefore be confirmed, if necessary, over the objection of any classes of
Claims or Equity Interests.
IV. SUMMARY OF THE PLAN
The following summary is intended only to highlight information
contained elsewhere in this Disclosure Statement. This summary is qualified in
its entirety by the more detailed information, the financial statements,
including the notes thereto, the projections of certain financial data and the
assumptions thereto, the pro forma information appearing elsewhere in this
Disclosure Statement, the Appendices hereto, and the other documents referenced
herein.
The centerpiece of the Plan, as discussed throughout this Disclosure
Statement, is the Merger of the business conducted under the Farm Stores(R)
tradename with and into the Debtor's business. The following table sets forth
the current holdings of each of the impaired Classes and the consideration they
will receive under the Plan (including the New UPC Preferred Stock), as well as
the current principal and interest of the outstanding debt and liquidation
preference and dividend arrearage of the preferred stock of the Debtor (unless
otherwise stated, the indicated percentage ownership is computed after the
consummation of the Merger):
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ---------------------------------- ------------------
Other
Principal and New UPC Common Stock Ownership Consideration
Interest Outstanding Post-Restructuring (2) In the
Before Restructuring (1) Restructuring
- ------------------------------------------------------------- ---------------------------------- ------------------
Restructuring Participant
Principal Interest Shares Percentage
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Debt Holders
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
Infinity Secured Claim $7,000,000 $300,000 --------- --------- 70,000 New UPC
Preferred
Share(3)
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
6% Debentures $1,324,696 --------- 359,483 7.19
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
7% Debentures $3,549,120 --------- 963,126 19.26
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
18% Debentures $1,575,000 --------- 227,408(4) 4.55(4)
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
Equity holders
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
Series A Preferred Stock -------- -------- 552,212 11.04
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
Series B Preferred Stock -------- -------- 97,788 1.96
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
Common Stock holders -------- -------- 200,000(5) 4.00(5)
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
UPC Trust -------- -------- 200,000(4) 4.00(4)
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
FSCI Shareholder -------- -------- 2,400,000 48.00 70,000 New UPC
Preferred Shares
(3)(6)
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
Total 100% 5,000,000 100.00%
- ------------------------------ ----------------- ------------ --------------- ------------------ ------------------
(1) Assumes no conversion of Debentures or shares of Preferred Stock after the
Petition Date.
(2) After giving effect to the Merger
(3) Each share of New UPC Preferred Stock carries a liquidation preference in
the amount of $100.
(4) The distribution on account of the 18% Debentures excludes 200,000 shares
of New UPC Common Stock to be transferred to the New UPC Trust by Infinity
or its affiliates.
(5) The Common Stock holders and Infinity (or its affiliates) shall each be
eligible to receive 50% of the shares remaining in the UPC Trust after all
claims against the UPC Trust are satisfied in full and all expenses of the
UPC Trust are paid. See "The Plan -- Classification and Treatment of Claims
and Interests, and -- Creation of UPC Trust and Appointment of Trustee."
(6) The FSCI Shareholder receives all of its New UPC Common Stock and New UPC
Preferred Stock as consideration in the Merger.
</TABLE>
<PAGE>
1. Summary of the Terms of the Plan.
As set forth in this Disclosure Statement and in the accompanying
materials, the Plan provides for the following (in each case after giving effect
to the Merger):
(a) Conversion of Common Stock. The currently issued and
outstanding shares of Common Stock shall be exchanged for 200,000
shares of New UPC Common Stock, representing 4% of the shares of New
UPC Common Stock to be issued and outstanding upon effectiveness of the
Plan. See "Risk Factors to be Considered -- Risks Particular to the
Holders of Common Stock." Directors and executive officers of UPC own
5,433,762 shares of Common Stock, or approximately 17.8% (including
options to purchase 2,466,668 shares of Common Stock).
(b) Conversion of A-Note. The A-Note, which represents
$4,200,000 principal amount of indebtedness, shall be converted into
42,000 shares of New UPC Preferred Stock. The A-Note is secured by a
first lien on substantially all assets of the Debtor, Calibur and
Jackson, is guaranteed by Michael F. Thomas, UPC's President, has a
liquidation preference over all equity securities and unsecured debt
obligations, and is pari passu with the B-Note. The New UPC Preferred
Stock will be subordinate to all debts of the Debtor, as reorganized.
Each share of New UPC Preferred Stock carries a dividend rate of
approximately 9%. Such dividends will be cumulative and payable in
cash, or at UPC's option, in additional shares of New UPC Preferred
Stock. In addition, each share of New UPC Preferred Stock will have a
liquidation preference over the New UPC Common in the amount of $100
(plus cumulative unpaid dividends thereon), payable out of net proceeds
(after payments to all creditors) from any sale of the Debtor's assets.
Infinity is the holder of the A-Note. See "Risk Factors -- Risks
Particular to Holders of the A-Note."
(c) Conversion of B-Note. The B-Note, which represents
$2,800,000 principal amount of indebtedness, shall be converted into
28,000 shares of New UPC Preferred Stock. The B-Note is currently
secured by all of the same assets as the A-Note, is pari passu with the
A-Note, and has a liquidation preference over all equity securities and
unsecured debt obligations. Infinity is the holder of the B-Note. The
New UPC Preferred Stock issued in exchange for the B-Note will have the
same terms as the New UPC Preferred Stock issued in exchange for the
A-Note. See "Risk Factors to be Considered -- Risks Particular to
Holders of the B-Note."
(d) Conversion of Debentures. The principal amount of
Debentures, together with accrued and unpaid interest, of approximately
$6,448,816 and $1,049,694, respectively, at the Petition Date, shall be
converted into an aggregate of 1,750,000 shares of New UPC Common
Stock, representing approximately 35% of the shares of New UPC Common
Stock to be issued and outstanding upon effectiveness of the Plan.
Infinity, Seacrest and Fairway own approximately $1,175,000 aggregate
principal amount (88.7%) of the 6% Debentures, approximately $3,046,000
aggregate principal amount (85.8%) of the 7% Debentures, and 100% of
the 18% Debentures as of the Petition Date. The Debentures are
unsecured obligations of UPC, junior in right of payment and on
liquidation to the secured indebtedness of UPC and its subsidiaries,
and senior to the Preferred Stock and the Common Stock. See "Risk
Factors -- Risks Particular to Holders of Debentures." The expected
amount of principal and accrued interest due for each class of
Debenture at August 31, 1999, is presented below along with the number
of shares of New UPC Common Stock to be received per $1,000 of
principal and accrued interest and as a percentage of New UPC Common
Stock:
<PAGE>
<TABLE>
<CAPTION>
Class of Debentures
6% 7% 18% All
<S> <C> <C> <C> <C>
Principal Amount $1,324,696 $3,549,120 $1,575,000 $6,448,816
As of 1/14/99 Accrued Interest 97,070 532,507 420,117 1,049,694
---------- ---------- ----------- ----------
Total $1,421,766 $4,081,627 $1,995,117 $7,498,510
Number of shares of New UPC
Common Stock 359,483 963,126 427,408 1,750,000
Percent of fully diluted New
UPC Common Stock 7.19% 19.26% 4.55% 35.00%
</TABLE>
(e) Conversion of Preferred Stock. Each share of Preferred
Stock shall be converted into approximately 55.34 shares of New UPC
Common Stock. In the aggregate, the Preferred Stock shall convert into
649,400 shares, representing 13%, of the New UPC Common Stock to be
issued and outstanding upon effectiveness of the Plan. Infinity,
Seacrest and Fairway own in the aggregate 7,918 shares (approximately
79.9%) of the Class A Preferred Stock, and no shares of the Class B
Preferred Stock, as of the Petition Date. The Preferred Stock is junior
in right of payment and on liquidation to the indebtedness of UPC and
its subsidiaries, and senior to the Common Stock. As of the Petition
Date, there was $9,912,000 in liquidation preference of the Class A
Preferred Stock and $1,833,000 in liquidation preference of the Class B
Preferred Stock. See "Risk Factors to be Considered -- Risks Particular
to Holders of Preferred Stock."
(f) Change in Composition of Board of Directors. The Plan
effectuates a change in the composition of the Board of Directors such
that the five members of the Board of Directors shall initially be
comprised of two designees of the current holders of Farm Stores,
consisting of Joe Bared and Carlos Bared, and two designees of the
holders of the Debentures, consisting of Messrs. Clark K. Hunt, and
Stuart J. Chasanoff and one independent member to be selected by the
foregoing members of the Board.
(g) Changes in the Certificate of Incorporation. UPC's charter
shall be amended to the extent necessary to implement the Plan, to
prohibit the issuance of nonvoting equity securities by UPC as required
by section 1123(a)(6) of the Bankruptcy Code, to opt out of Section 203
of the Delaware Generation Corporation Law ("Business Combinations with
Interested Stockholders"), and to restrict certain transfers of New UPC
Common Stock.
(h) Channeling of Securities Claims/Contribution of Shares to
the UPC Trust. All Securities Claims against UPC and the Infinity
Parties (e.g., claims arising in connection with the purchase, sale,
exchange or issuance of a UPC security, including without limitation,
claims asserted in the Pisacreta/Tucci Action described under "General
Information -- Legal Proceedings -- Pisacreta/Tucci", but only to the
extent such claims are not derivative claims) shall be enjoined and
channeled to a trust (the "UPC Trust") to be established pursuant to
the Plan and funded with, among other things, 200,000 shares of New UPC
Common Stock to be transferred by Infinity to the UPC Trust. The
channeling injunction and the UPC Trust shall terminate and holders of
Securities Claims that have been timely asserted shall be permitted to
assert such claims directly against the Infinity Parties if the UPC
Trustee notifies the Infinity Parties that the UPC Trust assets have
been expended and that additional Allowed Securities Claims exist or
that all Securities Claims have not yet been resolved and the Infinity
Parties fail to provide sufficient additional funds to the UPC Trust
within thirty (30) days of such notice. Any excess assets held by the
UPC Trust after satisfaction of all Securities Claims and related
expenses shall be allocated and distributed 50% to Infinity or its
affiliates and 50% to holders of currently issued and outstanding
shares of Common Stock. A putative class action lawsuit has been filed
by two Purchasers of the Debtor's common Stock, purportedly on behalf
of all stockholders who purchased shares of Common Stock during certain
periods in 1996 and 1997, against certain of the Infinity Parties and
certain other holders of the Debentures. The plaintiff alleges that the
defendants, in acquiring and disposing of Debentures, violated certain
provisions of the securities laws of the United States. The plaintiff
also alleges that the defendants breached a contract between the
defendants and the Debtor. Certain of the Infinity Parties have sued
the Debtor and asserted claims against the Debtor in such actions,
including, without limitation, claims for contribution and indemnity.
The Debtor believes that the claims asserted in the Pisacreta/Tucci
Action seek relief that is derivative in nature and that such claims
belong to the Debtor and may only be prosecuted or settled by the
Debtor. See "General Information -- Legal Proceedings --
Pisacreta/Tucci." In that regard, the Debtor has agreed to settle all
of its claims (including any derivative claims) against the Infinity
Parties on the terms set forth in the Plan. See "the Plan -- Compromise
and Settlement Between and Among the Debtor, the Infinity Parties and
the UPC Trust.)
(i) Termination of Outstanding Options and Warrants. Each
outstanding option, warrant or other right to acquire Common Stock of
the Debtor that is not exercised on or prior to the Effective Date of
the confirmation of the Plan will terminate and expire.
The applicable record date for purposes of determining which holders of
Debtor's outstanding Notes, Debentures, Preferred Stock and Common Stock are
entitled to vote on the Plan is July 22, 1999 (the "Record Date"). It is
important that the holders of Outstanding Notes, Debentures, Preferred Stock and
Common Stock read and carefully consider the matters described in this
Disclosure Statement, including, without limitation, all of the factors set
forth under the heading "Risk Factors to be Considered," and that such holders
respond promptly by returning their ballots to the Ballot Agent so that ballots
are actually received prior to the Voting Deadline.
Subject to limitations contained in the Plan, the Debtor also reserves
the right, in accordance with the Bankruptcy Code and subject to the consent of
the Infinity Parties and FSCI, to amend or modify the Plan at any time prior to
the entry by the Bankruptcy Court of the Confirmation Order. Under the
Bankruptcy Rules, such amendments or modifications may be approved by the
Bankruptcy Court at confirmation without resolicitation of the votes of the
members of any Class whose treatment is not adversely affected by the amendment
or modification. Any amendment or modification which adversely affects a Class
of Claims or Interests will require the resolicitation of votes from the holders
of Claims or Interests of any such affected Class, unless the amendment or
modification results in a Class of Claims or Interests not retaining or
receiving any property, in which case such Class will be deemed not to have
accepted the Plan, as amended or modified. The Plan provides that, in the event
that sufficient acceptances are not received from each Impaired Class, the
Debtor reserves the right to seek confirmation of the Plan over the objection of
such Class and to modify the Plan to provide treatment to the Class or Classes
not accepting the Plan necessary to meet the requirements of sections 1129(a)
and (b) of the Bankruptcy Code with respect to the rejecting Classes and any
other Classes affected by the modification.
2. Changes in Equity Ownership Effected by the Plan.
Implementation of the Plan will substantially change the current equity
ownership of UPC. The following table illustrates the equity ownership of UPC
before the Petition Date and the proposed equity ownership of UPC upon the
occurrence of the Effective Date by each class of debt or equity security that
will receive shares of New UPC Common Stock under the Plan.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ --------------------------------------
Common Stock Ownership New UPC Common Stock
Before Restructuring (1) Ownership Post-Restructuring (2)
- ------------------------------------------------------------------------ --------------------------------------
Restructuring Participant Shares Percentage Shares Percentage
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
6% Debenture holders -------- -------- 359,480 7.19
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
7% Debenture holders -------- -------- 963,116 19.26
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
18% Debenture holders -------- -------- 227,404(3) 4.55
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
Series A Preferred Stock -------- -------- 552,212 10.98
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
Series B Preferred Stock -------- -------- 97,788 2.02
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
Common Stock holders (4) 30,565,352 100% 200,000 4.00
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
UPC Trust -------- -------- 200,000 4.00
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
FSCI Shareholder 2,400,000 48.00
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
Total Shares 30,535,352 100% 5,000,000 100.00%
- -------------------------------------- --------------- ----------------- ---------------- ---------------------
(1) Assumes no conversion of Debentures or shares of Preferred Stock, and
excludes the New UPC Preferred Stock.
(2) After giving effect to the Merger.
(3) Excludes 200,000 shares of New UPC Common Stock to be transferred to the
New UPC Trust by Infinity or its affiliates.
(4) The Common Stock holders and Infinity (or its affiliates) shall each be
eligible to receive 50% of the shares initially contributed to the UPC
Trust that remain after all claims against the UPC Trust are satisfied in
full and all expenses of the UPC Trust are paid. See "The Plan --
Classification and Treatment of Claims and Interests, and -- Creation of
UPC Trust and Appointment of Trustee."
3. Other Significant Provisions in the Plan.
o The centerpiece of the Plan is Debtor's acquisition, by
merger, of the Farm Stores'(R) chain of 65 walk-in
convenience stores that sell gas and its acquisition by
purchase of (i) Farm Stores'(R) chain of 23 walk-in
convenience stores that sell do not presently sell gas
(the chain of 88 walk-in stores that do and do not
presently sell gas is called the "Walk-In Stores", and
(ii) a 10% interest in the Farm Stores' business
consisting of approximately 108 Farm Stores Express(R)
drive-through specialty grocery stores (the "Drive-Thru
Stores"). The Walk-In Stores and Drive-Thru Stores are
located in South and Central Florida and, together with
UPC's existing properties, will be the primary business
of the Debtor post-Merger.
o The Plan provides for a discharge and broad release of
UPC from all claims and causes of action that are held
by holders of Claims against and Equity Interests in
UPC.
o The Plan provides for the exclusion of the Debtor, Farm
Stores(R), and the Infinity Parties from all liability,
except for willful misconduct or gross negligence, for
any act or omission in connection with or arising out
of the solicitation of votes on, or their
administration of, the Plan or the property to be
distributed thereunder.
o The Plan provides for the rejection of all executory
contracts and unexpired leases of UPC, except for those
expressly assumed by UPC with Bankruptcy Court
approval.
o The Plan provides under certain circumstances for the
amendment or modification of the Plan and the right to
withdraw the Plan any time prior to the entry of the
Confirmation Order.
V. GENERAL INFORMATION
A. The Debtor
UPC is a holding company that has two operating subsidiaries: Calibur
and Jackson. Calibur's primary business activities consist of the operation of
retail car wash and automotive related service facilities, and Jackson's primary
business activities consist of the acquisition and development of oil and gas
properties. As of the date of this Disclosure Statement, Calibur operates eight
car wash facilities in Tennessee and Georgia and leases two facilities to an
independent operator in Georgia. Of these facilities, three have on-site
convenience stores that offer a variety of automotive products and snack foods,
beverages and sundries to customers. Four of the facilities sell gasoline,
diesel fuel and/or other petroleum products and five provide express lubrication
services. In addition, Calibur has two free standing express lubrication
locations<F2>. Jackson owns a seventy-five percent (75%) working interest in
sixteen oil and gas wells located in Pennsylvania, which is the subject of a
contract to sell. Jackson also has a mineral lease covering approximately 26,000
acres of real property located in central Kentucky, which Jackson presently
intends to market for sale.
- ---------------
<F2> In June, 1999, a third express lube center located in Knoxville, Tennessee
was sold by Caliber to Pinnacle Sales Company for the sum of $310,000.00.
The Debtor's offices are presently located at 2620 Mineral Springs
Road, Suite A, Knoxville, Tennessee 37917. The Debtor's telephone number is
(423) 688-6204.
B. Cash Collateral
In connection with the issuance of the A-Note and the B-Note, the
Company granted Infinity a security interest in substantially all of the
Company's assets, including, without limitation, all of the Company's cash. As a
result, section 363 of the Bankruptcy Code requires the Debtor to either obtain
Bankruptcy Court approval to use the cash collateral of Infinity or obtain
approval of an agreement with Infinity regarding the use of such cash. Without
access to and the ability to use Infinity's cash collateral, the Debtor could
not, among other things, meet its payroll, pay utility expenses, meet its
overhead, as well as make other payments necessary for its continued operation.
In that regard, on February 25, 1999, the Bankruptcy Court entered its order
(the "Cash Collateral Order") authorizing and approving the Debtor's agreement
with Infinity, under which, among other things, Infinity consented to the
Debtor's use of Infinity's cash collateral during the pendancy of the Chapter 11
Case and Infinity was granted a superpriority administrative expense equal to
the amount of Infinity's cash collateral expended by the Debtor.
C. Farm Stores
Farm Stores, Inc., the predecessor to the F.S. Partnerships, began its
convenience store operations (the "F.S. Business") in the late 1950's with the
opening of its first store in Miami-Dade County and the subsequent acquisition
of a portfolio of stores. Over time, Farm Stores, Inc. developed into a leading
Florida-based chain of stores. In 1990, Farm Stores, Inc.'s then owners
experienced financial difficulties due to a failed leveraged buyout attempt and
a difficult industry-wide operating environment. Later that year, Farm Stores,
Inc. filed a petition for relief under chapter 11 of the Bankruptcy Code. Over
the next two years, the company restructured its business through the shutdown
of approximately 40 underperforming stores and the re-negotiation of many
leases. In September 1992, the current owners, led by Joe Bared ("Bared") and
the Isaias family ("Isaias") purchased assets of Farm Stores, Inc. and brought
it out of bankruptcy. The F.S. Business was organized into three related and
affiliated partnerships, REWJB Investments, REWJB Gas Investments and REWJB
Dairy Plant Associates (collectively, the "F.S. Partnerships"). Each of the F.S.
Partnerships has two partners, one of which is owned by Bared (the "Bared
Corporations") and the other of which is owned by Isaias (the "Isaias
Corporations"). Since acquiring the F.S. Business, the F.S. Partnerships have
solidified their position as independent convenience store operators and
established the Farm Stores(R) trademark as one of the leading brand names in
Florida. The F.S. Partnerships have built a strong operational team and, as
recognized by the Greater Miami Chamber of Commerce, reconfigured the F.S.
Business into a profitable and growing enterprise.
In 1999 Bared and Isaias entered into an agreement (the "Toni Option")
under which the Bared Corporations have the option to purchase 100% of the
equity currently held by the Isaias Corporations in the F.S. Partnerships. Thus,
upon consummation of the Toni Option, Bared would have effective control over
100% of the F.S. Business.
Currently, the F.S. Business consists of 92 Walk-In Stores (including 4
Walk-In Stores that are affected by casualties, that the Reorganized Debtor may
elect to rebuild or return to FSG) and 108 Drive-Thru Stores. All of the Walk-In
and Drive-Thru Stores are located in South and Central Florida. The State of
Florida offers a number of favorable demographic fundamentals that benefit a
strong retail operation. Florida's population, the 11th largest in the nation,
has grown at a compounded annual rate of 1.6% from 1992 to 1996, which is 60%
over the comparable U.S. growth rate. Further, the F.S. Business benefits from
operating efficiencies as stores are largely clustered in key Florida counties,
including Dade Broward, Hillsborough, Highlands, Polk, Palm Beach and Sarasota,
all of which are highly developed markets with significant barriers to entry
under local zoning, concurrency and other laws. Thus, the F.S. Business also
benefits from the relative scarcity of attractive real estate making it
difficult for competitors to gain a foothold.
In October, 1998, the F.S. Business sold the good will of its dairy
business in an arms' length transaction to Velda Farms, Inc. ("Velda"), and
entered into a 10 year supply agreement providing for Velda to supply the F.S.
Business' requirements of milk, ice cream, and certain other products (the
"Velda Agreement"). The F.S. Business believes that the prices provided for in
the Velda Agreement are as favorable as could be obtained from a comparable
vendor. The proceeds of this sale, and the assets of the dairy plant operation,
are excluded from the Merger; however, the reorganized Debtor and FSG will
remain obligated to perform under the Velda Agreement.
D. F.S. Convenience Stores, Inc.
At or before the effective time of the Merger, and upon the
consummation of the Toni Agreement, the reorganized Debtor (i) will be the
successor to the F.S. Partnerships interest in any and all assets associated
with the Walk-In Stores (ii) will hold a 10% equity interest in FSG, a recently
formed corporation which will be the successor to the F.S. Partnerships interest
in any and all assets associated with the Drive-Thru Stores, and (iii) will hold
a royalty-free license to use the "Farm Store" name and all related trademarks
(clauses (i) - (iii) hereinafter collectively referred to as the "FSCI Assets").
E. Walk In Stores
Farm Stores operates 92 Walk-In Stores, including four that are not
currently operating (the "Casualty Stores") due to natural disaster, and which
are currently at different stages of reconstruction. The reorganized Debtor will
have the right to rebuild these Casualty Stores with its own funds, or to return
the Casualty Stores to FSG. The Walk-In Stores include two formats: (i) 23
Walk-In Stores without gasoline operations ("Non-gas Stores"), and (ii) 69
Walk-In Stores with gasoline operations ("Gas Stores"), only 13 of which are
branded. For the year ended August 30, 1998, the Walk-In Stores had revenues of
$116,739,000 and store-level operating income of $4,902,000.
An average of approximately 63,000 merchandise customers visit the
Walk-In Stores per day. The Walk-In Stores are typically located in
free-standing buildings with distinctive and recognizable interior and exterior
designs. The average store size is approximately 2,300 square feet, with a range
of 620 square feet to 3,100 square feet. The Walk-In Stores generally have ample
parking facilities for quick shopping and are located in neighborhood areas, at
major intersections or on main thoroughfares, in shopping centers, or on other
sites where they are highly visible and accessible. Of the 92 Stores, 55 are
open 24 hours while the remaining 37 Stores offer extended hours. Each Store
carries an average of 2,500 to 3,500 SKU's. All Walk-In Stores offer cigarettes,
beer, soft drinks and dairy products. With an operating history dating back to
the 1970's, the Walk-In Stores have established a customer base because they are
well situated, carry a wide variety of merchandise and have a good reputation
for products and service.
Sources of non-food and non-gas income include money orders (all
Walk-In Stores), food stamps (all Walk-In Stores), public pay phones (73 Walk-In
Stores), phone cards (81 Walk-In Stores), lottery tickets (90 Walk-In Stores),
and lotto (91 Walk-In Stores). These services bring in additional income to the
Walk-In Stores and serve to increase customer traffic, impulse buying and store
patronage. The Walk-In Stores have a strong presence as a money order vendor in
Florida. Money orders generate a significant source of income since many of the
Walk-In Stores are located in high demand neighborhoods. The Walk-In Stores have
established a customer base for money orders for both overseas remittance and
traditional domestic uses. If the Debtor were to operate the money order
business as a principal, it could generate higher profits from the Walk-In
Stores on more favorable clearing terms.
Farm Stores currently offers deli services in only 14 Walk-In Stores
and branded fast food in only three Walk-In Stores, as Blimpie franchisees.
Several well-known fast food operators have approached management of the F.S.
Partnerships to open branded outlets at the Walk-In Stores.
Management of the F.S. Partnerships anticipates that the reorganized
Debtor could significantly enhance revenues and profits by expanding fast food,
particularly branded fast food offerings, and selling other higher margin items
in the Walk-In Stores. Currently, only the Gas Stores accept credit cards. The
13 branded Gas Stores accept privately labeled gasoline cards, and none of the
Walk-In Stores accept debit cards. Expanding the Walk-In Stores' payment options
could enhance the Walk-In Stores' competitive position.
The Gas Stores have a particularly high merchandise sales component, at
53%, reflecting the strength of the Gas Stores' inside traffic. Management of
the F.S. Partnerships have not emphasized gasoline operations at the Walk-In
Stores. Only 13 of the Walk-In Stores offer branded gasoline products, and 23 of
the Walk-In Stores do not currently offer gasoline. Only 14 Gas Stores offer
pay-at-the pump services. Many of the Gas Stores have the capacity to add more
pumps and increase these Gas Stores' gasoline revenues. Management of the F.S.
Partnerships believes that upgrading the Gas Stores' gasoline equipment
(pay-at-the-pump) and branding can increase the Gas Stores' profits,
particularly by increasing the volume of premium gasoline sold. In 1998, average
per store gasoline sales at an unbranded fuel store was approximately $700,000,
whereas a branded fuel store had average sales of $2 million. Average annual
fuel gallons were approximately 620,000 per unbranded store and 1.8 million per
branded store. Many of the national gasoline companies have sought to brand the
Walk-In Stores. Branded outlets may also increase customer traffic and generate
higher merchandise revenues.
F. Drive-Thru Stores
The F.S. Partnerships operate 108 Drive-Thru Stores located throughout
South and Central Florida. The Drive-Thru Stores utilize a patented full-service
double drive-through concept that has become well known to consumers in its
markets. While the Drive-Thru Stores differ in many respects from typical
convenience stores, there are some operational similarities. For the year ended
August 30, 1998, the Drive-Thru Stores had revenues of $67.1 million and
store-level operating income of $4.0 million.
Immediately prior to the consummation of the Merger, the operating
assets and liabilities of the Drive-Thru Stores (other than the underlying real
estate) will be contributed to FSG. Among the assets being contributed to FSG is
the ownership of the Farm Stores(R) name and related trademarks, and the patent
for the double-drive through building design. FSG will license the Farm
Stores(R) name and related trademarks to the reorganized Debtor under a
royalty-free license. The equity ownership schedule and the financial
information throughout this Disclosure Statement assume that the above
transaction has been completed.
With 108 stores at present, the F.S. Partnerships are the first and
only large-scale operator of drive-through grocery stores. The use of
drive-through formats to deliver products and services to consumers has
experienced dramatic growth. First popularized by fast food restaurants, the
format has been adopted by banks, dry cleaners, drug stores, ice cream parlors,
fresh coffee shops and video rental stores. The growth of drive-through is a
natural competitive response to consumer preferences for convenience, reduced
transaction times and safety.
Drive-Thru Stores are currently located in 9 counties in southern and
central Florida. The stores are located in free-standing buildings, are situated
at highly visible and accessible sites, on highly traveled thoroughfares,
generally with driveways large enough to permit cueing of at least 10 vehicles.
Of the 108 stores, 48 are open 24 hours while the remaining 60 stores offer
extended hours. Drive-Thru Stores are distinguished by their innovative building
design, the distinct "wing" canopies and the friendly dairy cow logo. Over the
last several years, the F.S. Partnerships have fine-tuned and standardized the
Drive-Thru Store prototype that it will use for all future store expansion. The
prototype design is 756 square feet in size; utilizes a prefabricated building
and custom store fixture package; and incorporates the distinctive winged
canopies and Farm Stores(R) imaging found in all Drive-Thru Stores.
The Drive-Thru Stores seek to offer consumers a convenient, safe and
friendly way to access grocery merchandise staples at value prices. The
Drive-Thru Stores are intended to compete only indirectly with traditional
convenience stores. Rather, Drive-Thru Stores are intended to capture "fill-in"
purchases of grocery staples which consumers require in between trips to the
supermarket. Drive-Thru Stores' target customers are the same individuals within
a household, typically middle- to upper-income parents, who do the household's
grocery shopping at supermarkets. Management of the F.S. Partnerships believe
that it is necessary to compete on convenience, location and service, rather
than price alone. Drive-Thru Stores' merchandising strategy differentiates them
from convenience stores through a variety of means, including drive-through
service; an emphasis on dairy products; its premium Farm Stores(R) branded
products; and its reasonable consumer price points. Convenience stores, in
contrast, have target customers that are overwhelmingly less-affluent males, and
their merchandising and imaging is generally much different than that of
Drive-Thru Stores.
Drive-Thru Stores carry approximately 1500 SKU's, compared with 2,500
to 3,000 SKU's at a typical convenience store and over 40,000 at a modern
supermarket. The Express Store prototype utilizes 756 square feet of space,
while convenience stores are typically 2,000 to 3,000 square feet. Drive-Thru
Stores derive 32% of their revenues from dairy items, compared to 4% for a
typical convenience store.
Drive-Thru Store locations are typically one-third acre in size, and
located on primary roads having two curb cuts and preferably no fixed median.
Drive-Thru Stores are manufactured to specifications and transported by truck to
the site for final improvements. A standard Drive-Thru Store requires $200,000
to $225,000 to develop, including prefabricated building, equipment, site
improvements and beginning inventories. Land, if owned, costs an additional
$200,000 to $250,000. FSG will also seek to remodel its older Drive-Thru Stores,
which generally experience a material increase in sales after remodeling.
G. Directors and Officers
1. Existing Officers and Directors.
The following table sets forth the name, age and position of each
current director and executive officer of the Debtor and amount of Common Equity
Interests of UPC held by each:
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------- --------- ---------------------- -------------------------
Name and Address Age Position Common Equity Interests
- ----------------------------------------- --------- ---------------------- -------------------------
<S> <C> <C> <C>
Michael F. Thomas 46 CEO, President and 4,162,548<F3>
2620 Mineral Springs Road Director 13.6%
Suite A
Knoxville, TN 37917
Dwight S. Thomas 46 Secretary, Treasurer 396,384<F4>
2620 Mineral Springs Road and Director 1.3%
Suite A
Knoxville, TN 37917
Walter L. Helton 65 Director 118,000<F5>
c/o Tennessee Tech University less than 1%
P.O. Box 5062
Cookeville, TN 38505
Steven Bauer Director 150,000<F6>
less than 1%
Eugenio (Rolando) Martinez 76 Director 179,000<F4>
Apt. 106 1821 Jefferson less than 1%
Miami Beach, FL 33139
Antonio Julio Gonzalez Gimenez Director 150,000<F4>
Av. Diaz Moreno Edif. El Juncal less than 1%
Piso 3, Officina 33
Valencia, Edo - Carobabo Venezuela
L. Douglas Keene, Jr. 45 Executive Vice 281,830<F5>
2620 Mineral Springs Road President and CFO less than 1%
Suite A
Knoxville, TN 37917
* Michael F. Thomas and Dwight S. Thomas are cousins. There are no other family
relationships between any directors or executive officers of the Debtor.
<FN>
<F3> Consists of 2,329,214 shares held directly and currently exercisable
options to purchase 1,833,334 shares.
<F4> Consists of 60,050 shares held directly and currently exercisable options
to purchase 333,334 shares.
<F5> Includes currently exercisable options to purchase 50,000 shares.
<F6> Includes currently exercisable options to purchase 150,000 shares.
<F5> Consists of 31,831 shares held directly and currently exercisable options
to purchase 250,000 shares.
</FN>
</TABLE>
2. Existing Officer & Director Compensation.
Directors: Inside directors do not receive any additional compensation
for their services as a director. Outside directors receive $1,000 for each in
person meeting attended, plus reimbursement of travel expenses and $500 for each
telephonic board meeting.
Officers: Michael Thomas has a written employment contract with UPC
dated September 18, 1996. The contract has a five year term and, among other
things, provides for an annual salary of $400,000, incentive compensation, stock
options, a fee for guaranteeing certain company obligations, commissions with
respect to certain transactions, automobile allowance, club dues, medical
insurance and life and disability insurance coverage. Additionally, the contract
provides a severance benefit to Mr. Thomas equal to 2.99 years of his base
salary in the event he is terminated without cause or as a result of a change in
control. In the third quarter of 1997, as a result of the termination of two
leases UPC had with Michael Thomas, Mr. Thomas' salary was reduced to $300,000
per year. Additionally, as a result of the Debtor's financial difficulties and
at the request of Infinity, in the fall of 1998, Mr. Thomas' salary was further
reduced by agreement of the parties. Presently, Mr. Thomas receives a salary
from UPC in the amount of $125,000 per year, plus a monthly automobile allowance
of $500.00, a monthly gasoline allowance of $250.00 and a monthly insurance
allowance of $900.00. As management of the post-Merger Debtor will likely be the
responsibility of the current management of FSCI, it is unclear what Mr.
Thomas's role will be after the Effective Date of the Plan. It is anticipated,
however, that a consensual resolution will be reached, the terms of which will
be disclosed before the Confirmation Date.
L. Douglas Keene, Jr. has a written employment contract with UPC dated
September 18, 1996. The contract has a five year term, and among other things,
provides for an annual salary of $120,000, incentive compensation, stock
options, commissions with respect to certain transactions, automobile allowance,
club dues, medical insurance and life and disability insurance. Additionally,
the contract provides a severance benefit to Mr. Keene equal to 2.99 years of
his base salary in the event he is terminated without cause or as a result of a
change in control. As a result of the Debtor's financial difficulties and at the
request of Infinity, in the fall of 1998, Mr. Keene's compensation was reduced
by agreement of the parties. Presently, Mr. Keene receives a salary of $100,000
per year, plus a monthly automobile allowance of $500.00. As management of the
post-Merger Debtor will likely be the responsibility of the current management
of FSCI, it is unclear what Mr. Keene's role will be after the Effective Date of
the Plan. It is anticipated that Mr. Keene and the Reorganized Debtor will enter
into an agreement providing for Mr. Keene's continued employment by the
Reorganized Debtor at his current salary through January 31, 2000 with his
association with Reorganized Debtor after such date to be determined at a later
time. It is expected that such arrangement will be in lieu of his current
agreement with the Debtor.
3. Proposed Directors.
The following is a list of the director names proposed to be elected
pursuant to the Plan to serve as directors upon the Effective Date of the Plan
which list may be modified at or prior to the Confirmation Hearing:
Name and Address Age
Joe Bared 57
Carlos E. Bared 31
Clark K. Hunt 33
1601 Elm Street, Suite 4000
Dallas, TX 75201
Stuart J. Chasanoff 33
1601 Elm Street, Suite 4000
Dallas, TX 75201
Following the Effective Date, the compensation of directors will be the
same as presently exists. The proposed directors may be changed at or prior to
the Confirmation Hearing. It is anticipated that a fifth director will be
appointed by mutual agreement of the foregoing four members of the Board after
the Effective Date.
Proposed Director Biographies
Joe Bared: Jose P. "Joe" Bared, Chairman, Chief Executive
Officer, and President. Mr. Bared, 57 years old, was born in Havana, Cuba in
1941 and arrived in the United States in 1960. He graduated from the University
of Miami in 1964 with a degree in mechanical engineering. In 1967, he founded
The Bared Company, Inc., which grew to become one of the top 50 mechanical
construction companies in the United States with annual revenues of $58 million.
In three separate transactions from 1991 to 1993, the principal operating
divisions of The Bared Company were sold to company managers.
In 1992, Mr. Bared led an investor group which purchased the
assets of Farm Stores out of bankruptcy. He has served as CEO of the Company
since the purchase. Together with his management team, Mr. Bared has led a
significant turnaround in the profitability of the Company. From 1970 to 1999,
Mr. Bared was a director of Republic Banking Corporation of Florida, where he
served on various board committees, including the loan committee, executive
committee and audit committee. The bank grew during that time from $17 million
to $1.5 billion in assets and, prior to its sale to Union Planters Bank this
year, was the largest independent bank in the State of Florida. In February
1999, Republic completed its initial public stock offering and trades on the
NADSAQ under the symbol "RBCF." Mr. Bared has been a Trustee of the University
of Miami since 1978. He is also a member of the Board of Overseers of the
Sylvester Cancer Center of the University of Miami. He is actively involved with
several professional associations including the American Bankers Association and
the National Association of Convenience Stores. Civic memberships include
service as an advisor to the Florida Department of Professional Regulation
(appointed by the Governor of Florida in 1979 and serving for nine years),
director of the Leukemia Foundation of South Florida, and cabinet member of the
United Way.
Carlos Bared: Chief Financial Officer, Vice-President-Finance.
Mr. Bared, 31 years old, attended Loyola University in New Orleans and graduated
with a BBA degree in finance. He earned his MBA degree in 1995 from the
University of Miami. Mr. Bared joined the Company in August 1997. From 1992 to
1997, he was the President and Chief Financial Officer of the remaining
operations of the Bared Company, Inc., an electrical and mechanical engineering
contracting firm. He was the President of the Construction Financial Management
Association (CFMA) from 1994 to 1997 and was a director of CFMA from 1993 to
1997. Mr. Bared is a director of the non-for-profit Miami Children's Museum, and
a founder and vice president of the non-for-profit Network Miami, Inc. He has
been an advisory board member of the Miami-Dade County Commission's Business
Impact Committee since 1995.
Clark Knoebel Hunt: President of Hunt Financial Group, L.L.C.,
a Dallas, Texas based financial services concern. Through Hunt Financial, Mr.
Hunt is responsible for the management of investment funds with assets in excess
of $300,000,000. Mr. Hunt is also involved in venture capital investor, Hunt
Capital Group, real estate and mining conglomerate, Hunt Midwest Enterprises,
and Hunt Sports Group. Hunt Sports Group is the management company responsible
for overseeing the Hunt family's investments in the Kansas City Chiefs of the
National Football League, the Chicago Bulls of the National Basketball
Association and two franchises in the newly launched Major League Soccer. Clark
K. Hunt has a connection to Infinity in that Infinity is a Nevis, West Indies
Corporation advised by HW Partners, L.P., a Texas limited partnership, the
general partner of which is HW Finance, L.L.C., a Texas limited liability
company whose managers include Clark K. Hunt.
Stuart J. Chasanoff: In 1996, Mr. Chasanoff (a 1990 cum laude
graduate of the Fordham University School of Law, and a 1987 graduate of the
University of Virginia), joined H.W. Partners, L.P., as Senior Vice President
and in-house corporate counsel, involved with investment companies and corporate
mergers and acquisitions. For the preceding seven years, Mr. Chasanoff was an
associate corporate attorney with White & Case's New York office, dealing with
mergers/acquisitions, corporate reorganizations and financial services.
Additionally, he served as in-house counsel at PepsiCo., Inc. for two years,
affecting mergers and acquisitions.
4. Post Effective Date Officers and Compensation.
Debtor presently anticipates that after the Effective Date, Mr. Joe
Bared and Mr. Carlos Bared will serve as CEO and CFO, respectively. The terms of
Mr. Joe Bared's and Mr. Carlos Bared's (son of Joe Bared) employment after the
Effective Date has not yet been finalized, but is expected to be on terms
similar to those they presently have with Farm Stores. Presently, Mr. Joe Bared,
receives an annual salary of $372,000, plus an automobile lease and insurance,
health and life insurance and other benefits generally made available to Farm
Store Employees. Mr. Carlos Bared presently receives an annual salary of
$150,000, plus an automobile and insurance allowance, health and life insurance
and other benefits generally made available to Farm Store Employees
H. Insider Relationships and Transactions
Transactions involving Michael F. Thomas. During 1997, the Company sold
a number of retail facilities to Mr. Thomas, the Company's President and Chief
Executive Officer.
One location (Farragut) was sold for $1,140,000 (it had an appraised
value of $1,100,500). This location was declared in default by its lender
shortly before the sale and the Company determined that it was not able to
refinance the location. Mr. Thomas had guaranteed this obligation on behalf of
the Company.
The second location (Cookeville) was sold for $879,000 (it had an
appraised value of $961,500). This location had been operating at a cash flow
loss to the Company prior to its sale and the Company was unable to refinance
the mortgage on this location such that the location would contribute to the
cash flow of the Company. The Board therefore determined that it was in the best
interests of the Company to sell the location. Mr. Thomas had guaranteed this
obligation on behalf of the Company.
A third location (Murfreesboro) was transferred to Mr. Thomas in
exchange for Mr. Thomas's assumption and repayment of the debt on the location,
for which he was a guarantor. The Company had received a notice of foreclosure
on this location and the Board determined that it was in the best interests of
the Company to sell this location.
A fourth location (Knoxville) was sold to Mr. Thomas for $300,000 in
order to raise working capital for the Company. This location consisted only of
a lease of the land and buildings occupied by the store and was under
environmental remediation with an estimated cost of $50,000, which Mr. Thomas
assumed. There was no debt on this location.
The Company also transferred a piece of unimproved real estate located
in Knoxville to Mr. Thomas in exchange for Mr. Thomas' assumption of the debt on
the location, for which he was a guarantor. The property had been acquired from
Exxon for approximately $125,000 in 1995. The outstanding debt on the property
was approximately $138,000 and Mr. Thomas paid approximately $150,000 for the
property including the assumption of the debt.
During the third quarter of 1997, the Company sold a location (Oak
Ridge) to a non-affiliated local petroleum distributor in order to repay a loan
in the amount of $300,000 to Mr. Thomas and to raise additional capital. The
sale enabled the Company to pay off the existing first mortgage from
NationsBank, pay off the note to Mr. Thomas and raise approximately $144,548 in
working capital. The location continues to be operated by the Company as the
transaction was in the form of a sale/lease back. The Company entered into a ten
year lease with the non-affiliated distributor with monthly payments of $8,804.
At the option of the Company, the lease could have been canceled after the first
six months and the Company had the option to repurchase the store during the
first year at a purchase price of $950,000, and during the second year at a
purchase price of $1,000,000. By mutual consent between landlord and company the
lease was terminated in May of 1999.
During the third quarter of 1997, the leases of two locations that were
being leased from Mr. Thomas for a monthly rental of $27,000, were canceled by
mutual agreement between the Company and Mr. Thomas as a result of the Company's
failure to pay 1996 and 1997 property taxes, which had caused loans owed by Mr.
Thomas related to the properties to be in default. The two locations produced a
combined annual cash flow of approximately $100,000, and Mr. Thomas agreed to a
reduction of his annual compensation by $100,000 in exchange for the
cancellation of the leases. The lease payments on these properties, included on
the income statements among general and administrative expenses, amounted to
approximately $177,000 in 1997 and $356,000 in 1996, and the Company had not
paid $91,796 in property taxes for 1996 and 1997 that Mr. Thomas assumed. In
other lease transactions with Mr. Thomas, the Company rented, under
month-to-month operating leases, certain vehicles. Expenses related to these
transactions were approximately $25,000 and $45,000 in 1997 and 1996,
respectively.
During the third quarter of 1997, the Company transferred an Exxon
distributorship contract to TCS Systems, Inc., ("TCS"), a corporation controlled
by Mr. Thomas and engaged in the manufacturing and distribution of items related
to the Company's automotive subsidiary. Upon the expiration of the letter of
credit posted by the Company in favor of Exxon in connection with the contract,
Exxon required that the letter of credit be renewed and increased from $100,000
to $200,000. Because the Company was unable to obtain such letter of credit, the
contract was transferred to TCS, which continues to make available to the
Company gasoline for $0.01 per gallon above the wholesale price available to
TCS, plus freight charges. Prior to the confirmation, it is anticipated that a
consensual resolution will be reached regarding the nature of this contract.
On July 1, 1997, the Company entered into a ten year agreement with
TCS, to purchase exclusively, in areas served by TCS, its gasoline inventories
at a price of $.01 per gallon above the wholesale price available to TCS plus
freight charges. Aggregate purchases of gasoline under this agreement during
1997 were approximately $989,000 and $525,000, respectively (no sales were made
under the agreement in 1996). In 1998, 1997 and 1996, transactions between the
Company and TCS included equipment sales and certain ongoing construction
activities conducted for the Company by TCS. Equipment sales and construction
activities totaled approximately $258,500, $323,271 and $182,603, in 1998, 1997
and 1996, respectively. Prior to confirmation, it is anticipated that a
consensual resolution will be reached regarding the nature of this contract.
The above-referenced transfers of Company properties and assets to Mr.
Thomas were analyzed and approved by UPC's Board of Directors, Chief Financial
Officer and accounting department. In order to ensure that the transactions were
fair and equitable to the Company, an assumption agreement was entered into
between the Company and Mr. Thomas on July 3, 1997. The agreement provided,
among other things, that Mr. Thomas would assume or pay the following: (i) a
note payable to Pennzoil in the approximate amount of $219,829, (ii) the
Pennzoil Unearned Discount in the amount of $200,000, (ii) a note payable to
Coffman Oil Company, Inc. in the approximate amount of $25,406 (iv) a note
payable to Sun Trust Bank in the approximate amount of $389,387, (v) a note
payable to First American Bank in the approximate amount of $140,000, (vii) real
estate taxes in the approximate amount of $85,529 and (viii) pay cash to the
Company in the sum of $300,000. As a result of the divestitures and the
assumption of numerous debts of the Company, the Company experienced a loss on
the sales of approximately $22,966.27. These transactions decreased the
liabilities of the Company by approximately $1,137,935. As of August 19, 1998,
these assumptions had been completed.
In August 1998, Mr. Thomas guaranteed the payment of indebtedness of
the Company to Infinity under the A-Note referred to in Management's Discussion
and Analysis of Financial Condition and Results of Operations. In fiscal 1997
and 1996, the Company paid Mr. Thomas fees for acting as guarantor on Company
indebtedness of $81,280 and $98,682 (one percent of the amount guaranteed).
Additionally, in 1998. the Company paid rent in the approximate amount of
$20,000 to Mr. Thomas prior to relocating its corporate offices to their current
location.
Transactions involving Dwight S. Thomas. During 1997, the Company sold
a location (Cookeville) to Dwight S. Thomas, the Company's Secretary and a
member of the Company's Board of Directors. The purpose of the sale was to raise
working capital. The location was sold for $516,000 (it had an M.A.I. appraised
value of $536,000) and resulted in net proceeds to the Company of approximately
$152,385. The location was in need of capital improvements, including
approximately $80,000 worth of environmental updates of underground petroleum
storage tanks necessary to meet 1998 standards. In exchange for the sale, Dwight
Thomas agreed to the cancellation of his employment contract with the Company
dated December 2, 1996.
Transactions involving Farm Stores. Following the Merger, the
reorganized Debtor will be involved in several affiliated transactions involving
Farm Stores and its affiliates. Principally among these will be the Management
Agreement and the License Agreement between the reorganized Debtor and FSG.
The Management Agreement will contemplate that the exchange for the
Management Fees (as such term is defined in the Management Agreement) the
general and administrative personnel and related expenses of FSG will be
transferred to the reorganized Debtor, and that the reorganized Debtor will
manage the operations of FSG<F7>. The Management Agreement involves significant
potential conflicts of interest, and includes indemnity and exculpation
provisions. The reorganized Debtor shall have the right to terminate the
Management Agreement upon short notice, and the Directors appointed to the UPC
Board by Farm Stores shall abstain in considerations of such a termination. Upon
such a termination, it is expected that the management personnel that the Debtor
hired from Farm Stores will become the management of FSG.
- -----------------
<F7> Alternatively, management services may be provided through a separate
entity or other means. None of these alternatives will materially effect
the economics of the management arrangement.
The License Agreement allows the reorganized Debtor to continue to use
the Farm Stores name and related trademarks for the Walk-In Stores without
payment of royalties.
Under the Purchase Agreement, the reorganized Debtor may purchase up to
15% of the equity of FSG within one year after the Effective Date, at $1 Million
per 2% of such equity.
FSG will lease the real estate underlying nine (9) of its Drive Thru
Stores from an affiliate of Bared, such leases to be on market terms.
It is expected that the management and administrative personnel for the
reorganized Debtor will occupy the facility presently occupied by the F.S.
Partnerships' administrative personnel. These premises will be owned by an
affiliate of the FSCI Shareholder. The reorganized Debtor would assume
responsibility for the costs of operating this facility, including but not
limited to maintenance, security, taxes, equipment rentals and insurance, but
would not otherwise pay rent. However, the FSCI Shareholder expects to market
this property, and upon its sale, the reorganized Debtor would have to relocate
to other premises.
I. The Restructuring
1. Background and Reason for Commencing the Chapter 11 Case.
In 1996, the Debtor undertook a business strategy of growing through
acquisitions. In order to fund anticipated acquisitions, the Debtor, in a series
of private placement offerings, issued convertible debentures in the approximate
principal amount of $27,500,000. The anticipated acquisitions, however, did not
take place as a result of the Debtor's inability to identify suitable
acquisition candidates on acceptable terms, and the Debtor then used a portion
of the proceeds of the offerings to fund a drilling program. Shortly after the
completion of the foregoing private placement, the price of the Debtor's stock
began to decline precipitously. Based upon its investigation, the Debtor
concluded that the decline was brought about by certain holders of the
Debentures short selling the Debtor's stock. The only parties actually
identified by the Debtor as having short sold the Debtor's stock, and who
acknowledged their short-selling activities to the Debtor were Mantel
International Investments, Ltd. and Lake Management, LDC. Certain parties have
asserted that the Infinity Parties short sold the Debtor's stock. The Infinity
Parties have repeatedly denied that they short sold the Debtor's stock and
Debtor presently has no information to support a contrary conclusion.
Subsequently, the Debtor suffered significant cash losses when amounts
advanced to underwriters and consultants (in order to fund the repurchase of
shares of the Debtor's common stock and to prevent the disorderly liquidation of
a large block of stock held by such groups) were not utilized as expected or
repaid to the Debtor. See General Information Legal Proceedings; TAJ/National."
Notwithstanding management's efforts, the Debtor's revenues were
insufficient to satisfy the Debtor's obligations. In April 1997, the Debtor
restructured the debentures, exchanging a substantial portion of such debentures
for shares of Preferred Stock, and borrowed additional funds for working capital
needs. Despite these efforts, the Debtor was still unable to generate sufficient
revenues to satisfy its obligations. The Debtor's results of operations,
combined with the potential conversion of the Debentures and Preferred Stock
depressed the price of the Debtor's Common Stock and adversely affected the
Debtor's ability to raise additional needed capital. In the second quarter of
1998, two holders of Calibur's mortgage notes in the outstanding principal
amount of approximately $2,500,000 declared the notes in default and demanded
payment in full. These notes, as well as Calibur's remaining mortgage notes,
were refinanced in June and August of 1998 through a line of credit provided by
Infinity which matured on January 1, 1999. The Debtor's management and Board of
Directors have determined that the continuing viability of the Debtor requires
the conversion of a substantial portion of its indebtedness and preferred stock
to common equity by means that can only be implemented in chapter 11.
2. Rationale of the Restructuring and the Merger.
The Debtor first filed for chapter 11 relief in order to achieve
changes in its financial structure, reducing the Debtor's excessive
debt levels and fixed charges (including its obligations to make
payments in respect of interest and dividends), to enable the Debtor to
continue to implement its revised business strategy and to help assure
the Debtor's long-term viability. The Debtor had hoped that it could
continue as a viable concern if it were able to (a) substantially
reduce its debt service and dividend obligations, (b) eliminate
miscellaneous existing and potential litigation, and (c) create an
appropriate capital structure. In that regard, on February 16, 1999 the
Debtor filed its initial plan and disclosure statement which
contemplated a stand alone plan of reorganization. However, prior to
holding a hearing to consider approval of the initial disclosure
statement, it became apparent that without a dramatic increase in
revenues, the Debtor would be unsuccessful in meeting its debt service
and operating obligations, even with the reduced debt levels and
capital structure proposed in the original plan.
During the pendency of the Chapter 11 Case, Infinity was approached
regarding the possibility of combining a substantial portion of the
F.S. Business with that of the Debtor's. Infinity recognized the
potential synergy that could be created by a merger of the F.S.
Business with that of the Debtor's and began preliminary due diligence
in an effort to determine whether such a business combination would in
deed benefit the Debtor. As evidenced by the reorganized Debtor's
financial statements (prepared by F.S. Management, and attached hereto
as Exhibit E) the merger is designed to achieve significant savings and
advantages, such that the value of the combined entity is significantly
greater than the value of UPET and FSCI standing separately.
The Merger Agreement provides for the merger of FSCI with and into UPC Merger
Sub, a newly created wholly owned subsidiary of the Debtor. Pursuant to the
Merger Agreement:
(a) the Debtor and FSCI, with the assistance of Infinity, undertake to
obtain up to $23 million of secured financing (the "Merger Financing")
to be secured by, the Walk-In Stores,
(b) FSCI undertakes that it will own, immediately prior to the
consummation of the Merger, (i) all of the interests relating to the
Gas Stores currently held by the Bared Corporations, (ii) a royalty
free license for the use of the Farm Stores(R) name and related
trademarks, and (iii) subject to its receipt of $17 Million in net
proceeds from the Merger Financing, FSCI will exercise the Toni Option,
such that FSCI shall purchase from Isaias Corporations for $17 Million
(x) all remaining interests in the Walk-In Stores; and (y) ten percent
(10%) of the issued and outstanding capital stock of FSG, and
(c) FSCI's shareholder will receive, upon consummation of the Merger,
(i) 48% of the New UPC Common Stock, (ii) $7 Million principal amount
(50% of the authorized and outstanding class) of New UPC Preferred
Stock, and (iii) $3 Million in cash.
After the Merger, the reorganized Debtor shall own 100% of the equity interests
relating to the Walk-In Stores and a 10% interest in FSG.
In connection with the Merger, the following material agreements will come into
effect or remain in effect, as noted:
(a) The general and administrative personnel of the FS Partnerships
will become employed by the reorganized Debtor , which will enter into
the Management Agreement (to be filed as a Plan Document).
(b) The reorganized Debtor and FSG will enter into a royalty free
license allowing the reorganized Debtor to use the Farm Stores brands
and trademarks.
(c) FSG and Reorganized Debtor will remain obligated to perform under
the Velda Agreement.
(d) FSG will lease the real estate underlying certain of the Drive-Thru
Stores from an affiliate of Bared.
Time is of the essence in order to effect the Merger. As discussed above, the
F.S. Business is currently owned by both Bared and Isaias (see "General
Information -- Farm Stores"). However, pursuant to the Toni Option, which must
be consummated by August 25, 1999, Bared has the ability to acquire Isaias's
interest in the F.S. Business. Thus, if the Debtor is unsuccessful in
consummating the Plan and acquiring the Merger Financing by August 25, 1999, the
Toni Option will expire and neither Bared, the Debtor nor UPC Merger Sub would
have the right to acquire the Isaias's interest in the F.S. Business. To insure
that it could satisfy the requirements under the Bankruptcy Code regarding the
length of notice that must be provided prior to a hearing on the Disclosure
Statement and confirmation of the Plan, the Debtor is soliciting votes on the
Plan prior to finalizing and executing the Merger Agreement and prior to the
completion of its due diligence. Nevertheless, among other things, the Merger
Agreement contemplates the Debtor's (and FSCI's) need to complete due diligence
and conditions closing of the Merger on the parties' satisfaction with their due
diligence investigations and the satisfaction or waiver of the conditions
precedent to closing set forth in the Merger Agreement.
3. Merger Financing.
Closing under the Merger Agreement and consummation of the Plan are
conditioned upon the Debtors and FSCI's ability to obtain $20 million to $23
million of financing on acceptable terms. To date, the merger financing has not
been obtained. The Debtor, Infinity Parties and FSCI and their respective
financial advisors are working to and are hopeful that they will be able to
obtain the necessary financing on acceptable terms and that the closing under
the Merger Agreement can occur by the August 25, 1999 deadline. If, however,
sufficient merger financing on acceptable terms cannot be obtained or, if
obtained, cannot be closed by August 25, 1999, the Merger Agreement may not
close and the Plan may never be consummated.
J. Legal Proceedings
1. NASDAQ Allegations.
In 1997, NASDAQ alleged that the Debtor (a) had entered into various
consulting agreements with the sole purpose of expanding investor interest in
the Debtor's shares, which arrangements are said to have led to a deterioration
of stockholder value, (b) facilitated and pursued manipulative transactions in
the Debtor's stock, and (c) violated various other NASDAQ rules. Despite the
Debtor's vigorous response and objection to NASDAQ's allegations, NASDAQ
delisted the Common Stock from the NASDAQ SmallCap Market in December 1997. In
the one year prior to the stock being delisted, the stock had a high closing
price of $.65625 and a low closing price of $.0625
2. TAJ/National.
In March of 1996, the Debtor was approached by Ronald Berkowitz, a
securities promoter in Miami, Florida affiliated with Strategic Holdings
Corporation ("Strategic"). Among other things, Berkowitz represented that
Strategic could raise substantial capital for the Debtor in private placement
transactions that would not adversely affect the market price of the Debtor's
common stock. Shortly thereafter, Berkowitz introduced the Debtor to Wilbur
Jurdine ("Jurdine"), the president and principal shareholder of TAJ Global
Equities, Inc. ("TAJ"). Among other things, Jurdine represented that TAJ had the
ability to make a market in the Debtor's common stock. Subsequently, the Debtor
issued the Debentures in the aggregate face amount of approximately $27.5
million in a series of substantially similar private placement transactions
arranged by Strategic. Shortly after the foregoing private placement in early
1997, the price of the Common Stock began to fall sharply. Believing that the
lower prices were not justified, and in an effort to stabilize the market in the
shares, the Debtor's Board of Directors authorized a share buy-back program,
which was never successfully implemented. In connection with this program, the
Debtor deposited some of the proceeds of the Debenture sale with TAJ for use if
and when purchases were desired. At that time, the Debtor had engaged TAJ to act
as the Debtor's underwriter for a planned offering of Common Stock.
TAJ, without the Debtor's knowledge or consent, purchased over 3
million shares of the Debtor's stock from its own customers when the price of
the shares began to fall. Those purchases were initially made through the TAJ
trading account apparently maintained by TAJ for its own trading activities. The
shares were subsequently transferred to the account of Strategic for which TAJ
had a power of attorney. Strategic, which had assisted the Debtor in connection
with the sale of the Debentures and which had a consulting agreement with the
Debtor, contends that it did not authorize such transaction and that it did not
know they had taken place.
In order to settle its account with National Financial Services Corp.
("National"), in late August and early September of 1996, TAJ began trying to
liquidate its holdings of the Debtor's common stock by selling such stock to
TAJ's customers. This additional selling activity created downward pressure on
the price of the Debtor's stock however, and TAJ found itself unable to pay or
otherwise clear its account with National as the then current price for the
Debtor's stock was less than the amount at which TAJ acquired the 3 million
shares. When TAJ and Strategic were unable to pay for the shares they had
acquired, TAJ and National, TAJ's clearing broker, demanded payment from the
Debtor, threatening to summarily liquidate the shares and thereby transform the
orderly market in the Debtor's Common Stock into a disorderly market, an action
which would have damaged the interests of the Debtor's stockholders. In an
effort to prevent such consequences, the Debtor paid for the shares.
In March 1997, the Debtor commenced a civil action styled United
Petroleum Corporation v. TAJ Global Equities, Inc., et al (the "TAJ Action")
against TAJ, Mr. Wilbur Jurdine (a principal of TAJ) ("Jurdine") and National,
in the United States District Court for the Eastern District of Tennessee (the
"Tennessee Federal Court"). In it, the Debtor seeks compensatory and punitive
damages arising from a conspiracy to engage in a course of misconduct intended
to defraud the Debtor, for conversion of the Debtor's property, and under
theories of unjust enrichment, breach of fiduciary duty and other causes of
action.
By Order dated April 22, 1999 (the "April 22 Order") the Tennessee
Federal Court dismissed the TAJ Action with respect to TAJ and Jurdine for
failure to effect service of process on such entities. Also in the April 22
Order, the Tennessee Federal Court directed the Debtor to show cause why the TAJ
Action should not be dismissed as well.
The Debtor moved for reconsideration of the April 22 Order by Motion
dated April 30, 1999. By Order dated May 24, 1999, the Tennessee Federal Court
vacated the April 22 Order and reinstated in full the TAJ Action.
The Debtor believes that its claims and causes of action in this
litigation have merit; however, this matter is in its earliest stages, and the
timing, amount and likelihood of any recovery for the Debtor are impossible to
predict at this time. Additionally, even if the Debtor prevails in the TAJ
Action and obtains an award of money damages against one or more of the
Defendants therein, it is unclear whether the Debtor would be able to
successfully enforce and collect upon such a judgment against these parties. The
Debtor expects that any proceeds realized in the TAJ Action will be used either
to fund ongoing operations or to reduce the Debtor's principal and interest
obligations under its secured borrowing facility. In any event, if the Plan is
not consummated, however, it is unlikely that the Debtor will have the
wherewithal to prosecute the action.
3. Strategic.
On October 6, 1998, the Debtor was sued by Strategic Holdings
Corporation of Miami, Florida. The suit, styled Strategic Holdings Corporation
v. United Petroleum Corporation, was filed in the Circuit Court of the 11th
Judicial Circuit in and for Miami-Dade County, Florida. The action seeks damages
of approximately $550,000 arising from the Debtor's alleged breach of an
agreement. The Debtor believes the claims are without merit. As of the Petition
Date, the time for the Debtor to answer or otherwise respond had not occurred.
If Strategic's claim are determined to have merit, Strategic would have a
General Unsecured Claim.
4. Ishmael.
In June of 1997, the Debtor was sued by Kevin Ishmael, a former
employee, alleging that the Debtor had dismissed him improperly. Ishmael
obtained a final judgment against the Debtor for back pay and damages totaling
$54,422.03. The Debtor has also been ordered to reinstate the employee. This
matter has been resolved by the payment of the back pay and damages.
5. Unifirst.
In May of 1997, the Debtor was sued by Unifirst, Inc. ("Unifirst"), a
supplier of work uniforms for breach of contract. During the pendancy of the
suit, counsel for the Debtor became terminally ill and died. During that period,
counsel for Unifirst obtained a default judgment against the Debtor in the
amount of $72,844.22. The Debtor then obtained new counsel and petitioned the
court to set aside the default judgment. The Debtor believes it has valid
defenses to Unifirst's Claims. However, if Unifirst obtains a judgment, its
claim would be a General Unsecured Claim.
6. In re United Petroleum.
On May 18, 1998, an involuntary bankruptcy petition, styled In re
United Petroleum Corporation d/b/a Jackson-United Petroleum Corporation and
Calibur Systems, Inc. was filed in the United States Bankruptcy Court in the
Eastern District of Tennessee by three preferred stockholders of the Debtor, Dan
Dotan, Ben Golan and Shemulik Zeitoni. This petition was never served on the
Debtor, and the petitioners' counsel of record subsequently withdrew and was not
replaced. On July 28, 1998, the Debtor filed a motion to dismiss the petition
for lack of standing. On September 10, 1998, the plaintiff requested that the
court dismiss the petition and on that date the court entered an order
dismissing the case.
7. Pisacreta/Tucci.
In March 1997, a putative class action lawsuit (the "Pisacreta Action")
was filed by John Pisacreta, a purchaser of the Debtor's Common Stock, in the
Tennessee Federal Court, purportedly on behalf of all purchasers who purchased
shares of Common Stock during the period of May 1, 1996 through January 16,
1997. This suit was filed against Ronald Berkovitz, Infinity Investors Limited,
Dan Dotan, Fairway Capital Limited, Lake Management LDC, Laurel Angela
MacDonald, Seacrest Capital Limited and Mohamed Ghaus Khalifa as discussed more
fully below. In or around October 1997, Mohamed Ghaus Khalifa and Dan Dotan were
dismissed from the Pisacreta Action. In the lawsuit, the plaintiff alleges that
the defendants, in acquiring and disposing of certain of the Debentures,
participated in a fraudulent and manipulative scheme in violation of certain
provisions of the securities laws of the United States. The plaintiff also
alleges that the defendants committed fraud and deceit under common law and
breached a contract between the defendants and the Debtor. The defendants filed
a motion to dismiss the complaint for failure to state a claim upon which relief
can be granted. The Tennessee Federal Court granted the motion in part,
dismissing one of the two federal securities law claims, as well as the claim
for common law fraud. Following a July 16, 1999 hearing before the United States
Magistrate Judge for the United States District Court for the Eastern District
of Tennessee at Knoxville, an order was entered denying John Pisacreta's request
for class certification.
In November 1997, Lisa Tucci, a purchaser of the Debtor's Common Stock
and the daughter of John Pisacreta, filed a putative class action lawsuit (the
"Tucci Action") in the Tennessee Federal Court against Clark K. Hunt ("Hunt"),
purportedly on behalf of all persons and entities who purchased Common Stock
from May 1, 1996 through January 16, 1997. The lawsuit was based on factual
allegations identical to those set forth in the Pisacreta Action, described
above. The plaintiff claims that Hunt is the controlling person of certain of
the purchasers of the Debentures and is secondarily liable under the securities
laws of the United States for the violations alleged in the Pisacreta Action.
In January 1998, the defendant filed a motion to dismiss for failure to
state a claim or alternatively to dismiss the complaint for improper venue. In
April 1998, the Tennessee Federal Court dismissed the Tucci Action for improper
venue. In May 1998, the plaintiff filed a notice of her intent to appeal the
court's ruling to the United States Court of Appeals. After the appeal was filed
in the Tucci Action, the plaintiff in the Pisacreta Action filed a motion to
amend his complaint to add Hunt as a defendant under the theory of controlling
person liability. The motion was ultimately granted and Hunt was added as a
defendant in the Pisacreta Action. The Debtor believes that the appeal in the
Tucci Action has been abandoned and that the order dismissing that matter has
become final.
In December 1998, Hunt answered the complaint in the Pisacreta/Tucci
Action and impleaded the Debtor as a third-party defendant, alleging that the
Debtor is liable for any claims of the plaintiffs under theories of indemnity
and contribution. Thereafter, the Tennessee Federal Court entered an agreed
order permitting Infinity, Fairway, and Seacrest to assert similar causes of
action against the Debtor. Pursuant to order of the Tennessee Federal Court
dated June 3, 1999 the plaintiff's motion to sever the third party claims
asserted against the Debtor from the claims asserted against the defendants in
the Pisacreta/Tucci Action was granted.
These parties' claims for indemnification and contribution rest, in the
first instance, upon provisions in the Subscription Agreements wherein the
Debtor covenanted to indemnify and hold harmless the Infinity Parties in the
event the Debtor breached any of the provisions of the Subscription Agreements.
While the Debtor vigorously disputes that it has committed any such breach, the
Infinity Parties have alleged that the Debtor made certain misrepresentations
regarding use of proceeds to induce the Infinity Parties to execute the
Subscription Agreements. Additionally, the Infinity Parties allege that to the
extent Pisacreta ultimately succeeds on his claim that the Subscription
Agreements were non-compliant with Regulation S, the Debtor is liable to
indemnify the Infinity Parties for damages arising therefrom. Infinity's claims
in this regard stem from the contention that compliance with exemptions to
registration is the obligation of the issuer/seller of the securities, not of
the Infinity Parties.
The Debtor denies that it has any obligation for indemnity or
contribution to the Infinity Parties in connection with the Piscreta/Tucci
Action. However, if the Infinity Parties succeed in their claims for indemnity
and contribution against the Debtor, the Debtor would ultimately be liable for
all or part of any award rendered in favor of the Plaintiffs in the Pisacreta
Action.
Pisacreta currently has articulated three separate claims pending in
the Tennessee Federal Court: (i) alleged violations of the Securities and
Exchange Act of 1934 (the "1934 Act") and Rule 10b-5 promulgated thereunder;
(ii) breach of contract; and (iii) controlling person liability against Clark K.
Hunt under Section 20(a) of the 1934 Act for the purported violations of Section
10(b) by Infinity. Investors Limited ("Infinity"), Fairway Capital Limited
("Fairway") and Seacrest Capital Limited ("Seacrest").
With respect to claims arising under Section 10 (b) 5 of the 1934 Act,
Pisacreta's claim for market manipulations are based upon allegations that
Infinity, Seacrest and Fairway converted their debentures and thereafter sold
their holdings of the Debtor's Stock in such a way as to cause an artificial
inflation in the price of the Debtor's Stock. The Infinity Parties have asserted
that Pisacreta lacks standing to assert claims under Section 10(b) against
Infinity, Fairway and Seacrest and that he did not rely on statements of any of
the Defendants in the Pisacreta Action in purchasing securities of the Debtor.
Assuming that they prevail in the foregoing defense, the Infinity Parties
believe that the lack of liability for Infinity, Seacrest and Fairway will
similarly dispose of the "controlling person" claim against Clark K. Hunt.
Pisacreta's breach of contract claim is based on alleged breaches of
the Subscription Agreements entered into by and between the Debtor and each of
the defendants in the Pisacreta Action (except for Clark K. Hunt). Pisacreta's
claims in this regard are largely predicated upon allegations that Fairway and
Seacrest are not true offshore entities, such that these parties'
representations in the Subscription Agreements regarding compliance with
Regulation "S" were false. In addition, Pisacreta asserts (and the Tennessee
Federal Court has ruled) that Pisacreta and all holders of the Debtor's Common
Stock are third-party beneficiaries of the Subscription Agreements.
The Infinity Parties assert that, even if Pisacreta is a third-party
beneficiary under the Subscription Agreements (a point the Infinity Parties
dispute and expect to appeal), Pisacreta lacks standing to sue the Infinity
Parties thereunder because the Debtor -- from whom Pisacreta's rights derive --
has previously released Infinity, Seacrest and Fairway. Finally, the Infinity
Parties vigorously dispute the proposition that Infinity, Fairway and Seacrest
are not offshore entities.
Finally, the Debtor believes that the relief sought in the causes of
action presently asserted by the plaintiff in the Pisacreta/Tucci Action is
derivative in nature and that such claims properly belong to the Debtor. The
Debtor believes that the securities law claim asserted in the Pisacreta/Tucci
action is not premised on unique harm or injury to any particular stockholder,
but rather, is based on the argument that the defendants' conduct improperly
diluted the interests of all stockholders. The breach of contract claim is based
on the Infinity Parties alleged breach of a contract with the Debtors, not the
plaintiffs. As a result, the Debtor believes that the claims asserted in the
Pisacreta/Tucci Action belong to the Debtor's chapter 11 estate and that the
plaintiffs are stayed from prosecuting the claims. The Pisacreta/Tucci Plaintiff
disputes Debtor's characterization of its claims as derivative in nature and
believes that the claims asserted in the Pisacreta/Tucci Action are direct
claims and not derivative. There can be no certainty that a Court will agree
with the Debtor's characterization. Perhaps more importantly, based on the
Debtor's assessment of the value of the claims asserted in the Pisacreta/Tucci
Action, the Debtor believes that such claims are appropriately resolved pursuant
to the settlement contained in Article XIV of the Plan between the Debtor and
the Infinity Parties.
On February 4, 1999, the Debtor commenced an action in the Bankruptcy
Court to stay the Tennessee Litigation, and for a determination of whether the
claims asserted in such action are derivative in nature. After briefing and a
hearing on February 22, 1999, the Bankruptcy Court ruled that it would "not
enjoin [the plaintiff]...from pursuing the Tennessee Litigation," but that it
would "issue a very modified injunctive order," restricting the prosecution of
the Tennessee Litigation to (i) continued prosecution of plaintiff's motion to
sever the debtor from the Tennessee Litigation, (ii) continued prosecution of
plaintiff's motion to compel production of documents and (iii) continuing
plaintiff's efforts to take the deposition of Mr. Clark Hunt. At the February
25, 1999 hearing the Judge also stated that the issue of whether Pisacreta's
claims were derivative or direct was "sufficiently subject to serious debate"
that he could not conclude that the Debtor was likely to prevail on that issue.
Additionally, the Bankruptcy Court specifically ruled that its order would
expire on the later of May 25, 1999 or confirmation of the Debtor's Plan. On May
24, 1999, the Debtor moved the Bankruptcy Court for an extension of the
preliminary injunctions. On June 14, 1999, the Bankruptcy Court denied the
Debtor's motion, freeing the plaintiff to pursue the Tennessee Litigation.
Nevertheless if the Plan is confirmed, the claims asserted in the Tennessee
Litigation would be channeled into, and so long as the UPC Trust remains funded,
could be pursued only against the UPC Trust.
8. Dotan/Mantel
Dan Dotan ("Dotan") and Mantel International Investments, Ltd.
("Mantel") have advised the Debtor that they assert claims against the Infinity
Parties related to or arising from the Debentures or the restructuring thereof,
which, as discussed under "X. The Plan - B. Classification and Treatment of
Claims - 2. Classified Claims - (e) Class 5 - Debenture Claims" with respect to
claims asserted against the Debtor, are not Securities claims and are not
subject to the channelling injunction into the UPC Trust. Dotan and Mantel have
advised the Debtors that they may also assert claims against the Infinity
Parties which would constitute Securities Claims, which claims may impact upon
the Court's consideration of the proposed Infinity Settlement. No action has
been commenced with respect to such asserted claims. Such claims are disputed by
the Debtor and Infinity Parties.
VI. FINANCIAL INFORMATION
The Debtor's historical and projected income statements, growth and
margin analysis and balance sheets for the years ended December 31, 1997,
through December 31, 2002 are attached hereto as Exhibit C and incorporated
herein by reference. The combined historical and projected income statements,
growth and margin analysis, balance sheets and cash flows for the portion of the
F.S. Business which relates to the Walk-In Stores, for fiscal years ended August
29, 1997 through August 29, 2002 along with F.S. Management's discussions of the
results of operations are attached hereto as Exhibit D and incorporated herein
by reference.
VII. BUSINESS PLAN AND PROJECTIONS
The financial projections for the post-Merger reorganized Debtor,
attached hereto as Exhibit E, were prepared by management of the F.S. Business
("F.S. Management"), and reflect F.S. Management's best estimates regarding the
expected results of operations, cash flows and financial position of UPC Merger
Sub for the years ended August 29, 1999, through August 29, 2002. To the extent
that the Financial Projections related to the expected performance of the UPC
stores, F.S. Management has relied on information and assumptions provided by
the Debtor's management. F.S. Management believes that the basis for the
Financial Projections is reasonable, taking into account the purpose for which
they were prepared. HOWEVER, THE FINANCIAL PROJECTIONS WERE NOT PREPARED WITH A
VIEW TOWARD COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE SECURITIES AND
EXCHANGE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS OR FORECASTS. DELOITTE & TOUCHE LLP, THE F.S.
PARTNERSHIP'S INDEPENDENT ACCOUNTANTS, HAS NEITHER EXAMINED REVIEWED NOR
COMPILED THE FINANCIAL PROJECTIONS AND, CONSEQUENTLY, DOES NOT EXPRESS AN
OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT TO THEM. F.S. Management
believes that the Financial Projections are presented on a basis consistent in
all material aspects with generally accepted accounting principles as applied to
its historical financial statements.
The Financial Projections are based on numerous assumptions with
respect to future events and circumstances, including industry performance,
general business and economic conditions and other matters, many of which are
beyond management's control. In addition, unanticipated events and circumstances
may affect the actual financial results of the reorganized Debtor, which may
cause such financial results to differ materially from those set forth in the
Financial Projections. The assumptions set forth herein are those that F.S.
Management believes are significant to the Financial Projections. F.S.
Management believes that such assumptions are reasonable. However, to the extent
that the Financial Projections related to the expected operation of the UPC
Stores, Debtor's management has provided the information and assumptions
relating thereto. Debtor's management believes that its assumptions relating to
the UPC stores are reasonable. Nevertheless, accurate forecasting is very
difficult due to, among other factors, the effects of unforeseen circumstances
on the post-Merger business plans, such as lower levels of consumer demand than
anticipated, unfavorable weather conditions and volatility in wholesale fuel
prices. Therefore, the assumptions made in forecasting results could prove to be
inaccurate, including in particular the following assumptions: in forecasting
results post-merger, management assumed that general and administrative expenses
would decline, and that F.S. management would successfully negotiate an
agreement to sell branded gas products at the Gas Stores, and sales of gas at
those stores would increase. A detailed discussion of these and other risks is
located in this Disclosure Statement under the heading "Risk Factors to be
Considered.
The approach utilized by F.S. Management in developing the Financial
Projections for 2000, 2001 and 2002 involved a "top down" methodology whereby
revenues and expenses were estimated on a macro basis by applying overall
relationships and expectations about future operating variables. While F.S.
Management believes that such an approach is reasonable, the results might
differ had F.S. Management utilized a "bottom-up" methodology whereby revenues
and expenses were estimated on a micro basis using, for example, detailed
departmental budgeting procedures.
Because the Projections are based on assumptions that may not
materialize as anticipated, and because of this choice of approach in
forecasting financial results, it is likely that there will be differences
between the projected and actual results.
Such differences may be material.
THE REORGANIZED DEBTOR WILL NOT HAVE PRIOR CONSOLIDATED OPERATING
HISTORY AND DOES NOT EXPECT TO PUBLISH ITS BUDGET OR DISCLOSE PUBLICLY
PROJECTIONS OR FORECASTS OF ITS EXPECTED RESULTS OF OPERATIONS, CASH FLOWS OR
FINANCIAL POSITION. ACCORDINGLY, THE REORGANIZED DEBTOR DOES NOT INTEND TO, AND
DISCLAIMS ANY OBLIGATION TO (A) UPDATE OR OTHERWISE REVISE FOR THE HOLDERS OF
CLAIMS OR INTERESTS PRIOR TO THE CONFIRMATION DATE, THE FINANCIAL PROJECTIONS TO
REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS (EVEN IN THE EVENT THAT THE ASSUMPTIONS
UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE INACCURATE), EXCEPT AS
REQUIRED BY APPLICABLE LAW AFTER THE EXPIRATION OF THE PLAN SOLICITATION, (B)
INCLUDE ANY UPDATED INFORMATION IN SECURITIES AND EXCHANGE COMMISSION FILINGS,
OR (C) OTHERWISE MAKE SUCH INFORMATION PUBLICLY AVAILABLE.
THE FINANCIAL PROJECTIONS HAVE BEEN PREPARED SOLELY BY F.S. MANAGEMENT
AND HAVE NOT BEEN AUDITED OR COMPILED BY OUTSIDE AUDITORS, FINANCIAL ADVISORS OR
OTHER ADVISORS. THE DEBTOR AND ITS FINANCIAL ADVISORS ARE STILL COMPLETING THEIR
DUE DILIGENCE WITH RESPECT TO THE FINANCIAL PROJECTIONS AND ACCORDINGLY, NEITHER
THE DEBTOR NOR ITS OUTSIDE AUDITORS, FINANCIAL ADVISORS NOR ANY OTHER ADVISOR
HAS EXPRESSED ANY OPINION, MADE ANY REPRESENTATION OR WARRANTY OR OTHERWISE
GIVEN ANY OTHER ASSURANCES WITH RESPECT TO THE ACCURACY OR ADEQUACY OF THE
FINANCIAL PROJECTIONS OR OF THE UNDERLYING ASSUMPTIONS. HOLDERS OF CLAIMS
AGAINST AND INTERESTS IN THE DEBTOR ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THE FINANCIAL PROJECTIONS IN DETERMINING WHETHER OR HOW TO VOTE ON THE PLAN OR
WHETHER TO ACCEPT THE PLAN.
THE FINANCIAL PROJECTIONS SHOULD BE READ IN CONJUNCTION WITH THE
ASSUMPTIONS, QUALIFICATIONS, LIMITATIONS AND EXPLANATIONS RELATING THERETO AND
TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE REORGANIZED DEBTOR.
A. Assumptions - Nature and Limitations of Projections
The accompanying projected financial statements present, to the best of
F.S. Management's knowledge and belief, the reorganized Debtor 's expected
financial position as of August 29, 1999 through December 31, 2002, and the
results of its operations and its cash flows for the years then ended, assuming
consummation of the Plan on August 15, 1999. The projected statements reflect
F.S. Management's judgment as of June 15, 1999, the date of these projections,
of the expected conditions and management's expected course of action. To the
extent that these projections related to the expected performance of the UPC
stores, F.S. Management has relied upon the Debtor's management to provide the
necessary information and assumptions. Because events and circumstances
frequently do not occur as expected, differences between the projected and
actual results which may be material, should be anticipated.
B. Assumptions - Nature of Operations
The accompanying projected financial statements include the accounts of
the F.S. Partnership which relate to the Walk-In Stores, as well as UPC and its
wholly owned subsidiaries, Calibur and Jackson, and give effect to the Plan as
discussed elsewhere in this Disclosure Statement. The general assumptions used
to prepare the projections include the following:
1. Sales.
Sales are projected for 1999 using 36 weeks actual data and the balance
of the year based on historical averages under normal operating conditions. The
projection assumes a 4.0%, 3.5% and 3.5% increase in Merchandise Sales in 2000,
2001 and 2002, based on the following planned events: (1) reopening of three
casualty stores damaged in recent months by fire and tornado, (2)
re-merchandising and remodeling of Farm Stores' convenience stores, similar to a
recent successful effort in the Drive-Thru Stores, (3) leasing available space
in existing stores to fast food and other food service operators, (4) obtaining
a national brand for sales of gasoline at the Gas Stores, and, (5) acquisition
of new stores. Fuel Sales are projected to increase 13%, 22% and 3% in 2000,
2001 and 2002 respectively, based on branding of the Gas Stores. This projected
increase contributes substantially to the projected financial results, and in
particular, to the projected growth in the Walk-In Stores' earnings. Assumed
increase in gas earnings accounts for 26% and 71% of the projected increase in
the Walk-In Stores' earnings for the fiscal years 2000 and 2001, respectively.
F.S. Management has also selected eleven UPC stores for inclusion in the
projection, based on an assessment of historical operating performance and an
estimate of future profitability. The remainder of the UPC stores is not
included in this projection. These stores, together with certain underperforming
Walk-In Stores (whose results are also excluded from the projections) will be
sold over the projection period. F.S. Management routinely reviews acquisitions
of companies with complementary operations and has held discussions with a
number of acquisition candidates. The projection does not give effect to these
potential acquisitions, despite management's intention to pursue such
opportunities when acquisitions are available on favorable terms.
2. Cost of Sales.
Cost of sales are projected using historical percentages, where the UPC
properties are adjusted for cost savings measures and overhead reductions as a
result of the implementation of a Farm Stores model. Cost of sales should
decrease over the period covered by the projection, due to a number of
management's initiatives described above in Sales. Branding the Gas Stores is
projected to increase margins in this business by increasing the proportion of
premium grade gasoline that the Gas Stores sell. This gain in gross margin from
non-gas operations is projected from the re-merchandising of the Walk-In Stores
units, renegotiating deals with key vendors, revamping some of the stores to
emphasize fast food, and by altering pricing structures where applicable.
3. Expenses.
Expenses are projected based on historical amounts and percentages,
giving effect to planned reductions in staffing and overhead. The general and
administrative burden of the F.S. Business included operating a dairy plant for
period prior to October, 1998. Included in the staffing and overhead reductions
are $693,721 in UPC overhead eliminations resulting from the consolidation of
the F.S. Partnerships and UPC operations and the relocation of the UPC
headquarters to Miami. Additionally, management expects to discontinue
operations in certain underperforming stores and all of the Jackson operations
(oil and gas exploration and development) in 2000, 2001 or 2002. These stores
and Jackson's assets will be sold, and the proceeds from the sale will be
invested in FSG or used for general corporate purposes, including working
capital and debt repayment. The expected synergies of the Merger depend in large
part upon the substantial savings in general and administrative expenses the
Projections assume will occur.
4. Other Income.
Projected other income includes interest expense, gains or losses
estimated on the sale of fixed assets, management fee income, goodwill
amortization and miscellaneous income estimated using historical averages.
5. Reorganization Expenses.
Reorganization expenses are projected based on estimates obtained from
various professionals expected to assist in the Chapter 11 process.
6. Depreciation.
Depreciation is estimated based on the most recent historical amounts
included in the F.S. Partnerships historical financial statements with
additional depreciation coming from the UPC stores which will remain in
operation. Such amounts are computed using primarily straight line depreciation
methodology and estimated useful lives of 7 to 31.5 years for used buildings and
improvements, 3 to 7 years for equipment, 3 to 4 years for vehicles and 3 to 10
years for leasehold improvements. All capitalized costs of gas and oil
properties are amortized on the unit-of-production method using estimates of
proved reserves.
7. Capital Expenditures.
F.S. Management believes that $1,821,000, $1,121,000 and $1,121,000
will be required in 2000, 2001 and 2002, respectively, to improve and maintain
existing locations. This translates to approximately $11,000 per store per year.
The 2000 capital expenditures projection includes $700,000 in equipment upgrades
to prepare for the branding of the fuel stores.
8. Receivables.
Receivables are projected based on historical sales of 3.2 days.
9. Inventory.
Inventories are projected based on historical turns of 20 times.
10. Debt Service and Interest.
Debt service and interest expense are projected based on the terms of
the expected financing under the Merger Financing.
11. Effects of Plan Consummation.
Reorganization transactions are projected as follows:
Post-Petition Reorganization costs are projected to be at least
$500,000, based on estimates provided to management from professionals providing
the necessary services and management's estimate of travel, printing and other
incidental costs. The majority of these expenses are projected to be paid upon
consummation of the Plan.
As a preliminary step in preparing the Projected Consolidated Financial
Statements for the years ending August 29, 2000, 2001 and 2002, F.S. Management
has prepared the Unaudited Proforma UPC Balance Sheet as of the Effective Date,
an Unaudited Proforma Farm Stores Balance Sheet as of the Effective Date, and an
Unaudited Consolidated Balance Sheet for the surviving company, UPC Merger Sub.
The Unaudited Proforma Consolidated Balance Sheet, which follows, reflects F.S.
Management's projections with respect to the financial position of the Debtor
and Farm Stores, assuming: (a) the Debtor meets its projections for the balance
of fiscal 1999, (b) Farm Stores meets its projections for fiscal 1999 and (c)
the effects of certain transactions that will occur upon consummation of the
Plan, assumed to be August 24, 1999.
Step 1: UPC Reorganization
The accounting treatment for the Plan will be in accordance with the
accounting principles required by the provisions of the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." Pursuant to SOP 90-7, the
Company will adopt "fresh start" reporting as of the Effective Date of the Plan.
F.S. Management has estimated that the Debtor's reorganization value is equal to
the carrying values of the assets at the Effective Date. Liabilities expected to
exist as of the Effective Date are stated at the present values of amounts to be
paid. Accordingly, the resulting shareholders equity of $24,512,000 is
represented by 140,000 shares of New UPC Preferred Stock with an assigned value
equal to its liquidation value of $14,000,000 ($100 per share) and 5,000,000
shares of New UPC Common Stock, with an assigned value of $10,512,000 ($2.10 per
share). As a result of adopting fresh start reporting upon emerging from Chapter
11 status, the Debtor will have no beginning retained earnings or deficit. In
future reporting periods, UPC's financial statements will be presented on a
different basis than for prior reporting periods and, therefore will not be
comparable with those financial statements prepared before the Plan is
confirmed.
Step 2: Merger with FSCI
Immediately prior to the Merger and with $17 Million of the net
proceeds of the Merger Financing, FSCI and its affiliates will perform the Toni
Agreement. After the reorganization of the Debtor's balance sheet according to
the terms of Chapter 11, the reorganized Debtor will merge with FSCI. Upon
consummation of the merger and the Toni Agreement: (1) UPC will succeed to all
of the assets and liabilities of FSCI and will own or lease 100% of the Walk-In
Stores and a 10% equity interest in FSG, the operator of the Drive-Thru Stores;
(2) the shareholders of FSCI will receive (x) approximately 48% of the New UPC
Common Stock, (y) 50% ($7 million aggregate liquidation preference) of the New
UPC Preferred Stock; and (z) cash in the amount of $3 million; (3) the existing
unsecured creditors and equity holders of UPC (including but not limited to
UPC's unsecured creditors, equity holders and the Trustee of the litigation
settlement trust contemplated by the Chapter 11 plan in the proceedings) will
receive approximately 52% of the common stock of UPC; and (4) Infinity will
receive, on account of its secured claims against UPC, 50% ($7 million aggregate
liquidation preference) of the New UPC Preferred Stock.
F.S. Management has prepared the Unaudited Proforma Consolidated
Balance Sheet as of the Effective Date. Merger-related adjustments to the
balance sheets reflective of the above transaction are as follows: (1) write-up
of Farm Stores' contributed assets in the amount of $1,900,000 to reflect fair
market value; (2) contribution of $3,300,000 in FSG common stock; (3)
contribution of deferred tax assets, resulting from UPC net operating loss
carryforwards, in the amount of $10,000,000; (4) the issuance of $20,000,000 in
debt to (x) pay the $17,000,000 purchase price of Isaias, a non-managing partner
of the F.S. Partnerships, and (y) fund the $3 million cash payment due to Bared
upon consummation of the Merger; (5) issuance of 140,000 shares of New UPC
Preferred Stock and 5,000,000 shares of New UPC Common Stock (having a par value
of $0.001 per share); (6) the creation of $14,268,000 in post-transaction
goodwill associated with the Merger; and, (7) the conversion of $2,002,281 of
retained earnings into paid in capital, thereby reducing the retained earnings
balance to zero.
The Unaudited Proforma Consolidated Balance Sheet is not necessarily
indicative of the results which would have actually been obtained had all the
transactions referred to above occurred on such dates. The Unaudited Proforma
Consolidated Balance Sheet should be read in conjunction with the Debtor's
consolidated financial statements and the notes thereto.
Additional assumptions on which the Unaudited Proforma Consolidated
Balance Sheet is based are set forth as follows:
(a) Represents F.S. Management's assessment of the write-up to fair
market value of the Farm Stores contributed assets.
(b) Represents goodwill created through the merger
(c) Represents the present value of the UPC net operating loss
carryforward contributed to UPC Merger Sub.
(d) Represents the value of 10% of the stock of FSG.
(e) Represents new debt secured upon the assets of UPC Merger Sub to
effect the Merger Financing.
(f) Represents the New UPC Preferred Stock issued according to the
terms of the Plan and the Merger Agreement.
(g) Represents the New UPC Common Stock issued according to the terms
of the Plan and the Merger Agreement.
12. Taxes.
In connection with the reorganization transactions discussed in 11
above, Debtor's management estimates that there will be a gain on the
reorganization of approximately $975,000 on the conversion of the Debentures and
accumulated interest. The projections assume that any such gain will be offset
by net operating loss carryforwards. As discussed elsewhere in this Disclosure
Statement, UPC Merger Sub's net operating loss carryforwards subsequent to the
reorganization may be subject to disallowance. For purposes of these
projections, no part of the potential net operating loss carryforwards that may
be retained by UPC have been utilized in the years ending December 31, 2000,
2001 and 2002. Income taxes for the years ending August 29, 2000, 2001 and 2002
have been projected using tax rates effective as of the date of the projections.
Deferred taxes are provided for the estimated accumulated temporary differences
due to basis differences for assets and liabilities for financial reporting and
income tax purposes. The projected differences are primarily due to different
financial reporting and tax methods for depreciation and amortization.
13. Effects of Chapter 11 Case.
It has been assumed that no adverse effects will result from the
commencement of the Chapter 11 Case. It is possible that sales (and,
accordingly, earnings) would decline during pendancy of the Chapter 11 Case and
that UPC Merger Sub would be unable to recover such lost sales (and earnings)
during any future period.
VIII. VALUATION OF THE NEW UPC COMMON STOCK
The valuation information contained herein is not a prediction or
guarantee of the future trading price of the New UPC Common Stock to be issued
under the Plan. The trading price of securities issued under a plan of
reorganization is subject to many unforseeable circumstances and therefore
cannot be accurately predicted. In addition, the actual amount of Allowed Claims
and Interests could materially exceed the amounts estimated by the Debtor for
purposes of valuing the anticipated percentage recoveries by the holders of such
Claims and Interests. As noted below, the valuation of New UPC Common Stock is
based on the average projected EBITDA for 2000-2001, and there can be no
assurance that the trading market for the New UPC Common Stock will give effect
to this analysis. Accordingly, no representation can be or is being made with
respect to whether such percentage recoveries will actually be realized by the
holders of Allowed claims and Interests.
In connection with certain matters relating to the Plan, F.S.
Management determined that it was necessary to estimate the value of the New UPC
Common Stock as of the Effective Date. Accordingly, F.S. Management has
performed certain analyses and estimated the value for the New UPC Common Stock
to be issued under the Plan. Specifically, the valuation was developed for
purposes of (a) evaluating the relative recoveries of holders of claims and
Equity Interests, and (b) evaluating whether the Plan meets the "best interests
of creditors" test under section 1129(a)(7) of the Bankruptcy Code.
In preparing its analysis, F.S. Management and its financial advisors
considered, among other factors: (1) "comparable company analysis" which
consisted of reviewing net income, EBITDA and other statistics of selected
publicly traded companies deemed similar to the reorganized Debtor; (ii)
"comparable transaction analysis," which consisted of reviewing valuation
multiples of consolidated net income, consolidated EBITDA and store-level EBITDA
achieved typically in transactions involving sales of control ownership
positions by multi-store operators in the convenience store industry; (iii) the
likely present value of the net operating loss carry forwards held by the
Debtor; and (iv) the estimated value of the 10% stake the Debtor will hold in
Farm Stores Grocery, Inc., a chain of approximately 108 drive-through specialty
grocery stores. In its comparable company analyses, management considered the
stock market valuations of such growth-oriented convenience store operators as
Casey's General Stores and The Pantry. For the comparable transactions analyses,
F.S. Management's valuation assumptions were based on their judgment and
experience gained from analysis of a number of comparable control transactions
in the industry, rather than relying on a small set of specific transactions. In
control transactions in the Debtor's industry, valuations are often based on
"store-level" earning power rather than consolidated net income or cash flow.
Because of the difficulty of obtaining store-level profitability data in
transactions involving publicly traded suitors and targets, F.S. Management felt
it was better to rely on its knowledge of valuations seen in those (typically
private) transactions where F.S. Management could accurately observe store-level
profitability data. Each analysis valued both the enterprise value and the value
of the New UPC Common Stock. The enterprise value is equal to the market value
of the Common Stock plus the value of the New UPC Preferred Stock (plus accrued
dividends) plus the market value of interest-bearing liabilities (including
accrued interest) less cash and marketable securities.
In summary, F.S. Management's estimate of the value of the New UPC
Common Stock was arrived at in the following manner:
(in thousands, except per share data)
<TABLE>
<S> <C>
Fiscal 2000 estimated EBITDA $ 5,257
Fiscal 2001 estimated EBITDA $ 8,539
------------
Average $ 6,898<F1>
EBITDA multiple assumed $ 6.0<F2>
------------
Enterprise value of Debtor's
convenience store operations $ 41,385
Estimated value of Debtor's 10%
share of Farm Stores Grocery, Inc. $ 3,300
Estimated present value of tax
Shelter from Debtor's $ 8,878<F3>
Total enterprise value $ 53,566
Subtract: post transaction debt $ 20,738
preferred stock face value $ 14,000
============
Equity value $ 18,828
============
Common shares outstanding $ 5,000
Estimated value per common share $ 3.77
Notes:
<FN>
<F1> An average of the next two fiscal years is used because fiscal 1999 is
anticipated to be a transition year where the benefits of combining the two
businesses and of branding the Gas Stores will not be fully realized.
Fiscal 2000's projected earning power should capture both the benefits of
the merger and the full impact of a fuel branding program expected to
commence in the first calendar quarter of 2000. An average of the two
EBITDA figures is more appropriate for comparisons with public companies
than simply using 2001 projected data, as the most distant earnings
estimates published by securities analysts for comparable public companies
are for the year ending December 31, 2000.
<F2> The assumed EBITDA-based valuation multiple used in this analysis, 6.0
times, represents a modest discount to the average multiple of 2000 EBITDA
data for comparable public companies.
<F3> The present value of the tax shelter associated with the Debtor's
approximately $30 million NOL carryforwards assumes utilization of the NOL
of $1,603,000; $5,899,000; $9,977,000; $9,977,000 and $2,500,000 in years 1
through 5, respectively.
</FN>
</TABLE>
Estimates of reorganization value do not purport to be appraisals nor
do they necessarily reflect the values that may be realized if assets are sold
in arm's length transactions between buyers and sellers. The estimates of value
herein represent hypothetical reorganization values that were developed solely
for the purposes cited above. Such estimates reflect computations of the
estimated equity values of the Debtor though application of various valuation
techniques and do not purport to reflect or constitute appraisals of the actual
market value that may be realized through the sale of the New UPC Common Stock
to be issued pursuant to the Plan, which may be significantly different from the
amounts set forth herein. The valuation of the New UPC Common Stock is subject
to uncertainties and contingencies, all of which are difficult to predict.
The actual market price of the New UPC Common Stock at the time of
issuance will depend upon prevailing interest rates, market conditions, the
conditions and prospects, financial and otherwise, of the reorganized Debtor,
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 that generally influence the prices of
securities. The actual market price of the New UPC Common Stock may be affected
by the reorganized Debtor's performance during the pendency of the Chapter 11
Case or by other factors not possible to predict.
Many of the analytic assumptions upon which the valuations are based
are beyond the control of the reorganized Debtor and F.S. Management, and
accordingly, there will be variations between such assumptions and the actual
results. These variations may be material. The New UPC Common Stock is likely to
trade at values that differ from the amounts assumed herein, and which differ
from the common shareholders' equity per share shown in the financial/exhibits
attached hereto. In the event that the estimated value of the reorganized Debtor
is different from the actual trading market value after the Effective Date,
actual recoveries realized by one or more of the classes of the claims or Equity
Interests may be significantly higher or lower than estimated in this Disclosure
Statement.
F.S. Management believes that the Projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgment as to the future operating and financial performance of the Debtor.
Accordingly, the valuation herein assumes that the operating results projected
by F.S. Management will be achieved in all material respects. However, no
assurance can be given that the projected results will be achieved. In
particular, the projected results include assumed substantial increases in gas
revenues and decreases in general and administrative expenses, which combine to
create substantially more earnings than the F.S. Business and the Debtor have
realized in the past. Thus to the extent that the valuation is dependent upon
the reorganized Debtor's achievement of the projections, the valuation must be
considered speculative.
The summary set forth above does not purport to be a complete
description of the analysis performed by the F.S. Management. The preparation of
an estimate involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods in
the particular circumstances and, therefore, such an estimate is not readily
susceptible to summary description. In performing its analysis, numerous
assumptions were made with respect to industry performance, business and
economic conditions, and other matters. The analyses contained herein are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
As a result of the analyses, reviews, discussions, consideration and
assumptions summarized herein, F.S. Management believes that the value of the
New UPC Common Stock is equal to $3.77 per common share. This estimate is
necessarily based on economic, market, financial and other conditions as they
exist on, and on the information made available as of, the date of this
Disclosure Statement. Although subsequent events may affect the conclusions,
F.S. Management has no obligation to update, revise or reaffirm its estimate of
its reorganized value.
By way of comparison, based upon the pro forma balance sheet attached
hereto as Exhibit E, the common stock will have a book value of approximately
$2.00 share.
IX. THE CHAPTER 11 CASE
A. Commencement of the Chapter 11 Case
On January 14, 1999 (the "Petition Date"), the Debtor commenced this
Chapter 11 Case by filing a voluntary petition for protection under the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware, the Honorable Peter J. Walsh presiding.
B. Continuation of Business After the Petition Date
Since the Petition Date, the Debtor has continued to operate its
business and manage its property as a debtor in possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. During the period immediately following
the Petition Date, the Debtor sought and obtained authority from the Bankruptcy
Court with respect to a number of matters deemed by the Debtor to be essential
to its smooth efficient transition into chapter 11 administration and to
stabilize its operations.
In addition to seeking entry of the Cash Collateral Order, shortly
after the commencement of the Chapter 11 Case, the Debtor has sought certain
additional orders, including the following: (a) orders authorizing the retention
of professionals (including accountants and attorneys) in connection with the
Chapter 11 Case, (b) an order authorizing the Debtor to maintain its prepetition
bank account and to continue use of existing business forms and existing books
and records (c) an order authorizing the payment of certain payroll taxes, and
(d) an order extending the Debtor's time to file its schedules of assets and
statement of financial affairs.
On February 4, 1999, the Debtor commenced an action in the Bankruptcy
Court to stay the Tennessee Litigation, and for a determination of whether the
claims asserted in such action are derivative in nature. After briefing and a
hearing on February 25, 1999, the Bankruptcy Court preliminarily enjoined the
plaintiff in the Tennessee Litigation from continuing to prosecute its action in
the Tennessee Federal Court in any way except (i) continued prosecution of
plaintiff's motion to sever the Debtor from the Tennessee Litigation, (ii)
continued efforts to take certain document discovery and (iii) continuing
Plaintiff's efforts to take the deposition of Mr. Clark K. Hunt. Additionally,
the Bankruptcy Court specifically ruled that its order would expire on the
earlier of May 25, 1999 or confirmation of the Debtor's Plan. On May 24, 1999,
the Debtor moved the Bankruptcy Court for an extension of the preliminary
injunctions. On June 14, 1999, the Bankruptcy Court denied the Debtor's motion,
freeing the plaintiff to pursue the Tennessee Litigation. Nevertheless if the
Plan is confirmed, the claims asserted in the Tennessee Litigation would be
channeled into, and so long as the UPC Trust remains funded, could be pursued
only against the UPC Trust.
C. Representation of the Debtor
Shortly before the Petition Date, the Debtor retained and has since
been represented by the law firm of Young Conaway Stargatt & Taylor, LLP located
at Rodney Square North, 11th Floor, P.O. Box 391, Wilmington, Delaware
19899-0391, as bankruptcy counsel. Additionally, the Debtor has retained and is
represented by the law firm of Wood, Exall & Bonnet, L.L.P. who serves as
special corporate and securities counsel. The Debtor has also retained the
accounting firm, J.H. Cohn as its financial advisor.
X. THE PLAN
A. General
THE FOLLOWING IS A SUMMARY OF CERTAIN MATTERS CONTEMPLATED TO OCCUR
EITHER PURSUANT TO OR IN CONNECTION WITH THE CONSUMMATION OF THE PLAN. THIS
SUMMARY HIGHLIGHTS CERTAIN OF THE SUBSTANTIVE PROVISIONS OF THE PLAN, AND IS
NOT, NOR IS IT INTENDED TO BE, A COMPLETE DESCRIPTION OR A SUBSTITUTE FOR A FULL
AND COMPLETE REVIEW OF THE PLAN. STATEMENTS REGARDING PROJECTED AMOUNTS OF
CLAIMS OR DISTRIBUTIONS (OR VALUE OF SUCH DISTRIBUTIONS) ARE ESTIMATES BASED
UPON CURRENT INFORMATION AND ARE NOT REPRESENTATIVE AS TO THE ACCURACY OF THESE
AMOUNTS. FOR AN EXPLANATION OF THE BASIS FOR, LIMITATIONS OF, AND UNCERTAINTIES
RELATING TO THE VALUE OF THE STOCK TO BE ISSUED UNDER THE PLAN, SEE THE SECTION
VIII OF THIS DISCLOSURE STATEMENT ENTITLED "VALUATION OF THE NEW UPC STOCK." THE
DEBTOR URGES ALL HOLDERS OF CLAIMS AND INTERESTS AND OTHER PARTIES IN INTEREST
TO READ AND STUDY CAREFULLY THE PLAN, A COPY OF WHICH IS ATTACHED HERETO AS
EXHIBIT A.
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization must classify claims against and equity interests in a debtor.
Although the Bankruptcy Code gives a debtor significant flexibility in
classifying claims and interests, section 1122 of the Bankruptcy Code requires
that a plan of reorganization may only place a claim or an interest into a class
containing claims or interests that are substantially similar to such claim or
interest.
The Plan designates six Classes of Claims and two Classes of Interests.
These Classes take into account the differing nature and priority of Claims
against and Interests in the Debtor. In addition, Administrative Expense Claims
and Priority Tax Claims are not classified for purposes of voting or receiving
distributions under the Plan, as is permitted by section 1123(a)(1) of the
Bankruptcy Code. Rather, all such Claims are treated separately as Unclassified
Claims.
The Plan provides different treatment for each class of Claims and
Equity Interests. Only holders of Allowed Claims or Equity Interests are
entitled to receive distributions under the Plan. Allowed Claims are Claims that
are not in dispute, are not contingent, are liquidated in amount, and are not
subject to objection or estimation.
In accordance with the Plan, unless otherwise provided in the Plan or
the Confirmation Order, the treatment of any Claim or Equity Interest under the
Plan will be in full satisfaction, settlement, release, and discharge of and in
exchange for such Claim or Equity Interest.
Article 2 of the Plan classifies the Claims against and Equity
Interests in the Debtor. Article 4 of the Plan provides for the treatment of
Claims and Equity Interests. Article 5 of the Plan provides for the treatment of
unclassified Claims. The following discussion summarizes the classification
scheme and treatment method proposed by and for the Debtor and is qualified in
its entirety by the terms of the Plan, which is attached hereto as Exhibit "A",
and which should be read carefully by you in considering whether to vote to
accept or reject the Plan.
B. Classification and Treatment of Claims and Interests
If the Plan is confirmed by the Bankruptcy Court, each holder of an
Allowed Claim or Allowed Interest in a particular Class will receive the same
treatment as the other holders in the same Class of Claims or Interests, whether
or not such holder voted to accept the Plan. Moreover, upon confirmation, the
Plan will be binding on all creditors and stockholders of UPC regardless of
whether such creditors or stockholders voted to accept the Plan. Such treatment
will be in full satisfaction, release and discharge of and in exchange for such
holder's respective Claims against or Interests in UPC, except as otherwise
provided in the Plan.
1. Unclassified Claims.
The Bankruptcy Code does not require classification of certain priority
claims against a debtor. In this case, these unclassified Claims include
Administrative Expense Claims and Priority Tax Claims.
(a) Administrative Expense Claims. An Administrative Expense
Claim is any cost or expense of administration of the Chapter 11 Case
incurred by UPC (or its Estate) on or after the Petition Date and
before the Effective Date, and which is entitled to and allowed
priority under Section 503(b) of the Bankruptcy Code. These Claims
include, without limitation, any reasonable, actual and necessary costs
and expenses of preserving the Estate and operating the business of UPC
during the Chapter 11 Case. In the present case, Administrative Expense
Claims are primarily composed of professional fees and costs, which the
Debtor has estimated will be at least $500,000.
Each holder of an Allowed Administrative Expense Claim shall
receive (i) the amount of such holder's Allowed Administrative Expense
Claim in one cash payment on the Distribution Date, or (ii) such other
treatment as may be agreed upon in writing by UPC and such holder;
provided, that an Administrative Expense Claim representing a liability
incurred in the ordinary course of business of UPC may be paid at UPC's
election in the ordinary course of business by UPC.
Certain Claims which may have accrued before the Petition Date
or may accrue after the Petition Date, but arise out of executory
contracts with UPC made before the Petition Date, and which would
ordinarily be treated as General Unsecured Claims, may constitute
Administrative Expense Claims as a result of the Debtor's assumption,
pursuant to section 365 of the Bankruptcy Code, of the agreement giving
rise to the Claim. Because the Plan provides that Claims in Class 4,
consisting of General Unsecured Claims, are unimpaired, the distinction
is de minimis. Accordingly, holders of such Claims may elect not to
apply for treatment of such Claims as Administrative Expense Claims.
Regardless of the class into which any such postpetition Claim is
placed, any such postpetition Claim that is considered to be for
"services or for costs and expenses in or in connection with the
Chapter 11 Case, or in connection with the Plan and incident to the
case," must be approved by or be subject to the approval of the
Bankruptcy Court as reasonable.
(b) Priority Tax Claims. A Priority Tax Claim is that portion
of any Claim against UPC for unpaid taxes which is entitled to priority
in right of payment under section 507(a)(8) of the Bankruptcy Code. UPC
believes that it was substantially current on its tax obligations at
the time of commencement of the Chapter 11 Case. Accordingly, UPC
anticipates that Priority Tax Claims will be less than $40,000.
Pursuant to the Plan, each holder of an Allowed Priority Tax
Claim shall receive from the Debtor in full satisfaction of such
holder's Allowed Priority Tax Claim, (i) the amount of such holder's
Allowed Claim, with Post-Confirmation Interest thereon, in equal annual
cash payments on each anniversary of the Distribution Date, until the
sixth anniversary of the date of assessment of such Claim (provided
that the Debtor may prepay the balance of any such claim at any time
without penalty); (ii) a lesser amount in one cash payment as may be
agreed upon in writing by the Debtor and such holder; or (iii) such
other treatment as may be agreed upon in writing by the Debtor and such
holder.
2. Classified Claims.
The following describes the Plan's classification of the Claims and
Interest that are required to be classified under the Bankruptcy Code and the
treatment that the holders of Allowed Claims or Allowed Interests will receive
for such Claims or Interests:
(a) Class 1 -- Priority Non-Tax Claims. A Priority Non-Tax
Claim is any Claim against UPC for an amount entitled to priority under
section 507(a) of the Bankruptcy Code, other than an Administrative
Claim or a Priority Tax Claim. Such Claims are primarily for employee
wages, vacation pay, severance pay, contributions to benefit plans and
other similar obligations. The Debtor estimates that the aggregate
allowed amount of Priority Non-Tax Claims will be no more than $10,000
on the Effective Date. All holders of Allowed Priority Non-Tax Claims
will have all of their legal, contractual and equitable rights
reinstated pursuant to the Plan and therefore are unimpaired under the
Plan.
(b) Class 2 -- Infinity Secured Claim. The Infinity Secured
Claim shall be Allowed pursuant to the Plan and on the Effective Date
the holder of the Infinity Secured Claim shall receive 70,000 shares of
New UPC Preferred Stock in full satisfaction and release of the
Infinity Secured Claim.
(c) Class 3 -- Secured Claims (Other than the Infinity Secured
Claim). This Class includes all Claims that are secured by Liens on any
asset of UPC, excluding the Infinity Secured Claim. The Debtor
currently believes that the only such Claim is the Secured Claim of the
Small Business Administration (the "SBA") with respect to the Marietta,
Georgia location. The SBA's Secured Claim is comprised of first and
second mortgage loans in the combined principal amount of approximately
$908,045 to Calibur, which are secured by real property owned by the
Debtor. As of December 31, 1998, the combined balance of the two notes
was $930,000, which balance should decrease because monthly payments
are being made on the SBA notes by Calibur's tenant on the Marietta,
Georgia Property. Each holder of an Allowed Secured Claim shall be
unimpaired under the Plan and, pursuant to section 1124 of the
Bankruptcy Code, all of the legal, equitable, and contractual rights of
each holder of a Secured Claim in respect of such Claim shall be fully
reinstated and retained as though the Chapter 11 Case had not been
filed. Notwithstanding the foregoing, the Debtor and any holder of an
Allowed Secured Claim may agree to any alternate treatment of such
Secured Claim, which treatment may include preservation of such
holder's Lien; provided, that such treatment shall not provide a return
to such holder having a present value as of the Effective Date in
excess of the amount of such holder's Allowed Secured Claim.
(d) Class 4 -- General Unsecured Claims. This Class includes
all Claims against UPC that are not secured by a Lien on any asset of
UPC, excluding the Debenture Claims and Securities Claims. General
Unsecured Claims are composed primarily of trade debt incurred by UPC
for goods and services provided before the commencement of the Chapter
11 Case, and other miscellaneous obligations arising from the
prepetition operations of UPC's business. The Debtor currently
estimates that the allowed amount of such Claims will not exceed
$250,000. However, the Debtor has scheduled as disputed approximately
$900,000 of unsecured claims and proofs of unsecured claims, which the
Debtor likewise disputes, have been filed totaling approximately
$2,000,000. Although the Debtor believes that all of the disputed
scheduled and filed claims will ultimately be disallowed by the
Bankruptcy Court, there can be no assurance that some or all of the
disputed scheduled and filed claims will not be allowed by the
Bankruptcy Court. The allowance of a substantial portion of such
disputed claims would have a deleterious effect on the ability of the
Debtor to consummate the Plan, as under the Plan, each holder of an
Allowed General Unsecured Claim shall be unimpaired and, pursuant to
section 1124 of the Bankruptcy Code, all of the legal, equitable and
contractual rights of each holder of an Allowed General Unsecured Claim
in respect of such Claim shall be fully reinstated and retained as
though the Chapter 11 Case had not been filed.
(e) Class 5 -- Debenture Claims. The Debenture Claims shall be
Allowed pursuant to the Plan and on the Effective Date each holder of
an Allowed Debenture Claim shall receive a Pro Rata Share of 1,750,000
shares of New UPC Common Stock. Infinity or its affiliates will
transfer 200,000 shares of the New UPC Common Stock that it receives on
account of its Debentures to the UPC Trust; provided, that Infinity or
its affiliates shall be entitled to receive one-half (1/2) of any such
assets that remain in the UPC Trust, if any, after all distributions
have been made by the UPC Trust under the Plan in respect of Allowed
Securities Claims. As of January 14, 1999, the outstanding principal
amount of (i) the 6% Debentures was $1,324,696 and accrued interest was
$97,020, (ii) the outstanding principal amount of the 7% Debentures was
$3,549,120 and accrued interest was $532,507, and (iii) the outstanding
principal amount of the 18% Debentures was $1,575,000 and accrued
interest was $420,117. As of December 31, 1998, the aggregate
outstanding principal amount of the Debentures was $6,448,816 and
accrued interest was $1,049,694. In addition to the principal and
interest owing under the Debentures, Class 5 Debenture Claims also
include any other claims arising under or in any way relating to the
Debentures, and would include any Causes of Action. The only Debenture
Claims filed other than for principal and interest were filed by Dan
Dotan and Mantel International Investments, Ltd. ("Mantel"). Dan Dotan
filed three claims<F8> in unliquidated amounts (the "Dotan Claims")
which assert claims for diversion, recision and failure to convert,
arising out of his prior ownership of Debentures. Debtor's records
reflect that Dan Dotan holds a Debenture Claim in the amount of
$200.00. Additionally, Mantel filed an unliquidated claim for fraud,
breach of contract and other causes of action arising out of his
ownership of Debentures (the "Mantel Claims"). Debtor's records reflect
that Mantel holds no Debenture Claim. Debtor believes the Dotan Claims
and Mantel Claim are without merit and the Debtor intends to vigorously
contest such Claims. To the extent such claims are allowed by the
Court, the total amount of claims in Class 5 will increase and the
percentage recovery to holders of Class 5 Claims will be diminished
proportionately.
<F8> Additionally, Dan Dotan filed a claim arising out of his Preferred Stock
holding which claim, to the extent allowed, will be treated in Class 6.
(f) Class 6 -- Preferred Equity Interests. The Preferred
Equity Interests shall be Allowed pursuant to the Plan and on the
Effective Date each holder of an Allowed Preferred Equity Interest
shall receive a Pro Rata Share of 650,000 shares of New UPC Common
Stock. As of December 31, 1998, the Class A Preferred Stock had an
aggregate liquidation preference of $9,912,000 and a dividend rate of
18%, and the Class B Preferred Stock had an aggregate liquidation
preference of $1,833,000 and a dividend rate of 8%. Preferred Equity
Interests will be canceled, annulled and extinguished on the Effective
Date.
(g) Class 7 -- Common Equity Interests. This Class includes
all shares of Common Stock outstanding on the Petition Date (which UPC
currently estimates to be 30,565,352 shares). All Common Equity
Interests (except for Securities Claims) will be canceled, annulled and
extinguished as of the Effective Date. Each holder of an Allowed Common
Equity Interest as of the Distribution Record Date shall receive (i) a
Pro Rata Share of 200,000 shares of New UPC Common Stock, and (ii) the
right to receive a Pro Rata Share of one-half ( 1/2) of any assets
initially contributed to the UPC Trust pursuant to Sections 7.2 and 7.3
of the Plan, which remain after all distributions have been made by the
UPC Trust under the Plan in respect of Allowed Securities Claims.
(h) Class 8 - UPC Securities Claims. This class includes all
UPC Securities Claims, if any. All UPC Securities Claims shall be
liquidated and allowed pursuant to the ADR, together with the Infinity
Securities Claims. On the distribution Date, each holder of an Allowed
UPC Securities Claim shall receive a distribution from the UPC Trust as
provided by the UPC Trust Agreement and the ADR.
C. Means for Implementation of the Plan
1. Continued Corporate Existence.
UPC and its subsidiaries, Calibur and Jackson, shall continue to exist
after the Effective Date as separate corporate entities, with all corporate
powers, in accordance with the laws of the State of Delaware and pursuant to
their respective charters and new by-laws (in the Debtor's case, its New Charter
and By-Laws which shall become effective upon the occurrence of the Effective
Date).
The vast majority of the Company's employees are employed by, and the
vast majority of the Company's trade creditors are creditors of, Calibur, which
operates the Company's car wash, gas station, lube center and convenience store
businesses. As a result, because the Company does not contemplate commencing a
chapter 11 case for Calibur, the Chapter 11 Case should have no direct impact on
the vast majority of the Company's employees or trade creditors. All employees
or trade creditors of Calibur and Jackson may continue to transact business with
the Company in the ordinary course and the companies intend to pay such claims
in the ordinary course during the pendancy of the Chapter 11 Case of UPC.
The Plan provides that valid Claims of trade creditors are unimpaired;
such claims are to be to be paid in full and the holders of any such Claim shall
not be required to file a proof of claim or take any other formal action to
obtain such payment unless such holder disagrees with the amount scheduled for
such Claim by the Company.
The Debtor intends that, except as may be provided in the Plan,
separate motion filed with the Bankruptcy Court, the Merger Agreement or the
Management Agreement, salaries, wages, expense reimbursements, accrued paid
vacations, health-related benefits, severance benefits and similar benefits of
employees of UPC will be unaffected by the Plan. However, after the Effective
Date, the employees of the Debtor will become subject to the benefit plans and
programs of F.S. Partnerships rather than those of the Debtor. The Plan provides
for all UPC employee claims and benefits to be paid or honored no later than the
date on or after the Effective Date when such payment or other obligation
becomes due and performable.
2. Actions Prior to the Effective Date.
On or prior to the Effective Date (except as otherwise indicated), the
following actions shall have been effected:
(a) title to the Estate Assets shall vest in UPC, free and
clear of all liens, claims, and interests, except as expressly provided
in the Plan;
(b) pursuant to the Merger Agreement, title to the FSCI Assets
shall vest in UPC Merger Sub, and pursuant to the Merger Agreement and
the consummation of the Toni Option, UPC Merger Sub will own 100% of
the assets consisting of the Walk-In Stores and 10% of the stock of
FSG.
(c) the management, control, and operation of UPC shall become
the general responsibility of the board of directors of UPC, as
reconstituted pursuant to the Plan and Merger Agreement,
(d) UPC's charter and bylaws shall be amended and restated to
provide for, among other things, the implementation of the Plan, UPC's
opting out of Section 203 of the Delaware General Corporation Law, a
prohibition against the issuance of nonvoting equity securities as
required by section 1123(a)(6) of the Bankruptcy Code, and restrictions
on certain transfers of New UPC Common Stock (See Description of
Securities and Instruments to be issued in Connection with the Plan;
Common Stock to be Issued Pursuant to the Plan);
(e) the Debentures, the A-Note, the B-Note and all related
loan, security and other documents, and all existing shares of Common
Stock and the Series A and Series B Preferred Stock shall be canceled,
annulled, and extinguished;
(f) UPC shall issue and distribute 2,600,000 shares of New UPC
Common Stock (representing a 52% common equity interest in UPC) as
follows: (i) 1,750,000 shares shall be issued to the holders of Allowed
Debenture Claims (of which Infinity or its affiliates shall transfer
200,000 shares to the UPC Trust); (ii) 650,000 shares shall be issued
to the holders of Allowed Preferred Equity Interests; and (iii) 200,000
shall be issued to the holders of Allowed Common Equity Interests;
(g) UPC shall issue and distribute to Infinity 70,000 shares
of New UPC Preferred Stock in exchange for the cancellation of the
Infinity Secured Claim as specified in the Infinity Settlement
Agreement;
(h) UPC shall issue and distribute 2,400,000 shares of New UPC
Common Stock (representing a 48% common equity interest in UPC), 70,000
shares of New UPC Preferred Stock and $3 Million to the FSCI
Shareholder pursuant to the Merger Agreement;
(i) except as otherwise provided in the Plan, all promissory
notes, share certificates, instruments, indentures, or agreements
evidencing, giving rise to, or governing any Claim or Equity Interest
shall be deemed canceled and annulled without further act or action
under any applicable agreement, law, regulation, order, or rule, and
the obligations of UPC under such promissory notes, share certificates,
instruments, indentures, or agreements shall be discharged;
(j) the UPC Trustee, the Debtor, and the Infinity Parties
shall enter into and execute the UPC Trust Agreement, the UPC Trust
shall be established, and the property to be transferred to the UPC
Trust shall automatically vest in the UPC Trust without further action
on the part of the Debtor, Infinity or the UPC Trustee, with the
execution, delivery and filing or recording as necessary of appropriate
documents of conveyance and physical delivery of such property
occurring as soon thereafter as practicable; and
(k) all Securities Claims against UPC and the Infinity Parties
shall be (i) channeled to the UPC Trust for liquidation pursuant to the
ADR resolution procedures established pursuant to the Plan (as attached
to the Plan as Appendix II thereto) and satisfied from the assets of
the UPC Trust, and (ii) enjoined from being asserted against or
collected from UPC or the Infinity Parties.
3. Sources and Uses of Funds.
The Debtor estimates that, on the Effective Date, it will be required
to make cash payments totaling up to approximately $20.9 million (i.e., the cash
required to pay $3 Million to the FSCI shareholder upon consummation of the
Merger, the $17 Million payment under the Toni Option, Administrative Expense
Claims, Priority Tax Claims, Priority Non-Tax Claims and General Unsecured
Claims). The Company believes that the $23 million Merger Financing it hopes to
obtain will be more than adequate to cover its cash obligations under the Plan,
as well as to provide UPC with sufficient working capital to meet its ongoing
obligations and any additional cash needs after the Effective Date. However,
this belief is based on assumptions and projections as to the reorganized
Debtor's future performance, including, among other things, projections
concerning profit margins that assume certain cost savings resulting from the
Merger, and there can be no assurance that the actual performance of the
reorganized Debtor, and therefore its ability to cover its cash obligations
under the Plan, will be as favorable as projected. See "Business Plan and
Assumptions." All Cash necessary for the UPC Trust to make payments to the
holders of Allowed Securities Claims shall be obtained from the assets
contributed by Infinity to the UPC Trust pursuant to the Plan, or the proceeds
thereof.
4. Use of Cash Collateral.
In connection with the issuance of the A-Note and the B-Note, the
Company granted Infinity a security interest in substantially all of the
Company's assets, including, without limitation, all of the Company's cash. As a
result, section 363 of the Bankruptcy Code requires the Debtor to either obtain
Bankruptcy Court approval to use such cash or obtain approval of an agreement
with Infinity regarding the use of such cash. In that regard, the Debtor has
entered into and obtained Bankruptcy Court approval of an agreement with
Infinity authorizing the use of cash collateral during the pendancy of the
Chapter 11 Case.
5. Filing and Execution of Plan Documents.
On or before five (5) business days prior to the deadline for parties
to vote to accept or reject the Plan, UPC shall file with the Bankruptcy Court
substantially final forms of the agreements and other documents that have been
identified as Plan Documents, which documents and agreements shall implement and
be controlled by the Plan. Entry of the Confirmation Order shall (a) ratify all
actions taken by the Debtor during the Chapter 11 Case, and (b) authorize the
officers of UPC to execute, enter into, and deliver all documents, instruments
and agreements, including, but not limited to, the Plan Documents, and to take
all actions necessary or appropriate to implement the Plan. To the extent the
terms of any of the Plan Documents conflict with the terms of the Plan, the Plan
shall control.
6. Intercompany Causes of Action.
Except for valid intercompany payables and receivables between and
among UPC, Jackson and Calibur, which shall be unaffected by the Chapter 11
Case, all rights, claims, Causes of Action, obligations, and liabilities between
and among UPC and its Affiliates shall be waived, released, and discharged upon
the occurrence of the Effective Date.
7. Vesting of Causes of Action.
Because of the exigencies relating to the Merger and in order to
minimize administrative expenses so as to maximize distributions to creditors,
the Proponent has filed the Plan and this Disclosure Statement on an expedited
basis. As a result, the Proponent has yet to undertake and complete a thorough
analysis of possible Causes of Action and the potential defendants in respect
thereof.
Except as otherwise provided in the Plan, all Causes of Action
assertable by UPC including, without limitation, all Causes of Action assertable
pursuant to sections 542, 543, 544, 545, 547, 548, 549, 550, or 553 of the
Bankruptcy Code shall be retained by UPC and shall be vested in UPC upon the
occurrence of the Effective Date. Any net recovery realized by UPC on account of
such Causes of Action shall be property of UPC.
Further, without limiting the scope of the above paragraph or the
universe of potential defendants, all creditors who received transfers or
payments which may be avoidable under Bankruptcy or non-Bankruptcy law,
directors and former officers of the Debtor, and advisors to the Debtor (except
to the extent expressly released pursuant to the Plan), may be targets in such
litigation.
The entry of the Confirmation Order shall not constitute res judicata
or otherwise bar or inhibit the prosecution of Causes of Action by the Debtor.
8. Injunction for Indemnities.
The entry of the Confirmation Order shall constitute a permanent
injunction against the prosecution of all claims and causes of action of any
Person against the officers, directors, employees and attorneys of UPC, who
served in such capacities as of the Effective Date, to the extent such claims or
causes of action (a) are based in whole or in part on events occurring on or
before the Effective Date, and (b) have been indemnified by UPC Debtor under its
charter, its bylaws, applicable state law or as specified by agreement, or any
combination of the foregoing. The obligations of UPC to indemnify, reimburse, or
limit the liability of such directors, officers, employees, or attorneys against
any claims or causes of action as provided in UPC's charter, UPC's bylaws,
applicable state law, or specified by agreement, or any combination of the
foregoing, shall survive confirmation of the Plan, remain unaffected thereby,
and not be discharged to the extent such claims or causes of action are (a)
asserted against individuals who served in such capacities on the Effective
Date, and (b) based in whole or in part on events occurring on or before the
Effective Date.
Dan Dotan and Mantel have advised the Debtor that they have claims
against present or former directors and officers of UPC, on which claims said
directors and officers are asserted to be jointly liable with UPC. Dan Dotan and
Mantel therefore assert that indemnification by UPC and the proposed injunction
in favor of such persons violates 11 U.S.C. section 502(e) and 520(b), which
assertion UPC disputes.
9. Severance Policies.
Other than as may be provided for in the Merger Agreement, the
Management Agreement or separate motion filed with the Bankruptcy Court prior to
entry of the Confirmation Order, all employment and severance practices,
policies, and agreements, and all compensation and benefit agreements, plans,
policies, and programs of UPC applicable to its directors, officers, or
employees, including, without limitation, all savings plans, health care plans,
severance benefit plans, incentive plans, employment agreements, workers'
compensation programs, and life, disability, and other insurance plans, to the
extent in full force and effect on the date of the commencement of the
Confirmation Hearing are treated as executory contracts under the Plan, and the
Plan constitutes and incorporates a motion to assume all such practices,
policies, agreements, plans, and programs pursuant to section 365(a) of the
Bankruptcy Code, as modified by the Plan.
D. Creation of UPC Trust and Appointment of Trustee
On the Effective Date, the UPC Trust will be created pursuant to the
UPC Trust Agreement for the benefit of all holders of Securities Claims. The UPC
Trust shall be administered by an independent trustee who shall be designated by
UPC, subject to approval of the Bankruptcy Court. In consideration for the
property transferred and the payments made to the UPC Trust pursuant to the
Plan, the UPC Trust shall assume all Securities Claims against UPC and the
Infinity Parties and indemnify them for any claims for reimbursement or
contribution. So long as the property transferred to the UPC Trust has not been
exhausted, or if exhausted, replenished by Infinity, the Confirmation Order
shall enjoin the holders of Securities Claims (including, without limitation,
the Claims asserted in the Pisacreta/Tucci Action to the extent they are not
derivative claims belonging to the Debtor) from asserting against, or collecting
such claims from, the Infinity Parties and their assets. See "General
Information - Legal Proceedings" and "The Plan-Injunctive Projection for the
Debtor and the Infinity Parties."
As of the Effective Date, UPC shall transfer and assign (or deliver, as
applicable) to the UPC Trust in accordance with the UPC Trust Agreement, (1) all
Causes of Action of UPC for contribution and indemnity with respect to
Securities Claims against any Person, excluding the Infinity Parties, and (2)
all of its documents and records relating to the transactions and events that
purportedly give rise to Securities Claims, except those documents necessary for
the Company's continuing operations.
As of the Effective Date, Infinity shall transfer and assign (or
deliver, as applicable) or cause to be transferred and assigned (or delivered,
as applicable) to the UPC Trust in accordance with the UPC Trust Agreement,
effective as of the Effective Date, (1) 200,000 shares of New UPC Common Stock,
and (2) all Causes of Action of the Infinity Parties for contribution and
indemnity with respect to Securities Claims against any Person, excluding UPC,
its affiliates and their respective officers, directors, attorneys and
representatives.
As of the Effective Date, the UPC Trust shall (1) establish the
Securities Claims Resolution Facility and assume responsibility for the
liquidation of all Securities Claims as specified in the ADR, (2) assume the
defense of all Causes of Action against UPC and the Infinity Parties that
constitute or may give rise to Securities Claims, (3) assume the defense of all
Causes of Action against any Person that may give rise to an indemnification
liability against the Infinity Parties; and (4) prosecute such Causes of Action,
rights, and claims of UPC and the Infinity Parties that have been transferred
and assigned to the UPC Trust as the UPC Trustee shall determine is appropriate
under the circumstances.
Any assets initially contributed to the UPC Trust pursuant to Sections
7.2 and 7.3 of the Plan, that remain after satisfaction of all Allowed
Securities Claims and related expenses shall be allocated and distributed in
accordance with the Infinity Settlement Agreement 50% to Infinity or its
affiliates and 50% to the holders of Allowed Common Equity Interests.
E. Compromise and Settlement Between and Among
the Debtor, the Infinity Parties, and the UPC Trust
Pursuant to 1123(b)(3)(a) of the Bankruptcy Code, the Plan provides for
the settlement of all disputes and controversies between the Debtor, the
Infinity Parties, and the UPC Trust. In accordance with Bankruptcy Rule 9019, at
the Confirmation Hearing, the Debtor will request that the Bankruptcy Court
approve the settlements embodied in Article XIV of the Plan. The evaluation of
the settlements by the Bankruptcy Court will entail the consideration of certain
factors to determine whether such settlements are in the best interests of the
Debtor's estate and its creditors, and should thus be approved. Among the
determinative factors to be considered are:
o the probability of success in litigation;
o the complexity of the litigation and the expenses, inconveniences
and delays necessarily attendant to prosecution of the litigation;
o the difficulties, if any, to be encountered in the collection of
any judgment that might be obtained; and
o the interests of the debtor's estate, including those of the
creditors and other parties in interest with appropriate deference
to the reasonable views expressed by them in relation to the
proposed settlement.
In evaluating proposed settlements, the Bankruptcy Court is not to
substitute its judgment for that of the Debtor. Thus, there is a strong initial
presumption that the compromises and settlements negotiated by the Debtor are
fair and reasonable. Based upon the factors set forth above, the Debtor believes
that the proposed settlements fall well within the range of reasonableness and
therefore should be approved by the Bankruptcy Court.
The Plan constitutes a motion pursuant to Bankruptcy Rule 9019 for the
entry of an order authorizing and approving the following compromise and
settlement between and among the Debtor, the UPC Trust and the Infinity Parties:
1. For and in consideration of the undertakings and other agreements of
the Infinity Parties under and in connection with the Plan and the Infinity
Settlement Agreement, as of the Effective Date, the Debtor shall: (a) issue
70,000 shares of New UPC Preferred Stock to Infinity, or its designee; and (b)
release the Infinity Parties from any and all Causes of Action arising in whole
or in part from conduct or events that occurred prior to the Effective Date
(including, without limitation, derivative claims which the Debtor otherwise has
legal power to assert, compromise or settle in connection with the Chapter 11
Case), except as otherwise provided in the Plan and the Infinity Settlement
Agreement.
2. For and in consideration of the undertakings and agreements of UPC
under and in connection with the Plan and the Infinity Settlement Agreement, as
of the Effective Date, the Infinity Parties shall (a) waive and release all of
their rights, interests and claims in and under the A-Note and the B-Note, (b)
contribute 200,000 shares of New UPC Common Stock to the UPC Trust as provided
in Section 7.3 of the Plan, and (c) release the Debtor, and its Affiliates, and
their respective past and present directors, officers, employees, agents, sales
representatives, and attorneys from any and all Causes of Action arising in
whole or in part from conduct or events that occurred prior to the Effective
Date, except as otherwise provided in the Plan and the Infinity Settlement
Agreement.
3. As of the Effective Date, the Infinity Parties and the Debtor shall
release the UPC Trust and the UPC Trustee from any and all Causes of Action
arising in whole or in part from conduct or events that occurred prior to the
Effective Date, except as otherwise provided in the Plan and the Infinity
Settlement Agreement.
F. Injunctive Protection for the Debtor and the Infinity Parties
Upon approval of the UPC Trust and the Effective Date of the Plan, and
subject to the provisions of Section 16.12(b) of the Plan, all Securities Claims
otherwise assertable against the Debtor, or the Infinity Parties, shall be
channeled and asserted against the assets of the UPC Trust and all persons who
have been, are, or may become holders of such claims shall be enjoined from
taking any of the following actions against the Debtor or the Infinity Parties
(other than actions to enforce rights under the Plan, the Plan Documents, and
appeals, if any, from the Confirmation Order):
1. commencing, conducting or continuing in any manner, directly or
indirectly, any suit, action or other proceeding of any kind against such party
or its assets or property, or its direct or indirect successors in interest, or
any assets or property of such transferee or successor (including, without
limitation, all suits, actions, and proceedings that are pending as of the
Effective Date, which must be withdrawn or dismissed with prejudice);
2. enforcing, levying, attaching, collecting or otherwise recovering by
any manner or means whether directly or indirectly any judgment, award, decree
or order against such party or its assets or property, or its direct or indirect
successors in interest, or any assets or property of such transferee or
successor;
3. creating, perfecting or otherwise enforcing in any manner, directly
or indirectly, any Lien against such party or its assets or property, or its
direct or indirect successors in interest, or any assets or property of such
transferee or successor;
4. asserting any set-off, right of subrogation or recoupment of any
kind, directly or indirectly against any obligation due such party, or its
assets or property, or its direct or indirect successors in interest, or any
assets or property of such transferee or successor; and
5. proceeding in any manner in any place whatsoever that does not
conform to or comply with the provisions of the Plan, or the settlements set
forth in Article XIV of the Plan, the UPC Trust Agreement or the Infinity
Settlement Agreement.
If, within thirty (30) days after the UTC Trustee files, at any time or
from time to time, with the Bankruptcy Court and serve upon the Infinity
Parties, a certificate stating that the assets of the UTC Trust have been
totally liquidated and distributed and that either (i) additional Allowed
Securities Claims exist or (ii) all timely asserted Securities Claims have not
yet been liquidated, the Infinity Parties do not make an additional contribution
to the UTC Trust in an aggregate amount equivalent to (A) not less than $100,000
(provided that such amount must be at least enough to satisfy all then Allowed
Securities Claims in full and provide at least $25,000 to fund the expenses of
the UPC Trust in liquidating any remaining Securities Claims) or (B) such lesser
amount as may be agreed to by the UTC Trustee, then the UPC Trust and the
injunction shall terminate so that all parties that timely asserted Securities
Claims that as of that date have not been liquidated and paid in full may pursue
such claims directly against the Infinity Parties.
G. Description of Securities and Instruments
to be Issued in Connection With the Plan
1. Preferred Stock to be Issued Pursuant to the Plan.
Under the Plan, UPC will issue 140,000 shares of New UPC Preferred
Stock, par value $.01 per share. The New UPC Preferred Stock will be the only
preferred stock of UPC issued and outstanding. Each share of New UPC Preferred
Stock will have a preference of $100.00 plus accrued and unpaid dividends (the
"Preference Amount") upon any voluntary or involuntary liquidation, dissolution,
or winding up of the affairs of UPC. In the event of such voluntary or
involuntary liquidation, dissolution or winding up of the affairs of UPC,
holders of the New UPC Preferred Stock will be entitled to receive ratably (in
proportion to the number of shares of New UPC Preferred Stock held) those
amounts or assets available (up to the Preference Amount) after payment or
provision for payment of amounts due to holders of all indebtedness or
liabilities of UPC, but before any distribution is made to the holders of the
New UPC Common Stock. Holders of New UPC Preferred Stock will be entitled to
receive cumulative quarterly dividends at the annual rate of approximately 9
percent (9%) of the $100 initial Preference Amount payable in cash out of funds
legally available for the payment thereof, or at the option of UPC in New UPC
Preferred Stock valued as of the date of payment of such dividends. Each share
of New UPC Preferred Stock is redeemable at any time by UPC at the Preference
Amount. If there are funds available to redeem a portion of the New UPC
Preferred Stock, the redemption shall be carried out on a pro rata basis among
all of the holders of the New UPC Preferred Stock. There is no current intention
of the Board of Directors to redeem any shares of the New UPC Preferred Stock.
If at any time or times dividends on the New UPC Preferred Stock shall be in
arrears and unpaid for a total of eight (8) consecutive full quarterly dividend
periods, then the number of directors constituting the board of directors,
without further action, shall be increased by two (2) and the holders of shares
of New UPC Preferred Stock shall have the exclusive right, voting separately as
a class, to elect the directors to fill such newly-created directorships.
2. Common Stock to be Issued Pursuant to the Plan.
Under the Plan, there will be 5,000,000 shares of New UPC Common Stock
issued and outstanding on the Effective Date, 200,000 of which will be held by
the current holders of Common Stock. The relative rights, preferences and
limitations of the New UPC Common Stock will be essentially identical to those
of the existing Common Stock with the exception of (a) the number of outstanding
shares, and (b) changes resulting from the amendments to UPC's charter (i) to
opt out of Section 203 of the Delaware General Corporation Law (described
below), (ii) to prohibit the issuance of nonvoting equity securities as required
by section 1123(a)(6) of the Bankruptcy Code, (iii) to restrict certain
transfers of New UPC Common Stock and (iv) to implement the Plan. Shares of New
UPC Common Stock may be issued at such time or times and for such consideration
(but not less than par value) as the Board of Directors of UPC deems advisable,
subject to limitations set forth in the laws of the State of Delaware, or UPC's
charter or bylaws. Holders of New UPC Common Stock are not entitled to
preemptive or other subscription rights, and are not subject to assessment or
further call. Each share of New UPC Common Stock is entitled to one vote on all
matters on which holders of common stock are entitled to vote. Holders of New
UPC Common Stock are not entitled to convert the shares to any other securities
of UPC. Holders of the New UPC Common Stock are entitled to receive such
dividends as may be declared, from time to time, by the Board of Directors of
UPC out of funds legally available therefor. UPC has the right to, and may from
time to time, enter into borrowing arrangements or issue other debt instruments,
the provisions of which may contain restrictions on payment of dividends and
other distributions on the New UPC Common Stock. The Board of Directors is also
authorized to issue shares of preferred stock which could contain provisions
restricting the payment of dividends and other distributions on the New UPC
Common Stock unless the payment of dividends or other payments with respect to
such preferred stock have been paid. UPC's current and proposed indebtedness and
preferred stock contain provisions limiting UPC's ability to declare or pay
dividends on the Common Stock or the New UPC Common Stock. In the event of the
voluntary or involuntary liquidation, dissolution, distribution of assets or
winding-up of UPC, holders of Common Stock are entitled to receive ratably in
proportion to the number of shares held, those amounts or assets available after
payment or provision for payment of amounts due to holders of any outstanding
preferred stock (including without limitation, the New UPC Preferred Stock)
which has been issued with a liquidation preference provision, and of all
indebtedness or other liabilities to any other Person.
Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (a) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation; (b) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock; or (c) on or after such date, the
business combination is approved by the board of directors and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. A "business combination" includes mergers,
asset sales, and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. As described above, the Debtor intends to opt
out of Delaware General Corporations Law Section 203.
In order to avoid certain federal income tax consequences caused by
certain subsequent ownership changes, the New UPC Charter will contain a "5%
Ownership Limitation," effective until the last day of the taxable year of UPC
that includes the second anniversary of the Effective Date. (See Certain Federal
Income Tax Consequences of the Plan). It is expected that this limitation will
provide that no person who beneficially owns, directly or indirectly, five
percent or more of the total fair market value of the New UPC Common Stock, or
who, upon the purchase, sale, or other transfer of any shares of New UPC Common
Stock, would beneficially own, directly or indirectly, or would cause any other
person beneficially to own, directly or indirectly, five percent or more of the
total fair market value of the common stock of UPC (a "5% Holder"), may sell or
purchase any shares of common stock (or any option, warrant or other right to
purchase or acquire shares of common stock or any securities convertible into or
exchangeable for shares of common stock), except as authorized by the Board of
Directors or its designee, subject to the waiver or modification of this
restriction by the holders of a majority of the outstanding common stock. The
purpose of the 5% Ownership Limitation is to reduce the risk that any change in
the ownership of New UPC Common Stock may jeopardize the preservation of federal
income tax attributes of UPC for purposes of Section 382 and 383 of the Internal
Revenue Code.
In conjunction with the 5% Ownership Limitation in the New UPC Charter,
in order to further reduce the risk that a change in ownership of the New UPC
Common Stock will occur that may jeopardize UPC's federal income tax attributes,
each certificate representing shares of New UPC Common Stock shall bear a legend
in substantially the following form:
"The shares of New UPC Common Stock represented by this certificate are
issued pursuant to the Plan of Reorganization for United Petroleum
Corporation, as confirmed by the United States Bankruptcy Court for the
District of Delaware. The Corporation's Certificate of Incorporation
contains restrictions prohibiting the sale, transfer, disposition,
purchase or acquisition of any shares of Common Stock without the prior
written authorization of the Corporation's Board of Directors (or its
designee) by or to any person (a) who beneficially owns, directly or
through attribution (as determined under Section 382 of the Internal
Revenue Code of 1986 as amended from time to time (the "Code")), 5% or
more of the total fair market value of the then issued and outstanding
shares of Common Stock of the corporation, or (b) who, upon the sale,
transfer, disposition, purchase or acquisition of any shares of Common
Stock of the Corporation would beneficially own, directly or through
attribution (as determined under Section 382 of the Code), or would
cause another person beneficially to own, directly or through
attribution (as determined under Section 382 of the Code), 5% or more
of the total fair market value of the then issued and outstanding
shares of common stock, if that sale, transfer, disposition, purchase
or acquisition would jeopardize UPC's preservation of its federal
income tax attributes pursuant to Sections 382 or 383 of the Code;
provided however, that for so long as the percentage point changes in
ownership of the common stock (as described in Section 382(g)(1) of the
Code) since the Effective Date do not total more than thirty (30)
percentage points, the above restrictions shall be applied by
substituting "10%" for "5%". UPC will furnish a copy of its Certificate
of Incorporation to the holder of record of this certificate without
charge upon written request addressed to UPC at its principal place of
business."
H. Exemption from Securities Registration for New Securities
1. Initial Issuance of New UPC Common Stock and New UPC Preferred
Stock.
Section 1145 of the Bankruptcy Code provides that the securities
registration requirements of federal, state and local laws do not apply to the
offer or sale of stock, warrants or other securities issued by a debtor (or its
successor) if (i) the offer or sale occurs under a plan of reorganization and
(ii) the securities are transferred in exchange (or principally in exchange) for
a claim or interest in a debtor. Accordingly, under section 1145 of the
Bankruptcy Code, the Debtor believes the issuance of New UPC Preferred Stock to
the holder of the Class 2 Claim and the issuance of New UPC Common Stock holders
of Class 5, 6, 7 and 8 Claims and Interests pursuant to the Plan is exempt from
registration under the securities laws.
With respect to the distribution of New UPC Common Stock and New UPC
Preferred Stock to the FSCI shareholder as merger consideration, Debtor believes
such issuance will fall under a private-placement exemption of the securities
laws. To the extent it is determined that registration is required, the
appropriate documentation will be filed.
2. Transfer of Plan Securities.
Any person other than the Debtor who is not an "underwriter" under
section 1145 of the Bankruptcy Code or a "dealer" under the Securities Act of
1933, as amended (the "1933 Act"), and who transfers New UPC Preferred Stock or
New UPC Common Stock received under the Plan need not comply with the
registration requirements of the 1933 Act or under the state "blue sky" laws.
The term "underwriter," as used in section 1145 of the Bankruptcy Code,
includes four categories of persons, which are referred to in this Disclosure
Statement as "Controlling Persons," "Accumulators,", "Distributors" and
"Syndicators." Dealers and the four types of underwriters are discussed below.
EACH PARTY RECEIVING NEW COMMON STOCK PURSUANT TO THE PLAN IS URGED TO CONSULT
ITS OWN LEGAL ADVISORS TO DETERMINE WHETHER SUCH PARTY MAY BE DEEMED A DEALER OR
UNDERWRITER UNDER THESE DEFINITIONS.
(a) Controlling Persons
"Controlling Persons" are persons who, after the Effective
Date, have the ability, whether direct or indirect and whether formal or
informal, to control the management and policies of the reorganized Company.
Whether a person has such power depends on a number of factors, including the
person's equity in the reorganized Company relative to other equity holders, and
whether the person, acting alone or in concert with others, has a contractual or
other relationship giving that person power over management policies and
decisions. Controlling Persons are permitted to sell or otherwise dispose of New
Common Stock only by complying with the registration requirements of the 1933
Act and state "blue sky" laws, or an exemption therefrom.
Directors, executive officers and beneficial owners of 10% or
more of the outstanding stock of any issuer may be presumed to be controlling
persons of that issuer and thus an underwriter for purposes of section 1145 of
the Bankruptcy Code. The Debtor believes the Infinity Parties will be considered
to be underwriters for purposes of section 1145 of the Bankruptcy Code.
(b) Accumulator and Distributors
"Accumulators" are persons who purchase a claim against or
interest in the Debtor with a view to distribution of any New UPC Preferred
Stock or New UPC Common Stock to be received under the Plan in exchange for such
claims or interest. "Distributors" are persons who offer to sell New UPC
Preferred Stock or New UPC Common Stock for the holders of those securities.
(c) Syndicators
"Syndicators" are persons who offer to buy New UPC Preferred
Stock or New UPC Common Stock from the holders with a view to distribution,
under an agreement made in connection with the Plan, with consummation of the
Plan or with the offer or sale of securities under the Plan. The Debtors are not
aware of any arrangements for the resale of New UPC Preferred Stock or New UPC
Common Stock which would make any person a Syndicator.
(d) Dealers
"Dealers" are persons who engage either for all or part of
their time, directly or indirectly, as agent, broker, or principal, in the
business of offering, buying, selling, or otherwise dealing or trading in
securities. Section 4(3) of the 1933 Act exempts transactions in New UPC
Preferred Stock or New UPC Common Stock by dealers taking place more than 40
days after the Effective Date. Within the 40-day period after the Effective
Date, transactions by dealers who are stockbrokers are exempt from the 1933 Act
pursuant to section 1145(a)(4) of the Bankruptcy Code, as long as the
stockbrokers deliver a copy of this Disclosure Statement (and supplements
hereto, if any, as ordered by the Court) at or before the time of delivery of
New UPC Preferred Stock or New UPC Common Stock to their customers. This
requirement specifically applies to trading and other after-market transactions
in such securities.
I. Market for New Securities
The Reorganized Debtor intends to apply to have the New UPC Common
Stock listed for trading on a national securities exchange. No guarantee can be
given that the Reorganized Debtor will be successful in getting the stock listed
or that a market for the stock will develop.
J. Executory Contracts and Unexpired Leases
The Plan constitutes and incorporates a motion to reject all
prepetition executory contracts, and all prepetition unexpired leases to which
the Debtor is a party, except for an executory contract or lease that (1) has
been assumed or rejected pursuant to Final Order of the Bankruptcy Court; (2) is
specifically designated in the Plan as an executory contract or lease to be
assumed; or (3) is the subject of a motion to assume or reject that is pending
before the Bankruptcy Court on the Effective Date. The Confirmation Order shall
represent and reflect an order of the Bankruptcy Court approving such rejections
and assumptions of executory contracts and leases as of the Effective Date.
UPC currently intends to assume most of the Debtor's executory
contracts and unexpired leases in accordance with their terms.
K. Other Provisions of the Plan
1. Discharge.
Except as otherwise expressly provided in the Plan or in the
Confirmation Order, the confirmation of the Plan will (a) bind all holders of
Claims and Interests, whether or not they accept the Plan, and (b) discharge and
release UPC, pursuant to section 1141(d)(1) of the Bankruptcy Code, effective on
the Effective Date, from any Claim, Interest or any "debt" (as that term is
defined in section 101(2) of the Bankruptcy Code) that arose or was incurred
before the Confirmation Date, and completely extinguish all liabilities in
respect thereof, including, without limitation, any liability of a kind
specified in section 502(g) of the Bankruptcy Code, regardless of whether: (i) a
proof of the Claim or Interest was filed, or the Interest or Claim was scheduled
by UPC, (ii) the Claim or Interest is an Allowed Claim or Allowed Interest, as
the case may be, or (iii) the holder of such Claim or Interest voted to accept
or reject, or abstained from voting on, the Plan. In addition, except as
otherwise provided in the Plan, confirmation of the Plan pursuant to the
Confirmation Order will act as a discharge and release, effective as of the
Effective Date, as to each holder of a Claim or Interest receiving or entitled
to receive any distribution under the Plan in respect of any direct or indirect
right, Claim or Interest such holder had or may have had against or in UPC.
Except as otherwise provided in the Plan, on and after the Effective Date, every
holder of a Claim or Interest shall be precluded and enjoined from asserting
against UPC, their respective assets or properties, any further Claim or
Interest based on any document or instrument or act, omission, transaction or
other activity of any kind or nature that occurred prior to the Confirmation
Date.
2. Retention and Waiver of Causes of Action.
Under the Plan, UPC will retain all of its rights, causes of action and
defenses under the Bankruptcy Code or similar applicable non-bankruptcy law and
retain and reserve all rights and causes of action against or with respect to
any Claim left unimpaired by the Plan, excluding such claims, rights and causes
of action as are released by UPC pursuant to the Plan.
3. Objections to Claims and Interests/Distributions.
The Plan provides that as soon as practicable, but in no event later
than sixty (60) days after the Effective Date (subject to being extended by the
Bankruptcy Court upon Motion of the Debtor without notice or a hearing),
objections to Claims (except Securities Claims) shall be filed with the
Bankruptcy Court and served upon the holders of each of the Claims to which
objections are made; provided, that no objection may be filed with respect to
any Claim that is or becomes Allowed on or before the Effective Date. After the
date of entry of the Confirmation Order, only the Disbursing Agent shall have
authority to file, litigate, settle, or withdraw objections to Claims (except
for Securities Claims, as to which all disputes regarding existence, amount and
treatment shall be resolved pursuant to ADR).
The Disbursing Agent (or the UPC Trustee, as applicable) may, at any
time, request that the Bankruptcy Court estimate any Contested Claim or Equity
Interest pursuant to section 502(c) of the Bankruptcy Code regardless of whether
the Disbursing Agent (or the UPC Trustee, as applicable) has previously objected
to such Claim or Equity Interest or whether the Bankruptcy Court has ruled on
any such objection, and the Bankruptcy Court will retain jurisdiction to
estimate any Claim or Equity Interest at any time during litigation concerning
any objection to any Claim, including during the pendancy of any appeal relating
to any such objection. All of the objection, estimation, settlement, and
resolution procedures set forth in the Plan are cumulative and not necessarily
exclusive of one another. Claims or Equity Interests may be estimated and
subsequently compromised, settled, withdrawn or resolved by any mechanism
approved by the Bankruptcy Court.
4. Term of Injunctions or Stays.
Unless otherwise provided in the Plan, all injunctions or stays
provided for in the Chapter 11 Case pursuant to section 105 or 362 of the
Bankruptcy Code or otherwise in effect on the Confirmation Date will remain in
full force and effect until the Effective Date. On the Effective Date, all
Persons who have been, are, or may be holders of Claims against or Equity
Interests in UPC shall be enjoined from taking any of the following actions
against or affecting UPC, its Estate, or its assets and property with respect to
such Claims or Equity Interests (other than actions brought to enforce any
rights or obligations under the Plan and appeals, if any, from the Confirmation
Order):
(a) commencing, conducting or continuing in any manner,
directly or indirectly, any suit, action or other proceeding of any
kind against UPC, its Estate, or its assets or property, or any direct
or indirect successor in interest to UPC, or any assets or property of
such transferee or successor (including, without limitation, all suits,
actions, and proceedings that are pending as of the Effective Date,
which must be withdrawn or dismissed with prejudice);
(b) enforcing, levying, attaching, collecting or otherwise
recovering by any manner or means whether directly or indirectly any
judgment, award, decree or order against UPC, its Estate, or its assets
or property, or any direct or indirect successor in interest to UPC, or
any assets or property of such transferee or successor;
(c) creating, perfecting or otherwise enforcing in any manner,
directly or indirectly, any Lien against UPC, its Estate, or its
respective assets or property, or any direct or indirect successor in
interest to any of UPC, or any assets or property of such transferee or
successor other than as contemplated by the Plan;
(d) asserting any setoff, right of subrogation or recoupment
of any kind, directly or indirectly against any obligation due UPC, its
Estate, or its respective assets or property, or any direct or indirect
successor in interest to any of UPC, or any assets or property of such
transferee or successor; and
(e) proceeding in any manner in any place whatsoever that does
not conform to or comply with the provisions of the Plan or the
settlement set forth in Article XIV of the Plan to the extent such
settlements have been approved by the Bankruptcy Court in connection
with confirmation of the Plan.
With respect to the Securities Claims, the Plan provides that from and
after the Effective Date, any Securities Claim otherwise assertable against the
Infinity Parties or UPC (including, without limitation, the Causes of Action
asserted in the Pisacreta Action and the Tucci Action, see "Legal Proceedings --
Pisacreta/Tucci Action") shall channel and transfer to the UPC Trust, and all
Persons who have been, are, or may be holders of any such Securities Claim shall
be enjoined, so long as the UPC Trust is funded, from taking any action against
or affecting the Infinity Parties or UPC or their respective assets and property
with respect to such Securities Claim (other than actions brought to enforce any
rights or obligations under the Plan, the UPC Trust Agreement and the Infinity
Settlement Agreement). See "The Plan - Injunctive Protection for the Debtor and
the Infinity Parties."
5. Release.
Any consideration distributed under the Plan shall be in exchange for
and in complete satisfaction, discharge, and release of all Claims of any nature
whatsoever against UPC and any of its assets or properties; and, except as
otherwise provided in the Plan, upon the Effective Date, UPC shall be deemed
discharged and released to the extent permitted by section 1141 of the
Bankruptcy Code from any and all Claims, including but not limited to demands
and liabilities that arose before the Effective Date, and all debts of the kind
specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, whether
or not (a) a proof of Claim based upon such debt is filed or deemed filed under
section 501 of the Bankruptcy Code; (b) a Claim based upon such debt is allowed
under section 502 of the Bankruptcy Code; or (c) the holder of a Claim based
upon such debt has accepted the Plan. The Confirmation Order shall be a judicial
determination of discharge of all liabilities of UPC. As provided in section 524
of the Bankruptcy Code, such discharge shall void any judgment against UPC at
any time obtained to the extent it relates to a Claim discharged, and operates
as an injunction against the prosecution of any action against UPC, or its
property, to the extent it relates to a Claim discharged.
6. Exculpation.
None of UPC, Infinity, the F.S. Partnerships, F.S. Management, any of
their respective partners, Affiliates, nor any of their respective partners,
members, managers, officers, directors, employees, agents, or professionals
shall have or incur any liability to any holder of a Claim or Equity Interest
for any act, event, or omission in connection with, or arising out of, the
dissemination of this Disclosure Statement, or documents prepared in connection
herewith, the solicitation of votes with respect to the Plan, the Chapter 11
Case, the confirmation of the Plan, the consummation of the Plan, or the
administration of the Plan or the property to be distributed under the Plan,
except for willful misconduct.
7. Retention of Jurisdiction.
Notwithstanding the entry of the Confirmation Order and the occurrence
of the Effective Date, the Bankruptcy Court shall retain such jurisdiction over
the Chapter 11 Case after the Effective Date as legally permissible, including,
but not limited to, jurisdiction to: (a) allow, disallow, determine, liquidate,
classify, estimate or establish the priority or secured or unsecured status of
any Claim, including the resolution of any request for payment of any
Administrative Claim and the resolution of any and all objections to the
allowance or priority of Claims; (b) grant or deny any applications for
allowance and payment of any Fee Claim for periods ending on or before the
Effective Date; (c) resolve any matters related to the assumption, assumption
and assignment or rejection of any executory contract or unexpired lease to
which UPC is a party or with respect to which UPC may be liable and to hear,
determine and, if necessary, liquidate, any Claims arising therefrom, including
those matters related to the amendment after the Effective Date pursuant to
Article XVI of the Plan to add any executory contracts or unexpired leases to
Appendix II of the Plan; (d) ensure that distributions to holders of Allowed
Claims are accomplished pursuant to the provisions of the Plan, including ruling
on any motion filed pursuant to Article XII; (e) decide or resolve any motions,
adversary proceedings, contested or litigated matters and any other matters and
grant or deny any applications involving UPC that may be pending on or commenced
after the Effective Date; (f) enter such orders as may be necessary or
appropriate to implement or consummate the provisions of the Plan and all
contracts, instruments, releases, indentures and other agreements or documents
created in connection with the Plan or this Disclosure Statement, including
without limitation the UPC Trust Agreement and the Infinity Settlement
Agreement, including to correct any defect, cure any omission or reconcile any
inconsistency, except as provided in the Plan; (g) resolve any cases,
controversies, suits, or disputes that may arise in connection with the
consummation, interpretation or enforcement of the Plan or the UPC Trust
Agreement or any entity's obligations incurred in connection with the Plan or
the UPC Trust Agreement, or any other agreements governing, instruments
evidencing or documents relating to any of the foregoing; (h) issue injunctions,
enter and implement other orders or take such other actions as may be necessary
or appropriate to restrain interference by any entity with consummation or
enforcement of the Plan, except as otherwise provided herein; (i) enter and
implement such orders as are necessary or appropriate if the Confirmation Order
is for any reason modified, stayed, reversed, revoked or vacated; (j) determine
any other matters that may arise in connection with or relate to the Plan, this
Disclosure Statement, the Confirmation Order or any contract, instrument,
release, indenture or other agreement or document created in connection with the
Plan or this Disclosure Statement, including without limitation the UPC Trust
Agreement, except as provided in the Plan; and (k) enter a Final Decree as
contemplated by Bankruptcy Rule 3022.
8. Failure of Court to Exercise Jurisdiction.
If the Bankruptcy Court abstains from exercising, or declines to
exercise, jurisdiction or is otherwise without jurisdiction over any matter
arising in, arising under or related to the Chapter 11 Case, including matters
discussed in "Retention of Jurisdiction" above, the Plan shall have no effect
upon and shall not control, prohibit or limit the exercise of jurisdiction by
any other court having competent jurisdiction with respect to such matter.
9. Payment Dates.
Whenever any payment to be made under the Plan is due on a day other
than a Business Day, such payment will instead be made, without interest, on the
next Business Day.
10. Successors and Assigns.
The rights, benefits and obligations of any person or entity named or
referred to in the Plan will be binding upon, and will inure to the benefit of,
the heir, executor, administrator, successor or assign of such person.
11. Payment of Statutory Fees.
All fees payable pursuant to Section 1930 of Title 28 of the United
States Code, as determined by the Bankruptcy Court, will be paid on or before
the Effective Date. Any such fees incurred after the Effective Date until the
Chapter 11 Case is closed, will be paid when due.
XI. COMPARISON OF RIGHTS IN SECURITIES TO BE ISSUED
UNDER THE PLAN TO RIGHTS HELD IN PREPETITION SECURITIES
A. Comparison of the Rights of Holders of
A-Note and the New UPC Preferred Stock
Under the Plan, Infinity, in its capacity as the holder of the A-Note
and the B-Note, will receive 70,000 shares of New UPC Preferred Stock in
exchange for its A-Note and B-Note. There are material differences between the
rights of the holder of the A-Note and the B-Note and those of the holder of New
UPC Preferred Stock, certain of which are summarized as follows:
1. Seniority.
In the event of the liquidation, dissolution, distribution of assets or
winding-up of the Company, the holder of the A-Note and the B-Note would be
entitled to receive the principal balance of the A-Note and the B-Note together
with accrued and unpaid interest prior to distribution to the holders of junior
liens in the Company's assets, unsecured debt of the Company, the Preferred
Stock or the Common Stock. As a holder of the New UPC Preferred Stock, any
distribution of the Preference Amount would be made only after the payment of
all secured and unsecured liabilities of the Company, including the payment of
any current or future promissory notes incurred in connection with borrowing of
funds by the Company.
2. Voting.
The holder of the A-Note and the B-Note has no voting rights except as
to such rights as might be granted by statute. The holder of the New UPC
Preferred Stock will have no right to vote on any matters, unless if at any time
or times dividends on the New UPC Preferred Stock are in arrears and unpaid for
a total of eight (8) consecutive full quarterly dividend periods.
3. Dividends/Interest Payments.
The holder of the A-Note and the B-Note is entitled to the payment of
interest at the rate of 12% per annum and to repayment of principal on its
maturity date. The holder of the New UPC Preferred Stock will be entitled to
receive cumulative quarterly cash dividends when, as and if declared by the
Board of Directors.
4. Conversion.
The holder of the A-Note and the B-Note is not entitled to convert the
note into any other securities of the Company. The New UPC Preferred Stock
shares will likewise not be convertible into any other securities of the
Company.
5. Security.
The A-Note and the B-Note is secured by a first lien on substantially
all of the assets of Calibur, Jackson and UPC, and is guaranteed by Michael
Thomas. The New UPC Preferred Stock will be unsecured and will not be entitled
to the benefits of the liens or the guaranties supporting the repayment of the
A-Note and the B-Note .
B. Comparison of the Rights of Holders of
Debentures and New UPC Common Stock
Under the Plan, the holders of the Debentures will receive shares of
New UPC Common Stock in substitution for their Debentures. There are material
differences between the rights of the holders of Debentures and those of holders
of New UPC Common Stock, certain of which are summarized as follows:
1. Seniority.
In the event of the liquidation, dissolution, distribution of assets or
winding-up of the Company, holders of the Debentures would be entitled to
receive payment of the principal balance of their Debentures together with
accrued and unpaid interest prior to any distribution to either the holders of
UPC's preferred stock or common stock. As a holder of New UPC Common Stock, any
such distribution would be made only after the payment of all liabilities of the
Company and the distribution of the Preference Amount to the holders of any
preferred stock (including, without limitation, the New UPC Preferred Stock).
2. Voting.
Holders of Debentures have no voting rights except as to such rights as
might be granted by statute. Holders of the New UPC Common Stock have the right
to vote on all matters on which holders of common stock are entitled to vote.
3. Dividends/Interest Payments.
Holders of the Debentures are entitled to the payment of interest on a
quarterly basis, at either the rate of 6%, 7% or 18%. Holders of New UPC Common
Stock are entitled to receive dividends if, as and when declared by the Board of
Directors. Historically, the Company has not paid dividends on Common Stock and
such dividends are not anticipated in the foreseeable future. UPC's indebtedness
and preferred securities will impose limitations on UPC's ability to declare or
pay dividends on the New UPC Common Stock after the Effective Date.
4. Conversion.
The holders of the Debentures are entitled to convert their Debentures
at any time to Common Stock of UPC at the market price (or a discount thereto)
of the Common Stock. Holders of New UPC Common Stock are not entitled to convert
their shares to any other securities of UPC. The New UPC Common Stock which the
holders of the Debentures will receive as a part of the reorganization proposed
in the Plan will equal 35% of the issued and outstanding shares of New UPC
Common Stock as of the date of the reorganization proposed in the Plan. If all
of the Debenture holders were to convert their Debentures to Common Stock of UPC
at the present time, the resulting percentage of ownership in Common Stock could
be substantially in excess of 35% of the shares of outstanding Common Stock
(although UPC does not have a sufficient number of authorized shares of Common
Stock to effect such conversion). The Company believes that such conversion
would not yield to the holders of the Debentures the other potential benefits
anticipated to be gained from the Plan.
C. Comparison of the Rights of Holders
of Preferred Stock and New UPC Common Stock
Under the Plan, the holders of the Preferred Stock will receive shares
of New UPC Common Stock in substitution for their Preferred Stock. There are
material differences between the rights of the holders of Preferred Stock and
those of holders of New UPC Common Stock, certain of which are summarized as
follows:
1. Seniority.
In the event of the liquidation, dissolution, distribution of assets or
winding-up of the Company, holders of the Preferred Stock would be entitled to
receive the amount of the liquidation preference payable on each series of
Preferred Stock together with accrued and unpaid dividends prior to any
distribution to the holders of the Common Stock. The liquidation preference of
the Series A Preferred Stock is approximately $9,912,000 and the liquidation
preference of the Series B Preferred Stock is approximately $1,813,000. As a
holder of New UPC Common Stock, any such distribution would be made only after
the payment of all liabilities of the Company and the distribution of the
liquidation preference amount to the holders of any outstanding preferred stock
(including, without limitation, the New UPC Preferred Stock) and would be shared
pro rata with the other holders of New UPC Common Stock.
2. Voting.
Holders of Preferred Stock have no voting rights except as to such
rights as might be granted by statute. Holders of New UPC Common Stock have the
right to vote on all matters on which holders of common stock are entitled to
vote.
3. Dividends/Interest Payments.
Holders of the Preferred Stock are entitled to the payment of
cumulative dividends in cash or shares of Common Stock at the rate of 18% per
annum for the holders of Series A Preferred Stock and 8% per annum for the
holders of Series B Preferred Stock. Holders of New UPC Common Stock are
entitled to receive dividends if, as and when declared by the Board of
Directors. Historically, UPC has not paid dividends on Common Stock and such
dividends are not anticipated with respect to the New UPC Common Stock for the
foreseeable future. UPC's indebtedness and preferred securities (including,
without limitation, the New UPC Preferred Stock) will impose limitations on
UPC's ability to declare or pay dividends on the New UPC Common Stock after the
Effective Date.
4. Conversion.
The holders of the Preferred Stock are entitled to convert their shares
of Preferred Stock into Common Stock of UPC. The Preferred Stock shares are
convertible into shares of Common Stock based on the preference amount at the
rate of 1/13th for Series A and 1/15th for Series B per month beginning on July
1, 1997. The price at which the conversions may be effected is the greater of
the market price for the Common Stock or a floor price (currently $.50 for
Series A and $1.00 for Series B). Shares of the New UPC Common Stock are not
convertible into any other securities of UPC. The New UPC Common Stock which the
holders of the Preferred Stock will receive as a part of the Plan will equal 13%
of the issued and outstanding shares of New UPC Common Stock as of the Effective
Date. If all of the Preferred Stock holders were to convert their Preferred
Stock into Common Stock at the present time, the resulting percentage of
ownership in Common Stock could be in excess of 13% of the shares of outstanding
Common Stock (although UPC does not have a sufficient number of authorized
shares of Common Stock to effect such conversion). The Company believes that
such conversion would not yield to the holders of the Preferred Stock the other
potential benefits anticipated to be gained from the Plan.
XII. CERTAIN RISK FACTORS TO BE CONSIDERED
A. Risks Relating to the Debtor's Financial Condition
The Debtor has experienced substantial net losses in recent years, with
a net loss of approximately $(4,270,000), $(12,138,000) and $(11,572,000) for
the years ended December 31, 1998, December 31, 1997 and December 31, 1996. As
of December 31, 1998, the Debtor had current liabilities of $17.4 million and
approximately $492,000 of current assets. The Debtor failed to achieve an
operating profit from its business operations during 1996, 1997 and 1998. Sales
of the Debtor declined from $13.234 million for the year ended December 31, 1996
to $9.721 million for the year ended December 31, 1997 and to $6.179 million for
the year ended December 31, 1998. Even if the Plan is approved and the Plan and
Merger Agreement are consummated, there can be no assurance that the Reorganized
Debtor will not continue to experience losses. The Reorganized Debtor's ability
to become profitable and generate cash flow will likely depend upon the success
of the Walk-In Stores, the Debtor's ability to raise additional debt or equity
capital and to successfully implement its business strategy. There can be no
assurance that the Reorganized Debtor will be able to accomplish the foregoing.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
B. Liquidity Risks
The Debtor is presently in default under the A-Note, the B-Note, its
outstanding Debentures and the Preferred Stock. The Debtor ceased paying
interest on the Debentures and ceased paying dividends on the outstanding
Preferred Stock effective December 31, 1997. Prior to this date, the Debtor had
been paying interest on the Debentures and dividends on Preferred Stock via the
issuance of shares of Common Stock. As of December 31, 1998, accrued interest on
the Debentures totaled $1,026,030 and accrued dividends on the Preferred Stock
totaled $2,113,362. In addition, the Debtor is in default under the A-Note and
B-Note, which matured by their terms on January 1, 1999. The Reorganized Debtor
will remain leveraged even after the consummation of the Merger and the
acquisition of Farm Stores, due to the Merger Financing of up to $23 Million.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
The Plan is intended to convert much of the debt and preferred stock of
the Reorganized Debtor into shares of New UPC Common Stock or New UPC Preferred
Stock. However, the Debtor's historical capital requirements have been
significant and the Reorganized Debtor's future capital requirements could vary
significantly and may be affected by general economic conditions, industry
trends, the performance of the acquired Walk-In Stores, weather conditions and
otherwise, many of which factors are not within the Reorganized Debtor's
control. Historically, the Debtor has had difficulty financing its operations
due, in part, to its significant losses, and there can be no assurance that the
Reorganized Debtor will be able to obtain financing in the future. Even if the
Plan is approved and consummated, there can be no assurance that the Reorganized
Debtor will not continue to experience losses. The Reorganized Debtor's ability
to become profitable and generate cash flow will likely depend upon the
performance of the Walk-In Stores, its ability to raise additional debt or
equity capital and to successfully implement its business strategy. There can be
no assurance that the Reorganized Debtor will be able to accomplish the
foregoing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
C. Ability of the Reorganized Debtor to Continue as a Going
Concern; Explanatory Paragraph in Auditors' Report
The Debtor's independent auditors have included an explanatory
paragraph in their report for the fiscal year ended December 31, 1997, stating
that the consolidated financial statements included in this Disclosure Statement
have been prepared assuming that the Reorganized Debtor will continue as a going
concern and that the Reorganized Debtor's financial condition raises substantial
doubts about its ability to continue as a going concern. The form and content of
future auditors' reports (including any explanatory paragraphs the auditors deem
necessary) will be based upon, among other factors, the application of their
professional judgment to the facts and circumstances related to the Reorganized
Debtor and its business at the time any such report is rendered. Accordingly,
there can be no assurance that future auditors' reports on the Reorganized
Debtor's financial statements will not include explanatory paragraphs relating
to uncertainties regarding the Reorganized Debtor's ability to continue as a
going concern, even if the Plan is consummated. The existence of an explanatory
paragraph may materially adversely affect the Reorganized Debtor's ability to
raise additional funds, and its relationships with suppliers and prospective
suppliers, restrict ordinary credit terms or require guarantees of payment, and
therefore could have a material adverse effect on the Reorganized Debtor's
business, financial condition and results of operations.
D. Risks Regarding the Financial Projections
The Financial Projections included elsewhere in this Disclosure
Statement were developed by F.S. Management in connection with the planning and
development of the Plan, and illustrate the estimated effects of the Plan and
certain related transactions on the results of operations, cash flow and
financial position of the Reorganized Debtor for the periods indicated. The
Financial Projections are qualified by the introductory paragraphs thereto and
the accompanying assumptions, and must be read in conjunction with such
introductory paragraphs and assumptions, which constitute an integral part of
the Financial Projections. The Financial Projections are based upon a variety of
assumptions as set forth therein, and the Reorganized Debtor's future operating
results are subject to and likely to be affected by a number of factors,
including significant business, economic, regulatory and competitive
uncertainties, many of which are beyond the control of the Reorganized Debtor;
and, accordingly, actual results may vary materially from those shown in the
Financial Projections. F.S. Management believes that the industries in which the
Reorganized Debtor will be operating are volatile due to numerous factors,
including the risks described in "-- Risks Relating to the Company's Business
and Farm Stores Business Acquired in the Merger" all of which make accurate
forecasting very difficult. Although it is not possible to predict all risks
associated with the Financial Projections and the assumptions underlying those
projections, there are some risks which F.S. Management is presently able to
identify. The Financial Projections assume that all aspects of the Plan,
including the Merger and the Merger Financing, will be successfully implemented
on the terms set forth in this Disclosure Statement, and that the publicity
associated with the bankruptcy proceeding contemplated by the Plan will not
adversely affect the Reorganized Debtor's operating results. There can be no
assurance that these two assumptions are accurate, and the failure of the Plan
to be successfully implemented, or adverse publicity, could materially adversely
affect the Reorganized Debtor's business, results of operations and financial
condition.
The Financial Projections also assume that most of the Reorganized
Debtor's earnings growth will derive from (a) a branding contract for the Gas
Stores, generating substantially increased revenues and profits from gas sales,
and (b) substantial savings in general and administrative expenses. As explained
in the paragraphs that follow, these two assumptions are subject to various
risks that could cause such assumptions to be inaccurate, and therefore the
projected earnings growth could fail to occur.
The Gas Stores historically have relied on sales of non-gas products to
produce most of their earnings. Proposed Management of the Reorganized Debtor
plans to negotiate an agreement for the sale of branded gas products in the Gas
Stores, and the Reorganized Debtor will focus its efforts on increasing sales of
gas products at the Gas Stores. The Financial Projections assume that all
aspects of this plan to sell branded gas products will be successful, including
that the Reorganized Debtor will negotiate an acceptable agreement for the
supply of branded gas products and will enjoy a significant increase in sales of
branded gas products. However, there can be no assurance that this plan will
succeed, and the likelihood that the Reorganized Debtor will be able to
consummate a branding arrangement and successfully reorient the Gas Stores to
emphasize sales of branded gas products must be considered in light of the
difficulties and delays inherent in any such enterprise. For example, it may not
be possible to locate a supplier of branded gasoline products to supply those
products on terms acceptable to the Reorganized Debtor. Or, assuming an
acceptable agreement is made with a branded supplier, sales of the branded gas
products may not increase as anticipated, due to factors such as fluctuation in
gas prices that decrease consumer demand, inability to compete effectively with
other suppliers of branded gas products, changes in laws regulating sales of
gasoline products, political events in gas producing nations that reduce the
supply of gas products, and other risks relating to this line of business. See
"Risks Relating to the Company's Business and Farm Stores' business Acquired in
the Merger - Competition; -- Government Regulation; -- Possible Environmental
Liabilities and Regulation; -- Volatility of Natural Gas and Oil Prices." If any
one or more aspects of this plan to sell branded gas products were to fail,
actual results of the Reorganized Debtor could fall far short of the Financial
Projections.
Another significant and untested assumption in the Financial
Projections is the projected decline in general and administrative expenses. The
projected decline is based upon anticipated cost savings and business synergies
resulting from the Merger. Realization of cost savings and synergies could be
affected by factors such as unfavorable general economic conditions, unexpected
increases in operating costs (including costs that might be incurred in
connection with the proposal to sell branded gas products), responses of
competitors requiring additional expenditures to compete effectively, and
unfavorable regulatory developments. In such case, general and administrative
expenses probably would not decrease as projected, thereby negatively impacting
the Reorganized Debtor's projected growth and profitability. The projected
decline in general and administrative expenses also must be considered in light
of the difficulty in combining the business and operations of the Debtor with
the F.S. Business. It may not be possible to combine the business and operations
of the Debtor and F.S. Business as efficiently as projected. Inefficiencies and
difficulties could result from having different potentially incompatible
operating practices and systems. Further, personnel problems could result form
consolidating personnel with different backgrounds and corporate cultures into
one company. As a result, the Reorganized Debtor may not achieve anticipated
cost savings and operating efficiencies and may have difficulties in managing,
integrating and operating its business post-Merger.
In summary, it is likely that there will be differences between the
forecasted results for the Reorganized Debtor, as set forth in the Financial
Projections, and actual results, and that such differences may be material. The
Financial Projections assume substantial increases in the reorganized Debtor's
earnings above historical results. Because the Financial Projections are subject
to significant uncertainties and are based upon assumptions that may not be
realized, holders of Impaired Claims and Interests and holders of the
Reorganized Debtor's Securities are cautioned not to place undue certainty on
these Financial Projections. See "Financial Projections of Certain Financial
Data."
E. Risks Relating to Certain Debt and Equity Holders
1. Risks Particular to Holders of Outstanding Notes.
Under the Plan, the holder of the A-Note and the B-Note will receive
70,000 shares of New UPC Preferred Stock in substitution for the A-Note and the
B-Note. In agreeing to the Plan, the holder of the A-Note will be consenting to
the exchange of its interests in a secured senior security, which has a stated
interest rate and a liquidation preference over unsecured debt and equity
securities, for New UPC Preferred Stock, which will be subordinate to all
creditor claims, including trade creditors. There can be no assurance that the
value of the shares of New UPC Preferred Stock that are to be issued pursuant to
the Plan will equal or exceed the value of the A-Note and the B-Note. See
"Comparison of the Rights of Holders of A-Note and the B-Note and the New UPC
Preferred Stock."
2. Risks Particular to Holders of Debentures.
If the Plan is confirmed and consummated, holders of the Debentures
will receive shares of New UPC Common Stock in substitution for their
Debentures. In agreeing to the Plan, holders of the Debentures will be
consenting to the exchange of their interests in a senior debt security, which
has a stated interest rate, a repayment date and a liquidation preference over
equity securities, for shares of New UPC Common Stock, which will be subordinate
to all creditor claims, including trade creditors, and the $14,000,000 aggregate
liquidation preference rights of the New UPC Preferred Stock. As of the
Effective Date, the principal and interest on the Debentures will total
approximately $7,500,000.
3. Risks Particular to Holders of Preferred Stock.
If the Plan is confirmed and consummated, holders of Preferred Stock
will receive shares of New UPC Common Stock in substitution for their Preferred
Stock. In agreeing to the Plan, holders of Preferred Stock will be consenting to
the exchange of their shares of a senior equity security, which has a stated
dividend rate and a liquidation preference over common equity, for shares of New
UPC Common Stock, which will be subordinate to all creditor claims, including
trade creditors, and the $14,000,000 aggregate liquidation preference rights of
the New UPC Preferred Stock.
4. Risks Particular to the Holders of Common Stock.
If the reorganization proposed in the Plan is confirmed and
consummated, existing holders of Common Stock will have their percentage
ownership of the common equity of the Reorganized Debtor reduced from 100% of
the issued and outstanding common equity to 200,000 shares of New UPC Common
Stock, representing approximately 4% of the shares of New UPC Common Stock to be
issued and outstanding (assuming conversion of the New UPC Preferred Stock) upon
effectiveness of the Plan (assuming conversion of the New UPC Preferred Stock).
In addition to the 5,000,000 shares of Common Stock which will be outstanding
after the consummation of the Plan (assuming conversion of the New UPC Preferred
Stock), the Reorganized Debtor will have an additional 5,000,000 shares of
Common Stock that are authorized for future issuance. The New UPC Common Stock
will be subordinate to all creditor claims, including the Merger Financing and
trade creditors, and the $14,000,000 aggregate liquidation preference rights of
the New UPC Preferred Stock.
5. No Prior Active Market; Possible Volatility of Stock Price.
There is no current active market for the Common Stock and there can be
no assurance that an active trading market for the New UPC Common Stock will
develop or, if developed, that such market will be sustained following the
Effective Date or that the market price of the New UPC Common Stock will not
decline. While the Debtor intends to apply to have New UPC Common Stock listed
for trading on a national securities exchange, there can be no assurance that
such request will be granted or that an active trading market for the New UPC
Common Stock will develop. The trading price of the Common Stock has been
subject to wide fluctuations, and the trading price of the New UPC Common Stock
could be subject to wide fluctuations in the future in response to variations in
the Debtor's results of operations, as well as developments that affect the
industry, the overall economy and the financial markets.
6. Control by Principal Stockholder.
After the Effective Date, the Infinity Parties and the shareholders of
FSCI, collectively, will own approximately 84.5% of the outstanding shares of
New UPC Common Stock (approximately 36.5% to Infinity and 48% to FSCI). This
ownership will give the Infinity Parties and the FSCI shareholder control over
any stockholder vote, including a vote for election of all of the members of the
Debtor's Board of Directors, a vote for the adoption of amendments to the
Debtor's charter and bylaws and a vote for the approval of a merger,
consolidation, asset sale or other corporate transaction requiring approval of
the stockholders of the Debtor.
F. Risks Relating to Confirmation of the Plan
Section 1129 of the Bankruptcy Code, which sets forth the requirements
for confirmation of a plan of reorganization, requires, among other things, a
finding by the bankruptcy court (1) that the plan is "feasible" (i.e., that
confirmation of the plan is not likely to be followed by the liquidation, or the
need for further financial reorganization, of the debtor), (2) that all Claims
and Interests have been classified in compliance with the provisions of section
1122 of the Bankruptcy Code, and (3) that, under the plan, holders of Claims and
Interests within Impaired Classes either accept the plan or receive or retain
cash or property of a value, as of the date the plan becomes effective, that is
not less than the value such holders would receive or retain if the debtor was
liquidated under Chapter 7 of the Bankruptcy Code. See "The Plan--Confirmation
of the Plan." Although the Debtor believes that the Plan complies with all
relevant requirements for confirmation, there can be no assurance that the
Bankruptcy Court will agree without first requiring material modifications which
may or may not be acceptable to the Debtor, FSCI, the Infinity Parties and other
parties in interest or which would not require a resolicitation of votes on the
Plan.
The confirmation and effectiveness of the Plan are also subject to
certain conditions being satisfied on its "Effective Date", which is projected
to occur on August 25, 1999. See "The Plan--Conditions to Confirmation." No
assurances can be given that these conditions will be satisfied or waived or
that any necessary consent will be obtained.
In the event any Impaired Class of Claims or Interests rejects the
Plan, the Bankruptcy Court, pursuant to section 1129(b) of the Bankruptcy Code
(the "cramdown" provisions), may nevertheless confirm the Plan at the
Reorganized Debtor's request if at least one Impaired Class of Claims has
accepted the Plan (with such acceptance being determined without including the
acceptance of any "insider" in such Class) and, as to each Impaired Class which
has not accepted the Plan, the Bankruptcy Court determines that the Plan "does
not discriminate unfairly" and is "fair and equitable" with respect to such
Impaired Class and if all of the other applicable requirement of section 1129(a)
of the Bankruptcy Code are met. The Debtor reserves the right to request
confirmation pursuant to section 1129(b) of the Bankruptcy Code in the event
that any Impaired Class of Claims or Interests rejects the Plan. See "The Plan
- -- Confirmation of the Plan." If the Plan is not confirmed as a result of the
rejection by any Impaired Class of Claims or Interests and the Plan is not
confirmed pursuant to section 1129(b) of the Bankruptcy Code, then the Debtor
may be required to continue its bankruptcy case without the agreement of its
major creditors as to the terms of a reorganization plan, possibly resulting in
the complications discussed above.
G. Risks Relating to Approval of the UPC Trust
Bankruptcy Court approval of the UPC Trust and the channeling of all
Securities Claims against UPC and the Infinity Parties to the UPC Trust is a
condition precedent to Infinity's willingness to support the Plan. Although the
Debtor believes that a channeling injunction such as that proposed by the Plan
is appropriate and within the equitable power of the bankruptcy courts, it is
not certain that the Bankruptcy Court will reach the same conclusion. Further,
although it is possible if the Bankruptcy Court denies approval of the
channeling injunction, that Infinity will waive such condition, it cannot be
certain that the Infinity Parties would be willing to do so. In making its
decision whether the UPC Trust and channeling injunction should be approved, it
is likely that the Bankruptcy Court will review the following factors: (1)
whether the non-debtor has contributed substantial assets to the reorganization;
(2) whether the injunction is essential to reorganization and, without it, there
is little likelihood of success; (3) whether the plan provides a mechanism for
the payment of the claims of the class or classes affected by the injunction;
and (4) whether there is an identity of interest between the debtor and the
third party (e.g. an indemnity relationship), such that a suit against the
non-debtor either operates as a suit against the debtor or will deplete assets
of the estate.
H. Risks Relating to the Company's Businesses and Farm Stores(R)
Business Acquired in The Merger
1. Industry and Geographic Concentration.
The acquired Farm Stores' business, which will be the primary business
of the Debtor post-Merger, consists of walk-in convenience stores and drive-thru
specialty convenience stores. As a result, a downturn in the convenience store
industry could have a material adverse effect on the Debtor's business. Further,
both the acquired F.S. Business and the business of Calibur are concentrated
geographically (the F.S. Business in Florida; Calibur in Tennessee and Georgia);
and it is anticipated that the business of Jackson will be sold subsequent to
consummation of the Plan. Operating results in individual geographic markets
will be adversely affected by local and or regional economic downturns. Such
economic downturns could have an adverse impact on the Debtor's financial
condition and results of operations.
2. Competition
The convenience store and retail gasoline industries are highly
competitive. The number and type of competitors vary by location. The Debtor
will compete with other convenience stores, gasoline service stations,
supermarket chains, neighborhood grocery stores, fast food operations and other
similar retail outlets, some of which are well-recognized national or regional
retail chains with significantly greater resources than Debtor. Key competitive
factors will include, among others, location, ease of access, store management,
product selection, pricing, hours of operation, store safety, cleanliness,
product promotions and marketing. Even assuming the reorganization proposed in
the Plan is completed, there can be no assurance that Debtor will be able to
compete effectively.
3. Government Regulation.
The Debtor is and will continue to be subject to numerous federal,
state and local laws, regulations and ordinances. In addition, various federal,
state and local legislative and regulatory proposals are made from time to time
to, among other things, increase the minimum wage payable to employees and
increase taxes on the retail sale of certain products; in particular, sales of
milk, gasoline, tobacco products and alcoholic beverages are subject to
extensive regulation. Changes to such laws, regulations or ordinances may
adversely affect the Debtor's performance by increasing the costs or affecting
sales of certain products at the Debtor's existing stores and the acquired Farm
Stores' stores.
The F.S. Business to be acquired in the Merger sells tobacco and
alcoholic beverages where such sales are legally permitted. Sales of tobacco
products and alcoholic beverages are regulated by state and local laws. Changes
in such laws significantly restricting such sales, or the revocation of any
license or permit required to make such sales, could have a material adverse
impact on sales and profits. Similarly, the sale of gasoline, including the
price charged for gasoline, is subject to extensive regulation. If the Walk-In
Stores were required to pay higher prices to purchase gasoline that could not be
supported by price increases at the pump, or if due to changes in regulations
those stores were to become unable to sell gasoline, it would have a material
adverse effect on the Walk-In Stores' sales and profits.
In recent years, sellers of alcoholic beverages have been held
responsible for damages caused by persons who purchased alcoholic beverages from
them and who were at the time of the purchase, or subsequently became,
intoxicated. There is potential exposure to the Debtor as a seller of alcoholic
beverages.
The F.S. Business sells a significant amount of milk products. Under
the Federal Milk Marketing Order program, the federal government and some state
agencies established minimum regional prices paid to producers for raw milk. In
1996, the U.S. Congress passed legislation to phase out the Federal Milk
Marketing Order program. This program is currently scheduled to be phased out by
October 1999. The U.S. Department of Agriculture has also recently proposed
changes to this program, including changes in pricing classifications for
certain dairy products. It is not known whether the Department of Agriculture
will adopt its proposed changes in their current or another form, and what
effect any final changes or the termination of this federal program will have on
the market for dairy products. In addition, various states have adopted or are
considering adopting compacts among milk producers, which would establish
minimum prices paid by milk processors, to raw milk producers. It is not known
whether new compacts will be adopted or the extent to which these compacts would
affect the prices paid for milk
4. Possible Environmental Liabilities and Regulations.
The Debtor is and will continue to be subject to various federal,
state, and local environmental, health and safety laws and regulations; in
particular, federal and state regulations regarding underground storage tanks
and related equipment that apply to acquired walk-in convenience stores selling
gasoline. Certain of the more significant federal laws are described below. The
implementation of these laws by the United States Environmental Protection
Agency ("EPA") and the states will continue to affect the Debtor's operations by
imposing operating and maintenance costs and capital expenditures required for
compliance.
The Resource Conservation and Recovery Act of 1976, as amended, affects
the Debtor through its substantial reporting, record keeping and waste
management requirements. In addition, standards for underground fuel storage
tanks and associated equipment may increase operating expenses. The
Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"), as amended, creates the potential for substantial liability for the
costs of study and clean-up of waste disposal sites and includes various
reporting requirements. CERCLA could result in joint and several liability even
for parties not primarily responsible for hazardous waste disposal sites. The
Clean Air Act, as amended, and similar regulations at the state and local
levels, impose significant responsibilities on the Debtor through certain
requirements pertaining to vapor recovery, sales of reformulated gasoline and
related record keeping.
The gasoline sales operations conducted by the Walk In Stores and
Calibur entail certain inherent environmental risks. Each operation utilizes
underground storage tanks for its petroleum products. The leakage of underground
storage tanks would result in environmental remediation obligations for the
Debtor under federal and state environmental laws, could give rise to third
party claims, and could result in civil or criminal enforcement actions. The
State of Florida has a program for the remediation of environmental
contamination from underground storage tanks, and Farm Stores participates in
such programs. In accordance with the requirements of such program, Farm Stores
carries insurance against certain environmental risks. However, there can be no
assurance that the operating results and financial condition of the reorganized
Debtor will not be materially adversely affected by environmental liabilities,
including increase in premiums and uninsured losses.
Jackson's business is regulated by certain local, state and federal
laws and regulations relating to the exploration for, and the development,
production, marketing, pricing, transportation and storage of, oil and natural
gas. Its business is also subject to extensive and changing environmental and
safety laws and regulations governing plugging and abandonment, the discharge of
materials into the environment or otherwise relating to environmental
protection. As with any owner of property, Jackson is also subject to cleanup
costs and liability for hazardous materials, asbestos or any other toxic or
hazardous substance that may exist on or under any of its properties. The
implementation of new, or the modification of existing, laws or regulations
could have a material adverse effect on Jackson. Although the reorganized Debtor
intends to sell Jackson's assets after the Effective Date, there can be no
assurance that its business will not be adversely affected by these matters
prior to the sale, or pursuant to any indemnification obligations that may
survive a sale of Jackson's assets.
5. Volatility of Natural Gas and Oil Prices.
Revenues generated from the sale of gasoline at the Walk-In Stores and
Calibur stores, from the sale of Jackson's oil and gas properties, are highly
dependent upon the price of, and supply of and demand for petroleum products
and, as to Jackson, natural gas as well. Historically, the markets for petroleum
products and natural gas have been volatile and are likely to continue to be
volatile in the future. Prices for petroleum and natural gas are subject to wide
fluctuations in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that are beyond the control of the Debtor. These factors include the level of
consumer product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, political
conditions in the Middle East, the foreign supply of petroleum products and
natural gas, the price of foreign imports and overall economic conditions. It is
impossible to predict future petroleum products and natural gas price movements
with any certainty.
6. Drilling Risks.
The Debtor currently anticipates that it will sell its non-producing
oil and gas properties after the Effective Date. Nevertheless, to the extent the
Debtor undertakes drilling activities, they involve numerous risks, including
the risk that no commercially productive natural gas or oil reservoirs will be
discovered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions or
pressure irregularities in formations, equipment failures, accidents, adverse
weather conditions and shortages or delays in the delivery of equipment. The
Debtor's drilling activities have in the aggregate been historically
unproductive and may be unsuccessful in the future and, if unsuccessful, such
failure will have an adverse effect on Debtor's future results of operations and
financial condition.
7. Uncertainty of Reserve Information and Future Net Revenue
Estimates.
There are numerous uncertainties inherent in estimating oil and natural
gas reserves and their estimated values, including many factors beyond the
control of the producer. Reservoir engineering is a subjective process of
estimating underground accumulations of oil and natural gas that cannot be
measured in an exact manner. Estimates of economically recoverable oil and gas
reserves and of future net cash flows necessarily depend upon a number of
variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions concerning future oil and
gas prices, future operating costs, severance and excise taxes, development
costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows expected therefrom
prepared by different engineers or by the same engineers at different times may
vary substantially and such reserve estimates may be subject to downward or
upward adjustment based upon such factors. Actual production, revenues and
expenditures with respect to Debtor's reserves will likely vary from estimates,
and such variances may be material. There can be no assurance that the
Reorganized Debtor will be able to sell Jackson's assets for any price related
to the book or carrying values of these assets on the Debtor's books.
8. Operating Risks of Oil and Gas Operations.
The oil and gas business involves certain operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to the Debtor. The availability of a ready market
for the Debtor's oil and natural gas production also depends on the proximity of
reserves to, and the capacity of, oil and gas gathering systems, pipelines and
trucking or terminal facilities. In addition, the Debtor may be liable for
environmental damage caused by previous owners of property purchased and leased
by the Debtor. As a result, liabilities to third parties or governmental
entities may be incurred, the payment of which could reduce or eliminate the
funds available for development, acquisitions or exploration, or result in the
loss of the Debtor's properties. The Debtor does not carry business interruption
insurance. The occurrence of an event not covered by insurance could have a
material adverse effect on the financial condition and results of operations of
the Debtor.
9. Dependence on Personnel.
The business of the Reorganized Debtor will depend upon the ability and
expertise of certain key employees, including Mr. Joe Bared and Mr. Carlos
Bared. If one or more key employees of the Reorganized Debtor terminate their
employment, the Reorganized Debtor's operations could be adversely affected.
There can be no assurance that one or more key employees will not resign from
employment with the Reorganized Debtor.
10. Need For Additional Financing.
In the event that cash from operations and other available funds prove
to be insufficient to fund the Reorganized Debtor's presently anticipated
operations, the Reorganized Debtor will be required to seek additional
financing. Even if the Reorganized Debtor has no future capital expenditures,
the Reorganized Debtor's operations could require more cash than is generated
from the Reorganized Debtor's operations and other available funds, in which
case the Reorganized Debtor would require additional financing. There can be no
assurance that, if additional or replacement financing is required, it will be
available on acceptable terms, or at all. Nor can any assurances be given that
the Infinity Parties would be willing to refinance or to fund any additional
operational requirements of the Reorganized Debtor in the future. Additional
financing may involve substantial dilution to the interests of the Reorganized
Debtor's then-current stockholders, including the holders of the New UPC Common
Stock.
11. Legal Proceedings.
The Debtor is involved in certain legal proceedings as described in
"Legal Proceedings." While the Debtor intends to defend such lawsuits, any
adverse decisions or settlements and the costs of defending such suits, could
have a material adverse effect on the Debtor. In addition, the Debtor has filed
a lawsuit seeking the recovery of substantial damages. See "Legal Proceedings --
TAJ/National." This lawsuit is in the early stages and there can be no
assurances of the timing or amounts of any recovery. In the event the Debtor is
ultimately successful in such lawsuit, the holders of the Common Stock of the
Debtor would receive less of the benefits from the recovery, if any, if the Plan
is confirmed and consummated. However, if the Plan is not approved, the Debtor
would not have sufficient funds to pursue the litigation.
12. Year 2000 Compliance.
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than twelve months, computer
systems and/or software used by many companies will need to be upgraded to
comply with such "Year 2000" requirements. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. Significant uncertainty exists in the software industry concerning the
potential effects associated with such compliance. Management does not
anticipate that the Debtor will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be Year 2000
compliant. The occurrence of any of the foregoing could have a material adverse
effect on the Debtor's business, operating results or financial condition.
Although the Debtor believes the software and hardware it uses
internally comply with Year 2000 requirements and is not aware of any material
operational issues or costs associated with preparing its internally used
software and hardware for the Year 2000, there can be no assurances that the
Debtor will not experience serious, unanticipated negative consequences and/or
material costs caused by undetected errors or defects in the technology used in
its internal systems. The occurrence of any of the foregoing could have a
material adverse effect on the Debtor's business, operating results or financial
condition.
13. Benefits of Combining the F.S. Business and the Debtor's
Business May not be Realized.
There can be no assurance that the anticipated benefits of merging the
Walk-In Stores with the Debtor's business, and the Debtor's investment in the
Drive-Thru Stores, will be achieved. Further, any difficulties encountered in
the transition and integration of the Walk-In Stores' business with the Debtor's
business could have an adverse effect on the profitability of either or both of
the Debtor's existing business and the Walk-In Stores. To the extent that the
Financial Projections assume earnings growth in the Reorganized Debtor from
reductions in general and administrative expenses, the reasonableness of this
assumption must be evaluated in light of the above factors.
14. Conflicts of Interest; Exculpation and Indemnification.
The proposed Management Agreement among the reorganized Debtor involves
substantial conflicts of interest. The Management Agreement contemplates that
the existing management of the F.S. Business will become employed by the
reorganized Debtor , and manage UPC as well as FSG, a company in which UPC will
have only a 10% equity interest<F9>. The remaining equity in FSG is owned by
Bared affiliates. FSG will pay a management fee for UPC's management services
under this Agreement. However, the management of UPC will experience conflicts
of interest in allocating their time, and the resources of the UPC and FSG, and
with respect to agreements that may involve one or the other, or both of such
concerns. There can be no assurance that such conflicts will be resolved in
favor of UPC. Moreover, the Management Agreement will contain provisions
providing exculpation and indemnification for the benefit of (a) the management
personnel of UPC, with respect to claims by or in the right of UPC or FSG, and
(b) UPC, with respect to claims by FSG. These provisions will protect these
beneficiaries against claims for mismanagement, conflict of interest, and the
like, unless it is finally established that such claims arose out of bad faith,
or willful misconduct. It is the intended effect of these provisions that UPC
and FSG shall have more restricted rights than would exist absent these
provisions. There can be no assurance that these provisions will not materially
adversely affect UPC and FSG.
<F9> Alternatively, management services may be provided through a separate
entity or other means. None of these alternatives will materially effect
the economics of the management arrangement.
15. Weather Related Risk.
The largest single source of revenues for Calibur is from the operation
of car washes, which represented approximately 46.9% and 44.1% of the Debtor's
revenues for the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively. These revenues are significantly adversely
affected by adverse weather conditions, since car washes are generally utilized
less frequently during wet and/or severe freezing weather. During 1997 and the
first and second quarters of 1998, the El Nino weather condition produced
unusually wet weather, which resulted in decreased usage of the Debtor's
facilities and had a negative effect on revenues. Long term weather conditions
are difficult, if not impossible, to predict accurately and may have a material
adverse effect on the Debtor's results of operations and financial condition.
XIII. CERTAIN MATERIAL INCOME TAX CONSEQUENCES OF THE PLAN
THE PLAN AND ITS RELATED TAX CONSEQUENCES ARE COMPLEX. MOREOVER, MANY
OF THE INTERNAL REVENUE CODE PROVISIONS DEALING WITH THE FEDERAL INCOME TAX
ISSUES ARISING FROM THE PLAN HAVE BEEN THE SUBJECT OF RECENT LEGISLATION AND, AS
A RESULT, MAY BE SUBJECT TO AS YET UNKNOWN ADMINISTRATIVE OR JUDICIAL
INTERPRETATIONS. THE DEBTOR HAS NOT REQUESTED A RULING FROM THE IRS WITH RESPECT
TO THESE MATTERS. ACCORDINGLY, NO ASSURANCE CAN BE GIVEN AS TO THE
INTERPRETATION THAT THE IRS WILL ADOPT. THERE ALSO MAY BE STATE, LOCAL OR OTHER
TAX CONSIDERATIONS APPLICABLE TO EACH CREDITOR. CREDITORS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES OF THE PLAN TO THEM UNDER FEDERAL
AND APPLICABLE STATE, LOCAL AND OTHER TAX LAWS.
A. U.S. Federal Income Tax Consequences to Holders of Allowed
Claims and Equity Interests
The U.S. federal income tax consequences to holders of an Allowed
Claim, Common Equity Interest or Preferred Equity Interest arising from the
distributions to be made under the Plan may vary depending upon, among other
things: the type of consideration received by the holder in exchange for its
Claim or Interest; for Claims, the nature of the indebtedness owing to the
holder; whether the holder has previously claimed a bad debt or worthless
security deduction in respect of such holder's Claim or Interest; and whether
such Claim or Interest constitutes a "security" for purposes of the
reorganization provisions of the Tax Code.
As noted above, the U.S. federal income tax consequences of the Plan to
holders of Allowed Claims will depend, in part, on whether the indebtedness
underlying their Claims constitutes securities for purposes of the
reorganization provisions of the Tax Code. Neither the Tax Code nor the
regulations thereunder define the term "securities." The determination of
whether a Claim constitute a "security" depends upon the nature of the
indebtedness or obligation. Important factors to be considered include, among
other things, the length of time to maturity, the degree of continuing interest
in the issuer, and the purpose of the borrowing. Generally, corporate debt
instruments with maturities when issued of less than five years are not
considered securities, and corporate debt instruments with maturities when
issued of ten years or more are considered securities. Claims for accrued
interest are generally not considered securities. Subject to the discussion
below regarding characterization of the Debentures, based on these factors, all
Allowed Claims should not be considered securities.
Characterization of the Debentures is uncertain. The Debtor believes
that the Debentures should not constitute "securities" because all of the
Debentures matured within approximately two years of their issue date. However,
other characteristics of the Debentures, such as the ability of holders to have
converted the Debentures into shares of Old UPC Common Stock, may cause the
Debentures to be characterized as securities. Unless otherwise specifically
noted, the remainder of this discussion assumes that the Debentures will not be
characterized as securities. However, due to the uncertainty regarding this
characterization, holders of Debentures are urged to consult their own tax
advisors.
HOLDERS OF ALLOWED CLAIMS SHOULD EVALUATE THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN TO THEM BASED UPON THEIR OWN PARTICULAR CIRCUMSTANCES
AND SHOULD NOT RELY SOLELY ON THE GENERAL DISCUSSION HEREIN.
1. Tax Consequences by Class.
Subject to the discussion below in "Certain Other U.S. Federal Income
Tax Considerations for Holders of Allowed Claims":
(a) Holders of Allowed Claims That Are Not Securities. Pursuant to
the Plan, holders of Allowed Claims that are not securities
will receive either (i) payment in full in cash (General
Unsecured Claims); (ii) New UPC Preferred Stock (the Infinity
Secured Claim); or (iii) New UPC Common Stock (Debenture
Claims and Securities Claims). Generally, a holder of an
Allowed Claim that is not a security will realize gain or loss
on the exchange in the amount equal to the difference between
(i) the "amount realized" in respect of such Claim (other than
in respect of accrued interest) and (ii) the holder's tax
basis in its Claim (other than any Claim in respect of accrued
interest). The "amount realized" will be equal to the fair
market value of the property received. The holder's tax basis
in its Allowed Claim will generally equal the amount paid, if
any, by the holder for the Claim increased by the amount of
any accrued original issue discount and decreased by the
amount of any loss deduction previously taken with respect to
such Claim. A holder's tax basis in the property received will
be equal to the fair market value of such property at the time
of the exchange and the holder's holding period with respect
to such property received will begin on the day after the
Effective Date. The gain or loss should generally be capital
in nature if the Allowed Claim is a capital asset within the
meaning of Section 1221 of the Tax Code, otherwise, such gain
or loss will be ordinary income. Any capital gain or loss
would be long-term if the Allowed Claim was held by the holder
for more than one year as of the Effective Date, otherwise
such capital gain or loss will be short-term.
(b) Holders of Allowed Claims That Are Securities. In general, if
the Debentures constitute securities, the exchange of such
Debentures for New UPC Common Stock should qualify as a
"recapitalization" for U.S. federal income tax purposes. In
such case, holders of the Debentures will generally not
recognize gain or loss on the receipt of New UPC Common Stock
in satisfaction of their Debentures, and the initial tax basis
of the New UPC Common Stock received (other than such stock
received in exchange for accrued interest) will be equal to
the adjusted basis of the Debentures surrendered in exchange
for such stock. Further, if the Debentures constitute
securities, the New UPC Common Stock received (other than such
stock received in exchange for accrued interest) will have a
holding period that includes the period during which the
holders held their Debentures.
(c) Holders of Allowed Equity Interests. All Equity Interests (the
Preferred Stock and the Common Stock) should constitute
securities under the federal tax laws. The exchange of an
Equity Interest for shares of New UPC Common Stock should
qualify as a "recapitalization" for U.S. federal income tax
purposes. In such case, holders of Equity Interests will
generally not recognize gain or loss on the receipt of New UPC
Common Stock in satisfaction of their Equity Interests. The
initial tax basis of the stock received (other than stock
received in exchange for accrued dividends) generally will be
equal to the adjusted basis of the Equity Interest surrendered
in exchange for such stock. The stock received (other than
stock received in exchange for accrued dividends) will have a
holding period that includes the period during which the
holders of such Equity Interests held their Equity Interests.
B. Certain Other U.S. Federal Income Tax Considerations for
Holders of Allowed Claims
(a) Accrued Interest and Accrued Dividends.
Notwithstanding the discussion above in "Tax Consequences by Class",
holders of Allowed Claims or Equity Interests in respect of which interest or
dividends accrue may have different tax consequences. Holders of Allowed Claims
or Equity Interests will be treated as having received ordinary income to the
extent that the shares of the New UPC Common Stock or the New UPC Preferred
Stock the holder receives is allocable to accrued but unpaid interest (including
original issue discount) or dividends, if any, on the Allowed Claims or Equity
Interests, provided that the holder has not previously included such amount in
gross income. Holders who have previously included such accrued interest or
dividends in gross income will recognize a loss equal to the extent the amount
of such previous inclusion in gross income exceeds the fair market value of the
New UPC Common Stock or the New UPC Preferred Stock received by the holder that
is allocable to such accrued interest or dividends. With respect to holders of
Allowed Claims or Equity Interests who do not receive full payment of their
claims (including accrued interest or dividends), the manner in which the
property received by the holders should be allocated to accrued interest or
dividends as opposed to their underlying claim is not clear. The initial tax
basis of stock received that is allocable to accrued interest or dividends is
equal to the fair market value of such stock on the Effective Date. The holding
period of the stock received that is allocable to accrued interest or dividends
commences on the day after the Effective Date.
(b) Market Discount.
"Market discount" arises when a debt instrument is purchased or
acquired for less than its stated redemption price at maturity, unless the
discount amount is no more than a specified de minimis amount. A holder of an
Allowed Claim with "market discount," as described above, must treat any gain
recognized with respect to the principal amount of such Claim as ordinary income
to the extent of the market discount accrued during the holder's period of
ownership, unless the holder has elected to include the market discount in
income as it accrued. Any additional gain will be characterized as discussed
above.
C. U.S. Federal Income Tax Consequences to the Debtor
1. Discharge of Indebtedness Income.
The Debtor will generally realize cancellation of debt ("COD") income
to the extent a creditor receives an amount of consideration in respect of its
claim that is less than the amount of such claim. Pursuant to the Plan, the
Debtor will issue New UPC Common Stock and New UPC Preferred Stock in
satisfaction of certain indebtedness. As a result, the Debtor will be treated as
having satisfied the indebtedness with an amount of money equal to the fair
market value of the newly issued stock that is issued in satisfaction of such
indebtedness. The extent by which the amount of the debt discharged exceeds any
consideration therefor, if any, will be COD income under the Tax Code. Because
the discharge of indebtedness of the Debtor will occur in a proceeding under the
Bankruptcy Code, the Reorganized Debtor will be able to exclude any COD income
from gross income. As a consequence of this exclusion (the "Bankruptcy
Exclusion"), the Debtor must reduce certain tax attributes.
Under the Plan, all of the Allowed Claims are to be satisfied in full,
other than the Debenture Claims. The Debenture Claims will be satisfied by the
issuance of new UPC Common Stock. As a result of the satisfaction of the
Debenture Claims, the Debtor will realize COD income under the Plan. However, as
a result of the Bankruptcy Exclusion, the Debtor will not recognize gross income
as a result of this COD income. Instead, the Debtor must reduce certain tax
attributes to the extent of the income excluded under the Bankruptcy Exclusion.
Pursuant to the Tax Code, tax attribute reduction occurs after the tax
liability for the taxable year of debt discharge is determined. Unless the
Debtor elects to first reduce its tax basis in depreciable property, the amount
of any COD income will first be applied against and reduce the Debtor's net
operating losses and net operating loss carryovers ("NOLs"), on a
dollar-for-dollar basis, and then be applied to reduce other specified tax
attributes in the order of priority specified in the Tax Code. Accordingly, as a
result of the exclusion of COD income pursuant to the Bankruptcy Exclusion, the
Debtor will be required to reduce its available NOLs by approximately $5 to $10
million.
2. Accrued Interest.
To the extent that there exists accrued but unpaid interest on the
indebtedness owing to holders of Allowed Claims and to the extent that such
accrued but unpaid interest has not previously been deducted by the Debtor,
portions of payments made in consideration for the indebtedness underlying such
Allowed Claims that are allocable to accrued but unpaid interest should be
deductible by the Reorganized Debtor. Any such interest that is not paid will
not be deductible by the Reorganized Debtor and will not give rise to COD
income.
To the extent that the Debtor has previously taken a deduction for
accrued but unpaid interest, any amounts so deducted that are paid will not give
rise to any tax consequences to the Reorganized Debtor. If such amounts are not
paid, they will give rise to COD income that would be excluded from gross income
pursuant to the Bankruptcy Exclusion. As a result, the Debtor would be required
to further reduce its NOLs to the extent of such interest previously deducted
and not paid. The Debtor has not determined the precise amount by which the NOLs
would be further reduced as a result of interest previously deducted and not
paid; however, this amount would not exceed [$1,500,000.]
3. The Merger.
The Merger should qualify as a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Tax Code, and no tax gain or loss will be
recognized by the Reorganized Debtor or UPC Merger Sub as a result of the
Merger.
After consummation of the Merger, the Reorganized Debtor will elect to
file a consolidated tax return with UPC Merger Sub. In general, this election
will cause the Reorganized Debtor and UPC Merger Sub to be treated as a single
entity for tax purposes.
One principal advantage of filing a consolidated tax return is that, in
general, losses of one member of the consolidated group may be used to offset
income of other members. Thus, subject to certain exceptions and limitations
(the significant exceptions and limitations are discussed in Section 4 below),
the Reorganized Debtor's losses (including NOLs) generally may be used to offset
the income of UPC Merger Sub (or vice versa) to reduce the tax liability of the
group.
4. Utilization of Debtor's Net Operating Loss Carryovers.
(a) Section 382.
Section 382 of the Tax Code provides rules limiting the utilization of
a corporation's NOLs following a more than 50% change in ownership of a
corporation's equity (an "ownership change"). An ownership change will occur
with respect to the Reorganized Debtor in connection with the Plan. Therefore,
the Reorganized Debtor's NOLs will be limited by Section 382 of the Tax Code,
unless the Bankruptcy Exception (described below) applies to the transactions
contemplated by the Plan. Unless the Bankruptcy Exception applies, the amount of
post-ownership change annual taxable income of the Reorganized Debtor's
consolidated group that can be offset by the Reorganized Debtor's pre-ownership
change NOLs generally cannot exceed an amount equal to the product of (i) the
fair market value of the Reorganized Debtor's stock prior to the Merger (subject
to various adjustments) multiplied by (ii) the federal long-term tax-exempt rate
in effect on the date of the ownership change (the "Annual Limitation"). The
value of the Reorganized Debtor's stock for purposes of this computation would
reflect the increase, if any, in value resulting from any surrender or
cancellation of creditors' claims in the bankruptcy reorganization. The federal
long-term tax-exempt rate in effect as of June, 1999 is 4.85%. Accordingly, the
Debtor estimates that, unless the Bankruptcy Exception is applicable, the Annual
Limitation would be approximately $400,000.
Unless the Bankruptcy Exception is applicable, the Annual Limitation
may also apply to limit the Reorganized Debtor's ability to utilize certain
losses and deductions (other than its NOLs) that are generated and reportable
after the Effective Date, but that are "built-in" as of the Effective Date.
Section 382(l)(5) of the Tax Code (the "Bankruptcy Exception") provides
that the Annual Limitation will not apply to limit the utilization of the
Reorganized Debtor's NOLs if the stock of the Reorganized Debtor owned by those
persons who were shareholders of the Reorganized Debtor immediately before the
ownership change, together with certain stock of the Reorganized Debtor received
by certain holders of Allowed Claims pursuant to the Plan, comprise 50% or more
of the value and voting power of all of the stock (other than "Straight
Preferred Stock", described below) of the Reorganized Debtor outstanding
immediately after the ownership change. Stock received by such holders will be
included in the 50% calculation if, and to the extent that, the holders
constitute "historic creditors." A "historic creditor" is a holder of an Allowed
Claim that (i) was held by such holder since July 14, 1997 (the date that is 18
months before the date on which the Reorganized Debtor filed its petition with
the Bankruptcy Court) or (ii) arose in the ordinary course of business and is
held by the person who at all times held the beneficial interest in such Allowed
Claim. In determining whether the Bankruptcy Exception applies, certain
creditors who would own a de minimis amount of Reorganized Debtor stock pursuant
to the Plan are presumed to have held their Claims since the origination of such
Claims. In general, this de minimis rule applies to creditors who would own
directly or indirectly less than 5% of the total fair market value of the
Reorganized Debtor's stock pursuant to the Plan.
The Reorganized Debtor could elect to not have the Bankruptcy Exception
apply, in which event the Annual Limitation would apply. The Reorganized Debtor
has determined not to make such an election.
In making the 50% calculation, "straight preferred stock" issued by the
Reorganized Debtor is not counted as stock. Straight preferred stock includes
stock that (i) is not entitled to vote, (ii) is limited and preferred as to
dividends and does not participate in corporate growth to any significant
extent, (iii) has redemption and liquidation rights that do not exceed the issue
price of such stock (except for a reasonable redemption or liquidation premium),
and (iv) is not convertible into another class of stock. Prior to the
Confirmation Date, the Debtor shall seek a determination that the shares of New
UPC Preferred Stock will have a fair market value equal to their face amount as
of the Effective Date and that the Reorganized Debtor will have sufficient
assets and cash flow (not taking into account future growth of the Reorganized
Debtor's assets) to meet all required payments on the New UPC Preferred Stock.
Based upon the characteristics of the New UPC Preferred Stock, if the
Reorganized Debtor obtains such a determination, the Reorganized Debtor believes
that the New UPC Preferred Stock will qualify as straight preferred stock.
However, the IRS could challenge the characterization of the New UPC Preferred
Stock as straight preferred stock. If such challenge is successful, the
Bankruptcy Exclusion would not apply and the Annual Limitation would apply to
the Reorganized Debtor's NOLs.
If the Bankruptcy Exception applies, a subsequent ownership change with
respect to the Reorganized Debtor occurring within two (2) years after the
Effective Date will result in the reduction of the Annual Limitation that would
otherwise be applicable to the subsequent ownership change to zero. Thus, a
subsequent ownership change within two years after the Effective Date would
eliminate the Reorganized Debtor's NOLs.
In order to avoid a subsequent ownership change, the Amended UPC
Charter will contain a "5% Ownership Limitation," effective until the last day
of the taxable year of Reorganized Debtor that includes the second anniversary
of the Effective Date. It is expected that this limitation will provide that no
person who beneficially owns, directly or indirectly, five percent or more of
the total fair market value of the Reorganized Debtor's stock, or who, upon the
purchase, sale, or other transfer of any shares of the Reorganized Debtor's
stock, would beneficially own, directly or indirectly, or would cause any other
person beneficially to own, directly or indirectly, five percent or more of the
total fair market value of the Reorganized Debtor's stock (a "5% Holder"), may
sell or purchase any shares of stock (or any option, warrant or other right to
purchase or acquire shares of the Reorganized Debtor's stock or any securities
convertible into or exchangeable for shares of stock), except as authorized by
the Board of Directors or its designee, subject to the waiver or modification of
this restriction by the holders of a majority of the outstanding stock. For
purposes of the 5% Ownership Limitation, "stock" means stock for U.S. federal
income tax purposes, but does not include stock that qualifies as Straight
Preferred Stock. The purpose of the 5% Ownership Limitation is to reduce the
risk that a change in the ownership of the Reorganized Debtor may result in the
loss or reduction of federal income tax attributes of the Reorganized Debtor for
purposes of Sections 382 and 383 of the Tax Code. However, the implementation of
the 5% Ownership Limitation also could have the effect of impeding an attempt to
acquire a significant or controlling interest in the Reorganized Debtor interest
and, as a practical matter, may make it impossible for a 5% Holder to pledge
such securities on margin.
Any 5% Holder who proposes to transfer shares of stock that would be
subject to the 5% Ownership Limitation must, prior to the date of the proposed
transfer, request in writing (a "Request") that the Directors or the designee of
the Directors (as defined in the Restated Certificate) review and authorize the
proposed transfer. A Request must, among other things, be delivered to the
President of the Reorganized Debtor and must include (i) the name, address and
telephone number of the 5% Holder, (ii) a description of the stock proposed to
be transferred by or to the 5% Holder, (iii) the date of the proposed transfer,
(iv) the name of the transferor and transferee of such shares of stock, and (v)
a request that the Board of Directors or its designee authorize, if appropriate,
the transfer by or to the 5% Holder. If the 5% Holder seeks to buy or sell
shares, then within fifteen (15) business days of receipt by the President of a
Request, either the Directors or the designee shall determine whether to
authorize the proposed transfer described in the Request. In any case, the
Directors or the designee shall conclusively determine whether to authorize the
proposed transfer and shall immediately inform such 5% Holder of such
determination; provided however, that the Directors or the designee shall
authorize a transfer by or to a 5% Holder if that transfer will not jeopardize
the Reorganized Debtor's preservation of its federal income tax attributes
pursuant to Sections 382 and 383 of the Tax Code.
For purposes of applying the 5% Ownership Limitation (including the
determination of whether a holder is a 5% Holder), 10% shall be substituted for
5% for so long as the percentage point changes in the ownership of the
Reorganized Debtor's stock (as determined in accordance with Section 382(g)(1)
of the Tax Code) since the Effective Date (taking into account the proposed
transfer) do not total more than 30 percentage points.
Any transfer of shares of stock that are subject to the 5% Ownership
Limitations in violation of the requirements of the Amended UPC Charter shall be
null and void. The purported transferor shall remain the owner of the
transferred shares and the Reorganized Debtor, as agent for the purported
transferor, shall be authorized to sell such shares to an eligible transferee
that is not subject to the 5% Ownership Limitation. The proceeds of any such
sale shall be applied to reimburse the Reorganized Debtor for its expenses, then
to reimburse the intended transferee for any payments made by the intended
transferee to the transferor, and the remainder, if any, to the original
transferor.
New UPC Common Stock certificates will bear a legend reflecting the
existence of the transfer restrictions.
Although the Annual Limitation will not restrict the deductibility of
the Reorganized Debtor's NOLs if the Bankruptcy Exception applies, the
Reorganized Debtor's NOLs will nevertheless be reduced by any interest paid or
accrued by the Reorganized Debtor during the three (3) taxable years preceding
the taxable year in which the ownership change occurs and during the portion of
the taxable year of the ownership change preceding the ownership change with
respect to all Allowed Claims converted into stock. The Debtor has estimated
that, if the Bankruptcy Exception applies to the Debtor, the aggregate NOLs that
would be available to the Reorganized Debtor after the Bankruptcy Exception
reduction (and after the reduction as a result of the exclusion of COD income)
would be in the range of $15 to $20 million.
(b) Section 384.
In certain circumstances, Section 384 of the Tax Code generally
prevents a corporation from applying its preacquisition NOLs against an acquired
corporation's "Recognized Built-In Gains." "Recognized Built-In Gains" are gains
that are recognized after an acquisition (such as the Merger) with respect to an
asset held by the acquired corporation prior to the acquisition, but only to the
extent the fair market value of the asset exceeded the asset's tax basis as of
the acquisition date. Therefore, where Section 384 of the Tax Code applies, it
will limit the ability of an acquiring corporation from applying its
preacquisition NOLs against the preacquisition appreciation of the acquired
corporation's assets; however, Section 384 of the Tax Code will not limit the
ability of the acquiring corporation from applying its preacquisition NOLs
against the post-acquisition appreciation of the acquired corporation's assets.
Furthermore, Section 384 of the Tax Code does not apply to any gains recognized
more than five (5) years after the acquisition date.
Section 384 of the Tax Code may apply to limit the use of the NOLs of
the Reorganized Debtor with respect to certain gains recognized by the
Reorganized Debtor's consolidated group after the Reorganized Debtor's
acquisition of FSCI in the Merger. In order for Section 384 of the Tax Code to
apply, the Farm Stores Assets must have an aggregate fair market value on the
Effective Date (the "Aggregate Fair Market Value") that exceeds FSCI's aggregate
basis in such assets by the lesser of (i) 15% of the Aggregate Fair Market
Value, or (ii) $10,000,000. The Debtor has not determined the amount, if any, of
such excess; accordingly, it is uncertain whether Section 384 of the Tax Code
would apply. If Section 384 of the Tax Code does apply, the Reorganized Debtor's
consolidated group would generally be unable to utilize the Reorganized Debtor's
NOLs against gains recognized by the Reorganized Debtor's consolidated group
with respect to the sale of any of the Farm Store Assets, to the extent such
asset's fair market value on the Effective Date exceeded its tax basis.
Notwithstanding the foregoing, Section 384 of the Tax Code would not apply to
any gains recognized by the Reorganized Debtor's consolidated group from sales
consummated more than five years after the Effective Date.
Because the Reorganized Debtor intends to continue to operate the
business of FSCI after the Merger, the Reorganized Debtor does not believe that
it will dispose of any significant assets of FSCI in the foreseeable future.
Accordingly, the Reorganized Debtor does not believe that Section 384 of the Tax
Code, if it applied, would be materially applicable to the Reorganized Debtor.
However, if Section 384 of the Tax Code applies, and if the Reorganized Debtor
disposed of any of the Farm Stores Assets within five (5) years after the
Effective Date, Section 384 of the Tax Code may prevent the Reorganized Debtor's
consolidated group from using its NOLs against some or all of the gain generated
from such disposition.
(c) Section 269.
Pursuant to section 269(a)(1) of the Tax Code, the IRS may disallow a
corporate tax benefit if the principal purpose for an acquisition of 50% or more
(in vote or value) of the stock of a corporation (an "Applicable Stock
Acquisition") is the evasion or avoidance of federal income tax by securing a
corporate tax benefit that would not otherwise be available. Furthermore,
pursuant to section 269(a)(2) of the Tax Code, the IRS may disallow a corporate
tax benefit if the principal purpose for certain asset acquisitions ("Applicable
Asset Acquisitions") is the evasion or avoidance of federal income tax by
securing a corporate tax benefit that would not otherwise be available. On the
Effective Date, more than 50% in value of the total outstanding stock of the
Reorganized Debtor will be issued to holders of Allowed Claims, and the Merger
will constitute an Applicable Asset Acquisition. Thus, in addition to the
limitations on, and reductions in, the NOLs set forth in Section 382 of the Tax
Code, the IRS may assert that Section 269(a)(1) of the Tax Code authorizes it to
disallow deductions with respect to some or all of the Reorganized Debtor's NOLs
if either the Plan or the Merger is determined to have been structured
principally for tax avoidance purposes. This determination is primarily a
question of fact.
If the IRS asserts Section 269 of the Tax Code with respect to an
Applicable Stock Acquisition or an Applicable Asset Acquisition, the taxpayer
has the burden of proof because the IRS's determination of a tax avoidance
principal purpose is presumptively correct. If the taxpayer is unable to carry
the burden of proving a principal purpose other than tax avoidance, the
determination of a tax avoidance will stand.
The regulations under Section 269 of the Tax Code provide that, in
cases where the Bankruptcy Exception applies, there is a presumption that
Section 269(a)(1) of the Tax Code will disallow any deduction of the Debtor's
NOLs if the Debtor does not carry on more than an insignificant amount of an
active trade or business during and subsequent to the Chapter 11 Case. The
regulations under the Tax Code provide that this presumption controls unless
rebutted by strong evidence to the contrary. The Reorganized Debtor intends to
retain and continue to operate substantially all of its business as well as the
businesses of FSCI. Accordingly, the Reorganized Debtor does not believe that
this presumption will apply to it. However, if the Reorganized Debtor in the
future were to substantially reduce the amount of its business and the
businesses of FSCI, the IRS, using hindsight, could attempt to apply the
presumption to disallow the Reorganized Debtor's utilization of NOLs.
Even though the presumption in the regulations should not apply, the
IRS could assert that the principal purpose of the Plan and the Merger is to
enhance the ability of the Reorganized Debtor to utilize its NOLs through the
Reorganized Debtor's and UPC Merger Sub's acquisition of the historically
profitable businesses of FSCI. This assertion can be negated by the Reorganized
Debtor's showing that a business purpose (other than tax avoidance) was the
principal motivation for both the Plan and the Merger. Although the Reorganized
Debtor will be required to carry the burden of proof with respect to this issue,
the IRS itself has recognized that courts are generally reluctant to invoke
Section 269 of the Tax Code where a reasonable business purpose existed for the
timing and form of the acquisition, even if the availability of NOLs was a major
consideration in the transaction. As noted above, the determination of whether
tax avoidance is the principal motivation with respect to a transaction is
primarily a question of fact.
The Debtor believes that, if the Plan is challenged by the IRS, the
Reorganized Debtor could show that reasonable business purposes existed for the
implementation of the Plan and that tax avoidance was not the principal
motivation for the Plan. Accordingly, the Debtor believes that Section 269 of
the Tax Code should not apply to the Plan. The Debtor believes that the
creditors' acquisition of control of the Reorganized Debtor pursuant to the Plan
will be made for reasonable business purposes. The creditors have been offered
stock because the Reorganized Debtor cannot offer them sufficient cash and/or
new debt instruments to preserve their investment in the Reorganized Debtor. In
light of business exigencies requiring the Reorganized Debtor to satisfy most of
its indebtedness with stock, tax avoidance should not be considered the
principal motivation for the Plan.
Although the appropriate application of Section 269 of the Tax Code to
the Merger is less certain, the Reorganized Debtor believes that, if the Merger
is challenged by the IRS, the Reorganized Debtor could show that reasonable
business purposes exist for the consummation of the Merger and that tax
avoidance is not the principal motivation for the Merger. Accordingly, the
Debtor believes that Section 269 should not apply to the Merger. The Debtor
believes that the Merger will be consummated principally for reasonable business
purposes. The Merger is anticipated to reap significant synergistic benefits,
create critical mass, accomplish geographical diversity, provide management with
significant experience in the Company's core business, and enhance the
efficiency of all of the reorganized Company's businesses.
Even though the Debtor believes that Section 269 of the Tax Code should
not apply to either the Plan or the Merger, the IRS could assert that Section
269 of the Tax Code applies to either or both of the Plan and the Merger. If
such assertion is successful, Section 269 of the Tax Code would severely limit
or even extinguish the Reorganized Debtor's ability to utilize its pre-ownership
change NOLs. Although the Debtor believes that Section 269 of the Tax Code
should not apply, due to the highly factual nature of the issue, there can be no
assurance that the IRS would not prevail on this issue if it asserts the
application of Section 269 of the Tax Code to the Plan or the Merger.
THE ABOVE SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
ALL HOLDERS OF ALLOWED CLAIMS AND EQUITY INTERESTS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE PLAN.
XIV. CONFIRMATION OF THE PLAN
A. Solicitation of Votes; Voting Procedures
1. Ballots and Voting Deadlines.
A ballot to be used for voting to accept or reject the Plan, together
with a envelope, is enclosed with all copies of this Disclosure Statement mailed
to all holders of Claims and Equity Interests entitled to vote. BEFORE
COMPLETING YOUR BALLOT, PLEASE READ CAREFULLY THE INSTRUCTION SHEET THAT
ACCOMPANIES THE BALLOT. HOLDERS OF COMMON STOCK SHOULD CAREFULLY READ THE
INSTRUCTIONS ACCOMPANYING THIS DISCLOSURE STATEMENT REGARDING HOW TO PROPERLY
COMPLETE THE BALLOT OR MASTER BALLOW, AS APPROPRIATE, WITH RESPECT TO CLASS 7.
The Bankruptcy Court has directed that, in order to be counted for
voting purposes, ballots for the acceptance or rejection of the Plan must be
actually received no later than 4:00 p.m., Prevailing Eastern Time, on August
20, 1999, at the following address:
United Petroleum Balloting
c/o Logan & Company, Inc.
615 Washington Street
Second Floor
Hoboken, New Jersey 07030
YOUR BALLOT MAY NOT BE COUNTED IF IT IS RECEIVED AT THE ABOVE ADDRESS
AFTER 4:00 P.M., PREVAILING EASTERN TIME, ON AUGUST 20, 1999.
2. Parties Entitled to Vote.
Any holder of a Claim against or Equity Interest in the Debtor at the
date on which the order is entered approving the Disclosure Statement whose
Claim or Equity Interest has not previously been disallowed by the Bankruptcy
Court is entitled to vote to accept or reject the Plan, if such Claim or Equity
Interest is impaired under the Plan and either (a) such holder's Claim or Equity
Interest has been scheduled by the Debtor (and such Claim or Equity Interest is
not scheduled as disputed, contingent or unliquidated) or (b) such holder has
filed a proof of claim or proof of interest on or before March 30, 1999, the
last date set by the Bankruptcy Court for such filings. Any Claim or Equity
Interest as to which an objection is filed on or prior to the voting deadline is
not entitled to vote, unless the Bankruptcy Court, upon application of the
holder to whose Claim or Equity Interest an objection has been made, temporarily
allows such Claim or Equity Interest in an amount that it deems proper for the
purpose of accepting or rejecting the Plan. Any such application must be heard
and determined by the Bankruptcy Court on or before commencement of the
Confirmation Hearing. A vote may be disregarded if the Bankruptcy Court
determines, after notice and a hearing, that such vote was not solicited or
procured in good faith or in accordance with the provisions of the Bankruptcy
Code.
IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON THE
PLAN, PLEASE CONTACT THE DEBTOR'S TABULATION AGENT AT THE FOLLOWING ADDRESS:
Logan & Company, Inc.
615 Washington Street
Second Floor
Hoboken, New Jersey 07030
(201) 798-1031
3. Definition of Impairment.
As set forth in section 1124 of the Bankruptcy Code (as applicable to
the Debtor's Chapter 11 case), a class of claims or equity interests is impaired
under a plan of reorganization unless, with respect to each claim or equity
interest of such class, the plan:
(a) leaves unaltered the legal, equitable, and contractual
rights of the holder of such claim or equity interest; or(a) leaves unaltered
the legal, equitable, and contractual rights of the holder of such claim or
equity interest; or
(b) notwithstanding any contractual provision or applicable
law that entitles the holder of a claim or equity interest to demand or receive
accelerated payment of such claim or equity interest after the occurrence of a
default:
(i) cures any such default that occurred before or after
the commencement of the case under the Bankruptcy Code, other than a default of
a kind specified in section 365(b)(2) of the Bankruptcy Code;o (i) cures any
such default that occurred before or after the commencement of the case under
the Bankruptcy Code, other than a default of a kind specified in section
365(b)(2) of the Bankruptcy Code;
(ii) reinstates the maturity of such claim or interest as
it existed before such default;
(iii) compensates the holder of such claim or interest
for any damages incurred as a result of any reasonable reliance on such
contractual provision or such applicable law; ando (iii) compensates the holder
of such claim or interest for any damages incurred as a result of any reasonable
reliance on such contractual provision or such applicable law; and
(iv) does not otherwise alter the legal, equitable or
contractual rights to which such claim or interest entitles the holder of such
claim or interest.o (iv) does not otherwise alter the legal, equitable or
contractual rights to which such claim or interest entitles the holder of such
claim or interest.
4. Classes Impaired Under the Plan.
The following classes of claims and equity interests are impaired under
the Plan and holders of claims and equity interests in such classes are entitled
to vote to accept or reject the Plan:
Class 2: Infinity Secured Claims
Class 5: Debenture Claims
Class 6: Preferred Equity Interests
Class 7: Common Equity Interests
Class 8: UPC Securities Claims
All other classes of claims or interests are unimpaired under the Plan,
are deemed to have accepted the Plan, and are not entitled to vote with respect
to the acceptance or rejection of the Plan.
5. Vote Required for Class Acceptance.
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by holders of at least two-thirds in dollar amount, and more than
one-half in number, of the claims of that class which actually cast ballots for
acceptance or rejection of the Plan. Thus, class acceptance takes place only if
at least two-thirds in amount and a majority in number of the holders of claims
voting cast their ballots in favor of acceptance.
The Bankruptcy Code defines acceptance of a plan by a class of equity
interests as acceptance by holders of at least two-thirds in amount of the
equity interests of that class that actually cast ballots for acceptance or
rejection of the plan. Thus, class acceptance takes place only if at least
two-thirds in amount of the holders of equity interests voting cast their
ballots in favor of acceptance.
B. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of a plan. By order of the
Bankruptcy Court, the Confirmation Hearing has been scheduled for August 24,
1999, at 3:00 p.m., Prevailing Eastern Time in the United States Bankruptcy
Court, District of Delaware. The Confirmation Hearing may be adjourned from time
to time by the Bankruptcy Court without further notice except for an
announcement made at the confirmation hearing or any adjournment thereof.
Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to confirmation of a plan. Any objection to confirmation of
the Plan must be made in writing and filed with the Bankruptcy Court and served
upon the following parties, together with proof of service, on or before 4:00
p.m. on August 20, 1999:
Young Conaway Stargatt & Taylor, LLP
Attn: Joel A. Waite
Rodney Square North
1100 North Market Street
P.O. Box 391
Wilmington, DE 19899
Office of the United States Trustee
601 Walnut Street
Curtis Center, Suite 950 West
Philadelphia, PA 19106
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT WILL
NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
C. Requirements for Confirmation of the Plan
In order for the Plan to be confirmed, regardless of whether all
Impaired Classes of Claims and Interests vote to accept the Plan, the Bankruptcy
Code requires that the Bankruptcy Court determine that the Plan complies with
the requirements of section 1129 of the Bankruptcy Code. In order for the Plan
to be confirmed, section 1129 of the Bankruptcy Code requires, among other
things, that: (i) the Plan receive sufficient acceptances from each Impaired
Class of Claims and Interests, except to the extent that confirmation, despite
the failure of one or more of such Impaired Classes to accept the Plan, is
available under section 1129(b) of the Bankruptcy Code (see below "Confirmation
Without Acceptance of All Impaired Classes"); (ii) the Plan is feasible (that
is, there is a reasonable probability that the Debtor will be able to perform
its obligations under the Plan and continue to operate its business without the
need for further financial reorganization) (see below "Feasibility of the
Plan"); and (iii) the Plan meets the requirements of section 1129(a)(7) of the
Bankruptcy Code, which specify that, with respect to each Impaired Class, each
holder of a Claim or Interest in such Class either (a) accepts the Plan or (b)
receives at least as much pursuant to the Plan as such holder would receive in a
liquidation of the Debtor under chapter 7 of the Bankruptcy Code (see below
"Application of section 1129(a)(7) of the Bankruptcy Code"). In addition, the
Debtor must demonstrate in accordance with section 1129 of the Bankruptcy Code
that (i) the Plan has been proposed in good faith, (ii) the Plan and the Debtor
have complied with the Bankruptcy Code, (iii) payment for services or costs and
expenses in or in connection with the Chapter 11 Case, or in connection with the
Plan, have been approved by or are subject to the approval of the Bankruptcy
Court, (iv) the individuals to serve as the officers and directors of the Debtor
have been disclosed and their appointment or continuance in such office is
consistent with the interests of creditors and Interest holders, (v) the
identity of any insider that will be employed or retained by the Debtor is
disclosed, as well as any compensation to be paid to such insider, (vi) adequate
provision for the payment of all priority claims has been made, (vii) all
statutory fees have been or will be paid, and (viii) the Plan provides for the
continued maintenance of retiree benefits at a certain level.
Although the Debtor believes that the requirements of section 1129 of
the Bankruptcy Code for confirmation of the Plan will be met, there can be no
assurance that the Bankruptcy Court will reach the same conclusion.
1. Acceptance of the Plan.
As a condition to confirmation, the Bankruptcy Code requires that each
Impaired Class of Claims or Interests accept a plan of reorganization, except as
described below under "Confirmation of the Plan -- Confirmation Without
Acceptance of All Impaired Classes." Classes of Claims or Interests that are not
impaired under a plan are deemed to have accepted the plan and are not entitled
to vote.
Classes 2, 5, 6, 7 and 8 are Impaired under the Plan, and, therefore,
must accept the Plan in order for it to be confirmed without application of
section 1129(b) of the Bankruptcy Code. In that regard, based on discussions and
negotiations between the Debtor and Infinity, the Debtor currently anticipates
that the holders of the requisite majorities of Claims and Interests, as
applicable, contained in Classes 2, 5 and 6 will vote to accept the Plan.
Section 1129(b) is discussed below in "Confirmation of the Plan -- Confirmation
Without Acceptance of All Impaired Classes."
2. Feasibility of the Plan.
The Bankruptcy Code requires that, in order to confirm the Plan, the
Bankruptcy Court must find that confirmation of the Plan will not likely be
followed by the liquidation or the need for further financial reorganization of
UPC, except as specifically contemplated by the Plan (the "Feasibility Test").
For the Plan to meet the Feasibility Test, the Bankruptcy Court must find that
it is reasonably likely that reorganized UPC will possess the resources and
working capital necessary to fund its operations and that is reasonably likely
that reorganized UPC will be able to meet its obligations under the Plan.
As part of its due diligence the Debtor will analyze and carefully
consider its ability to meet its obligations under the Plan. As part of its
analysis, the Debtor will consider the Financial Projections developed by F.S.
Management with respect to the Debtor's financial performance after consummation
of the Plan and the Merger. These projections and the significant assumptions on
which they are based are included in this Disclosure Statement. See "Business
Plan & Projections" and "The Plan -- Sources and Uses of Funds."
Holders of Claims and Interests are cautioned not to place undue
reliance on the Financial Projections prepared by F.S. Management or Debtor's
analysis thereof and are advised to consult with their own advisors. In
connection with confirmation of the Plan, the Bankruptcy Court will have to
determine that the Plan is feasible. There can be no assurance that the
Bankruptcy Court will agree with the Debtor's determinations. In particular,
there can be no assurance that the Bankruptcy Court will accept the projections
or the assumptions underlying F.S. Management's or the Debtor's determination.
3. Application of Section 1129(a)(7) of the Bankruptcy Code.
Even if the Plan is accepted by each Impaired Class of Claims and
Interests, in order to confirm the Plan, the Bankruptcy Court must determine
that either (i) each member of an Impaired Class of Claims or Interests has
accepted the Plan, or (ii) the Plan will provide each such non-accepting member
of an Impaired Class of Claims or Interests a recovery that has a value as of
the Effective Date at least equal to the value of the distribution that each
such member would receive if UPC were liquidated under chapter 7 of the
Bankruptcy Code on the Effective Date (the "Best Interests Test"). If all
members of an Impaired Class of Claims or Interests accept the Plan, the Best
Interests Test does not apply to that Class.
To determine what holders in each Impaired Class of Claims and
Interests would receive if UPC were liquidated, the Bankruptcy Court must
determine the dollar amount that would be generated from the liquidation of
UPC's assets and properties in the context of a chapter 7 liquidation case, as
well as consider the cash held by UPC as of the Effective Date. Secured Claims
and the costs and expenses of the liquidation case must then be paid in full
from the liquidation proceeds before the balance of those proceeds would be made
available to pay any other Claims and Interests.
Under chapter 7, absent subordination in accordance with section 510 of
the Bankruptcy Code, the rule of absolute priority of distribution applies.
Under that rule no junior creditor receives any distribution until the Allowed
Claims of all senior creditors are paid in full, and no holder of an Interest
receives any distribution until the Allowed Claims of all creditors and all
Senior Allowed Interests are paid in full.
After consideration of the effect that a chapter 7 liquidation case
would have on the ultimate proceeds available for distribution to the holders of
Impaired Claims and Interests, including (i) the increased costs and expenses of
liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy
and professional advisors to such a trustee, (ii) the erosion in the value of
UPC's assets in the context of an expeditious liquidation as is required by
chapter 7 and the "forced sale" atmosphere that would prevail, (iii) the adverse
effects on the salability of business segments that could result from the
probable departure of key employees, (iv) the costs attributable to the time
value of money resulting from what is likely to be a more protracted proceeding
than if the Plan is confirmed (because of the time required to liquidate the
assets of UPC, resolve claims and related litigation and prepare for
distributions), (v) the application of the rule of absolute priority (as
described in the immediately preceding paragraph) to distributions in the
chapter 7 liquidation, and (vi) the likelihood that the commencement of a
chapter 7 case for UPC will necessitate the filing of chapter 7 cases for UPC's
operating subsidiaries, Calibur and Jackson, the Debtor believes that the
confirmation of the Plan will provide each holder of a Claim or Interest in an
Impaired Class with a recovery at least equal to the recovery that such holder
would receive pursuant to a liquidation of assets of UPC under chapter 7 of the
Bankruptcy Code. The Debtor did not assign a specific discount to the assets as
a result of any of the enumerated factors.
The Debtor's belief that confirmation of the Plan will provide each
holder of a Claim or Interest in an Impaired Class with a recovery at least
equal to the recovery that such holder would receive pursuant to a liquidation
under chapter 7 of the Bankruptcy Code is based on a comparison of the
liquidation values set forth below with the Debtor's estimate of the value of
the distributions to the holders of Claims and Interests pursuant to the Plan.
There can be no assurance that the liquidation value determined by the Debtor
will be accepted by the Bankruptcy Court. The Debtor's estimate of the value of
such distributions, together with the Debtor's estimate of the percentage of
each Claim to be satisfied under the Plan, is set forth in the table set forth
below.
The Liquidation Analysis set forth below reflects the Debtor's
estimates of the proceeds that would be realized if UPC, Calibur and Jackson
were to be liquidated under chapter 7 of the Bankruptcy Code by a court
appointed trustee. The Liquidation Analysis assumed that the liquidation period
would last two months and was based on the Debtor's income statement and balance
sheet as of September 30, 1998. The analysis assumed the assets of UPC and its
subsidiaries were sold for cash in an orderly liquidation process and the net
proceeds after payments of the Debtor's debts would be distributed to the
SECURITY HOLDERS. The Liquidation Analysis suggested that there would be no
remaining value (after repayment of debt obligations) for the holders of Common
Stock or Preferred Stock upon liquidation of the Debtor's assets.
Given that UPC would be under substantial financial pressure due to its
debt obligations, the Debtor's management assumed that any sale would likely be
at a discount to the Debtor's "going concern" market value. This discounted
value reflects the estimated value that could be realized if the owner of a
business were forced to sell or otherwise dispose of its assets under distressed
conditions, for cash or cash equivalents, within a short period of time. Based
upon the likelihood of a distressed sale, management anticipated that under such
circumstances buyers would substantially discount the "going concern" value and
that the net value for holders of unsecured debt and noteholders would be
substantially less than that which might be achieved under the Plan.
The following table details the computation of liquidation proceeds:
Hypothetical net liquidation proceeds(a)..............................$8,430,000
Less: chapter 7 administration costs(b).................................$225,000
Less: payment of disposition-related taxes....................................$0
Less: Amount owed under the secured A-Note and B-Note.................$7,300,000
Less: Amount owed other secured creditors..............................$930,000
Less: Trade debt of Calibur and Jackson.................................$150,000
Liquidation value available for distribution to pay Trade Debt of UPC..$(25,000)
Liquidation value available for distribution to holders of Debentures.........$0
Liquidation value available for distribution to Equity Interest holders
of the Debtor (including preferred and common)................................$0
- --------------
(a) Hypothetical net liquidation proceeds, as estimated by the Debtor. The
hypothetical net liquidation proceeds include interest on cash balances
during the liquidation period at an assumed pretax rate of 5% per annum
and reflect the estimated value of the assets available to creditors
and equity interest holders of the Debtor after the payment of specific
claims at each of UPC's subsidiaries, including: (i) any
disposition-related taxes, and (ii) severance payments, but without
subtracting the liabilities at each subsidiary which must be paid in
full before any obligations owed by UPC can be paid.
(b) Includes estimated asset disposition fee expenses of 3% of estimated
net liquidation proceeds.
The table below sets forth a comparison of the estimated distributions
to holders of Impaired Claims and Interests under the Plan with the estimated
recoveries of such holders in a liquidation of the Debtor.
<TABLE>
<CAPTION>
Estimated Estimated
Estimated Liquidation Recovery Plan Recovery
--------- ---------------------------- ----------------------
Claim
Amount Amount Percent<F2> Amount Percent<F3>
------ ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Liquidation proceeds available $ 8,105,000
for distribution
Class 2 -- Infinity Secured $7,300,000 $ 7,300,000<F4> 100.0 7,000,000 100.0
Claim
Class 3 - Secured Claims 930,000 805,000<F5> 86.5 930,000 100.0
(Other than the Infinity
Security Claim)<F5>
Unclassified - Administrative 140,000 0 0.0 140,000 100.0
Claims
Unclassified - Priority Tax 30,000 0 0.0 30,000 100.0
Claims
Class I -- Priority Non-Tax 10,000 0 0.0 10,000 100.0
Claims
Class 4 -- General Unsecured 200,000 0 0.0 200,000 100.0
Claims<F6>
Class 5 - Debenture Claims<F7> 7,505,000 0 0.0 6,597,500 87.9
Class 6 - Preferred Equity 14,163,000 0 0.0 2,450,500 17.3
Interests<F8>
Class 7 - Common Equity 0 0 0.0 -- --
Interests<F9>
Class 8 - UPC 0 0 0.0 [] []
Securities Claims<F10>
<FN>
- --------------
<F1> For purposes of the Liquidation Analysis, Claims and Interests have
been grouped together in accordance with the rules of absolute priority
under the Bankruptcy Code, which UPC believes would be applied in a
liquidation.
<F2> Percentage shown in the table as "Estimated Liquidation Recovery --
Percentage" is the quotient of the present value of the available
liquidation proceeds divided by the estimated amount of Claims or
Interests in such Class.
<F3> Amount shown in the table as Estimated Plan Recovery -- Percentage is
the quotient of the assumed value of the securities to be distributed
to all holders of Claims or Interests in such Class under the Plan
divided by the estimated amount of such Claims or Interests. It should
be noted that depending on general market conditions and other factors
prevailing at the relevant times, the equity securities may trade at a
price other than that which was assumed for purposes of this analysis.
Accordingly, no representation can be, or is being, made with respect
to whether the percentage recoveries shown in the table above will
actually be realized by the holder of Claims or Interests in any
particular Class under the Plan.
<F4> Assumes all payments are received at the Calibur and Jackson levels,
where the obligations owed to Infinity under the A-Note and the B-Note
and the obligations owed to the SBA are secured by the assets of such
subsidiaries.
<F5> The SBA claim represents first and second mortgage loans in the
aggregate amount of $930,000 to Calibur, which are secured by UPC real
property titled in the name of the UPC. As of September 30, 1998, the
combined balance of the two notes was $922,284, and the balance should
decrease because the Debtor is making monthly payments on the SBA
notes. Additionally, the Debtor is currently leasing the location to a
non-affiliated third party which has the right to acquire the location
from the Debtor by assuming the SBA notes. Liquidation proceeds assumes
that either this third party or another party would assume the SBA
notes.
<F6> In a liquidation scenario, claims related to certain unliquidated,
contingent liabilities have conservatively been excluded from the class
of General Unsecured Claims. In a Plan, these liabilities are assumed
to be satisfied in the ordinary course of business.
<F7> Under the Plan, the holders of Debentures will receive 1,750,000 shares
of New UPC Common Stock. For purposes of this Liquidation Analysis, the
New UPC Common Stock has been assumed to have a value of $3.77 per
share, based upon the valuation of the New UPC Common Stock provided by
F.S. Management, see "Valuation of New UPC Common Stock."
<F8> Under the Plan the holders of Preferred Equity Interests will receive
650,000 shares of New UPC Common Stock. For purposes of this
Liquidation Analysis, the New UPC Common Stock has been assumed to have
a value of $3.77 per share, based upon the valuation of the New UPC
Common Stock provided by F.S. Management, see "Valuation of New UPC
Common Stock."
<F9> Under the Plan, the holders of Common Equity Interests which are
attributable solely to the ownership of shares of Common Stock prior to
the filing of the Chapter 11 Case will receive 200,000 shares of New
UPC Common Stock.. Additionally, holders of Common Equity Interests
will receive one-half of the remaining assets of the UPC Trust.
<F10> Securities Claimants will be entitled to pursue claims against the UPC
Trust, to which Infinity will transfer 200,000 shares of New UPC Common
Stock.
</FN>
</TABLE>
4. Confirmation Without Acceptance of All Impaired Classes.
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if it is not accepted by all Impaired Classes of Claims and
Interests as long as at least one Impaired Class of Claims has accepted it,
without counting the votes of insiders. The Bankruptcy Court may confirm the
Plan notwithstanding the rejection of an Impaired Class of Claims or Interests
if the Plan "does not discriminate unfairly" and is "fair and equitable" as to
each Impaired Class that has rejected the Plan.
A plan does not discriminate unfairly within the meaning of the
Bankruptcy Code if a rejecting Impaired Class is treated substantially similar
to other classes of equal rank and priority.
A plan is "fair and equitable" with respect to a class of non-accepting
secured claimants, among other things, if the plan provides (a) that each
secured creditor in the class retains under the plan its liens on the property
securing its claims and receives deferred cash payments totaling at least the
allowed amount of its secured claim, of a value, as of the effective date of the
plan, of at least the value of such secured creditor's interest in the estate's
interest in such property, (b) for the sale, subject to section 363(k) of the
Bankruptcy Code, of any property that is subject to the liens securing such
claims, free and clear of such liens, with such liens attaching to the proceeds
of such sale, and for the treatment of the liens on such proceeds as described
in (a) above or (c) below, or (c) for the realization by the secured creditor of
the indubitable equivalent of its secured claim.
A plan is "fair and equitable" with respect to a non-accepting Impaired
class of unsecured claims, among other things, if (a) each Impaired unsecured
creditor in such Class receives or retains under the plan property of a value,
as of the effective date of such plan, equal to the allowed amount of its claim,
or (b) no holder of any Claim or Interest which is junior to the claims of such
non-accepting Impaired Class of unsecured claims receives or retains any
property under the plan on account of its Claim or Interest.
A plan is "fair and equitable" with respect to a non-accepting Impaired
Class of Interests if, among other things, (a) the plan provides that each
holder of an Interest in such class receives or retains property of a value as
of the effective date of the plan equal to the greater of (i) the allowed amount
of any fixed liquidation preference or fixed redemption price to which such
holder is entitled, or (ii) the value of such interest, or (b) no holder of any
interest which is junior to the interests of such non-accepting Impaired Class
of Interests receives or retains any property under the plan on account of its
interest.
The Debtor believes that the treatment afforded to each class of
Impaired Claims and Interests under the Plan (i) does not discriminate unfairly,
and (ii) is fair and equitable. No assurance can be given, however, that if any
of Class 2, Class 5, Class 6, Class 7 or Class 8 rejects the Plan, the
Bankruptcy Court will agree with the Debtor's conclusions and find that the Plan
is non-discriminatory and fair and equitable with respect to such rejecting
Class.
D. Alternatives to Confirmation of the Plan.
If the Plan is not confirmed, the Debtor (or any other party in
interest if the Debtor's exclusive right to propose a plan is terminated) could
attempt to formulate and propose a different plan or plans of reorganization.
Such plans could involve a reorganization and continuation of UPC's business, a
sale of UPC's businesses as going concerns, an orderly liquidation of UPC's
assets, or any combination thereof. If no plan of reorganization is confirmed by
the Bankruptcy Court, the Chapter 11 Case may be converted to a liquidation case
under chapter 7 of the Bankruptcy Code, and/or the Bankruptcy Court may grant
holders of Secured Claims relief from the automatic stay to foreclose on their
collateral and, accordingly, valuable assets of UPC may be lost.
In a chapter 7 case, a trustee will be appointed or elected with the
primary duty of liquidating the assets of UPC. Typically, in a liquidation,
assets are sold for less than their going concern value and, accordingly the
return to creditors would be reduced. Proceeds from liquidation would be
distributed to the creditors of UPC in accordance with the priorities set forth
in the Bankruptcy Code.
Because of the difficulties in estimating what the assets of UPC would
bring in a liquidation and the uncertainties concerning the aggregate claims to
be paid and their priority in liquidation, it is not possible to predict with
certainty what return, if any, each Class of Claims or Interests might receive
in a liquidation. Nevertheless, the Debtor believes that the most likely result
would be the sale of the assets of UPC at a price which is significantly less
than needed to pay the debts of UPC in full. The Debtor believes that holders of
Impaired Claims and Interests would realize a greater recovery under the Plan
than would be realized under a chapter 7 liquidation. See "Application of
Section 1129(a)(7) of the Bankruptcy Code."
Based upon discussions with Infinity, Debtor believes that if the
current Plan is not confirmed and consummated that Infinity will not support an
alternate plan of reorganization, but rather will seek to have the Debtor
liquidated either through a Chapter 11 liqudation or foreclosure action. If the
Debtor is liquidated, Debtor believes it is unlikely that any creditors, other
than Infinity, will receive any distribution. Because the Debtor does not
believe it could borrow sufficient funds to pay Infinity's secured claim or
otherwise satisfy the requirements of Section 1129(b) of the Bankruptcy Code
with respect to Infinity's secured claim, and in light of the Infinity Parties'
significant unsecured claims, the Debtor does not believe it could confirm a
Chapter 11 plan without Infinity's support of such plan. Accordingly, at the
present time, the Debtor believes the Plan and proposed merger are the only
viable alternative to liquidation of the Debtor.
XV. CONCLUSION AND RECOMMENDATION
The Debtor urges holders of impaired Claims and Interests to vote to
accept the Plan and to evidence such acceptance by returning their ballots so
that they will be received on or before 4:00 p.m., Prevailing Eastern Time on
August 20, 1999.
Dated: July 22, 1999
Respectfully submitted,
UNITED PETROLEUM CORPORATION
By:
-----------------------------------
Its:
----------------------------------
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION..........................................................1
II. NOTICE TO HOLDERS OF CLAIMS AND EQUITY INTERESTS......................1
III. EXPLANATION OF CHAPTER 11.............................................3
A. Overview of Chapter 11.......................................3
B. Plan of Reorganization.......................................3
IV. SUMMARY OF THE PLAN...................................................6
1. Summary of the Terms of the Plan....................8
2. Changes in Equity Ownership Effected by the Plan...11
3. Other Significant Provisions in the Plan...........12
V. GENERAL INFORMATION..................................................13
A. The Debtor..................................................13
B. Cash Collateral.............................................14
C. Farm Stores.................................................14
D. F.S. Convenience Stores, Inc................................15
E. Walk InStores...............................................15
F. Drive-Thru Stores...........................................17
G. Directors and Officers......................................18
1. Existing Officers and Directors....................18
2. Existing Officer & Director Compensation...........20
3. Proposed Directors.................................21
4. Post Effective Date Officers and Compensation......23
H. Insider Relationships and Transactions......................23
I. The Restructuring...........................................27
1. Background and Reason for Commencing the Chapter
11 Case............................................27
2. Rationale of the Restructuring and the Merger......28
3. Merger Financing...................................30
J. Legal Proceedings...........................................30
1. NASDAQ Allegations.................................30
2. TAJ/National.......................................30
3. Strategic..........................................32
4. Ishmael............................................32
5. Unifirst...........................................32
6. In re United Petroleum.............................33
7. Pisacreta/Tucci....................................33
8. Dotan/Montel.......................................36
VI. FINANCIAL INFORMATION................................................36
VII. BUSINESS PLAN AND PROJECTIONS........................................37
A. Assumptions -Nature and Limitations of Projections..........39
B. Assumptions -Nature of Operations...........................39
1. Sales..............................................39
2. Cost of Sales......................................40
3. Expenses...........................................40
4. Other Income.......................................41
5. Reorganization Expenses............................41
6. Depreciation.......................................41
7. Capital Expenditures...............................41
8. Receivables........................................41
9. Inventory..........................................41
10. Debt Service and Interest..........................41
11. Effects of Plan Consummation.......................41
12. Taxes..............................................44
13. Effects of Chapter 11 Case.........................44
VIII. VALUATION OF THE NEW UPC COMMON STOCK................................44
IX. THE CHAPTER 11 CASE..................................................47
A. Commencement of the Chapter 11 Case.........................48
B. Continuation of Business After the Petition Date............48
C. Representation of the Debtor................................49
X. THE PLAN.............................................................49
A. General.....................................................49
B. Classification and Treatment of Claims and Interests........50
1. Unclassified Claims................................50
2. Classified Claims..................................52
C. Means for Implementation of the Plan........................55
1. Continued Corporate Existence......................55
2. Actions Prior to the Effective Date................55
3. Sources and Uses of Funds..........................57
4. Use of Cash Collateral.............................57
5. Filing and Execution of Plan Documents.............58
6. Intercompany Causes of Action......................58
7. Vesting of Causes of Action........................58
8. Injunction for Indemnities.........................59
9. Severance Policies.................................59
D. Creation of UPC Trust and Appointment of Trustee............59
E. Compromise and Settlement Between and Among
the Debtor, the Infinity Parties, and the UPC Trust.........60
F. Injunctive Protection for the Debtor and the Infinity
Parties.....................................................62
G. Description of Securities and Instruments
to be Issued in Connection With the Plan....................63
1. Preferred Stock to be Issued Pursuant to the Plan..63
2. Common Stock to be Issued Pursuant to the Plan.....64
H. Exemption from Securities Registration for New Securities...66
1. Initial Issuance of New UPC Common Stock and New
UPC Preferred Stock................................66
2. Transfer of Plan Securities........................66
I. Market for New Securities...................................68
J. Executory Contracts and Unexpired Lease.....................68
K. Other Provisions of the Plan................................68
1. Discharge..........................................68
2. Retention and Waiver of Causes of Action...........69
3. Objections to Claims and Interests/Distributions...69
4. Term of Injunctions or Stays.......................70
5. Release............................................71
6. Exculpation........................................71
7. Retention of Jurisdiction..........................72
8. Failure of Court to Exercise Jurisdiction..........73
9. Payment Dates......................................73
10. Successors and Assigns.............................73
11. Payment of Statutory Fees..........................73
XI. COMPARISON OF RIGHTS IN SECURITIES TO BE ISSUED
UNDER THE PLAN TO RIGHTS HELD IN PREPETITION SECURITIES..............73
A........Comparison of the Rights of Holders of
A-Note and the New UPC Preferred Stock...............................73
1. Seniority..........................................73
2. Voting.............................................74
3. Dividends/Interest Payments........................74
4. Conversion.........................................74
5. Security...........................................74
B. Comparison of the Rights of Holders of
Debentures and New UPC Common Stock.........................74
1. Seniority..........................................75
2. Voting.............................................75
3. Dividends/Interest Payments........................75
4. Conversion.........................................75
C. Comparison of the Rights of Holders
of Preferred Stock and New UPC Common Stock.................76
1. Seniority..........................................76
2. Voting.............................................76
3. Dividends/Interest Payments........................76
4. Conversion.........................................76
XII. CERTAIN RISK FACTORS TO BE CONSIDERED................................77
A. Risks Relating to the Debtor's Financial Condition..........77
B. Liquidity Risks.............................................77
C. Ability of the Company to Continue as a Going Concern;
Explanatory Paragraph in Auditors'Report....................78
D. Risks Regarding the Financial Projections...................79
E. Risks Relating to Certain Debt and Equity Holders...........81
1. Risks Particular to Holders of Outstanding Notes...81
2. Risks Particular to Holders of Debentures..........81
3. Risks Particular to Holders of Preferred Stock.....81
4. Risks Particular to the Holders of Common Stock....82
5. No Prior Active Market; Possible Volatility of
Stock Price........................................82
6. Control by Principal Stockholder...................82
F. Risks Relating to Confirmation of the Plan..................82
G. Risks Relating to Approval of the UPC Trust.................83
H. Risks Relating to the Company's Businesses and Farm
Stores(R)BusinessAcquired in The Merger.....................84
1. Industry and Geographic Concentration..............84
2. Competition........................................84
3. Government Regulation..............................84
4. Possible Environmental Liabilities and Regulations.85
5. Volatility of Natural Gas and Oil Prices...........87
6. Drilling Risks.....................................87
7. Uncertainty of Reserve Information and Future Net
Revenue7Estimates..................................87
8. Operating Risks of Oil and Gas Operations..........88
9. Dependence on Personnel............................88
10. Need For Additional Financing......................88
11. Legal Proceedings..................................89
12. Year 2000 Compliance...............................89
13. Benefits of Combining the F.S. Business and the
Debtor's Business May not be Realized..............90
14. Conflicts of Interest; Exculpation and
Indemnification....................................90
15. Weather Related Risk...............................90
XIII. CERTAIN MATERIAL INCOME TAX CONSEQUENCES OF THE PLAN.................91
A. U.S. Federal Income Tax Consequences to Holders of Allowed
Claims and Equity Interests.................................91
1. Tax Consequences by Class..........................92
B. Certain Other U.S. Federal Income Tax Considerations for
Holders of Allowed Claims...................................93
C. U.S. Federal Income Tax Consequences to the Debtor..........94
1. Discharge of Indebtedness Income...................94
2. Accrued Interest...................................95
3. The Merger.........................................95
4. Utilization of Debtor's Net Operating Loss
Carryovers.........................................96
XIV. CONFIRMATION OF THE PLAN............................................102
A. Solicitation of Votes; Voting Procedures...................102
1. Ballots and Voting Deadlines......................102
2. Parties Entitled to Vote..........................103
3. Definition of Impairment..........................104
4. Classes Impaired Under the Plan...................104
5. Vote Required for Class Acceptance................105
B. Confirmation Hearing.......................................105
C. Requirements for Confirmation of the Plan..................106
1. Acceptance of the Plan............................107
2. Feasibility of the Plan...........................107
3. Application of Section 1129(a)(7) of the
Bankruptcy Code...................................108
4. Confirmation Without Acceptance of All Impaired
Classes...........................................113
D. Alternatives to Confirmation of the Plan...................114
XV. CONCLUSION AND RECOMMENDATION.......................................115
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 29, 1999
(this "Agreement"), by and among F.S. Convenience Stores, Inc., a Florida
corporation ("FSCI"), United Petroleum Corporation, a Delaware corporation (the
"Company") and Chapter 11 debtor-in-possession, in case No. 99-88 (PJW) (the
"Chapter 11 Case"), pending in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"), and United Petroleum Subsidiary,
Inc., a Delaware corporation ("UPC Merger Sub").
WHEREAS, on July 23, 1999, the Company filed with the Bankruptcy
Court its second amended chapter 11 reorganization plan (the "Chapter 11 Plan");
WHEREAS, pursuant to this Agreement and the Chapter 11 Plan, UPC
Merger Sub shall acquire FSCI;
WHEREAS, to complete such acquisition, the Company, UPC Merger
Sub, and FSCI propose the merger of FSCI with and into UPC Merger Sub (the
"Merger") in a forward triangular merger, such that the holders (collectively,
the "FSCI Shareholder") of FSCI's capital stock (the "FSCI Common Stock") will
receive certain common and preferred stock of the reorganized Company, and $3
Million in cash, pursuant to and subject to the terms and conditions of this
Agreement and the Chapter 11 Plan;
WHEREAS, on the Effective Date of the Chapter 11 Plan, each share
of the Company's common stock then issued and outstanding shall be canceled,
annulled and extinguished; and
WHEREAS, on the Effective Date, the Company shall be authorized
to issue 10,000,000 shares of New UPC Common Stock and 300,000 shares of New UPC
Preferred Stock,
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, representations, warranties and agreements herein contained,
and other good and valuable considerations, the receipt and adequacy of which
are hereby conclusively acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
Section 1.1 The Merger.
(a) Subject to the terms and conditions of this Agreement,
at the time of the Closing, a certificate of merger (the "Certificate of
Merger") shall be duly prepared, executed and acknowledged by FSCI and UPC
Merger Sub in accordance with the Delaware General Corporation Law, 8 Del. C.
Section 101 et seq. (the "DGCL"). The Certificate of Merger and any certificate
required to effect the Merger under the applicable provisions of Florida law
shall be filed on the Closing Date with the Secretary of State of the State of
Delaware and the Secretary of State of the State of Florida, respectively. The
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware in accordance with the
provisions and requirements of the DGCL. The date and time when the Merger shall
become effective is hereinafter referred to as the "Effective Date" or
"Effective Time."
(b) At the Effective Time, FSCI shall be merged with and
into UPC Merger Sub, the separate corporate existence of FSCI shall cease, and
UPC Merger Sub shall continue as the surviving corporation under the laws of the
State of Delaware (the "Surviving Corporation").
(c) From and after the Effective Time, the Merger shall have
the effects set forth in section 259 of the DGCL.
Section 1.2 Consideration. At the Effective Time, the FSCI
Shareholder shall, by virtue of the Merger and without any action on the part of
the FSCI Shareholder, in exchange for the surrender to the Company of all
outstanding shares of FSCI Common Stock, receive (i) 2,400,000 fully paid and
nonassessable shares of New UPC Common Stock (as defined in Section 2.2(c)
hereof), (ii) 70,000 shares of New UPC Preferred Stock (as defined in Section
2.2(c) hereof), and (iii) cash in the amount of three million dollars
($3,000,000.00)(collectively, the "Merger Consideration").
Section 1.3 Certificate of Incorporation of the Surviving
Corporation. The certificate of incorporation of UPC Merger Sub, in
substantially the form attached as Exhibit A, shall be the certificate of
incorporation of the Surviving Corporation (the "Certificate of Incorporation").
Section 1.4 Bylaws of the Surviving Corporation. The bylaws of
UPC Merger Sub, in substantially the form attached as Exhibit B, shall be the
bylaws of the Surviving Corporation ("Bylaws").
Section 1.5 Directors and Officers of the Surviving Corporation.
At the Effective Time, the directors set forth in Schedule 1.5 shall be the
directors of the Company and the Surviving Corporation, each of such directors
to hold office, subject to the applicable provisions of the Certificate of
Incorporation and Bylaws of the Company or the Surviving Corporation, as
applicable, until the next annual stockholders' meeting of the Company or the
Surviving Corporation, as applicable, and until their respective successors
shall be duly elected or appointed and qualified. At the Effective Time, the
officers described in Schedule 1.5 , subject to the applicable provisions of the
Certificate of Incorporation and Bylaws of the Company or the Surviving
Corporation, as appropriate, shall be the officers of the Company and the
Surviving Corporation, as applicable until their respective successors shall be
duly elected or appointed and qualified.
Section 1.6 Closing. The Closing of the Merger shall take place
at the offices of White & Case LLP, 200 South Biscayne Boulevard, Suite 4900,
Miami, Florida, or, at the option of the lender providing the Merger Financing
at the offices of the lender or counsel to such lender, as soon as practicable
after the last of the conditions set forth in Article V hereof is fulfilled or
waived but in no event later than 5:00 p.m., prevailing Eastern Time, on October
15, 1999, or at such other time and place and on such other date as FSCI, UPC
Merger Sub and the Company shall mutually agree (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company and UPC
Merger Sub. Except as may be otherwise disclosed in the Company Disclosure
Schedule, attached or to be attached and initialed by all parties hereto, the
Company and UPC Merger Sub hereby represent and warrant to FSCI as follows:
(a) Due Organization, Good Standing and Corporate Power.
Except as disclosed in Schedule 2.1(a) hereto, each of the Company and its
subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and each such
corporation has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. Each
of the Company and its subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except in such jurisdictions where the failure to be so
qualified or licensed and in good standing would not have a material adverse
effect on the business, properties, assets, liabilities, operations, results of
operations, condition (financial or otherwise) (collectively, the "Condition")
of the Company and its subsidiaries taken as a whole. The certificate of
incorporation and bylaws of the Company, as amended and to be in effect as of
the Effective Time, shall be substantially in the form attached hereto as
Exhibit C.
(b) Authorization and Validity of Agreement. Subject to the
entry of the Confirmation Order and the occurrence of the Effective Date of the
Chapter 11 Plan, the Company and UPC Merger Sub have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions and enter into the agreements contemplated hereby. The execution,
delivery and performance of this Agreement by the Company and UPC Merger Sub,
and the consummation by them of the transactions contemplated hereby, have been
duly authorized and approved by their respective Boards of Directors and,
subject to the entry of the Confirmation Order and the occurrence of the
Effective Date of the Chapter 11 Plan, (i) no other corporate action on the part
of the Company or UPC Merger Sub is necessary to authorize the execution,
delivery and performance of this Agreement by the Company and UPC Merger Sub and
the consummation of the transactions contemplated hereby, and (ii) this
Agreement will constitute a valid and binding obligation of the Company and UPC
Merger Sub enforceable against the Company and UPC Merger Sub in accordance with
its terms. Subject to the entry of the Confirmation Order and the occurrence of
the Effective Date of the Chapter 11 Plan, this Agreement has been duly executed
and delivered by the Company and UPC Merger Sub.
(c) Capitalization.
(i) Upon the Effective Date of the Chapter 11 Plan, the
authorized capital stock of the Company will consist of 10,000,000 shares of
common stock ("New UPC Common Stock"), 5,000,000 of which shall be issued and
outstanding, and 300,000 shares of preferred stock, par value $100 per share
("New UPC Preferred Stock"), 140,000 shares of which shall be issued and
outstanding. The authorized capital stock of UPC Merger Sub will consist of
three thousand (3,000) shares of common stock, all of which shall be issued to
and owned by the Company. New UPC Common Stock and New UPC Preferred Stock, when
issued in accordance with the Chapter 11 Plan and this Agreement, (A) will be
duly authorized, validly issued, fully paid and nonassessable, (B) will not be
subject to, nor issued in violation of, any preemptive rights, and (C) will be
free and clear of all liens, proxies, voting trusts, encumbrances, options or
claims whatsoever. The holders of the New UPC Preferred Stock will have all of
the powers, preferences and rights as set forth in the preference certificate.
(ii) Schedule 2.1(c)(ii) lists all of the Company's
subsidiaries. All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, are not subject to, nor were they issued in violation
of, any preemptive rights, and are owned, of record and beneficially, by the
Company, free and clear of all liens, encumbrances, options or claims
whatsoever. Except as contemplated by this Agreement, no shares of capital stock
of the Company or any of the Company's subsidiaries are reserved for issuance
and there are no outstanding or authorized options, warrants, rights,
subscriptions, claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise, relating
to the capital stock of the Company or any subsidiary of the Company, pursuant
to which the Company or such subsidiary is or may become obligated to issue any
shares of capital stock of the Company or such subsidiary or any securities
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of the Company or such subsidiary. There are no restrictions of any
kind that prevent the payment of dividends by any of the Company's subsidiaries.
Except for the subsidiaries listed on Schedule 2.1(c)(ii), the Company does not
own, directly or indirectly, any capital stock or other equity interest in any
Person or have any direct or indirect equity or ownership interest in any Person
and neither the Company nor any of its subsidiaries is subject to any obligation
or requirement to provide funds for or to make any investment (in the form of a
loan, capital contribution or otherwise) to or in any Person.
(d) Consents and Approvals; No Violations. Assuming that
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), are made and the waiting period thereunder has been
terminated or has expired, the filing of the Certificate of Merger and other
appropriate merger documents, if any, as required by the DGCL or under the
applicable provisions of Florida law, are made, the Bankruptcy Court enters an
order, that may be the Confirmation Order, approving the Merger and this
Agreement, and subject to the receipt of those consents and approvals identified
in Schedule 2.1(d), the execution and delivery of this Agreement by the Company
and UPC Merger Sub and the consummation by the Company and UPC Merger Sub of the
transactions contemplated hereby will not: (i) violate any provision of the
certificate of incorporation of the Company or UPC Merger Sub or the bylaws of
the Company or UPC Merger Sub, each as in effect as of the Effective Time; (ii)
violate any statute, ordinance, rule, regulation, order or decree of any court
or of any governmental or regulatory body, agency or authority applicable to the
Company or UPC Merger Sub or by which any of their respective properties or
assets may be bound; (iii) require any filing with, or permit, consent or
approval of, or the giving of any notice to, any governmental or regulatory
body, agency or authority; or (iv) result in a violation or breach of, conflict
with, constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company or
any of its subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound, excluding from the foregoing clauses (iii)
and (iv) filings, notices, permits, consents and approvals the absence of which,
and violations, breaches, defaults, conflicts and liens that, in the aggregate,
would not have a material adverse effect on the Condition of the Company and its
subsidiaries taken as a whole; or (v) trigger any consent or approval
requirements with respect to those leases, licenses, permits, or approvals held
by the Company.
(e) Company Reports and Financial Statements. Except as set
forth in Schedule 2.1(e), since December 31, 1996, the Company has filed all
forms, reports and documents, together with all exhibits and amendments thereto
with the Securities and Exchange Commission (the "Commission") required to be
filed by it pursuant to the federal securities laws and the Commission rules and
regulations thereunder, and all such forms, reports and documents filed by the
Company with the Commission (collectively, the "Commission Filings") have
complied in all material respects with all applicable requirements of the
federal securities laws and the Commission rules and regulations promulgated
thereunder. The Company has heretofore delivered to FSCI true and complete
copies of all Commission Filings since December 31, 1996. As of their respective
filing dates, the Commission Filings did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the consolidated balance sheets as
of the end of the fiscal years ended December 31, 1997 and 1998 and the
consolidated statements of operations, consolidated statements of stockholders'
equity and consolidated statements of changes in financial position for the
fiscal years ended December 31, 1997 and 1998 included in the Commission
Filings, were prepared in accordance with generally accepted accounting
principles (as in effect from time to time) applied on a consistent basis
(except as may be indicated therein or in the notes or schedules thereto) and
fairly present in all material respects the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
results of their operations and changes in financial position for the periods
then ended.
(f) Minute Books. The minute books of the Company and its
material subsidiaries, as previously made available to FSCI and its
representatives, contain accurate records of all meetings of and corporate
actions or written consents by the stockholders and Boards of Directors of the
Company and its material subsidiaries since January 1, 1996.
(g) Title to Properties; Encumbrances; Facilities.
(i) The Company and each of its subsidiaries has good,
valid and marketable title to (A) all its material tangible properties and
assets (real and personal), including, without limitation, all the properties
and assets reflected in the consolidated balance sheet as of December 31, 1998
included in the Disclosure Statement (the "Balance Sheet") except as indicated
in the notes thereto and except for properties and assets reflected in the
Balance Sheet that have been sold or otherwise disposed of in the ordinary
course of business, and (B) all the tangible properties and assets purchased by
the Company and any of its subsidiaries since December 31, 1998 except for such
properties and assets that have been sold or otherwise disposed of in the
ordinary course of business; in each case subject to no encumbrance, lien,
charge or other restriction of any kind or character, except for (I) liens
pertaining to indebtedness reflected in the Balance Sheet and described on
Schedule 2.1(g), (II) liens consisting of zoning or planning restrictions,
easements, permits and other restrictions or limitations on the use of real
property or irregularities in title thereto that do not materially detract from
the value of, or impair the use of, such property by the Company or any of its
subsidiaries in the operation of its respective business, (III) liens for
current taxes, assessments or governmental charges or levies on property not yet
due and delinquent, and (IV) statutory landlord's liens, liens granted to
landlords under leases for the Company Facilities, and fee mortgages made by
such landlords.
(ii) Schedule 2.1(g) sets forth a list of all Company
Facilities now being occupied by the Company or any of its subsidiaries or used
in connection with their respective operations. The Company Facilities are all
premises leased or owned by the Company or any of its subsidiaries. Neither the
Company nor any of its subsidiaries has received notice of any building or
health code violations with respect to any of the Company Facilities. Each of
the Company and its subsidiaries has complied with all federal, state and local
laws, ordinances, rules and regulations applicable to each Company Facility,
except where the failure to so comply would not have a material adverse effect
on the Condition of the Company and its subsidiaries. There is no pending,
proposed, or, to the Company's knowledge, threatened condemnation, eminent
domain, or similar proceeding affecting any of the Company Facilities.
(h) Compliance with Laws. The Company and its subsidiaries
are in compliance with all applicable laws, regulations, orders, judgments and
decrees except where the failure to so comply would not have a material adverse
effect on the Condition of the Company and its subsidiaries taken as a whole.
(i) Litigation. Except for the Chapter 11 Case and except as
specifically disclosed in Schedule 2.1(i), there is no action, suit, proceeding
at law or in equity, or any arbitration or any administrative or other
proceeding by or before (or, to the best knowledge, information and belief of
the Company, any investigation by) any governmental or other instrumentality or
agency, pending, or, to the best knowledge, information and belief of the
Company, threatened, against or affecting the Company or any of its
subsidiaries, or any of their properties or rights. There are no such suits,
actions, claims, proceedings or investigations pending or, to the best
knowledge, information and belief of the Company, threatened, seeking to prevent
or challenging the transactions contemplated by this Agreement. Except as
disclosed in the Disclosure Statement, neither the Company nor any of its
subsidiaries is subject to any judgment, order or decree entered in any lawsuit
or proceeding that could have a material adverse effect on the Condition of the
Company and its subsidiaries taken as a whole or on the ability of the Company
or any subsidiary to conduct its business as presently conducted. Schedule
2.1(i) sets forth all litigation involving the Company or its subsidiaries that
is pending or, to the Company's knowledge, threatened.
(j) Employee Benefit Plans.
(i) List of Plans. Set forth in Schedule 2.1(j)
attached hereto is an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any
such Employee Benefit Plans are otherwise exempt from the provisions of ERISA,
established, maintained or contributed to by the Company or any of its
subsidiaries (including, for this purpose and for the purpose of all of the
representations in this Section 2.1(j)), all employers (whether or not
incorporated) that by reason of common control are treated together with the
Company as a single employer within the meaning of Section 414 of the Internal
Revenue Code of 1986, as amended (the "Code")).
(ii) Status of Plans. Neither the Company nor any of
its subsidiaries maintains any Employee Benefit Plans subject to ERISA.
(iii) Contributions. Full payment has been made of all
amounts that the Company or any of its subsidiaries is required, under
applicable law or under any Employee Benefit Plan or any agreement relating to
any Employee Benefit Plan to which the Company or any of its subsidiaries is a
party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date hereof.
The Company has made adequate provision for reserves to meet contributions that
have not been made because they are not yet due under the terms of any Employee
Benefit Plan or related agreements. Benefits under all Employee Benefit Plans
are as represented and have not been increased subsequent to the date as of
which documents have been provided to FSCI.
(iv) [Intentionally Omitted]
(v) Tax Qualification. Each Employee Benefit Plan
intended to be qualified under Section 401(a) of the Code has been determined to
be so qualified by the Internal Revenue Service and nothing has occurred since
the date of the last such determination that resulted or is likely to result in
the revocation of such determination.
(vi) Transactions. No Reportable Event (as defined in
Section 4043 of ERISA) has occurred with respect to any Employee Benefit Plan
for which the 30-day notice requirement has not been waived by the Pension
Benefit Guaranty Corporation ("PBGC") and neither the Company nor any of its
subsidiaries has engaged in any transaction with respect to the Employee Benefit
Plans that would subject it to a tax, penalty or liability for prohibited
transactions under ERISA or the Code nor has any of their respective directors,
officers, or employees, to the extent they or any of them are fiduciaries with
respect to such Employee Benefit Plans, breached any of their responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA or would result
in any claim being made under or by or on behalf of any such Employee Benefit
Plans by any party with standing to make such claim.
(vii) Other Plans. The Company currently does not
maintain any employee or non-employee benefit plans or any other foreign
pension, welfare or retirement benefit plans other than those listed in Schedule
2.1(k).
(viii) Documents. The Company has made available to
FSCI and its counsel true and complete copies of (A) all Employee Benefit Plans
as in effect, together with all amendments thereto that will become effective at
a later date, as well as the latest Internal Revenue Service determination
letter obtained with respect to any such Employee Benefit Plan qualified under
Section 401 or 501 of the Code and (B) Form 5500 for the most recent completed
fiscal year for each Employee Benefit Plan required to file such form.
(k) Employment Relations and Agreements. (i) Each of the
Company and its subsidiaries is in substantial compliance with all federal,
state or other applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and has not and is not
engaged in any unfair labor practice; (ii) to the Company's knowledge, no unfair
labor practice complaint against the Company or any of its subsidiaries is
pending before the National Labor Relations Board; (iii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened against or involving the Company or any of its
subsidiaries; (iv) no representation question exists respecting the employees of
the Company or any of its subsidiaries; (v) to the Company's knowledge, no
grievance that might have a material adverse effect on the Condition of the
Company and its subsidiaries as a whole or the conduct of their respective
businesses exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted; (vi) no collective bargaining agreement is currently in effect or
being negotiated by the Company or any of its subsidiaries; and (vii) neither
the Company nor any of its subsidiaries has experienced any material labor
difficulty during the last three years. There has not been, and to the best
knowledge of the Company, there will not be, any change in relations with
employees of the Company or any of its subsidiaries as a result of the
transactions contemplated by this Agreement that could have a material adverse
effect on the Condition of the Company and its subsidiaries or the Surviving
Corporation taken as a whole. Except as disclosed in Schedule 2.1(k) attached
hereto (which schedule lists the maximum payment that could be owed), there
exist no employment, consulting, severance or indemnification agreements between
the Company and any director, officer or employee of the Company or any
agreement that would give any Person the right to receive any payment from the
Company as a result of the Merger.
(l) Taxes. Except as provided in Schedule 2.1(l), the
Company has filed or caused to be filed, within the times and in the manner
prescribed by law (including permitted extensions of time to file), all federal,
state, local and foreign tax returns and tax reports that are required to be
filed by, or with respect to, the Company or any of its subsidiaries. All
federal, state, local and foreign income, profits, franchise, sales, use,
occupancy, excise and other taxes and assessments (including interest and
penalties) payable by, or due from, the Company or any of its subsidiaries (i)
have either been fully paid or will be fully paid under the Chapter 11 Plan to
the extent allowed as a Claim under the Chapter 11 Plan, and (ii) adequately
disclosed and fully provided for in the books and financial statements of the
Company and its subsidiaries. Except as provided in Schedule 2.1(l), the federal
income tax liability of the Company and its subsidiaries has been finally
determined for all fiscal years to and including the fiscal year ended December
31, 1996. No examination of any tax return of the Company or any of its
subsidiaries is currently in progress. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of the Company or any of its subsidiaries.
(m) Intellectual Properties. In the operation of its
business the Company and its subsidiaries have used, and currently use, domestic
and foreign patents, patent applications, patent licenses, software licenses,
know-how licenses, trade names, trademarks, copyrights, unpatented inventions,
service marks, trademark registrations and applications, service mark
registrations and applications, copyright registrations and applications, trade
secrets and other confidential proprietary information (collectively the
"Company Intellectual Property"). Schedule 2.1(m) attached hereto contains an
accurate and complete list of all Company Intellectual Property that is of
material importance to the operation of the business of the Company or any of
its subsidiaries. Unless otherwise indicated in Schedule 2.1(m) the Company (or
the subsidiary indicated) owns the entire right, title and interest in and to
the Company Intellectual Property listed on Schedule 2.1(m) used in the
operation of its business (including, without limitation, the exclusive right to
use and license the same) and each item constituting part of the Company
Intellectual Property that is owned by the Company or a subsidiary and listed on
Schedule 2.1(m) has been, to the extent indicated in Schedule 2.1(m), duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office or such other governmental entities, domestic or
foreign, as are indicated in Schedule 2.1(m) and such registrations, filings and
issuances remain in full force and effect. To the best knowledge of the Company,
except as stated in such Schedule 2.1(m), there are no pending or threatened
proceedings or litigation or other adverse claims affecting or with respect to
the Company Intellectual Property. Schedule 2.1(m) lists all notices or claims
currently pending or received by the Company or any of its subsidiaries during
the past two years that claim infringement, contributory infringement,
inducement to infringe, misappropriation or breach by the Company or any of its
subsidiaries of any domestic or foreign patents, patent applications, patent
licenses and know-how licenses, trade names, trademark registrations and
applications, service marks, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information. To
the best knowledge of the Company, except as indicated on Schedule 2.1(m), no
Person is materially infringing the Company Intellectual Property.
(n) Broker's or Finder's Fee. No agent, broker, Person or
firm acting on behalf of the Company is, or will be, entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by, or under common control with any of the
parties hereto, in connection with this Agreement or any of the transactions
contemplated hereby.
(o) Accounts Receivable. The accounts receivable of the
Company and its subsidiaries as reflected in the Balance Sheet, to the extent
uncollected on the date of this Agreement, and the accounts receivable reflected
on the books of the Company are, on the basis of existing facts, valid and
existing, represent monies due for goods sold and delivered or services
rendered, and (subject to the aforesaid reserve) are subject to no refunds or
other adjustments (except for returns or discounts for prompt payment given in
the ordinary course of business) and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any thereof.
(p) Inventories. The inventories reflected in the Balance
Sheet were, and those reflected on the books of the Company and its subsidiaries
since such date have been, determined and valued in accordance with generally
accepted accounting principles applied on a consistent basis as reflected in the
consolidated balance sheet, and existed on the respective dates. Except for
normal spoilage or obsolescence, the inventories of the Company and its
subsidiaries consist of items that are good and merchantable and are of a
quality and quantity presently usable or salable in the ordinary course of
business.
(q) Environmental Matters.
(i) The Company and each subsidiary is, and at all
times has been, in substantial compliance with, and has not been and is not in
violation of or liable under, any Environmental Law with respect to any of their
real properties, leaseholds or other real property interests owned or leased by
the Company or any of its subsidiaries, and any buildings, plants, structures,
or equipment (including motor vehicles), that are owned or leased both as of the
date hereof and as of the Closing Date ("Company Facilities"). Except for
matters covered by applicable state remediation programs, the Company and its
subsidiaries have not received any actual or threatened order, notice, or other
communication from (A) any governmental body or private citizen acting in the
public interest, or (B) the current or prior owner or operator of any Company
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Company Facilities or any other properties or assets (whether
real, personal, or mixed) in which the Company or any of its subsidiaries has an
interest, or with respect to any Company Facility at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported, used, or
processed by the Company, any of its subsidiaries or any other Person for whose
conduct they are or may be held responsible, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(ii) There are no pending or, to the knowledge of the
Company, threatened claims, liens, or other restrictions of any nature,
resulting from any Environmental, Health, and Safety Liabilities or arising
under or pursuant to any Environmental Law, with respect to or affecting any of
the Company Facilities or any other properties and assets (whether real,
personal, or mixed) in which the Company and of its subsidiaries has an
interest.
(iii) Except for matters covered by any applicable
state remediation programs or applicable insurance policies, the Company and its
subsidiaries have not received any citation, directive, inquiry, notice, order,
summons, warning, or other communication that relates to Hazardous Activity,
Hazardous Materials, or any alleged, actual, or potential violation or failure
to comply with any Environmental Law, or of any alleged, actual, or potential
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the Company Facilities.
(iv) Except for matters covered by any applicable state
remediation programs or by applicable insurance policies, the Company and its
subsidiaries have no Environmental, Health, and Safety Liabilities with respect
to the Company Facilities or with respect to any other properties and assets
(whether real, personal, or mixed) in which the Company or any of its
subsidiaries (or any predecessor), has an interest, or at any property
geologically or hydrologically adjoining the Company Facilities or any such
other property or assets.
(v) Except for matters covered by any applicable state
remediation programs or by applicable insurance policies, there has been no
Release or, to the knowledge of the Company, threat of Release, of any Hazardous
Materials at or from the Company Facilities or, to the knowledge of the Company,
at any other locations where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used, or processed from
or by the Company Facilities, or from or by any other properties and assets
(whether real, personal, or mixed) in which the Company or any of its
subsidiaries has an interest, or to the knowledge of the Company any
geologically or hydrologically adjoining property, whether by the Company, any
of its subsidiaries or any other Person.
(vi) The Company has made available to FSCI true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Company or any of its subsidiaries
pertaining to Hazardous Materials or Hazardous Activities in, on, or under the
Company Facilities, or concerning compliance by the Company, any of its
subsidiaries, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
(r) Chapter 11 Proceedings. The Company has complied in all
material respects with the Bankruptcy Code, and with all other laws, rules,
regulations, decrees or orders applicable to or arising out of the Chapter 11
Case, except to the extent that any such non-compliance would not have a
material adverse affect on Condition of the Company. To the best of the
Company's knowledge, all lists of creditors and stockholders, schedules,
statements of affairs, and financial reports filed by the Company with the
Bankruptcy Court were complete and accurate in all material respects as of the
date filed or made. Such notice of the Chapter 11 Case as is required by the
Bankruptcy Code has been or will be given to all known holders of Claims (as
such term is defined in the Bankruptcy Code), and the Company shall serve notice
of the transactions contemplated by this Agreement on parties entitled to such
notice under the Bankruptcy Code, as modified by orders in respect of notice
that may be issued at any time and from time to time by the Bankruptcy Court.
(s) Absence of Certain Changes. Except as disclosed in
Schedule 2.1(s) hereto, since December 31, 1998: (i) there has not been any
material adverse change in the Condition of the Company and its subsidiaries,
taken as a whole; (ii) the businesses of the Company and its subsidiaries have
been conducted only in the ordinary course; (iii) the Company and its
subsidiaries have not incurred any material liabilities (direct, contingent or
otherwise) or engaged in any material transaction or entered into any material
agreement outside the ordinary course of business; (iv) the Company and its
subsidiaries have not increased the compensation of any officer or granted any
general salary or benefits increase to their employees other than in the
ordinary course of business; and (v) the Company and its subsidiaries have not
taken any action referred to in Section 3.4 hereof except as permitted or
required thereby.
(t) Material Contracts. Schedule 2.1(t) identifies all
material contracts, agreements and other written or oral arrangements to which
the Company or any of its subsidiaries is party and all arrangements that are
filed with the Commission as part of the Commission Filings. True, correct and
complete copies (with all amendments thereto) thereof have been made available
to FSCI. "Material" contracts, agreements and arrangements are those that
obligate the parties, in the aggregate, to in excess of $50,000 of obligations.
With respect to each written arrangement so listed: (i) the written arrangement
is legal, valid, binding, enforceable, and in full force and effect, and has not
been materially amended or altered; (ii) the Company and its subsidiaries are
not in breach or default, and no event has occurred that, with notice or lapse
of time, or both, would constitute a breach or default by the Company or its
subsidiaries or permit a party other than the Company or its subsidiaries to
terminate, modify, or accelerate performance under any such written arrangement;
and (iii) to the Company's knowledge, no party other than the Company or its
subsidiaries is in breach or default, and no event has occurred that, with
notice or lapse of time, or both, would constitute a breach or default or permit
termination, modification, or acceleration, under any such written arrangement.
(u) Liabilities. The Company and its subsidiaries have no
material outstanding claims, liabilities or indebtedness, contingent or
otherwise, required to be reflected in a financial statement prepared in
accordance with GAAP, except as set forth in the financial statements delivered
to FSCI, or referred to in the footnotes thereto, other than liabilities
incurred subsequent to December 31, 1998 in the ordinary course of business not
involving borrowings by the Company and its subsidiaries. Except for that
indebtedness and those obligations identified in the Disclosure Statement, the
Company and its subsidiaries are not in default in respect of the material terms
and conditions of any material indebtedness or other agreements. The Company
currently estimates that the allowed amount of such Claims will not exceed
$250,000. However, the Company has scheduled as disputed approximately $900,000
of unsecured claims and proofs of unsecured claims, which the Company likewise
disputes, have been filed totaling approximately $2,000,000. Although the
Company believes that all of the disputed scheduled and filed claims will
ultimately be disallowed by the Bankruptcy Court, there can be no assurance that
some or all of the disputed scheduled and filed claims will not be allowed by
the Bankruptcy Court.
Section 2.2 Representations and Warranties of FSCI. Except as may
be otherwise disclosed in the FSCI Disclosure Schedule, attached or to be
attached and initialed by the parties, FSCI represents and warrants to the
Company and UPC Merger Sub, as of the Effective Time, as follows:
(a) Due Organization; Good Standing and Corporate Power.
(i) FSCI and, as of the Effective Time, a subsidiary of
FSCI ("FSCI Sub") formed solely to serve as a partner in the REWJB Gas
Investments, a Florida general partnership (the "Gas Partnership"), Farm Stores
Grocery, Inc., a Delaware corporation in which FSCI will own as of the Effective
Time ten percent (10%) of the issued and outstanding stock ("FSG"), a subsidiary
of FSG ("FSG Sub") formed solely to serve as a partner in REWJB Investments, a
Florida general partnership (the "Drive-Thru Partnership" and, together with the
Gas Partnership, the "Partnerships"), are each corporations duly incorporated,
validly existing, and in good standing under the laws of their respective
jurisdictions of incorporation and have all requisite corporate power and
authority to own, lease and operate their respective properties and to carry on
their respective businesses as now being conducted. FSCI, FSCI Sub, FSG, and FSG
Sub are duly qualified or licensed to do business and are in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be so qualified or licensed
and in good standing would not have a material adverse effect on the Condition
of FSCI, FSCI Sub, FSG, FSG Sub, as appropriate.
(ii) Each of the Partnerships has been duly formed and
is validly existing under the laws of the jurisdiction of its organization and
has all requisite power and authority to own, lease and operate its properties
and carry on its business as now being conducted. Each of the Partnerships is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by each of the
Partnerships or the nature of the business conducted by the Partnerships makes
such qualification necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing would not have a material
adverse effect on the Condition of the Partnerships.
(b) Authorization and Validity of Agreement. FSCI has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions and enter into the
agreements contemplated hereby. The execution, delivery and performance of this
Agreement by FSCI, and the consummation of the transactions contemplated hereby,
has been duly authorized by the Board of Directors of FSCI. No other corporate
action on the part of FSCI is necessary to authorize the execution, delivery and
performance of this Agreement by FSCI and the consummation of the transactions
contemplated hereby (other than the approval of this Agreement by the FSCI
Shareholder). This Agreement has been duly executed and delivered by FSCI and is
a valid and binding obligation of FSCI, enforceable against FSCI in accordance
with its terms.
(c) Capitalization.
(i) The FSCI Common Stock is all of the authorized
capital stock of FSCI and consists of 10,000 shares of common stock. As of the
date hereof, (A) 10,000 shares of FSCI Common Stock are issued and outstanding,
(B) no shares of FSCI Common Stock are reserved for issuance pursuant to
outstanding options or stock incentive plans, (C) all issued and outstanding
FSCI Common Stock is owned by the FSCI Shareholder, and (D) no shares of FSCI
Common Stock are held in FSCI's treasury. All issued and outstanding shares of
FSCI Common Stock have been validly issued and are fully paid and nonassessable,
and are not subject to, nor were they issued in violation of, any preemptive
rights. Except as set forth in this Section 2.2(c), at the Effective Time, and
as contemplated by this Agreement, there will not be any outstanding or
authorized options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to FSCI Common Stock or any other
shares of capital stock of FSCI, pursuant to which FSCI is or may become
obligated to issue shares of FSCI Common Stock, any other shares of its capital
stock or any securities convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of the capital stock of FSCI.
(ii) The authorized capital stock of FSG consists of
10,000,000 shares of common stock ("FSG Common Stock"),of which, as of the
Effective Time, 1,000,000 will be issued (including 100,000 shares issued to
FSCI) and outstanding or reserved for issuance under options or warrants. Except
as set forth in the preceding sentence, (A) no shares of FSG Common Stock are
reserved for issuance pursuant to outstanding options or stock incentive plans,
(B) all issued and outstanding FSG Common Stock is owned beneficially by FSCI
and FSCI Shareholder, and (C) no shares of FSG Common Stock are held in FSG's
treasury. All issued and outstanding shares of FSG Common Stock have been
validly issued and are fully paid and nonassessable, and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as set forth in
this Section 2.2(c), at the Effective Time, and as contemplated by this
Agreement, there will not be any outstanding or authorized options, warrants,
rights, subscriptions, claims of any character, agreements, obligations,
convertible or exchangeable securities, or other commitments, contingent or
otherwise, relating to FSG Common Stock or any other shares of capital stock of
FSG, pursuant to which FSG is or may become obligated to issue shares of FSG
Common Stock, any other shares of its capital stock or any securities
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of the capital stock of FSG.
(iii) The interests in the Gas Partnership owned by
FSCI are fully paid and nonassessable, were issued by the Gas Partnership in
accordance with the Gas Partnership's partnership agreement dated September 9,
1992 ("Gas Partnership Agreement"), and are owned, of record and beneficially,
by FSCI free and clear of all liens and encumbrances. The partnership interests
owned by FSCI in the Gas Partnership constitute a forty percent (40%) interest
in the Gas Partnership. Except for those interests in the Gas Partnership owned
by Toni Gas & Food Stores, Inc., a Florida corporation, that are subject to
being and that will be purchased by FSCI immediately prior to the Effective
Time, there are no other outstanding interests in the Gas Partnership nor are
there any options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to interests in the Gas
Partnership pursuant to which the Gas Partnership is or may become obligated or
any Person is entitled to acquire any interest in the Gas Partnership or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any interest in the Gas Partnership. As of the Effective Time,
there will be no restrictions of any kind in the Gas Partnership Agreement that
prevent the payment of distributions by the Gas Partnership.
(iv) At the Effective time, the interests in the
Drive-Thru Partnership owned by FSG and FSG Sub will be fully paid and
nonassessable, will be issued by the Drive-Thru Partnership in accordance with
the Drive-Thru Partnership's partnership agreement dated September 9, 1992
("Drive-Thru Partnership Agreement"), and will be owned, of record and
beneficially, by FSG and FSG Sub free and clear of all liens and encumbrances.
The partnership interests owned by FSG in the Drive-Thru Partnership constitute
a forty percent (99%) interest in the Drive-Thru Partnership. Except for those
interests in the Drive-Thru Partnership owned by FSG Sub immediately prior to
the Effective Time, there are no other outstanding interests in the Drive-Thru
Partnership nor are there any options, warrants, rights, subscriptions, claims
of any character, agreements, obligations, convertible or exchangeable
securities, or other commitments, contingent or otherwise, relating to interests
in the Drive-Thru Partnership pursuant to which the Drive-Thru Partnership is or
may become obligated or any Person is entitled to acquire any interest in the
Drive-Thru Partnership or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any interest in the Drive-Thru
Partnership. As of the Effective Time, there will be no restrictions of any kind
in the Drive-Thru Partnership Agreement that prevent the payment of
distributions by the Drive-Thru Partnership.
(v) Except for its interests in the Gas Partnership and
stock of FSG and FSCI Sub that FSCI will acquire pursuant to or in furtherance
of the Toni Agreement immediately prior to the Effective Time, at the Effective
Time FSCI will not own, directly or indirectly, any capital stock or other
equity interest in any Person or have any direct or indirect equity or ownership
interest in any Person. Except as contemplated by this Agreement, each of FSCI,
FSCI Sub, FSG, FSG Sub, and the Partnerships are not subject to any obligation
or requirement to provide funds for or to make any investments (in the form of a
loan, capital contribution or otherwise) to or in any Person.
(d) Consents and Approvals; No Violations. Assuming that
filings required under the HSR Act are made and the waiting period thereunder
has been terminated or has expired, the filing of the Certificate of Merger and
other appropriate merger documents, if any, as required by the DGCL or under the
applicable provisions of Florida law, are made, and the Bankruptcy Court enters
an order, that may be the Confirmation Order, approving the Merger and this
Agreement, and subject to the receipt of those consents and approvals identified
in Schedule 2.2(d), the execution and delivery of this Agreement by FSCI and the
consummation by FSCI of the transactions contemplated hereby will not: (i)
violate any provision of the Certificate of Incorporation or Bylaws of FSCI,
FSCI Sub, FSG, or FSG Sub, respectively, or the Gas Partnership Agreement or
Drive-Thru Partnership Agreement, each as in effect as of the Effective Time;
(ii) violate any statute, ordinance, rule, regulation, order or decree of any
court or of any governmental or regulatory body, agency or authority applicable
to FSCI, FSCI Sub, FSG, FSG Sub, the Partnerships, or by which their respective
properties or assets may be bound; (iii) require any filing with, or permit,
consent or approval of, or the giving of any notice to any governmental or
regulatory body, agency or authority; (iv) result in a violation or breach of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of FSCI, FSCI Sub,
FSG, FSG Sub, or the Partnerships under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, franchise, permit,
agreement, lease or other instrument or obligation to which FSCI, FSCI Sub, FSG,
FSG Sub, or the Partnerships are a party, or by which they or their respective
properties or assets may be bound, excluding from the foregoing clauses (iii)
and (iv) filings, notices, permits, consents and approvals the absence of which,
and violations, breaches, defaults, conflicts and liens that, in the aggregate,
would not have a material adverse effect on the Condition of FSCI, FSCI Sub,
FSG, FSG Sub, or the Partnerships taken as a whole; or (v) trigger any consent
or approval requirements with respect to those leases, licenses, permits, or
approvals held by the Partnerships (excluding those leases, licenses, permits,
or approvals with respect to the Walk-In Convenience Stores Partnerships to
another entity in accordance with this Agreement).
(e) FSCI Reports and Financial Statements. FSCI has
delivered to the Company combined balance sheets for the Partnerships and each
of their combined affiliates as of the end of the fiscal years ended September
1, 1996, August 31, 1997 and August 30, 1998 and the combined statements of
operations, combined statement of equity and consolidated statements of changes
in financial position for the Partnerships and each of their combined affiliates
for the fiscal years ended September 1, 1996, August 31, 1997 and August 30,
1998. Such financial statements were prepared in accordance with generally
accepted accounting principles (as in effect at the time such financial
statements were prepared) applied on a consistent basis (except as may be
indicated therein or in the notes or schedules thereto) and fairly present in
all material respects the combined financial position of the Partnerships and
their combined affiliates as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended.
(f) Absence of Certain Changes. Except as disclosed in
Schedule 2.2(f) hereto, since December 31, 1998: (i) there has not been any
material adverse change in the Condition of FSCI, FSCI Sub, FSG, FSG Sub, or the
Partnerships, taken as a whole; (ii) the businesses of FSCI, FSCI Sub, FSG, FSG
Sub, and the Partnerships have been conducted only in the ordinary course; (iii)
FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships have not incurred any
material liabilities (direct, contingent or otherwise) or engaged in any
material transaction or entered into any material agreement outside the ordinary
course of business; (iv) FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships have
not increased the compensation of any officer or granted any general salary or
benefits increase to their employees other than in the ordinary course of
business; and (v) FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships have not
taken any action referred to in Section 3.4 hereof except as permitted or
required thereby.
(g) Minute Books. The minute books of FSCI, FSG, and the
managing general partner of the Partnership, as previously made available to the
Company and its representatives, contain accurate records of all meetings of the
stockholders or partners, as appropriate, all corporate actions or written
consents by the stockholders and Boards of Directors of FSCI and FSG, and all
actions on behalf of the Partnership by the managing general partner of the
Partnership since January 1, 1996.
(h) Title to Properties; Encumbrances.
(i) FSCI, FSCI Sub, FSG, FSG Sub and the Partnerships
have, or will acquire contemporaneously with the Merger, good, valid and
marketable title to all of their respective material tangible properties and
assets (real and personal), including, without limitation, all the properties
and assets reflected in Schedule 2.2(h), subject to no encumbrance, lien, charge
or other restriction of any kind or character, except for (A) liens pertaining
to indebtedness reflected in the balance sheets of the Partnerships and
described on Schedule 2.2(h), (B) liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
use of real property or irregularities in title thereto that do not materially
detract from the value of, or impair the use of, such property by FSCI, FSCI
Sub, FSG, FSG Sub, or the Partnerships in the operation of their respective
businesses, (C) liens for current taxes, assessments or governmental charges or
levies on property not yet due and delinquent, and (D) statutory landlord's
liens, liens granted to landlords under leases for the FSCI Facilities, and fee
mortgages made by such landlords.
(ii) Schedule 2.2(h) sets forth a list of all FSCI
Facilities now being occupied, or to be occupied on the Closing Date, by FSCI,
FSCI Sub, FSG, FSG Sub, or the Partnerships or used in connection with their
respective operations. The FSCI Facilities are all, or will be on the Closing
Date, premises leased or owned by FSCI, FSCI Sub, FSG, FSG Sub, or the
Partnerships. Schedule 2.2(h) describes those leases of FSCI Facilities that
require the landlord's consent to assignment of such leases. No notices of any
building or health code violations with respect to any of the FSCI Facilities
have been received and are pending or uncured which would be material to any
FSCI Facility. Each of FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships have
complied with all federal, state and local laws, ordinances, rules and
regulations applicable to each FSCI Facility, except where the failure to so
comply would not have a material adverse effect on the Condition of FSCI, FSCI
Sub, FSG, FSG Sub, or the Partnerships. Except as disclosed in Schedule 2.2(h),
there is no pending, proposed, or, to FSCI's, knowledge, threatened
condemnation, eminent domain, or similar proceeding affecting any of the FSCI
Facilities.
(i) Compliance with Laws. FSCI, FSCI Sub, FSG, FSG Sub and
the Partnerships are in compliance with all applicable laws, regulations,
orders, judgments and decrees except where the failure to so comply with the
same would not have a material adverse effect on the Condition of FSCI, FSCI
Sub, FSG, FSG Sub, or the Partnerships taken as a whole.
(j) Litigation. Except as set forth in Schedule 2.2(j)
hereto, there is no action, suit, proceeding at law or in equity, or any
arbitration or any administrative or other proceeding by or before (or to the
best knowledge, information and belief of the Company any investigation by) any
governmental or other instrumentality or agency, pending, or, to the best
knowledge, information and belief of FSCI, threatened, against or affecting
FSCI, FSG, the Partnership, or any of their respective properties or rights that
could have a material adverse effect on the Condition of FSCI, FSCI Sub, FSG,
FSG Sub, or the Partnerships. There are no such suits, actions, claims,
proceedings or investigations pending or, to the best knowledge, information and
belief of FSCI, threatened, seeking to prevent or challenging the transactions
contemplated by this Agreement. FSCI, FSCI Sub, FSG, FSG Sub, and the
Partnerships are not subject to any judgment, order or decree entered in any
lawsuit or proceeding that could have a material adverse effect on the Condition
of FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships, taken as a whole or on the
ability of FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships to conduct their
respective businesses as presently conducted. Schedule 2.2(j) sets forth all
litigation involving FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships that is
pending or, to FSCI's knowledge, threatened against FSCI, FSCI Sub, FSG, FSG
Sub, or the Partnerships.
(k) Employee Benefit Plans.
(i) List of Plans. Set forth in Schedule 2.2(k) is an
accurate and complete list of all Employee Benefit Plans within the meaning of
Section 3(3) of ERISA, whether or not any such Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships (including,
for this purpose and for the purpose of all of the representations in this
Section 2.2(k)), all employers (whether or not incorporated) that by reason of
common control are treated together with the Company as a single employer within
the meaning of Section 414 of the Code).
(ii) Status of Plans. Except as set forth in Schedule
22(k) FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships do not maintain any
Employee Benefit Plans subject to ERISA.
(iii) Contributions. Full payment has been made of all
amounts that FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships are required,
under applicable law or under any Employee Benefit Plan or any agreement
relating to any Employee Benefit Plan to which FSCI, or FSG or the Partnership
is or was a party, to have paid as contributions thereto as of the last day of
the most recent fiscal year of such Employee Benefit Plan ended prior to the
date hereof. FSCI has made adequate provision for reserves to meet contributions
that have not been made because they are not yet due under the terms of any
Employee Benefit Plan or related agreements. Benefits under all Employee Benefit
Plans are as represented and have not been increased subsequent to the date as
of which documents have been provided to the Company.
(iv) [Intentionally Omitted]
(v) Tax Qualification. Each Employee Benefit Plan of
FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships intended to be qualified
under Section 401(a) of the Code has been determined to be so qualified by the
Internal Revenue Service and nothing has occurred since the date of the last
such determination that resulted or is likely to result in the revocation of
such determination.
(vi) Transactions. No Reportable Event (as defined in
Section 4043 of ERISA) for which the 30-day notice requirement has not been
waived by the PBGC has occurred with respect to any Employee Benefit Plan
maintained by FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships and FSCI, FSCI
Sub, FSG, FSG Sub, and the Partnerships have not engaged in any transaction with
respect to the Employee Benefit Plans maintained by them that would subject any
of them to a tax, penalty or liability for prohibited transactions under ERISA
or the Code nor have any of their respective directors, officers, partners, or
employees to the extent they or any of them are fiduciaries with respect to such
Employee Benefit Plans, breached any of their responsibilities or obligations
imposed upon fiduciaries under Title I of ERISA or would result in any claim
being made under or by or on behalf of any such Employee Benefit Plans by any
party with standing to make such claim.
(vii) Other Plans. The Company currently does not
maintain any employee or non-employee benefit plans or any other foreign
pension, welfare or retirement benefit plans other than those listed in Schedule
2.1(k).
(viii) Documents. FSCI has made available to the
Company and its counsel true and complete copies of (A) all Employee Benefit
Plans maintained by FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships as in
effect, together with all amendments thereto that will become effective at a
later date, as well as the latest Internal Revenue Service determination letter
obtained with respect to any such Employee Benefit Plan qualified under Section
401 or 501 of the Code and (B) Form 5500 for the most recent completed fiscal
year for each such Employee Benefit Plan required to file such form.
(l) Employment Relations and Agreements. (i) FSCI, FSCI Sub,
FSG, FSG Sub, and the Partnerships are in substantial compliance with all
federal, state or other applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and have not
and are not engaged in any unfair labor practice; (ii) to the knowledge of FSCI,
no unfair labor practice complaint against FSCI, FSCI Sub, FSG, FSG Sub, or the
Partnerships is pending before the National Labor Relations Board; (iii) there
is no labor strike, dispute, slowdown or stoppage actually pending or, to the
knowledge of FSCI, threatened against or involving FSCI, FSCI Sub, FSG, FSG Sub,
or the Partnerships; (iv) no representation question exists respecting the
employees of FSCI , FSG, or the Partnership; (v) to the knowledge of FSCI, no
grievance that might have a material adverse effect on the Condition of FSCI,
FSCI Sub, FSG, FSG Sub, or the Partnerships or the conduct of their respective
businesses exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted; (vi) no collective bargaining agreement is currently in effect or
being negotiated by FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships; and (vii)
none of FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships has experienced any
material labor difficulty during the last three years. There has not been, and,
to the best knowledge of FSCI, there will not be, any change in relations with
employees of FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships as a result of
the transactions contemplated by this Agreement that could have a material
adverse effect on the Condition of FSCI, FSG, the Partnership, or the Surviving
Corporation, taken as a whole. Except as disclosed in Schedule 2.2(l) attached
hereto (which schedule lists the maximum payment that could be owed), there
exist no employment, consulting, severance or indemnification agreements (x)
between FSCI and any director, officer or employee of FSCI or any agreement that
would give any Person the right to receive any payment from FSCI as a result of
the Merger, (y) between FSG and any director, officer or employee of FSG or any
agreement that would give any Person the right to receive any payment from FSG
as a result of the Merger, and (z) between the Partnership and any partner or
employee of the Partnership or any agreement that would give any Person the
right to receive any payment from the Partnership as a result of the Merger.
(m) [Intentionally Omitted]
(n) Taxes. FSCI, FSCI Sub, FSG, FSG Sub, and the
Partnerships have filed or caused to be filed, within the times and in the
manner prescribed by law (including permitted extensions of time to file), all
federal, state, local and foreign tax returns and tax reports that are required
to be filed by, or with respect to, FSCI, FSCI Sub, FSG, FSG Sub, or the
Partnerships. All federal, state, local and foreign income, profits, franchise,
sales, use, occupancy, excise and other taxes and assessments (including
interest and penalties) payable by, or due from, FSCI, FSCI Sub, FSG, FSG Sub,
or the Partnerships have been fully paid or adequately disclosed and fully
provided for in the books and financial statements of FSCI, FSCI Sub, FSG, FSG
Sub, and the Partnerships. No examination of any tax return of FSCI, FSCI Sub,
FSG, FSG Sub, or the Partnerships is currently in progress. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of FSCI, FSCI Sub, FSG, FSG Sub, or the
Partnerships.
(o) Liabilities. FSCI, FSCI Sub, FSG, FSG Sub, and the
Partnerships have no material outstanding claims, liabilities or indebtedness,
contingent or otherwise, required to be reflected in a financial statement
prepared in accordance with GAAP, except as set forth in the financial
statements delivered to the Company, or referred to in the footnotes thereto,
other than liabilities incurred subsequent to December 31, 1998 in the ordinary
course of business not involving borrowings by FSCI, FSCI Sub, FSG, FSG Sub, or
the Partnerships. FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships are not in
default in respect of the material terms and conditions of any material
indebtedness or other agreement.
(p) Intellectual Properties. In the operation of its
business, FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships have used, and
currently use, domestic and foreign patents, patent applications, patent
licenses, software licenses, know-how licenses, trade names, trademarks,
copyrights, unpatented inventions, service marks, trademark registrations and
applications, service mark registrations and applications, copyright
registrations and applications, trade secrets and other confidential proprietary
information, other than commercially available computer software programs
(collectively the "Farm Store Intellectual Property"). Schedule 2.2(p) attached
hereto contains an accurate and complete list of all Farm Store Intellectual
Property that is of material importance to the operation of the business of
FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships. Unless otherwise indicated
in Schedule 2.2(p), FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships owns the
entire right, title and interest in and to the Farm Store Intellectual Property
listed on Schedule 2.2(p) used in the operation of the businesses of FSCI, FSCI
Sub, FSG, FSG Sub, and the Partnerships (including, without limitation, the
exclusive right to use and license the same) and each item constituting part of
the Farm Store Intellectual Property that is owned by FSCI, FSCI Sub, FSG, FSG
Sub, or the Partnerships and listed on Schedule 2.2(p) has been, to the extent
indicated in Schedule 2.2(p), duly registered with, filed in or issued by, as
the case may be, the United States Patent and Trademark Office or such other
government entities, domestic or foreign, as are indicated in Schedule 2.2(p)
and such registrations, filings and issuances remain in full force and effect.
To the best knowledge of FSCI, except as stated in such Schedule 2.2(p), there
are no pending or threatened proceedings or litigation or other adverse claims
affecting or with respect to the Farm Store Intellectual Property. Schedule
2.2(p) lists all material notices or claims currently pending or received by
FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships during the past two years that
claim infringement, contributory infringement, inducement to infringe,
misappropriation or breach by FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships
of any domestic or foreign patents, patent applications, patent licenses and
know-how licenses, trade names, trademark registrations and applications,
service marks, copyrights, copyright registrations or applications, trade
secrets or other confidential proprietary information. To the best knowledge of
FSCI, except as indicated on Schedule 2.2(p), no Person is materially infringing
the Farm Store Intellectual Property.
(q) Broker's or Finder's Fee. No agent, broker, Person or
firm acting on behalf of FSCI, FSG, the Partnership, or FSCI Shareholder is, or
will be, entitled to any fee, commission or broker's or finder's fees from any
of the parties hereto, or from any Person controlling, controlled by, or under
common control with any of the parties hereto, in connection with this Agreement
or any of the transactions contemplated hereby.
(r) Environmental Matters. Except as disclosed on Schedule
2.2(r) attached hereto:
(i) FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships
are, and at all times have been, in substantial compliance with, and have not
been and are not in violation of or liable under, any Environmental Law with
respect to any of their respective real property, leaseholds or other real
property interests owned or leased by the FSCI, FSCI Sub, FSG, FSG Sub, or the
Partnerships, and any buildings, plants, structures, or equipment (including
motor vehicles), that are owned or leased both as of the date hereof and as of
the Closing Date (collectively, "FSCI Facilities"). Except for matters covered
by the applicable state remediation programs, FSCI, FSCI Sub, FSG, FSG Sub, and
the Partnerships have not received any actual or threatened order, notice, or
other communication from (A) any governmental body or private citizen acting in
the public interest, or (B) the current or prior owner or operator of any FSCI
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the FSCI Facilities or any other properties or assets (whether real,
personal, or mixed) in which FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships
has an interest, or with respect to any FSCI Facility at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported, used, or
processed by FSCI, FSG, the Partnership, or any other Person for whose conduct
they are or may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(ii) There are no pending or, to the knowledge of FSCI,
threatened claims, liens, or other restrictions of any nature, resulting from
any Environmental, Health, and Safety Liabilities or arising under or pursuant
to any Environmental Law, with respect to or affecting any of the FSCI
Facilities or any other properties and assets (whether real, personal, or mixed)
in which FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships or its subsidiaries
has an interest.
(iii) Except for matters covered by the applicable
state remediation programs and/or by applicable insurance policies, FSCI, FSCI
Sub, FSG, FSG Sub, and the Partnerships have not received any citation,
directive, inquiry, notice, order, summons, warning, or other communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the FSCI
Facilities.
(iv) Except for matters covered by the applicable state
remediation programs and/or by applicable insurance policies, FSCI, FSCI Sub,
FSG, FSG Sub, and the Partnerships have no Environmental, Health, and Safety
Liabilities with respect to the FSCI Facilities or with respect to any other
properties and assets (whether real, personal, or mixed) in which FSCI, FSCI
Sub, FSG, FSG Sub, or the Partnerships (or any predecessor), has an interest, or
at any property geologically or hydrologically adjoining the FSCI Facilities or
any such other property or assets.
(v) Except for matters covered by the applicable state
remediation programs and/or by applicable insurance policies, there has been no
Release or, to the knowledge of FSCI, threat of Release, of any Hazardous
Materials at or from the FSCI Facilities or, to the knowledge of FSCI, at any
other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the FSCI
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships
has an interest, or, to the knowledge of the FSCI and FSCI Shareholder, any
geologically or hydrologically adjoining property, whether by FSCI, FSG, the
Partnership, or any other Person.
(vi) FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships
have made available to the Company true and complete copies and results of any
reports, studies, analyses, tests, or monitoring possessed or initiated by FSCI,
FSCI Sub, FSG, FSG Sub, or the Partnerships pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the FSCI Facilities, or concerning
compliance by FSCI, FSG, the Partnership, or any other Person for whose conduct
they are or may be held responsible, with Environmental Laws.
(s) Toni Agreement. Except as provided in Schedule 2.2(s),
that certain letter agreement, by and between Jose P. Barad, as President of
F.S. Dairy Plan, Inc., FSCI, and F.S. Stores, Inc., and Roberto Isaias, as
President of Robi Dairy Plant, Inc., REW Dairy Investments, Inc., and Toni Gas &
Food Stores, Inc., dated April 23, 1999 (the "Toni Agreement") a copy of which
has been provided to the Company:
(i) has been duly executed and delivered by the parties
thereto;
(ii) has been approved by all requisite corporate
action of the parties thereto;
(iii) constitutes a valid and binding obligation of
each of the parties thereto, enforceable against each such party in accordance
with its terms; and
(iv) constitutes the entire agreement among the parties
with respect to the transactions contemplated by the Toni Agreement and there
have been no oral or written modifications to the Toni Agreement.
(t) Material Contracts. Schedule 2.2(t) identifies all
material contracts, agreements and other written or oral arrangements to which
FSCI, FSG or the Partnership is a party and true, correct and complete copies
(with all amendments thereto) thereof have been made available to the Company.
"Material" contracts, agreements and arrangements are those that obligate the
parties, in the aggregate, to in excess of $50,000 of obligations. With respect
to each written arrangement so listed: (i) the written arrangement is legal,
valid, binding, enforceable, and in full force and effect, and has not been
materially amended or altered; and (ii) FSCI, any subsidiary of FSCI, FSCI Sub,
FSG, FSG Sub, and the Partnerships are not in breach or default, and no event
has occurred that, with notice or lapse of time, or both, would constitute a
breach or default by the FSCI, any subsidiary of FSCI, FSG or the Partnership or
permit a party other than the Company or its subsidiaries to terminate, modify,
or accelerate performance under any such written arrangement; and (iii) to
FSCI's knowledge, no party other than FSCI, any subsidiary of FSCI, FSCI Sub,
FSG, FSG Sub, or the Partnerships is in breach or default, and no event has
occurred that, with notice or lapse of time, or both, would constitute a breach
or default or permit termination, modification, or acceleration, under any such
written arrangement.
ARTICLE III
TRANSACTIONS PRIOR TO CLOSING DATE; COVENANTS
Section 3.1 Access to Information Concerning Properties and
Records.
(a) During the period commencing on the date hereof and
ending on the Closing Date, the Company shall, and shall cause each of its
subsidiaries to, upon reasonable notice, afford FSCI, and its counsel,
accountants and other authorized representatives, full access during normal
business hours to the properties, books and records of the Company and its
subsidiaries in order that they may have the opportunity to make such
investigations as they shall desire of the affairs of the Company and its
subsidiaries; such investigation shall not, however, affect the representations
and warranties made by the Company in this Agreement. The Company agrees to
cause its officers and employees to furnish such additional financial and
operating data and other information and respond to such inquiries as FSCI shall
from time to time request.
(b) During the period commencing on the date hereof and
ending on the Closing Date, FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships
shall, upon reasonable notice, afford the Company, and its counsel, accountants
and other authorized representatives, full access during normal business hours
to the properties, books and records of FSCI, FSCI Sub, FSG, FSG Sub, and the
Partnerships in order that it may have the opportunity to make such
investigations as it shall desire of the affairs of FSCI, FSCI Sub, FSG, FSG
Sub, and the Partnerships; such investigation shall not, however, affect the
representations and warranties made by FSCI in this Agreement. FSCI, FSCI Sub,
FSG, FSG Sub, and the Partnerships agree to cause their respective officers and
employees to furnish such additional financial and operating data and other
information and respond to such inquiries as the Company shall from time to time
request.
Section 3.2 Confidentiality. Information obtained by FSCI and the
Company pursuant to Section 3.1 hereof shall be subject to the provisions of the
Confidentiality Agreements between the Company and FSCI, each executed during
June, 1999.
Section 3.3 Conduct of the Business of the Company Pending the
Closing Date. The Company agrees that, except as permitted, required or
specifically contemplated by, or otherwise described in, this Agreement, as may
be required by the Bankruptcy Court in connection with the Chapter 11 Case or
Chapter 11 Plan, or otherwise consented to or approved in writing by FSCI,
during the period commencing on the date hereof and ending on the Closing Date:
(a) The Company and each of its subsidiaries will conduct
their respective operations only according to their ordinary and usual course of
business and will use their best efforts to preserve intact their respective
business organization, keep available the services of their officers and
employees and maintain satisfactory relationships with licensors, suppliers,
distributors, clients and others having business relationships with them;
(b) Neither the Company nor any of its subsidiaries shall
(i) make any change in or amendment to its Certificate of Incorporation or
By-Laws (or comparable governing documents); (ii) issue or sell any shares of
its capital stock or any of its other securities, or issue any securities
convertible into, or options, warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or sale of,
any shares of its capital stock or any of its other securities, or make any
other changes in its capital structure; (iii) declare, pay or make any dividend
or other distribution or payment with respect to, or split, redeem or
reclassify, any shares of its capital stock; (iv) enter into any contract or
commitment except contracts in the ordinary course of business, including
without limitation, any acquisition of a material amount of assets or
securities, any disposition of a material amount of assets or securities or
release or relinquish any material contract rights; (v) amend any employee or
non-employee benefit plan or program, employment agreement, license agreement or
retirement agreement, or pay any bonus or contingent compensation, except in
each case in the ordinary course of business consistent with past practice prior
to the date of this Agreement; (vi) agree, in writing or otherwise, to take any
of the foregoing actions;
(c) Without limiting the generality of subsection (a),
above, the Company shall continue to pay its accounts payable in the ordinary
course and in accordance with its regular and usual practices pertaining to
timing of payment of such payables; and
(d) The Company shall not, and shall not permit any of its
subsidiaries to, (i) take any action, engage in any transaction or enter into
any agreement that would cause any of the representations or warranties set
forth in Section 2.1 hereof to be materially untrue as of the Closing Date, or
(ii) purchase or acquire, or offer to purchase or acquire, any shares of capital
stock of the Company.
Section 3.4 Conduct of the Business of FSCI, FSCI Sub, FSG, FSG
Sub, and the Partnerships Pending the Closing Date. FSCI agrees that, except as
permitted, required or specifically contemplated by, or otherwise described in,
this Agreement, or pursuant to alternative means to perform under the Toni
Agreement, or otherwise consented to or approved in writing by the Company,
during the period commencing on the date hereof and ending on the Closing Date:
(a) FSCI will conduct its operations, will not close any
stores (except as set forth on schedule 3.4(a)), and will cause FSCI Sub, FSG,
FSG Sub, and the Partnerships to conduct their operation, only according to
their ordinary and usual course of business and will use its commercially
reasonable best efforts to preserve intact their respective business
organization, keep available the services of their officers and employees and
maintain satisfactory relationships with licensors, suppliers, distributors,
clients and others having business relationships with FSCI, FSCI Sub, FSG, FSG
Sub, and the Partnerships;
(b) FSCI shall not and shall ensure that FSCI Sub, FSG, FSG
Sub and the Partnerships do not (i) make any change in or amendment to its
Certificate of Incorporation or By-Laws or partnership agreement (or comparable
governing documents); (ii) issue or sell any shares of its capital stock or any
of its other securities, or issue any securities convertible into, or options,
warrants or rights to purchase or subscribe to, or enter into any arrangement or
contract with respect to the issuance or sale of, any shares of its capital
stock or any of its other securities, or make any other changes in its capital
structure; (iii) declare, pay or make any dividend or other distribution or
payment with respect to, or split, redeem or reclassify, any shares of its
capital stock, except that, immediately prior to the Effective Time, the
Partnerships may distribute its cash balances (other than funds in the cash
registers of the "Walk-In Convenience Stores" (as defined below) as of the close
of business on the business day immediately preceding the Effective Time) to the
FSCI Shareholder; (iv) enter into any contract or commitment except contracts in
the ordinary course of business, including without limitation, any acquisition
of a material amount of assets or securities, any disposition of a material
amount of assets or securities or release or relinquish any material contract
rights; (v) amend any employee or non-employee benefit plan or program,
employment agreement, license agreement or retirement agreement, or pay any
bonus or contingent compensation, except in each case in the ordinary course of
business consistent with past practice prior to the date of this Agreement; or
(vi) agree, in writing or otherwise, to take any of the foregoing actions;
(c) Without limiting the generality of subsection (a),
above, FSCI, FSCI Sub, FSG, FSG Sub, and the Partnerships shall continue to pay
their respective accounts payable in the ordinary course and in accordance with
its regular and usual practices pertaining to timing of payment of such
payables; and
(d) FSCI shall not, and shall cause FSCI Sub, FSG, FSG Sub,
and the Partnerships not to, take any action, engage in any transaction or enter
into any agreement that would cause any of the representations or warranties set
forth in Section 2.2 hereof to be materially untrue as of the Closing Date.
Section 3.5 Best Efforts. Each of the Company and FSCI shall, and
the Company shall cause each of its subsidiaries to and FSCI shall cause each of
FSCI Sub, FSG, FSG Sub, and the Partnerships to, cooperate and use their
respective commercially reasonable best efforts to take, or cause to be taken,
all appropriate action, and to make, or cause to be made, all filings necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, their respective best efforts to obtain, prior to the Closing Date,
all licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company and
its subsidiaries as are necessary for consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger.
Section 3.6 HSR Act. The Company and FSCI shall, as soon as
practicable, file Notification and Report Forms under the HSR Act with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and shall use their respective
best efforts to respond as promptly as practicable to all inquiries received
from the FTC or the Antitrust Division for additional information or
documentation.
Section 3.7 Merger Financing. FSCI shall use its best efforts
together with HW Partners, L.P. to obtain, prior to the Effective Time, the
Merger Financing. The Company and FSCI shall irrevocably commit the proceeds of
the Merger Financing, as follows: (a) $17,000,000.00 for payment under the Toni
Agreement by FSCI, (b) $3,000,000.00 for payment to the FSCI Shareholder as part
of the Merger Consideration, (c) that amount required to make the payments due
upon confirmation of the Chapter 11 Plan, and (d) the balance thereof for
working capital or other corporate uses of the Surviving Corporation.
Section 3.8 Plan Covenants. Unless and until this Agreement is
terminated by FSCI or the Company or the Bankruptcy Court fails to confirm the
Chapter 11 Plan (after giving effect to whatever amendments thereto FSCI may
agree), the Company will not actively solicit any Person (other than FSCI) for
the purpose of pursuing a sale or merger transaction with the Company or its
subsidiaries or the assets of any of them. Further, the Company agrees to
provide FSCI with prompt written notice of any offer or expression of interest
(written or otherwise) it receives from any third party for any such
transaction, and to include in such notice the identity of the Person expressing
such interest and a description of the transaction proposed by such Person.
Unless and until this Agreement is terminated by FSCI or the Company, the
Company agrees: (a) to actively and with best efforts support and not directly
or indirectly oppose the confirmation of the Chapter 11 Plan; (b) not to amend
or modify the Chapter 11 Plan without the written consent of FSCI; (c) not to
file, sponsor, or promote any plan or reorganization or liquidation other than
the Chapter 11 Plan; and (d) not to seek dismissal of the Chapter 11 Case or
conversion of the Chapter 11 Case to a case under Chapter 7 of the Bankruptcy
Code.
Section 3.9 Casualty Stores. There are two (2) convenience stores
that have been affected by casualty (each a "Casualty Store" and, collectively,
"Casualty Stores"). The Gas Partnership shall have the right to either (a)
rebuild the Casualty Stores as it sees fit, or (b) transfer the Casualty Stores
to the Drive-Thru Partnership. The Surviving Corporation shall make this
election by written notice to FSG within three (3) months after the Effective
Time.
ARTICLE IV
CONDITIONS PRECEDENT TO MERGER
Section 4.1 Conditions Precedent to Obligations of UPC, UPC
Merger Sub and FSCI. The respective obligations of FSCI, on the one hand, and
the Company and UPC Merger Sub, on the other hand, to effect the Merger are
subject to the satisfaction or waiver (subject to applicable law) at or prior to
the Effective Time of each of the following conditions:
(a) Effectiveness of the Chapter 11 Plan. All conditions
precedent to the effectiveness of the Chapter 11 Plan shall have been satisfied
or waived.
(b) The Confirmation Order. The Confirmation Order shall
have been entered in a form and content acceptable to FSCI and the Company,
shall not have been modified, amended, dissolved, revoked or rescinded, shall be
in full force and effect on the Closing Date, and, without the necessity of any
further action or proceedings by the Company, any of its subsidiaries or the
Bankruptcy Court, shall have, to the extent specified in the Plan, (i) on or
prior to the Closing Date, effected a full and complete discharge and release
of, and thereby extinguished, all debts of the Company and each of its
subsidiaries (to the fullest extent possible under Section 1141(d)(1) of the
Bankruptcy Code) (ii) extinguished all Existing Shares and Existing Equity
Rights, and (iii) at and as of the Closing Date, authorized the issuance of New
UPC Common Stock and New UPC Preferred Stock in accordance with the Plan.
(c) Government Consents. All government consents necessary
for the consummation of the Merger shall have been received (except for
government consents, the absence of which will, alone and in the aggregate, not
have a material adverse effect on the Condition of the Surviving Corporation
either on or after the Closing) and any waiting period (and any extension
thereof) with respect to the HSR Act shall have expired or been terminated.
(d) Material Adverse Effect. Since the date hereof, there
shall not have been any material adverse change with respect to the Company and
its subsidiaries, FSCI, FSCI Sub, FSG, FSG Sub, or the Partnerships or their
respective assets.
(e) Due Diligence. FSCI and the Company shall be reasonably
satisfied with the results of their due diligence investigations;
(f) Injunction. No preliminary or permanent injunction or
other order shall have been issued by any court or by any governmental or
regulatory agency, body or authority that prohibits the consummation of the
Merger and the transactions contemplated by this Agreement and that is in effect
at the Effective Time;
(g) Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority that prohibits the consummation
of the Merger or has the effect of making the issuance or the purchase of the
Merger Stock illegal.
(h) Merger Financing. The Merger Financing shall have been
obtained, all conditions to the full funding of the Merger Financing shall have
been satisfied or waived, and the proceeds of the Merger Financing shall have
been irrevocably committed as provided in Section 3.7 of this Agreement.
(i) Employment Agreements. The Company shall have entered
into Employment Agreements with Jose Bared and Carlos Bared.
Section 4.2 Conditions Precedent to Obligations of FSCI. The
obligations of FSCI and FSCI Shareholder to effect the Merger are also subject
to the satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Company and UPC Merger Sub contained
herein shall be true and correct in all material respects as of the date hereof
and at and as of the Closing, with the same force and effect as though made on
and as of the Closing Date, except for representations and warranties made
expressly as of a prior date, that shall continue to be true and correct in all
material respects as of such prior date.
(b) Performance by Company. The Company and UPC Merger Sub
shall have performed in all material respects all obligations and agreements,
and complied in all material respects with all covenants and conditions,
contained in this Agreement to be performed or complied with by it prior to the
Closing Date;
(c) License Agreement. Both the Company and FSCI shall have
executed and delivered a License Agreement, substantially in the form attached
hereto as Exhibit E, with respect to the Company's management of FSG from and
after the Effective Time; and
(d) Management Agreement. Both the Company and FSCI shall
have executed and delivered a Management Agreement, substantially in the form
attached hereto as Exhibit D, with respect to the Company's management of FSG
from and after the Effective Time; and
(e) Resignations of Officers and Directors. On the Closing
Date, all existing officers and directors of the Company and its subsidiaries
shall have tendered their respective resignations.
(f) Other Transactions. The transactions contemplated by the
Toni Agreement shall have been performed in their entirety and all consideration
due there under shall have been paid.
(g) Employment Agreements; UPET Related Party Transactions.
Those contracts or other arrangements identified in Schedule 4.2(f) shall have
been terminated (or other arrangements reasonably satisfactory to FSCI shall
have been concluded with respect thereto) and those releases identified in
Schedule 4.2(f) shall have been executed and delivered by the appropriate
parties identified in Schedule 4.2(f).
(h) Required Approvals. The Company shall have secured or
properly applied for all necessary consents, approvals, permits, or licenses
necessary to allow the Surviving Corporation to continue, both on and after the
Closing Date, the sale of all merchandise sold by the Company's stores on the
date of this Agreement, including, without limitation, gasoline and petroleum
products (both as branded and unbranded products), any products offered for sale
under or pursuant to any franchise agreement or license, tobacco products,
alcoholic beverages, money orders, and state lottery tickets.
(i) Distributor Agreement. The Company or FSCI and TCS
Systems, Inc. shall have negotiated an agreement for the assignment to the
Company of the Exxon Distributorship Agreement currently held by TCS Systems,
Inc.
(j) Good Standing. All companies identified in Schedule
2.1(a) shall be in good standing in the jurisdiction in which such company was
formed.
Section 4.3 Conditions Precedent to Obligation of the Company and
UPC Merger Sub. The obligations of the Company and UPC Merger Sub to effect the
Merger is also subject to the satisfaction or waiver, at or prior to the
Effective Time, of each of the following conditions:
(a) Accuracy of Representations and Warranties. All
representations and warranties of FSCI contained herein shall be true and
correct in all material respects as of the date hereof and at and as of the
Closing, with the same force and effect as though made on and as of the Closing
Date, except for representations and warranties made expressly as of a prior
date, that shall continue to be true and correct in all material respects as of
such prior date.
(b) Performance by FSCI. FSCI shall have performed in all
material respects all obligations and agreements, and complied in all material
respects with all covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to the Closing Date;
(c) License Agreement . The Company shall have received an
executed original copy of a license agreement, substantially in the form of
Exhibit E hereto, with respect to use of the "Farm Store" name;
(d) Required Approvals. FSCI shall have used its best effort
to secure all necessary consents, approvals, permits, or licenses necessary to
allow the Surviving Corporation and the Partnerships, as appropriate, to
continue, both on and after the Closing Date, the sale of all merchandise sold
by the Walk-In Convenience Stores and the Drive-Thrus on the date of this
Agreement, including, without limitation, gasoline and petroleum products (both
as branded and unbranded products), any products offered for sale under or
pursuant to any franchise agreement or license, tobacco products, alcoholic
beverages, money orders, and state lottery tickets; provided, however, that FSCI
shall on or before the Effective Date, secure all landlord consents necessary
with respect to that certain Convenience Store number 2651 located in Osceola
County, Florida (the "Required Consent Store") or deliver to the Company
$450,000. In the event of a failure to secure, on or before the Effective Time,
any necessary consents, approvals, permits, or licenses with respect to the
transfer of any Convenience Store other than the Required Consent Store (each a
"Non-Compliant Store"), then, as of the Effective Time, the Surviving
Corporation shall assume all beneficial interests in and to such Non-Compliant
Store, including all benefits and burdens related to ownership of such
Non-Compliant Store, but legal title to such Non-Compliant Store shall be
retained by the Drive-Thru Partnership and not be conveyed to the Surviving
Corporation until such time, not to exceed sixty (60) days from and after the
Effective Date, as the Drive-Thru Partnership, at the Drive-Thru Partnership's
expense, shall have obtained such necessary consents, approvals, permits, or
licenses with respect to such Non-Compliant Store. During such time, the
Drive-Thru Partnership shall operate any Non-Compliant Store solely for the
benefit of and without any management fee to the Surviving Corporation. If, upon
the expiration of the sixty-day period after the Effective Date, the Drive-Thru
Partnership has not obtained the required consents with respect to a
Non-Compliant Store, then FSE shall initiate litigation and bear all costs
related to obtaining such consents.
(e) Ownership of Assets. Subject to the provisions of
Section 4.3(d) and as described on schedule 3.4(a), on the Effective Date and
immediately prior to the Effective Time:
(i) FSCI shall own (A) ten percent (10%) of the issued
and outstanding common stock of FSG, (B) an agreement, subject to approval by
the Board of Directors of the Company, to purchase up to an additional fifteen
percent (15%) of the issued and outstanding common stock of FSG, under a
Purchase Agreement in substantially the form attached as Exhibit F, (C) eleven
(11) retail convenience stores that do not sell gasoline and petroleum products
("Convenience Stores"), and (D) all issued and outstanding stock of FSCI Sub;
(ii) FSCI and FSCI Sub will own all outstanding
interests in the Gas Partnership;
(iii) The Gas Partnership shall own or lease, (A)
sixty-seven (67) retail convenience stores that also sell gasoline and petroleum
products ("Gas Stores"), (B) nine (9) parcels of real estate on which Walk-In
Convenience Stores are situated, (C) two (2) Casualty Stores, and (D) inventory
(at customary levels used in the operation of the Walk-In Convenience Stores),
store fixtures and equipment, merchandise, accounts and general intangibles used
in the operation of the Walk-In Convenience Stores at that time;
(iv) FSG and FSG Sub shall own all outstanding
interests in the Drive-Thru Partnership; and
(v) The Drive-Thru Partnership shall own or lease (A)
all one hundred eight (108) "drive-thru" retail convenience stores operated by
the Drive-Thru Partnership on the date of this Agreement ("Drive-Thrus"), (B)
eleven (11) retail convenience stores that do not sell gasoline or petroleum
products (together with the Convenience Stores and the Gas Stores, the "Walk-In
Convenience Stores"), and (C) all right, title, and interest in and to the trade
names, trademarks, service marks, trade dress, logos, emblems relating to the
name "Farm Stores."
(f) Closing Under Toni Agreement. The closing on the
purchase of interests in the Partnerships under the Toni Agreement shall have
occurred immediately prior to the Effective Time.
ARTICLE V
TERMINATION AND ABANDONMENT
Section 5.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time:
(a) by mutual written consent of the Company and UPC Merger
Sub, on the one hand, and of FSCI and FSCI Shareholder, on the other hand; or
(b) by FSCI and FSCI Shareholder, on the one hand, or the
Company and UPC Merger Sub, on the other hand, if the Effective Time shall not
have occurred by October 15, 1999 or there has been a material breach of any
representation, warranty, obligation, covenant, agreement or condition set forth
in this Agreement on the part of the other party; or
(c) by FSCI if the Chapter 11 Case is dismissed or converted
to a case under Chapter 7 of the Bankruptcy Code.
Section 5.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 5.1 hereof by FSCI and FSCI
Shareholder, on the one hand, or the Company and UPC Merger Sub, on the other
hand, written notice thereof shall forthwith be given to the other party or
parties specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall become void and have no effect, and there shall
be no liability hereunder on the part of FSCI, FSCI Shareholder, the Company, or
UPC Merger Sub, except that Sections 3.2 and 6.1 hereof shall survive any
termination of this Agreement. Nothing in this Section 5.2 shall relieve any
party to this Agreement of liability for breach of this Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, except for HSR fees payable by the Company as an acquiring person and
the commitment fee payable to Hamilton Bancorp, Inc.
Section 6.2 Representations and Warranties. The respective
representations and warranties of the Company and UPC Merger Sub, on the one
hand, and FSCI, on the other hand, contained herein or in any certificates or
other documents delivered prior to or at the Closing shall not be deemed waived
or otherwise affected by any investigation made by any party. However, this
Agreement sets forth exclusively all of the parties' representations,
warranties, covenants and agreements regarding the subject matter hereof, and no
representations or statements of any party that is not included in this
Agreement has been relied upon or shall have any legal effect. Except for the
representations and warranties of the parties in this Agreement, each party has
determined to enter into and consummate this Agreement based on its own
independent investigation. Each and every such representation and warranty in
this Agreement shall terminate as of, and not survive the Closing hereunder.
This Section 6.2 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the Effective Time.
Section 6.3 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken by or on behalf of the respective
Boards of Directors of the Company, UPC Merger Sub or FSCI, may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein by any other applicable party or in any document,
certificate or writing delivered pursuant hereto by any other applicable party,
or (iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by such
party.
Section 6.4 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
person or mailed, certified or registered mail with postage prepaid, or Federal
Express or other recognized overnight courier delivery service or sent by telex,
telegram or telecopier, as follows:
(a) if to the Company, to:
United Petroleum Corporation
2620 Mineral Springs Road
Suite A
Knoxville, TN 37917
Attention: President
Fax No.: (423)688-3463
with a copy (that will not constitute notice) to:
Young Conaway Stargatt & Taylor, LLP
Rodney Square North, 11th Floor
1100 North Market Street
P.O. Box 391
Wilmington, DE 19899-0391
Attention: Joel A. Waite, Esquire
Fax No.: (302)571-1253
(b) if to the UPC Merger Sub, to:
c/o United Petroleum Corporation
2620 Mineral Springs Road
Suite A
Knoxville, TN 37917
Attention: President
Fax No.: (423)688-3463
with a copy (that will not constitute notice) to:
Young Conaway Stargatt & Taylor, LLP
Rodney Square North, 11th Floor
1100 North Market Street
P.O. Box 391
Wilmington, DE 19899-0391
Attention: Joel A. Waite, Esquire
Fax No.: (302)571-1253
(c) if to FSCI, to:
F.S. Convenience Stores, Inc.
5800 N.W. 74th Ave.
Miami, FL 33166
Attention: President
Fax No.: (305) 592-2582
with a copy (that will not constitute notice) to:
Berger Davis & Singerman, P.A.
Suite 2950
200 South Biscayne Boulevard
Miami, Florida 33131
Attention: Daniel Lampert, Esquire
Fax No.: (305) 714-4340
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery, or in the case of overnight courier service, the next business day,
and unless if mailed, in which case on the third business day after the mailing
thereof except for a notice of a change of address, that shall be effective only
upon receipt thereof.
Section 6.5 Entire Agreement. This Agreement and the schedules
and other documents referred to herein or delivered pursuant hereto,
collectively contain the entire understanding of the parties hereto with respect
to the subject matter contained herein and supersede all prior representations,
warranties, agreements and understandings, oral and written, with respect
thereto. The information disclosed in any one schedule to this Agreement shall
be deemed to be disclosed for purposes of each and every other schedule attached
to, or representation made in, this Agreement, provided that proper
cross-reference is made to the appropriate schedule setting forth such
disclosure information.
Section 6.6 Binding Effect; Benefit; Assignment. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
Nothing in this Agreement, expressed or implied, is intended to confer on any
Person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement. This Agreement is executed and delivered by each party
solely in a corporate capacity.
Section 6.7 Amendment and Modification. Subject to applicable
law, including but not limited to the requirements of the Bankruptcy Code and
the orders of the Bankruptcy Court, this Agreement may be amended, modified and
supplemented in writing by the parties hereto in any and all respects before the
Effective Time, by action taken by the respective Boards of Directors of FSCI,
UPC Merger Sub and the Company (or by the respective officers authorized by such
Boards of Directors).
Section 6.8 Further Actions. Each of the parties hereto agrees
that, subject to its legal obligations, it will use its best efforts to fulfill
all conditions precedent specified herein, to the extent that such conditions
are within its control, and to do all things reasonably necessary to consummate
the transactions contemplated hereby.
Section 6.9 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only, do
not constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 6.10 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the same instrument.
Section 6.11 Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflict of laws rules thereof.
Section 6.12 Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or against
its regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
Section 6.13 Definitions. Capitalized terms used throughout this
Agreement shall have the meanings ascribed to them in this Agreement.
(a) Unless otherwise defined in the text of this Agreement,
capitalized terms used in this Agreement shall have the following meanings:
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Company Disclosure Schedule" means the disclosure schedule
prepared by the Company that is attached to this Agreement and incorporated by
reference herein.
"Confirmation Order" means a final order entered by the
Bankruptcy Court confirming the Chapter 11 Plan.
"Disclosure Statement" means the disclosure statement dated
July 23, 1999 filed with the Bankruptcy Court on behalf of the Company and in
support of the Chapter 11 Plan.
"Environmental Law" means any federal, state, local or
foreign law (including common law), statute, code, ordinance, rule, regulation
or other requirement relating in any way to the environment, natural resources,
or public or employee health and safety and includes, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. ss. 9601 et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. ss. 136 et seq.., the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. ss. 6901 et seq.., the Toxic Substances Control
Act, 15 U.S.C. ss. 2601 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq.,
the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Occupational Safety and
Health Act, 29 U.S.C. ss. 651 et seq.., and the Oil Pollution Act of 1990, 33
U.S.C. ss. 2701 et seq., as such laws have been amended or supplemented, and the
regulations promulgated pursuant thereto, and all analogous state and local
statutes.
"Environmental, Health, and Safety Liabilities" means any
liability arising out of violation of an Environmental Law.
"Existing Equity Rights" means options, warrants, or rights
of any nature to receive any form of capital stock of the Company other than New
UPC Common Stock or New UPC Preferred Stock.
"Existing Shares" means all shares of capital stock of the
Company other than New UPC Common Stock or New UPC Preferred Stock.
"FSCI Disclosure Schedule" means the disclosure schedule
prepared by FSCI that is attached to this Agreement and incorporated by
reference herein.
"Hazardous Activity" means any activity in which Hazardous
Materials are used.
"Hazardous Material" means any substance, material or waste
which is regulated by any Governmental Authority of the United States, the
Applicable Foreign Jurisdiction or other national government, including, without
limitation, any material, substance or waste which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law, which includes, but is not
limited to, petroleum, petroleum products, asbestos, urea formaldehyde and
polychlorinated biphenyls.
"Merger Financing" means a credit facility that will provide
proceeds of not less than $20,000,000 and not more than $23,000,000 that will be
(i) secured by the Walk-In Convenience Stores, (ii) not require any personal
guarantees of any shareholder of the Company, (iii) upon such other terms and
conditions as shall be acceptable by FSCI and the Company, and (iv) after the
Effective Time, will be an obligation of the Surviving Corporation.
"Person" means any natural person, corporation, general
partnership, limited partnership, limited liability company, business trust, or
other juridical entity.
"Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration on or into the indoor or outdoor environment or
into or out of any property.
(b) Where any provision contained in this Agreement is
expressly qualified by reference to "best knowledge," "knowledge," "known to" or
similar qualification, the same shall mean the knowledge of any officer,
director, or partner of a party.
(Signature Page Follows)
IN WITNESS WHEREOF, each of FSCI and the Company have caused
this Agreement to be executed by their respective officers thereunto duly
authorized, all as of the date first above-written.
Attest: F.S. CONVENIENCE STORES, INC.,
a Florida corporation
By:
Secretary Name:
Title:
Attest: UNITED PETROLEUM CORPORATION,
a Delaware corporation
By:
Secretary Name:
Title:
Attest: UNITED PETROLEUM SUBSIDIARY, INC.,
a Delaware corporation
By:
Witness Name:
Title:
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
UNITED PETROLEUM CORPORATION, ) Case No. 99-88 (PJW)
)
Debtor. )
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
AND ORDER CONFIRMING AMENDED PLAN OF REORGANIZATION
United Petroleum Corporation ("UPC" or "Debtor"), as
Debtor-In-Possession, having on July 23, 1999 filed the Second Amended Plan of
Reorganization Under Chapter 11 of The Bankruptcy Code for United Petroleum
Corporation (the "Plan"); and the Debtors having on July 23, 1999 filed the
Second Amended Disclosure Statement With Respect to Second Amended Plan of
Reorganization of United Petroleum Corporation (the "Disclosure Statement"); and
the Court, by Order dated July 23, 1999 (the "Disclosure Approval Order") having
approved the Disclosure Statement after notice and a hearing held on July 22,
1999 and July 23, 1999; and upon the affidavits of service filed herein
reflecting compliance with the notice and solicitation requirements of the
Disclosure Approval Order; and upon the Declaration of Kathleen Logan Certifying
the Ballots Accepting and Rejecting the Plan filed with the Court on August 23,
1999; and objections to confirmation of the Plan having been filed by (i) John
Rankin, (ii) Dan Dotan and Mantel Investments, (iii) The Internal Revenue
Service, (iv) John Pisacreta and James Lynn (the "Securities Claim Objectors")
and (v) the Securities and Exchange Commission (collectively, the "Objections');
and upon the submission of Plan Documents filed on August 13, 1999 (the "Plan
Documents"); and upon the submission of the revised form of Merger Agreement on
September 29, 1999 (the "Merger Agreement"), and after a hearing having been
held on September 29, 1999 (the "Hearing"); and upon the evidence adduced and
proffered and the arguments of counsel made at the Hearing; and the Court having
reviewed all documents in connection with confirmation and having heard all
parties desiring to be heard; and the Debtor, Infinity and the Securities Claim
Objectors having reached an agreement as set forth herein regarding the terms on
which the objections of the Securities Claim Objectors shall be resolved; and
upon the record compiled in the case; and after due deliberation and
consideration of all of the foregoing; and sufficient cause appearing therefor;
the Court hereby makes the following:
FINDINGS OF FACT AND CONCLUSIONS OF LAW:
A. Capitalized terms used herein, but not defined herein, shall have
the respective meanings attributed to such terms in the Plan and the Disclosure
Statement.
B. This Court has jurisdiction over the Debtor's chapter 11 case
pursuant to 28 U.S.C. Section 1334(a) and 157(l). Venue of these proceedings and
the chapter 11 case in this district is proper pursuant to 28 U.S.C. Section
1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. Section
157(b)(2).
C. The Plan complies with all of the applicable provisions of the
Bankruptcy Code.
D. The classification of claims and interests under the Plan is proper
under Section 1122 of the Bankruptcy Code.
E. The Plan provides equal treatment for each Claim or Interest of a
particular class.
F. The Debtor, as proponent of the Plan has complied with the
applicable provisions of the Bankruptcy Code.
G. The Plan has been proposed in good faith and not by any means
forbidden by law.
H. Any payments made or promised by the Debtor, or a person issuing
securities or acquiring property under the Plan, for services or for costs and
expenses in, or in connection with, the case, or in connection with the Plan and
incident to the case, have been approved by, or is subject to approval of the
Court as reasonable.
I. In the Disclosure Statement, the identity, qualifications, and
affiliation of the persons who are to serve as officers and directors of the
reorganized debtor after confirmation of the Plan was fully disclosed and the
appointment of such persons is consistent with the interests of the Debtor's
creditors and equity security holders and with public policy.
J. In the Disclosure Statement, the identity of any insider that will
be employed or retained by the Debtor and his compensation has been fully
disclosed.
K. The provisions of Section 1129(a)(6) of the Bankruptcy Code are
inapplicable to this case.
L. The procedures by which the ballots for acceptance or rejection of
the Plan were distributed and tabulated were fair, properly conducted, and
complied with the Bankruptcy Code, the Bankruptcy Rules and the Disclosure
Approval Order.
M. As evidenced by the Disclosure Statement and at the Hearing, each
holder of a Claim or Interest in each impaired class has either accepted the
Plan or will receive or retain under the Plan property of a value, as of the
Effective Date of the Plan, that is not less than the amount that such holder
would receive or retain if the Debtor liquidated under Chapter 7 of the
Bankruptcy Code on such date.
N. With respect to each class of Claims or Interests, such class has
accepted the Plan or such class is not impaired under the Plan and is,
therefore, deemed to have accepted the Plan under Section 1126(f) of the
Bankruptcy Code, except for Class 8.
O. With respect to Class 8, the requirements of 11 U.S.C. Section
1129(b)(2)(c) have been satisfied.
P. At least one impaired class of claims has accepted the Plan,
determined without including any acceptances of the Plan by any insider.
Q. Except to the extent that the holder of a particular claim has
agreed to a different treatment of such Claim, the treatment of Claims under the
Plan of the type specified in Sections 507(a)(1) and 507(a)(3) - 507(a)(8) of
the Bankruptcy Code, if any, complies with the provisions of Section 1129(a)(9)
of the Bankruptcy Code.
R. No other chapter 11 plan has been moved for confirmation.
S. The primary purpose of the Plan is not the avoidance of taxes or
the requirements of Section 5 of the Securities Act of 1933.
T. Confirmation of the Plan is not likely to be followed by the need
for further financial reorganization of the Debtor.
U. All fees payable under section 1930 of title 28 of the United
States Code, have either been paid or will be paid under the Plan.
V. The Plan and the Infinity Settlement Agreement are hereby modified
as follows: (a) Infinity Securities Claims asserted in the Pisacreta/Tucci
Action shall (including, without limitation, the Claims of the named plaintiffs
therein, the members of the putative class sought to be certified therein
whether or not the class is certified, and any opt-outs from such class) shall
be excluded from the injunctive provisions of Section 16.13(c) of the Plan; (b)
any assets in the UPC Trust after the satisfaction of all Allowed Securities
Claims shall be distributed 100% to the Infinity Parties; and (c) the Infinity
Parties shall retain all of their Causes of Action for contribution and
indemnity against any Person with respect to the Infinity Securities Claims,
except the Debtor, its affiliates and their respective officers, directors and
employees.
W. The settlements and compromises incorporated into the Plan
(including, the settlement and compromise set forth in Section 14.1 of the Plan
and the Infinity Settlement Agreement, as modified pursuant to paragraph V,
above) meet the requirements for approval under section 1123(6)(3) of the Code
and Bankruptcy Rule 9019 because, among other things, the settlements:
i. reflect a reasonable balance of the risks and expenses of both
future litigation and the continuation of this Chapter 11 Case, on the one
hand, and early resolution of the disputes, on the other hand;
ii. fall within the range of reasonableness for the resolution of
complex litigation or litigable issues and claims;
iii. are fair and equitable and in the best interest of the Debtor,
the Debtor's estate and all holders of Claims and Equity Interests; and
iv. Are essential to the Debtor's reorganization and the confirmation
of the Plan.
X. The Proponent, Infinity and FSCI have consented to the approval of
the compromises and settlements described in Section 14.1 of the Plan, as
modified hereby, and the exclusion of Infinity Securities Claims asserted in the
Pisacreta/Tucci Action from the injunctive provisions set forth in Section
16.13(c) of the Plan.
Y. The Plan, as modified hereby, does not materially adversely affect
the treatment of any class of Claims or Equity Interests under the Plan.
Consequently, all votes accepting the Plan shall constitute votes accepting the
Plan, as modified hereby.
Z. By operation of section 1145 of the Bankruptcy Code, the
distribution of new UPC Common Stock to be issued under the Plan shall be exempt
from registration under 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, or broker or dealer in, a security.
All such securities so issued shall be freely transferable by the initial
recipients thereof (i) except for any such securities received by an underwriter
within the meaning of section 1145(b) of the Bankruptcy Code and (ii) subject to
any restriction contained in the terms of such securities themselves, in the
Plan or any documents relating to the Plan.
NOW, it is hereby,
ORDERED, ADJUDGED, and DECREED, that:
1. All Objections, to the extent not settled or withdrawn, are hereby
expressly overruled.
2. The Plan, as modified hereby (the "Modified Plan") and as
supplemented by the Merger Agreement, is confirmed pursuant to section 1129 of
the Bankruptcy Code; provided, however, that if there is any conflict between
the terms of the Modified Plan and the terms of the Merger Agreement, the terms
of the Modified Plan shall control and if there is any conflict between the
terms of either the Modified Plan or Merger Agreement and the terms of this
Confirmation Order, this Confirmation Order shall control.
3. The Merger Agreement and Plan Documents substantially in the forms
previously filed with the Court, are approved and the Debtor is authorized and
directed to execute, enter into and deliver such documents and to execute,
implement and consummate the transactions contemplated thereby.
4. The Debtor is hereby authorized, empowered, and ordered to issue,
execute, deliver, file and record any documents or court papers or pleadings,
and to take any and all actions, that are necessary or desirable to implement,
effectuate, and consummate the transactions contemplated by the Plan, whether or
not specifically referred to therein and without further application or order of
this Court, in each case with like effect as if exercised and taken by unanimous
action of the directors and stockholders of the Debtor as may be necessary to
cause the same to become effective under the Delaware General Corporation Law.
5. The Debtor shall remain a Debtor-in-Possession under the Bankruptcy
Code until the Effective Date. The Debtor may consummate the transactions
contemplated by the Plan and make distributions to creditors after the Effective
Date in accordance with the Plan, and free of any restrictions imposed by the
Bankruptcy Code.
6. Any and all pre-petition unexpired leases and executory contracts
not previously rejected by the Debtor, unless specifically assumed pursuant to
the Bankruptcy Code prior to the date hereof or the subject of a motion to
assume or assume and assign pending on the date hereof, shall be deemed rejected
by the Debtor effective as of the Effective Date of the Plan.
7. All proofs of claim with respect to claims arising from the
rejection of executory contracts and unexpired leases shall, unless another
order of the Bankruptcy Court provides for an earlier date, be filed with the
Bankruptcy Court within thirty (30) days after the mailing of notice of the
entry of this order. Any proof of claim that is not timely filed shall be
released, discharged and forever barred from assertion against the Debtor, its
estate or property or the Post-Confirmation Debtor.
8. The exculpation and injunction provisions set forth in the Modified
Plan, including without limitation, those set forth in Sections 5.2, 8.14, 11.1,
16.12, 16.13, 16.14 and 16.15 of the Modified Plan, are approved; provided,
however, that the injunction provided by section 5.2 of the Plan shall not
result in the release by the United States Internal Revenue Service (the "IRS")
of any claim against any responsible officer or director of the Debtor that
otherwise would be liable to the IRS on any priority tax claim owed by the
Debtor to the IRS and further provided that notwithstanding section 16.13(iv) of
the Modified Plan, the IRS shall be permitted to offset against any claim of the
Debtor or Reorganized Debtor against the IRS any claim of the IRS against the
Debtor that was timely filed in the Debtor's Chapter 11 case, to the extent
ultimately allowed.
9. Subject to paragraph 8 herein, on the Effective Date, all Persons
who have been, are, or may be holders of Claims against or Equity Interests in
the Debtor shall be enjoined from taking any of the following actions against or
affecting the Debtor, its Estate, or its assets and property with respect to
such Claims or Equity Interests (other than actions brought to enforce any
rights or obligations under the Plan and appeals, if any, from this Confirmation
Order):
(i) commencing, conducting or continuing in any manner, directly or
indirectly, any suit, action or other proceeding of any kind against the
Debtor, its Estate, or its assets or property, or any direct or indirect
successor in interest to the Debtor, or any assets or property of such
transferee or successor (including, without limitation, all suits, actions,
and proceedings that are pending as of the Effective Date, which must be
withdrawn or dismissed with prejudice);
(ii) enforcing, levying, attaching, collecting or otherwise recovering
by any manner or means whether directly or indirectly any judgment, award,
decree or order against the Debtor, its Estate, or its assets or property,
or any direct or indirect successor in interest to the Debtor, or any
assets or property of such transferee or successor;
(iii) creating, perfecting or otherwise enforcing in any manner,
directly or indirectly, any Lien against the Debtor, its Estate, or its
respective assets or property, or any direct or indirect successor in
interest to any of the Debtor, or any assets or property of such transferee
or successor other than as contemplated by the Plan;
(iv) asserting any setoff, right of subrogation or recoupment of any
kind, directly or indirectly against any obligation due the Debtor, its
Estate, or its respective assets or property, or any direct or indirect
successor in interest to any of the Debtor, or any assets or property of
such transferee or successor; and
(v) proceeding in any manner in any place whatsoever that does not
conform to or comply with the provisions of the Plan or the settlement set
forth in Article XIV of the Plan to the extent such settlements have been
approved by the Bankruptcy Court in connection with confirmation of the
Plan.
10. From and after the Effective Date, except (a) for Infinity
Securities Claims asserted in the Pisacreta/Tucci Action, including, without
limitation, the Claims of the named plaintiffs therein, the members of the
putative class sought to be certified therein, whether or not such class is
certified, and any opt-outs from such putative class (which claims shall not be
affected or impaired in any way by this Order), and (b) as provided by paragraph
11 below, all Infinity Securities Claims shall channel and transfer to the UPC
Trust, and all Persons who have been, are, or may be holders of any such
Infinity Securities Claim shall be enjoined from taking any of the following
actions against or affecting the Infinity Parties or their assets and property
with respect to such Infinity Securities Claim (other than actions brought to
enforce any rights or obligations under the Plan, the UPC Trust Agreement and
the Infinity Settlement Agreement):
(vi) commencing, conducting or continuing in any manner, directly or
indirectly, any suit, action or other proceeding of any kind against any
Infinity Party or its assets or property, or its direct or indirect
successors in interest, or any assets or property of such transferee or
successor (including, without limitation, all suits, actions, and
proceedings that are pending as of the Effective Date, which must be
withdrawn or dismissed with prejudice);
(vii) enforcing, levying, attaching, collecting or otherwise
recovering by any manner or means whether directly or indirectly any
judgment, award, decree or order against any Infinity Party or its assets
or property, or its direct or indirect successors in interest, or any
assets or property of such transferee or successor;
(viii) creating, perfecting or otherwise enforcing in any manner,
directly or indirectly, any Lien against any Infinity Party or its assets
or property, or its direct or indirect successors in interest, or any
assets or property of such transferee or successor;
(ix) asserting any set-off, right of subrogation or recoupment of any
kind, directly or indirectly against any obligation due any Infinity Party,
or its assets or property, or its direct or indirect successors in
interest, or any assets or property of such transferee or successor; and
(x) proceeding in any manner in any place whatsoever that does not
conform to or comply with the provisions of the Plan, or the settlements
set forth in Article XIV of the Plan, the UPC Trust Agreement or the
Infinity Settlement Agreement.
11. The injunction provided by paragraph 10 of this Confirmation Order
shall terminate and be of no further force or effect if at any time or from time
to time the UPC Trustee files with the Bankruptcy Court and serves upon the
Infinity Parties a notice that the UPC Trust assets have been fully expended and
that additional Allowed Securities Claims exist or that all Securities Claims
have not yet been resolved and the Infinity Parties, within thirty (30) days
after the filing of such notice, fail to make an additional contribution to the
UPC Trust in an aggregate amount equivalent to (A) not less than $100,000
(provided that such amount must be at least enough to satisfy all outstanding
Allowed Securities Claims in full and provide at least $25,000 to fund the
expenses of the UPC Trust in liquidating any remaining Securities Claims) or (B)
such lesser amount as may be agreed to by the UPC Trustee.
12. Nothing contained herein or in the Modified Plan shall impair the
rights or claims asserted in the Pisacreta/Tucci Action by or on behalf of the
named plaintiffs therein, the members of the class sought to be certified
therein (whether or not such class is certified) or any opt-outs from such
class.
13. Unless required to be filed by an earlier date by another order of
this Court, all requests for payment of Administrative Claims, including all
applications for final allowance of compensation and reimbursement of expenses
of Professionals, must be filed and served on the Debtor, no later than
forty-five (45) days after the Effective Date. Any person that is required to
file and serve such a request for payment of an Administrative Claim and fails
to timely file and serve such request, shall be forever barred, estopped and
enjoined from asserting such Claim or participating in distributions under the
Plan on account thereof.
14. The Debtor shall file objections to Claims with this Court no
later than 60 days after the Effective Date, provided, however, that this
deadline may be extended by the Court upon motion of the Post-Confirmation
Debtor, without notice or a hearing. After the date hereof, no party, other than
the Debtor or Post-Confirmation Debtor, may file objections to the allowance of
claims.
15. This Order shall constitute all approvals and consents required,
if any, by the laws, rules or regulations of any State or any other governmental
authority with respect to the implementation or consummation of the Plan and any
other acts that may be necessary or appropriate for the implementation or
consummation of the Plan.
16. Pursuant to Section 1146(c) of the Bankruptcy Code, neither the
making nor delivery of an instrument of transfer, nor the revesting, transfer
and sale of any real property or personal property of the Debtor in accordance
with the Plan, shall subject the Debtor to any state or local law imposing a
stamp tax, transfer tax or similar tax or fee.
17. The provisions of the Plan and this Order shall be, and hereby are
now, and forever afterwards, binding on the Debtor, all holders of Claims and
Interests (whether or not impaired under the Plan and whether or not, if
impaired, they accepted the Plan), any other party in interest, any other party
making an appearance in this Chapter 11 Case, and any other person or entity
affected thereby, as well as their respective heirs, successors, assigns,
trustees, subsidiaries, affiliates, officers, directors, agents, employees,
representatives, attorneys, beneficiaries, guardians, and similar officers, or
any person claiming through or in the right of any such person or entity.
18. The Court hereby retains jurisdiction of this case (i) as provided
for in the Plan, (ii) as provided for in this Order, and (iii) for the purposes
set forth in Sections 1127 and 1142 of the Bankruptcy Code.
19. The compromises and settlements set forth in Section 14.1 of the
Plan and in the Infinity Settlement Agreement, in substantially the form
attached hereto as Exhibit A, are approved.
20. The UPC Trust Agreement and the ADR are hereby approved and the
Debtor and the UPC Trustee once appointed may take such actions as are necessary
to implement the terms thereof.
21. The failure to reference or discuss any particular provision of
the Plan in this Order shall have no effect on the validity, binding effect and
enforceability or such provision and such provision shall have the same
validity, binding effect and enforceability as every other provision of the
Plan.
22. Pursuant to Bankruptcy Rule 2002(f)(7) and 3020(c), the Debtor is
hereby directed to serve a notice of the entry of this Order on all holders of
record of Claims and Interests as of the date hereof, all parties who have
entered their appearance in this case and requested notice pursuant to
Bankruptcy Rule 2002 and the Office of the United States Trustee no later than
ten (10) days after the Effective Date of the Plan. Dated: Wilmington, Delaware
October 7, 1999
s/Peter J. Walsh
------------------------------------
Peter J. Walsh
Chief Judge, United States Bankruptcy Court
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of November 12, 1999, by and
among Farm Stores Grocery, Inc., a Delaware corporation ("Licensor"), having its
principal office at 5800 N.W. 74th Avenue, Miami, Florida 33166, and United
Petroleum Corporation, and United Petroleum Group, Inc., both Delaware
corporations (collectively, "UPET" or "Licensee"), and having their principal
office at 2620 Mineral Springs Road, Suite A, Knoxville, TN 37917.
Preliminary Statements
Licensor and its affiliates have been engaged in the convenience store
business in the United States, operating both conventional walk-in convenience
stores ("Walk-In Stores") and specialty retail grocery stores incorporating a
double drive-through operating concept ("Drive-Thru Stores"). Licensor
historically has identified the Walk-In Stores and Drive-Thru Stores and certain
products sold in the Walk-In Stores and Drive-Thru Stores and identified on
Exhibit A hereto (the "Branded Products") in the State of Florida by means of
certain trade names, trademarks, service marks, trade dress, logos, emblems, and
indicia of origin, including, but not limited to, the mark "FARM STORES" and
such other trademarks and service marks, all as listed on Exhibit B attached
hereto and incorporated herein (collectively, the "Marks"). Licensee is
acquiring the Walk-In Stores from an affiliate of Licensor (the "Acquired
Stores"), and in connection with this acquisition, Licensor is willing to grant
a nonexclusive license in the Marks to Licensee for use in identifying the
Walk-In Stores and the Branded Products that are sold in the Walk-In Stores, as
well as any other walk-in convenience stores that the Licensee opens in
accordance with the terms of this Agreement in the State of Florida and other
parts of the United States of America (collectively, the "Additional UPET
Stores;), and for the sale of Branded Products within the Licensed Stores, all
subject to the terms and conditions in this Agreement.
NOW, THEREFORE, in consideration of the agreements set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby conclusively acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
I. GRANT AND TERM OF LICENSE
1.1 Grant; Definitions. The foregoing Preliminary Statement is hereby
incorporated into and made a part of this Agreement. As used herein, (a)
"Licensed Stores" means, collectively, the Additional UPET Stores and the
Acquired Stores; (b) "affiliate" means, when used in reference to a specified
Person, any other Person that directly or indirectly controls, is controlled by,
or is under common control with the specified Person; (c) "control" means the
power to direct or cause the direction of the management and policies of a
Person; (d) "Person" means any firm, association, partnership (whether general
or limited), trust, corporation, limited liability company or other legal
entities, including public or administrative bodies, or natural persons, (e)
"Termination Event" means the termination of Jose P. Bared's ("Bared")
employment by UPET for any reason or no reason, and (f) "Involuntary Termination
Event" means the termination of Bared's employment with UPET by Bared without
Good Reason (as defined in his employment agreement with UPET), or UPET's
termination of, or failure to renew at the expiration of its term, Bared's
employment by UPET without "cause" (as defined in Bared's employment agreement
with UPET). During the Term, as defined in section 1.2, below, Licensee shall
have the non-exclusive right, subject and pursuant to all of the terms and
conditions of this Agreement, to use the Marks (a) to identify the name of the
Licensed Stores on signs located at the premises of the Licensed Stores, (b) on
promotional materials relating to the Licensed Stores, and (c) for display and
sale in the Licensed Stores of the Branded Products. Except as set forth in the
preceding sentence, Licensee shall not have the right, without obtaining the
prior written consent of Licensor, which Licensor may withhold in its sole
discretion, to use any of the Marks for any purpose whatsoever.
1.2 Term. The term of this Agreement shall commence on the date of this
Agreement ("Effective Date"), and except as otherwise provided herein, shall
expire one (1) year after the Effective Date (this initial one-year period is
sometimes referred to in this Agreement as the "Initial Term"). The term of this
Agreement shall automatically, and without any action being required of either
party, renew for successive one-year terms (each, a "Renewal Term"; and as used
herein, "Term" means the Initial Term and all Renewal Terms); provided, however,
that the Term shall be subject to termination as provided in this Agreement.
Upon renewal of the Term, all of the terms and conditions set forth herein shall
remain in force and effect.
1.3 Fees. This license is royalty free, except as may be agreed by the
parties after any Involuntary Termination Event.
II. MARKS
2.1 Representations. Licensor represents with respect to the Marks
that:
(a) Licensor has registered the Mark "FARM STORES" with the
United States Patent and Trademark Office and is the owner of
United States Registration Nos. _______ for said Mark for use
in connection with ________; and
(b) Licensor will take all steps reasonably necessary at
Licensor's sole cost and expense to preserve and protect the
ownership and validity of the Marks.
2.2 Licensee Acknowledgments and Agreements. Licensee expressly
understands, acknowledges and agrees that:
(a) Licensor is the owner of all right, title and interest in
and to the Marks and all the goodwill associated with and
symbolized by the Marks, and Licensor has the right to use the
Marks and to authorize others to use the Marks.
(b) Neither Licensee's use of the Marks nor Licensee's
acquisition of the Acquired Stores nor use of the Marks in
connection with other Licensed Stores gives Licensee any
ownership interest or other interest in or to the Marks,
except the license granted by this Agreement;
(c) Any and all goodwill arising from Licensee's use of the
Marks shall inure solely and exclusively to Licensor's
benefit, and upon expiration or termination of the Term and
the license granted herein, no monetary amount shall be
assigned or paid to Licensee for any goodwill associated with
Licensee's use of the Marks or otherwise;
(d) The right and license to use the Marks granted hereunder
to Licensee is non-exclusive; and Licensor and its affiliates
shall have and retain the rights, among others, on any terms
and conditions as they deem advisable and without providing
any rights therein to Licensee:
(i) to use the Marks themselves;
(ii) to grant other licenses for the Marks, in
addition to those licenses which may already be
granted; provided, however, that notwithstanding any
inconsistent provisions hereof, during the Term and
after the occurrence of a Termination Event or
(except as otherwise provided in this Agreement) an
Involuntary Termination Event, the Licensor shall not
grant any license to use the Marks in connection with
the operation of a walk-in convenience store (as
distinct from a drive-through store, or for uses for
any purpose other than operation of a walk-in
convenience store, for all of which Licensor may
license the Marks without restriction hereunder); and
(iii) to develop and establish other stores using the
same or similar Marks, or any other marks, and to
grant licenses or other rights with respect thereto.
2.3 Integrity of Marks. Licensee acknowledges that the Marks have
become established in the trade and among the consuming public as representing
not only high quality goods, but also indicating that the stores selling such
goods are of good repute and integrity, and further acknowledges that it is in
the mutual interest of the parties hereto to protect and foster the value and
trade and consumer acceptance of the Marks; accordingly:
(a) Licensee shall use the Marks only in the manner authorized
and permitted by Licensor pursuant to this Agreement;
(b) Licensee shall use the Marks only for the operation and
promotion of the Licensed Stores and the sale of the Branded
Products therein;
(c) Unless otherwise authorized or required by Licensor,
Licensee shall not use the name "Farm Stores" or any of the
other Marks with any prefix or suffix;
(d) Licensee's right to use the Marks is limited to the right
to reproduce such Marks without change, modification or
alteration in their design and appearance from that furnished
by Licensor, and to such uses as are authorized under this
Agreement, and any unauthorized use of the Marks shall
constitute a material breach of this Agreement;
(e) Licensee shall not use the Marks as part of its corporate
or other legal names; nor shall it use the Marks to incur any
obligation or indebtedness on behalf of Licensor or Licensor's
affiliates;
(f) Licensee shall identify itself as the owner (or lessee) of
the Licensed Stores in conjunction with any of the Marks,
including, without limitation, on promotional materials;
(g) Licensee shall not directly or indirectly contest the
validity of Licensor's ownership of the Marks;
(h) Licensee shall clearly designate the Licensed Stores with
the Marks in such manner as shall be approved by Licensor, or
with a similar designation or designations as shall be
approved by Licensor; and the decoration, layout, color
scheme, furnishing and general physical presence of the
Licensed Stores shall be at the expense of Licensee, but shall
be subject to the approval of Licensor which approval shall
not be unreasonably withheld;
(i) Licensee shall operate the Licensed Stores in compliance
with this Agreement and in accordance with Licensor's
standards for quality, appearance, cleanliness and service, as
prescribed by Licensor from time to time in any and all
manuals and training materials or as otherwise reasonably
designated by Licensor to Licensee and in accordance with all
applicable laws and regulations;
(j) Licensor shall have the right to require that one or more
of its representatives be permitted to inspect all stores that
are utilizing Marks from time to time at any time;
(k) Licensee shall not, without the approval of Licensor,
occupy or use any Licensed Store displaying any Marks for any
business other than a walk in convenience store business
substantially similar to that historically operated at the
Licensed Stores;
(l) Licensee shall purchase all Branded Products and all other
products for sale in the Licensed Stores utilizing the Marks
solely from suppliers who demonstrate, to the continuing
satisfaction of Licensor, the ability to meet Licensor's
standards of quality (including, as to dairy products,
freshness) for Branded Products and such other items. Licensee
shall perform such testing and other quality assurance
procedures as Licensor may reasonably require to assure
compliance with the foregoing, and shall permit Licensor to do
so as well.
2.4 Execution of Documents. Licensee shall cooperate with the Licensor
in Licensor's maintenance of the Marks, and at the request of Licensor, shall
execute any documents and provide Licensor with any specimens or materials
required for the registration renewal and/or such similar maintenance of the
Marks.
2.5 Protection of Rights in Marks. Licensee shall promptly notify
Licensor of any unauthorized use of the Marks, any challenge to the validity of
the Marks, any passing-off or attempts to pass-off the goodwill associated with
the Marks, or any challenge to Licensor's ownership of, or Licensee's right to
use, the Marks, in each case of which Licensee becomes aware. Licensee
acknowledges and agrees that (i) Licensor has the sole right to direct and
control any dispute, administrative proceeding or litigation involving the
Marks, including any settlement thereof, and (ii) Licensor has the right, but
not the obligation, to take action against uses by others that may constitute
infringement of the Marks, each at Licensor's expense. Licensor shall be
entitled to any and all damages collected in any such action. If Licensor elects
not to take action against any infringement of the Marks by third parties
outside the State of Florida, Licensee shall have the right (at its expense) to
commence any action to enjoin or recover damages by reason of any such
infringement of the Marks, provided that it receives an opinion of experienced
intellectual property counsel that such action is advisable in order to protect
the Marks in such jurisdiction. If Licensee prosecutes such an action in
accordance therewith, it shall be entitled to retain any damages awarded.
(a) Provided that Licensee has used the Marks only in
accordance with this Agreement, and that Licensee provides
Licensor with prompt notice of any claim, suit, demand or
penalty, Licensor will defend, indemnify and hold harmless
Licensee, at Licensor's expense, against any and all judgments
settlements, penalties, losses, liabilities, claims, suits,
damages, costs and expenses (including attorney's fees)
involving the ownership, validity or right to use the Marks
arising out of Licensee's permitted use thereof within the
State of Florida, and Licensor shall have the right to control
the defense of and settle any such matter. Outside of the
State of Florida, Licensor shall have the option to defend
such infringement actions as set forth above, or make any
other arrangements it deems to be appropriate (including
without limitation, requiring Licensee to cease or restrict
use of the Marks in a certain territory) in connection
therewith. In the event that Licensee has not used the Marks
in accordance with this Agreement, Licensor may, at Licensor's
option, defend Licensee, at Licensor's expense, against such
third party claims, suits or demands, but Licensor shall not
be obligated to do so.
(b) In the event of any litigation relating to the ownership,
validity or right to use the Marks, Licensee agrees to execute
any and all documents and to do such acts as may, in
Licensor's reasonable opinion, be necessary to carry out such
defense or prosecution, including, but not limited to,
becoming a nominal party to any legal action. Licensor shall
not be required to consult with Licensee or Licensee's counsel
in connection with any such litigation, unless Licensor names
Licensee a nominal party to such action.
III. PROMOTION
3.1 Promotional Materials. Recognizing the value of promotion and the
importance of the goodwill and public image of the Marks, Licensor may from time
to time provide to Licensee, as Licensor deems appropriate, promotional plans
and materials which Licensor has developed.
3.2 License Promotions.
(a) All promotion by Licensee in any medium which contain or
refer to the Marks shall be conducted in a dignified manner
and shall conform to the standards and requirements of
Licensor as set forth in any manuals and other materials
provided by Licensor to Licensee. Licensee shall submit to
Licensor its promotional and public relations plans and
materials which contain or refer to the Marks for a twelve
month period, on an annual basis. Licensee shall obtain
Licensor's prior approval of all promotional and public
relations plans and materials which contain or refer to the
Marks that Licensee desires to use. Licensor shall provide the
approval or disapproval of such plans and materials within 30
days of receipt of all related documents, and if disapproved,
shall state with specificity the reasons therefor. Licensee
shall use no such plans or materials until they have been
approved by Licensor, and shall promptly discontinue use of
any promotional plans or materials upon reasonable notice from
Licensor.
(b) In all promotion, Licensee shall use the Marks only in
accordance with the terms and conditions of this Agreement.
Licensee shall display the Marks in the manner prescribed by
Licensor on all signs and other promotional materials.
IV. SUBLICENSING
4.1 Licensor Consent Required. Licensee shall not grant any sublicense
to use any of the Marks, or otherwise grant any other right in the Marks,
without the prior written consent of Licensor, which Licensor may withhold in
its sole and absolute discretion.
4.2 Conditions. If Licensee shall sublicense any Marks, then
(a) Licensee shall ensure that the sublicense provides that
the sublicensee is bound by all of Licensee's representations,
warranties and covenants in this Agreement;
(b) The terms and conditions of the Sublicense Agreement shall
be subject to the approval of Licensor;
(c) Licensee shall enforce all of the terms and conditions of
the sublicense agreement in a timely and proper manner,
including, but not limited to, enforcing the proper usage and
presentation of the Marks, compliance with Licensor's
standards of quality and service, and adherence to the manuals
and other materials designed to promote quality and good
service provided Licensee by Licensor.
V. CONFIDENTIALITY AND NON-DISCLOSURE OBLIGATIONS
5.1 Definitions.
(a) "Confidential Information" shall mean all information
concerning Licensor, the Marks (but excluding the Marks,
themselves), Licensor's business and manuals, and all other
information provided by or on behalf of Licensor to Licensee,
except for the information excluded in subsection 5.1(c).
(b) Confidential Information shall include, without
limitation, (i) the terms and provisions of this Agreement;
(ii) Licensor's methods and systems of operation and
otherwise, including but not limited to operating manuals, to
the extent Licensee may become familiar with or have
possession, custody or control of such; (iii) technical
memoranda and data; (iv) research; (v) manuals; (vi) reports
and memoranda; (vii) new product and service development;
(viii) other intellectual property and all draft or proposed
applications for registrations thereof; (ix) comparative
analyses of competitive products; (x) services and operating
procedures; (xi) prices charged and paid by Licensor; (xii)
emails and other electronic data transmitted by or on behalf
of Licensor; and (xiii) information, data or documents that
Licensor designates as trade secrets or as confidential,
whether or not any of the foregoing qualify as "trade secrets"
under applicable law.
(c) Confidential Information shall not include (i) information
that is or becomes generally known to the public other than
through disclosure (whether deliberate or inadvertent) by
Licensee, and (ii) information disclosed in judicial or
administrative proceedings to the extent that Licensee is
legally compelled to disclose such information, provided that
Licensee shall have given Licensor prior written notice of
such required disclosure and shall have used its best efforts,
and afforded Licensor the opportunity, to obtain an
appropriate protective order or other assurance satisfactory
to Licensor of confidential treatment for the information
required to be disclosed.
5.2 Non-Disclosure.
(a) During the Term of this Agreement and for 10 years
thereafter, Licensee shall treat all Confidential Information
confidentially, and shall not communicate, divulge, disclose,
reveal, or use to or for the benefit of any person or entity,
other than Licensor, any Confidential Information; provided
that Licensee may disclose Confidential Information to
Licensee's employees, directors, officers, representatives and
advisors who need to know such information as an incident to
performing Licensee's obligations hereunder.
(b) Licensee shall at all times treat all manuals and other
written materials provided by Licensor, and the information
contained therein, as Confidential Information, and shall use
all reasonable efforts to maintain such information secret and
confidential. Licensee shall not, at any time, without
Licensor's prior written approval, copy, duplicate, record, or
otherwise make any such manuals or other Confidential
Information available to any person not authorized by this
Agreement. All Confidential Information shall at all times
remain the sole property of Licensor, and shall at all times
be kept in a secure place.
(c) Upon any termination of this Agreement, Licensee shall
immediately return to Licensor, or, at Licensor's written
request, destroy, all Confidential Information in its
possession, copies of all materials relating to the Mark and
operations of the Licensed Stores provided by or on behalf of
Licensor, including, without limitation, all manuals and
employee training information. Confidential Information in
computer code or other electronic form shall be deleted from
all computers, lap tops and similar devices, disks and other
electronic media to which Licensee has access; provided that,
at Licensor's written request, Licensee shall print and return
to Licensor hard copies of any such information prior to its
destruction.
5.3 Scope of Responsibility. Licensee shall be responsible for any
breach of this Article V by any of its employees, directors, officers,
representatives or advisors and other parties to whom Licensee discloses
Confidential Information as permitted hereby or otherwise, and agrees, at
Licensee's sole expense, to take all reasonable measures (including but not
limited to court proceedings) to restrain its employees, directors, officers,
representatives, advisors and such parties from prohibited or unauthorized
disclosure or use of any Confidential Information.
VI. TRANSFERS OF INTEREST; TERMINATION EVENTS
6.1 Licensor Transfers Permitted. Licensor shall have the right to
transfer or assign this Agreement and all or any part of its rights or
obligations herein to any person or entity, and agrees to advise Licensee
immediately of the effective date of such transfer or assignment and of the name
and address of such transferee or assignee.
6.2 Licensee Transfers Restricted. Licensee understands and
acknowledges that the rights and duties set forth in this agreement are personal
to Licensee, and that Licensor has granted the rights hereunder in reliance on
Licensee's business skill and reputation. Accordingly, neither Licensee, nor any
immediate or remote successor to any part of Licensee, nor any individual,
partnership, corporation or other legal entity which directly or indirectly owns
any interest in Licensee, shall sell, assign, transfer, convey, give away,
pledge, mortgage or otherwise encumber, without the prior written consent of
Licensor (which consent may be withheld in Licensor's sole discretion), any
direct or indirect interest in this Agreement, or the rights and obligations
hereunder. Any purported assignment or transfer not having the prior written
approval of Licensor shall be a material breach of this Agreement by Licensee
and shall otherwise be null and void.
6.3 Effect of Involuntary Termination Event. If an Involuntary
Termination Event shall have occurred, then
(a) the license rights provided to Licensee hereunder shall
become applicable only as to use of the Marks for Licensed
Stores within the Metropolitan Statistical Areas ("MSAs") in
which the Marks are then being actively used by Licensee as
previously permitted hereunder (the "Active MSAs");
(b) the Licensee shall be permitted to use the Marks in
connection with Additional UPET Stores without payment of a
fee only if the Additional UPET Stores are located within
Active MSAs.
(c) the Licensor shall not license other parties to use the
Marks for the operation of walk-in convenience stores (other
than the Licensee) for a period of 2 years after the
Involuntary Termination Event;
(d) the Licensor shall not, after the expiration of the 2 year
period set forth in (c), above, grant a license to any
operator of walk-in convenience stores to use the Marks in any
area other than the Active MSAs (the "Non-UPET MSAs"), unless
Licensor first gives Licensee a notice to offer such a license
to Licensee. Such notice shall specify the terms (including
the license fee) to govern such proposed license and the
Non-UPET MSAs in which such license will be valid. If Licensee
does not accept such terms within 15 days after Licensor's
notice as aforesaid, then the Licensor shall be free to grant
such license to any third party, provided that the license is
limited to the Non-UPET MSAs identified in Licensor's notice
and governed by terms not less favorable to Licensor than
those set forth in Licensor's notice.
VII. DEFAULT AND TERMINATION
7.1 Default and Automatic Termination. Licensee shall be deemed to be
in default under this Agreement, and the Term of this Agreement and all rights
granted hereunder shall terminate automatically, without notice to Licensee and
without affording Licensee any opportunity to cure the default, effective
immediately upon the occurrence of any of the following events:
(a) Licensee shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect, or
seeking the appointment of a trustee, receiver, liquidation,
custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or
to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit
of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize
any of the foregoing; or
(b) An involuntary case or other proceeding shall be commenced
against Licensee seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidation,
custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period
of 60 days; or an order for relief shall be entered against
Licensee under the federal bankruptcy laws as now or hereafter
in effect.
7.2 Default and Optional Termination. After the occurrence of a
Termination Event and upon the occurrence of any of the events described in
subsection (a)-(c) below, Licensor, at its option, may terminate the Term of
this Agreement and all rights granted hereunder effective immediately upon
Licensor's notice of termination to Licensee (and without affording Licensee any
opportunity to cure the default); and
(a) If Licensee makes or attempts to make a transfer or
assignment in violation of Section 6.2 hereof or grants or
attempts to grant a sublicense without Licensor's prior
written consent;
(b) If Licensee fails to comply with the covenants and
agreements set forth in Section IV;
(c) If Licensee makes any unauthorized use of the Marks;
7.3 Defaults Capable of Cure. After the occurrence of a Termination
Event and upon the occurrence of any material breach of any provision of this
Agreement, not otherwise set forth in sections 7.1 or 7.2, Licensor, at its
option, may terminate this Agreement and all rights granted hereunder, effective
30 days from the date the Licensor delivers to Licensee a written notice of
termination describing such material breach. Notwithstanding the preceding
sentence, this Agreement shall not terminate so long as Licensee cures such
material breach within 30 days from the date the notice of termination was
delivered; provided, however, if the breach or default is not capable of being
cured, then the termination of this Agreement shall be effective upon the
delivery of the notice of default.
VIII. OBLIGATIONS UPON TERMINATION OR EXPIRATION
8.1 Obligations. Upon termination or expiration of the Term of this
Agreement, all rights granted herein to Licensee shall forthwith terminate, and
(a) Licensee shall not thereafter, directly or indirectly,
represent to the public that it is, or hold itself out as, a
present or former licensee of Licensor;
(b) Licensee shall immediately deliver to Licensor or destroy
all Confidential Information in its possession, in accordance
with section 5.2(c) hereof;
(c) Licensee shall, at Licensor's option and request, transfer
and assign to Licensor all of Licensee's rights and
prospective obligations in all sublicense agreements executed
by Licensee hereunder and shall execute all documents
reasonably required by Licensor in connection with such
transfer;
(d) Licensee shall immediately and permanently cease to use
the Marks, and all other distinctive forms, slogans, signs,
symbols, and devices associated with the Licensed Stores and
the Branded Products. Without limiting the generality of the
foregoing, the Licensee shall remove the Marks from all of the
Licensed Stores' signage (within 45 days from such
termination) and promptly (within 5 days from such
termination) cease any sale of the Branded Products. Licensee
shall take such action as may be necessary to cancel any
business name registration of Licensee which contains the mark
"FARM STORES" or any other Mark of Licensor or its affiliates,
and Licensee shall furnish Licensor with evidence satisfactory
to Licensor of compliance with this obligation within fourteen
(14) days after termination or expiration of this Agreement;
(e) Licensee shall immediately deliver to Licensor all manuals
provided to it by Licensor, all of which are acknowledged to
be the property of Licensor;
(f) Licensee shall comply with the covenants and agreements
set forth in Section V of this Agreement.
8.2 Survival. The following provisions of this Agreement shall survive
its termination or expiration for any reason whatsoever: Article V "Confidential
Information"; Article VIII "Obligations upon Termination or Expiration"; Section
9.1 "Taxes"; Section 10.3 "Indemnity"; Article XI "Notices"; and Article XIII
"Governing Law." Termination or expiration of this Agreement shall in no way
affect the survival of any right, duty, or obligation of the parties which is
intended, expressly or impliedly, under the provisions of this Agreement, to
survive its termination or expiration.
IX. TAXES AND PERMITS
9.1 Taxes. Licensee shall pay all taxes or other levies payable as a
result of this Agreement, or any of the documents contemplated by this
Agreement, and Licensor shall have no liability for any sales, use, service,
occupation, excise, gross receipts, value-added, income, property or other
taxes, whether levied upon the Licensed Stores, Licensee's property, or
Licensor, in connection with the rights granted hereunder. Provided, however,
that Licensee shall not be liable for Licensor's income taxes on any royalties
payable hereunder, or for Licensor's own use of the Marks. Licensee agrees to
indemnify Licensor for any assessments or taxes that might be made against
Licensor under the terms of this Agreement.
9.2 Compliance with Laws. Licensee shall comply with all applicable
laws and regulations, and shall timely obtain, and shall maintain in full force
and effect at all times during the term of this Agreement, at its sole cost and
expense, any and all approvals, permits, certificates, and licenses necessary
for the full and proper performance of this Agreement.
9.3 Notification Requirement. Licensee shall notify Licensor in writing
within five (5) business days of learning of the commencement of any action,
suit, or proceeding, and of the issuance of any order, writ, injunction, award,
or decree of any court, agency or other governmental authority, which arises out
of or in connection with the Licensee's use of the Marks, and may adversely
affect the Marks or the use thereof, or the operations or financial condition of
Licensee.
X. INDEPENDENT CONTRACTOR; INDEMNIFICATION
10.1 Parties Independent. This Agreement does not create a fiduciary
relationship between the parties hereto. Licensee is an independent contractor,
and nothing in this Agreement is intended to constitute either party an agent,
legal representative, subsidiary, joint venturer, partner, employee, or servant
of the other for any purpose whatsoever. Licensee shall hold itself out to the
public as an independent contractor holding the rights to license the Marks from
their owner.
10.2 No Agency Relationship. Nothing in this Agreement authorizes
Licensee to make any contract, agreement, warranty, or representation on
Licensor's behalf, or to incur any debt or any other obligation in Licensor's
name, and Licensor shall in no event assume liability for, or be deemed liable
hereunder as a result of, any such action or by reason of any act or omission of
Licensee, or any claim or judgment arising therefrom.
10.3 Indemnity. If Licensor shall be subject to any claim, demand or
penalty or become a party to any suit or other judicial or administrative
proceeding by reason of any claimed act or omission of Licensee, its officers,
directors, representatives, employees or agents, or by reason of any act
occurring at or in respect of a Licensed Store, provided Licensor provides
Licensee with prompt written notice after Licensor becomes aware of a claim,
Licensee shall defend, indemnify and hold Licensor harmless from and against all
judgments, settlements, penalties, losses, liabilities, claims, suits, damages,
costs and expenses (including attorneys' fees and costs) incurred by or imposed
on Licensor in connection therewith. Notwithstanding the foregoing, this
indemnity shall not apply to infringement actions against Licensor brought
solely in connection with the Licensee's use of the Marks as permitted hereby in
the State of Florida.
XI. NOTICES
All notices required hereunder shall be in writing and shall be given
(a) by personal service, (b) by certified or registered mail, with postage
prepaid, return receipt requested, (c) by international commercial courier,
express delivery, with delivery acknowledgment required, or (d) by cable, telex,
or telecopy (each of which must be evidenced by a machine generated receipt), if
immediately confirmed in writing by one of the aforedescribed means. All notices
shall be addressed to the recipient at the address set forth in the first
paragraph of this Agreement, or such other address as such party may from time
to time designate in a notice given in the aforesaid manner. Notices shall be
deemed effective when received or when delivery thereof is refused.
XII. MISCELLANEOUS
12.1 Entire Agreement. This Agreement, and the exhibits and schedules
hereto, constitute the entire, full, and complete agreement between Licensor and
Licensee with respect to the subject matter hereof and supersede any and all
prior agreements with respect thereto. This Agreement incorporates by reference
the recitals, and all exhibits and schedules hereto.
12.2 Gender and Number. All references in this Agreement to the
singular shall include the plural where applicable, and all references to the
masculine, feminine or neuter shall be deemed interchangeably to refer to all
genders and vice-versa.
12.3 Severability. Every part of this Agreement shall be considered
severable. If any part of this Agreement for any reason shall be declared
invalid, such invalidity shall not affect the validity of any remaining portion,
which shall remain in full force and effect. In the event that any material
provision of this Agreement shall be stricken or declared invalid the parties
shall use their best efforts to negotiate a mutually satisfactory amendment to
this Agreement. If any covenant herein which restricts a competitive act is
deemed unenforceable by virtue of its scope in terms of geographical area, type
of business activity prohibited and/or length of time, but could be enforceable
by reducing any part or all thereof, Licensor and Licensee agree that the same
shall be deemed amended to conform with applicable law and shall be enforced to
the fullest extent permissible under applicable laws and public policies.
12.4 Conflict with Law. If any applicable law or rule of any
jurisdiction requires a greater prior notice of the termination hereof than is
required hereunder, or the taking of some other action not required hereunder,
the prior notice and/or other action required by such law or rule shall be
substituted for the comparable provisions hereof.
12.5 No Third Party Beneficiaries. This Agreement is entered into
solely for the benefit of the parties hereto, and no third party is an intended
beneficiary hereof. No third party is entitled to rely upon this Agreement or
have any rights hereunder.
12.6 Headings. The headings of the sections and subsections of this
Agreement are for convenience only and do not limit or affect the construction
of the contents of such sections or subsections.
12.7 Counterparts. This Agreement may be executed in multiple copies,
each of which shall be deemed an original. Time is of the essence in this
Agreement.
12.8 Amendment. No interpretation, change, termination or waiver of any
of the provisions hereof shall be binding upon either party unless in writing
and duly executed by both parties. No modification, waiver, termination,
rescission, discharge or cancellation of this Agreement shall affect the right
of any party hereto to enforce any claim hereunder, whether or not liquidated,
which occurred prior to the date of such modification, waiver, termination,
rescission, discharge or cancellation.
XIII. GOVERNING LAW; ENFORCEMENT OF REMEDIES
13.1 Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida, applicable to contracts
made and wholly enforceable in such State.
13.2 Specific Performance. Notwithstanding anything to the contrary
contained in this Agreement, if, due to a breach or threatened breach or default
or threatened default (including without limitation, under the confidentiality
provisions hereof), a party is suffering or is threatened with suffering
irreparable harm for which monetary damages are inadequate, such party shall be
entitled to such injunctive relief, specific performance, restraining orders, or
other equitable relief, in addition to all other legal and equitable remedies
available to such party. For purposes hereof, the parties hereby irrevocably
submit in any such suit, action or proceeding to the jurisdiction of the United
States District Court for the Southern District of Florida and waive any and all
objections that such jurisdiction, situs and/or venue is inconvenient or
otherwise improper. Each party further agrees that process may be served upon
such party in any manner authorized under the laws of Florida, and waives any
objections that such party may otherwise have to such process.
13.3 Attorneys' Fees. If either Licensor or Licensee institutes legal
action against the other to secure or protect its rights under or to enforce the
terms of this Agreement, in addition to any judgment entered in its favor
whether as plaintiff or defendant, any and all costs incurred by the prevailing
party, including, without limitation reasonable attorneys' fees, shall be paid
by the non-prevailing party. All references to attorneys' fees (or similar
phrases) herein shall include attorneys' and paralegals' fees and expenses in
all administrative, regulatory, investigation, bankruptcy or appellate
proceedings.
13.4 Rights Cumulative. The rights of the Licensor and Licensee
hereunder are cumulative and no exercise or enforcement by either the Licensor
or the Licensee of any right or remedy hereunder shall preclude the exercise or
enforcement by the Licensor or the Licensee of any other right or remedy
hereunder which the Licensor or the Licenses is entitled to enforce by law.
13.5 Waivers. No delay, waiver, omission, or forbearance on the part of
the Licensor or the Licensee to exercise any right, option, duty or power
arising out of any breach or default by the Licensor or the Licensee under any
of the terms or provisions of this Agreement shall constitute a waiver by the
Licensor or the Licensee of any ability to enforce any such right, option, duty
or power as against the Licensor or the Licensee, or as to any subsequent breach
or default by the Licensor or the Licensee.
XIV. REPRESENTATIONS
14.1 Mutual Representations. Licensor and Licensee represent and
warrant to the other as follows:
(a) The execution, delivery and performance of this Agreement
(a) has been duly authorized by all necessary or appropriate
acts or proceedings; (b) does not violate or conflict with any
provision of its organizational documents or corporate
authority; and (c) does not violate or result in a breach or
default (with the giving of notice, the passage of time, or
otherwise) under any contract, understanding, judgment, order,
writ, law or regulation that is applicable to the representing
party or its assets;
(b) This Agreement is the valid, legal and binding obligation
and agreement of the representing party, and is enforceable
against it in accordance with its terms; and
(c) The representing party is duly organized and validly
existing, in good standing in the jurisdiction of its
organization.
14.2 Licensee Acknowledgments. Licensee acknowledges that:
(a) Licensor does not represent or warrant that the use of the
Marks pursuant to this Agreement will achieve any specific
results; and that Licensor is not responsible or liable to
Licensee for any failure of Licensee to exploit the license in
accordance with Licensee's own expectations;
(b) Except as provided for herein, no future licenses or
offers of licenses have been promised to Licensee and any
other license agreement shall only be in a writing executed by
Licensor and Licensee; and
(c) Except as provided for herein, nothing in this Agreement
shall prohibit or restrain Licensor or its affiliates from
selling any goods under the Marks, providing any services
under the Marks, licensing any other party to use the Marks,
or accepting and retaining all compensation therefor.
[SIGNATURES FOLLOW ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed, sealed and
delivered this Agreement the date first written above.
LICENSEE:
By: ___________________________
Its:___________________________
LICENSOR:
By: ___________________________
Its:___________________________
<PAGE>
EXHIBIT A TO LICENCE AGREEMENT
Branded Products
Homogenized Milk (quart, pint (plastic), half gallon, gallon)
Skim Milk (half gallon, gallon)
Light Taste (half gallon, gallon)
Buttermilk (half gallon)
Chocolate Milk (half gallon)
Half & Half (pint)
Orange Juice (gallon)
Orange Drink (half gallon, gallon)
Fruit Punch (half gallon, gallon)
Lemon Drink (half gallon)
Grape Drink (half gallon)
Ice Tea (half gallon)
Sour Cream
Cottage Cheese
Jumbo Eggs
Egg Nog (half gallon)
Ice Cream - Half Gallon
Vanilla
Chocolate
Cherry Vanilla
Chocolate Almond
Chocolate Chip
Cookie Dough
Cookies 'N Cream
Dark Horse
Heavenly Hash
Neopolitan
Pistachio
Rocky Road
Butter Pecan
Light Vanilla
Light Chocolate
Light Chocolate Chip
Light Butter Pecan
<PAGE>
EXHIBIT B TO LICENCE AGREEMENT
Licensed Marks
Farm Stores
Farm Store Foods
EMPLOYMENT AGREEMENT
AGREEMENT made effective as of the 3rd day of November, 1999, by and
between United Petroleum Corporation, a Delaware corporation with its principal
offices at 2620 Mineral Springs Road, Suite A, Knoxville, Tennessee 37917 (the
"Company") and Joe P. Bared, an individual residing at 9025 Arvida Drive, Coral
Gables, Florida 33156 (the "Executive").
PRELIMINARY STATEMENT
The Company has agreed to employ the Executive and the Executive has
agreed to accept such employment, all on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable considerations, the receipt and adequacy of
which are hereby conclusively acknowledged, the parties, intending to be legally
bound, agree as follows:
1. Term. The Company hereby employs the Executive as the Chairman and
Chief Executive Officer of the Company (as used herein, reference to the Company
includes its subsidiaries), and the Executive agrees to serve the Company as
such, upon the terms and conditions hereof. The term of employment hereunder
(the "Term") shall commence on the date hereof and continue until November 2,
2002, unless the Term is otherwise terminated in accordance with the provisions
hereof.
2. Duties. (a) Executive shall serve as the Company's Chairman and
Chief Executive Officer, the principal executive officer of the Company, and
shall be responsible for the Company's overall management, operations and
growth. The Executive shall also discharge such duties and authority as are
generally incident to such position, or in such other senior management position
as the Company shall determine, provided that such other position shall be
comparable in authority and responsibility to the position specified above. The
Executive will report only to the Company's Board of Directors. The Executive
will serve as a member of the Board of Directors of the Company during the
entire Term of this Agreement, and shall hold such senior offices and/or such
directorships in the Company and/or any subsidiaries or affiliates of the
Company to which, from time to time, he may be elected or appointed. The Company
shall not require the Executive, directly or indirectly, to violate any
applicable laws, regulations or ethical standards.
(b) The Executive agrees that he will devote substantially all
of his time and attention to the affairs of the Company and use his best efforts
to promote the business and interests of the Company and that he will not
engage, directly or indirectly, in any other business or occupation during the
term of employment, except as provided for in the Management Agreement and as
set forth in this Section 2. The Executive shall be permitted to continue to
conduct the activities identified on Exhibit A hereto. It is understood,
however, that the foregoing will not prohibit the Executive from engaging in
personal investment, charitable and civic activities for himself and his family
which do not interfere with the performance of his duties hereunder.
3. Compensation. The Company will pay the Executive for all services to
be rendered by the Executive hereunder (including, without limitation, all
services to be rendered by him as an officer and/or director of the Company and
its subsidiaries and affiliates):
(a) A salary ("Base Annual Pay") of $ 378,000, in installments
in accordance with customary payroll practices for senior executives of the
Company.
(b) Bonus compensation for each fiscal year of the Company,
based on Executive's performance and the overall performance of the Company,
either on an "ad hoc" basis or pursuant to a bonus plan or arrangement as may be
established at the Company's discretion for senior executives of the Company.
Notwithstanding any conflicting or inconsistent provisions of this Agreement,
bonus compensation shall be payable in such amounts, if any, and at such times,
if any, as determined by the Company's Board of Directors or the Compensation
Committee thereof, in its sole and absolute discretion (and the Board of
Directors shall implement an incentive compensation plan in which the Executive
participates and promptly communicates the criteria therefor to the Executive).
Nothing contained herein shall prohibit the Board of Directors of the
Company, in its sole discretion, from increasing the compensation payable to the
Executive pursuant to this Agreement. The Base Annual Pay shall be reviewed for
potential increase on an annual basis, and in any event, the Executive will
receive an annual raise of at least the greater of 6% or the previous year's
increase in the Consumer Price Index.
4. Expenses. The Executive shall be entitled to reimbursement by the
Company, in accordance with the Company's policies then applicable to senior
executives at the Executive's level, against appropriate vouchers or other
receipts for authorized travel, entertainment and other business expenses
reasonably incurred by him in the performance of his duties hereunder. Without
limiting the generality of the foregoing, the Company will furnish the Executive
with corporate credit cards and a fuel card and pay or reimburse the Executive
for the use of a pager and for two cellular telephones. The Company will also
pay or reimburse the Executive for the expenses of leasing, insuring,
maintaining and operating a car identical or similar to a BMW 740.
5. Executive Benefits. The Executive shall be entitled to participate
in, and receive benefits under, any pension, profit sharing, insurance,
hospitalization, medical, disability, stock purchase, stock option stock
ownership, vacation or other employee benefit plan, program or policy of the
Company which may be in effect at any time during the course of his employment
by the Company and which shall be generally available to senior executives of
the Company occupying positions of comparable status or responsibility, subject
to the terms of such plans, programs or policies. The Executive shall also be
entitled to three (3) weeks' paid vacation per year. Without limiting the
generality of the foregoing, the Executive shall be entitled to receive Group
Health and Dental Insurance coverages for himself and his family at no charge to
Executive.
6. Withholding. All payments required to be made by the Company
hereunder to the Executive shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
7. Death; Permanent Disability. Upon the death of the Executive during
the term of this Agreement, this Agreement shall terminate. If during the term
of this Agreement the Executive fails because of illness or other incapacity to
perform the services required to be performed by him hereunder for any
consecutive period of more than 90 days, or for shorter periods aggregating more
than 120 days in any consecutive twelve-month period (any such illness or
incapacity being hereinafter referred to as "permanent disability"), then the
Company, in its discretion, may at any time thereafter terminate this Agreement
upon not less than 10 days' written notice thereof to the Executive, and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if said date were the termination date of this Agreement; provided,
however, that no such termination shall be effective if prior to the date when
such notice is given, the Executive's illness or incapacity shall have
terminated and he shall be physically and mentally able to perform the services
required hereunder and shall have taken up and be performing such duties.
If the Executive's employment shall be terminated by reason of his
death or permanent disability, the Executive or his estate, as the case may be,
shall be entitled to receive (i) any earned and unpaid salary accrued through
the date of termination, (ii) a pro rata portion of any annual bonus which the
Executive would otherwise have been entitled to receive pursuant to any bonus
plan or arrangement for senior executives of the Company (such pro rata portion
to be payable at the time such annual bonus would otherwise have been payable to
the Executive) and (iii) subject to the terms thereof, any benefits which may be
due to the Executive on the date of termination under the provisions of any
employee benefit plan, program or policy.
8. Termination.
(a) For Cause. The Company may at any time during the term of this
Agreement, by written notice, terminate the employment of the Executive for
cause, the cause to be specified in the notice. For purposes of this Agreement,
"cause" shall mean (i) any gross negligence or willful misconduct of the
Executive in connection with the performance of any of his duties hereunder,
including without limitation misappropriation of funds or property of the
Company, or any willful and intentional act having the effect of injuring the
reputation, business or business relationships of the Company; (ii) breach of
any covenants contained in this Agreement that remains uncured after notice and
a reasonable opportunity to cure the breach; (iii) conviction of any felony,
provided, however, that (1) if the Executive is defending against the charge in
good faith and by appropriate proceedings, then the Company shall suspend the
Executive from office without compensation of any type, pending the resolution
of the matter; and (2) unless the Executive is exonerated from the charges, he
shall be terminated for cause effective upon the date he was indicted or held
for trial. Termination for cause shall be effective upon the giving of such
notice and the Executive shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of termination and (ii) subject to the terms
thereof, any benefits which may be due to the Executive on such date under the
provisions of any employee benefit plan, program or policy. A determination that
cause exists for termination of employment can only be made by the Board of
Directors at a meeting called for that purpose, and the Executive shall receive
notice of, and an opportunity to be heard by the Board on the issues, at such
meeting.
(b) Without Cause. The Company may terminate the Term at any time,
upon at least 30 days' notice to Executive, without Cause, and the Company may
also decline to renew the term of this Agreement at its scheduled expiration,
provided that in any such event that the Company shall pay the Executive
continuation of Base Annual Pay (as then in effect) for 12 months following such
termination as severance, in addition to (i) any additional earned and unpaid
compensation accrued hereunder through the date of termination, (ii) subject to
the terms thereof, any benefits which may be due to the Executive on such date
under the provisions of any employee benefit plan, program or policy; (iii)
continuation of health and dental coverages for 12 months following such
termination, (iv) a pro rata portion of any annual bonus with respect to the
fiscal year in which such termination occurs, and (v) acceleration of the
vesting of all stock options or similar rights then held by the Executive. In
the event of a Change in Control, as defined below, the Executive may, within 60
days of the effective date of such Change in Control, terminate the term of this
Agreement, with the effects as provided herein for a termination by the Company
without Cause. As used herein, a "Change in Control" means the occurrence of a
change in the beneficial ownership to voting securities of the Company
representing 50% or more of the combined voting power of the Company's
securities (other than by reason of the sales of any such securities that are
beneficially owned by Executive or any member of his immediate family), or if a
person not a shareholder of the Company on the date hereof acquires the power to
elect a majority of the Company's Board of Directors.
(c) Termination by Executive. The Executive may terminate the Term at
any time, upon at least 60 days' notice to the Company, and such termination
shall have the same effect with respect to severance pay as a termination for
Cause as set forth above. The Executive may also terminate the Term for "Good
Reason", which shall mean (i) the Company's requiring the Executive to relocate
beyond a 60 mile radius from Miami-Dade County, Florida (ii) the Company's
material breach of this Agreement, or (iii) the Company changing the Executive's
responsibilities so that he is no longer the Company's principal executive
officer, or must report to anyone other than the Board of Directors of the
Company. A termination by Executive for Good Reason shall have the same effects
hereunder as a termination by the Company without Cause, as set forth above.
9. Intentionally Omitted.
10. Non-Competition
(a) The Executive acknowledges and recognizes that the highly
competitive nature of the Company's business and that the goodwill and patronage
of the Company's customers constitute a substantial asset of the Company, having
been acquired through considerable time, effort and money. Accordingly, the
Executive agrees that during his employment with the Company and for a period
until the last to occur of 2 years after Executive leaves the Company's employ
for any reason or 5 years from the date of this Agreement, he shall not, without
the written consent of the Company, directly or indirectly, either individually
or as an employee, agent, partner, shareholder, consultant, option holder,
lender of money, guarantor or in any other capacity, participate in, engage in
or have a financial interest or management position or other interest in any
business, firm, company or other entity that operates walk-in convenience
stores, nor will he solicit any other person to engage in any of the foregoing
activities, in each case within the Metropolitan Statistical Areas ("MSAs") in
which the Company has (or has pending plans to open or acquire within 6 months
of the date of termination) active operations generating at least $1,000,000 a
year in annual revenues as of the termination of employment hereunder.
Participation in the management of FSG or any business operation other than in
connection with the management of a business operation which operates walk-in
convenience stores shall not be deemed to be a breach of this Section 10(a). The
foregoing provisions of this Section 10(a) shall not prohibit the ownership by
the Executive (as the result of open market purchase) of 5% or less of any class
of capital stock of a Company which is regularly traded on a national securities
exchange or over-the-counter on the NASDAQ System.
(b) If any of the covenants contained in this Section 10 or any part
thereof, is held by a court of competent jurisdiction to be unenforceable
because of the duration of such provision, the activity limited by or the
subject of such provision and/or the area covered thereby, then the court making
such determination shall construe such restriction so as to thereafter be
limited or reduced to be enforceable to the greatest extent permissible by
applicable law.
11. Confidential Information, Etc. The Executive agrees that he shall
not, during or after the termination of this Agreement, divulge, furnish or make
accessible to any person, firm, company or other business entity, any
information, trade secrets, technical data or know-how relating to the business,
business practices, methods, products, processes, equipment, clients' prices,
lists of customers of the Company, terms of marketing arrangements or other
confidential or secret aspect of the business of the Company and/or any
subsidiary or affiliate, except as may be required in good faith in the course
of his employment with the Company or by law, without the prior written consent
of the Company, unless such information shall become public knowledge or becomes
available from independent sources, in each case other than by reason of
Executive's breach of the provisions hereof.
12. Acceptance by Parties. Each of the Executive and the Company
accepts all of the terms and provisions of this Agreement and agrees to perform
all of the covenants on his or its part to be performed hereunder.
13. Equitable Remedies. The Executive acknowledges that he has been
employed for his unique talents and that his leaving the employ of the Company
would seriously hamper the business of the Company and that the Company will
suffer irreparable damage if any provisions of Sections 10 and 11 hereof are not
performed strictly in accordance with their terms or are otherwise breached. The
Executive hereby expressly agrees that the Company shall be entitled as a matter
of right to injunctive or other equitable relief, in addition to all other
remedies permitted by law, to prevent a breach or violation by the Executive and
to secure enforcement of the provisions of Sections 10 and 11 hereof. Resort to
such equitable relief, however, shall not constitute a waiver or any other
rights or remedies which the Company may have.
14. Entire Agreement. This Agreement memorializes, encompasses and
supersedes the parties understandings and agreement relative to the Executive's
acceptance of employment hereunder, and constitutes the entire agreement between
the parties hereto and there are no other terms other than those contained
herein. No variation or modification hereof shall be deemed valid unless in
writing and signed by the parties hereto and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Company or any breach by
the Executive of any provision or condition of this Agreement by him to be
performed shall be deemed a waiver of a breach of a similar or dissimilar
provision or condition at the same time or any prior or subsequent time.
15. Severability. In case any provision in this Agreement shall be
declared invalid, illegal or unenforceable by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
16. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a registered
or certified post-paid envelope, return receipt requested, and addressed to the
addresses of the respective parties stated below or to such changed addresses as
such parties may fix by notice:
To the Company:
United Petroleum Corporation
2620 Mineral Springs Road
Suite A
Knoxville, Tennessee 37917
To the Executive:
provided, however, that any notice of change of address shall be effective only
upon receipt.
17. Successors and Assigns. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder (except
for an assignment or transfer by the Company to a successor as contemplated by
the following proviso); provided, however, that the provisions hereof (including
but not limited to the non-compete and confidentiality provisions hereof) shall
inure to the benefit of, and be binding upon, any successor of the Company,
whether by merger, consolidation, transfer of all or substantially all of the
assets of the Company, or otherwise, and upon the Executive, his heirs,
executors, administrators and legal representatives.
18. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Florida, without giving effect to any principles of conflict of laws.
19. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals to the Employment Agreement the day and year first above written.
UNITED PETROLEUM CORPORATION
By: ________________________
Name: ________________________
Title: ________________________
_______________________________
Joe P. Bared
EMPLOYMENT AGREEMENT
AGREEMENT made effective as of the 3rd day of November, 1999, by and
between United Petroleum Corporation, a Delaware corporation with its principal
offices at 2620 Mineral Springs Road, Suite A, Knoxville, Tennessee 37917 (the
"Company") and Carlos Bared, an individual residing at 10001 S.W. 58th Avenue,
Miami, Florida 33156 (the "Executive").
PRELIMINARY STATEMENT
The Company has agreed to employ the Executive and the Executive has
agreed to accept such employment, all on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable considerations, the receipt and adequacy of
which are hereby conclusively acknowledged, the parties, intending to be legally
bound, agree as follows:
1. Term. The Company hereby employs the Executive as the Senior Vice
President, Chief Financial Officer of the Company (as used herein, reference to
the Company includes its subsidiaries), and the Executive agrees to serve the
Company as such, upon the terms and conditions hereof. The term of employment
hereunder (the "Term") shall commence on the date hereof and continue until
November 2, 2002, unless the Term is otherwise terminated in accordance with the
provisions hereof.
2. Duties. (a) Executive shall serve as the Company's Chief Financial
Officer, and shall be responsible for the Company's financial, treasury and
accounting matters. The Executive shall also discharge such duties and authority
as are generally incident to such position, or in such other senior management
position as the Company shall determine, provided that such other position shall
be comparable in authority and responsibility to the position specified above.
The Executive will report to the Company's Chief Executive Officer and to the
Company's Board of Directors. The Executive shall serve as a member of the
Company's Board of Directors during the entire Term of this Agreement, and shall
hold such senior offices and/or such directorships in the Company and/or any
subsidiaries or affiliates of the Company to which, from time to time, he may be
elected or appointed. The Company shall not require the Executive, directly or
indirectly, to violate any applicable laws, regulations or ethical standards.
(b) The Executive agrees that he will devote substantially all
of business his time and attention to the affairs of the Company and use his
best efforts to promote the business and interests of the Company and that he
will not engage, directly or indirectly, in any other business or occupation
during the term of employment, except as provided for in the Management
Agreement and as set forth in this Section 2. The Executive shall be permitted
to continue to conduct the activities identified on Exhibit A hereto. It is
understood, however, that the foregoing will not prohibit the Executive from
engaging in personal investment, charitable and civic activities for himself and
his family which do not interfere with the performance of his duties hereunder.
3. Compensation. The Company will pay the Executive for all services to
be rendered by the Executive hereunder (including, without limitation, all
services to be rendered by him as an officer and/or director of the Company and
its subsidiaries and affiliates):
(a) A salary ("Base Annual Pay") of $ 150,000 in installments
in accordance with customary payroll practices for senior executives of the
Company.
(b) Bonus compensation for each fiscal year of the Company,
based on Executive's performance and the overall performance of the Company,
either on an "ad hoc" basis or pursuant to a bonus plan or arrangement as may be
established at the Company's discretion for senior executives of the Company.
Notwithstanding any conflicting or inconsistent provisions of this Agreement,
bonus compensation shall be payable in such amounts, if any, and at such times,
if any, as determined by the Company's Board of Directors or the Compensation
Committee thereof, in its sole and absolute discretion (and the Board of
Directors shall implement an incentive compensation plan in which the Executive
participates and promptly communicates the criteria therefor to the Executive).
Nothing contained herein shall prohibit the Board of Directors of the
Company, in its sole discretion, from increasing the compensation payable to the
Executive pursuant to this Agreement. The Base Annual Pay shall be reviewed for
potential increase on an annual basis, and in any event, the Executive will
receive an annual raise of at least the greater of 6% or the previous year's
increase in the Consumer Price Index.
4. Expenses. The Executive shall be entitled to reimbursement by the
Company, in accordance with the Company's policies then applicable to senior
executives at the Executive's level, against appropriate vouchers or other
receipts for authorized travel, entertainment and other business expenses
reasonably incurred by him in the performance of his duties hereunder. Without
limiting the generality of the foregoing, the Company will furnish the Executive
with corporate credit cards and a fuel card and pay or reimburse the Executive
for the use of a pager and for two cellular telephones. The Company will also
pay or reimburse the Executive up to $750 per month for the expenses of leasing,
maintaining and operating a car and the Company will be responsible for
providing and paying the insurance for such car.
5. Executive Benefits. The Executive shall be entitled to participate
in, and receive benefits under, any pension, profit sharing, insurance,
hospitalization, medical, disability, stock purchase, stock option stock
ownership, vacation or other employee benefit plan, program or policy of the
Company which may be in effect at any time during the course of his employment
by the Company and which shall be generally available to senior executives of
the Company occupying positions of comparable status or responsibility, subject
to the terms of such plans, programs or policies. The Executive shall also be
entitled to three (3) weeks' paid vacation per year. Without limiting the
generality of the foregoing, the Executive shall be entitled to receive Group
Health and Dental Insurance coverages for himself and his family at no charge to
Executive.
6. Withholding. All payments required to be made by the Company
hereunder to the Executive shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
7. Death; Permanent Disability. Upon the death of the Executive during
the term of this Agreement, this Agreement shall terminate. If during the term
of this Agreement the Executive fails because of illness or other incapacity to
perform the services required to be performed by him hereunder for any
consecutive period of more than 90 days, or for shorter periods aggregating more
than 120 days in any consecutive twelve-month period (any such illness or
incapacity being hereinafter referred to as "permanent disability"), then the
Company, in its discretion, may at any time thereafter terminate this Agreement
upon not less than 10 days' written notice thereof to the Executive, and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if said date were the termination date of this Agreement; provided,
however, that no such termination shall be effective if prior to the date when
such notice is given, the Executive's illness or incapacity shall have
terminated and he shall be physically and mentally able to perform the services
required hereunder and shall have taken up and be performing such duties.
If the Executive's employment shall be terminated by reason of his
death or permanent disability, the Executive or his estate, as the case may be,
shall be entitled to receive (i) any earned and unpaid salary accrued through
the date of termination, (ii) a pro rata portion of any annual bonus which the
Executive would otherwise have been entitled to receive pursuant to any bonus
plan or arrangement for senior executives of the Company (such pro rata portion
to be payable at the time such annual bonus would otherwise have been payable to
the Executive) and (iii) subject to the terms thereof, any benefits which may be
due to the Executive on the date of termination under the provisions of any
employee benefit plan, program or policy.
8. Termination.
(a) For Cause. The Company may at any time during the term of this
Agreement, by written notice, terminate the employment of the Executive for
cause, the cause to be specified in the notice. For purposes of this Agreement,
"cause" shall mean (i) any gross negligence or willful misconduct of the
Executive in connection with the performance of any of his duties hereunder,
including without limitation misappropriation of funds or property of the
Company, or any willful and intentional act having the effect of injuring the
reputation, business or business relationships of the Company; (ii)breach of any
covenants contained in this Agreement that remains uncured after notice and a
reasonable opportunity to cure the breach; (iii) conviction of any felony,
provided, however, that (1) if the Executive is defending against the charge in
good faith and by appropriate proceedings, then the Company shall suspend the
Executive from office without compensation of any type, pending the resolution
of the matter; and (2) unless the Executive is exonerated from the charges, he
shall be terminated for cause effective upon the date he was indicted or held
for trial. Termination for cause shall be effective upon the giving of such
notice and the Executive shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of termination and (ii) subject to the terms
thereof, any benefits which may be due to the Executive on such date under the
provisions of any employee benefit plan, program or policy. A determination that
cause exists for termination of employment can only be made by the Board of
Directors at a meeting called for that purpose, and the Executive shall receive
notice of, and an opportunity to be heard by the Board on the issues, at such
meeting.
(b) Without Cause. The Company may terminate the Term at any time,
upon at least 30 days' notice to Executive, without Cause, and the Company may
also decline to renew the term of this Agreement at its scheduled expiration,
provided that in any such event that the Company shall pay the Executive
continuation of Base Annual Pay (as then in effect) for 24 months following such
termination as severance, in addition to (i) any additional earned and unpaid
compensation accrued hereunder through the date of termination, (ii) subject to
the terms thereof, any benefits which may be due to the Executive on such date
under the provisions of any employee benefit plan, program or policy; (iii)
continuation of health and dental coverages for 24 months following such
termination, (iv) a pro rata portion of any annual bonus with respect to the
fiscal year in which such termination occurs, and (v) acceleration of the
vesting of all stock options or similar rights then held by the Executive. In
the event of a Change in Control, as defined below, the Executive may, within 60
days of the effective date of such Change in Control, terminate the term of this
Agreement, with the effects as provided herein for a termination by the Company
without Cause. As used herein, a "Change in Control" means the occurrence of a
change in the beneficial ownership to voting securities of the Company
representing 50% or more of the combined voting power of the Company's
securities (other than by reason of the sales of any such securities that are
beneficially owned by Executive or any member of his immediate family), or if a
person not a shareholder of the Company on the date hereof acquires the power to
elect a majority of the Company's Board of Directors.
(c) Termination by Executive. The Executive may terminate the Term
at any time, upon at least 60 days' notice to the Company, and such termination
shall have the same effect with respect to severance pay as a termination for
Cause as set forth above. The Executive may also terminate the Term for "Good
Reason", which shall mean (i) the Company's requiring the Executive to relocate
beyond a 60 mile radius from Miami-Dade County, Florida (ii) the Company's
material breach of this Agreement, or (iii) the Company changing Executive's
responsibilities to be other than Chief Financial Officer or requiring him to
report other than as set forth in this Agreement. A termination by Executive for
Good Reason shall have the same effects hereunder as a termination by the
Company without Cause, as set forth above.
9. Intentionally Omitted.
10. Non-Competition
(a) The Executive acknowledges and recognizes that the highly
competitive nature of the Company's business and that the goodwill and patronage
of the Company's customers constitute a substantial asset of the Company, having
been acquired through considerable time, effort and money. Accordingly, the
Executive agrees that during his employment with the Company and for a period
until 2 years after Executive leaves the Company's employ for any reason, he
shall not, without the written consent of the Company, directly or indirectly,
either individually or as an employee, agent, partner, shareholder, consultant,
option holder, lender of money, guarantor or in any other capacity, participate
in, engage in or have a financial interest or management position or other
interest in any business, firm, company or other entity that operates walk-in
convenience stores, nor will he solicit any other person to engage in any of the
foregoing activities, in each case within the Metropolitan Statistical Areas
("MSAs") in which the Company has (or has pending plans to open or acquire
within 6 months of the date of termination) active operations generating at
least $1,000,000 a year in annual revenues as of the termination of employment
hereunder. Participation in the management of FSG or any business operation
other than in connection with the management of a business operation which
operates walk-in convenience stores shall not be deemed to be a breach of this
Section 10(a). The foregoing provisions of this Section 10(a) shall not prohibit
the ownership by the Executive (as the result of open market purchase) of 5% or
less of any class of capital stock of a Company which is regularly traded on a
national securities exchange or over-the-counter on the NASDAQ System.
(b) If any of the covenants contained in this Section 10 or any part
thereof, is held by a court of competent jurisdiction to be unenforceable
because of the duration of such provision, the activity limited by or the
subject of such provision and/or the area covered thereby, then the court making
such determination shall construe such restriction so as to thereafter be
limited or reduced to be enforceable to the greatest extent permissible by
applicable law.
11. Confidential Information, Etc. The Executive agrees that he shall
not, during or after the termination of this Agreement, divulge, furnish or make
accessible to any person, firm, company or other business entity, any
information, trade secrets, technical data or know-how relating to the business,
business practices, methods, products, processes, equipment, clients' prices,
lists of customers of the Company, terms of marketing arrangements or other
confidential or secret aspect of the business of the Company and/or any
subsidiary or affiliate, except as may be required in good faith in the course
of his employment with the Company or by law, without the prior written consent
of the Company, unless such information shall become public knowledge or becomes
available from independent sources, in each case other than by reason of
Executive's breach of the provisions hereof.
12. Acceptance by Parties. Each of the Executive and the Company
accepts all of the terms and provisions of this Agreement and agrees to perform
all of the covenants on his or its part to be performed hereunder.
13. Equitable Remedies. The Executive acknowledges that he has been
employed for his unique talents and that his leaving the employ of the Company
would seriously hamper the business of the Company and that the Company will
suffer irreparable damage if any provisions of Sections 10 and 11 hereof are not
performed strictly in accordance with their terms or are otherwise breached. The
Executive hereby expressly agrees that the Company shall be entitled as a matter
of right to injunctive or other equitable relief, in addition to all other
remedies permitted by law, to prevent a breach or violation by the Executive and
to secure enforcement of the provisions of Sections 10 and 11 hereof. Resort to
such equitable relief, however, shall not constitute a waiver or any other
rights or remedies which the Company may have.
14. Entire Agreement. This Agreement memorializes, encompasses and
supersedes the parties understandings and agreement relative to the Executive's
acceptance of employment hereunder, and constitutes the entire agreement between
the parties hereto and there are no other terms other than those contained
herein. No variation or modification hereof shall be deemed valid unless in
writing and signed by the parties hereto and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Company or any breach by
the Executive of any provision or condition of this Agreement by him to be
performed shall be deemed a waiver of a breach of a similar or dissimilar
provision or condition at the same time or any prior or subsequent time.
15. Severability. In case any provision in this Agreement shall be
declared invalid, illegal or unenforceable by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
16. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a registered
or certified post-paid envelope, return receipt requested, and addressed to the
addresses of the respective parties stated below or to such changed addresses as
such parties may fix by notice:
If to the Company:
United Petroleum Corporation
2620 Mineral Springs Road
Suite A
Knoxville, Tennessee 37917
If to the Executive
provided, however, that any notice of change of address shall be effective only
upon receipt.
17. Successors and Assigns. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder (except
for an assignment or transfer by the Company to a successor as contemplated by
the following proviso); provided, however, that the provisions hereof (including
but not limited to the non-compete and confidentiality provisions hereof) shall
inure to the benefit of, and be binding upon, any successor of the Company,
whether by merger, consolidation, transfer of all or substantially all of the
assets of the Company, or otherwise, and upon the Executive, his heirs,
executors, administrators and legal representatives.
18. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Florida, without giving effect to any principles of conflict of laws.
19. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals to the Employment Agreement the day and year first above written.
UNITED PETROLEUM CORPORATION
By: ________________________
Name: ________________________
Title: ________________________
_______________________________
Carlos Bared
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT is made as of November 3, 1999, by and
among United Petroleum Corporation, a Delaware corporation (the "Corporation"),
Infinity Investors Limited, a Nevis, West Indies corporation, Fairway Capital
Limited, a Nevis, West Indies corporation, Seacrest Capital Limited, a Nevis,
West Indies corporation (collectively, the "Investor") and Joe Bared and Miriam
Bared (collectively, "Bared"). The Investor and Bared are sometimes collectively
referred to as the "Stockholders" and individually as a "Stockholder.")
Capitalized terms used herein are defined in Section 12 hereof.
The Corporation and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) assuring continuity in the
management and ownership of the Corporation, (ii) limiting the manner and terms
by which the Stockholders' stock may be transferred, and (iii) providing the
Stockholders with certain registration rights.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Restrictions on Transfer of Shareholder Shares. No Stockholder shall
sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of
(collectively, a "Transfer") any interest in any Stockholder Shares for a period
of two (2) years from the date hereof (the "Termination Date").
2. Stockholder Preemptive Rights. Prior to the Termination Date, and
for so long as any Stockholder owns any Stockholder Shares, each time the
Corporation proposes to sell shares of its capital stock or options, warrants or
other rights to buy capital stock for cash (except any capital stock issued
pursuant to a stock option or warrant plan of the Corporation which does not
exceed ten percent (10%) of the issued and outstanding capital stock of the
Corporation at the time the warrant or option plan is adopted by the
Corporation), the Corporation shall also make an offering of such shares to the
Stockholders in accordance with the following provisions:
(a) The Corporation shall deliver a notice to each Stockholder
stating the number of shares to be offered and the price and the terms on which
it proposes to offer such shares. Such notice shall be sent to the addresses set
forth in the records of the Corporation.
(b) Within 15 days after delivery of the notice, each
Stockholder may elect to purchase, at the price and on the terms specified in
the notice, up to its Pro Rata Portion of such shares by delivering written
notice of such election to the Corporation within such 15 calendar days.
(c) Any shares referred to in the notice that are not elected
to be purchased as provided in subsection (b) above may, during the 180-day
period thereafter, be offered by the Corporation to any other person or persons
at a price not less than, and on terms no more favorable to the offeree than,
those specified in the notice.
3. Board of Directors.
(a) From and after the date hereof and until the Termination
Date, each Stockholder shall vote all of his Stockholder Shares and any other
voting securities of the Corporation over which such Stockholder has voting
control and shall take all other necessary or desirable actions within his
control (whether in his capacity as a stockholder, director, member of a Board
of Directors committee or officer of the Corporation or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Corporation shall take all necessary and desirable actions
within its control (including, without limitation, calling special board and
stockholder meetings), so that:
(i) the number of directors on the Board shall be five (5)
directors;
(ii) the following persons shall be elected to the Board:
(A) Two (2) representatives designated by the Investor
(the "Investor Directors");
(B) Two (2) representatives designated by Bared (the
"Bared Directors"); and
(C) L. Grant Peeples (the "Independent Director").
(iii) the removal from the Board (with or without cause) of
any representative designated hereunder by the Investor or Bared
shall be at only the Investor's, or Bared's written request,
respectively;
(iv) in the event that any representative designated
hereunder by the Investor or Bared for any reason ceases to serve
as a member of the Board during his term of office, the resulting
vacancy on the Board shall be filed by a representative
designated by the Investor or Bared, respectively, as provided
hereunder; provided that any representative removed for cause
shall not be designated again as a member of the Board; and
(v) Expansion of the Board and election of its additional
members will initially be subject to the mutual agreement of the
Investor Directors and Bared Directors and whenever they do not
agree on such a matter, may be submitted to the vote of all
stockholders of the Corporation at a duly called meeting.
(vi) Each member of the Board shall abstain acting in the
event of a direct or indirect financial interest (excluding
matters that relate to Farm Stores Grocery, Inc., so long as UPET
has a financial interest in it).
(b) The Board shall not appoint any committee with the
authority to act on behalf of the Board without the consent of the Investor
Directors and the Bared Investors.
(c) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Section 3, the election of a person
to such directorship shall be accomplished in accordance with the Corporation's
bylaws and applicable law.
4. Piggyback Registrations.
(a) Right to Piggyback. Subject to Section 1 hereof, whenever
the Corporation proposes to register any of its Common Stock under the
Securities Act (other than the initial public offering, pursuant to a
transaction described under Rule 145 of the Securities Act, a transaction
registering securities convertible into Common Stock or pursuant to Form S-8 or
its successor forms) and the registration form to be used may be used for the
registration of the Stockholder Shares of the Stockholders (a "Piggyback
Registration"), the Corporation shall give prompt written notice to the
Stockholders of its intention to effect such a registration and will include in
such registration the Stockholder Shares of the Stockholders with respect to
which the Corporation has received written requests for inclusion therein within
15 days after the receipt of the Corporation's notice.
(b) Right to Shelf Registration. Subject to Section 11 hereof,
in addition to the Piggyback Registration provided pursuant to paragraph 4(a),
the Stockholders shall be entitled to request an unlimited number of Form S-3
resale registrations (a "Short Form Registration") in which the Corporation will
pay all Registration Expenses; provided that the Corporation and the securities
meet the eligibility requirements for such form and provided further that the
Short Form Registration shall only be effective for 180 days and shall be
subject to no sale periods upon notice to the Stockholders participating therein
if in the reasonable judgment of the Corporation such Short Form Registration
conflicts with the Corporation's business plans or another existing or proposed
registration statement. The Corporation shall use its best efforts to make
Short-Form Registrations available for the resale of Stockholder Shares.
(c) Expenses. The Registration Expenses of the Stockholders
shall be paid by the Corporation in all Piggyback Registrations and Short-Form
Registrations.
(d) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Corporation shall
include in such registration (i) first, the securities the Corporation proposes
to sell, (ii) second, the Stockholder Shares of the Investor and Bared requested
to be included in such registration (on a pro rata basis), together with any
securities underlying any warrants issued to the lenders or underwriters of the
Corporation on a pro rata basis, (iii) third, other securities requested by
other persons to be included in such registration.
(e) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities, and the managing underwriters advise the
Corporation in writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, the
Corporation shall include in such registration (i) first, the securities
requested to be included therein by the Investor and Bared on a pro rata basis,
together with any securities underlying any warrants issued to the lenders or
underwriters of the Corporation on a pro rata basis, (ii) second, other
securities requested by other persons to be included in such registration.
5. Registration Procedures. Whenever the Stockholders have requested
that any securities be registered pursuant to this Agreement, the Corporation
shall use its best efforts to effect the registration and the sale of such
securities in accordance with the intended method of disposition thereof, and
pursuant thereto the Corporation shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Corporation shall furnish to the counsel selected by
the Stockholders covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review
and comment of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 180 days and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the securities owned by such seller;
(d) use its best efforts to register or qualify such
securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller
(provided that the Corporation shall not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of Stockholder Shares, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Corporation shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Stockholder Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) cause all such securities to be listed on each securities
exchange on which similar securities issued by the Corporation are then listed
and, if not so listed, to be listed on the NASD automated quotation system and,
if listed on the NASD automated quotation system, use its best efforts to secure
designation of all such securities covered by such registration statement as a
Nasdaq national market security within the meaning of Rule 11Aa2-1 of the
Securities and Exchange Commission or, failing that, to secure Nasdaq
authorization for such securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such securities with the NASD;
(g) provide a transfer agent and registrar for all such
securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the Selling Stockholder or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Corporation's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) permit the Selling Stockholder which, in its sole and
exclusive judgment, might be deemed to be an underwriter or a controlling person
of the Corporation, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Corporation in writing, which in the reasonable judgment of the Selling
Stockholder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Corporation shall use its best efforts promptly to obtain the
withdrawal of such order; and
(m) in the event of an underwritten offering obtain a cold
comfort letter from the Corporation's independent public accountants and an
opinion from the Corporation's counsel in customary form and covering such
matters of the type customarily covered by cold comfort letters or opinions,
respectively as any underwriter may reasonably request.
6. Registration Expenses.
(a) All expenses incident to the Corporation's performance of
or compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Corporation and all independent certified
public accountants, underwriters (excluding discounts and commissions and
selling expenses (including brokers' fees and commissions)) and other persons
retained by the Corporation (all such expenses being herein called "Registration
Expenses"), shall be borne by the Corporation as provided in this Agreement,
except that the Corporation shall, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Corporation are then listed
or on the NASD automated quotation system.
(b) In connection with each Piggyback Registration or Short
Form Registration, the Corporation shall reimburse the Stockholders for the
reasonable fees and disbursements to the extent the Corporation's counsel has
not performed the work.
(c) To the extent Registration Expenses are not required to be
paid by the Corporation, each holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
7. Indemnification.
(a) The Corporation agrees to indemnify, to the extent
permitted by law, the Selling Stockholder, its officers and directors and each
person who controls the Selling Stockholder (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Corporation by the Selling
Stockholder expressly for use therein or by the Selling Stockholder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Corporation has furnished the Selling Stockholder
with a sufficient number of copies of the same. In connection with an
underwritten offering, the Corporation shall indemnify such underwriters, their
officers and directors and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Selling Stockholder.
(b) In connection with any registration statement in which the
Selling Stockholder is participating, the Selling Stockholder shall furnish to
the Corporation in writing such powers of attorney, custody agreements and
letters of direction and other information and affidavits as the Corporation
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, shall only have to indemnify
the Corporation, its directors and officers and each person who controls the
Corporation (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by the Selling Stockholder to
the Corporation for specific use in such registration statement, prospectus or
amendment or supplement thereto and which remained in the final prospectus
delivered to the purchaser of such securities; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Selling
Stockholder from the sale of Stockholder Shares pursuant to such registration
statement.
(c) Any person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and shall survive the transfer of securities.
The Corporation also agrees to make such provisions, as are reasonably requested
by any indemnified party, for contribution to such party in the event the
Corporation's indemnification is unavailable for any reason.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party, then each
indemnifying party, to the extent that it would have been or was obligated to
provide indemnification under this Section 7, shall contribute to the amount
paid or payable by such indemnified party as a result of the claims. losses,
changes or liabilities referred to in this Section 7 in such proportion as is
appropriate to reflect the relative benefits received by the Stockholders on the
one hand and the Corporation on the other. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Stockholders on the one
hand and the Corporation on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Stockholders on the one hand or the
Corporation on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
8. Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of securities included in any underwritten registration shall be required
to make any representations or warranties to the Corporation or the underwriters
other than representations and warranties regarding such holder and such
holder's intended method of distribution.
9. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the Transfer of any Stockholder
Shares shall be stamped or otherwise imprinted with legends in substantially the
following form (in addition to any other applicable legends).
"The shares of New UPC Common Stock represented by this
certificate are issued pursuant to the Plan of Reorganization for
United Petroleum Corporation, as confirmed by the United States
Bankruptcy Court for the District of Delaware. The Corporation's
Certificate of Incorporation contains restrictions prohibiting the
sale, transfer, disposition, purchase or acquisition of any shares of
Common Stock without the prior written authorization of the
Corporation's Board of Directors (or its designee) by or to any person
(a) who beneficially owns, directly or through attribution (as
determined under Section 382 of the Internal Revenue Code of 1986 as
amended from time to time (the "Code")), 5% or more of the total fair
market value of the then issued and outstanding shares of Common Stock
of the corporation, or (b) who, upon the sale, transfer, disposition,
purchase or acquisition of any shares of Common Stock of the
Corporation would beneficially own, directly or through attribution (as
determined under Section 382 of the Code), or would cause another
person beneficially to own, directly or through attribution (as
determined under Section 382 of the Code), 5% or more of the total fair
market value of the then issued and outstanding shares of common stock,
if that sale, transfer, disposition, purchase or acquisition would
jeopardize UPC's preservation of its federal income tax attributes
pursuant to Sections 382 or 383 of the Code; provided however, that for
so long as the percentage point changes in ownership of the common
stock (as described in Section 382(g)(1) of the Code) since the
Effective Date do not total more than thirty (30) percentage points,
the above restrictions shall be applied by substituting "10%" for "5%".
UPC will furnish a copy of its Certificate of Incorporation to the
holder of record of this certificate without charge upon written
request addressed to UPC at its principal place of business."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS AGREEMENT DATED NOVEMBER
3, 1999. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF
AT THE CORPORATION'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The Corporation shall imprint such legend on certificates evidencing
outstanding Stockholder Shares. The legend set forth above shall be removed from
the certificates evidencing any Stockholder Shares after the Termination Date.
10. Conflicting Agreements. Each Stockholder represents that it has not
granted and is not a party to any proxy, voting trust or other agreement which
is inconsistent with or conflicts with the provisions of this Agreement, and no
holder of Stockholder Shares shall grant any proxy or become party to any voting
trust or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement. No Stockholder shall act, for any reason, as a
member of a group or in concert or enter into any agreement or arrangement with
any other person in connection with the acquisition, disposition or voting of
Stockholder Shares in any manner which is inconsistent with the provisions of
this Agreement.
11. Actions Consistent with Agreement. The Corporation shall not
circumvent this Agreement by taking any action through a subsidiary or affiliate
that would be prohibited under this Agreement. The certificate of incorporation
and bylaws of the Corporation may be amended in any manner permitted thereunder,
except that neither the certificate nor the bylaws shall be amended in any
manner that would conflict with, or be inconsistent with, the provisions of this
Agreement.
12. Definitions.
"Bared Directors" shall have the meaning set forth in Section
3(a)(ii) hereof.
"Corporation" shall have the meaning set forth in the preamble
and shall include all of the Corporation's subsidiaries.
"Independent Director" shall have the meaning set forth in
Section 3(a)(ii) hereof.
"Investor Directors" shall have the meaning set forth in
Section 3(a)(ii) hereof.
"Piggyback Registration" shall have the meaning set forth in
Section 4(a) hereof.
"Registration Expenses" shall mean all expenses related to
registration pursuant to Sections 4(a) and 4(b) of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Stockholder" shall have the meaning as set forth in the
preamble and shall include their permitted successors and assigns.
"Stockholder Shares" means (i) any common stock of the
Corporation purchased or otherwise acquired by any Stockholder (ii) any equity
securities issued or issuable directly or indirectly with respect to the Common
Stock referred to in clause (i) above by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, and (iii) any other shares of any class
or series of capital stock of the Corporation held by a Stockholder. As to any
particular shares constituting Stockholder Shares, such shares shall cease to be
Stockholder Shares when they have been sold to the public through a Public Sale
even if thereafter they are reacquired by a Stockholder.
"Transfer" shall have the meaning set forth in Section 1
hereof.
13. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Corporation shall not record such Transfer on
its books or treat any purported transferee of such Stockholder Shares as the
owner of such shares for any purpose.
14. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Corporation, the Investor or Bared unless such
modification, amendment, termination or waiver is approved unanimously in
writing by the Corporation, the Investor and Bared. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
15. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
16. Entire Agreement. Except as set forth herein, this document
embodies the complete agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
17. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Corporation and its successors and assigns and the Stockholders and any
permitted subsequent holders of Stockholder Shares and the respective successors
and permitted assigns of each of them, so long as they hold Stockholder Shares.
18. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
19. Remedies. The Corporation, the Investor and Bared shall be entitled
to enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that the Corporation, any Investor and Bared
may in its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
20. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Corporation at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Corporation's records, or at such address or to the attention
of such other person as the recipient party has specified by prior written
notice to the sending party. Notices will be deemed to have been given hereunder
when delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Corporation's
address is:
United Petroleum Corporation
2620 Mineral Springs Road, Suite A
Knoxville, Tennessee 37917
21. Governing Law. This Agreement will be construed and interpreted in
accordance with and governed by the laws of the State of Delaware.
22. Termination. This Agreement shall expire on the tenth anniversary
of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
UNITED PETROLEUM CORPORATION
By:
Its:
INFINITY INVESTORS LIMITED
By:
Its:
FAIRWAY CAPITAL LIMITED
By:
Its:
SEACREST CAPITAL LIMITED
By:
Its:
Joe Bared
Miriam Bared
MANAGEMENT AGREEMENT
This Management Agreement is executed as of _____ day of November, 1999, by
and between UNITED PETROLEUM GROUP, INC., a Delaware corporation ("Manager" or
the "Company"), and FARM STORES GROCERY, INC., a Delaware corporation ("FSG").
WHEREAS, FSG is engaged in the operation of Drive-Thru Stores; and
WHEREAS, FSG desires to engage Manager to manage the day-to-day operation
and business of FSG and the Drive-Thru Stores (collectively, the "FSG Business")
for the account of FSG and Manager desires to accept such engagement,
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. Definitions.
1.1 Definitions Terms defined throughout this Agreement shall have the
meanings ascribed to them in this Agreement. Unless otherwise defined herein,
the following terms shall have the meaning ascribed to them in this Section 1.1:
"Affiliate" shall mean, with respect to any Person, any other Person (i) in
which such first Person, directly or indirectly, owns greater than a fifty
percent (50%) interest (whether economic or voting), (ii) that directly or
indirectly owns greater than a fifty percent (50%) interest (whether economic or
voting) in such first Person or (iii) that, directly or indirectly, is in
control of, is controlled by, or is under common control with, such first
Person. For purposes of this definition, "control" and "controlled" with respect
to a Person means the power, directly or indirectly, either to direct or cause
the direction of the management and policies of such Person, through the
ownership of voting securities or other equity interests, by contract, or
otherwise.
"Annual FSG Plan" shall have the meaning set forth in Section 3.4.
"Base FSG Fee" shall have the meaning set forth in Section 4.1.
"Drive-Thru Stores" shall mean, collectively: (i) the one hundred eight
(108) Farm Stores Express drive-through specialty grocery stores owned or leased
by FSG in the State of Florida (together with all modifications, additions, and
replacements in and to such stores), and (ii) any other drive-through specialty
grocery stores or other convenience stores, of any kind and wherever located,
that may be acquired or constructed by FSG, from time to time, during the Term
of this Agreement.
"Event of Default" shall have the meaning set forth in Section 15.1.
"Fiscal Year" shall mean each fiscal year of FSG (presently, the period
ending on the last Saturday in August of each calendar year) during the Term.
"Force Majeure Causes" shall mean causes beyond the reasonable control of
FSG or Manager, as the case may be, including but not limited to casualties,
war, insurrection, acts of God or the public enemy, strikes, lockouts, and
material shortages.
"FSG Board" shall mean the Board of Directors of FSG.
"Person" shall mean any firm, association, partnership (including any
general or limited partnership), trust, corporation, limited liability company,
and any other legal entity, including a public body, as well as any natural
person.
"Proposed Annual FSG Plan" shall have the meaning set forth in Section 3.3.
"Term" shall have the meaning set forth in Section 2.1.
2. Term and Termination.
2.1 Term. The term of this Agreement (the "Term") shall commence on the
date of this Agreement and shall continue until the last to occur of (a) the
full payment of the Company's indebtedness to Hamilton Bank, N.A., and (b) the
last day of the calendar month in which shall occur the third (3rd) anniversary
of the date of this Agreement, unless the term of this Agreement shall be sooner
terminated as herein provided. The Term shall automatically be extended to the
next succeeding anniversary date of this Agreement, unless the Term is sooner
terminated as set forth in this Agreement; provided, however, that from and
after the fifteenth (15th) anniversary of the date of this Agreement, the Term
shall be extended only by the written agreement of the parties hereto (or their
respective permitted successors and assigns).
2.2 Termination Rights of FSG. In addition to the rights of the parties to
terminate the Term following the occurrence of an Event of Default and in
addition to any other remedies available to FSG, FSG, at any time after the last
to occur of (a) the full payment of the Company's indebtedness to Hamilton Bank,
N.A., and (b) the last day of the calendar month in which shall occur the third
(3rd) anniversary of the date of this Agreement, shall have the absolute right
to terminate this Agreement, for any reason or for no reason. Any termination
pursuant to this Section 2.2 shall be without liability or payment of any
termination fee and shall be effective six (6) months after sending written
notice to Manager of such termination.
2.3. Termination Rights of Manager. In addition to the rights of the
parties to terminate the Term following the occurrence of an Event of Default
and in addition to any other remedies available to Manager, Manager, at any time
after the last to occur of (a) the full payment of the Company's indebtedness to
Hamilton Bank, N.A., and (b) the last day of the calendar month in which shall
occur the third (3rd) anniversary of the date of this Agreement, shall have the
absolute right to terminate this Agreement, for any reason or for no reason. Any
termination pursuant to this Section 2.3 shall be without liability or payment
of any termination fee and shall be effective six (6) months after sending
written notice to FSG of such termination.
2.4 Right of Manager and its Affiliates to Perform Services for FSG.
(a) Nothing in this Agreement or otherwise shall restrict or prohibit, in
any way whatsoever, the right of Manager's Affiliates to serve as officers or
directors of FSG. The parties expressly acknowledge that such Affiliates shall
so serve, during the Term. Within 30 days after termination of the Term, FSG
will provide Manager with a list of the management level employees that FSG
proposes to solicit to work for FSG, and the parties agree that FSG shall have
no liability whatsoever to Manager or otherwise for its soliciting and hiring
such personnel.
(b) The parties acknowledge and agree that the management services of FSG
and of the Company will be performed principally through the executive personnel
identified on Schedule A hereto, and their successors in office, including but
not limited to Jose, Carlos and Maurice Bared (collectively, the "Executives").
The parties agree that the Executives are intended beneficiaries of, and may
enforce in their own right, the provisions of this Section 2.4 . This Section
2.4 may not be changed in any manner adverse to any Executive without the
written consent of such Executive.
(c) Each of the Executives shall, at all times, be fully authorized and
protected in serving as a Director and Officer of FSG and in discharging the
duties and responsibilities of such offices. However, until the first to occur
(with respect to each respective Executive) of any termination of the Term of
this Agreement, and/or any termination of the term and duration of the Company's
employment of such respective Executive (such period being referred to herein as
the "Executive's Term"), the Executive's compensation will be exclusively paid
by the Company and not FSG. After any termination of the Executive's Term as to
any of the Executive(s), such Executive(s) may freely, without liability to the
Company or otherwise be employed by, act as Director or officer, or consultant
or otherwise for or enter into any agreement with, or otherwise enter into a
business relationship with FSG.
(d) Each of the parties hereto acknowledges and agrees that Executives,
during and after the Executive's Term, will be actively involved in the
day-to-day management and activities of FSG in accordance with the terms of this
Management Agreement. Further, each of the parties hereto acknowledges and
agrees that Manager is being retained to manage the day-to-day activities of FSG
in accordance with the terms of this Agreement and the Annual FSG Plan,
respectively. Accordingly, in view of the foregoing and the right of each party
hereto to terminate this Agreement as set forth in Sections 2.2 and 2.3, the
Company hereto hereby irrevocably WAIVES AND RELEASES any claims, demands,
causes and choses in action whatsoever against the Executives, and FSG WAIVES
AND RELEASES any claims against the Manager, based in either case in whole or
part upon any express or implied conflict of interest, conflict of duties or
conflict of loyalties that now exists or may hereafter exist among and between
FSG and the Company for all purposes, forever. In no event shall any of the
Executives have any liability, express or implied, to the Company or its
affiliates (or be deemed to have breached any express or implied duty owed to
the Company) or shall Manager have any liability, express or implied, to FSG, in
connection with any such actual or alleged conflict of interest, except solely
in the case of such respective Executive's (or as the case may be Manager's)
gross negligence or willful misconduct.
2.5 Transition Procedures. Upon the expiration or earlier termination of
the Term, for whatever reason, Manager shall the following (and the provisions
of this Section 2.5 shall survive the expiration or termination of this
Agreement until they have been fully performed):
(a) Cooperation. Cooperate with FSG in a manner that will permit an
orderly and commercially reasonable transition of the management and
operation of FSG with minimal hindrance to the FSG Business.
(b) Contracts, Leases, Licenses and Concessions. Cause the assignment
to FSG of all leases, contracts, commitments, deposits, licenses and
concession agreements in effect with respect to FSG's assets or property
that were entered into by Manager in Manager's name on behalf of FSG in
accordance with this Agreement or the applicable FSG Annual Plan.
(c) Books and Records. Deliver all books and records maintained by
Manager for FSG (including, without limitation, sales files and financial
records), provided that such books and records shall thereafter be
available to Manager and its representatives at all reasonable times for
inspection, audit, examination and transcription for a period of six (6)
years.
(d) Electronic Information. To the extent any information or data to
be delivered by Manager to FSG hereunder is in computerized or electronic
format, to cooperate with FSG and provide FSG access to such computer data
or information (without access lock-out) to permit the transfer and copying
of such information and data into machine-readable format.
(e) Transition Documents. Execute and deliver to FSG any documents
reasonably requested by FSG and necessary to effect the management
transition within ten (10) business days after FSG's written request for
any such documents.
(f) Remittance. Remit to FSG, as of the effective date of termination
of this Agreement, all funds of FSG that are in Manager's possession (net
of any amounts then due to Manager) and render a written final accounting
to FSG for the period ending upon the date of termination of this
Agreement.
(g) Assumption. FSG shall be responsible for, and shall pay when due
and indemnify and defend Manager against, all liabilities, indebtedness,
costs, payables, and expenses which are incurred by Manager on or prior to
such termination for the benefit of the FSG and in accordance with this
Agreement or the applicable Annual FSG Plan.
(h) Notice to Vendors. Prepare for FSG's approval (which approval
shall not be unreasonably withheld or delayed) a written notice to be
delivered to all vendors of FSG notifying such vendors of the termination
of this Agreement.
(i) Manager's Assets. Cause the prompt removal of all assets owned by
Manager then held at any Drive-Thru Stores or other facilities then owned
or leased by FSG and FSG expressly agrees to permit Manager or its agents
to access to any Drive-Thru Stores or other facilities then owned or leased
by FSG for the purpose of removing such assets. This provision is expressly
subject to the terms of the Consignment Agreement of even date herewith
between Manager and REWJB Dairy Plant Associates, a Florida General
Partnership ("REWJB Dairy"), regarding the rights of REWJB Dairy to the
Manager's Assets, as such term is defined in that Consignment Agreement.
3. Management of FSG Business.
3.1 Engagement and Acceptance. FSG hereby engages Manager on an exclusive
basis, as an independent contractor, to direct, supervise, manage and operate
the FSG Business and to provide to FSG the management and administrative
services set forth in this Agreement and each Annual FSG Plan during the Term of
this Agreement. Manager hereby accepts such engagement pursuant to the terms of
this Agreement.
3.2 General Powers. Manager shall perform its management obligations
hereunder in substantial conformity with the Annual FSG Plan and this Agreement.
Manager, as sole and exclusive agent of FSG, shall have total and absolute
authority over the day-to-day management, control, power, and discretion in the
operation of the FSG Business in the ordinary course of business and in
accordance with the Annual FSG Plan. However., the Manager's exercise of this
delegated authority shall be subject to the legal power and authority of the FSG
Board, provided that such shall only be deemed exercised to the extent specified
in a written notice from FSG to the Manager. All acts performed and obligations
incurred by Manager in accordance with the terms of this Agreement or the Annual
FSG Plan shall be for the account of FSG and at FSG's expense.
3.3 Preparation of Annual FSG Plan. Until an initial Annual FSG Plan is
approved by the FSG Board, the interim Annual FSG Plan shall be the budget and
plan set forth as Exhibit A. Within forty-five (45) days after the date hereof
and, with respect to each Fiscal Year during the Term, no later than forty (45)
days prior to the first day of each Fiscal Year, Manager will assist FSG's
senior executive officers in preparing a proposed budget and operating plan
(each such proposed plan, a "Proposed Annual FSG Plan"), together with such
other information as is necessary to determine the financial needs of the FSG
Business and to forecast the financial results from the operation the FSG
Business. Each such Proposed Annual FSG Plan shall include the following:
(a) A schedule of annual projected operations and cash flow from the
FSG Business, detailed on a monthly basis.
(b) Manager's and FSG's senior executives' reasonable estimate and
projected budget of gross receipts and gross operating expenses for the
forthcoming Fiscal Year, itemized in reasonable detail, together with the
assumptions, in narrative form, forming the basis of such schedules,
including a schedule of detailed budget estimates for salaries,
advertisement and promotional expenses, taxes, utilities, repairs, and
maintenance.
(c) A projected budget for capital expenditures and replacements and
all anticipated expenditures to be made during the forthcoming Fiscal Year,
including without limitation, whether any new Drive-Thru Stores are to be
acquired or constructed, the cost of such acquisition or construction, the
location of such proposed new Drive-Thru Stores and all information deemed
relevant by FSG with respect thereto.
(d) Any reports or other information relating to any investigations,
evaluations, studies, or other activities requested by FSG with respect to
FSG and the FSG Business.
(e) Identification of the staffing to be employed by Manager with
respect to FSG and the FSG Business together with a general description of
the number of personnel and the job descriptions therefor.
(f) Any other matters reasonably requested in advance by FSG that FSG
deems necessary or appropriate to make an informed decision with respect to
the approval or rejection of a Proposed Annual FSG Plan.
(g) A separate estimate of the FSG Management Fee to be paid for the
forthcoming Fiscal Year.
(h) A narrative description of the program for marketing the FSG
Business for the forthcoming Fiscal Year containing a detailed budget
itemization of the proposed marketing plan for the FSG Business, including
without limitation, advertising expenditures by category and the
assumptions, in narrative form, forming the basis of such budget
itemization.
3.4 Approval of Annual FSG Plan. With respect to each Proposed Annual FSG
Plan, the senior executive officers of FSG and Manager shall present each
Proposed Annual FSG Plan to the FSG Board for the FSG Board's review,
consideration and approval. Manager and FSG's senior executive officers shall
receive the FSG Board's comments with respect to the Proposed Annual FSG Plan
and shall revise and submit a revised Proposed Annual FSG Plan incorporating the
FSG Board's comments for approval by the FSG Board, and, if required by
additional comments from the FSG Board, shall re-revise and re-submit such Plan)
(each such plan, as adopted and approved by the FSG Board, an "Annual FSG
Plan"). If the FSG Board is unable to adopt and approve an Annual FSG Plan with
respect to any Fiscal Year, then until approval of an Annual FSG Plan for such
Fiscal Year, Manager shall operate FSG and the FSG Business in the manner
provided by and in accordance with the last Annual FSG Plan approved by the FSG
Board until such time as a new Annual FSG Plan is approved by the FSG Board.
3.5 FSG to Bear All Gross Operating Expenses and Capital Expenditures. In
performing its duties as Manager of FSG and the FSG Business during the Term,
Manager shall act for the account of FSG and the FSG Business. All direct, store
level operating expenses and all capital expenditures incurred by Manager under
this Agreement (for the account of FSG) or by FSG with respect to the FSG
Business or the Annual FSG Plan (collectively, the "FSG Expenses") shall be
borne exclusively by FSG. Attached as Schedule 3.5 hereto is a description, by
category, of the FSG Expenses that FSG will bear and pay. Manager shall in no
event be required to advance any of its funds for FSG Expenses nor shall Manager
incur any liability in connection therewith unless FSG shall have furnished
Manager with funds necessary for the discharge thereof.
3.6 Books and Records of Manager. Manager shall keep full and adequate
books of account and other records reflecting the results of operation of FSG
and the FSG Business. The books of account and all other records relating to or
reflecting the operation of FSG and the FSG Business (together with all computer
software and computer databases related thereto) shall be kept at Manager's
central corporate offices and shall be made available to FSG and its
representatives and its auditors or accountants. All of such books and records
pertaining to FSG and the FSG Business, including, without limitation, computer
software, computer databases, and books of account shall be the property of FSG.
Such books and records shall be maintained so that fully audited financial
statements of FSG can be rendered FSG's independent accountants in accordance
with generally accepted accounting principles. FSG shall have the right, at its
option and expense, to inspect, copy, or audit such books at any reasonable
time.
3.7 Specific Powers of Manager. Without limiting the generality of Section
3.2, Manager shall have the additional power and authority on behalf of and in
the name of FSG, at FSG's sole cost and expense and subject to the terms of this
Agreement and the applicable Annual FSG Plan:
(a) to enter into agreements (or cause FSG to enter into agreements),
including, without limitation, (i) contracts to market, sell and distribute
products of the FSG Business, (ii) contracts, leases and all other
documents of whatever type and kind necessary or incident to the operation
of the FSG Business, (iii) agreements to hire, on behalf of FSG, such
professionals or other experts as Manager deems to be necessary or
desirable in connection with the operation of the FSG Business, and (iv)
agreements to employ and/or dismiss from employment any and all employees,
agents, consultants and independent contractors, and obtain all
brokerage-management, legal, leasing, accounting, secretarial, bookkeeping,
and other services as Manager deems to be necessary or incident to the
operation of the FSG Business;
(b) to pay, collect, settle, compromise, arbitrate, resort to legal
action or otherwise adjust claims or demands of or against FSG or the FSG
Business;
(c) to purchase and maintain in the name and on behalf of FSG fire and
extended coverage, liability, workers' compensation, rental, business
interruption and other insurance with respect to the FSG Business in the
amounts set forth in the Annual FSG Plan;
(d) to supervise and maintain complete books and records of the FSG
Business, on forms and in accordance with procedures designed and utilized
by Manager in its sole discretion;
(e) to charge against the revenues of FSG the costs and expenses
incurred by Manager with respect to the FSG Business under this Agreement,
other than the overhead expenses of Manager that shall not be charged to
FSG or deducted from the revenues of the FSG Business;
(f) to borrow any monies in the amounts set forth in the then current
Annual FSG Plan upon terms and conditions set forth in such Annual FSG
Plan;
(g) to negotiate, enter into and execute new or additional mortgages
or other security agreements on any of the assets of the FSG Business as
set forth in the then current Annual FSG Plan and to execute any and all
documents and perform any and all acts to carry out the intentions and
purposes of the then current Annual FSG Plan;
(h) to engage and compensate attorneys, accountants and other
professional persons to perform such services as are necessary or
appropriate (in Manager's judgment) in connection with the operations of
the FSG Business and the performance of Manager's obligations under this
Agreement and the then current Annual FSG Plan; (i) to establish all
budgets for the FSG Business in accordance with the then current Annual FSG
Plan;
(j) to establish and determine all policies for the operation of the
FSG Business, including, without limitation, establishing all prices, price
schedules, rates, rate schedules, product offerings, product mix, vendors,
vendor payment terms, vendor contracting terms, store lease terms and the
implementation of personnel policies and procedures; and
(k) to establish and maintain bank and other depository accounts for
FSG, to collect and deposit all proceeds from the operation or sale of the
FSG Business or the assets of FSG, and to make payments and withdrawals
from such accounts for FSG Expenses and Base FSG Fees,
3.8 Business of Manager. Manager shall devote so much of Manager's time to
the FSG Business as in Manager's judgment reasonably shall be required to
conduct it. Nothing in this Agreement shall prevent or prohibit Manager or
Manager's Affiliates from continuing, entering into, engaging in, or conducting,
for its own account, any other business of whatever kind or nature, it being
acknowledged that Manager and Manager's Affiliates are presently engaged and may
continue to be engaged in activities directly competing against the FSG Business
(including, without limitation, the performance of services by Manager with
respect to Manager's own businesses and the businesses of its Affiliates).
3.9 Limitation on Manager's Authority. Manager shall not, without the
approval of FSG's Board:
(a) Take any action that is not consistent with the Annual FSG Plan or
fail to take any action taken is required to be taken as set forth in the
Annual FSG Plan; or
(b) Except as set forth in the Annual FSG Plan, borrow any funds in
the name of FSG, in the name of Manager (for the benefit of FSG or the FSG
Business) or secured by any portion of the assets of FSG (whether such loan
is on a secured or unsecured basis).
3.10 Publicity and Public Relations. FSG shall have the exclusive right to
control, manage and monitor all publicity and public relations with respect to
FSG and the FSG Business. All advertisement, publicity, public relations and
media releases shall be approved by FSG before implementation by Manager.
4. Base FSG Fee.
4.1 Compensation of Manager. Manager shall receive, as Manager's complete
compensation for the services to be performed by Manager hereunder, the amount
(the "Base FSG Fee") forth in Exhibit B hereto. In the event of an early
termination of the Term in accordance with the terms of this Agreement, the Base
FSG Fee shall be prorated to the date of such termination. In the event Manager
shall have advanced any funds in payment of FSG Expenses (although Manager shall
not be obligated to make any such advances under any circumstances), then FSG
agrees to promptly reimburse Manager the amount advanced by Manager for FSG
Expenses. In no event shall any fees or other compensation be due or payable to
Manager or any Affiliate of Manager by FSG other than (a) the Base FSG Fee, (b)
other costs and expenses for which Manager may be reimbursed by FSG in
accordance with this Section 4.1.
4.2 Payment of Base FSG Fee. The Base FSG Fee shall be payable in monthly
installments, due on the 25th day of each calendar month during the Term hereof.
4.3 Manager to Pay Manager's Expenses. Manager shall bear and pay, without
contribution from FSG (except with respect to maintenance expenses as described
below in the Section), the Manager's Expenses; which term shall mean and include
(a) all insurance expenses, including casualty, liability, employment practices,
and umbrella policies applicable to the Drive-Thru Stores (but excluding
worker's compensation insurance which is among the FSG Expenses), (b)
compensation expenses (including worker's compensation and taxes) for the
management of FSG that is employed by Manager, (c) all maintenance expenses
incurred with respect to (i) the Drive-Thru Stores and (ii) the Manager's
Assets, and (d) the other costs and expenses described by category in Exhibit
4.3 However, to the extent that the maintenance services performed by the
Manager are attributable to the Drive-Thru Stores, then FSG shall pay or
reimburse UPET for the actual cost thereof, in addition to the Base FSG Fee. The
Manager will invoice FSG for such maintenance expenses, and reasonably document
the extent to which such maintenance expenses are attributable to the Drive-Thru
Stores and therefore payable by FSG. Such invoices shall be payable by FSG to
Manager with the next succeeding payment of Base FSG Fees due after such invoice
is rendered.
5. Additional Covenants of Manager and FSG
5.1 Financial Reports.
(a) Manager shall work with the senior executive officers of FSG to prepare
and deliver to FSG and to FSG Board within twenty (20) days after the end of
each calendar month an interim accounting report showing the results of the
operation of the FSG Business for such month, for the Fiscal Year to date and a
computation of gross receipts, gross operating expenses, and net operating
income. Such interim accounting and the annual accounting referred to below
shall: (i) shall set forth the information requested under this Agreement for
the FSG Business in a consolidated format and in a format that reflects the
results from operation of each Drive-Thru Store, and (ii) shall set forth such
other information as is required in the Annual FSG Report.
(b) Within ninety (90) days after the end of each Fiscal Year, Manager and
FSG's senior executive officers shall deliver to the FSG Board (in a
consolidated format and in a format that reflects the results from operation of
each Drive-Thru Store) an annual accounting report (including balance sheet,
income statement and other financial statements), audited by a nationally
recognized firm of certified public accountants selected by FSG.
(c) Manager shall, upon the request of FSG, prepare for FSG (or FSG's
lender(s)) or assist FSG in the preparation of such additional financial reports
with respect to FSG or the FSG Business as FSG or FSG's lender(s) may reasonably
request or may be required in the preparation of the audited annual accounting
to be prepared pursuant to this Section 5.
5.2 Periodic Meetings With FSG. Manager shall meet with the FSG Board from
time to time during the term of this Agreement as requested by the FSG Board and
at least on a quarterly basis in order to discuss, formulate and evaluate action
plans and the strategic initiatives of the FSG Business, including the pricing
and marketing strategy of the FSG Business, the actions and proposed actions of
Manager with respect to FSG and the FSG Businss in order to achieve the results
contemplated by the Annual FSG Plan and the status of the Annual FSG Plan.
5.3 Manager Not to Enter Drive-Thru Business. Manager acknowledges and
agrees that FSG and/or its affiliates (i) has developed a system for convenience
stores utilizing a drive-through operating concept (the "Concept") which is
proprietary and certain components of which are, confidential and gives it a
competitive advantage, and which includes, among other things, distinguishing
features such as unique design and distinctive exterior and interior design,
layout, trade dress, and color scheme and operating systems for use within the
drive-through store (collectively, the "Proprietary Features"), (ii) is the
owner and holder of a patent for its modular prefabricated drive-through
convenience stores, and (iii) treats as proprietary and confidential its
expertise and know-how relating to the design, construction, furnishing,
provisioning, maintenance, and operation of its drive-through convenience
stores. Accordingly, Manager agrees that it and its Affiliates will not,
directly or indirectly appropriate, use or duplicate the Concept or the
Proprietary Features, or any portion of the foregoing. Manager further covenants
and agrees that neither it nor any of its Affiliates will either directly or
indirectly, for itself, or through, on behalf of, or in conjunction with any
person, partnership, association, joint venture, corporation, or other legal
entity, engage in, be employed by, or have any interest in any business using a
building design incorporating a double drive-through operating concept. The
foregoing covenant and agreement is intended to apply for the maximum time
period, in the maximum geographical area, and to the maximum extent permitted by
applicable law. This provision shall expressly survive and remain enforceable
after and notwithstanding any termination of this Agreement. Any breach or
default hereunder would cause irreparable damages to FSG; therefore, this
provision may be enforced by injunction against any breach or threatened breach
thereof.
5.4 Real Estate Opportunities. In the event that the Manager locates a
parcel of real estate that is suitable for development into a drive-thru store
with gasoline or a walk in store, then the Company shall have the first
opportunity to consider development of such location for a walk in store
location, before FSG shall be afforded the opportunity to develop the same. FSG
shall give the Company notice of any such site that it wishes to develop, and
shall not develop such site provided that the Company shall respond to FSG's
notice within 30 days after such notice is given by notifying FSG that it
intends to develop such site. The parties acknowledge that the real estate
opportunities of FSG and the Company differ because FSG requires smaller lots
than does the Company.
6. Insurance for FSG and Manager.
6.1 Insurance for FSG. Manager shall cause FSG to maintain, at all times
during the Term, the insurance respecting FSG and the FSG Business in amounts
and with responsible and properly licensed companies as set forth in the Annual
FSG Plan or as otherwise approved by the FSG Board. All policies evidencing the
foregoing insurance shall name FSG as the principal insured and shall name
Manager and (if required by FSG) any mortgagee of FSG and the Drive-Thru Stores
as additional insureds thereunder by endorsement. Such insurance policies and
certificates shall satisfy the requirements of Schedule 6.1 hereto.
6.2 Manager's Insurance. Manager may, but shall not be required to,
maintain such insurance covering Manager and Manager's Affiliates as Manager
determines to be appropriate.
7. Disclosure Regarding Relationships; Waivers and Consents.
7.1 Disclosure Regarding Relationships. Each of the parties hereto
acknowledges and agree as follows: (i) Jose P. Bared and his family members and
their respective Affiliates (collectively, the "Bared Affiliates") own or
control at least forty-eight percent (48%) of the capital stock of United
Petroleum Corporation ("UPET") and UPET owns and controls one hundred percent
(100%) of the capital stock of Manager, (ii) the Bared Affiliates own or control
at least 90% of the capital stock of FSG, (iii) Joe Bared and Carlos Bared are
members of the board of directors of UPET, (iv) Joe Bared and Carlos Bared are
members of the board of directors of FSG, (v) Joe Bared and Carlos Bared are
members of the board of directors of Manager, and (vi) UPET owns 10% of the
capital stock of FSG.
7.2 Intentionally Omitted.
8. Liability of Manager; Indemnification.
8.1 Liability of Manager/Exculpation. Manager shall not be liable and is
hereby exonerated by FSG and any of its Affiliates for any and all losses,
damages, expenses, fines, penalties, liabilities, judgments, settlements, and
claims arising out of or in connection with (a) the operation of the FSG
Business, (b) the acts or omissions of Manager under or in connection with this
Agreement, (c) any mistake or error in judgment, (d) any action taken or
omission made by Manager that Manager believed was in good faith or within the
scope of the authority conferred on Manager by this Agreement or the Annual FSG
Plan; provided however that Manager shall be liable for those actual damages
that are directly caused by the any act or omission of Manager that constitute
gross negligence or willful misconduct. Manager may consult with legal counsel
and accountants selected by Manager, and Manager shall be fully protected in and
have no liability for any action taken or omission made by Manager in good faith
and in reliance upon and in accordance with the opinion or advice (whether
written or otherwise) of such counsel or accountant.
8.2 Indemnity.
(a) FSG shall indemnify and hold harmless Manager, any Affiliates of
Manager, and any of their respective partners, employees, agents, attorneys,
directors and officers (each an "Indemnitee") with respect to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that it is the Manager, an
Affiliate of Manager, or an employee, agent, attorney, partner, director or
officer of Manager or any Affiliate of Manager, involving an alleged cause of
action arising from the activities of such Indemnitee and which activities (or
omissions) were on behalf of FSG, the FSG Business, the respective property,
business or affairs of FSG and the FSG Business, or in connection with this
Agreement in any way (each, a "FSG Claim"). FSG shall indemnify such Indemnitee
against any and all losses, claims, demands, liabilities, costs and expenses,
including reasonable attorneys' fees, judgments, penalties, fines and amounts
paid in settlement, actually and reasonably incurred by such Indemnitee in
connection with such action, suit or proceeding, provided that the Indemnitee's
conduct does not constitute gross negligence or willful misconduct. The
termination of a proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption that an Indemnitee's actions or omissions constituted gross
negligence or willful misconduct unless a specific finding to such effect is
included in such judgment, order, settlement, conviction or plea and all appeals
have been exhausted.
(b) Expenses (including reasonable legal fees and expenses) incurred by an
Indemnitee in defending against any FSG Claim shall be paid by FSG to the
appropriate Indemnitee in advance of the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of the Indemnitee to repay such
amount if it shall ultimately be determined, by a court of competent
jurisdiction or otherwise, that the Indemnitee is not entitled to be indemnified
by FSG as authorized hereunder.
(c) If a claim or assertion of liability is made or asserted by a third
party against an Indemnitee, that, if prevailed upon by any such third party,
would result in the Indemnitee being entitled to indemnification pursuant to
this Section 8, the Indemnitee will provide FSG prompt written notice of the
claims or assertion of liability and request the FSG to defend the same. Failure
to so notify the FSG will not relieve FSG of any liability that FSG has or might
have to the Indemnitee except to the extent that such failure actually
prejudices the FSG's legal position. FSG will have the obligation to defend
against such claim or assertion (if the Indemnitee is entitled to
indemnification pursuant to this Section 8), and FSG will give written notice to
the Indemnitee of acceptance of the defense of such claim and the name of the
counsel selected by FSG to defend such claim. The Indemnitee will be entitled to
participate with FSG in such defense and also will be entitled, at its option
and expense, to employ separate counsel for such defense. In the event FSG does
not assume the defense of the claim or in the event that FSG or its counsel
fails to use reasonable care in maintaining such defense, the Indemnitee will
have the right to employ counsel for such defense at the expense of FSG (unless
the Indemnitee is not entitled to indemnification under this Section 8). FSG and
the Indemnitee will cooperate with each other in the defense of any such action
and the relevant records of each will be made available to the other with
respect to such defense.
(d) No Indemnitee will be entitled to indemnification under this Section 8
for a claim if it has entered into any settlement or compromise of such claim
giving rise to any indemnifiable loss without the written consent of FSG. If a
bona fide settlement offer is made with respect to a claim and FSG desires to
accept and agree to such offer, FSG will give written notice of settlement to
the Indemnitee to that effect. If the Indemnitee fails to consent to the
settlement offer within ten (10) calendar days after receipt of the notice of
settlement, then the Indemnitee will be deemed to have rejected such settlement
offer and will be responsible for continuing the defense of such claim and, in
such event, the maximum liability of FSG as to such claim will not exceed the
amount of such settlement offer plus any and all reasonable costs and expenses
paid or incurred by the Indemnitee up to the date of the notice of settlement
and that are otherwise the responsibility of FSG pursuant to this Section 8.
(e) The indemnification provided by this Section 8 shall be in addition to
any other rights to which an Indemnitee may be entitled, in any capacity, under
any agreement, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity. The rights to
indemnification under this Section 8 shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
(f) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 8 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 8 are solely for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators, and shall not
be deemed to create any rights for the benefit of any other Persons. It is
expressly understood and agreed that the provisions of this Section 8 shall
survive the termination or expiration of this Agreement for all purposes.
9. Events of Default and Remedies.
9.1 Events of Default. Each of the following shall constitute an event of
default ("Event of Default") hereunder:
(a) The failure of a party to pay to the other party any sum that may
become due hereunder on or before the expiration of fifteen (15) days after
receipt of written to the party that has failed to pay by the party
entitled to payment specifying such failure to pay; or
(b) The failure of a party to perform, keep or fulfill any of the
terms, covenants, undertakings, obligations or conditions set forth in this
Agreement (other than those referred to in the foregoing paragraph (a), and
the continuance of such failure for a period of thirty (30) days after
written notice to such party by the other party specifying such failure,
or, in the event such failure is of such a nature that it cannot, with due
diligence and in good faith, be cured within thirty (30) days, the failure
of the non-performing party to commence to cure the same within such
thirty-day period and thereafter to prosecute the curing of such failure
with due diligence and in good faith; provided, however, that such failure
is cured within sixty (60) days after the date any written notice is
received by the non-performing party; or
(c) If a party shall file a voluntary petition in bankruptcy or for
arrangement, reorganization or other relief under any chapter of the United
States Bankruptcy Code or any similar law, state or federal, now or
hereafter in effect, or shall file an answer or other pleading in any
proceeding admitting insolvency, bankruptcy or inability to pay its debts
as they mature; or if within ninety (90) days after the filing against the
defaulting party of any involuntary proceedings under the United States
Bankruptcy Code or similar law, state or federal, now or hereafter in
effect, such proceeding shall not have been vacated; or if all or a
substantial part of a party's assets are attached, seized, subjected to a
writ or distress warrant, or are levied upon, unless such attachment,
seizure, writ, warrant or levy is vacated within ninety (90) days; or if a
party shall be adjudicated a bankrupt; or if a party shall make an
assignment for the benefit of creditors or shall admit in writing its
inability to pay its debts generally as they become due or shall consent to
the appointment of a receiver or trustee or liquidator of all or the major
part of its property; or if any order appointing a receiver, trustee or
liquidator of a party or all or a major part of the property of such party
is not vacated within ninety (90) days following the entry thereof.
9.2 Cumulative Remedies. Upon occurrence of an Event of Default, a
non-defaulting party may give to the defaulting party notice of intention to
terminate such non-defaulting party's obligations under this Agreement after the
expiration of a period of fifteen (15) days from the date of such notice and,
upon the expiration of such fifteen-day period, the non-defaulting party's
obligations under this Agreement shall terminate (except for indemnification
obligations and the obligations to pay the Base FSG Fee to the date of such
termination, which shall survive the termination of this Agreement as provided
herein). Any termination upon the occurrence of an Event of Default shall be
without prejudice to any right to damages that the non-defaulting party may have
against the defaulting party under applicable law. All remedies herein expressly
provided for are cumulative of any and all other remedies existing at law or in
equity and are cumulative of any and all other remedies as may now or hereafter
exist under this Agreement, at law or in equity, for the enforcement of the
covenants herein and the resort to any remedy provided for hereunder or provided
for by law or equity shall not prevent the concurrent or subsequent employment
of any other appropriate remedy or remedies.
10. Successors and Assigns.
10.1 Assignment by Manager. Manager shall not have the right to assign its
rights and obligations under this Agreement, without the prior written consent
of the FSG Board. It is understood and agreed that any approval given by FSG to
any assignment shall not be deemed a waiver of the covenant herein contained
against assignment in any subsequent case. Subject to the foregoing, any
assignee who succeeds to the interest of Manager hereunder (or to the interest
of an assignee of Manager hereunder) shall be deemed to be Manager hereunder for
all purposes, and any approved assignee shall expressly assume in writing the
obligations of Manager hereunder.
10.2 Assignment by FSG. FSG shall not have the right to assign its interest
in this Agreement, without the prior approval of Manager. It is understood and
agreed that any approval given by Manager to any assignment shall not be deemed
a waiver of the covenant herein contained against assignment in any subsequent
case. Subject to the foregoing, any assignee who succeeds to the interest of FSG
hereunder (or to the interest of an assignee of FSG hereunder) shall be deemed
to be FSG hereunder for all purposes, and any approved assignee shall expressly
assume in writing the obligations of FSG hereunder.
10.3 Binding on Successors. The terms, provisions, covenants, undertakings,
agreements, obligations and conditions of this Agreement shall be binding upon
and shall inure to the benefit of the successors in interest and the assigns of
the parties hereto with the same effect as if mentioned in each instance where
the party hereto is named or referred to.
11. Notices.
11.1 All notices required hereunder shall be given in writing and shall be
deemed given when delivered by messenger, a national overnight courier or
delivery service, or by the U.S. mails (and, if mailed, shall be deemed received
four (4) business days after the postmarked date thereof), with postage prepaid,
registered or certified,
if to FSG, delivered or addressed to:
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Attention: --------------------
with a copy (that shall not constitute notice) to:
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Attention: --------------------
if to Manager, delivered or addressed to:
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Attention: --------------------
with a copy (that shall not constitute notice) to:
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Attention: --------------------
Any party hereto may change its address for notices hereunder by notice of such
change to the other parties hereto in the manner herein above provided.
12. Further Instruments.
12.1 Each party hereto shall execute and deliver all such other appropriate
supplemental agreements and other instruments and take such other action as may
be necessary to make this Agreement fully and legally effective, binding and
enforceable as between the parties hereto and as against third parties, as the
other party may reasonably request.
13. Applicable Law.
13.1 This Agreement shall be governed in all respects by the internal laws
of the State of Florida, without regard to the conflict of law rules of the
State of Florida.
14. Estoppel Certificates.
14.1 FSG and Manager. FSG and Manager agree, at any time and from time to
time, as requested by the other party upon not less than ten (10) days' prior
written notice, to execute and deliver to the other a statement certifying that
this Agreement is unmodified and in full force and effect (or if there have been
modifications, that this Agreement is in full force and effect as modified and
stating the modifications), certifying the dates to which required payments have
been paid, and stating whether or not, to the best knowledge of the signer, the
other party is in default in performance of any of its obligations under this
Agreement, and if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by others with whom the party requesting such certificate may
be dealing.
15. Title.
15.1 This Agreement is not, and shall not be deemed at any time to be, an
interest in real estate or a lien or security interest of any nature FSG or the
Drive-Thru Stores, any land used in connection therewith, other personal
property existing or hereafter acquired, or any agreement that may now or
hereafter be entered into with respect to FSG or the FSG Business.
16. No Restricted Activities.
16.1 Except as provided in Section 5.3 regarding the agreement of Manager
and its Affiliates not to enter into or have any role in a business involving a
drive-thru operating concept, nothing in this Agreement shall be deemed in any
way to prohibit or restrict the right or freedom of any of the parties hereto or
their respective Affiliates to conduct any business or activity (including
without limitation, the acquisition, owning, developing, improving, managing,
operating, selling, or otherwise disposing of other assets, corporate divisions,
properties, businesses, or companies) without any obligation or accountability
to the other party hereto, even if such business or activity competes with the
business of the other party hereto in any way.
17. Force Majeure Causes - Extension of Time to Perform.
17.1 Time is of the essence of this Agreement; provided, however, that the
time periods and the time limitations set forth in this Agreement, except with
respect to monetary obligations, shall be extended for the period of any delay
due to Force Majeure Causes; provided further, however, that in no event shall
such time periods or time limitations be extended for a period of time in excess
of an aggregate of thirty (30) days in any calendar year for the benefit of any
party to this Agreement.
18. No Representations by Manager Regarding Future Performance.
18.1 In entering into this Agreement, FSG (a) acknowledges and agrees that
Manager has made no representations or warranties, express or implied, with
respect to the projected earnings, the possibility of future success or any
other similar matter respecting FSG or the FSG Business, and (b) understands and
agrees that no guarantee or assurance is made as to any specific amount of
income to be received by FSG or as to the future financial success of FSG or the
FSG Business.
19. No Partnership; Fiduciary Duties.
19.1 Nothing in this Agreement shall constitute, or be construed to be or
to create, a partnership or joint venture between or FSG and Manager with
respect to the matters described in this Agreement. In the performance of this
Agreement, Manager shall act solely as an independent contractor. Neither this
Agreement nor any agreements, instruments, documents or transactions
contemplated hereby shall in any respect be interpreted, deemed or construed as
making either party a partner, joint venturer, principal or agent or otherwise
within a fiduciary or similar relationship with, or with respect to, any other
party or as creating any similar relationship or entity, and each party hereto
agrees that it will not make any contrary assertion, contention, claim or
counterclaim in any action, suit or other legal proceedings involving Manager or
FSG. No duties (whether statutory, at common law, in equity, as a fiduciary,
implied or otherwise) shall be, or shall be deemed to be, created by this
Agreement, other than those duties and obligations that are expressly set forth
in this Agreement.
20. Interpretation.
20.1 The headings and captions herein are inserted for convenient reference
only, and the same shall not limit or construe the paragraphs or sections to
which they apply or otherwise affect the interpretation hereof.
20.2 The terms "hereby," "hereto," "herein," "hereunder," and any similar
terms shall refer to this Agreement, and the term "hereafter" shall mean after,
and the term "heretofore" shall mean before, the date of this Agreement.
20.3 The terms "include," "including" and similar terms shall be construed
as if followed by phrase "without limitation."
20.4 No term or provision of this Agreement shall be construed against or
interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.
21. Severability.
21.1 If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under the present or future laws effective during the term of this
Agreement, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Agreement; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance from
this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible that is legal, valid, and enforceable.
22. Multiple Counterparts.
22.1 This Agreement may be executed in several counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument; provided, however, that in making proof hereof it shall be necessary
to produce only one copy hereof signed by the party to be charged.
23. No Third Party Beneficiary.
23.1 This Agreement is made solely and specifically among and for the
benefit of the parties hereto, and their respective successors and assigns
subject to the express provisions hereof relating to successors and assigns, and
no other person shall have any rights, interest or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise.
24. Amendments.
24.1 All amendments to this Agreement shall be in writing and signed by all
the parties to this Agreement.
25. Complete Agreement.
25.1 This Agreement constitutes the complete and exclusive statement of the
agreement between the parties and supersedes all prior writings or agreements by
and between the parties with respect to the subject matter hereof. This
Agreement supersedes all prior written and oral statements between the parties
with respect to the subject matter hereof and no representation, statement,
condition or warranty made by one party to another not contained in this
Agreement shall be binding on the parties or have any force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Management
Agreement as of the day and year first above set forth.
FSG:
FARM STORE GROCERY, INC.,
a Delaware corporation
By:
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Name:
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Title:
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MANAGER:
UNITED PETROLEUM GROUP, INC., a
Delaware corporation
By:
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Name:
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Title:
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<PAGE>
Exhibit A
List of Executives
President and Chief Executive Officer
Vice President, Finance and Chief Financial Officer
Executive Vice President - Operations
Chief Administrative Officer
Vice President - Drive-Thru Operations
Vice President - Walk-in Operations
Vice President - Marketing and Merchandising
General Counsel
Controller
Director, Information Systems
Director, Human Resources
Director, Internal Audit
Director, Drive-Thru Operations
Director, Walk-in Operations
Director, Facilities
Director, Real Estate
Director, Loss Prevention and Security
<PAGE>
Exhibit B
Management Fees
$24,000 per store up to 108 stores
Next 30 stores - $14,000 per store
Next 30 stores - $8,000 per store
<PAGE>
Schedule 3.5
Expenses included in Management Fee: UPET Expenses:
All of the personnel, related wages, expenses and benefits necessary to perform
the following functions:
Accounting and Finance
Payroll Processing
General Administration
Human Resources
Loss Prevention/Security/Internal Audit
Marketing and Merchandising
Management Information Systems/POS
Real Estate and Store Development
Fuel Marketing
Retail Supervision/Operations
Facilities Maintenance
Legal
Shared expenses, including, but not limited to, the following expenses:
Non-Store Level Expenses:
Group Insurance
401K Plan
Fringe Benefits
Workers' Comp.
Supplies
Water/Sewer/Trash
Electric/Gas
Telephone
Beepers
Rent
Equipment Rental
Taxes
Licenses
Depreciation
Security
Repairs & Maintenance - Building
Repairs & Maintenance - Equipment
Service Contracts
Common Area Maintenance
Auto Rental
Leased Auto Termination
Fuel Expense
Auto Repairs
Truck Repairs
Uniforms
Temporary Labor
Computer Supplies
Travel & Entertainment
Miscellaneous Expense
Relocation Expense
Severance Pay
Seminars
General Expenses:
Bank Charges (other than those allocated to a Store)
Training
Auto Allowance
Courier Fee
Postage/Freight
Employee Relations
Classified Advertising
Advertising
Marketing Expense
Promotions (other than those allocated to a Store)
Pre-employment Expense
All Insurance policies
Off-site Storage
Donations
Interest Expense
Deferred Loan Expense
Dues & Subscriptions
Legal Fees
Audit Fees
Consultant Fees
401K Administration Fees
Expenses Excluded from Management Fee; FSG Expenses:
Direct Store-Level Expenses, including:
Inventory
Grocery Cost of Sales
Fuel Cost of Sales
Fuel Delivery
Payroll*
Overtime*
Bonus*
Vacation Pay*
Sick Pay*
Holiday Pay*
FICA*
Unemployment Taxes*
Group Insurance*
401K Plan*
Fringe Benefits*
Workers' Compensation*
Supplies
Fuel Over/Short
Grocery Over/Short
Cash Over/Short
Deposit Variances
Bank Adjustments
Returned Checks
Credit Card Chargebacks
Money Order Losses
Lottery Losses
Spoilage
Water/Sewer/Trash
Electric/Gas
Telephone
Rent
Rent Overage
Equipment Rental
Real Estate Taxes
Personal Property Tax
Taxes
Licenses
Depreciation
Security
Armored Car Fees
Service Contracts
Common Area Maintenance
Misc. Maintenance Expense
Bank Charges (assessed by local banks solely for monthly service and similar
fees)
Credit Card Fees
Fuel Expense
Auto Repairs
Computer Supplies (equipment in stores only)
In-house Coupon Redemption
Window Signs
Grand Opening Expense
Travel
Promotions (assessed as a result of store-level redemptions)
Drive-Thru Store Supervision/District Managers/Regional Managers
* Includes all personnel up to and including Drive-Thru Store Regional Managers
LOAN AGREEMENT
LOAN AGREEMENT dated November 3, 1999 among UNITED PETROLEUM
CORPORATION, a corporation organized under the laws of the State of Delaware
("UPET"), UNITED PETROLEUM GROUP, INC., a corporation organized under the laws
of the State of Delaware and formerly known as United Petroleum Subsidiary, Inc.
("UPET Group"), F.S. CONVENIENCE STORES, INC., a corporation organized under the
laws of the State of Florida ("F.S. Stores"), F.S. GAS SUBSIDIARY, INC., a
corporation organized under the laws of the State of Florida ("F.S. Gas"), F.S.
NON-GAS SUBSIDIARY, INC., a corporation organized under the laws of the State of
Florida ("F.S. Non-Gas"), REWJB GAS INVESTMENTS, a Florida general partnership
("REWJB Gas"), JACKSON-UNITED PETROLEUM CORPORATION, a corporation organized
under the laws of the Commonwealth of Kentucky ("Jackson"), CALIBUR SYSTEMS,
INC., a corporation organized under the laws of the State of Tennessee
("Calibur"), (UPET, UPET Group, F.S. Stores, F.S. Gas, F.S. Non-Gas, REWJB Gas,
Jackson and Calibur, collectively, "Borrowers") and HAMILTON BANK, N.A., a
national banking association ("Bank").
WHEREAS, Borrowers have requested the Bank to make available to
Borrowers a US$4,233,000 Revolving Credit Facility, a US$8,300,000 Mortgage Loan
Facility and a US$10,467,000 Term Loan Facility, all upon and subject to the
terms and conditions of this Agreement;
ACCORDINGLY, the parties agree as follows:
ARTICLE I: DEFINITIONS
In this Agreement:
1.1 "Banking Day" means any day other than a Saturday, Sunday or legal
holiday on which banks are authorized or required to be closed in Miami,
Florida and New York, New York, and, with respect to LIBOR Loans, a day
on which banks also are open and dealing in Dollars in the London,
England interbank market.
1.2 "Borrowing Base" means the Dollar amount determined in accordance with
Section 2.1(c).
1.3 "Closing Date" means November 3, 1999 or such other date for closing the
Loans as agreed to by the Bank and UPET.
1.4 "Collateral" means the assets of Borrowers described in Article VIII
assigned to the Bank, mortgaged to the Bank or in which a security
interest is granted to the Bank to secure the Loans and other
Liabilities of Borrowers to the Bank.
1.5 "Collateral Agreements" means the Lease Assignments, the Mortgages, the
Security Agreements, the Pledge Agreement and the collateral assignments
of the Purchase Agreement and the Management Agreement.
1.6 "Commitments" means the obligations of the Bank to make the Revolving
Credit Loans, the Mortgage Loan and the Term Loan to Borrowers.
1.7 "Documents" means this Agreement, the Notes and the Collateral
Agreements.
1.8 "Dollars" and "US$" means lawful money of the United States of America.
Any reference in this Agreement to payment in "Dollars" or "US$" means
payment in immediately available Dollar funds.
1.9 "Drawing Date" means any date on which a Revolving Credit Loan is made
by the Bank to a Borrower hereunder.
1.10 "Eurocurrency Reserve Requirements" means, for any day, the aggregate
(without duplication) of the rates (expressed as a decimal fraction) of
any reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System
or other Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of such Board) maintained by a member bank of such system.
1.11 "Event of Default" means any of the events mentioned in Article X of
this Agreement.
1.12 "GAAP" means generally accepted accounting principles applied on a basis
consistent with those used in Borrowers' financial statements.
1.13 "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
1.14 "Indebtedness" means any item which would properly be included as a
liability on the liability side of a balance sheet prepared in
accordance with GAAP as of any date as of which "Indebtedness" is to be
determined.
1.15 "Lease Assignments" means the instruments of assignment of the Leases to
the Bank.
1.16 "Leases" means the lease agreements by which Borrowers hold the
leasehold interests described in Schedule 1.16 attached hereto, and any
lease agreement by which any Borrower hereafter holds a leasehold
interest meeting the requirements of Section 6.10.
1.17 "Liabilities" means all obligations of borrowers under this Agreement
and the Notes and all other obligations of Borrowers to the Bank, its
successors and assigns, of every kind, nature and description, direct or
indirect, secured or unsecured, joint and several, absolute and
contingent, due or to become due, now existing or hereafter arising,
regardless of how they arose or by what instrument or whether evidenced
by any agreement or instrument. "Liabilities" includes obligations to
perform acts and to refrain from taking action as well as obligations to
pay money.
1.18 "LIBOR" means in respect of each LIBOR Interest Period, the rate per
annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
quoted on Reuters International System's "LIBO" page at approximately
11:00a.m. London time on the day two (2) Banking Days before the
beginning of the LIBOR Interest Period for the offering by leading banks
in the London interbank market of Dollar deposits for the term of such
LIBOR Interest Period and in amounts comparable to the principal amount
of the LIBOR Loan scheduled to be outstanding for the LIBOR Interest
Period.
1.19 "LIBOR Determination Date" means the last Banking Day of each LIBOR
Interest Period.
1.20 "LIBOR Interest Period" means each successive period of time used to
determine the rate of interest applicable to the principal of a LIBOR
Loan. The first LIBOR Interest Period of a LIBOR Loan shall commence on
the date specified by UPET for the commencement of the LIBOR Loan and
end on its first LIBOR Determination Date, and each subsequent LIBOR
Interest Period shall commence on the LIBOR Determination Date for the
preceding LIBOR Interest Period and end on the next succeeding LIBOR
Determination Date. Except as otherwise provided herein, LIBOR Interest
Periods shall be six (6) months for the LIBOR Mortgage Loan and one (1)
month for a LIBOR Revolving Credit Loan. If any LIBOR Determination Date
falls on a day which is not a Banking Day, it shall be adjusted and
determined in accordance with the practices of the offshore Dollar
interbank markets as from time to time in effect, provided, however,
that the last LIBOR Interest Period shall end no later than the date
specified by UPET for conversion of such LIBOR Loan into a Prime Rate
Loan, the fifth (5th) anniversary of the Closing Date or the date all
amounts outstanding hereunder become due whether by acceleration or
otherwise, as the case may be.
1.21 "LIBOR Revolving Credit Loan", "LIBOR Mortgage Loan" and "LIBOR Loans"
means a Revolving Credit Loan or the Mortgage Loan or both,
respectively, at any time during which interest thereon is calculated
with reference to LIBOR.
1.22 "Loans" means the Revolving Credit Loans, the Mortgage Loan and the Term
Loan.
1.23 "Management Agreement" means the Management Agreement to be entered into
between UPET Group and Farm Stores Grocery, Inc.
1.24 "Maturity Date" means the fifth anniversary (5th) of the Closing Date,
but in no event later than October 30, 2004.
1.25 "Merger Plan" means the Agreement and Plan of Merger dated September 29,
1999 among F.S. Stores, UPET and UPET Group and joined for certain
limited purposes by Farm Stores Grocery, Inc., as the same may be
amended from time to time.
1.26 "Mortgage Loan" means the term loan described in Section 2.2.
1.27 "Mortgages" means the first mortgages or deeds of trust in favor of or
for the benefit of the Bank on the Owned Real Properties.
1.28 "Notes" means the joint and several promissory notes of Borrowers
evidencing the Loans in substantially the form of Exhibit A attached
hereto.
1.29 "Owned Real Properties" means the real properties owned by Borrowers.
Owned Real Properties owned by Borrowers on the Closing Date are
described in Schedule 1.29 attached hereto.
1.30 "Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
1.31 "Pledge Agreements" means the Pledge Agreements pledging the shares of
Farm Stores Grocery, Inc. owned by one or more Borrowers and described
in Section 8.3 to the Bank in substantially the form of Exhibit B
attached hereto.
1.32 "Prime Rate" means the Dollar prime commercial rate as publicly
announced from time to time by Citibank, N.A. as its "prime rate".
1.33 "Prime Rate Loans" means the Term Loan and a Revolving Credit Loan or
the Mortgage Loan (or any portion thereof) or both, respectively, at any
time during which interest thereon is calculated with reference to Prime
Rate.
1.34 "Purchase Agreement" means the Purchase Agreement to be entered into
between UPET Group and Farm Stores Grocery, Inc. granting UPET Group an
option to purchase shares of Farm Stores Grocery, Inc.
1.35 "Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organization or governing documents
of such Person and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
1.36 "Revolving Credit Loans" means the revolving loans described in Section
2.1.
1.37 "Security Agreements" means the security agreements executed by each of
the Borrowers granting the Bank a first security interest in all of the
Borrower's personal property, each in substantially the form of Exhibit
C hereto.
1.38 "Term Loan" means the term loan described in Section 2.3.
1.39 "Year 2000 Compliant" means that the relevant party's computers,
computer systems and codes (i) will not fail to accurately and properly
read, process, perform mathematical calculations, store, sort,
distinguish, recognize, accept or interpret any data containing date
information prior to, during and after the year 2000, (ii) will not fail
to accurately and properly read and process the fact that the year 2000
is a leap year, (iii) will accurately and properly read and process
so-called "magic dates" such as the date "9/9/99" or any other date
field data used by the party to signify information other than the date
and (iv) will be compatible with any other party's computer system as to
Year 2000 Compliant matters with respect to circumstances described in
(i) - (iii) above.
ARTICLE II: THE LOANS
2.1 Revolving Credit Loans.
(a) Drawdowns. The Bank agrees, on the terms and conditions set
forth herein and upon at least two (2) Banking Days' prior
notice from UPET, to make Revolving Credit Loans jointly and
severally available to Borrowers in the aggregate principal
amount not at any time exceeding the lesser of the Borrowing
Base, as determined in subsection (c) below, or US$4,233,000.
The notice from UPET shall specify whether the Revolving Credit
Loan is to be a Prime Rate Loan or a LIBOR Loan, the Drawing
Date of the Loan and the account at the Bank of a Borrower to
which the Loan is to be credited and shall include or be
accompanied by a certificate setting forth the current
calculation of the Borrowing Base.
(b) Repayment. Borrowers shall have the right to repay in whole or
in part without penalty or premium Prime Rate Revolving Credit
Loans at any time and LIBOR Revolving Credit Loans on LIBOR
Determination Dates for the LIBOR Revolving Credit Loans being
repaid. Any such repayments of a LIBOR Revolving Credit Loan
also shall be upon at least two (2) Banking Days prior notice to
the Bank. Borrowers shall have the right prior to the Maturity
Date, or one (1) month prior to the Maturity Date in the case of
a LIBOR Revolving Credit Loan, to reborrow as provided in this
Section 2.1, provided, that, all outstanding Revolving Credit
Loans shall be due and payable jointly and severally by the
Borrowers on the Maturity Date. If at any time the aggregate
principal amount of outstanding Revolving Credit Loans shall be
greater than the Borrowing Base, Borrowers immediately shall
repay Revolving Credit Loans in an amount sufficient to reduce
the aggregate principal amount of outstanding Revolving Credit
Loans to less than the Borrowing Base. Repayments shall be
accompanied by payment of accrued interest on the amount repaid
to the date of repayment and, in the case of any repayment of a
LIBOR Revolving Credit Loan on a date other than its LIBOR
Determination Date, any amount required by Section 4.4 hereof.
(c) Borrowing Base. Until the first anniversary of the Closing Date,
the Borrowing Base for Revolving Credit Loans shall be at any
time an amount equal to the sum of eighty percent (80%) of
Borrowers' eligible accounts receivable plus eighty percent
(80%) of Borrowers' eligible inventory. Thereafter the Borrowing
Base for Revolving Credit Loans shall be at any time an amount
equal to the sum of eighty percent (80%) of Borrowers' eligible
accounts receivable plus seventy percent (70%) of Borrowers'
eligible inventory. Eligible accounts receivable are non-related
accounts of any borrower (i.e., accounts due from parties not a
Borrower or affiliated with any Borrower), for which there are
no contra accounts, that are outstanding for up to 60 days from
due date and otherwise complying with the representations and
warranties and other terms and conditions of the Security
Agreements. Any account with more than 50% of its balance past
due more than 60 days will be deemed ineligible in its entirety.
Eligible inventory is inventory of any Borrower complying with
the representations and warranties and other terms and
conditions of the Security Agreements and excludes the amount of
any reserve, for obsolescence or otherwise, placed against such
inventory on the financial statements of Borrowers. The Bank
retains the right from time to time to establish standards of
eligibility and reserves against availability in its sole but
reasonable discretion.
2.2 Mortgage Loan. The Bank agrees, on the terms and conditions set forth
herein, to make the Mortgage Loan to Borrowers in the principal amount
of US$8,300,000 on the Closing Date. The Mortgage Loan shall be
repayable jointly and severally by Borrowers in monthly level principal
and interest payments based upon a fifteen (15) year amortization
schedule (readjusted upon any change in interest rate to reflect such
change in interest rate) and a balloon payment on the Maturity Date of
all amounts then outstanding under the Mortgage Loan. Notwithstanding
the foregoing, in no event shall the principal amount of the Mortgage
Loan exceed eighty percent (80%) of the appraised value of the Owned
Real Properties as set forth in the appraisals described in Article IX.
2.3 Term Loan. The Bank agrees, on the terms and conditions set forth
herein, to make the Term Loan to Borrowers in the principal amount of
US$10,467,000 on the Closing Date. The Term Loan shall be repayable
jointly and severally by Borrowers beginning thirteen (13) months after
the Closing Date in equal monthly principal payments based upon a six
(6) year amortization schedule and a balloon payment on the Maturity
Date of all amounts then outstanding under the Term Loan.
Notwithstanding the foregoing or any other conflicting or inconsistent
provision herein, if the original principal amount of the Mortgage Loan
is less than US$8,300,000, the original principal amount of the Term
Loan, at the option of UPET, may be increased by up to US$750,000 of the
amount of such reduction in the Mortgage Loan, provided, however, that
the aggregate principal amounts of the Mortgage Loan and the Term Loan
shall not exceed US$18,767,000.
2.4 Interest. Borrowers jointly and severally shall pay interest on the
unpaid principal amount of the Loans from the date made available by the
Bank to a Borrower until maturity as follows:
(a) Revolving Credit Loans shall bear interest at the option of UPET
at rates per annum equal to (i) the sum of Prime Rate plus one
percent (1.0%) or (ii) the sum of three and seven-eighths
percent (3.875%) plus LIBOR. Any change in the Prime Rate shall
take effect immediately with respect to interest on Prime Rate
Revolving Credit Loans. Any Prime Rate Revolving Credit Loan may
be converted into a LIBOR Revolving Credit Loan upon two (2)
Banking Days prior notice by UPET to the Bank. Any LIBOR
Revolving Credit Loan may be converted on any LIBOR
Determination Date for such LIBOR Revolving Credit Loan into a
Prime Rate Revolving Credit Loan upon two (2) Banking Days prior
notice by UPET to the Bank.
(b) The Mortgage Loan shall bear interest at the option of UPET at
rates per annum equal to (i) the sum of Prime Rate plus one and
one-eighths percent (1.125%) or (ii) the sum of four percent
(4.0%) plus LIBOR. At least two (2) Banking Days prior to each
six (6) month anniversary of the Closing Date, UPET shall advise
the Bank whether the interest rate on the Mortgage Loan for the
following six (6) month period shall be computed with reference
to the Prime Rate in effect on the first day of such following
six (6) month period or LIBOR for such following six (6) month
period. If the Prime Rate option is selected, the interest rate
for the entire six (6) month period shall be based upon the
Prime Rate in effect on the first day of the six (6) month
period.
(c) The Term Loan shall bear interest at a rate per annum equal to
the sum of Prime Rate plus three percent (3.0%). Any change in
the Prime Rate shall take effect immediately.
(d) All interest shall be computed on the basis of the actual number
of days elapsed in a 360 day year and shall be payable monthly
in arrears and on payment in full of the Loans. Borrowers agree
that any amount of principal of any of the Loans, and to the
extent permitted by law interest, that is not paid on its due
date (whether at stated maturity, by acceleration or otherwise)
shall bear interest from such due date until paid in full at a
rate per annum equal to the rate provided in (a) - (c) above, as
the case may be, plus five percent (5.0%), provided that such
interest rate shall not at any time exceed the maximum rate
allowed by law. Default interest shall be payable on demand.
2.5 Prepayment of the Mortgage Loan and the Term Loan.
(a) Mandatory Prepayments.
(i) The net cash proceeds from the sale of any non-real estate
assets (other than (1) sales of inventory in the ordinary course
of business, (2) sales of assets to the extent the proceeds are
applied to the repair or replacement of Collateral and (3)
immaterial sales not exceeding US$50,000 in any fiscal year of
Borrowers) of any of the Borrowers shall be used to repay the
Term Loan. Any remaining excess proceeds from the sale of any
non-real estate assets after payment in full of the Term Loan,
shall be applied first to the Mortgage Loan and then to the
Revolving Credit Facility. Prepayments under this subsection
shall be due within ten (10) days of receipt of any cash
proceeds.
(ii) The net cash proceeds from the sale of any real estate
assets of any of the Borrowers shall be used to repay the
Mortgage Loan. Any remaining excess proceeds for the sale of any
real estate, after application to the Mortgage Loan, shall be
applied first to the Term Loan and then the Revolving Credit
Facility. Prepayments under this subsection shall be due within
ten (10) days of receipt of any cash proceeds.
(iii) Fifty percent (50%) of the cash proceeds received by any
Borrower from the issuance of debt securities by any Borrower,
net of all costs and expenses associated with the issuance of
such debt securities, shall be used to reduce Borrowers'
obligations first under the Term Loan, second under the Mortgage
Loan and third under the Revolving Credit Facility. Prepayments
under this subsection shall be due within five (5) days of
receipt of any cash proceeds.
(iv) Twenty-five percent (25%) of the cash proceeds received by
any Borrower from the issuance of equity securities by any
Borrower net of all costs and expenses associated with the
issuance of such equity securities, shall be used to reduce
Borrowers' obligations first under the Term Loan, second under
the Mortgage Loan and third under the Revolving Credit Facility.
Prepayments under this subsection shall be due within five (5)
days of receipt of any cash proceeds.
(v) The Term Loan shall be prepaid by an amount equal to
twenty-five percent (25%) of UPET's consolidated net income plus
depreciation and amortization (during the period under review)
minus principal payments made and net cash capital expenditures
(during the period under review), all computed in accordance
with GAAP. The calculations and prepayments shall be effected
for the six months prior to each fiscal year and for each
intervening six month period and for any "short" fiscal year due
to a change in UPET's fiscal year, provided that the first
period to which this subsection is applicable shall be the six
month period ending June 30, 2000 or the end of the "short"
fiscal year if a change in UPET's fiscal year occurs prior to
June 30, 2000. Prepayments under this subsection shall be due
within ninety (90) days of the end of a fiscal year for a period
under review ending on a fiscal year end and within forty-five
(45) days of the end of any intervening period under review.
(vi) Any partial prepayments shall be applied to installments of
principal due in the inverse order of their maturity. Any
mandatory prepayment of a LIBOR Loan on a date other than its
LIBOR Determination Date may, at the Bank's sole option, (A) be
held as cash collateral until such LIBOR Loan's next LIBOR
Determination Date and applied as a prepayment on such LIBOR
Determination Date or (B) be applied immediately by the Bank as
a prepayment, but without Borrowers incurring any liability for
any indemnity payment of any amount otherwise required by
Section 4.4 hereof.
(b) Voluntary Prepayments. Borrowers shall have the right, on any
Banking Day, to prepay the Mortgage Loan or the Term Loan or
both in whole or in part, provided that any prepayment of a
LIBOR Loan on a day other than a LIBOR Determination Date with
respect thereto shall be subject to payment of any amount
required by Section 4.4 hereof. Any partial prepayments shall be
in the amount of US$100,000 or an integral multiple thereof and
shall be applied to installments of principal due in the inverse
order of their maturity.
(c) Exit Fee. Any prepayment shall be accompanied by prepayment of
accrued interest on the amount prepaid. Subsequent to 18 months
from the Closing Date, an Exit Fee shall be payable for
prepayments of the Mortgage Loan or the Term Loan or both, other
than pursuant to Subsection 2.5(a) (v), in amounts equal to
(i) the amount prepaid divided by (A) the total principal
amounts of the Mortgage Loan and the Term Loan outstanding 18
months after the Closing Date less (B) the principal
amortization amounts scheduled to be paid from 18 months after
the Closing Date to the Maturity Date
multiplied by
(ii) US$350,000,
provided, however, that if prepayments of the Mortgage Loan or
the Term Loan or both have occurred within 18 months from the
Closing Date, the US$350,000 amount set forth above shall be
reduced by the percentage that such prepayments within 18 months
of the Closing Date bear to the total original principal amounts
of the Mortgage Loan and the Term Loan.
2.6 Payments. All payments hereunder shall be made without setoff or
counterclaim and shall be made through demand deposit accounts
maintained by each Borrower at the Bank's Main Office, 3750 N.W. 87th
Avenue, Miami, Florida 33178, U.S.A., (or at such other branch or office
of the Bank as the Bank may from time to time specify by notice to
UPET).
2.7 Withholding and Taxes.
(a) All amounts payable under this Agreement or under any of the
other Documents shall be made without set-off or counterclaim
and clear of and without deduction for any and all present and
future taxes, levies, imposts, deductions, charges,
withholdings, contributions, services, surcharges, exchange
commissions, penalties and all liabilities with respect thereto
imposed by any governmental or taxing authority (other than
income or franchise taxes based on or measured by the overall
net income or capital of the Bank imposed by the United States
of America or the State of Florida), including any stamp or
other taxes, registration fees or other duties, levies, imposts,
notarial fees or other charges of any nature whatsoever by
whomsoever imposed with respect to the preparation, execution,
delivery, registration, performance and enforcement of this
Agreement and any of the other Documents (collectively,
"Taxes"). Borrowers agree to cause all Taxes to be paid on
behalf of the Bank directly to the appropriate Governmental
Authority. If for any reason Borrowers are prohibited from
paying any Taxes on behalf of the Bank, then all payments made
on or in respect of this Agreement including payments made
pursuant to this Section, shall be increased so that, after
provisions for such Taxes, including Taxes on such increase, the
amounts received by the Bank will equal the amounts the Bank
would have received if no Taxes were due on such payments. If
any of the amounts referred to in this Section are paid by or on
behalf of the Bank, the Bank shall promptly so notify Borrowers
and Borrowers shall, upon demand, promptly indemnify the Bank
for such payments, together with any interest, penalties and
expenses in connection therewith, plus interest thereon at the
rate specified in Section 2.4(c) hereof.
(b) If, at any time and for any reason there is a change in the
basis of taxation of payments in respect of this Agreement or a
Loan (except for changes in taxes based upon or measured by
income or capital of the Bank or the Bank's franchise taxes) and
the result thereof is to increase the cost to the Bank of
maintaining the Loans of to reduce any amount receivable under
this Agreement, then Borrowers shall promptly pay the Bank, upon
its demand, any additional amount necessary to compensate the
Bank for such increased cost or reduced amount receivable.
(c) Borrower shall provide the Bank with original tax receipts,
notarized copies of tax receipts, or such other documentation as
will prove payment of tax in a court of law applying the U.S.
Federal Rules of Evidence, for all Taxes paid by Borrowers
pursuant to this Section. Borrower shall deliver such receipts
or other documentation to the Bank within 30 days after the due
date for the related Tax.
(d) The Bank shall upon request provide reasonable assistance to
Borrowers for the purpose of establishing any reduction in or
exemption from deduction or withholding or any liability for any
Taxes or avoiding or mitigating such increased costs or reduced
amounts receivable, such assistance in the case of Taxes to be
limited to the timely provision of properly completed and
executed documentation sufficient to establish to the relevant
taxing authorities the entitlement to such reduction or
exemption.
(e) The obligations of Borrowers under this Section shall survive
the payment in full or principal and interest on the Loans and
the cancellation of the Notes and any of the other Documents.
ARTICLE III: EXPENSES AND FEES
3.1 Structuring Fees. Borrower shall pay to the Bank on the Closing Date
Structuring Fees equal to (a) 1.5% flat, or US$63,495, on the Revolving
Credit Loan Commitment, (b) 1.5% flat, or US$124,500, on the Mortgage
Loan Commitment and (c) 7.7577625% flat, or US$812,005, on the Term Loan
Commitment. The nonrefundable US$500,000 fee paid upon delivery of the
September 27, 1999 commitment letter for this Loan Agreement and the
US$50,000 paid upon acceptance of such commitment letter shall be
applied to the total amount of the Structuring Fees. The Bank shall
deduct such balance of the Structuring Fees from the proceeds of the
Revolving Credit Loans.
3.2 Expenses. Borrowers shall pay to the Bank all documentation costs,
filing and search fees, title insurance premiums and other expenses,
including reasonable legal fees of counsel to the Bank, incurred in
connection with the preparation of the Documents. The Bank shall deduct
such amounts from the proceeds of the Revolving Credit Loans.
3.3 Future Expenses. Borrowers shall pay on demand, whether any Event of
Default hereunder shall have occurred and regardless of whether any
proceeding to enforce the same shall have been commenced, the Bank's
standard loan fees as set from time to time by notice to the Bank's
customers generally, all costs and expenses of the Bank, including,
without limitation, all fees and disbursements of counsel to the Bank,
incurred in connection with the enforcement of the Documents, including
any appeals, any waivers or consents in connection herewith or the
preparation of any amendment to or modification of the Documents.
ARTICLE IV: YIELD PROTECTION AND ILLEGALITY
4.1 Inability to Determine Interest Rate. In the event that prior to the
first day of any LIBOR Interest Period:
(a) the Bank shall have determined (which determination shall be
conclusive and binding upon Borrowers) that, by reason of
circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining LIBOR for such
LIBOR Interest Period, or
(b) the Bank determines that the LIBOR rate for such LIBOR Interest
Period will not adequately and fairly reflect the cost to the
Bank (as conclusively certified by the Bank) of maintaining the
relevant LIBOR Loan during such LIBOR Interest Period,
the Bank shall give notice thereof to UPET as soon as practicable. If
such notice is given, the Loans shall remain or shall be converted to on
the first day of such LIBOR Interest Period, as the case may be, Prime
Rate Loans.
4.2 Illegality. Notwithstanding any other provision herein, if any change
after the date hereof in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for the Bank to make or
maintain the LIBOR Loans as contemplated by this Agreement, the LIBOR
Loans shall be converted automatically to Prime Rate Loans on the last
day of the then current LIBOR Interest Period or within such earlier
period as required by law. If any such conversion of the LIBOR Loans
occurs on a day which is not a LIBOR Determination Date with respect
thereto, Borrowers shall pay to the Bank such amounts, if any, as may be
required pursuant to Section 4.4 unless such illegality was due to the
fault of the Bank.
4.3 Requirements of Law.
(a) In the event that any change after the date hereof in any
Requirement of Law or in the interpretation or application
thereof or compliance by the Bank with any request or directive
(whether or not having the force of law) from any central bank
or other Governmental Authority made subsequent to the date
hereof:
(i) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loans or similar requirement
against assets held by, deposits or other liabilities in
or for the account of LIBOR Loans, or any other
acquisition of funds by, any office of the Bank which is
not otherwise included in the determination of the LIBOR
hereunder; or
(ii) shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost
to the Bank, by an amount which the Bank deems in its reasonable
judgment to be material, of maintaining the LIBOR Loans or to
reduce any amount receivable hereunder in respect thereof then,
in any case, Borrowers shall promptly pay the Bank, upon its
demand, any additional amounts necessary to compensate the Bank
for such increased cost or reduced amount receivable. If the
Bank becomes entitled to claim any additional amounts pursuant
to this subsection, it shall promptly notify UPET of the event
by reason of which it has become so entitled. A certificate as
to any additional amounts payable pursuant to this subsection
setting forth the calculation thereof in reasonable detail (as
determined by the Bank in its reasonable discretion) submitted
by the Bank to UPET shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of
the Loans and the payment of the Notes and all other amounts
payable hereunder.
(b) In the event that the Bank shall have determined that any change
in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by the Bank
or any corporation controlling the Bank with any request or
directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to
the date hereof does or shall have the effect of reducing the
rate of return on the Bank's capital as a consequence of its
LIBOR obligations hereunder to a level below that which the Bank
or such corporation could have achieved but for such change or
compliance (taking into consideration the Bank's or such
corporation's policies with respect to capital adequacy) by an
amount deemed by the Bank, in its reasonable judgment, to be
material, then from time to time, after submission by the bank
to UPET of a written request therefor, Borrowers shall pay to
the Bank such additional amount or amounts as will compensate
the Bank for such reduction. A certificate as to any additional
amount payable pursuant to this subsection setting forth the
calculation thereof in reasonable detail (as determined by the
Bank in its reasonable discretion) to UPET shall be conclusive
in the absence of manifest error.
(c) Upon request by the Bank, from time to time, Borrowers shall pay
the cost of all Eurocurrency Reserve Requirements applicable to
the LIBOR Loans. If the Bank is or becomes entitled to receive
payments in respect of Eurocurrency Reserve Requirements
pursuant to this subsection, it shall promptly notify UPET
thereof. A certificate as to the amount of such Eurocurrency
Reserve Requirements setting forth the calculation thereof in
reasonable detail (as determined by the Bank in its reasonable
discretion) submitted by the Bank to UPET shall be conclusive in
the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
(d) If requested by UPET, payments required under this Section 4.3
may be made in equal monthly installments over the twelve months
following notice by the Bank to UPET pursuant to this Section
4.3.
(e) If payments are required under this Section 4.3, Borrowers may
convert the LIBOR Loans so affected into Prime Rate Loans
subject to Section 4.4.
4.4 Indemnity. Borrowers agree to indemnify the Bank and to hold the Bank
harmless from any loss or expense which the Bank may sustain or incur as
a consequence of (a) default by any Borrower in payment when due of the
principal amount of or interest on a LIBOR Loan, (b) default by
Borrowers in making any prepayment on a LIBOR Loan after Borrowers or
UPET have given a notice thereof in accordance with the provisions of
this Agreement or (c) the making of a payment, conversion to a Prime
Rate Loan or prepayment of a LIBOR Loan on a day which is not a LIBOR
Determination Date with respect thereto, including, without limitation,
in each case, any such loss or expense arising from the reemployment of
funds obtained by the Bank or from fees payable to terminate the
deposits from which such funds were obtained. Payments required under
this Section 4.4 shall be made within ten (10) days after notice thereof
by the Bank. A certificate as to any additional amount payable pursuant
to this Section 4.4 setting forth the calculation thereof in reasonable
detail (as determined by the Bank in its reasonable discretion) to UPET
shall be conclusive in the absence of manifest error. This covenant
shall survive the payment of the Loans or the Notes, and all other
amounts payable hereunder.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to the Bank that:
5.1 Binding Obligations. Each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power to own its property and to
carry on its business as now being conducted, is duly qualified to
engage in business and is in good standing as a foreign corporation in
each jurisdiction in which the character of the properties owned by it
or the transaction of its business makes such qualification necessary
(except where the failure to obtain such qualification does not have any
material adverse effect on the Borrowers) and has full power, authority
and legal right to incur the Indebtedness and other obligations provided
for in the Documents to which it is a party, to execute and deliver the
Documents to which it is a party and to perform and observe the terms
and provisions hereof and thereof. This Agreement constitutes, and the
Notes when executed and delivered for value will constitute, legal,
valid and binding obligations of Borrowers, enforceable against
Borrowers in accordance with their respective terms, except as the
foregoing may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforceability of
creditors' rights generally at the time in effect (regardless of whether
enforcement is sought in equity or law).
5.2 Corporate Authorizations. The execution, delivery and performance of the
Documents and the borrowing hereunder have been duly authorized by all
necessary action on the part of Borrowers including, without limitation,
the authorization of all partners or Boards of Directors of Borrowers,
and all necessary approvals of Governmental Authorities in connection
therewith have been received.
5.3 Absence of Restrictions. The execution, delivery and performance by
Borrowers of the Documents and the borrowings hereunder will not (i)
violate any provision of law or the charters or by-laws of Borrowers,
(ii) violate, be in conflict with, result in a breach of or constitute a
default under any order of any court, arbitrational tribunal or
Governmental Authority or under any material mortgage, indenture,
contract, undertaking or other agreement to which any Borrower is a
party or by which any Borrower or any of its properties, assets or
revenues is bound, (iii) violate any governmental or agency rule or
regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System of the United States of
America) or (iv) result in the creation or imposition of any security
interest, lien, charge or other encumbrance of any nature whatsoever
upon any of its properties, assets or revenues, other than as
contemplated herein.
5.4 Financial Position and Statements. The financial statements listed in
Schedule 5.4, together with supporting schedules and notes, of Borrowers
delivered to the Bank have been prepared in accordance with GAAP and
correctly set forth in all material respects Borrower's financial
position as at or for the periods shown therein and show all known
material liabilities, direct or contingent, as of such dates. Except for
the payment of the expenses of the transactions contemplated hereby and
by the Merger Plan, there have been no material adverse changes in
Borrowers' financial position since the date of the latest of such
financial statements.
5.5 Litigation. Except as provided in Schedule 5.5, there are no material
actions, suits, proceedings or claims pending against or materially
affecting any Borrower which, if adversely determined, would have a
material adverse effect on the financial condition or business of such
Borrower.
5.6 Bankruptcy Plan.
(a) Bankruptcy Approvals. Each of the Borrowers, to the extent
applicable, has obtained all necessary and requisite authority,
consents and approvals of the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court") in the Chapter
11 bankruptcy proceedings styled United Petroleum Corporation,
Case No. 99-88(PJW) (the "Bankruptcy Proceedings") to enter into
and consummate the transactions contemplated in this Loan
Agreement and in the Merger Plan, including, without limitation,
incurring of the indebtedness and granting of the liens provided
for herein.
(b) Effectiveness of Plan. The Second Amended Plan of Reorganization
for UPET (the "Plan") and the Order Confirming the Amended Plan
by the Bankruptcy Court (the "Confirmation Order") in the
Bankruptcy Proceedings (1) are in full force and effect, have
not been withdrawn, modified or amended as of the date hereof,
and are enforceable in accordance with their respective terms,
(2) are not the subject of any motion for reconsideration or
rehearing, whether under Rules 59 or 60 of the Federal Rules of
Civil Procedure or otherwise, and (3) are not the subject of any
appeal, extension of time for appeal, stay pending appeal or
similar pleading.
(c) Effective Date. All of the conditions precedent to the
occurrence of the Effective Date, as defined in the Plan,
including as set forth in Section 13.1 and 13.2 thereof or
otherwise, have been satisfied as of the date hereof. The
Effective Date, as defined in the Plan, and all of the
transactions or events described in Section 8.17 of the Plan,
including substantial consummation of the Plan, have occurred as
of the date hereof or will occur simultaneously with the
consummation of the transactions contemplated under this Loan
Agreement.
(d) Compliance With Plan. Each of the Borrowers, to the extent
applicable, has fully complied with all of the provisions of the
Plan, and the Order and the United States Bankruptcy Code in
connection with the transactions contemplated herein, including
the incurrence of the indebtedness herein or the granting of the
liens provided for herein. To the extent applicable, no Borrower
is in default of the Plan, the Order or the provisions of the
United States Bankruptcy Code or will be in default thereof as a
result of the transactions contemplated herein, including the
incurrence of the indebtedness herein or the granting of the
liens provided for herein.
(e) Reasonably Equivalent Value. Each of the Borrowers has received
reasonably equivalent value in exchange for the indebtedness
incurred under this Loan Agreement and in exchange for the liens
granted pursuant hereto. Each of the Borrowers is solvent as of
the date hereof and will not be made insolvent as a result of
the transactions contemplated hereunder, the term solvent
meaning that each Borrower's property, at a fair valuation, is
greater than the sum of its debts, including the indebtedness
being incurred hereunder. Each of the Borrowers does not and
will not, as a result of the transactions hereunder, have or be
left with an unreasonably small capital with which to conduct
its business. Each of the Borrowers do not intend to incur and
will not incur, including as a result of the transactions
contemplated hereunder, debts that would be beyond such
Borrower's ability to pay as they matured.
(f) Notice. Each of the Borrowers, to the extent applicable, has
provided, or caused to be provided, proper notice of the
Bankruptcy Proceedings and the related claims bar date therein
to all known and suspected creditors, whether secured or
unsecured, liquidated or unliquidated, contingent or fixed,
priority or non-priority or disputed or undisputed, and that
each Borrower, to the extent applicable, has fully complied with
the provisions of that certain Order of the Bankruptcy Court
Fixing Bar date for Filing Proofs of Claim and Approving Form
and Manner of Notice of Bar Date, dated February 17, 1999 (the
"Bar Date Order"). No Borrower is aware of, or has reason or
basis to be aware of, any claimant or creditor or UPET that has
not received proper notice of the Bar Date Order, or the claims
bar date contained therein.
5.7 Title to Properties; No Liens. Except as provided in Schedule 5.7(a),
Borrowers have good and marketable title to all of their respective
properties and assets and, except as provided in Schedule 5.7(b) or as
permitted or required by the provisions hereof, none of the properties,
assets and revenues of Borrowers are subject to any mortgage, lien,
security interest, pledge or other charge or encumbrance or any similar
arrangement of any kind.
5.8 Payment of Taxes. Except as provided in Schedule 5.8, Borrowers have
filed, or caused to be filed, all tax returns which are required to be
filed by any of them, and have paid or caused to be paid all taxes as
shown on such returns or on any assessment received by any of them, to
the extent that such taxes have become due.
5.9 Agreements. Except as provided in Schedule 5.9, none of Borrowers is in
default, in any manner which would materially and adversely affect any
of its business, properties, assets, operations or condition (financial
or otherwise), in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument to which it is a party or by which it or any of its
properties, assets or revenues is bound.
5.10 Correct Information. The information, exhibits and reports furnished by
Borrowers in connection with the negotiation and preparation of this
Agreement are correct and taken as a whole do not contain any omissions
or misstatements of fact which would make the statements contained
therein misleading or incomplete in any material respect.
5.11 Year 2000 Compliant. Each Borrower is in all material respects Year 2000
Compliant with respect to its computers, computer systems and codes.
5.12 Year 2000 Indemnity. Borrowers hereby indemnify the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence of all or any part of the Year 2000 Compliant
representations and warranties made herein or otherwise in writing by
Borrowers in connection herewith being incorrect, false or misleading.
This covenant shall survive the payment of the Loans and cancellation of
the Notes, and all other amounts payable hereunder.
ARTICLE VI: AFFIRMATIVE COVENANTS
From the date hereof and until payment in full of all amount due
hereunder and the performance of all other obligations of Borrowers to
the Bank, Borrowers agree with the Bank that, unless the Bank shall
otherwise consent in writing, Borrowers shall:
6.1 Corporate Existence, Properties, Insurance. Except as provided in the
Merger Plan, do or cause to be done all things necessary to preserve and
keep in full force and effect each Borrower's corporate existence,
rights and franchises and comply with all laws applicable to it; at all
times maintain, preserve and protect all trade names and preserve all
the remainder of each Borrower's property used or useful in the conduct
of its business and keep the same in good repair, working order and
condition and from time to time make, or cause to be made, all needful
and proper repairs, renewals, replacements, betterments and improvements
thereto so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; and maintain
insurance to such extent and against such risks as is customary and with
companies similarly situated and as specifically set forth in Schedule
6.1.
6.2 Payment of Indebtedness, Taxes. (a) Pay or cause to be paid all of each
Borrower's Indebtedness and obligations promptly and in accordance with
normal terms and trade practices and (b) pay and discharge or cause to
be paid and discharged promptly all taxes, assessments and governmental
charges or levies imposed upon any Borrower or upon its income and
profits, or upon any of its property, real, personal or mixed or upon
any part thereof, before the same shall become in default, as well as
all lawful claims for labor materials and supplies or otherwise which,
if unpaid, might become a lien or charge upon its properties or any part
thereof; provided, however, that Borrowers shall not be required to pay
and discharge or cause to be paid and discharged any such Indebtedness,
tax, assessment, charge, levy or claim so long as the amount,
applicability or validity thereof shall be contested in good faith by
appropriate proceedings and the relevant Borrower shall have set aside
on its books adequate reserves with respect to any such Indebtedness,
tax, assessment, charge, levy or claim, so contested.
6.3 Financial Statements, Reports. Furnish to the Bank:
(a) at each time UPET files its Form 10-K, but in no event later than
within one hundred twenty (120) days after the end of each of its fiscal
years, an audited consolidated and consolidating balance sheet and
statement of income and surplus of each of Borrowers and Farm Stores
Grocery, Inc., together with supporting schedules, all certified by an
independent certified public accountant of recognized standing selected
by Borrowers or Farm Stores Grocery, Inc., as the case may be, and with
regard to Borrowers only approved in writing by the Bank (the form of
such certification to include statements that the audit of the financial
statements has been conducted in accordance with generally accepted
accounting standards and that the financial statements present the
financial condition of Borrowers and Farm Stores Grocery, Inc., as the
case may be, in accordance with generally accepted accounting principles
consistently applied, all as existing at the end of the appropriate
period);
(b) within sixty (60) days after the end of each intervening fiscal
quarterly period, similar financial statements to those referred to in
subsection (a) above, unaudited but similarly certified to by the chief
financial officer of Borrowers or Farm Stores Grocery, Inc., as the case
may be;
(c) with each of the financial statements submitted under subsections
(a) or (b) above, a certificate executed by the chief financial officer
of UPET to the effect that to his knowledge no Event of Default or event
which, upon notice or lapse of time or both, would constitute an Event
of Default has occurred and is continuing;
(d) within fifteen (15) days after the end of each fiscal quarterly
period, accounts receivable and inventory reports of Borrowers setting
forth in detail acceptable to the Bank the determination of the
Borrowing Base at the end of such fiscal quarterly period; and
(e) promptly, from time to time, such other information regarding the
operations, business, affairs and financial condition of Borrowers,
including the Borrowing Base, as the Bank may reasonably request.
6.4 Branding Agreements. (a) Within 180 days from the Closing Date enter
into agreements with major oil companies acceptable to the Bank to have
not less than 40% of its stores' gasoline sales branded one (1) year
from the Closing Date and (b) within one (1) year from the Closing Date
enter into agreements with major oil companies acceptable to the Bank to
have an additional 40% of its stores' gasoline sales branded within
eighteen (18) months from the Closing Date.
6.5 Management Agreement. Cause UPET Group to enter into the Management
Agreement for the management by UPET Group of Farm Stores Grocery, Inc.
and providing for a management fee payable to UPET Group of not less
than US$2,500,000 annually so long as the Loans remain unpaid and cause
UPET Group to fulfill all of its obligations under the Management
Agreement.
6.6 Maintenance of Collateral. Ensure that all Collateral shall be and
remain free and clear of any liens, claims or encumbrances in favor of
any Person other than to the Bank, as provided in Schedule 5.7(b) or as
permitted by the provisions hereof.
6.7 Tangible Net Worth. Maintain a consolidated ratio, tested quarterly, of
debt to "Tangible Net Worth" not exceeding 3.5 x 1, adjusted to 3.0 x 1
at the conclusion of UPET's fiscal year 2000 and to 2.0 x 1 at the
conclusion of UPET's fiscal year 2001. As used herein, "Tangible Net
Worth" means net worth as defined in GAAP less goodwill and related
party receivables.
6.8 EBITDA. Maintain a consolidated ratio, tested quarterly and computed in
accordance with GAAP, of (a) earning before interest, taxes,
depreciation and amortization to (b) current maturities of long term
debt plus interest expense not less than 1.4 x 1 during UPET's fiscal
year 2000 and 1.2 x 1 thereafter, to be tested at the time of UPET's
filing of its Forms 10-Q and 10-K.
6.9 Additional Owned Real Properties. (a) Not later than thirty (30) days
prior to closing, (i) notify the Bank of any proposed acquisition of a
direct or indirect ownership interest in any additional Owned Real
Properties, and (ii) provide the Bank with a title commitment, hard
copies of all title exceptions, current survey, current environmental
audit and any other information reasonably requested by the Bank to
evaluate such property; and (b) if requested by the Bank, grant a
first-priority mortgage, deed of trust or security deed (as appropriate)
in favor of the bank encumbering such additional Owned Real Properties,
or spread the lien of the Mortgages (for any additional real property
located in a jurisdiction in which a Mortgage has been recorded or filed
and remains in effect) to such property, in each case pursuant to a form
of mortgage, deed of trust, security deed or spreader agreement approved
by the Bank. The mortgage instrument shall be in recordable form and
shall be recorded in the appropriate public or land records
simultaneously with the recording of the instrument of conveyance of
such Owned Real Properties.
6.10 Additional Leases. (a) Grant a first-priority collateral assignment in
favor of the Bank encumbering any additional Lease hereafter entered
into by any Borrower or spread the lien of the Lease Assignments (for
any additional Leases leasing property located in a jurisdiction in
which a Lease Assignment has been recorded or filed and remains in
effect) to such Lease, in each case pursuant to a form of Lease
Assignment or spreader agreement approved by the Bank. The Lease
Assignment or spreader shall be in recordable form and shall be recorded
in the appropriate public or land records simultaneously with the
recording of a short form or memorandum of such additional Lease; and
(b) either cause any such additional Lease to include the following
provisions or obtain the landlord's specific consent to the Bank
containing the following provisions:
(i) that the tenant's interest in the Lease is freely assignable and
that the landlord's consent is not required for the collateral
assignment or other pledge of the tenant's interest in the lease to
tenant's lender (the "Leasehold Mortgagee");
(ii) that the landlord agrees that any and all liens of the landlord
against the Collateral for the payment of rent, whether statutory or
otherwise, are automatically subject and subordinate to the security
interest in the Collateral granted by the tenant in favor of the
Leasehold Mortgagee;
(iii) that a short form or memorandum of the Lease in recordable form
shall be executed by the parties and promptly recorded in the
appropriate public or land records;
(iv) that the Lease shall not be subordinate to any mortgage placed on
the landlord's interest in the lease premises unless the landlord's
lender enters into a non-disturbance agreement with the tenant in form
satisfactory to the tenant;
(v) that the landlord agrees (A) not to amend or modify the Lease or
accept a surrender of the Lease without the Leasehold Mortgagee's
written consent, which shall not be unreasonably withheld; (B) to notify
the Leasehold Mortgagee in writing if the tenant fails to pay the
required rent when due or otherwise commits a default under the Lease
that would entitle the landlord to terminate the Lease; (C) to accept a
cure of the tenant's default of offered by the Leasehold Mortgage within
30 days after the landlord's written notice to the Leasehold Mortgagee;
and (D) to accept the Leasehold Mortgagee or its designee as the
landlord's new tenant under the Lease if the Leasehold Mortgagee
exercises its rights against the tenant under its collateral assignment
of the Lease, provided that the tenant's defaults under the Lease are
cured and the new tenant assumes the Lease; and
(vi) that the landlord consents and agrees that the Leasehold Mortgagee
shall have the right to enter the lease premises where the Collateral is
located for the purpose of removing, selling or otherwise dealing with
the Collateral; provided that the Leasehold Mortgagee shall be
responsible for any cost of repair of physical injury (but not
diminution of value) caused by any such removal. Even if the Leasehold
Mortgagee or its designee does not elect to cure the tenant's default
and assume the Lease as landlord's new tenant as described above, then
the Leasehold Mortgagee shall nevertheless have up to 30 days after the
landlord's notice of default in which to remove the Collateral from the
lease premises, provided that the Leasehold Mortgagee pays to the
landlord on demand all rent accruing under the Lease from the date such
notice is received until the Collateral is removed.
6.11 Inspection. Permit authorized representatives of the Bank to visit and
inspect the offices and properties of Borrowers from time to time upon
reasonable notice during normal business hours, to examine the books and
records of Borrowers and make copies or extracts therefrom and to
discuss the affairs and accounts of Borrowers with their officers.
6.12 Observance of Legal Requirements. Observe and comply in all material
respects with all statutes, rules, regulations, guidelines or other
requirements having the force of law which now or at any time hereafter
may be applicable to any of Borrowers, provided that a Borrower may
defer observation and compliance with requirements as to which it
contests the validity or application thereof in good faith and by
appropriate proceedings if such deferral does not materially hinder
Borrowers operations.
6.13 Obtain Approvals. Promptly obtain each consent, license, authorization
or approval and make each filing or registration which hereafter shall
be either necessary or desirable to enable each Borrower to comply with
its obligations hereunder, and promptly furnish evidence thereof to the
Bank.
6.14 Furnish Notice. Furnish to the Bank, as soon as possible and in any
event within fifteen (15) days after becoming aware of the occurrence of
any Event of Default, or any event which with the lapse of time or
notice or both would constitute an Event of Default, a statement of a
senior executive officer of UPET setting out the details of such Event
of Default or event and the action which Borrowers propose to take in
order to cure the effect thereof.
ARTICLE VII: NEGATIVE COVENANTS
From the date hereof and until payment in full of all amounts
due hereunder and the performance of all other obligations of Borrowers
to the Bank, Borrowers agree with the Bank that, unless the Bank shall
otherwise consent in writing, Borrowers shall not:
7.1 Indebtedness. Incur any Indebtedness other than (a) accrued expenses,
trade debt, wage obligations and similar Indebtedness in the ordinary
course of business, (b) the issuance of debt securities the principal of
which is repayable only after payment in full of the Loans, (c)
Indebtedness to fund capital expenditures of up to US$1,821,000 to be
incurred in 2000, US$1,121,000 to be incurred in 2001 and US$1,121,000
to be incurred in 2002 and each year thereafter which Indebtedness for
equipment purchases may be secured by a purchase money security interest
and (d) immaterial Indebtedness not exceeding US$50,000 in any fiscal
year of Borrowers. Any such Indebtedness for capital expenditures must
be at prevailing market rates and on terms acceptable to the Bank in its
reasonable discretion.
7.2 Dividends. Pay any dividend on any class of stock of any Borrower,
except for dividends paid exclusively in shares of stock of one or more
Borrowers or dividends paid exclusively to one or more Borrowers.
7.3 Nature of Business. Permit any material changes to be made in the
character of the business of Borrowers from that conducted by them on
the date hereof except as provided in the Merger Plan.
7.4 Mergers, Consolidations and Sale of Assets. (a) Enter into any merger,
amalgamation or consolidation, (b) except in the ordinary course of its
business, sell, lease or otherwise transfer or dispose of a substantial
part of its assets except as provided in the Merger Plan or otherwise
exclusively among Borrowers other than transfers to or from Calibur or
Jackson or (c) sell or dispose of any material assets for deferred
payment of all or part of the sales price unless (1) the Bank approves
the creditworthiness of the purchaser and any other obligor or (2) a
Borrower shall hold a first security interest in such sold assets to
secure the deferred portion of the sales price.
ARTICLE VIII: COLLATERAL
The loans and all other Liabilities of Borrowers to the Bank
shall be secured by the following Collateral:
8.1 Mortgages. The Bank shall be granted a first mortgage on the interests
of the Borrowers in the Owned Real Estate.
8.2 Leases. Borrowers shall collaterally assign to the Bank the Borrowers'
rights under the Leases.
8.3 Pledge. F.S. Non-Gas shall pledge to the Bank its ten percent (10%)
common stock interest in Farm Stores Grocery, Inc. together with any
additional purchase or acquisitions of Farm Stores Grocery, Inc. stock
by any of Borrowers.
8.4 Life Insurance. F.S. Stores shall assign to the Bank the Key Man Life
Insurance policy in the amount of US$5,000,000 on the life of Mr. Jose
Bared issued by an insurance company acceptable to the Bank.
8.5 Management Agreement. The rights of UPET Group under the Management
Agreement shall be collaterally assigned to the Bank.
8.6 Purchase Agreement. The rights of UPET Group under the Purchase
Agreement shall be collaterally assigned to the Bank.
8.7 Other Corporate Assets. The Bank shall be granted a first security
interest in all other corporate assets of the Borrowers.
8.8 Trademark. Borrowers shall cause Farm Stores Grocery, Inc. to agree for
the benefit of the Bank not to encumber the Farm Stores trademark
(except on terms that provide that default under any such encumbrance
shall not affect Borrowers' rights under the License Agreement relating
to the trademark and the usage thereof by Borrowers) and to allow use of
the mark by Borrowers at no cost to Borrowers at least so long as the
Loans are outstanding.
ARTICLE IX: CONDITIONS
9.1 Conditions Precedent. The obligation of the Bank to extend any credit
hereunder is subject to Borrowers taking the following action and the
Bank having received the following documents in form and substance
satisfactory to it and its counsel.
(a) This Agreement, the Notes and the Collateral Agreements duly
executed by Borrowers party to each such Document;
(b) The shares of Farm Stores Grocery, Inc. pledged under the Pledge
Agreement, duly endorsed in blank, or by separate stock power
executed in blank, to the order of the Bank;
(c) Evidence of the application for the Key Man Life Insurance
policy in the amount of US$5,000,000 on the life of Mr. Jose
Bared;
(d) Evidence of the agreement for the benefit of the Bank of Farm
Stores Grocery, Inc. not to encumber the Farm Stores trademark
and to allow use of the mark by Borrowers at no cost to
Borrowers at least so long as the Loans are outstanding;
(e) The assignment to the Bank of the rights of UPET Group under the
Management Agreement including specifically a collateral
assignment of the management fee payable to UPET Group
thereunder;
(f) The assignment to the Bank of the rights of UPET Group under the
Purchase Agreement including specifically a collateral
assignment of the option to UPET Group thereunder;
(g) Evidence of the filing of UCC-1 Financing Statements for the
security interests granted to the Bank;
(h) Appraisals of the Owned Real Estate by an appraiser acceptable
to and in form and substance acceptable to the Bank;
(i) Mortgagee Title Insurance for the Mortgages [and other real
estate documents including independent environmental assessment
for compliance with Federal and State regulations] in form
acceptable to and containing only such exceptions as are
acceptable to the Bank and its counsel, including specifically
Messrs. Paul, Hastings, Janofsky & Walker, special real estate
counsels to the Bank;
(j) The following documents related to the Chapter 11 bankruptcy
proceedings styled United Petroleum Corporation, Case No.
99-88(PJW), all in form acceptable to the Bank and its counsel,
including specifically Messrs. Genovese Lichtman Joblove &
Battista, special bankruptcy counsel to the Bank:
(i) Certified copy of the Motion for Entry of Order Establishing
Bar Date for Filing Proofs of Claims and Approving Form and
Manner of Notice Thereof.
(ii) Certified copy of the Order Fixing Bar Date For Filing
Proofs of Claim and Approving Form and Manner of Notice of Bar
Date.
(iii) Certified copy of the Second Amended Disclosure Statement.
(iv) Certified copy of the Order Approving Second Amended
Disclosure Statement.
(v) Certified copy of the Second Amended Plan of Reorganization.
(vi) Certified copy of the Findings of Fact, Conclusions of Law
and Order Confirming Amended Plan;
(k) Evidence of environmental, casualty, liability and business
interruption insurance acceptable to the Bank;
(l) Certificate of Mr. Jose Bared of the shares of UPET to be owned
by him at the completion of the Closing and as to any agreements
with respect to such shares;
(m) Copies of resolutions of the Boards of Directors of Borrowers,
certified as of a current date by the Secretary or an Assistant
Secretary of each Borrower, authorizing the execution and
delivery of the Documents to which it is a party and the
borrowings hereunder;
(n) Incumbency Certificates of the officers of each Borrower,
including specimen signatures of such officers empowered to
execute the Documents to which it is a party and any documents
other relating hereto, certified as of a current date by the
Secretary or an Assistant Secretary of each Borrower; and
(o) Copies of the Certificate or Articles of Incorporation or other
charter documents and all amendments thereto of each Borrower,
currently certified by the relevant Governmental Authority (such
certified charter documents shall include evidence of good
standing from the appropriate Governmental Authority).
9.2 Conditions Subsequent. Borrowers covenant to provide, and the obligation
of the Bank to continue extending any credit hereunder is subject to
Borrowers taking the following action and the Bank having received the
following documents in form and substance satisfactory to it and its
counsel:
(a) Within sixty (60) days of the Closing Date, evidence of the
assignment to the Bank of the Key Man Life Insurance policy in
the amount of US$5,000,000 on the life of Mr. Jose Bared; and
(b) Within sixty (60) days of the Closing Date, evidence of the
release or subordination of the mortgages and security interests
of Pennzoil Products Company in assets of Calibur and evidence
of the correction of the legal description of the Dekalb County,
Georgia Owned Real Property.
ARTICLE X: EVENTS OF DEFAULT
10.1 Events of Default. If any of the following events shall have occurred
and shall be continuing:
(a) Failure of Payment. Borrowers fail to pay any principal,
interest or other amounts due under this Agreement or with
respect to the Documents on the due date and in the manner
provided hereunder or therein and, in the case of interest, such
default shall continue for more than five (5) days; or
(b) Misstatements. Any material representation, warranty or other
statement made herein or otherwise in writing by or on behalf of
a Borrower in connection herewith proves to be or have been
incorrect or misleading in any material respect as of the date
at which it is made or deemed to be made; or
(c) Other Obligations. A Borrower defaults in any payment of
principal of or interest on any other obligation for the payment
of borrowed money or under a financing lease, in excess of
US$100,000 in the aggregate, when such obligation becomes due
and payable, or is required to be prepaid prior to the stated
maturity thereof, and, in the case of interest, such default
shall continue for more than five (5) days; or a Borrower
defaults in the performance of any other agreement, term or
condition contained in any agreement or instrument pursuant to
which such Borrower has borrowed money or under a financing
lease, or by which any obligation for the payment of borrowed
money is created, if the effect of such default is to cause such
obligation in excess of US$100,000 in the aggregate to become
due and payable prior to its stated maturity; or
(d) Performance of Covenants. Borrowers default in the due
performance or observance of any covenant, condition or
provision on the part of Borrowers to be performed or observed
pursuant to the documents and such default, if capable of cure,
is not cured (i) within fifteen (15) days after Borrowers
becomes aware of such default or (ii) in the event the default
is incapable of cure within such fifteen (15) days, within sixty
(60) days if Borrowers provide the Bank with reasonable
assurance that such default is capable of cure within such 60
day period, promptly commence to cure the default and thereafter
continue diligently to cure the default; or
(e) Judgments. A Borrower shall permit any judgment for more than
US$100,000 against it to remain undischarged for a period of
more than thirty (30) days unless during such period such
judgment shall be effectively stayed, on appeal or otherwise; or
(f) Business Operations; Bankruptcy. A Borrower suspends the
operations (other than in the ordinary course of business and
not for reasons of insolvency and similar acts) of any of its
businesses (other than in connection with the sales or closures
of stores in the ordinary course of business), becomes
insolvent, is unable to pay its debts as they mature or admits
such inability in writing, calls a meeting of its creditors,
files for or suffers to be filed against it any petition under
any provision of any bankruptcy, insolvency, reorganization,
rearrangement, readjustment of debt or similar law or statute or
any application for the process of controlled administration, or
a Borrower applies for or permits to be appointed any receiver,
trustee or custodian for it or any substantial portion of its
property or any order for relief is entered with respect to a
Borrower under any bankruptcy code or any similar law of any
jurisdiction and the same shall remain undischarged for a period
of sixty (60) days; or
(g) Condemnation. All or a substantial part of a Borrower's property
is condemned, seized or otherwise appropriated, or custody of
such property is assumed by any Governmental Authority or court
or other Person purporting to act under the authority of
government of any jurisdiction, or a Borrower is prevented from
exercising normal control over all or a substantial part of its
property and such default is not remedied within 30 days after
it occurs; or
(h) Change of Control. Mr. Jose Bared disposes of shares of UPET
which the Bank, after consultation with UPET, determines to be
adverse to the best interest of Borrowers or Mr. Jose Bared
ceases to be the Chief Executive Officer of UPET and UPET Group,
and the Bank after consultation with UPET determines such action
to be adverse to the best interest of Borrowers; or
(i) Enforceability. This Agreement, or any provision hereof, at any
time after its execution and delivery and for any reason
whatsoever ceases to be in full force and effect, valid and
enforceable both in the jurisdictions in which the Borrowers
operate and in the State of Florida, or Borrowers at any time
fail to agree that this Agreement and all provisions hereof are
in full force and effect, valid, and enforceable both in the
jurisdictions in which the Borrowers operate and in the State of
Florida;
then the Bank by notice to UPET may declare the entire unpaid principal
amount of the Loans to be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived.
10.2 Exercise of Rights. Upon the occurrence of an Event of Default and at
any time thereafter, the Bank shall have the right in its sole
discretion to determine which rights, security, liens, guarantees,
security interests or remedies it shall retain, pursue, release,
subordinate, modify or take any other action with respect to, without in
any way modifying or affecting any of the other of them or any of its
rights hereunder. Notwithstanding any other rights which the Bank may
have under applicable law and hereunder, Borrowers agree that, should at
any time an Event of Default occur or be continuing, the Bank shall have
the right to apply (including, without limitation, by way of setoff) any
of Borrowers' property held by, or thereafter coming into possession of,
the Bank (including, without limitation, deposit account balances) to a
reduction of Indebtedness of Borrowers to the Bank.
ARTICLE XI: MISCELLANEOUS
11.1 Notices. Except as otherwise specified herein, all notices, requests,
demands or other communications to or upon the parties hereto under the
Documents shall be deemed to have been duly given or made when delivered
in writing (including telecommunications) to the party to which such
notice, request, demand or other communication is required or permitted
to be given or made under this Agreement, at the address or facsimile
number set forth opposite the name of such party on the signature lines
set forth below, or at such other address or facsimile number as the
parties hereto may hereafter specify to the other in writing. Written
notices shall be deemed delivered upon receipt if delivered by hand or
five Business Days after mailing. Notices provided by any of the other
means referred to above shall be deemed delivered upon receipt.
11.2 Waiver of Rights. No failure to exercise and no delay in exercising, on
the part of the Bank, any right, power or privilege under the Documents
shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
11.3 Cumulative Remedies, Conflicts. Each of the Documents and the
obligations of Borrowers hereunder and thereunder are in addition to and
not in substitution for any other obligations or security interests now
or hereafter held by the Bank and shall not operate as a merger of any
contract or debt or suspend the fulfillment of or affect the rights,
remedies or powers of the Bank in respect of any obligation or other
security interest held by it for the fulfillment thereof. The rights and
remedies provided in the Documents are cumulative and not exclusive of
any other rights or remedies provided by law. If any conflict exists
between the terms of this Agreement and the terms of any of the other
Documents to which UPET, UPET Group, F.S. Stores, F.S. Gas, F.S. Non-Gas
or REWJB Gas are parties, the terms of this Agreement shall control.
11.4 Successors; Governing Law. This Agreement shall be binding upon and
inure to the benefit of Borrowers and the Bank, and their respective
successors and assigns, except that none of Borrowers may assign or
transfer its rights hereunder without the prior written consent of the
Bank. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
11.5 Consent to Jurisdiction; Process Agent.
(a) Borrowers hereby irrevocably submit to the nonexclusive jurisdiction
of any Florida State or Federal court sitting in Miami-Dade County,
Florida in any action or proceeding arising out of or relating to this
Agreement and the other Documents, and Borrowers hereby irrevocably
agrees that all claims in respect of such action or proceeding may be
heard and determined in such Florida State or Federal court. Each
Borrower hereby irrevocably appoints CT Corporation, 1200 South Pine
Island Road, Plantation, Florida 33324, its successors or any other
person acting on behalf of such person ("Process Agent"), as its agent
and attorney-in-fact to receive on its behalf of its property, service
of copies of the summons and complaint and any other process which may
be served in any such action or proceeding. Such service may be made by
mailing or delivering a copy of such process to a Borrower in care of
the Process Agent at the Process Agent's address set forth above or such
other address as the Process Agent shall designate in writing to the
Bank, and each Borrower hereby irrevocably authorizes and directs the
Process Agent to accept such service on its behalf.
(b) Borrowers hereby irrevocably waive any objection which any of them
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in any
Florida State or Federal court sitting in Miami-Dade County, Florida,
and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
(c) Nothing in this Section 11.5 shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the
right of the Bank to bring any action or proceeding against Borrowers or
their property in the courts of other jurisdictions.
11.6 Currency Conversion. This is a credit transaction in which the
specification of Dollars is of the essence, and Dollars shall be the
currency of account in all events. The payment obligations of the
Borrowers under this Agreement and the other Documents shall not be
discharged by an amount paid in another currency or in another place,
whether pursuant to a judgment or otherwise, to the extent that the
amount so paid on conversion to Dollars in accordance with normal
banking procedures does not yield the amount of Dollars due hereunder.
Notwithstanding the foregoing, if for the purpose of obtaining or
enforcing judgment in any court it is necessary to convert a sum due
hereunder in Dollars into another currency (the "Second Currency"), the
rate of exchange which shall be applied shall be that at which in
accordance with normal banking procedures the Bank could purchase
Dollars with the Second currency on the Business Day preceding that on
which final judgment is given. If payment of any sum due hereunder is
made to or received by the Bank, whether by judicial judgment (and
notwithstanding the rate of exchange actually applied in giving such
judgment), or otherwise, in a Second Currency, the obligations hereunder
of Borrowers shall be discharged only in the net amount of Dollars that
on the Business Day following receipt by the Bank of any sum adjudicated
to be due in a Second Currency, the recipient in accordance with its
normal bank procedures is able to lawfully purchase with such amount of
Second Currency. To the extent that the Bank is not able to purchase
sufficient Dollars with such amount of Second Currency to discharge the
Dollar obligations to the Bank, the obligations of Borrowers to the Bank
shall not be discharged with respect to such difference, and Borrowers
agrees that any such undischarged amount will be due as a separate debt
and shall not be affected by payment of or judgment being obtained for
any other sums due under or in respect of this Agreement. To the extent
that the Bank is able to purchase an amount in Dollars in excess of the
amount necessary to discharge such Dollar obligations, the Bank shall
promptly remit such excess to Borrowers.
11.7 Amendments. The terms of this Agreement may not be amended, modified or
waived except by written agreement between Borrowers and the Bank.
11.8 Usury. Anything herein to the contrary notwithstanding, the obligations
of Borrowers to pay interest shall be subject to the limitation that
payment of interest shall not be required to the extent that receipt of
such payment by the Bank would be contrary to the provisions of any law
applicable to the Bank limiting the maximum rate of interest which may
be charged or collected by the Bank.
11.9 Survival of Agreements. All covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto
shall survive the making by the Bank of the credit herein contemplated
and shall continue in full force and effect so long as such credit is
outstanding and unpaid.
11.10 Severability. Any provision hereof which is prohibited or unenforceable
shall be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
11.11 Descriptive Headings. The captions in this Agreement are for convenience
of reference only and shall not define or limit the provisions hereof.
11.12 Waiver of Trial by Jury. BORROWERS AND BANK EACH HEREBY WAIVES ITS RIGHT
TO TRIAL BY JURY IN ANY LITIGATION BASED HEREON OR ARISING OUT OF OR IN
CONNECTION WITH ANY AGREEMENT, DOCUMENT OR INSTRUMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
11.13 Confidentiality. The Bank agrees (on behalf of itself and each of its
Affiliates, directors, officers, employees, and representatives) to keep
confidential, in accordance with its customary procedures of handling
confidential information of the same nature and in accordance with safe
and sound banking practices, any non-public information supplied to it
by Borrowers or any of their Subsidiaries pursuant to this Agreement;
provided, however, that nothing herein shall limit the disclosure of any
such information (i) to the extent required by statute, rule, regulation
or judicial process, (ii) to counsel for the Bank so long as such
counsel confirms it shall keep the non-public information confidential
in accordance with these provisions, (iii) to bank examiners, auditors
or accountants or to any other regulatory agency or body with proper
authority (including non-governmental regulatory agencies or bodies),
(iv) in connection with any litigation to which the Bank is a party
where disclosure of such information is, in the opinion of counsel for
the Bank, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially
involving the Bank and arising out of, based upon, relating to or
involving this Agreement or any Note, or any transactions contemplated
hereby or arising hereunder, (v) to any assignee or participant of the
Bank's rights hereunder, so long as such assignee or participant first
acknowledges that it is bound by the provisions of this Section 10.13,
or (vi) to any credit agency that rates the financial condition of the
Bank or the claims paying ability of the Bank or the financial condition
of any Borrower. To the extent disclosure is required under clauses (i),
(iii) and (iv) above, the Bank agrees to use its best efforts to give
the Borrower prompt prior notice thereof if allowed by law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
Address for Bank: HAMILTON BANK, N.A.
3750 N.W. 87th Avenue
Miami, Florida 33178 By:
Attn: Alina Cannon -------------------------------------
Name: Alina Cannon
Telephone: (305) 717-5500 Title: Vice President
Facsimile: (305) 717-6873
By:
-------------------------------------
Name: J. Reid Bingham
Title: General Counsel
Address for all Borrowers: UNITED PETROLEUM CORPORATION
5800 N.W. 74th Avenue
Miami, Florida 33166 By:
Attn: Mr. Jose Bared -------------------------------------
Name: Carlos Bared
Telephone: (305) Title: Vice President
Facsimile: (305)
UNITED PETROLEUM GROUP, INC.
By:
-------------------------------------
Name: Carlos Bared
Title: President
F.S. CONVENIENCE STORES, INC.
By:
-------------------------------------
Name: Carlos Bared
Title: Vice President
F.S. GAS SUBSIDIARY, INC.
By:
-------------------------------------
Name: Carlos Bared
Title: Vice President
F.S. NON-GAS SUBSIDIARY, INC.
By:
-------------------------------------
Name: Carlos Bared
Title: Vice President
REWJB GAS INVESTMENTS
By:
-------------------------------------
Name: Carlos Bared
Title: Vice President
JACKSON-UNITED PETROLEUM CORPORATION
By:
-------------------------------------
Name: Carlos Bared
Title: Vice President
CALIBUR SYSTEMS, INC.
By:
-------------------------------------
Name: Carlos Bared
Title: Vice President
