UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Sections 13 and 15(d) of
the Securities Exchange Act of 1934
May 12, 1999
Date of Report (Date of earliest event reported)
SA TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-18048 75-2258519
(State Of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
1600 Promenade Center, 15th Floor
Richardson, TX 75080
(Address of Principal Executive Office)
(972) 690-5888
(Registrant's Telephone Number, Including Area Code)
(Not Applicable)
(Former Name or Former Address,
if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS
As previously reported, SA Telecommunications, Inc. and its
subsidiaries (collectively, the "Company") filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") (Cases No. 97-2395 through 97-2401). Since that date, the Company has
continued as a debtor-in-possession pursuant to the Bankruptcy Code.
On May 14, 1999, the Company filed a press release announcing the
filing of its Chapter 11 Liquidating Plan and a draft of the associated
Disclosure Statement. Copies of these documents are attached hereto as Exhibits
20.1, 99.1, and 99.2, respectively, and are incorporated herein by reference.
Please note that the draft Disclosure Statement is only a draft and has not been
approved by the Bankruptcy Court pursuant to the provisions of Section 1125 of
the Bankruptcy Code. It is therefore attached only for informational purposes
and not to solicit acceptances to the Plan.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits:
20.1 Press Release of SA Telecommunications, Inc. dated May 14, 1999
99.1 Debtors' Joint Chapter 11 Liquidating Plan dated May 12, 1999
99.2 Draft Disclosure Statement for Debtors' Joint Chapter 11 Plan
dated May 12, 1999
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SA TELECOMMUNICATIONS, INC.
DATE: May 17, 1999 By: /s/ Albert B. Gordon, Jr.
-------------------------
Albert B. Gordon, Jr.
Chief Executive Officer
SA TELECOMMUNICATIONS ANNOUNCES
FILING OF JOINT CHAPTER 11 LIQUIDATING PLAN
Richardson, Texas, May 14, 1999 - SA Telecommunications, Inc. ("STEL")
announced today that it and certain of its subsidiaries (collectively, the
"Debtors") have filed their Joint Chapter 11 Liquidating Plan (the "Plan") and a
draft of the associated Disclosure Statement with the United States Bankruptcy
Court for the District of Delaware.
Under the Plan, the Debtors, which no longer operate, will liquidate
their assets, substantially all of which consist of cash and shares of common
stock of EqualNet Communications Corp. (f/k/a EqualNet Holding Corp.), and will
distribute the proceeds thereof to creditors in accordance with the priority
provisions of the Bankruptcy Code. Pursuant to the terms of the Plan, all
interests of holders of STEL preferred stock and STEL common stock will be
canceled on the Effective Date of the Plan and the holders thereof will neither
receive nor retain any property under the Plan. Furthermore, it is unclear at
this time what, if any, distribution will be made under the Plan to holders of
general unsecured claims against the Debtors.
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS AND AS SUCH
INVOLVES KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS THAT MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
SA TELECOMMUNICATIONS, INC., )
ADDTEL COMMUNICATIONS, INC., ) Case Nos. 98-2395
LONG DISTANCE NETWORK, INC., ) through 98-2401 (PJW)
NORTH AMERICAN, )
TELECOMMUNICATIONS )
CORPORATION, )
UNIQUEST COMMUNICATIONS, INC., ) Jointly Administered
U.S. COMMUNICATIONS, INC., )
and SOUTHWEST LONG DISTANCE )
NETWORK, INC. )
)
Debtors. )
DEBTORS' JOINT CHAPTER 11 LIQUIDATING PLAN
May 12, 1999
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attn.: Andrew DeNatale
Karen Burns
Daniel P. Ginsberg
(212) 819-8200
Counsel for the Debtors and Debtors in Possession
and
The Bayard Firm
919 Market Street, 16th Floor
Wilmington, Delaware 19899
Attn.: Neil B. Glassman (No. 2087)
Scott D. Cousins (No. 3079)
(302) 655-5000
Local Counsel for Debtors and Debtors in Possession
<PAGE>
DEBTORS' JOINT CHAPTER 11 LIQUIDATING PLAN
THE DEBTORS PROPOSE THIS JOINT PLAN OF REORGANIZATION PURSUANT TO
SECTION 1121(a) OF THE BANKRUPTCY CODE. REFERENCE SHOULD BE MADE TO THE DEBTORS'
DISCLOSURE STATEMENT, APPROVED BY THE BANKRUPTCY COURT ON ___________ __, 1999,
WHICH PROVIDES PERTINENT INFORMATION REGARDING THE DEBTORS' BUSINESS AND THIS
JOINT PLAN.
Capitalized terms shall have the meanings set forth in Article I
hereof.
INTRODUCTION
Partially Consolidated Plan
The Debtors' Chapter 11 Cases are being jointly administered pursuant
to an order of the Bankruptcy Court, and the Plan is being presented as a joint
liquidating plan of the Debtors for administrative purposes only, except as
provided in Section [10.01] of the Plan. The Plan is predicated upon separate
distributions to be made from the Estates of STEL, Addtel and Consolidated USC
to holders of Claims against such Debtors (other than Administrative Expense
Claims and Priority Claims). The Plan provides for the substantive consolidation
of the Chapter 11 Cases of USC, LDN, NATC, Uniquest and SWLDN. Claims against,
and Interests in, the Debtors (other than Administrative Expense Claims) are
classified in Article IV hereof and treated in Article V hereof.
ARTICLE I
DEFINITIONS
1.0. Definitions. As used herein:
"ADDTEL" means Addtel Communications, Inc., a wholly-owned subsidiary
of STEL.
"ADDTEL GENERAL UNSECURED CLAIM DISTRIBUTION AMOUNT" means (a) the sum
of (i) 42% of the Cash Proceeds plus (ii) 5% of the Litigation Proceeds plus
(iii) 42% of the Preference Proceeds.
"ADMINISTRATIVE EXPENSE CLAIM" means (a) any cost or expense of
administration (including, without limitation, the fees and expenses of
Professionals) of any of the Chapter 11 Cases asserted or arising under Sections
503(b) or 507(a)(1) of the Bankruptcy Code, (b) any fees or charges assessed
against the Debtors' estates under 28 U.S.C. Section 1930, and (c) a Claim given
the status of an Administrative Expense Claim by Final Order of the Bankruptcy
Court.
"ADMINISTRATIVE EXPENSE CLAIMS BAR DATE" means ________ __, 1999,
which date was set by the Bankruptcy Court as the last date by which
Administrative Expense Claims, other than those for fees or charges asserted
against the Debtors under 28 U.S.C. Section 1930 and those asserted by
Professionals, must be Filed.
"ADMINISTRATIVE EXPENSE TREATMENT AGREEMENT" means that Agreement
approved by the Bankruptcy Court on _____________, 1999 which modifies the
distribution provisions of the Inter-Debtor Settlement Agreement with respect to
Administrative Expense Claims, and is described in detail at Section __________
of the Disclosure Statement.
"AFFILIATE" means a Person that directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, a specified Person.
"ALLOWED" means with respect to Claims that the Claim is (a) allowed
pursuant to the Plan in an amount set forth herein; or (b) (i) is set forth in a
Proof of Claim that was timely Filed, or that by order of the Bankruptcy Court
is not and will not be required to be Filed, and (ii) either (A) no objection to
the allowance thereof has been interposed within the applicable period of time
fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy
Court, or (B) such an objection has been so interposed and such Claim has been
allowed by a Final Order (but only to the extent so allowed).
"ALLOWED [CLASS DESIGNATION] CLAIM" means an Allowed Claim in a
specified Class. For example, an Allowed Addtel General Unsecured Claim is an
Allowed Claim in the Addtel General Unsecured Claims Class.
"AUGUST DEBENTURE" means the $5,000,000 in principal amount of 10%
Convertible Debenture of STEL due August 15, 2006.
"BALLOT" means the ballots accompanying the Disclosure Statement upon
which Holders of Impaired Claims entitled to vote on the Plan shall indicate
their acceptance or rejection of the Plan.
"BANKRUPTCY CODE" means title 11 of the United States Code, as amended
and supplemented from time to time.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Delaware, or, to the extent that such court ceases to exercise
jurisdiction over these Chapter 11 Cases, such other federal court or unit
thereof that exercises jurisdiction over these Chapter 11 Cases.
"BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure and
the Local Rules of the Bankruptcy Court, as amended and supplemented from time
to time.
"BC AGREEMENTS" means (i) those certain One Plus Billing and
Information Management Services Agreements between (a) USC and U.S. Billing Inc.
("USBI") and (b) LDN and USBI and (ii) those certain Zero Plus-Zero Minus
Billing and Information Management Services Agreements between (a) USC and Zero
Plus Dialing, Inc. ("ZPDI") and (b) USC and ZPDI.
"BUSINESS DAY" means any day other than a Saturday, Sunday or "legal
holiday" as defined in Bankruptcy Rule 9006(a).
"CANCELED SECURITY" means any note, bond, debenture, stock certificate
or other instrument or investment security evidencing (i) an Impaired Claim
outstanding immediately prior to the Effective Date or (ii) an obligation under
any of the Loan Agreements.
"CASH" means all money, currency and coins, negotiable checks and
balances in bank accounts in the possession of the Debtors.
"CASH PROCEEDS" means all Estate Cash available for distribution to
Holders of Allowed General Unsecured Claims in accordance with the Inter-Debtor
Settlement Agreement and the Administrative Expense Treatment Agreement,
exclusive of Litigation Proceeds and Preference Proceeds.
"CAUSES OF ACTION" means, other than Preference Causes of Action, any
and all actions, causes of action, liabilities, obligations, rights, suits,
debts, sums of money, damages, judgments, claims and demands whatsoever, whether
known or unknown, in law, equity or otherwise of any of the Debtor's estates
including, but not limited to, those causes of action arising under Sections
510, 544, 545, 546, 548, 549, 550 and 553 of the Bankruptcy Code and including
all causes of action of a trustee or debtor in possession under the Bankruptcy
Code, other than those expressly released or compromised as part of or pursuant
to the Plan.
"CHAPTER 11 CASES" means the cases under Chapter 11 of the Bankruptcy
Code voluntarily commenced by the Debtors on the Petition Date.
"CLAIM" means any claim against one or more of the Debtors within the
meaning of Section 101(5) of the Bankruptcy Code.
"CLASS" means any group of Claims or Interests as classified pursuant
to Article IV of the Plan.
"CLASSIFIED PRIORITY CLAIMS" means any and all Claims entitled to
priority in payment under Section 507(a) of the Bankruptcy Code, including any
and all Claims entitled to priority in payment under Section 507(a)(8) of the
Bankruptcy Code, but excluding Administrative Expense Claims.
"CLOSING" or "CLOSING DATE" means July 22, 1998, the date on which the
sale of substantially all of the Debtors' assets to EqualNet was consummated.
"COMMITTEE" means the Official Committee of Unsecured Creditors of the
Debtors appointed by the United States Trustee pursuant to Section 1102(a) of
the Bankruptcy Code.
"CONFIRMATION" means the entry by the Bankruptcy Court of the
Confirmation Order.
"CONFIRMATION DATE" means the date on which the Confirmation Order is
entered on the docket maintained by the Clerk of the Bankruptcy Court.
"CONFIRMATION HEARING" means the hearing before the Bankruptcy Court
on the Confirmation of the Plan.
"CONFIRMATION HEARING NOTICE" means that notice of the Confirmation
Hearing provided to the Holders of Claims and other parties-in-interest.
"CONFIRMATION ORDER" means an order entered by the Bankruptcy Court
confirming the Plan.
"CONSOLIDATED DEBTORS" means USC, LDN, NATC, Uniquest and SWLDN,
collectively.
"CONSOLIDATED USC" means USC, LDN, NATC, Uniquest and SWLDN, as
consolidated pursuant to Section 8.01 of the Plan.
"CONSOLIDATED USC GENERAL UNSECURED CLAIM DISTRIBUTION AMOUNT" means
the sum of (i) 16% of the Cash Proceeds plus (ii) 10% of the Litigation Proceeds
plus (iii) 16% of the Preference Proceeds plus (iv) the USC Preference Amount
plus (v) up to $50,000 from the Professional Fee Reduction.
"CONVERSION DATE" means that date 180 days from the date on which the
Disclosure Statement is approved by the Bankruptcy Court, unless extended as set
forth in Section 12.04 herein. If the Plan cannot be confirmed by the Conversion
Date, the Cases will be converted to cases under Chapter 7 of the Bankruptcy
Code and distribution of all available assets will be made pursuant to the
provisions applicable to a Chapter 7 case under the auspices of a Chapter 7
trustee or trustees; such distribution under Chapter 7 will be made, however,
without regard to the Inter-Debtor Settlement Agreement or the Administrative
Expense Treatment Agreement, but the WorldCom Settlement Agreement will survive
the Conversion Date and be binding on the Chapter 7 Trustee.
"CREDITOR" means any Person that is the holder of a Claim against any
of the Debtors that arose on or before the Petition Date or a Claim against any
of the Debtors' Estates of the kind specified in Section 502(g), 502(h), or
502(i) of the Bankruptcy Code.
"CREDITOR REPRESENTATIVES" means WorldCom, as representative of
Addtel, the Indenture Trustee, as representative of STEL, and U.S.West, as
representative of USC, with respect to the investigation of the Intercompany
Claims and the Substantive consolidation of the Debtors' Estates and related
issues and the negotiation of the Inter-Debtor Settlement Agreement.
"DEBTORS" means STEL, Addtel, LDN, NATC, Uniquest, USC and SWLDN,
debtors and debtors in possession in the Chapter 11 Cases.
"DEBTORS-IN-POSSESSION" means the Debtors as debtors-in-possession
pursuant to Sections 1101, 1107 and 1108 of the Bankruptcy Code.
"DGCL" means the Delaware General Corporation Law.
"DISALLOWED" means, with respect to any Claim or portion thereof, any
Claim against in any of the Debtors which has been (i) disallowed, in whole or
in part, by Final Order of the Bankruptcy Court, (ii) withdrawn by agreement of
the Debtors or Liquidating STEL and the Holder thereof, in whole or in part,
(iii) withdrawn, in whole or in part, by the Holder thereof, (iv) listed in the
Schedules and as to which a Proof of Claim has not been timely Filed or (v)
reclassified, expunged, subordinated or estimated to the extent that such
reclassification, expungement, subordination or estimation results in a
reduction in the Filed amount of any Proof of Claim. In each case, the
Disallowed Claim is disallowed only to the extent of disallowance, withdrawal,
reclassification, expungement, subordination or estimation.
"DISBURSING AGENT" means the Liquidating Officer in its capacity as
disbursing agent under Article VII of the Plan, or any other party designated by
the Liquidating Officer to serve as disbursing agent that is reasonably
acceptable to the Debtors and the Committee and is approved by the Bankruptcy
Court. A Disbursing Agent shall not be required to give any bond or surety or
other security for the performance of its duties unless otherwise ordered by the
Bankruptcy Court.
"DISCLOSURE STATEMENT" means the disclosure statement concerning the
Plan that has been approved by Order of the Bankruptcy Court pursuant to Section
1125 of the Bankruptcy Code, as such disclosure statement may be amended,
modified, or supplemented (including all exhibits or appendices annexed thereto
or referred to therein).
"DISPUTED" means, in respect of any Claim or Interest, that such Claim
or Interest has been asserted or Filed, but has not been (i) Allowed or (ii)
Disallowed or expunged pursuant to an Order of the Bankruptcy Court.
"DISPUTED [CLASS DESIGNATION] CLAIM" means a Disputed Claim in a
specified Class. For example, a Disputed Addtel General Unsecured Claim is a
Disputed Claim in the Addtel General Unsecured Claims Class.
"DISTRIBUTION DATES" means those dates upon which the Debtors or the
Liquidating Officer makes a distribution of property to Holders of Allowed
Claims in accordance with the Plan, which encompasses the Inter-Debtor
Settlement Agreement and the Administrative Expense Treatment Agreement.
"EARNED INTEREST" means, for purposes of distribution under the Plan,
simple interest for each day during the applicable period at a rate equal to the
rate earned by Liquidating STEL on the funds in a distribution reserve invested
by Liquidating STEL in accordance with Article VIII of the Plan.
"EFFECTIVE DATE" means the day on which the conditions set forth in
Section 12.01 have been satisfied or waived as provided therein.
"EQUALNET" means EqualNet Communications Corp. f/k/a EqualNet Holding
Corp., a Texas corporation.
"EQUALNET COMMON STOCK" means the common stock of EqualNet.
"EQUALNET CORP." means EqualNet Corporation, a wholly-owned subsidiary
of EqualNet and the predecessor of USC Telecom as buyer under the Purchase
Agreement.
"EQUALNET DIP AGREEMENT" means the Stipulation Concerning
Debtor-in-Possession Financing Provided by EqualNet dated as of March 10, 1998
by and among the Debtors, Greyrock, EqualNet and EqualNet Corp.
"EQUALNET DIP DOCUMENTS" means the EqualNet DIP Agreement and the
collateral and ancillary documents executed and delivered pursuant thereto.
"EQUALNET FACILITY" means the debtor-in-possession financing facility
provided to the Debtors pursuant to the EqualNet DIP Documents.
"EQUALNET PARTIES" means EqualNet and EqualNet Corp. and/or USC
Telecom, depending on the context.
"EQUALNET PREFERRED STOCK" means the Series C Convertible Preferred
Stock issued to the Debtors in connection with the sale of assets to EqualNet.
"EQUALNET STOCK" means any Preferred Stock or Common Stock of EqualNet
issued to the Debtors at any time during these Chapter 11 Cases.
"ESTATE CASH" means the Cash assets of all of the Debtors' Estates
derived from the Debtors' operations and the sale of any and all assets,
including, but not limited to, (a) the Cash portion of the proceeds received by
the Debtors pursuant to the Purchase Agreement, (b) Cash received as proceeds
from the sales of EqualNet Stock, and (c) Cash received pursuant to the BC
Agreements, but does not include Litigation Proceeds and Preference Proceeds.
"ESTATES" means the bankruptcy estates created pursuant to Section 541
of the Bankruptcy Code by the commencement of the Chapter 11 Cases.
"EXPENSE RESERVE" means a reserve established to receive and hold, in
a segregated account to be established by Liquidating STEL, Cash and EqualNet
Stock, in an amount equal to 100% of the sum of the (i) estimated compensation
and estimated fees and expenses of, or to be incurred by, the Liquidating
Officer (including the fees and expenses of its counsel) in winding up the
Debtors' Estates and affairs, (ii) any fees payable pursuant to 28 U.S.C.
Section 1930, (iii) the Debtors' agreed upon costs in connection with the
WorldCom Motion and the WorldCom Adversary Proceeding (as set forth in the
Inter-Debtor Settlement Agreement) plus (iv) such additional amounts as approved
by the Bankruptcy Court.
"FILED" means delivered to, received by and entered upon the legal
docket in the Chapter 11 Cases or any related adversary proceedings by the Clerk
of the Bankruptcy Court; provided, however, that with respect to proofs of
claim, Filed shall mean delivered and received in the manner approved by the
Bankruptcy Court in that certain Order Fixing Bar Date for Filing Proofs of
Claim and Approving Notice Thereof dated April 27, 1998; provided further,
however, that with respect to requests for payment of Administrative Expense
Claims, Filed shall mean delivered and received in the manner approved by the
Bankruptcy Court in that certain [Order Fixing Bar Date for Filing Requests for
Payment of Administrative Expense Claims and Approving Notice Thereof, dated
_______________].
"FINAL DECREE" means the final decree entered by the Bankruptcy Court
after the Effective Date and pursuant to Section 350(a) of the Bankruptcy Code
and Bankruptcy Rule 3022.
"FINAL ORDER" means an order, judgment, ruling or decree issued and
entered upon the legal docket in the Chapter 11 Cases or any related adversary
proceedings by the Clerk of the Bankruptcy Court or any other court of competent
jurisdiction that has not been reversed, stayed, modified or amended and as to
which the time to appeal, reargue, petition for certiorari or seek rehearing has
expired, and as to which no appeal, reargument, petition for certiorari, or
rehearing is pending or as to which any right to appeal, reargue, petition for
certiorari or seek rehearing has been waived in writing in a manner satisfactory
to the applicable Debtor or, if an appeal, reargument, petition for certiorari
or rehearing thereof has been denied, the time to take any further appeal or to
seek certiorari or further reargument or rehearing has expired.
"GENERAL UNSECURED CLAIMS" means all Claims other than Priority
Claims, Secured Claims and Intercompany Claims.
"GREYROCK" means Greyrock Business Credit, a division of NationsCredit
Commercial Corporation.
"GREYROCK DIP AGREEMENT" means the Prepetition Loan Agreement, as
amended by the Stipulation Re Continuance of Financing of Debtors and Debtors in
Possession, Use of Cash Collateral, Priority of Advances Made and For Adequate
Protection dated as of November 20, 1997 among the Debtors and Greyrock, as
amended, supplemented and modified from time to time.
"GREYROCK DIP DOCUMENTS" means the Greyrock DIP Agreement and the
collateral and ancillary documents executed and delivered pursuant thereto.
"GREYROCK DIP FACILITY" means the funds advanced pursuant to the
Greyrock DIP Documents.
"GREYROCK PREPETITION FACILITY" means the funds advanced pursuant to
the Prepetition Loan Agreement.
"HOLDER" means, in respect of any Claim or Interest, the holder or
owner of, or Person otherwise entitled to enforce, such Claim or Interest.
"IMPAIRED" means impaired as that term is defined in Section 1124 of
the Bankruptcy Code.
"INDENTURE" means that certain Trust Indenture for the 10% Convertible
Notes dated as of August 12, 1996 between STEL and the Indenture Trustee.
"INDENTURE TRUSTEE" means United States Trust Company of New York, as
Indenture Trustee under the Indenture.
"INITIAL DISTRIBUTION" means the distribution made on or before the
Effective Date, which distribution will be a condition precedent to the Plan
becoming effective; provided, however, that any Claim which is Disputed at the
time of the Effective Date will not receive any distribution unless and until
such Claim is Allowed.
"INITIAL DISTRIBUTION DATE" means that date is on or before the
Effective Date on which the Initial Distribution is made.
"INTERCOMPANY CLAIMS" means all Claims held by any Debtor (or any
subsidiary or Affiliate thereof) against any or all other Debtors (or any
subsidiary or Affiliate thereof), including, without limitation, all derivative
Claims asserted by or on behalf of one Debtor against another.
"INTER-DEBTOR SETTLEMENT AGREEMENT" means the Term Sheet for
Settlement of Inter-Debtor Claims and Joint Plan of Reorganization of the
Debtors as approved by the Bankruptcy Court by order dated August 12, 1998, and
as described in detail in the Disclosure Statement.
"INTERESTS" means any and all equity or ownership interests in the
Debtors and all stock certificates and other investment securities, whether or
not certificated, representing any such equity or ownership interests and any
and all options, warrants, subscription agreements and contractual rights to
acquire any such equity or ownership interests.
"INVESTMENT ORDER" means [the Order Pursuant to 11 U.S.C. Section
345(b) Authorizing the Short Term Investment of Cash dated _______ __, 1999
authorizing the Debtors to invest their excess Cash in certain investments
including (i) obligations issued by the U.S. Treasury; (ii) obligations
guaranteed by the U.S. Government or issued by Federal agencies; (iii)
obligations of domestic commercial banks and bank holding companies with/or in
banks that have a "AA" or short-term rating A1 or P1 or higher, including, but
not limited to, bankers acceptances, certificates of deposit, negotiable
eurodollar certificates of deposit, deposit notes and medium term notes; (iv)
obligations of U.S. corporations, including, but not limited to, commercial
paper, medium term notes and bonds with ratings equivalent to AAA and A1/P1 or
greater; (v) money market preferred stock with a rating of AA+ (including
collateralized issues); and (vi) money market funds where the majority of the
portfolio complies with the foregoing.]
"LDN" means Long Distance Network, Inc., a wholly-owned subsidiary of
STEL.
"LIQUIDATING OFFICER" means that individual selected by the Debtors
and the Committee and approved by the Bankruptcy Court in the Confirmation Order
or such order as may be entered by the Bankruptcy Court and who is empowered to
implement and administer the Plan on behalf of Liquidating STEL, which
authorization shall include, but not be limited to, the right to make
distributions under the Plan, to resolve any pending objections to Disputed
Claims, to otherwise take all necessary predicate actions to obtaining a Final
Decree closing the Debtors' Cases and to consult with Litigation Counsel in
connection with objections to Claims.
"LIQUIDATING STEL" means SA Telecommunications, Inc., the successor to
STEL, Addtel, LDN, NATC, Uniquest, USC and SWLDN under the Plan.
"LITIGATION COUNSEL" means one or more entities selected by the
Debtors and the Committee and approved by the Bankruptcy Court pursuant to an
Order dated [ ], 1999 to pursue litigation on account of all Causes of Action
belonging to the Estates, including Preference Causes of Action.
"LITIGATION PROCEEDS" means the proceeds, if any, net of litigation
costs (including, but not limited to, the amount advanced from the Estates to
fund such litigation), received by Litigation Counsel on account of all Causes
of Action belonging to the Estates, including Preference Causes of Action, which
proceeds are available for distribution in accordance with the terms of the
Inter-Debtor Settlement Agreement and the Administrative Expense Treatment
Agreement.
"LOAN AGREEMENTS" means the EqualNet DIP Agreement, the Greyrock DIP
Agreement and the Prepetition Loan Agreement.
"MANAGEMENT AGREEMENT" means that certain Management and Services
Agreement dated as of March 12, 1998 by and among the Debtors, EqualNet Corp.
and EqualNet, as extended from time to time.
"MARCH DEBENTURE" means the $3,800,000 in principal amount of 10%
Convertible Debenture of STEL due August 15, 2006.
"MISCELLANEOUS SECURED CLAIMS" means any and all Secured Claims other
than the Prepetition Lender Secured Claims.
"NATC" means North American Telecommunications Corporation, a
wholly-owned subsidiary of STEL.
"NOTE CLAIM" means a Claim of a Creditor based upon the 10%
Convertible Notes or arising under the Indenture.
"PERSON" means any individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint stock
company, estate, entity, trust, trustee, United States trustee, unincorporated
organization, government, governmental unit (as defined in the Bankruptcy Code),
agency or political subdivision thereof.
"PETITION DATE" means November 19, 1997.
"PLAN" means this Joint Chapter 11 Liquidating Plan, as amended or
modified from time to time by the Debtors in accordance with the terms hereof
and Section 1127 of the Bankruptcy Code.
"PREFERENCE CAUSE OF ACTION" means any cause of action arising under
Section 547 of the Bankruptcy Code in any of the Debtors' Estates.
"PREFERENCE PROCEEDS" means the proceeds, if any, net of litigation
costs and the USC Preference Amount, received by the Debtors, Liquidating STEL,
Litigation Counsel or any of their representatives on account of all Preference
Causes of Action, which proceeds are available for distribution to Holders of
Allowed General Unsecured Claims in accordance with the terms of the
Inter-Debtor Settlement Agreement.
"PREPETITION LOAN AGREEMENT" means the Loan and Security Agreement
dated as of December 26, 1996, as amended by those certain Amendments dated as
of February 12, 1997 and October 20, 1997, by and among STEL, Addtel, LDN, USC,
SWLDN and Greyrock, as amended, modified or supplemented from time to time.
"PREPETITION LOAN DOCUMENTS" means the Prepetition Loan Agreement, the
schedules thereto and the collateral and ancillary documents executed and
delivered pursuant thereto.
"PRIORITY CLAIMS" means Classified Priority Claims and Administrative
Expense Claims.
"PRO RATA" means with reference to any distribution on account of any
Allowed Claim in any Class, a distribution equal in amount to the ratio
(expressed as a percentage) that the amount of such Allowed Claim bears to the
amount of all Allowed Claims in that Class.
"PROFESSIONAL FEE REDUCTION" means the agreement by and between the
Professionals, including, without limitation, White & Case LLP, The Bayard Firm,
Kelley Drye & Warren LLP, Saul, Ewing, Remick & Saul LLP, Jay Alix & Associates
and Cornwell Consulting Services, Inc. to reduce their fees (but not expenses)
by 7.5%, up to $150,000, which reductions shall be shared Pro Rata by such firms
to create a fund, provided, however, that such amount shall be reduced dollar
for dollar to the extent that the fees of any such firm are reduced by the
Bankruptcy Court. The Professional Fee Reduction will become effective only when
the Professionals receive payment of 92.5% of their fees; if the Professional
Fee Reduction becomes operative, $100,000 will be deemed to be the
Professionals' contribution to fund the initial efforts of Litigation Counsel
and $50,000 will be contributed by the Professionals to Consolidated USC, which
amount will be paid to Consolidated USC in addition to the USC Preference
Amount.
"PROFESSIONALS" means those Persons (a) employed pursuant to an order
of the Bankruptcy Court in accordance with Sections 327 or 1103 of the
Bankruptcy Code providing for compensation of services rendered prior to the
Effective Date pursuant to Sections 327 through 331 of the Bankruptcy Code, or
(b) for which compensation and reimbursement has been agreed to by the parties
to the Inter-Debtor Settlement Agreement and/or has been allowed by the
Bankruptcy Court pursuant to Sections 503(b)(2) or (4) of the Bankruptcy Code.
"PROOF OF CLAIM" means any proof of claim or request for payment of an
Administrative Expense Claim Filed with the Bankruptcy Court or its duly
appointed claims agent with respect to the Debtors pursuant to Bankruptcy Rules
3001 or 3002.
"PURCHASE AGREEMENT" means that certain Purchase Agreement dated as of
January 15, 1998 by and among the Debtors, EqualNet and EqualNet Corp., as
amended by that certain Amendment dated as of March 10, 1998 and those certain
Letter Agreements dated as of May 28, 1998 and July 21, 1998.
"SALE" means the sale of substantially all of the Debtors assets to
the EqualNet Parties.
"SCHEDULES" means the Schedules of Assets and Liabilities and the
Statement of Financial Affairs that were filed with the Bankruptcy Court by the
Debtors on or about January 30, 1998, as such have been and from time to time
may be amended or supplemented by any of the Debtors in accordance with
Bankruptcy Rule 1009.
"SECURED CLAIM" means a Claim secured by a lien on property in which
any of the Estates have an interest, as determined pursuant to Section 506(a) of
the Bankruptcy Code, or that is subject to setoff under Section 553 of the
Bankruptcy Code, to the extent of the value of the Holder's interest in the
Estate's interest in such property or to the extent of the amount subject to
setoff, as applicable.
"SETTLEMENT PROFESSIONALS" means those professionals who represented
the Creditor Representatives and whose compensation and reimbursement for such
activities was agreed to by the parties to the Inter-Debtor Settlement Agreement
and approved by the Bankruptcy Court.
"STEL" means SA Telecommunications, Inc., a Delaware corporation.
"STEL COMMON STOCK" means all authorized, issued and outstanding
shares of common stock of STEL, par value $.0001, as of the Petition Date.
"STEL GENERAL UNSECURED CLAIM DISTRIBUTION AMOUNT" means the sum of
(i) 42% of the Cash Proceeds plus (ii) 85% of the Litigation Proceeds plus (iii)
42% of the Preference Proceeds.
"STEL PREFERRED STOCK" means all authorized, issued and outstanding
shares of preferred stock of STEL, par value $.0001, as of the Petition Date.
"SUBSIDIARY COMMON STOCK INTERESTS" means all Interests of any Debtor
in any other Debtor.
"SWLDN" means Southwest Long Distance Network, Inc., a wholly-owned
subsidiary of USC.
"10% CONVERTIBLE NOTES" means the $27,200,000 in principal amount of
10% Convertible Notes of STEL due August 15, 2006.
"TERM SHEET" means the Term Sheet for Settlement of Inter-Debtor
Claims and Joint Plan of Reorganization of the Debtors.
"UNCLAIMED PROPERTY" has the meaning assigned to that term in Section
8.09 hereof.
"UNIQUEST" means Uniquest Communications, Inc., a wholly-owned
subsidiary of STEL.
"USC" means U.S. Communications, Inc., a wholly-owned subsidiary of
STEL.
"USC PREFERENCE AMOUNT" means the first $50,000 recovered, if any, net
of fees and expenses of Litigation Counsel and any amounts required for
re-funding the expense Reserve, by the Debtors, Litigation Counsel or
Liquidating STEL from Preference Causes of Action, which amount will be
distributed to Holders of Allowed General Unsecured Claims against Consolidated
USC, upon determination that such excess exists.
"USC TELECOM" means USC Telecom., Inc., a wholly-owned subsidiary of
EqualNet and the successor to EqualNet Corp. as buyer under the Purchase
Agreement.
"USC TELECOM NOTE" means that certain note issued by USC Telecom in
favor of Greyrock pursuant to that certain _________ Agreement by and among
__________.
"US TRUSTEE FEES" means any fees assessed against the Debtors' Estates
by the Office of the United States Trustee pursuant to 28 U.S.C. Section 1930.
"VOTING DEADLINE" means the deadline established by Final Order of the
Bankruptcy Court for receipt of Ballots voting to accept or reject the Plan.
"WORLDCOM" means WorldCom Network Services, Inc. and WorldCom, Inc.,
collectively.
"WORLDCOM ADMINISTRATIVE EXPENSE CLAIM" means the Administrative
Expense Claim of WorldCom in the Allowed amount of [$ ].
"WORLDCOM ADVERSARY PROCEEDING" means the adversary proceeding between
the Debtors and WorldCom, No. A98-138, Bankr. D. Del.
"WORLDCOM MOTION" means the Expedited Motion for an Order (i) Granting
Relief from the Automatic Stay to Terminate Agreements and Telecommunications
Services, or as a Less Favored Alternative, (ii) Providing Adequate Protection
and Adequate Assurance of Payment and (iii) Granting Additional Relief filed by
WorldCom.
"WORLDCOM SETTLEMENT AGREEMENT" means that agreement between the
Debtors and WorldCom which incorporates certain terms of the Inter-Debtor
Settlement Agreement, and which is described in detail at Section ____ of the
Disclosure Statement.
"WORLDCOM UNSECURED CLAIM" means that General Unsecured Claim of
WorldCom against Addtel in the Allowed amount of [$ ].
ARTICLE II
RULES OF INTERPRETATION
2.0. Rules of Interpretation. The provisions of the Plan shall control
over any descriptions thereof contained in the Disclosure Statement. References
herein to "Articles," "Sections," and "Exhibits," when not qualified by a
reference to another document, are references to the Articles, Sections and
Exhibits of or to the Plan. Whenever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural, and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter. The words "herein,"
"hereof," "hereto," "hereunder" and others of similar import, refer to the Plan
as a whole and not to the part in which such words appear. The words "includes"
and "including" are not limiting and mean that the things specifically
identified are set forth for purposes of illustration, clarity or specificity
and do not in any respect qualify, characterize or limit the generality of the
class within such things are included. Captions and headings to Articles,
Sections and Exhibits are inserted for convenience of reference only, are not a
part of the Plan, and shall not be used to interpret the Plan. Any term used in
the Plan that is not defined in the Plan, either in Article I hereof or
elsewhere, but that is used in the Bankruptcy Code or the Bankruptcy Rules shall
have the meaning assigned to that term in (as shall be construed in accordance
with the rules of construction under) the Bankruptcy Code or the Bankruptcy
Rules. Without limiting the preceding sentence, the rules of construction set
forth in Section 102 of the Bankruptcy Code shall apply to the Plan, unless
superseded herein. In computing any period of time prescribed or allowed by the
Plan, the provisions of Bankruptcy Rule 9006(a) and Section 14.13 hereof shall
apply, but Bankruptcy Rule 9006(a) shall govern.
2.02. Incorporation of Exhibits. All Exhibits to the Plan are part of
the Plan and incorporated herein as fully as if set forth at length herein. The
Exhibits to the Plan will be Filed with the Bankruptcy Court at least three (3)
days prior to the first scheduled date for the hearing to consider approval of
the Disclosure Statement.
ARTICLE III
ESTATE CASH DISTRIBUTIONS AND
TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS
3.01. Estate Cash Distributions. Distributions on account of Allowed
Administrative Expense Claims, including the Claims of Professionals, Allowed
Miscellaneous Secured Claims and Allowed Classified Priority Claims will be made
from Estate Cash (and subject to the limitations set forth below in Section 3.03
from Litigation Proceeds) without regard to the particular Estate from which any
such Claim arose. Except with respect to such distributions, the integrity and
separateness of STEL, Addtel and Consolidated USC as separate Estates will be
observed.
3.02. Administrative Expense Claims. In accordance with Section
1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims have not been
classified and are excluded from the Classes set forth in Article IV of the
Plan.
3.03. Treatment of Allowed Administrative Expense Claims. Unless
otherwise provided for herein, each Holder of an Allowed Administrative Expense
Claim shall be paid 100% of the unpaid Allowed amount of such Administrative
Expense Claim in Cash from Estate Cash: (i) on or before the Effective Date,
(ii) on the next Distribution Date after the date on which such Administrative
Expense Claim becomes Allowed, or (iii) on a date agreed to by the Debtors or
the Liquidating Officer and such Holder; provided, however, that an Allowed
Administrative Expense Claim will be paid in accordance with the Administrative
Expense Treatment Agreement, if applicable (including, without limitation, all
claims for compensation and reimbursement of expenses of Professionals pursuant
to Sections 327 through 331, 503(b)(1) or (4) or 1103 of the Bankruptcy Code),
or on such other terms and conditions as are agreed to between the Debtors or
Liquidating Officer, as the case may be, and the Holder of such Administrative
Expense Claim.
If an Administrative Expense Claimant enters into the Administrative
Expense Treatment Agreement or a similar agreement and receives the minimum
payment agreed to thereunder, such payment shall be in full satisfaction of such
Holder's Claim and the Holder may not pursue any means against the Debtors or
any other entity.
If the Estate Cash is insufficient to make the distributions required
with respect to Allowed Administrative Expense Claims, Litigation Proceeds may
be applied to satisfy the shortfall, provided, however, that the Litigation
Proceeds will be applied according to the allocation set forth in the
Inter-Debtor Settlement Agreement to satisfy only the Allowed Administrative
Expense Claims arising in the corresponding Estates.
ARTICLE IV
CLASSIFICATION OF CLAIMS AND INTERESTS
For purposes of the Plan, all Claims against, and Interests in, the
Debtors (other than Administrative Expense Claims) are classified as described
below. In accordance with Section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims have not been classified and are excluded from the
following Classes. A Claim or Interest will be deemed classified in a particular
Class only to the extent that such Claim or Interest qualifies within the
description of that Class and will be deemed classified in a different Class to
the extent that any remainder of such Claim or Interest qualifies within the
description of such different Class. Further, a Claim or Interest shall not be
classified in any Class for distribution purposes until such Claim or Interest
becomes an Allowed Claim or Allowed Interest and then only to the extent that
such Claim or Interest has not been paid, released or otherwise satisfied prior
to the Effective Date.
4.01. Class 1 Claims: Miscellaneous Secured Claims.
Class 1-A: Class 1-A shall consist of all Miscellaneous
Secured Claims against STEL.
Class 1-B: Class 1-B shall consist of all Miscellaneous
Secured Claims against Addtel.
Class 1-C: Class 1-C shall consist of all Miscellaneous
Secured Claims against Consolidated USC.
4.02. Class 2 Claims: Classified Priority Claims.
Class 2-A: Class 2-A shall consist of all Classified
Priority Claims.
4.03. Class 3 Claims: General Unsecured Claims.
Class 3-A: Class 3-A shall consist of all General Unsecured
Claims against STEL.
Class 3-B: Class 3-B shall consist of all General Unsecured
Claims against Addtel.
Class 3-C: Class 3-C shall consist of all General Unsecured
Claims against Consolidated USC.
4.04. Class 4 Claims: Intercompany Claims.
Class 4-A: Class 4-A shall consist of all Intercompany
Claims.
4.05. Class 5 Interests: STEL Preferred Stock Interests.
Class 5-A: Class 5-A shall consist of all STEL Preferred
Stock Interests.
4.06. Class 6 Interests: STEL Common Stock Interests.
Class 6-A: Class 6-A shall consist of all STEL Common Stock
Interests.
4.07. Class 7 Interests: Subsidiary Common Stock Interests.
Class 7-A: Class 7-A shall consist of all Subsidiary Common
Stock Interests.
ARTICLE V
TREATMENT OF CLAIMS AND INTERESTS
5.01. Treatment of Allowed Class 1 Claims (Miscellaneous Secured
Claims).
(a) Classes 1-A through 1-C (Miscellaneous Secured Claims)
(i) Treatment. Each Holder of an Allowed Miscellaneous Secured
Claim shall receive, in full satisfaction, settlement, release, and
discharge of such Allowed Secured Claim, in the sole discretion of the
Debtors and the Committee, (i) the property securing such Claim, (ii)
a cash payment from Estate Cash equal to the amount of its Allowed
Secured Claim, or (iii) such other treatment as to which the Debtor,
the Committee and the Holder have agreed in writing. The Debtors'
failure to object to any such Claim during the pendency of the Chapter
11 Cases shall not prejudice, diminish, affect or impair Liquidating
STEL's right to contest or defend itself against such Claim in any
lawful manner or forum when and if such Claim is sought to be enforced
by the Holder thereof. Each Miscellaneous Secured Claim and any lien
lawfully granted or existing on any property of the Estates on the
Petition Date as security for a Miscellaneous Secured Claim shall,
unless such Claim is paid in full on or prior to the Effective Date,
(x) survive the Confirmation and consummation of the Plan, the
Debtors' discharge under Section 1141(d) of the Bankruptcy Code and
Section 11.01 of the Plan, and any transfer of the property securing
such Miscellaneous Secured Claim under the Plan, (y) remain
enforceable against either Liquidating STEL or the transferee of the
property securing such Miscellaneous Secured Claim under the Plan in
accordance with the contractual terms of any lawful agreements
enforceable by the Holder of such Claim on the Petition Date until the
Allowed amount of such Claim is paid in full, and (z) remain subject
to avoidance by Liquidating STEL under the Bankruptcy Code.
(ii) Impairment. Classes 1-A through 1-C are not Impaired.
Holders of such Claims shall be deemed to have accepted the Plan.
5.02. Treatment of Allowed Class 2 Claims (Classified Priority
Claims).
(a) Class 2-A (Classified Priority Claims)
(i) Treatment. Unless otherwise agreed to by the Holder of an
Allowed Classified Priority Claim and the Debtors, each Holder of an
Allowed Classified Priority Claim shall receive, on account of such
Claim, payment of the Allowed amount of such Claim in full and in Cash
from Estate Cash to the extent that the Holder of such Allowed
Classified Priority Claim has not received payment of such Claim as of
the Effective Date.
(ii) Impairment. Class 2-A is not Impaired. Holders of such
Claims shall be deemed to have accepted the Plan.
5.03. Treatment of Allowed Class 3 Claims (General Unsecured Claims).
(a) Class 3-A (STEL General Unsecured Claims).
(i) Treatment. Each Holder of an Allowed Class 3-A General
Unsecured Claim shall receive on account of such Claim, its Pro Rata
share of the STEL General Unsecured Claim Distribution Amount.
Distributions to Holders of Allowed Claims based on the 10%
Convertible Notes shall be subject to the lien rights of the Indenture
Trustee.
(ii) Impairment. Class 3-A is Impaired. Holders of such Claims
shall be entitled to vote to accept or reject the Plan.
(b) Class 3-B (Addtel General Unsecured Claims).
(i) Treatment. Each Holder of an Allowed Class 3-B General
Unsecured Claim shall receive on account of such Claim, its Pro Rata
share of the Addtel General Unsecured Claim Distribution Amount.
(ii) Impairment. Class 3-B is Impaired. Holders of such Claims
shall be entitled to vote to accept or reject the Plan.
(c) Class 3-C (Consolidated USC General Unsecured Claims).
(i) Treatment. Each Holder of an Allowed Class 3-C General
Unsecured Claim shall receive on account of such Claim, its Pro Rata
share of the Consolidated USC General Unsecured Claim Distribution
Amount.
(ii) Impairment. Class 3-C is Impaired. Holders of such Claims
shall be entitled to vote to accept or reject the Plan.
5.04. Treatment of Allowed Class 4 Claims (Intercompany Claims).
(a) Class 4-A (Intercompany Claims).
(i) No Distribution. The Class 4-A Claims shall be canceled on
the Effective Date and the Holders of the Class 4-A Claims shall not
receive or retain any property under the Plan on account of their
Class 4-A Claims.
(ii) Impairment. Class 4-A is Impaired. Holders of such Claims
are deemed to have rejected the Plan.
5.05. Treatment of Allowed Class 5 Interests (STEL Preferred Stock
Interests).
(a) Class 5-A (STEL Preferred Stock Interests).
(i) No Distribution. The Class 5-A Interests shall be canceled
and extinguished on the Effective Date, and the Holders thereof shall
not receive or retain any property under the Plan on account of their
Class 5-A Interests.
(ii) Impairment. Class 5-A is Impaired. Holders of such Interests
shall be deemed to have rejected the Plan.
5.06. Treatment of Allowed Class 6 Interests (STEL Common Stock
Interests).
(a) Class 6-A (STEL Common Stock Interests).
(i) No Distribution. The Class 6-A Interests shall be canceled
and extinguished on the Effective Date, and the Holders thereof shall
not receive or retain any property under the Plan on account of their
Class 6-A Interests.
(ii) Impairment. Class 6-A is Impaired. Holders of such Interests
shall be deemed to have rejected the Plan.
5.07. Treatment of Allowed Class 7 Interests (Subsidiary Common Stock
Interests).
(a) Class 7-A (Subsidiary Common Stock Interests).
(i) No Distribution. The Class 7-A Interests shall be canceled
and extinguished on the Effective Date, and the Holders thereof shall
not receive or retain any property under the Plan on account of their
Class 7-A Interests.
(ii) Impairment. Class 7-A is Impaired. Holders of such Interests
shall be deemed to have rejected the Plan.
ARTICLE VI
IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THE
PLAN; ACCEPTANCE OR REJECTION OF THE PLAN
6.01. Acceptance by an Impaired Class of Creditors. Consistent with
Section 1126(c) of the Bankruptcy Code, and except as provided in Section
1126(e) of the Bankruptcy Code, an Impaired Class of Claims shall have accepted
the Plan if the Plan is accepted by the Holders of at least two-thirds in dollar
amount and more than one-half in number of the Allowed Claims of such Class that
have timely and properly voted to accept or reject the Plan.
6.02. Voting Classes. General Unsecured Claims (Classes 3-A through
3-C) are Impaired by the Plan, and only the Holders of Claims in such Classes
against which no objections are pending at the time the vote on the Plan is
solicited shall be entitled to vote to accept or reject the Plan, unless the
Holders and the Debtors otherwise agree or the Bankruptcy Court so directs.
6.03. Classes Not Receiving or Retaining Property Deemed to Reject the
Plan. Intercompany Claims (Class 4-A), STEL Preferred Stock Interests (Class
5-A), STEL Common Stock Interests (Class 6-A) and Subsidiary Common Stock
Interests (Class 7-A) are Impaired by the Plan and do not receive or retain any
property under the Plan. Under Section 1126(g) of the Bankruptcy Code, the
Holders of Claims and Interests in such Classes are deemed to reject the Plan,
and the votes of Holders in such Classes will not be solicited.
6.04. Unimpaired Classes Conclusively Presumed to Accept the Plan.
Miscellaneous Secured Claims (Classes 1-A through 1-C) and Classified Priority
Claims (Class 2-A) are not Impaired by the Plan. Under Section 1126(f) of the
Bankruptcy Code, such Classes of Claims and Interests are conclusively presumed
to accept the Plan, and the votes of Holders in such Classes will not be
solicited.
6.05. Confirmation Pursuant to Section 1129(b). If all of the
applicable requirements for Confirmation of the Plan are met as set forth in
Section 1129(a) (1) through (13) of the Bankruptcy Code except subsection (a)(8)
thereof, the Debtors intend to request that the Bankruptcy Court confirm the
Plan pursuant to Section 1129(b) of the Bankruptcy Code, notwithstanding the
requirements of Section 1129(a)(8) thereof, on the basis that the Plan is fair
and equitable, and does not discriminate unfairly, with respect to each Class of
Claims or Interests that is impaired under, and has not accepted, the Plan.
6.06. Confirmation of All Cases. The Plan shall not be deemed to have
been confirmed unless and until the Plan has been confirmed in each of STEL's
Case, Addtel's Case and Consolidated USC's Case.
ARTICLE VII
PROVISIONS COVERING DISTRIBUTIONS
7.01. Timing of Distributions. The Initial Distribution under the Plan
shall be made to Holders of Allowed Claims (or to the Indenture Trustee as set
forth in Section 7.03 below) by the Debtors or the Liquidating Officer on the
Initial Distribution Date. In the case of any Disputed Claim, an initial
distribution will be made on the Distribution Date following the date on which
the Claim becomes Allowed. Subsequent interim distributions may be made from
time to time in the reasonable discretion of the Liquidating Officer, but in no
event shall a Distribution Date occur less frequently than every 90 days;
provided, however, that no distribution shall be made unless and until at least
$250,000 in the aggregate is to be distributed. Except for the Initial
Distribution which must be made on or before the Effective Date, distributions
required to be made on a particular date shall be deemed to have been made on
such date if actually made on such date or as soon thereafter as practicable.
Furthermore, a final distribution of property (the "Final Distribution") shall
be made by the Liquidating Officer no later than 120 days from the latter of (i)
the date that all Disputed Claims have been resolved in accordance with Article
VIII of the Plan or (ii) the date that all remaining assets, including Causes of
Action, of the Debtors have been monetized and deposited with the Liquidating
Officer for distribution.
7.02. Distributions to Holders of Allowed Claims. No later than the
Initial Distribution Date, the Liquidating Officer shall have available
sufficient Cash to: (a) make the distributions to be made on the Initial
Distribution Date to the Holders of Allowed Claims, and (b) establish reserves
for the Classes of Disputed Claims as set forth in Section 8.03 hereof.
7.03. Distribution to Holders of 10% Convertible Notes. All
distributions on account of Allowed Claims based on the 10% Convertible Notes
shall be made initially to the Indenture Trustee, which in turn will make a
further distribution to the Holders of these Note Claims in accordance with the
provisions of the Plan and the Indenture. The Liquidating Officer shall, at the
appropriate times set forth in the Plan, pay to the Indenture Trustee amounts
equal to the aggregate distribution payable to the Holders of the Allowed 10%
Convertible Note Claims, and distributions of such amounts by the Indenture
Trustee shall be made only upon surrender of such applicable Notes as provided
in Section 10.08(c) hereof. The Indenture Trustee shall make the distributions
with respect to Allowed 10% Convertible Note Claims to the Holders of such
Claims, subject to any rights or claims of such Indenture Trustee under the
Indenture.
7.04. Persons Deemed Holders of Registered Securities. Except as
otherwise provided herein, the Liquidating Officer shall be entitled to treat
the record Holder of a registered security as the sole Holder of the Claim in
respect thereof for purposes of all notices, payments or other distributions
under the Plan. No notice of any transfer of any such security shall be binding
on the Liquidating Officer , unless such transfer has been properly registered
in accordance with the provisions of the governing indenture or agreement on or
prior to the date on which the Bankruptcy Court enters the Confirmation Order.
If there is any dispute regarding the identity of the Person entitled to any
payment or distribution in respect of any Claim under the Plan, no payment or
distribution need be made in respect of such Claim until such dispute has been
resolved by the parties or the Bankruptcy Court resolves the dispute pursuant to
a Final Order.
7.05. Disbursing Agent. The Liquidating Officer or his designee shall
be appointed the Disbursing Agent to fulfill the obligations under the Plan with
respect to distributions, including, without limitation, holding all reserves
and accounts pursuant to the Plan.
7.06. Fractional Dollars. Notwithstanding any other provision of the
Plan, payments of fractions of dollars shall not be made. Whenever any payment
of a fraction of a dollar under the Plan would otherwise be called for, the
actual payment made shall reflect a rounding of such fraction to the nearest
whole dollar (up or down), with half dollars being rounded down.
7.07. De Minimis Distributions. No Cash payment of less than five
($5.00) dollars shall be made to any Holder of a Claim on account of its Allowed
Claim on any Distribution Date including the Final Distribution Date. On any
Distribution Date up until the Final Distribution Date, a Cash distribution to
any Holder of an Allowed Claim of less than five ($5.00) dollars, shall be
recorded and the funds reserved. If the cumulative amount exceeds the amounts
set forth above on any subsequent Distribution Date, the cumulative amount shall
be delivered to such Holder in accordance with the other provisions of this
Plan.
7.08. Method of Cash Distribution. Any Cash payment to be made
pursuant to the Plan may be made by draft, check, wire transfer, or as otherwise
required or provided in any relevant agreement or applicable law.
7.09. Compliance With Tax Requirements. In connection with each
distribution with respect to which the filing of an information return (such as
an Internal Revenue Service Form 1099 or 1042) or withholding is required, the
Liquidating Officer shall file such information return with the Internal Revenue
Service and provide any required statements in connection therewith to the
recipients of such distribution or effect any such withholding and deposit all
moneys so withheld as required by law. With respect to any Person from whom a
tax identification number, certified tax identification number or other tax
information required by law to avoid withholding has not been received by
Liquidating STEL within 30 days from the date of such request, Liquidating STEL
may, at its option, withhold the amount required and distribute the balance to
such Person or decline to make such distribution until the information is
received.
7.10. Withholding Taxes. Any federal, state or local withholding taxes
or other amounts required to be withheld under applicable law shall be deducted
from distributions hereunder. All Persons holding Claims shall be required to
provide any information necessary to effect the withholding of such taxes.
7.11. Saturday, Sunday or Legal Holiday. If any payment, distribution
or other act under the Plan is required to be made or performed on a date that
is not a Business Day, then the making of such payment or the performance of
such act may be completed on the next succeeding Business Day, but shall be
deemed to have been completed as of the required date.
7.12. Dates Pertaining to Administrative Expense Claims.
(a) Bar Date for Administrative Expense Claims Other than Claims of
Professionals. Except as otherwise set forth herein or in an order of the
Bankruptcy Court regarding a specific claim, all requests for payment of
Administrative Expense Claims (or any other means of preserving and obtaining
payment of Administrative Expense Claims found to be effective by the Bankruptcy
Court) shall be Filed by the Administrative Expense Claims Bar Date; provided,
however, that no such request or application need be filed with respect to (i)
any US Trustee Fees or (ii) Claims, liabilities or obligations incurred in the
ordinary course of the Debtors' business during the wind-down of the Estates,
unless a dispute exists as to any such liabilities. If requests for payment of
Administrative Expense Claims are not timely Filed, the Holders of such Claims
shall be forever barred, estopped and enjoined from asserting such Claims in any
manner against the Debtors or their property or Liquidating STEL. If Liquidating
STEL has made all of the payments due under the Administrative Expense Treatment
Agreement, the Liquidating Officer may pay any expenses accruing after the
Effective Date without any application to or approval of the Bankruptcy Court,
provided, however, that the re-funding of Litigation Counsel and the payment of
Litigation Counsel's expenses, including fees from litigation recoveries, will
not be subject to this restriction regarding payment of Administrative Expense
Claims but, rather, that Litigation Counsel will, on a regular basis, provide
the chairman of the Committee prior to Confirmation and the Liquidating Officer
post-Confirmation with detailed billing statements and, in the case of any
dispute regarding the Litigation Counsel's fees and expenses, the matter shall
be resolved by the Bankruptcy Court pursuant to its retained jurisdiction.
(b) Dates Pertaining to the Administrative Expense Claims of
Professionals. Applications for compensation for services rendered and
reimbursement of expenses incurred by Professionals (i) from the latter of the
Petition Date or the date on which retention was approved through ______, 1999
or (ii) at any time during the Chapter 11 Cases when such compensation is sought
pursuant to Sections 503(b)(3) through (b)(5) of the Bankruptcy Code shall be
Filed no later than __________ pursuant to order of the Bankruptcy Court and
shall be served on (a) White & Case LLP, 1155 Avenue of the Americas, New York,
New York 10036, Attn.: Andrew DeNatale, (b) The Bayard Firm, 919 Market Street,
16th Floor, P.O. Box 25130, Wilmington, Delaware 19899, Attn.: Neil B. Glassman,
(c) Kelley Drye & Warren LLP, 101 Park Avenue, New York, New York 10178, Attn.:
Mark I. Bane, (d) Saul Ewing Remick & Saul, LLP, 222 Delaware Avenue, Suite
1200, P.O. Box 1266, Wilmington, Delaware 19801, Attn.: Norman L. Pernick and
(e) the Office of the United States Trustee, 601 Walnut Street, Curtis Center,
Suite 950 West, Philadelphia, Pennsylvania 19106. A hearing on such applications
will be held before the Bankruptcy Court on ________________. Applications which
are not timely filed will not be considered by the Court. Applications for
compensation and reimbursement for the period through the Confirmation Date
shall be filed and scheduled for hearing in accordance with subsequent orders of
the Bankruptcy Court. The Liquidating Officer may pay any Professional fees and
expenses incurred after the Confirmation Date without any application to the
Bankruptcy Court.
ARTICLE VIII
ISSUES RELATED TO CLAIMS AND RESERVES
AND MISCELLANEOUS DISTRIBUTION PROVISIONS
8.01. Duplicate Claims or Claims Asserted Against Improper Debtor.
(a) Consolidated USC Claims. As set forth in detail herein at Section
10.03, all assets and liabilities of any of USC, LDN, NATC, SWLDN and Uniquest
shall be consolidated into a single entity, Consolidated USC. To the extent that
there are duplicate Claims Filed by a single Holder against more than one of
these Consolidated Debtors, such duplicate Claims will be automatically expunged
so that only one Claim survives against Consolidated USC.
(b) Duplicate Claims. To the extent that there are duplicate Claims
asserted against STEL, Addtel and/or Consolidated USC by a single Holder, the
Debtors, in consultation with the Committee, will review the Claims and
determine against which single Estate the Claim should properly be asserted. The
Debtors will seek an order of the Bankruptcy Court, on notice to the Holder,
expunging the Claim or Claims against the other Debtor or Debtors.
(c) Claims Asserted Against Incorrect Debtor. The Debtors believe that
a significant number of Claims, particularly claims by telecommunications
services providers or equipment lessors, have not been asserted against the
proper Debtor. After review by the Debtors, in consultation with the Committee,
the Debtors will seek an order of the Bankruptcy Court, on notice to the Holder,
reassigning any such Claim to the proper Estate.
8.02. Objections to Claims. Any party in interest may object to a
Claim, except a Claim that is Allowed as set forth in the Plan. Objections to
Administrative Expense Claims, Miscellaneous Secured Claims and Classified
Priority Claims, except Claims that are allowed as set forth in the Plan or as
to which the Bankruptcy Court had set an earlier objection deadline, may be
filed and served by the Debtors or any other party-in-interest on the later of
(a) 60 days prior to the date first scheduled for the Confirmation Hearing, (b)
30 days after the filing of the Proof of Claim setting forth such claim or (c)
any later date set by order of the Bankruptcy Court which the Debtors may
require on an ex parte basis.
Objections to Unsecured Claims, except Claims that are Allowed
pursuant to the Plan or as to which the Bankruptcy Court has set an earlier
objection deadline, may be Filed and served by the Committee or its
representative, the Debtors or the Liquidating Officer or any other
party-in-interest on the later of (x) 120 days prior to the date first scheduled
for the Confirmation Hearing, (y) 30 days after the filing of the Proof of Claim
setting forth such Claim, or (z) any later date set by order of the Bankruptcy
Court, which the Committee or its representative may request on an ex parte
basis. As set forth in Section 8.01, the Debtors will bring objections based on
duplicate Claims and will seek reclassification of Claims.
The objecting party shall serve a copy of each such objection upon the
Holder of the Claim to which it pertains and upon the Debtors or the Liquidating
Officer, and the Committee's counsel or its representative as the case may be.
Unless otherwise ordered by the Bankruptcy Court, the Liquidating Officer or the
Committee, as the case may be, shall litigate the merits of each Disputed Claim
until it is abandoned or otherwise withdrawn by the Holder, determined by Final
Order or compromised and settled by the Liquidating Officer the Committee, as
the case may be, subject to any required approval of the Bankruptcy Court.
8.03. Reserves for Disputed Claims. On the Effective Date, the
Liquidating Officer shall reserve for the account of each Holder of a Disputed
Claim (i) the property which would otherwise be distributable to such Holder on
such date in accordance with the Plan were such Disputed Claim an Allowed Claim
on such date, in the face amount thereof, or such other amount as ordered by the
Bankruptcy Court, or (ii) such other property as such Holder and the Liquidating
Officer may agree. Property reserved under this section shall be set aside and
segregated by Class of Claims. To the extent such Disputed Claim becomes an
Allowed Claim, the property so reserved for the Holder thereof shall be
distributed by the Liquidating Officer to such Holder pursuant to, and to the
extent provided for in, the Plan. Upon any Disputed Claim becoming a Disallowed
Claim in whole or in part, the property reserved for the payment of the
Disallowed portion of such Disputed Claim, including any interest or dividends
attributable thereto, shall become available for distribution to Holders of
Allowed Claims in accordance with the provisions of the Plan.
8.04. Reserve for Estimated Expenses. Prior to making any distribution
to any Holder of a Claim, including, without limitation, any Holder of an
Allowed Miscellaneous Secured Claim, Allowed Administrative Expense Claim,
Allowed Classified Priority Claim, or Allowed General Unsecured Claim from
Estate Cash or Litigation Proceeds with respect to Professional fees, the
Liquidating Officer shall fund the Expense Reserve for payment of any expenses
that are then unpaid or are anticipated to be incurred by the Liquidating
Officer. The Expense Reserve shall be funded from all Cash in the Estates,
including, but not limited to, Estate Cash, Preference Proceeds and Litigation
Proceeds, in that order, existing at the time of such funding. If, at any time
after the initial funding of the Expense Reserve, the Liquidating Officer
determines that the Expense Reserve is inadequate to pay the remaining expenses
that are unpaid or are anticipated to be incurred, the Liquidating Officer may,
upon approval of the Bankruptcy Court, re-fund the Expense Reserve with all
Cash, including, but not limited to, Estate Cash, Preference Proceeds and
Litigation Proceeds, in that order, then in the possession of the Liquidating
Officer. Once all expenses remaining unpaid have been paid in full and no other
expenses are anticipated to be incurred, any amount remaining in the Expense
Reserve shall become available for distribution to Holders of Allowed Claims in
accordance with the terms of the Plan.
8.05. Investment of Funds. Cash held in a reserve pursuant to Sections
8.03 and 8.04 hereof shall, to the extent practicable, be held by the
Liquidating Officer in an interest bearing escrow fund (which may be a single
account for each Class, provided that separate book entries for each Claim be
maintained by the Liquidating Officer) to be established and maintained by the
Liquidating Officer pending resolution of such Disputed Claim; provided,
however, that Cash shall be invested in accordance with the Investment Order,
unless amended by further order of the Bankruptcy Court. All investments, other
than the EqualNet Stock, if any, the proceeds of which are necessary to fund a
distribution under the Plan, shall mature or otherwise be converted into Cash on
or prior to the date of such distribution.
8.06. Payment or Distribution of Disputed Claim. No payments or other
distributions shall be made on account of any Disputed Claim, or any portion
thereof, unless and until such Claim, or portion thereof, is Allowed by Final
Order, or unless otherwise provided by order of the Bankruptcy Court. Holders of
Disputed Claims whose Claims ultimately become Allowed Claims shall be bound,
obligated and governed in all respects by the provisions of this Plan.
8.07. Timing of Payment or Distribution When a Disputed Claim Becomes
an Allowed Claim. Subject to the provisions of the Plan, payments and
distributions with respect to each Disputed Claim that becomes an Allowed Claim
shall be made on the next Distribution Date following the date on which the
Claim becomes Allowed, in accordance with the terms of Section 7.01 hereof.
8.08. Disputed Distribution. If any dispute arises as to the identity
of a Holder of an Allowed Claim who is to receive any distribution, the
Liquidating Officer may, in lieu of making such distribution to such Holder,
make such distribution into an escrow account until the disposition thereof
shall be determined by Final Order of the Bankruptcy Court or by written
agreement among the interested parties to such dispute.
8.09. Estimation. In order to effectuate distributions pursuant to the
Plan and avoid undue delay in the administration of the Estates, the Debtors
(prior to the Effective Date) and the Liquidating Officer (after the Effective
Date) shall have the right to seek an order of the Bankruptcy Court, after
notice and a hearing (which notice may be limited to the Holder of such Disputed
Claim and which hearing may be held on an expedited basis), estimating a
Disputed Claim pursuant to Section 502(c) of the Bankruptcy Code.
8.10. Distribution of Unclaimed Property. Any property distributed to
a Holder under the Plan that is unclaimed by such Holder within 180 days
following the distribution of such property by the Debtors or the Liquidating
Officer shall be deemed to be unclaimed property and such property shall
irrevocably revert to and revest in Liquidating STEL for redistribution in
accordance with the terms of this Plan, without regard to escheatment or other
similar laws ("Unclaimed Property"); provided, however, that if such property is
a check issued in respect of a distribution made under the Plan, such check
shall be null and void and be deemed to be Unclaimed Property if not negotiated
within 90 days after the date of issuance. Any amounts returned to the
Liquidating Officer in respect of such non-negotiated checks shall be held in
the appropriate distribution reserve account. Requests for reissuance for any
such check shall be made directly to the Liquidating Officer by the Holder of
the Allowed Claim with respect to which such check originally was issued. All
amounts represented by any voided check will be held until 180 days after such
check was distributed and all requests for reissuance by the Holder of the
Allowed Claim in respect of a voided check are required to be made prior to such
date. Thereafter, all such amounts shall be deemed to be Unclaimed Property. All
Claims in respect of Unclaimed Property shall be forever barred, estopped and
enjoined from assertion in any manner against the Debtors or their property or
the Liquidating Officer or its property. Nothing contained in the Plan shall
require Liquidating STEL to attempt to locate any Holder of an Allowed Claim
other than by reviewing the records of the Debtors and the Proof of Claim, if
any, Filed by such Holder.
ARTICLE IX
UNEXPIRED LEASES AND EXECUTORY CONTRACTS
9.01. Rejection Generally.
(a) Except as otherwise provided in the Plan or in any order of
the Bankruptcy Court, all executory contracts and unexpired leases
that have not been assumed or rejected by the Debtors prior to the
Confirmation Date or that are not the subject of a motion to assume
pending before the Bankruptcy Court on the Confirmation Date shall be
deemed rejected as of the date that the Confirmation Order becomes a
Final Order.
(b) The Confirmation Order shall constitute an order of the
Bankruptcy Court approving such rejections on the Confirmation Date,
pursuant to Section 365 of the Bankruptcy Code, effective as of the
date the Confirmation Order becomes a Final Order. Any party objecting
to the Debtors' rejection of an executory contract or unexpired lease
as provided herein shall file and serve a written objection to the
rejection of such contract or lease no later than ten (10) days prior
to the date first scheduled by the Bankruptcy Court for the
Confirmation Hearing. Failure to file an objection within the time
period set forth above shall constitute consent and agreement to the
rejection.
9.02. Rejection Damages. Each Person that is a party to an executory
contract or unexpired lease that is rejected as of the date that the
Confirmation Order becomes a Final Order shall File, not later than thirty (30)
days after such date (unless an earlier date has been established by the
Bankruptcy Court for such claimant, in which case such earlier date shall
control), a Proof of Claim for damages alleged to have arisen from the rejection
of such executory contract or unexpired lease, or be forever barred from
asserting such a Claim against the Debtors or Liquidating STEL. Each Person that
is party to an executory contract or unexpired lease subject to a motion to
reject that is pending before the Bankruptcy Court on the Confirmation Date
shall File, not later than thirty (30) days after the date that the Bankruptcy
Court approves such motion, a proof of claim for damages alleged to have arisen
from the rejection of such executory contract or unexpired lease, or be forever
barred from asserting such a Claim against the Debtors or Liquidating STEL.
9.03. Contracts Entered Into On or After the Petition Date. All
contracts, leases, and other agreements entered into by the Debtors on or after
the Petition Date, which agreements have not been terminated in accordance with
their terms on or before the Confirmation Date, shall be deemed rejected as of
the date that the Confirmation Order becomes a Final Order. Any party to such a
contract or lease shall file not later than 30 days after the Confirmation Order
becomes a Final Order (unless an earlier date has been set by the Bankruptcy
Court which case such earlier date shall control) a Proof of Claim for damages
alleged to have arisen from the rejection of such contract or lease, or be
forever barred from asserting such Claim against the Debtors or Liquidating
STEL.
ARTICLE X
MEANS FOR IMPLEMENTATION OF THE PLAN
10.01. Liquidating STEL and Liquidating Officer. The Debtors are no
longer operating and have not operated or engaged in business since July 22,
1998. The Plan provides for the liquidation of all of the remaining assets of
the Debtors. The Debtors shall be continued as Liquidating STEL for the limited
purpose of implementing the Plan and shall act through the Liquidating Officer.
On the Effective Date, all property of the Debtors remaining after the Initial
Distribution will vest with Liquidating STEL including without limitation (i)
Cash, (ii) EqualNet Stock, (iii) non-cash assets, (iv) Causes of Action and
Preference Causes of Action belonging to the Estates and (v) all other property
and assets of the Debtors; provided, however, that all Causes of Action
including Preference Causes of Action shall be pursued by the Litigation Counsel
and any recoveries from such litigation will be distributed in accordance with
the Plan, including the provisions of the Inter-Debtor Settlement Agreement and
the Administrative Expense Treatment Agreement. The Liquidating Officer shall
have the right to abandon any assets in accordance with Section 554 of the
Bankruptcy Code, after notice and a hearing before the Bankruptcy Court. The
rights, responsibilities and scope of liability of the Liquidating Officer shall
be set forth in detail in the Confirmation Order.
10.02. Retention of Rights to Pursue Causes of Action and the
Appointment of Litigation Counsel. By order of the Bankruptcy Court dated
__________, 1999, ___________ was appointed Litigation Counsel to investigate,
evaluate and pursue all Causes of Action belonging to the Estates, other than
Preference Causes of Action, for the benefit of all of the Debtors' Estates.
Pursuant to Section 1123(b)(3) of the Bankruptcy Code, the Litigation Counsel
(as representative of the Debtors' Estates) will have the exclusive right to
enforce against any Person any and all Causes of Action (including, without
limitation, all Causes of Action arising under Sections 510, 544, 545, 546, 547,
548, 549, 550 and 553 of the Bankruptcy Code or otherwise arising under the
Bankruptcy Code and/or those arising under other applicable law) that arose
before the Effective Date, including all Causes of Action of a trustee and
debtor-in-possession under the Bankruptcy Code, other than those expressly
released or compromised as part of or pursuant to the Plan; provided, however,
that nothing contained herein will affect the right of a Holder of an Allowed
Administrative Claim to commence and pursue an action under Section 506(c) of
the Bankruptcy Code.
The Litigation Counsel's actions will initially be funded with an
advance of $100,000 from the Estates. Litigation costs, including fees and
expenses of Litigation Counsel, above the initial $100,000 shall be funded
solely from Litigation Counsel's litigation recoveries from Causes of Action,
including Preference Causes of Action. The initial $100,000 advance shall be
repaid to the Estates as Estate Cash, from litigation recoveries, net of all
litigation costs including fees and expenses of Litigation Counsel (unless the
Professional Fee Reduction becomes effective, in which case it shall be funded
from the Professional Fee Reduction) for distribution, by the Liquidating
Officer in accordance with this Plan. Litigation Counsel is granted the
discretion to decide which, if any, Causes of Action, including Preference
Causes of Action should be pursued. Litigation Counsel is not required to
commence any actions or otherwise pursue Causes of Action, including Preference
Causes of Action.
Except with respect to those parties who are expressly permitted to
bring actions under Section 506(c) of the Bankruptcy Code and except with
respect to the Liquidating Officer, all Persons other than Litigation Counsel
are prohibited from commencing any Cause of Action including a Preference Cause
of Action, with respect to the Debtors' Cases.
10.03. Substantive Consolidation. The Plan contemplates and is
predicated upon the substantive consolidation of the Consolidated Debtors into a
single entity for purposes of Confirmation, consummation and implementation of
the Plan. As a result of substantive consolidation, on the Effective Date: (i)
all Intercompany Claims held by any Consolidated Debtor against any or all other
Consolidated Debtors shall be canceled and no distributions shall be made on
account thereof; (ii) all assets, and all proceeds thereof, and all liabilities
of the Consolidated Debtors shall be merged into a single entity; (iii) any
obligation of any of the Consolidated Debtors and all guaranties thereof
executed by any of the Consolidated Debtors shall be eliminated and canceled and
all such obligations and guaranties shall be treated as a single claim against
Consolidated USC; (iv) all joint obligations of the Consolidated Debtors, and
all multiple Claims against such entities on account of such joint obligations,
shall be treated and allowed only as a single Claim against Consolidated USC;
(v) each Claim Filed in a Chapter 11 Case of one of the Consolidated Debtors
shall be deemed Filed against Consolidated USC and to be a single obligation of
Consolidated USC; (vi) all duplicative Claims Filed against more than one of the
Consolidated Debtors will be automatically expunged so that only one claim
survives against Consolidated USC; (vii) all Interests of the Consolidated
Debtors in any other of the Consolidated Debtors shall be deemed automatically
canceled and retired by operation of law and shall cease to exist; and (viii)
the Consolidated Debtors will be deemed, for purposes of determining the
availability of the right of setoff under Section 553 of the Bankruptcy Code, to
be one entity, so that, subject to other provisions of Section 553 of the
Bankruptcy Code, the debts due to one of the Consolidated Debtors may be offset
against claims against such Consolidated Debtor or another Consolidated Debtor.
10.04. Merger of Corporate Entities.
(a) Mergers. On the Effective Date, the following merger(s) shall be
effective and effectuated pursuant to the Confirmation Order without any further
action by the stockholders or directors of any of the Debtors: (a) Addtel and
Consolidated USC shall be merged with and into STEL; and (b) any Affiliate of
the Debtors may be (i) merged into STEL or (ii) dissolved. The remaining entity
will be known as Liquidating STEL. The payments required under Section 12.01(g)
herein are a necessary precondition to the Plan becoming effective. To the
extent that such Initial Distribution is made on the Effective Date, such
payments shall be deemed to have been made prior to the Plan becoming effective
and, therefore, prior to the mergers discussed in this Section 10.04. On or
about the Effective Date, the Debtors or Liquidating STEL shall file a
certificate of merger of Addtel and Consolidated USC and any other Affiliate of
the Debtors into Liquidating STEL and shall take all other actions necessary or
appropriate to effectuate such mergers under Delaware law.
(b) Issuance of Stock to Liquidating Officer. Simultaneously with the
cancellation of the issued and outstanding shares of the Debtors' Common Stock,
pursuant to Section 10.08 of the Plan, and the merger of STEL, Addtel and
Consolidated USC into Liquidating STEL pursuant to this Section 10.04 of the
Plan, the Liquidating Officer shall cause Liquidating STEL to issue one hundred
shares of authorized stock, which stock shall be held by the Liquidating Officer
until the Final Decree is issued, at which time such stock shall be canceled.
Immediately upon the issuance of the Final Decree, and pursuant to Section 303
of the DGCL, Liquidating STEL shall be dissolved, the Board of Directors shall
be dismissed, and the duties, responsibilities and powers of Liquidating STEL
shall terminate without any further action by the stockholders or directors of
the Debtors and without any distribution to stockholders. Any actions required
in connection with the dissolution of Liquidating STEL shall be the
responsibility of the Liquidating Officer.
10.05. Operations Between the Confirmation Date and the Effective
Date. The Debtors shall continue to operate as debtors in possession, subject to
the supervision of the Bankruptcy Court, during the period from the Confirmation
Date through and until the Effective Date; provided, however, that nothing
herein shall preclude the Debtors from taking any steps that they deem necessary
or desirable to prepare for and effect the consummation of the Plan.
10.06. Revesting and Transfer of Assets. Pursuant to Section
1123(b)(3) and Section 1141(b) and (c) of the Bankruptcy Code, all property of
the Estates that is not specifically disposed of pursuant to the Plan shall
revest in Liquidating STEL on the Effective Date, free and clear of all liens,
charges or other encumbrances, Claims and Interests of Holders of Claims and
Interests, and all such liens, contractually imposed restrictions, charges or
other encumbrances, Claims and Interests, shall be extinguished except as
otherwise provided in the Plan. No distribution hereunder shall be made to or on
behalf of any Claim Holder unless and until such Holder executes and delivers to
the Debtors or Liquidating STEL such release of liens or otherwise turns over
and releases such Cash, pledge, or other possessory liens. Any such Holder that
fails to execute and deliver such release of liens at least ninety (90) days
prior to the Effective Date shall be deemed to have no further Claim against the
Debtors, Liquidating STEL or their assets or property in respect of such Claim
and shall not participate in any distribution hereunder. Notwithstanding the
immediately preceding sentence, any such Holder of a Disputed Claim shall not be
required to execute and deliver such release until such time as the Claim is
Allowed or Disallowed.
10.07. Cancellation of Intercompany Claims. On the Effective Date, all
Intercompany Claims shall be canceled and no distributions shall be made on
account thereof.
10.08. Cancellation and Surrender of Securities.
(a) Cancellation. On the Effective Date, the Prepetition Loan
Documents, the EqualNet DIP Documents and the Greyrock DIP Documents, including
all notes and other instruments outstanding thereunder or issued pursuant
thereto and all related security documents, mortgages and guarantees; the March
Debenture, the August Debenture; and any note evidencing a payment obligation by
any of the Debtors, other than the 10% Convertible Notes which are treated
pursuant to paragraph (c) of this Section 10.08; and all obligations of the
Debtors or the Estates under or in respect of any of the foregoing shall be
canceled and discharged and fully satisfied by the Confirmation of the Plan and
the distributions to be made pursuant to the Plan and the Holders thereof shall
have no rights and such instruments shall evidence no right to participate in
the distributions to be effectuated pursuant to the Plan. On the Effective Date,
all the Class 5-A, Class 6-A and Class 7-A Interests, and any options, warrants,
calls, subscriptions, or other similar rights or other agreements or
commitments, contractual or otherwise, obligating the Debtors to issue,
transfer, or sell any Class 5-A, Class 6-A or Class 7-A Interests, shall be
canceled and discharged and fully satisfied by the Confirmation of the Plan and
the distributions to be made pursuant to the Plan and the Holders thereof shall
have no rights and such instruments shall evidence no rights, including, but not
limited to, the right to participate in the distributions to be effectuated
pursuant to the Plan; provided, however, that the stock in Liquidating STEL
shall not be canceled until the dissolution of Liquidating STEL as contemplated
in Section 10.04 hereof.
(b) Surrender of Securities. As a condition to receiving any
distribution under the Plan, each Holder of a promissory note, the March
Debenture, the August Debenture, or other instrument evidencing a Claim, other
than the 10% Convertible Notes which are treated pursuant to paragraph (c) of
this Section 10.08, must surrender such instrument to the Liquidating Officer
for cancellation. As Holders of Class 5-A, 6-A, and 7-A Interests will receive
no distribution under the Plan, such Holders need not surrender their share
certificates. Any Holder of a Claim that fails to (a) surrender such instrument
or (b) execute and deliver an affidavit of loss and/or indemnity reasonably
satisfactory to the Liquidating Officer before the later to occur of (i) the
Effective Date and (ii) 30 days following the date such Holder's Claim becomes
an Allowed Claim shall be deemed to have forfeited all rights and Claims and may
not participate in any distribution under the Plan.
(c) Cancellation of Indenture and Surrender and Cancellation of 10%
Convertible Notes. Notwithstanding any other provision of the Plan, the
cancellation of the Indenture and the surrender and cancellation of the 10 %
Convertible Notes shall be governed by this Section 10.08(c). On the Effective
Date, the Indenture governing the 10% Convertible Notes shall be canceled and
deemed null and void and of no further force and effect. Notwithstanding the
foregoing, such cancellation shall not impair the rights and duties under such
Indenture as between the Indenture Trustee thereunder and the beneficiaries of
the trust created thereby. As of the Effective Date, the 10% Convertible Notes
shall be canceled and shall be null and void, and the Holders thereof shall have
no rights, and such instruments shall evidence no rights, except the right to
receive the distributions provided herein. No Holder of a 10% Convertible Note
shall be entitled to any distribution hereunder unless or until such Holder
shall have first surrendered or caused to be surrendered to the Indenture
Trustee the original 10% Convertible Note held by it, or, in the event that such
10% Convertible Note has been lost, destroyed, stolen or mutilated, executed and
delivered an affidavit of lost note and indemnity with respect thereto in form
customarily utilized for such purposes that is reasonably satisfactory to the
Liquidating Officer and the Indenture Trustee. Promptly upon surrender of such
instruments, the Indenture Trustee shall deliver such canceled instruments to
the Liquidating Officer or otherwise dispose of such instruments in such manner
as the Liquidating Officer reasonably requests. Any Holder of a 10% Convertible
Note that fails to surrender its Notes or deliver an affidavit of loss as
provided herein within 1 year after the Effective Date shall be deemed to have
forfeited all rights and Claims and shall not participate in any distribution
under the Plan on account of such instruments.
10.09. Closing of Books Related to Canceled Securities. On the
Effective Date, each of the respective transfer books maintained for the
Canceled Securities shall be closed. Except for the right to receive the
distributions, if any, to be made pursuant to the Plan, the Holder of a Canceled
Security shall have no rights arising from or relating to such Canceled Security
after the Effective Date, including rights of subordination or subrogation that
may be construed to be inherent in or ancillary or related to such Canceled
Security.
10.10. Provisions Relating to WorldCom. The Debtors and WorldCom have
agreed upon and, as a component of the Inter-Debtor Settlement Agreement, the
Bankruptcy Court has previously approved the following process by which they
will resolve those issues remaining between them in connection with the WorldCom
Motion:
(a) the evidentiary record of the hearing on the WorldCom Motion shall
be deemed to be incorporated into the evidentiary record of the WorldCom
Adversary Proceeding;
(b) the Debtors shall not incur additional fees and expenses in excess
of $1,000 in connection with the WorldCom Motion and the WorldCom Adversary
Proceeding;
(c) if the Bankruptcy Court determines with respect to the WorldCom
Motion or the WorldCom Adversary Proceeding that (i) WorldCom is not a
utility (as that term is defined in Section 366 of the Bankruptcy Code) or
(ii) WorldCom was prohibited from imposing an administrative hold on new
business of the Debtors, then:
(i) WorldCom's unsecured non-priority claim against Addtel's
estate shall be reduced by $15,000;
(ii) WorldCom may appeal to the District Court for the District
of Delaware and, if necessary, the Third Circuit and may petition for
certiorari to the Supreme Court of the United States (the "Appeals");
and
(iii) the Debtors shall not incur fees and expenses in excess of
$5,000 in connection with each Appeal.
(d) if WorldCom is ultimately successful in any of the Appeals,
WorldCom's unsecured non-priority claim against Addtel's estate shall be
increased by $15,000;
(e) WorldCom's counterclaim in the WorldCom Adversary Proceeding is
dismissed;
(f) the Debtors shall reduce their demands in Counts 1-5 of the
WorldCom Adversary Proceeding to a claim for a $15,000 reduction of
WorldCom's unsecured non-priority claim against Addtel;
(g) the Debtors, the Creditors' Committee and United States Trust Co.
of New York agree that they will not (i) seek to amend the Complaint in the
WorldCom Adversary Proceeding (the "Complaint") to assert additional or
increased claims or demands against WorldCom or any of its subsidiaries,
officers, directors, employees or agents, (ii) seek to amend the Complaint
in any manner inconsistent with the Term Sheet or the Addendum, or (iii)
seek to dismiss the Complaint or the WorldCom Adversary Proceeding (except
pursuant to a motion filed by WorldCom with the Debtors' and the Creditors'
Committee's consent); and
(h) each party shall bear its own costs and fees in the WorldCom
Adversary Proceeding and any Appeals.
10.11. Allowance of Claims Subject to Section 502(d). Allowance of
Claims shall be in all respects subject to the provisions of Section 502(d) of
the Bankruptcy Code, except that no Claim that is Allowed in an amount set forth
in the Plan shall be disallowed under Section 502(d) of the Bankruptcy Code.
10.12. Right of Setoff. Except for any Claim that is Allowed in an
amount set forth in the Plan, the Liquidating Officer shall have the right to
set off against any Claim and the distributions to be made pursuant to the Plan
in respect of such Claim, any and all debts, liabilities and claims of every
type and nature whatsoever which the Estates or Liquidating STEL may have
against the Holder of such Claim, and neither any prior failure to do so nor the
allowance of such Claim, whether pursuant to the Plan or otherwise, shall
constitute a waiver or release of any such right of setoff.
10.13. Authorization of Corporate Action. The entry of the
Confirmation Order shall constitute authorization for the Debtors and
Liquidating STEL to take or cause to be taken all corporate actions necessary or
appropriate to consummate and implement the provisions of the Plan prior to, on
and after the Effective Date, including, without limitation, the mergers to be
effectuated pursuant to Section 10.04 hereof, and all such actions taken or
caused to be taken shall be deemed to have been authorized and approved by the
Bankruptcy Court. All such actions shall be deemed to have occurred and shall be
in effect pursuant to applicable nonbankruptcy law and the Bankruptcy Code,
without any requirement of further action by the stockholders or directors of
the Debtors or Liquidating STEL. On the Effective Date, the appropriate officers
and directors of the Debtors and Liquidating STEL are authorized and directed to
execute and deliver the agreements, documents and instruments contemplated by
the Plan in the name and on behalf of the Debtors and Liquidating STEL.
10.14. Retiree Benefits. After the Effective Date, the payment of
retiree benefits (as defined in Section 1114 of the Bankruptcy Code), if any, at
the level established pursuant to Section 1114 of the Bankruptcy Code, shall
continue for the duration of any period that the applicable Debtor has obligated
itself to provide such benefits.
ARTICLE XI
DISCHARGE AND RELEASE OF CLAIMS
11.01. Discharge. Except for distributions under the Plan and as
otherwise provided in the Plan or in the Confirmation Order, on the Effective
Date, to the extent permitted under the Bankruptcy Code, the Confirmation Order
shall operate as a discharge, pursuant to Section 1141(d)(1) of the Bankruptcy
Code, and release of any and all debts (as such term is defined in Section
101(12) of the Bankruptcy Code) of, and Claims against, one or more of the
Debtors that arose at any time before the Confirmation Date, including, but not
limited to, all principal and interest, whether accrued before, on or after the
Petition Date, regardless of whether (i) a Proof of Claim in respect of such
Claim has been Filed, (ii) such Claim has been Allowed pursuant to Section 502
of the Bankruptcy Code, or (iii) the Holder of such Claim has voted on the Plan,
or has voted to reject the Plan. Without limiting the generality of the
foregoing, on the Effective Date, the Debtors shall be discharged from any debt
that arose before the Confirmation Date, and any debt of a kind specified in
Section 502(g), 502(h) or 502(i) of the Bankruptcy Code, to the full extent
permitted by Section 1141(d)(1)(A) of the Bankruptcy Code. Except as otherwise
specifically provided herein, nothing in the Plan shall be deemed to waive,
limit or restrict in any manner the discharge granted upon Confirmation of the
Plan pursuant to Section 1141 of the Bankruptcy Code.
11.02. Distributions in Complete Satisfaction. The distributions and
rights provided under the Plan shall be in complete satisfaction, discharge and
release, effective as of the Effective Date, of all Claims against and Interests
in the Debtors and the Estates and all liens upon any property of the Estates,
the Debtors or the Liquidating Officer except for liens continuing pursuant to
Section 5.01(a) hereof. The Holders of liens satisfied, discharged and released
under the Plan shall execute any and all documentation reasonably requested by
the Debtors or the Liquidating Officer evidencing the satisfaction, discharge
and release of such liens.
11.03. Injunction. The discharge and release provided in Section 11.01
hereof shall also operate as an injunction restraining any Person from
commencing or continuing any action, suit or proceeding, or employing any
process, or otherwise acting, to collect, offset or recover any Claim discharged
or released under the Plan to the fullest extent authorized or provided by the
Bankruptcy Code, including Sections 524 and 1141 thereof. The Confirmation Order
shall constitute an injunction enjoining any Person from enforcing or attempting
to enforce any Cause of Action against any present or former director, officer,
employee, attorney, accountant, financial advisor, investment banker or agent of
or acting for any of the Debtors or the Estates, Liquidating STEL, the
Liquidation Officer, Litigation Counsel, the Settlement Professionals, the
Committee, all members of the Committee in their capacity as Committee members,
the Indenture Trustee, Greyrock, only in its capacity as Prepetition Lender, and
all professionals retained by the Committee or any such Person based on, arising
from or relating to, in whole or in part, any act, omission, or other occurrence
taking place in good faith under or in connection with this Plan or in
connection with the Chapter 11 Cases or the operation of the Debtors during the
pendency of the Chapter 11 Cases only, all of which Causes of Action will be
deemed released on the Effective Date.
11.04. Release by Debtors and Debtors in Possession. Pursuant to
Section 1123(b)(3) of the Bankruptcy Code, on the Effective Date, the Debtors,
in their individual capacities and as Debtors in Possession, for and on behalf
of the Estates, shall release and discharge all present and former directors,
officers, employees, attorneys, accountants, financial advisors, investment
bankers, and agents of or acting for the Debtors or the Estates, the Committee,
Liquidating STEL, the Liquidating Officer, Litigation Counsel, the Settlement
Professionals, all members of the Committee in their capacity as Committee
members, the Indenture Trustee, Greyrock, only in its capacity as Prepetition
Lender, and all professionals retained by the Committee or any such Person (each
a "Released Person") from any and all Causes of Action existing as of the
Effective Date in any manner arising from, based on or relating to, in whole or
in part, actions taken or omitted to be taken in good faith under or in
connection with this Plan or in connection with the Chapter 11 Cases or the
operation of the Debtors during the pendency of the Chapter 11 Cases only.
Liquidating STEL and the Liquidating Officer shall be bound, to the same extent
the Debtors are bound, by all of the releases set forth above.
11.05. Release by Holders of Claims and Interests. In consideration of
the distributions under the Plan, each Holder of a Claim or Interest shall be
presumed conclusively to have absolutely, unconditionally, irrevocably and
forever, released and discharged the Debtors, the Estates, Liquidating STEL and
the Liquidating Officer, each Released Person, and any Person that may be liable
derivatively through any of the foregoing, from any Claim or Cause of Action
existing as of the Effective Date arising from, based on or relating to, in
whole or in part, actions taken or omitted to be taken in good faith under or in
connection with this Plan or in connection with the Chapter 11 Cases or the
operation of the Debtors during the pendency of the Chapter 11 Cases only. The
Confirmation Order shall constitute an injunction enjoining any Holder of a
Claim or Interest from attempting to enforce any Claim or Cause of Action
described in the immediately preceding sentence against any Person receiving a
release pursuant to the immediately preceding sentence.
11.06. Exculpation. Neither the Debtors, Liquidating STEL, the
Liquidating Officer, the Estates, the Litigation Counsel, the Settlement
Professionals, nor the members of the Committee, nor any present officer,
director, employee, agent, attorney, accountant, investment banker or financial
advisor to any of them, shall be obligated in any manner under the Plan or in
respect or by reason of the filing, negotiation, prosecution, Confirmation,
consummation or implementation of the Plan or the attempted restructuring of the
indebtedness of the Debtors after the Petition Date or any action taken or not
taken in connection therewith, or shall have or incur any liability to any
Holder of a Claim or Interest or any other Person in respect of any such matters
or any information provided or statement made in the Disclosure Statement or
omitted therefrom, except that (i) the Debtors and Liquidating STEL shall
fulfill the obligations expressly set forth therefor in the Plan and (ii) each
Person shall remain liable, to the extent provided by law, for its own willful
misconduct or gross negligence as determined pursuant to a Final Order. Each
such Person shall be entitled to rely upon the advice of counsel with respect to
its duties and responsibilities under the Plan and shall be fully protected in
acting or in refraining from acting in accordance with such advice or in any
manner approved or ratified by the Bankruptcy Court.
11.07. Indemnification Obligations.
(a) Termination of Indemnification Obligations. Except as set forth in
Section 11.07(b), all obligations of the Debtors or the Estates to indemnify, or
to pay contribution or reimbursement to, any of its present or former directors,
officers, agents, employees and representatives or any Holder of a Claim or
Interest treated in the Plan , or any trustee or agent acting for any such
Holder, or any person in any manner engaged, employed or indemnified in
connection with the issuance or sale of any Canceled Securities or any agent,
attorney, accountant, financial advisor, investment banker, employee or
representative or any heirs, representatives, successors or assigns of any
indemnified person, that may be outstanding, accrued or existing, or might
reasonably have been asserted, on the Confirmation Date (whether pursuant to
articles of incorporation, by-laws, contractual obligations or any applicable
law or otherwise) in respect of any past, present or future action, suit or
proceedings shall be discharged under the Plan, and all undertakings and
agreements for or relating to any such indemnification, contribution or
reimbursement are hereby rejected and terminated.
(b) Limited Continuing Indemnification. No obligation of any of the
Debtors, whether arising pursuant to law or its articles of incorporation or
by-laws or by contract or otherwise, to indemnify, or to pay contribution or
reimbursement to, any individual who served as a director or officer of the
Debtors at any time during the Chapter 11 Cases shall be (i) discharged or
impaired under the Plan, (ii) subordinated under Section 510 of the Bankruptcy
Code or otherwise, or (iii) disallowed. Any such obligation that, under the
Bankruptcy Code, has the priority of an Administrative Expense Claim shall be
entitled to such priority. No proof of claim shall be required to preserve any
such obligation. Liquidating STEL shall assume and agree to pay all such
obligations and further, shall defend, indemnify and hold harmless each such
individual from and against all related claims, damages, losses, liabilities,
costs and expenses (including the reasonable fees and disbursements of legal
counsel selected and employed by such indemnified person, whether or not suit is
brought); provided, however, that, in addition to any other existing limitation
on such indemnity, no individual shall be indemnified in respect of any claim,
damages, liability, loss, cost or expense that is finally determined by a court
of competent jurisdiction to have been caused by such individual's own willful
misconduct or gross negligence.
11.08. Preservation of Insurance. The Debtors' discharge provided in
the Plan shall not diminish or impair the enforceability of any insurance
policies that may cover claims against the Debtors or any other Person.
Additionally, the Debtors' discharge provided in the Plan will not impair the
continuation of workers' compensation programs in effect, if any, including
self-insurance programs.
11.09. Subordination. Distributions under the Plan take into account
the relative priorities of the Claims and Interests in each Class in connection
with any and all contractual, legal or equitable subordination provisions or
rights relating thereto. Accordingly, (i) any distributions under the Plan shall
be received and retained free of and from any obligations to hold or transfer
the same to any other creditor, and shall not be subject to levy, garnishment,
attachment or other legal process by any Holder by reason of claimed contractual
subordination rights, and (ii) the Confirmation Order shall constitute an
injunction enjoining any Person from enforcing or attempting to enforce any
contractual, legal or equitable subordination rights to property distributed
under the Plan, in each case other than as provided in the Plan.
ARTICLE XII
CONDITIONS TO CONSUMMATION OF THE PLAN
12.01. Conditions. The Plan shall not become effective, the Effective
Date shall not occur, and no obligations and rights set forth in the Plan as of
the Effective Date or thereafter shall come into existence, unless each of the
following conditions is met or waived, in accordance with Section 12.03 hereof,
by the Debtors (with the consent of Greyrock with respect to subsection (f) of
this Section 12.01 and with the consent of all Holders of Administrative Expense
Claims who are to receive distributions in an amount less than the payments set
forth in the Administrative Expense Treatment Agreement or such other agreement
with respect to subsection (g) of this Section 12.01) on or before the Effective
Date:
(a) An order finding that the Disclosure Statement contains adequate
information pursuant to Section 1125 of the Bankruptcy Code shall have been
entered.
(b) The Confirmation Order shall have been entered and shall have
become a Final Order.
(c) The articles of incorporation and by-laws of Liquidating STEL
shall have been amended to the extent necessary to effect or permit each of
the transactions contemplated in the Plan.
(d) All documents required to be delivered under the Plan on or prior
to the Effective Date shall have been executed and delivered by the parties
thereto.
(e) The Bankruptcy Court shall have entered an order (contemplated to
be part of the Confirmation Order) authorizing and directing the Debtors
and Liquidating STEL to take all actions necessary or appropriate to enter
into, implement and consummate any contracts, instruments, releases,
indentures and other agreements or documents created or adopted in
connection with the Plan.
(f) The USC Telecom Note shall have been paid-off in full, or Cash in
an amount equal to the outstanding amount of the USC Telecom Note shall
have been placed in an escrow account in favor of Greyrock or such
condition shall have been waived by Greyrock.
(g) The Debtors shall possess sufficient Cash, through liquidation of
the EqualNet Stock or otherwise, to pay all Holders of Claims entitled to
be paid in full on the Effective Date, (except for those Holders who are
subject to the Administrative Expense Treatment Agreement or who consent to
different treatment, which Holders shall receive the payments set forth in
the Administrative Expense Treatment Agreement or such other agreement) and
the Debtors shall have made such payments. Notwithstanding the foregoing,
on the Effective Date, the Debtors must have sufficient Cash to pay
Professionals at least 50% of their then Allowed Professional fees and
expenses.
(h) All authorizations, consents and regulatory approvals required, if
any, in connection with the effectiveness of the Plan shall have been
obtained.
12.02. Payments, Effective Date and Consummation. The Plan shall
become effective, and the Effective Date shall occur, when the conditions set
forth in Section 12.01 are met or waived as provided therein. The Initial
Distribution under the Plan shall be made on or before the Effective Date, but,
if made on the Effective Date, shall be deemed to have been made prior to the
Plan becoming effective. The Liquidating Officer shall thereupon perform the
obligations required under the Plan to be performed by it on the Effective Date.
The filing with the Bankruptcy Court of a certificate of the Liquidating Officer
to the effect that the conditions in Section 12.01 have been met or waived and
that the Liquidating Officer has substantially performed the obligations
required under the Plan to be performed by it on the Effective Date shall
establish conclusively that the Plan has been substantially consummated.
12.03. Waiver of Conditions to Confirmation. The Debtors may waive, by
a writing signed by an authorized representative and subsequently Filed with the
Bankruptcy Court, one or more of the conditions to Confirmation of the Plan;
provided, that the Debtors must obtain the prior written consent of Greyrock in
order to waive the condition set forth in Section 12.01(f) of the Plan, and
further provided that in order to waive the conditions set forth in Section
12.01(g) of the Plan, the Debtors must obtain the prior written consent of such
Holders of Allowed Administrative Expense Claims who are to receive
distributions in an amount less than the payments set forth in the
Administrative Expense Treatment Agreement or such other agreement.
12.04. Limit on Effective Date. If the conditions set forth in Section
12.01 hereof have not been met or waived, in accordance with Section 12.03
hereof, no later than [180] days after the date on which the Disclosure
Statement is approved by the Bankruptcy Court (which dated is defined as the
"Conversion Date"), the Debtors shall convert the Cases to cases under Chapter 7
of the Bankruptcy Code and distribution of all available assets will be made
pursuant to the provisions applicable to a Chapter 7 Case under the auspices of
a Chapter 7 trustee or trustees; such distributions will be made without regard
to the Inter-Debtor Settlement Agreement, the Administrative Expense Treatment
Agreement or similar agreements, provided, however, that the rights of parties
in interest to pursue actions under Section 506(c) of the Bankruptcy Code shall
be expressly preserved; and further provided, that the WorldCom Settlement
Agreement will survive the Conversion Date and be binding on the Chapter 7
trustee. The Debtors, with the consent of the Committee, the Settlement
Professionals, and the U.S. Trustee, may extend the Conversion Date.
ARTICLE XIII
ADMINISTRATIVE PROVISIONS
13.01. Exclusive Jurisdiction of Bankruptcy Court. Notwithstanding the
entry of the Confirmation Order or the occurrence of the Effective Date, the
Bankruptcy Court shall retain exclusive jurisdiction of the Chapter 11 Cases for
the following purposes:
(a) To hear and determine any and all pending applications, if any,
for the rejection, assumption or assignment of executory contracts and
leases, any objections to Claims resulting therefrom, and the allowance of
any Claims resulting therefrom;
(b) To hear and determine any and all applications, adversary
proceedings, contested matters and other litigated matters pending on the
Effective Date or permitted to be commenced thereafter under the Bankruptcy
Code and the Bankruptcy Rules, including proceedings with respect to the
rights of the Debtor, Liquidating STEL, the Liquidating Officer, Litigation
Counsel (and, with respect to Bankruptcy Code Section 506(c) only, other
parties in interest including Holders of Allowed Administrative Expense
Claims), to recover property under any Section of the Bankruptcy Code, or
to otherwise collect or recover on account of any claim or Cause of Action
that any of the Debtors may have;
(c) To ensure that the distributions to Holders of Allowed Claims are
accomplished as provided herein and to resolve disputes concerning any
reserves with respect to Disputed Claims or the administration thereof;
(d) To hear and determine any objections to Claims Filed both before
and after Confirmation, to allow or disallow, in whole or in part, any
Disputed Claim, and to hear and determine other issues presented by or
arising under the Plan;
(e) To enter and implement such orders as may be appropriate in regard
to the Confirmation Order and the Plan, including any such orders as are
necessary or appropriate if the Confirmation Order is for any reason
modified, stayed, reversed, revoked or vacated;
(f) To hear and determine any remaining requests for payment of
Administrative Expense Claims, including any applications of Professionals
for compensation and reimbursement of expenses under Sections 330, 331 or
503(b) of the Bankruptcy Code for the period subsequent to the date through
which the Professionals' initial fee applications ran and to hear and
determine any disputes regarding the fees and expenses of Litigation
Counsel;
(g) To hear the Debtors' or Liquidating STEL's application, if any, to
modify the Plan in accordance with Section 1127 of the Bankruptcy Code
(after Confirmation, the Debtors or Liquidating STEL may also, so long as
they do not adversely affect the interest of Holders of Allowed Claims,
institute proceedings in the Bankruptcy Court to remedy any defect or
omission or reconcile any inconsistencies in the Plan or Confirmation
Order, in such manner as may be necessary to carry out the purposes and
effects of the Plan);
(h) To hear and determine disputes arising in connection with the
interpretation of the Plan or its implementation, including disputes among
Holders of Allowed Claims and disputes arising under any other agreements,
documents or instruments executed in connection with the Plan;
(i) To construe and to take any action to enforce the Plan and issue
such orders and injunctions as may be necessary for the consummation and
implementation of the Plan;
(j) To enforce the automatic stay through the date of the Final
Decree;
(k) To hear and determine all disputes or controversies arising under
the Purchase Agreement or the Management Agreement, or in connection with
the interpretation, implementation or enforcement of rights under such
agreements;
(l) To determine such other matters and for such purposes as may be
provided in the Confirmation Order;
(m) To hear and determine any other matters related hereto and not
inconsistent with Chapter 11 of the Bankruptcy Code; and
(n) To enter a final decree closing the Chapter 11 Cases.
13.02. Non-exclusive Jurisdiction of Bankruptcy Court. Following the
Effective Date, the Bankruptcy Court will retain non-exclusive jurisdiction of
the Chapter 11 Cases to the fullest extent permitted by applicable law, for the
following purposes:
(a) To recover all assets of the Debtors and property of the Estates,
wherever located, including any Causes of Action under Sections 544 through
550 of the Bankruptcy Code;
(b) To hear and determine any motions or contested matters involving
taxes, tax refunds, tax Claims, tax attributes and tax benefits and similar
or related matters, with respect to the Debtors or the Estates arising on
or prior to the Effective Date or relating to the period of administration
of the Chapter 11 Cases or the Plan;
(c) To hear any other matter not inconsistent with the Bankruptcy
Code.
13.03. Failure of Bankruptcy Court to Exercise Jurisdiction. If the
Bankruptcy Court abstains from exercising or declines to exercise jurisdiction
over any matter arising under, arising in, or related to the Chapter 11 Cases,
including with respect to matter set forth above in Sections 13.01 and 13.02
hereof, this Article XIII shall not prohibit or limit the exercise of
jurisdiction by any other court having competent jurisdiction with respect to
such subject matter.
13.04. Dissolution of Committee. When the Plan becomes effective as
set forth in Section 12.02, the Committee shall cease to exist and its members
and professional advisors shall be released and discharged from all further
authority, duties, responsibilities and obligations relating to, arising from or
in connection with the Chapter 11 Cases.
13.05. Amendments and Modifications. The Debtors or Liquidating STEL,
with the consent of the Committee, may modify the Plan both before and after
Confirmation in accordance with the provisions of Section 1127 of the Bankruptcy
Code.
13.06. Governing Law. EXCEPT TO THE EXTENT THAT THE BANKRUPTCY CODE OR
BANKRUPTCY RULES OR OTHER FEDERAL LAWS ARE APPLICABLE, AND SUBJECT TO THE
PROVISIONS OF ANY CONTRACT, INSTRUMENT, RELEASE, INDENTURE OR OTHER AGREEMENT OR
DOCUMENT ENTERED INTO IN CONNECTION WITH THE PLAN, THE CONSTRUCTION,
IMPLEMENTATION AND ENFORCEMENT OF THE PLAN AND ALL RIGHTS AND OBLIGATIONS
ARISING UNDER THE PLAN SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW PRINCIPLES WHICH WOULD APPLY THE LAW OF A JURISDICTION OTHER
THAN THE STATE OF DELAWARE OR THE UNITED STATES OF AMERICA.
13.07. Successors and Assigns. The rights, benefits and obligations of
any Person named or referred to in the Plan will be binding upon, and will inure
to the benefit of, the heir, executor, administrator, representative, successor
or assign of such Person. From and after the Voting Deadline, any heir,
executor, administrator, representative, successor or assign of any Holder of a
Claim that has voted to accept the Plan shall be bound by the Plan and the
treatment of such Claim hereunder.
13.08. Compromise of Controversies. Pursuant to Bankruptcy Rule 9019,
and in consideration for the classification, distribution and other benefits
provided under the Plan, the provisions of the Plan shall constitute a good
faith compromise and settlement of all Claims or controversies resolved pursuant
to the Plan. The entry of the Confirmation Order shall constitute the Bankruptcy
Court's approval of each of the foregoing compromises or settlements, and all
other compromises and settlements provided for in the Plan, and the Bankruptcy
Court's findings shall constitute its determination that such compromises and
settlements are in the best interests of the Debtors, Reorganized Debtors, the
Estates, and any Persons holding Claims against the Debtors.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.01. Binding Effect of the Plan. The provisions of the Plan shall be
binding upon and inure to the benefit of the Debtors, the Estates, Liquidating
STEL, , any Holder of any Claim or Interest treated herein, and each of their
respective predecessors, successors, assigns, agents, officers and directors
and, to the fullest extent permitted under Section 1141(a) of the Bankruptcy
Code and other applicable law, each other Person affected by the Plan.
14.02. Nonvoting Stock. The Debtors shall comply with the provisions
of Section 1123(a)(6) of the Bankruptcy Code.
14.03. Withdrawal of the Plan. The Debtors reserve the right, at any
time prior to the entry of the Confirmation Order, to revoke or withdraw the
Plan. If they do so, the Plan shall be null and void and have no force and
effect.
14.04. Final Order. Except as otherwise expressly provided in the
Plan, any requirement in the Plan for a Final Order may be waived by the Debtors
or, after the Effective Date, Liquidating STEL upon written notice to the
Bankruptcy Court. No such waiver shall prejudice the right of any party in
interest to seek a stay pending appeal of any order that is not a Final Order.
14.05. Payment of Statutory Fees. All fees payable by the Debtors
pursuant to 28 U.S.C. Section 1930, as determined by the Bankruptcy Court at the
hearing pursuant to Section 1128 of the Bankruptcy Code, shall be paid when due
pursuant to the terms thereof; provided, however, that all such fees due for
periods prior to the Effective Date shall be paid on or before the Effective
Date.
14.06. No Interest. Unless otherwise specifically provided for in the
Plan or Confirmation Order or Allowed by a Final Order of the Bankruptcy Court,
postpetition interest shall not accrue or be paid on Claims, and no Holder of a
Claim shall be entitled to such interest or any penalty or late charge accruing
on or after the Petition Date on any such Claim. Interest shall not accrue or be
paid upon any Disputed Claim with respect to the period from the Petition Date
to the date of distribution with respect to such Claim.
14.07. No Attorneys' Fees. No attorneys' fees will be paid by any
Debtor with respect to any Claim or Interest except as expressly specified
herein or Allowed by a Final Order of the Bankruptcy Court.
14.08. Defenses with Respect to Unimpaired Claims. Except as otherwise
provided in the Plan, nothing shall effect the rights and legal and equitable
defenses of the Debtors or Liquidating STEL with respect to any Unimpaired
Claim, including, but not limited to, all rights in respect of legal and
equitable defenses to setoff or recoupments against Unimpaired Claims.
14.09. No Injunctive Relief. No Claim or Interest shall under any
circumstances be entitled to specific performance or other injunctive, equitable
or other prospective relief.
14.10. Notice. All notices required to be given to the Debtors under
the Plan, if any, shall be in writing and shall be sent by first class mail,
postage prepaid, or by overnight courier to:
SA Telecommunications, Inc.
P.O. Box 260559
Plano, Texas 75026-0559
Attn.: Windle R. Ewing
Tel: (972) 612-1653
with copies to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attn: Andrew DeNatale
Karen Burns
Daniel P. Ginsberg
Tel.: (212) 819-8200
and
The Bayard Firm
919 Market Street, 16th Floor
Wilmington, Delaware 19899
Attn.: Neil B. Glassman
Scott D. Cousins
Tel.: (302) 655-5000
Any of the above may, from time to time, change its address for future notices
and other communications hereunder by filing a notice of the change of address
with the Bankruptcy Court. Any and all notices given under the Plan shall be
effective when received.
14.11. Continued Confidentiality Obligations. Pursuant to the terms
hereof, members of and advisors to the Committee, any other Holder of a Claim or
Interest and their respective predecessors, successors and assigns shall
continue to be obligated and bound by the terms of any confidentiality agreement
executed by them in connection with these Chapter 11 Cases or any of the
Debtors, to the extent that such agreement, by its terms, may continue in effect
after the Confirmation Date.
14.12. No Admissions. Except with respect to Claims defined as Allowed
Claims in this Plan, including but not limited to the WorldCom Allowed
Administrative Expense Claim and the WorldCom Allowed Unsecured Claim, and
notwithstanding anything herein to the contrary, nothing contained in the Plan
(i) shall be deemed an admission by the Debtors with respect to any matter set
forth herein, including, without limitation, liability on any Claim or Interest
or the propriety of any classification of any Claim or Interest, or (ii)
constitutes an acknowledgment by the Debtors that they have liability for
liabilities that were assumed by USC Telecom, EqualNet and EqualNet Corp.
pursuant to the Purchase Agreement and/or the Management Agreement or any other
agreements between these parties and the Debtors.
14.13. Time. Unless otherwise specified herein, in computing any
period of time prescribed or allowed by the Plan, the day of the act or event
from which the designated period begins to run shall not be included. The last
day of the period so computed shall be included, unless it is not a Business
Day, in which event the period runs until the end of the next succeeding day
that is a Business Day.
14.14. No Liability for Solicitation or Participation. The Debtors and
the Committee have, and upon Confirmation of the Plan shall be deemed to have,
(a) solicited acceptances or rejections of the Plan in good faith and in
compliance with the applicable provisions of the Bankruptcy Code and (b)
participated in good faith and in compliance with the applicable provisions of
the Bankruptcy Code in the offer, issuance, sale or purchase of securities
offered or sold under the Plan, if any, and are not, and on account of such
offer, issuance, sale, solicitation, and/or purchase will not be, liable at any
time for the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer, issuance,
sale or purchase of securities offered and sold under the Plan.
14.15. Section 1146 Exemption. To the fullest extent permitted under
Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of
any security under the Plan, if any, or the execution, delivery or recording of
an instrument of transfer under the Plan, or the revesting, transfer or sale of
any real or other property of or to the Debtors or Liquidating STEL, shall not
be taxed under any state or local law imposing a stamp tax, transfer tax or
similar tax or fee. Consistent with the foregoing, each recorder of deeds or
similar official for any county, city or governmental unit in which any
instrument hereunder is to be recorded shall, pursuant to the Confirmation
Order, be ordered and directed to accept such instrument, without requiring the
payment of any documentary stamp tax, deed stamps, stamp tax, transfer tax,
mortgage recording tax, intangible tax or similar tax.
14.16. Entire Agreement. The Plan, which incorporates the Inter-Debtor
Settlement Agreement, the Administrative Expense Treatment Agreement and all
other agreements relating to the treatment of certain Claims, sets forth the
entire agreement and undertakings relating to the subject matter hereof and
supersedes all prior discussions and documents. Neither the Debtors nor
Liquidating STEL shall be bound by any terms, conditions, definitions,
warranties, understandings, or representations with respect to the subject
matter hereof, other than as expressly provided for herein or as may hereafter
be agreed to by the parties in writing.
14.17. Severability. Should the Bankruptcy Court determine, prior to
the Confirmation Date, that any provision of the Plan is either illegal on its
face or illegal as applied to any Claim or Interest, such provision shall be
unenforceable as to all Holders of Claims or Interests or to the specific Holder
of such Claim or Interest, as the case may be, as to which the provision is
illegal. Unless otherwise determined by the Bankruptcy Court, such a
determination of unenforceability shall in no way limit or affect the
enforceability and operative effect of any other provision of the Plan. The
Debtors reserve the right not to proceed with Confirmation or consummation of
the Plan if any such ruling occurs.
14.18. Waiver. The Debtors or Liquidating STEL, as applicable, reserve
the right, in their sole discretion, to waive any provision of the Plan to the
extent such provision is for the sole benefit of the Debtors and/or their
officers or directors.
Wilmington, Delaware
May 12, 1999
SA TELECOMMUNICATIONS, INC.
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
ADDTEL COMMUNICATIONS, INC.
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
LONG DISTANCE NETWORK, INC.
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
NORTH AMERICAN TELECOMMUNICATIONS CORPORATION
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
UNIQUEST COMMUNICATIONS, INC.
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
U.S. COMMUNICATIONS, INC.
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
SOUTHWEST LONG DISTANCE NETWORK, INC.
Debtor and Debtor in Possession
By: /s/ Albert B. Gordon, Jr.
Albert B. Gordon, Jr.
Interim Chief Executive Officer
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
(212) 819-8200
Andrew DeNatale
Karen Burns
Daniel P. Ginsberg
Counsel for Debtors and Debtors
in Possession
and
The Bayard Firm
919 Market Street, 16th Floor
Wilmington, Delaware 19899
(302) 655-5000
Neil B. Glassman (No. 2087)
Scott D. Cousins (No. 3079)
Local Counsel for Debtors and
Debtors in Possession
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION.................................................................1
ARTICLE I DEFINITIONS......................................................1
1.01.Definitions.........................................................1
ARTICLE II RULES OF INTERPRETATION.........................................13
2.01.Rules of Interpretation............................................13
2.02.Incorporation of Exhibits..........................................13
ARTICLE III TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS......................13
3.01.Estate Cash Distributions..........................................13
3.02.Administrative Expense Claims......................................14
3.03.Treatment of Allowed Administrative Expense Claims.................14
ARTICLE IV CLASSIFICATION OF CLAIMS AND INTERESTS..........................14
4.01.Class 1 Claims.....................................................14
4.02.Class 2 Claims.....................................................15
4.03.Class 3 Claims.....................................................15
4.04.Class 4 Claims.....................................................15
4.05.Class 5 Interests: STEL Preferred Stock Interests..................15
4.06.Class 6 Interests: STEL Common Stock Interests.....................15
4.07.Class 7 Interests: Subsidiary Common Stock Interests...............15
ARTICLE V TREATMENT OF CLAIMS AND INTERESTS................................15
5.01.Treatment of Allowed Class 1 Claims (Miscellaneous Secured Claims).15
5.02.Treatment of Allowed Class 2 Claims (Classified Priority Claims)...16
5.03.Treatment of Allowed Class 3 Claims (General Unsecured Claims).....16
5.04.Treatment of Allowed Class 4 Claims (Intercompany Claims)..........17
5.05.Treatment of Allowed Class 5 Interests (STEL Preferred Stock
Interests).......................................................17
5.06.Treatment of Allowed Class 6 Interests (STEL Common Stock
Interests).......................................................18
5.07.Treatment of Allowed Class 7 Interests (Subsidiary Common Stock
Interests).......................................................18
ARTICLE VI IDENTIFICATION OF CLASSES OF CLAIMS ANDINTERESTS IMPAIRED AND
NOT IMPAIRED BY THEPLAN; ACCEPTANCE OR REJECTION OF
THE PLAN......................................................18
6.01.Acceptance by an Impaired Class of Creditors.......................18
6.02.Voting Classes.....................................................18
6.03.Classes Not Receiving or Retaining Property Deemed to Reject the
Plan.............................................................18
6.04.Unimpaired Classes Conclusively Presumed to Accept the Plan........19
6.05.Confirmation Pursuant to Section1129(b)............................19
6.06.Confirmation of All Cases..........................................19
ARTICLE VII PROVISIONS COVERING DISTRIBUTIONS..............................19
7.01.Timing of Distributions............................................19
7.02.Distributions to Holders of Allowed Claims.........................19
7.03.Distribution to Holders of 10% Convertible Notes...................20
7.04.Persons Deemed Holders of Registered Securities....................20
7.05.Disbursing Agent...................................................20
7.06.Fractional Dollars.................................................20
7.07.De Minimis Distributions...........................................20
7.08.Method of Cash Distribution........................................20
7.09.Compliance With Tax Requirements...................................21
7.10.Withholding Taxes..................................................21
7.11.Saturday, Sunday or Legal Holiday..................................21
7.12.Dates Pertaining to Administrative Expense Claims..................21
ARTICLE VIII ISSUES RELATED TO CLAIMS AND RESERVESAND MISCELLANEOUS
DISTRIBUTION PROVISIONS.....................................22
8.01.Duplicate Claims or Claims Asserted Against Improper Debtor........22
8.02.Objections to Claims...............................................22
8.03.Reserves for Disputed Claims.......................................23
8.04.Reserve for Estimated Expenses.....................................23
8.05.Investment of Funds................................................24
8.06.Payment or Distribution of Disputed Claim..........................24
8.07.Timing of Payment or Distribution When a Disputed Claim Becomes an
Allowed Claim....................................................24
8.08.Disputed Distribution..............................................24
8.09.Estimation.........................................................24
8.10.Distribution of Unclaimed Property.................................24
ARTICLE IXUNEXPIRED LEASES AND EXECUTORY CONTRACTS..........................25
9.01.Rejection Generally................................................25
9.02.Rejection Damages..................................................25
9.03.Contracts Entered Into On or After the Petition Date...............26
ARTICLE XMEANS FOR IMPLEMENTATION OF THE PLAN...............................26
10.01.Liquidating STEL and Liquidating Officer..........................26
10.02.Retention of Rights to Pursue Causes of Action and the Appointment
of Litigation Counsel...........................................26
10.03.Substantive Consolidation.........................................27
10.04.Merger of Corporate Entities......................................28
10.05.Operations Between the Confirmation Date and the Effective Date...28
10.06.Revesting and Transfer of Assets..................................28
10.07.Cancellation of Intercompany Claims...............................29
10.08.Cancellation and Surrender of Securities..........................29
10.09.Closing of Books Related to Canceled Securities...................30
10.10.Provisions Relating to WorldCom...................................30
10.11.Allowance of Claims Subject to Section502(d)......................31
10.12.Right of Setoff...................................................31
10.13.Authorization of Corporate Action.................................32
10.14.Retiree Benefits..................................................32
ARTICLE XIDISCHARGE AND RELEASE OF CLAIMS...................................32
11.01.Discharge.........................................................32
11.02.Distributions in Complete Satisfaction............................32
11.03.Injunction........................................................33
11.04.Release by Debtors and Debtors in Possession......................33
11.05.Release by Holders of Claims and Interests........................33
11.06.Exculpation.......................................................34
11.07.Indemnification Obligations.......................................34
11.08.Preservation of Insurance.........................................35
11.09.Subordination.....................................................35
ARTICLE XII CONDITIONS TO CONSUMMATION OF THE PLAN..........................35
12.01.Conditions........................................................35
12.02.Payments, Effective Date and Consummation.........................36
12.03.Waiver of Conditions to Confirmation..............................36
12.04.Limit on Effective Date...........................................37
ARTICLE XIII ADMINISTRATIVE PROVISIONS......................................37
13.01.Exclusive Jurisdiction of Bankruptcy Court........................37
13.02.Non-exclusive Jurisdiction of Bankruptcy Court....................38
13.03.Failure of Bankruptcy Court to Exercise Jurisdiction..............39
13.04.Dissolution of Committee..........................................39
13.05.Amendments and Modifications......................................39
13.06.Governing Law.....................................................39
13.07.Successors and Assigns............................................39
13.08.Compromise of Controversies.......................................40
ARTICLE XIV MISCELLANEOUS PROVISIONS........................................40
14.01.Binding Effect of the Plan........................................40
14.02.Nonvoting Stock...................................................40
14.03.Withdrawal of the Plan............................................40
14.04.Final Order.......................................................40
14.05.Payment of Statutory Fees.........................................40
14.06.No Interest.......................................................40
14.07.No Attorneys Fees.................................................41
14.08.Defenses with Respect to Unimpaired Claims........................41
14.09.No Injunctive Relief..............................................41
14.10.Notice............................................................41
14.11.Continued Confidentiality Obligations.............................42
14.12.No Admissions.....................................................42
14.13.Time..............................................................42
14.14.No Liability for Solicitation or Participation....................42
14.15.Section 1146 Exemption............................................42
14.16.Entire Agreement..................................................42
14.17.Severability......................................................43
14.18.Waiver............................................................43
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: )
SA TELECOMMUNICATIONS, INC., ) Chapter 11
ADDTEL COMMUNICATIONS, INC., )
LONG DISTANCE NETWORK, INC., )
NORTH AMERICAN ) Case Nos. 97-2395 (PJW)
TELECOMMUNICATIONS CORPORATION, ) through 97-2401 (PJW)
)
UNIQUEST COMMUNICATIONS, INC., )
U.S. COMMUNICATIONS, INC. ) Jointly Administered
and SOUTHWEST LONG DISTANCE )
NETWORK, INC., )
)
)
Debtors. )
DISCLOSURE STATEMENT FOR DEBTORS' JOINT CHAPTER 11 PLAN
WHITE & CASE LLP THE BAYARD FIRM
1155 Avenue of the Americas 919 Market Street, 16th Floor
New York, New York 10036 Wilmington, Delaware 19899
Attn.: Andrew DeNatale Attn.: Neil B. Glassman (No. 2087)
Karen Burns Scott D. Cousins (No. 3079)
Daniel P. Ginsberg Phone: (302) 655-5000
Phone: (212) 819-8200
Counsel for Debtors and Local Counsel for Debtors and
Debtors in Possession Debtors in Possession
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED
BY THE BANKRUPTCY COURT FOR CIRCULATION TO CREDITORS
AND INTEREST HOLDERS OR FOR USE IN THE SOLICITATION OF
VOTES ON THE PLAN OF REORGANIZATION PROPOSED BY THE DEBTORS
<PAGE>
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST CHANCE OF
RECOVERIES TO HOLDERS OF ALLOWED CLAIMS OF THEIR RESPECTIVE ESTATES AND THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR
CREDITORS. THE DEBTORS URGE THAT CREDITORS IN IMPAIRED CLASSES VOTE TO ACCEPT
THE PLAN.
THE CREDITORS COMMITTEE SUPPORTS CONFIRMATION OF THE PLAN AND URGES
THE HOLDERS OF CLAIMS IN IMPAIRED CLASSES TO ACCEPT THE PLAN.
THIS DISCLOSURE STATEMENT IS DESIGNED TO PROVIDE ADEQUATE INFORMATION
TO ENABLE HOLDERS OF CLAIMS AGAINST THE DEBTORS TO MAKE AN INFORMED JUDGMENT ON
WHETHER TO ACCEPT OR REJECT THE PLAN. ALL HOLDERS OF CLAIMS ARE HEREBY ADVISED
AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY
BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. THE PLAN SUMMARY AND STATEMENTS MADE
IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
PLAN, WHICH IS INCLUDED HEREWITH AS EXHIBIT A, OTHER EXHIBITS INCLUDED HEREWITH
AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE BANKRUPTCY COURT. FURTHERMORE,
SOME OF THE FINANCIAL INFORMATION, INCLUDING ANY PROJECTIONS, CONTAINED HEREIN
IS UNAUDITED. THERE CAN BE NO ASSURANCE THAT (A) THE INFORMATION AND
REPRESENTATIONS CONTAINED HEREIN WILL CONTINUE TO BE ACCURATE SUBSEQUENT TO THE
DATE HEREOF, OR (B) THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
ALL HOLDERS OF IMPAIRED CLAIMS SHOULD READ AND CONSIDER CAREFULLY THE
MATTERS DESCRIBED IN THE DISCLOSURE STATEMENT AS A WHOLE, INCLUDING THE SECTION
ENTITLED "RISK FACTORS," PRIOR TO VOTING ON THE PLAN. IN MAKING A DECISION TO
ACCEPT OR REJECT THE PLAN, EACH CREDITOR MUST RELY ON ITS OWN EXAMINATION OF THE
DEBTORS AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN,
INCLUDING THE MERITS AND RISKS INVOLVED. IN ADDITION, CONFIRMATION AND
CONSUMMATION OF THE PLAN ARE SUBJECT TO CONDITIONS PRECEDENT THAT COULD LEAD TO
DELAYS IN CONSUMMATION OF THE PLAN OR TO DISMISSAL OF THE DEBTORS' CASES. THERE
CAN BE NO ASSURANCE THAT EACH OF THESE CONDITIONS WILL BE SATISFIED OR WAIVED OR
THAT THE PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS
UNDER THE PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR CREDITORS WHOSE CLAIMS
ARE DISPUTED.
NO PARTY IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE PLAN OTHER THAN THAT WHICH IS CONTAINED IN
THIS DISCLOSURE STATEMENT. NO STATEMENTS OR INFORMATION CONCERNING THE DEBTORS,
THEIR BUSINESS OPERATIONS OR THE VALUE OF THEIR PROPERTIES HAVE BEEN AUTHORIZED
BY THE DEBTORS OTHER THAN AS SET FORTH HEREIN. ANY INFORMATION OR
REPRESENTATIONS GIVEN TO OBTAIN YOUR ACCEPTANCE OR REJECTION OF THE PLAN WHICH
ARE DIFFERENT FROM OR INCONSISTENT WITH THE INFORMATION OR STATEMENTS CONTAINED
HEREIN AND IN THE PLAN SHOULD NOT BE RELIED UPON BY ANY CREDITOR IN VOTING ON
THE PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 301(B) OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER
APPLICABLE NONBANKRUPTCY LAW. PERSONS OR ENTITIES HOLDING OR TRADING IN OR
OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST, OR SECURITIES OF,
THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT IN LIGHT OF THE PURPOSE
FOR WHICH IT WAS PREPARED.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS SUCH COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
WITH RESPECT TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
PENDING OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE INFORMATION
CONTAINED HEREIN SHALL NOT BE CONSTRUED AS AN ADMISSION OR STIPULATION, BUT
RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS GOVERNED BY RULE 408 OF THE
FEDERAL RULES OF EVIDENCE AND ANY OTHER RULE OR STATUTE OF SIMILAR IMPORT.
THIS DISCLOSURE STATEMENT SHALL NEITHER BE ADMISSIBLE IN ANY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY NOR BE CONSTRUED TO BE
ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE PLAN. EACH CREDITOR
SHOULD, THEREFORE, CONSULT WITH ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX
ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION OF VOTES, THE PLAN
OR THE TRANSACTIONS CONTEMPLATED THEREBY.
I. INTRODUCTION
SA Telecommunications, Inc. ("STEL"), Addtel Communications, Inc.
("Addtel"), Long Distance Network, Inc. ("LDN"), North American
Telecommunications Corporation ("NATC"), Uniquest Communications, Inc.
("Uniquest"), U.S. Communications, Inc. ("USC") and Southwest Long Distance
Network, Inc. ("SWLDN") (collectively, the "Debtors"), debtors and
debtors-in-possession under Chapter 11 of title 11 of the United States Code
(the "Bankruptcy Code") submit this Disclosure Statement dated April 28, 1999
(the "Disclosure Statement") pursuant to Section 1125 of the Bankruptcy Code to
Holders of Impaired Claims entitled to vote pursuant to Section 1126 in
connection with (i) the solicitation of acceptances or rejections of the
Debtors' Joint Chapter 11 Liquidating Plan dated April 28, 1999 (the "Plan")
filed by the Debtors with the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") and (ii) the hearing to consider confirmation
of the Plan (the "Confirmation Hearing") which has been scheduled for
_______________.1
1 Terms not otherwise defined in this Disclosure Statement shall have the
meanings ascribed to them in the Plan, or in subsequent sections of this
Disclosure Statement, or in the Bankruptcy Code and/or the Federal Rules of
Bankruptcy Procedure.
Attached as Exhibits to this Disclosure Statement are copies of the
following:
o The Plan (Exhibit A);
o Order of the Bankruptcy Court dated _____________, 1999 (the
"Disclosure Statement Order"), among other things, approving this
Disclosure Statement and establishing certain procedures with
respect to the solicitation and tabulation of votes to accept or
reject the Plan (Exhibit B);
o Term Sheet for Settlement of Inter-Debtor Claims and Joint Plan
of Reorganization ("Inter-Debtor Settlement Agreement") (Exhibit
C);
o Administrative Expense Treatment Agreement (Exhibit D);
o Notice of Order (i) Approving the Debtors' Disclosure Statement,
Forms of Ballots and Related Solicitation Material, (ii)
Establishing Procedures for Solicitation of Votes on the Joint
Chapter 11 Liquidating Plan of the Debtors, (iii) Establishing
Record Date, Voting Deadline and Procedures for Tabulation of
Votes on Debtors' Plan, (iv) Establishing Administrative Claims
Bar Date and (v) Fixing Date and Time for the Filing of
Objections to, and Scheduling Hearing on, Confirmation of the
Debtors' Plan (Exhibit E); and
In addition, for the Holders of Claims in Classes 3-A through 3-C
(General Unsecured Claims), all of the members of which Classes of Claims are
"impaired" and entitled to vote under the terms and provisions of the Plan, a
Ballot for voting on acceptance or rejection of the Plan is included.
On ____________, 1999, after notice and a hearing, the Bankruptcy
Court approved this Disclosure Statement as containing adequate information of a
kind and in sufficient detail to enable hypothetical, reasonable investors
typical of the Debtors' creditors to make an informed judgment whether to accept
or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER,
CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR MERITS
OF THE PLAN.
The Disclosure Statement Order, a copy of which is annexed hereto as
Exhibit B, sets forth in detail the deadlines, procedures and instructions for
voting to accept or reject the Plan and for filing objections to confirmation of
the Plan, the record date for voting purposes and the applicable standards for
tabulating Ballots. In addition, detailed voting instructions accompany each
Ballot. Each holder of a Claim entitled to vote to accept or reject the Plan
should read this Disclosure Statement and Exhibits thereto, the Plan, the
Disclosure Statement Order and the instructions accompanying the Ballot in their
entirety before voting on the Plan. These documents contain, among other things,
important information concerning the classification of Claims for voting
purposes and the tabulation of votes. No solicitation of votes may be made
except pursuant to Section 1125 of the Bankruptcy Code.
A. PARTIALLY CONSOLIDATED PLAN
The Debtors' Chapter 11 cases are being jointly administered pursuant
to an order of the Bankruptcy Court, and the Plan is being presented as a joint
plan of liquidation of the Debtors for administrative purposes only.
During the course of the Debtors' Chapter 11 cases, the Debtors, the
Committee and certain creditors of STEL, Addtel and USC recognized that there
were complex inter-Debtor claims issues and allocation issues, the resolution of
which were a necessary predicate to preparation of a confirmable plan. These
entities determined that it was in the best interests of the Debtors and their
respective creditors to attempt to reach a consensual solution regarding these
issues and, with the approval of the Bankruptcy Court, entered into a period of
investigation and negotiation. Thereafter, the Debtors obtained court approval
for the Inter-Debtor Settlement Agreement which resulted from this consensual
process. The Settlement Agreement provided the framework for the Plan. Several
months thereafter the Debtors and these creditor representatives agreed to a
modification of the Settlement Agreements to deal with the intervening change in
circumstances. This modification, embodied in the Administrative Expense
Treatment Agreement, was approved by the Bankruptcy Court and has been
incorporated herein. This process and the Settlement Agreement upon which this
Plan are based are more fully described herein at Section IV.D. - "Settlement of
Inter-Debtor Claims."
The Plan is predicated upon distributions on account of Claims other
than General Unsecured Claims being made from the aggregate assets of all of the
Debtors' Estates. The Plan is further predicated upon separate distributions
being made from the Estates of STEL and Addtel to the Holders of General
Unsecured Claims against those respective Debtors. The Plan also provides for
the substantive consolidation of the assets and liabilities of USC, LDN, SWLDN,
NATC and Uniquest (the "Consolidated Debtors" or "Consolidated USC") into a
single entity for purposes of Confirmation, consummation and implementation of a
Plan. Distributions will be made from the Estate of the Consolidated Debtors to
Holders of General Unsecured Claims against any one of the Consolidated Debtors.
B. POTENTIAL PLAN RECOVERIES SUPERIOR TO CHAPTER 7 LIQUIDATION
According to the Bankruptcy Code, all estate assets must be used to
fully satisfy secured claims, administrative expense claims, including the fees
and expenses of professionals retained in a case, and claims entitled to
priority under Section 502 of the Bankruptcy Code before any distribution can be
made to general unsecured creditors.
If this procedure was followed in the Debtors' cases, in all
likelihood there would be no distribution to the General Unsecured Creditors of
any of the Debtors. To avoid this outcome, various Holders of Administrative
Expense Claims, the Professionals and significant Unsecured Creditors have
entered into the Inter-Debtor Settlement Agreement and the Administrative
Expense Treatment Agreement. These agreements modify the Code provisions on
distributions to provide General Unsecured Creditors with the opportunity to
obtain a recovery in the Debtors' Cases. Under these agreements, the
Administrative Expense Claimants, including the Professionals, have agreed to a
reduced distribution as described in detail below. The intent of these
Administrative Expense Claimants and Professionals is to make Cash available to
General Unsecured Creditors in a case where they would otherwise have received
nothing.
In general, the Administrative Expense Claimants (other than
Professionals, will receive their distributions solely from the Estates'
proceeds from operations and the sale of assets, including the Sale to the
EqualNet Parties (the "Estate Cash"). Only under certain limited circumstances
may Administrative Expenses Claimants other than the Professionals derive any
benefit from recoveries from preference or other litigation; rather, in general,
all such recoveries will be dedicated to distributions to Classes 3-A through
3-C in the allocation agreed to by the representatives of such Classes.
Professionals will receive their distributions principally from the Estate Cash
but, under certain limited circumstances, may derive some benefit from
litigation recoveries.
If the Debtors' cases were converted to Chapter 7, the Unsecured
Creditors would lose the benefits of the Administrative Expense Treatment
Agreement and the individual claim reduction agreements reached with other
Administrative Expense claimants. Moreover, the Inter-Debtor Claims Settlement
Agreement would not survive a conversion to Chapter 7. Without such a consensual
resolution of the allocation of Claims between and among the Debtors' Estates,
this issue would most likely be resolved through protracted and costly
litigation, the cost of which would reduce the amount available for distribution
to Creditors. Without these agreements in place it is highly unlikely that
General Unsecured Creditors would receive any distribution in the Chapter 11
Cases, and even less likely that they would receive any distribution in Chapter
7 cases.
C. HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired and that will receive distributions under the Chapter 11 plan are
entitled to vote to accept or reject a proposed Chapter 11 plan. Classes of
claims or equity interests in which the holders of claims or equity interests
will not receive or retain any property under a Chapter 11 plan are deemed to
have rejected the plan and are not entitled to vote to accept or reject the
plan. Classes of claims or equity interests in which the holders of claims or
equity interests are unimpaired under a Chapter 11 plan are deemed to have
accepted the plan and are not entitled to vote to accept or reject the plan.
Administrative Expense Claims, which are unclassified, Class 1-A
through 1-C Claims (Miscellaneous Secured Claims), and Class 2-A Claims
(Classified Priority Claims) are Unimpaired under the Plan and the Holders of
Claims in those Classes are conclusively presumed to have accepted the Plan.
Accordingly, Holders of such Claims are not entitled to vote to accept or reject
the Plan.
Classes 4-A through 7-A (Intercompany Claims and various Interests)
are Impaired and will receive no distribution and retain no rights or property
on account of such Intercompany Claims or Interests. Since Holders of such
Intercompany Claims or Interests will receive no distribution under the Plan,
and are deemed to have rejected the Plan, the Holders of such Intercompany
Claims and Interests are not entitled to vote to accept or reject the Plan.
General Unsecured Claims are included in 3 classes: Class 3-A (General
Unsecured Claims against STEL), Class 3-B (General Unsecured Claims against
Addtel) and Class 3-C (General Unsecured Claims against Consolidated USC). These
Claims are Impaired and, to the extent Claims in such Classes are Allowed
Claims, the Holders of such Claims will receive distributions under the Plan as
described herein. Holders of Claims in those Classes are entitled to vote to
accept or reject the Plan, and the Debtors are soliciting acceptances from
Holders of Claims in such Classes. If any such Claim is Disputed, either in full
or in part, by the Debtors, the Holder will not be entitled to vote such
Disputed Claim unless (i) the Debtors and the Holder thereof otherwise agree or
(ii) that the Bankruptcy Court, upon a request made by a Holder of the Claim, so
determines.
The Bankruptcy Code defines "acceptance" of a plan by a class of
claims as acceptance by creditors in that class that hold at least two-thirds in
dollar amount and more than one-half in number of the claims that cast ballots
for acceptance or rejection of the plan. Acceptance of a plan by a class of
equity interests requires acceptance by at least two-thirds of the number of
shares in such class that cast ballots for acceptance or rejection of the plan.
With respect to the Debtors' Plan, acceptance in accordance with this definition
will be required by each of Class 3-A, Class 3-B and Class 3-C. For a more
detailed description of the requirements for Confirmation of the Plan, see
Section VII.B. - "Confirmation and Consummation Procedure."
If a Class of Claims rejects the Plan, the Debtors have the right to
request confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy
Code. Section 1129(b) permits the confirmation of a plan notwithstanding the
nonacceptance of such plan by one or more impaired classes of claims or equity
interests. Under that section, a plan may be confirmed by a bankruptcy court if
it does not "discriminate unfairly" and is "fair and equitable" with respect to
each nonaccepting class. For a more detailed description of the requirements for
confirmation of a nonconsensual plan, see Section VII.B.1-3. - "Confirmation and
Consummation Procedure."
D. VOTING PROCEDURES
If you are entitled to vote to accept or reject the Plan, a Ballot is
enclosed for the purpose of voting on the Plan. If you hold a Claim in more than
one Class and you are entitled to vote Claims in more than one Class, you will
receive separate Ballots which must be used for each separate Class of Claims.
Please vote and return your Ballot(s) to:
[WHO IS BALLOTING AGENT - BSI?]
DO NOT RETURN YOUR NOTES OR OTHER SECURITIES WITH YOUR BALLOT.
TO HAVE YOUR VOTE COUNT, YOU MUST COMPLETE, SIGN AND RETURN YOUR
BALLOT SO THAT IT IS RECEIVED BY THE BALLOTING AGENT NO LATER THAN 4:00 P.M.,
NEW YORK, NEW YORK TIME, ON ___________, 1999. ANY BALLOT WHICH IS EXECUTED BUT
WHICH DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR WHICH
INDICATES BOTH AN ACCEPTANCE AND A REJECTION OF THE PLAN WILL NOT BE COUNTED.
YOUR ORIGINAL SIGNATURE IS REQUIRED ON THE BALLOT IN ORDER FOR YOUR VOTE TO
COUNT.
Pursuant to the Disclosure Statement Order, the Bankruptcy Court set
__________, 1999 as the record date for voting on the Plan. Accordingly, only
Holders of record as of ___________, 1999 that are otherwise entitled to vote
under the Plan will receive a Ballot and may vote on the Plan. In addition, by
order dated April 27, 1998 (the "Bar Date Order"), the Bankruptcy Court required
each creditor with a General Unsecured Claim against any of the Debtors, other
than Holders of 10% Convertible Notes, to File a Proof of Claim evidencing such
Claim no later than June 1, 1998, regardless of whether the Debtors had included
such Claim in their Schedules. Except as otherwise provided for in the Bar Date
Order, only creditors who timely filed a Proof of Claim will be entitled to vote
on the Plan. The Bar Date Order provided that the filing of a Proof of Claim by
the Indenture Trustee on behalf of all Holders of the 10% Convertible Notes
constituted sufficient evidence of the Claims based on the 10% Convertible
Notes, and excused individual Holders of 10% Convertible Notes from filing
separate Proofs of Claim.
If you are a Holder of a Claim entitled to vote on the Plan and did
not receive a Ballot, received a damaged Ballot or lost your Ballot, or if you
have any questions concerning the Disclosure Statement, the Plan or the
procedures for voting on the Plan, please call Daniel P. Ginsberg, White & Case
LLP, 1155 Avenue of the Americas, New York, NY 10039: (212) 819-8200 or Scott D.
Cousins, The Bayard Firm, 919 Market Street, P.O. Box 25130, Wilmington, DE
19899: (302) 655-5000.
E. CONFIRMATION HEARING
Pursuant to Section 1128 of the Bankruptcy Code, a hearing to consider
confirmation of a plan is required. The Confirmation Hearing will be held on
__________, 2000 at _______, Wilmington, Delaware Time, before the Honorable
Peter J. Walsh, United States Bankruptcy Judge, at the United States Bankruptcy
Court, 824 Market Street, 6th Floor, Wilmington, Delaware 19801. The Bankruptcy
Court has directed that objections, if any, to confirmation of the Plan be
served and Filed so that they are received on or before _______, 2000 at 4:00
p.m., Wilmington, Delaware Time, in the manner described below in Section VII.A.
- - "Confirmation and Consummation Procedure -- The Confirmation Hearing." The
Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court
without further notice except for the announcement of the adjournment date made
at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing.
FOR THE CONVENIENCE OF HOLDERS OF CLAIMS AND INTERESTS, THIS
DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN, BUT THE PLAN ITSELF
QUALIFIES ALL SUMMARIES. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN AND THE
DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING. CERTAIN OF THE
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, BY NATURE, ARE
FORWARD-LOOKING AND CONTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE
THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ALL OUTCOMES. ALL HOLDERS OF CLAIMS
AND INTERESTS SHOULD CAREFULLY READ AND CONSIDER FULLY SECTION VII OF THIS
DISCLOSURE STATEMENT, "CERTAIN RISK FACTORS," BEFORE VOTING TO ACCEPT OR REJECT
THE PLAN.
SUMMARIES OF CERTAIN PROVISIONS OR AGREEMENTS REFERRED TO IN THIS
DISCLOSURE STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO, AND ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT OF THE APPLICABLE
AGREEMENT, INCLUDING THE DEFINITIONS OF TERMS CONTAINED IN SUCH AGREEMENT.
II. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
UNDER THE PLAN AND THE AGREEMENTS
A. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS UNDER
THE PLAN
The following table provides a brief overview of the classification
and treatment of Claims and Interests under the Plan. This overview is qualified
in its entirety by reference to the provisions of the Plan, a copy of which is
annexed hereto as Exhibit A, and the more detailed information contained
elsewhere in this document and in the Exhibits hereto. See Section V - "The Plan
of Reorganization."
<PAGE>
<TABLE>
<CAPTION>
CLASS ESTIMATED REMAINING PLAN TREATMENT RECOVERY AS A %
CLAIM AMOUNT OF CLAIM
($ IN THOUSANDS)
<S> <C> <C> <C>
Administrative Unimpaired. Unless the Holder of an 100%, unless
Expense Claims Allowed Administrative Expense Claim has otherwise
agreed to less than full recovery pursuant agreed
to the Administrative Expense Treatment
Agreement or a similar agreement with the
Debtors, each entity holding an Allowed
Administrative Expense Claim shall
receive, in full satisfaction, the amount
of such Allowed Claim (less any
distribution made on or before the
Effective Date), in Cash, from Estate
Cash, on the latest of (i) the Initial
Distribution Date, (ii) the next
Distribution Date after the date on which
such Administrative Expense Claim becomes
Allowed and (iii) such other date as the
Liquidating Officer and the Holder agree.
Holders of Administrative Expense Claims
who have accepted treatment pursuant to
the Administrative Expense Treatment
Agreement, including but not limited to
Professionals, or who have entered into a
similar agreement will receive the
treatment set forth therein in full
satisfaction of their Allowed Claims.
Classes 1A-1C Unimpaired. At the sole discretion of 100%
Miscellaneous Debtors and the Committee, the Holder of
Secured Claims an Allowed Miscellaneous Secured Claim
will receive, in full satisfaction, on
the Initial Distribution Date, or as
soon thereafter as possible, (i) the
property securing the Claim, (ii) a cash
payment, from Estate Cash, equal to the
Allowed Amount of the Secured Claim, or
(iii) such other treatment which will
leave the Claim unimpaired as to which
the Debtors, the Committee and the
Holder agree.
Class 2-A Unimpaired. Each Holder of an Allowed 100%
Classified Classified Priority Claim, including but
Priority Claims not limited to, Claims for taxes entitled
to priority pursuant to Section
507(a)(8) of the Bankruptcy Code, shall
receive in full satisfaction thereof
payment of 100% of the amount of such
Allowed Classified Priority Claim (less
any distribution made on or before the
Effective Date), in Cash, from Estate
Cash, on (i) the Initial Distribution
Date or (ii) the next Distribution Date
following the date on which such Claim
or a portion thereof becomes an Allowed
Claim.
Class 3-A Impaired. Each Holder of an Allowed Class
General 3-A General Unsecured Claim shall receive,
Unsecured Claims in full satisfaction, its Pro Rata share
Against STEL of the STEL General Unsecured Claim
Distribution Amount on (i) the Initial
Distribution Date or the next
Distribution Date following the date on
which such Claim or a portion thereof
becomes an Allowed Claim and (ii)
subsequent Distribution Dates.
Distributions to Holders of 10%
Convertible Notes, who are members of
this Class, are subject to the lien
rights of the Indenture Trustee.
Class 3-B Impaired. Each Holder of an Allowed Class
General 3-B General Unsecured Claim shall receive,
Unsecured Claims in full satisfaction, its Pro Rata share
Against Addtel of the Addtel General Unsecured Claim
Distribution Amount on (i) the Initial
Distribution Date or the next
Distribution Date following the date on
which such Claim or a portion thereof
becomes an Allowed Claim and (ii)
subsequent Distribution Dates.
Class 3-C Impaired. Each Holder of an Allowed Class
General 3-C General Unsecured Claim shall receive,
Unsecured Claims in full satisfaction, its Pro Rata share
Against of the Consolidated USC General Unsecured
Consolidated USC Claim Distribution Amount on (i) the
Initial Distribution Date or the next
Distribution Date following the date on
which such Claim or a portion thereof
becomes an Allowed Claim and (ii)
subsequent Distribution Dates.
Class 4-A Impaired. The Holders of Intercompany 0%
Intercompany Claims will not receive a distribution or
Claims retain any property under the Plan, and
the Intercompany Claims will be canceled
on the Effective Date.
Class 5-A Impaired. The Holders of Preferred Stock 0%
STEL Preferred Interests in STEL will not receive a
Stock Interests distribution or retain any property under
the Plan, and the STEL Preferred Stock
Interests will be canceled on the
Effective Date.
Class 6-A STEL Impaired. The Holders of Common Stock 0%
Common Stock Interests in STEL will not receive a
Interests distribution or retain any property under
the Plan and the STEL Common Stock
Interests will be canceled on the
Effective Date.
Class 7-A Impaired. The Holder of any Subsidiary 0%
Subsidiary Common Stock Interest in any Debtor will
Common Stock not receive a distribution nor retain any
Interests property under the Plan and all Subsidiary
Common Stock Interests will be canceled
on the Effective Date.
</TABLE>
B. SUMMARY OF THE EFFECT OF THE INTER-DEBTOR SETTLEMENT AGREEMENT AND THE
ADMINISTRATIVE EXPENSE TREATMENT AGREEMENT
The distribution scheme set forth above is based in large measure on
two agreements between the Debtors, the Committee, Creditor Representatives and
significant Administrative Expense Claimants, each as approved by the Bankruptcy
Court. These agreements, the Inter-Debtor Settlement Agreement and the
Administrative Expense Treatment Agreement, are fully described at Section
IV.D.1. - "The Inter-Debtor Settlement Agreement" and Section IV.D.3 - "The
Administrative Expense Treatment Agreement", respectively.
The following discussion is a summary of how, under the terms of these
Agreements, assets of the Estates will be used for creditor distributions. This
discussion is presented in terms of certain key concepts which are addressed in
the order in which they would be encountered in implementing the distribution
scheme.
1. ESTATE CASH
The Debtors sold substantially all of their assets to the EqualNet
Parties in a transaction which closed on July 22, 1998. Funds from this Sale,
including the proceeds from liquidation of the EqualNet Stock received as part
of the consideration for the Sale or received in connection with post-closing
adjustments, along with funds from operations and the sale of miscellaneous
assets, will provide the primary source of recoveries to creditors. These funds
are collectively referred to as "Estate Cash".
Estate Cash will be used to satisfy in full Miscellaneous Secured
Claims, Classified Priority Claims and Administrative Expense Claims which are
not subject to a claim-reduction agreement such as the Administrative Expense
Treatment Agreement. On or before the date the Plan becomes effective, Estate
Cash will also be used to pay Holders of Allowed Claims who are parties to the
Administrative Expense Treatment Agreement and similar claims reduction
agreements 50% of their outstanding Allowed Claims and to make payments of 50%
of their Allowed fee and expense Claims to Professionals, including the
Settlement Professionals.
After these distributions are made, Estate Cash will be used solely to
satisfy the expense claims of Professionals. After these expenses are paid in
full, the Estate Cash will be used solely to bring the distributions to
Professionals up to 80% of the amount of their Allowed fee and expense claims.
If an Administrative Expense Claimant enters into the Administrative
Expense Treatment Agreement or a similar agreement, and receives the minimum
payment agreed - to thereunder, such payment shall be in full satisfaction of
such Holder's Claim and the Holder may not pursue any means against the Debtors
or any other entity to recover the outstanding balance of such Claim.
2. SHARING OF ESTATE CASH AND CASH PROCEEDS
Once the Professionals have received an 80% recovery, the Estate Cash
will be shared between Holders of Allowed Administrative Expense Claims who have
not yet received full payment, the Professionals and Holders of Allowed General
Unsecured Claims of STEL, Addtel and Consolidated USC. The Administrative
Expense Claimants and Professionals who are parties to the Administrative
Expense Treatment Agreement or the Professional Fee Reduction have agreed to
share the then remaining Estate Cash, if any, to provide some recovery on
Allowed General Unsecured Claims before Allowed Administrative Expense Claims
are satisfied in full. The $1,500,000 component of Estate Cash dedicated to
General Unsecured Claims is called the "Cash Proceeds". The distribution of
Estate Cash will be made so that Holders of Allowed Administrative Expense
Claims advance to 100% recovery at the same rate that Professionals advance to
92.5% recovery and Holders of Allowed General Unsecured Claims advance to
receive the $1,500,000 Cash Proceeds, with these Cash Proceeds distributed to
Allowed Claims in Class 3-A, 3-B and 3-C in the percentages agreed to in the
Inter-Debtor Settlement Agreement, that is: Class 3-A (STEL) 42%, Class 3-B
(Addtel) 42%, and Class 3-C (Consolidated USC) 16%.
Estate Cash remaining after (i) Allowed Administrative Expense Claims
are all satisfied in full, (ii) Professionals have received a 92.5% recovery and
(iii) $1,500,000 has been distributed on Allowed General Unsecured Creditors
will all be used as Cash Proceeds to make further distributions on account of
Allowed General Unsecured Claims.
There are two other potential sources of distributions: "Litigation
Proceeds", which will primarily but not exclusively benefit Holders of Allowed
General Unsecured Claims, and "Preference Proceeds".
3. PREFERENCE PROCEEDS
Preference Proceeds are defined as recoveries from any litigation
commenced pursuant to Section 547 of the Bankruptcy Code, net of the expenses of
bringing such litigation and excluding the first $50,000 in recoveries from such
litigation. The first $50,000 in recoveries is referred to as the "USC
Preference Amount" because the parties to the Inter-Debtor Settlement Agreement
agreed that this amount (net of the fees and expenses of Litigation Counsel and
any amounts required for re-funding the Expense Reserve) would be paid to the
Consolidated USC Estate to form part of the consideration for Holders of Allowed
Class 3-C Claims. Preference Proceeds will be divided between Class 3-A, 3-B and
3-C in the percentages agreed to in the Inter-Debtor Settlement Agreement, that
is, Class 3-A (STEL) 42%; Class 3-B (Addtel) 42%, and Class 3-C (Consolidated
USC) 16%. No Preference Proceeds will be used for anything other than
satisfaction of Allowed General Unsecured Claims.
4. LITIGATION PROCEEDS
Litigation Proceeds are recoveries (net of expenses) from litigation
based on any Cause of Action other than a Preference Cause of Action brought by
the Debtors or Litigation Counsel. Litigation Counsel was chosen by the Debtors
and the Committee and was authorized by the Bankruptcy Court to investigate
potential Causes of Action belonging to the Estates and to pursue this
litigation. Litigation Counsel is not obligated to commence any litigation and
there is no guarantee that any litigation commenced will produce any recoveries
or recoveries sufficient to augment creditor distributions.
Litigation Counsel's investigations and litigation will be funded by a
$100,000 advance from the Debtors' Estates, which amount will be refunded to the
Estates from the first litigation recoveries. However, if the Professionals have
recovered 92.5% of their Allowed fee and expense Claims, the $100,000 need not
be refunded to the Estates, but rather the Professionals will waive collection
of the remaining 7.5% to fund the $100,000 out of their Allowed Claims, and the
litigation advance will be forgiven.
Litigation Counsel's efforts may receive additional funding out of
litigation recoveries.
Under the Inter-Debtor Settlement Agreement, to the extent that there
is sufficient Estate Cash to pay Administrative Expense Claims in full and
Professionals recover 92.5% on their fees and expenses, Litigation Proceeds,
that is, net litigation recoveries, will be distributed on account of Allowed
General Unsecured Claims only and allocated according to the Inter-Debtor
Settlement Agreement: that is, Class 3-A (STEL) 85%; Class 3-B (Addtel) 5%, and
Class 3-C (Consolidated USC) 10%. However, the change in circumstances since
this Agreement was negotiated and approved by the Bankruptcy Court may result in
a somewhat modified allocation of Litigation Proceeds.
5. POSSIBLE SHARING OF LITIGATION PROCEEDS
At the time the Inter-Debtor Settlement Agreement was negotiated and
approved by the Court, the Debtors, the Committee and the Creditor
Representatives and the parties' respective Professionals anticipated that
Estate Cash would prove sufficient to satisfy Allowed Administrative Expense
Claims including Professionals Claims, obviating the need for Holders of Allowed
General Unsecured Claims to share Preference Proceeds or Litigation Proceeds
with Holders of Allowed Claims in other Classes. However, the amount of Estate
Cash anticipated to be received from sale of EqualNet Stock has declined sharply
from previous estimates due to the current low market value of this Stock; it
is, therefore, no longer certain that Allowed Administrative Expense Claims,
including Claims of Professionals, can be fully satisfied from Estate Cash. For
this reason, the Administrative Expense Treatment Agreement modifies the
Inter-Debtor Settlement Agreement by providing for a limited sharing of
Litigation Proceeds.
As described above, after Allowed Miscellaneous Secured Claims,
Allowed Classified Priority Claims and Allowed Administrative Expense Claims not
subject to a claim reduction agreement have been paid in full, Holders of
Allowed Administrative Expense Claims who have agreed to a reduced distribution
will receive 50% of their outstanding Allowed Claims and Professionals,
including Settlement Professionals, will receive at least 50% of their then
Allowed Claims for fees and expenses. Ordinarily, Professionals would then
receive all of the Estate Cash until they had achieved an 80% recovery and,
thereafter, the basic sharing scheme described above would commence. However, in
light of the potential shortfall in Estate Cash, the Administrative Expense
Treatment Agreement modifies the Inter-Debtor Settlement Agreement to provide
that Litigation Proceeds may be shared between Allowed Claims of Professionals
and General Unsecured Creditors on a dollar-for-dollar basis, but only until
such time as the Professionals have achieved an 80% recovery. Thereafter, and in
all other respects, the treatment of Litigation Proceeds will be as originally
set forth in the Administrative Expense Treatment Agreement.
If there is a subsequent increase in Estate Cash, such funds will be
distributed pursuant to the basic scheme set forth in the Administrative Expense
Treatment Agreement. However, any payments made to Professionals from Litigation
Proceeds will be refunded to General Unsecured Creditors by paying over an
amount equal to that advanced to Professionals for distribution on Allowed
General Unsecured Claims as Litigation Proceeds.
There is another way in which Litigation proceeds may be paid over on
claims other than General Unsecured Claims. If the Holders of Administrative
Expense Claims have not received a 100% distribution on their Allowed Claims,
the Litigation Proceeds which would have gone to each of Class 3-A (STEL), Class
3-B (Addtel) and Class 3-C (Consolidated USC) will be applied to satisfy the
amounts outstanding on the Administrative Expense Claims of the corresponding
Estate. That is, after taking into account the dollar for dollar sharing with
Professionals described above, if any, 85% of the Litigation Proceeds allocated
to STEL may be used to satisfy Administrative Expense Claims arising in STEL's
case, 5% of the Litigation Proceeds may be used to satisfy Administrative
Expense arising with Addtel's Case, and 10% of the Litigation Proceeds may be
used to satisfy Administrative Expenses until such time as the Allowed
Administrative Expense Claims arising with each Estate have been fully
satisfied. Thereafter, the Litigation proceeds will be used to satisfied Allowed
General Unsecured Claims in the agreed - upon allocation.
C. NO GUARANTEE OF RECOVERIES
Although the Debtors and other parties-in-interest have endeavored to
develop a plan of reorganization which will provide a distribution to General
Unsecured Creditors, there can be no guarantee that the Debtors will realize
sufficient Estate Cash or the Litigation Counsel will obtain Litigation Proceeds
or Preference Proceeds to provide recovery to General Unsecured Creditors. The
amount of Estate Cash is directly related to the market value of the EqualNet
Stock which must be liquidated to fund this Plan. There can be no assurance that
the Debtors will obtain a sufficient amount from liquidation of the Shares to
make the contemplated distribution. Litigation Proceeds and Preference Proceeds
will result from litigation, but litigation outcomes can never be predicted with
certainty.
As a result of these significant variables, the Debtors cannot
guarantee that the distributions contemplated by the Plan will be accomplished.
III. GENERAL INFORMATION
A. OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Chapter 11 may also be used, as in these cases, as a means to
accomplish an orderly liquidation and distribution of assets under a plan by a
debtor that is liquidating.
The commencement of a Chapter 11 case creates an estate that is
comprised of all of the legal and equitable interests of the debtor as of the
filing date. The Bankruptcy Code provides that the debtor may continue to
operate its business and remain in possession of its property as a
"debtor-in-possession."
The consummation of a Chapter 11 plan is the principal objective of a
Chapter 11 case. A plan of reorganization sets forth the means for satisfying
claims against and equity interests in a debtor. In general, a Chapter 11 plan
of reorganization (i) divides claims and equity interests into discrete classes,
(ii) specifies the property that each class is to receive under the plan, and
(iii) contains other provisions necessary to the reorganization or orderly
liquidation of the debtor. Chapter 11 does not require each holder of a claim or
interest to vote in favor of the plan of reorganization in order for the
bankruptcy court to confirm the plan. However, a plan of reorganization must be
accepted by the holders of at least one class of claims that is Impaired without
considering the votes of "insiders" within the meaning of the Bankruptcy Code.
Confirmation of a Chapter 11 plan by the bankruptcy court makes the
plan binding upon a debtor, any issuer of securities under the plan, any person
acquiring property under the plan and any creditor or equity interest holder of
a debtor. Subject to certain limited exceptions, the confirmation order
discharges a debtor from any debt that arose prior to the date of confirmation
of the plan and substitutes therefor the obligations specified under the
confirmed plan.
After a plan of reorganization has been filed, the holders of claims
against or interests in a debtor are permitted to vote to accept or reject the
plan. Before soliciting acceptances of the proposed plan, however, section 1125
of the Bankruptcy Code requires a 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.
The Debtors are submitting this Disclosure Statement to holders of Claims
against the Debtors to satisfy the requirements of Section 1125 of the
Bankruptcy Code.
B. DESCRIPTION AND HISTORY OF BUSINESS
STEL, a publicly held Delaware corporation, entered the
telecommunications business in 1991 through the acquisition of NATC, a
telecommunications provider offering international long distance
telecommunications services to foreign customers. In 1994 and 1995, the Debtors
acquired two Texas-based switchless resellers, LDN, of Dallas, Texas, and USC,
of Levelland, Texas. During 1996, the Debtors purchased substantially all of the
assets of First Choice Long Distance, Inc. ("FCLD"), a switched reseller of long
distance telephone services located in Amarillo, Texas. Additionally, in 1996
the Debtors acquired Economy Communications, Inc., a switchless reseller located
in McKinney, Texas, and Uniquest, a corporation engaged in third party customer
verification services and outbound telemarketing. Effective November 1, 1996,
the Debtors purchased all of the issued and outstanding capital stock of Addtel,
a switchless reseller of long distance services based in Glendale, California.
During late 1995 and early 1996, the Debtors purchased and installed
switches in Dallas, Texas and Phoenix, Arizona and added leased transmission
facilities between these switches and the operator switch acquired in the USC
acquisition. The Debtors further expanded their network through the acquisition
of switching equipment in Amarillo, Texas and Lubbock, Texas in connection with
the FCLD acquisition. During the second quarter of 1997, the Debtors moved the
Amarillo switch to Los Angeles, California. The Debtors planned to make this
switch operational and further expand its network during the third quarter of
1997, however, as a result of the Debtors' financial difficulties, these plans
were not implemented.
At the time the Chapter 11 cases were commenced, STEL, a holding
company, through its direct and indirect wholly-owned operating subsidiaries,
Addtel, USC, LDN, NATC, SWLDN and Uniquest, operated as a full service regional
interexchange carrier providing a wide range of telecommunications services,
including "1+" domestic long distance services, international long distance
services, wholesale long distance services, and operator and wireless services,
voice and data private lines, "800/888" services, Internet access and travel
cards. The Debtors primarily served small and medium-sized commercial accounts
and residential accounts in the west, southwest and south central United States.
A vast majority of the Debtors' commercial and residential customers were
located in suburban, secondary and rural markets. The Debtors' network of
switching and transmission facilities consisting of equipment, switches,
software and line capacity, operated in the same general area. These facilities
were a combination of owned assets and leased contractual arrangements (capital
and operating) with third parties.
Traditionally, the Debtors marketed their services, primarily under
the "USC," "USI," "First Choice Long Distance," "Southwest Long Distance
Network," and "Addtel" trade names, through four sales channels: direct sales,
agent sales, telemarketing and mass marketing. In mid-1997, the Debtors
terminated their telemarketing and mass marketing sales efforts and, throughout
1997, reduced the number of individuals involved in direct sales. As a result of
these changes in marketing methods, during 1997 the Debtors closed all of the
locations from which they conducted direct marketing and terminated the leases
for those premises.
As discussed in more detail in this Disclosure Statement at Section
IV.C. - "Significant Events During the Chapter 11 Cases -- Sale of Assets," the
Debtors sold substantially all their assets during the pendency of the Chapter
11 Cases. As of the date of this Disclosure Statement, the Debtors' assets
consist primarily of cash proceeds from such sale, cash from operations and the
liquidation of their remaining assets, and shares of stock of the purchaser
received as consideration for the sale of assets. As discussed in detail herein
at Section IV - "Liquidation of the EqualNet Stock", it is currently anticipated
that most if not all of such shares will be monetized before the Initial
Distribution Date.
C. EVENTS LEADING UP TO THE CHAPTER 11 CASES
1. COMPETITION AND ACQUISITIONS
Over the past few years, competition in the telecommunications
industry has increased dramatically, often forcing smaller companies to seek
strategic mergers and acquisitions. The Debtors undertook acquisitions with a
view toward expanding their customer base while achieving a certain economy of
scale. However, the Debtors encountered significant problems in implementing the
consolidation of operations which were a necessary predicate to achieving this
goal. The delay in achieving this economy of scale resulted in increased cash
losses. As a result, in July 1997, the Debtors began the implementation of a
restructuring plan to more closely align the Debtors' expense levels with
revenues. The restructuring plan involved all areas of the Debtors' business and
included a reduction in work force and reconfiguration of the Debtors' network
coupled with the closing of substantially all of the Debtors' outlying sales
offices in leased office locations.
2. PREPETITION INDEBTEDNESS
The Debtors were unable, since inception, to generate earnings
adequate to cover their fixed charges. In order to meet their cash needs, the
Debtors issued long term debt and also entered into a line of credit
arrangement. On August 12, 1996, the Debtors completed a private placement of
$27,200,000 of 10% Convertible Notes and on March 25, 1997, the Debtors
completed a private placement of a $3,800,000 10% Convertible Debenture (the
"March Debenture") for a net of $3,230,000. Semi-annual interest payments were
due on the Notes and the March Debenture on February 15 and August 15, 1997.
However, in early August 1997, it became clear that the Debtors had insufficient
cash to make the required interest payment. On August 13, 1997, the Debtors
completed a private placement of a $5,000,000 10% Convertible Debenture (the
"August Debenture") for a net of $3,500,000. The terms of both Debentures are
substantially identical to the Notes. As of the Petition Date, the Debtors' long
term debt attributable to the 10% Convertible Notes and the Debentures was
$34,014,149, with $27,917,777.78 attributable to the Notes, $3,269,242
attributable to the March Debenture and $3,544,907 attributable to the August
Debenture.
In addition, by agreement dated December 26, 1996, as amended on
February 12, 1997, the Debtors completed a line of credit arrangement with
Greyrock Business Credit (the "Greyrock Prepetition Facility"). The Greyrock
Prepetition Facility had a maximum availability of $10,000,000, with borrowings
based on 80% of eligible accounts receivable and inventory, with certain
exclusions, of the two operating subsidiaries, Addtel and USC, and were utilized
by the two entities to meet current operating needs. The borrowings bore
interest at a floating rate of 2.5% above the reference rate of Bank of America
NT & SA, with a minimum interest rate of 9% per annum and a minimum interest
amount of $10,000 per month. The borrowings were secured by all the assets of
the Debtors and the stock of STEL's subsidiaries and were subject to guarantees
by each of the Debtors. The Greyrock Prepetition Facility had a maturity date of
December 31, 1997. However, as discussed herein at Section IV.B.6. "Greyrock DIP
Facility," the Debtors and Greyrock entered into a debtor-in-possession
financing arrangement after the Petition Date (the "Greyrock DIP Facility" and,
collectively with the Greyrock Prepetition Facility, the "Greyrock Facility").
Outstanding borrowings under the Greyrock Prepetition Facility at November 19,
1997 were $3,274,350.54.
As a result of cash losses from continuing operations, significant
arrearages with respect to the Debtors' obligations to various of its service
providers and vendors existed throughout 1997. As of August 15, 1997, the
Company had past due invoices from WorldCom, MCI Communications, Inc. and other
long line and local exchange carriers (collectively, the "Service Providers")
aggregating approximately $4,900,000. As is standard in such contracts, the
Service Providers had the right to terminate services to the Debtors for
nonpayment upon the expiration of limited periods of time after written notice
of termination. In October and November 1997, several of the Debtors' key
Service Providers threatened to terminate various contracts which were crucial
to the Debtors' operations. The Debtors were able, however, to make interim
payment arrangements and temporarily forestalled the need for bankruptcy
protection. However, since any interruption in the services provided to the
Debtors by key Service Providers would have had an immediate and profound
negative effect on the Debtors' ability to continue their operations, the
Debtors ultimately had no choice but to seek the protections of Chapter 11.
IV. THE CHAPTER 11 CASES
A. CONTINUATION OF BUSINESS; STAY OF LITIGATION
As a result of all of the foregoing, on November 19, 1997, the Debtors
commenced their Chapter 11 Cases. Pursuant to an order entered on November 20,
1997, the Chapter 11 Cases have been procedurally consolidated for
administrative purposes only. Since the Petition Date, the Debtors have
continued to operate as debtors in possession subject to the supervision of the
Bankruptcy Court in accordance with Sections 1107(a) and 1108 of the Bankruptcy
Code. The Debtors are authorized to operate in the ordinary course of business,
however, transactions outside the ordinary course of business have required
Bankruptcy Court approval.
An immediate effect of the filing of the bankruptcy petitions was the
imposition of the automatic stay under the Bankruptcy Code which, with limited
exceptions, enjoined the commencement or continuation of all collection efforts
by creditors, enforcement of liens against the Debtors and litigation against
the Debtors. This injunction remains in effect.
B. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
1. FIRST DAY MOTIONS
On the Petition Date, the Debtors filed numerous "first day motions"
which were granted after a hearing in the Bankruptcy Court. The first day orders
included (i) orders authorizing the retention of White & Case LLP as counsel to
the Debtors and The Bayard Firm as local counsel to the Debtors, (ii) an order
authorizing the retention of Jay Alix & Associates as special financial advisor
and bankruptcy consultant to the Debtors and the appointment of a principal of
that firm to serve as interim chief executive officer of the Debtors, (iii)
orders authorizing the Debtors to honor obligations to employees and agents,
(iv) orders relating to bank accounts, business forms and the cash management
system, (v) an order authorizing payment of certain pre-petition taxes, and (vi)
an order granting authority to use cash collateral on an interim basis and
fixing a hearing to consider final authorization. In addition, the Bankruptcy
Court approved various other orders dealing with the administration of the
cases.
2. APPOINTMENT OF OFFICIAL COMMITTEE
On December 4, 1997, the United States Trustee for the District of
Delaware appointed the Official Committee of Unsecured Creditors of the Debtors,
which consists of: (i) United States Trust Company of New York, 114 West 47th
Street, New York, New York 10036-1532, Attn: Gerard F. Ganey; (ii) Northstar
Investment Management Corporation, 300 First Stamford Place, Stamford, CT 06902,
(iii) The Laterman Companies, 5 East 59th Street, New York, New York 10033,
Attn: Bernard Laterman; (iv) NTS Communications, 1220 Broadway, Suite 600,
Lubbock, Texas 79401, Attn: Brad Worthington; and (v) Aviram Lonstein, 15045
Dickens Street #203, Sherman Oaks, California 91403. MCI Communications, Inc.
and WorldCom were appointed by the United States Trustee to serve as original
members of the Committee, but each resigned its position as a Committee member
during the pendency of the Cases.
Since its formation, the Committee has consulted with the Debtors
concerning the administration of the Chapter 11 Cases. The Debtors have kept the
Committee informed about their operations and have sought the concurrence of the
Committee for actions and transactions taken outside of the ordinary course of
the Debtors' business. The Committee participated actively in the sale of
substantially all the Debtors' assets, the development of the Administrative
Expense Treatment Agreement and the formulation of the Plan. The Committee
played a less active role in the process which led to the development of the
Inter-Debtor Settlement Agreement, a process which was led by the Creditor
Representatives.
3. EMPLOYEE RETENTION
The uncertainty created by the Debtors' prepetition financial
difficulties, the Chapter 11 filings and the attempt to negotiate a sale of the
business, caused many experienced employees to become concerned about their
futures with the Debtors, and to become targets of recruiting agencies and
competitors.
The Debtors concluded that they needed to introduce incentive programs
to entice employees to remain with the company and to avoid departures of
employees crucial to the Debtors' continuing operations and smooth transition to
a purchaser of their assets. The Debtors, therefore, received Bankruptcy Court
approval to implement various employee retention and reward programs, which were
structured to stem defections and to provide employees with incentives to
achieve a prompt sale of the business. In connection with these efforts, the
Debtors instituted (i) a Key Employee Retention Bonus Plan, with bonuses payable
to certain employees who filled critical executive, managerial and technical
positions at Addtel, Uniquest and USC and who remained employed thirty (30) days
after the closing of a sale of the Debtors and (ii) a Severance Payment Plan
covering all other employees of the Debtors.
After the sale of assets was approved, the business operations were
gradually transferred to the purchaser. Most of the Debtors' personnel who had
not previously left their positions, did so after the Closing on the asset sale.
However, the Debtors recognized that they needed two employees to oversee the
wind-down of the Debtors' business and the completion of the Chapter 11 Cases.
To induce these individuals to remain, the Debtors proposed a separate bonus
program, which provided for bonuses in a multiple of these employees' monthly
salary in addition to the bonus or severance payments described above. This
wind-down bonus plan was approved by the Bankruptcy Court on May 7, 1998.
4. SCHEDULE OF LIABILITIES AND STATEMENT OF ASSETS
As required under bankruptcy law, the Debtors filed, on January 30,
1998, a Schedule of Assets and Liabilities and Statement of Financial Affairs
which report information as of the Petition Date. The Debtors sought
authorization to file consolidated information for all Debtors, rather than the
customary separate reports for each debtor entity. The Debtors sought such
relief based on management's assertion that the Debtors' books and records had
not been maintained in a manner which would allow for individual Debtor reports
in a timely or cost effective fashion. The Bankruptcy Court authorized such
relief by order dated January 13, 1998.
The Debtors listed assets of $44,6265,937 comprised of real and
personal property. The Debtors listed $9,157,535 in secured claims, $761 in
unsecured priority claims and $44,595,307 in unsecured nonpriority claims. These
prebankruptcy liabilities totaled $53,753,603.
The Bankruptcy Court set June 1, 1998 as the last day by which each
creditor was required to file a proof of its claim including a claim amount and
designation of which Debtor the claim was asserted against. The general
unsecured claims filed against each of the Debtors are as follows: (a) STEL -
$64,993,087.54; (b) USC - $12,588,774.70; (c) Addtel - $9,886,882.50; (d) NATC -
$432,268.20; (e) LDN - $1,608,009.05; (f) SWLDN - $1,322,956.66; and (g)
Uniquest - $421,863.88. However, the filed claims include many duplicates and
claims which the Debtors believe will ultimately be reduced or expunged. Based
on a preliminary review of Filed Proofs of Claim, the Debtors estimate that in
the aggregate general unsecured claims against all of the Debtors may ultimately
total approximately $_________________, however, one must bear in mind that the
Debtors' Estates will not be substantively consolidated.
5. CASH COLLATERAL ORDER
On November 21, 1997 and on December 17, 1997, the Bankruptcy Court
approved interim and supplemental interim orders, respectively, authorizing,
among other things, the Debtors' use of cash collateral. On December 23, 1997,
the Bankruptcy Court approved a final order authorizing the use of cash
collateral. Pursuant to such orders, the Debtors obtained authority to use cash
collateral (as defined in the Bankruptcy Code) that secured its obligations to
Greyrock in order to permit the Debtors to continue to make ordinary course and
other approved payments.
6. GREYROCK DIP FACILITY
On November 21, 1997 and on December 17, 1997, the Bankruptcy Court
gave interim and supplemental interim approval, respectively, for the Greyrock
DIP Facility, pursuant to which Greyrock agreed to provide the Debtors with
debtor-in-possession financing in an amount not to exceed the lesser of: (i) $10
million or (ii) the sum of (x) 80% of the amount of the Debtors' defined
eligible receivables plus (y) $1,276,031, in the form of a revolving credit
facility. Amounts advanced pursuant to the Greyrock DIP Facility are entitled to
superpriority administrative status, are secured to the extent provided in the
stipulation setting forth the terms of the Greyrock DIP Facility by a lien on
all assets of the Debtors' Estates, and were to be used by the Debtors for their
working capital and other general corporate purposes. The Greyrock DIP Facility
had an original maturation date of April 30, 1998, which was later extended
through the Closing Date. Pursuant to the Bankruptcy Court's approval of the
Greyrock DIP Facility, Greyrock has priority over all other Claims in the
Chapter 11 Cases, including Administrative Expenses, other than (a) professional
fees and expenses incurred, in an aggregate amount not to exceed $200,000
(exclusive of retainers paid prior to the Petition Date), and (b) unpaid U.S.
Trustee Fees and Bankruptcy Court fees.
The satisfaction of the outstanding amounts under the Greyrock
Facility was a component of the consideration for the Sale of the Debtors'
assets. The consideration and, in particular, the treatment of the Greyrock DIP
Facility are described herein at Section IV.C.3. - "The Terms of Sale."
Contemporaneous with the Closing of the Sale, the treatment of the Greyrock DIP
Facility was modified by USC Telecom, Inc., a wholly owned subsidiary of
EqualNet Corp. and the successor to EqualNet Corp. as the purchaser under the
governing documents. This modification and the Closing of the Sale are described
herein at Section IV.C.6. - "The Closing."
7. DEALINGS WITH SERVICE PROVIDERS
As noted above, as of the Petition Date, the Debtors had significant
arrearages to their various Service Providers. Shortly after the Petition Date,
certain of these Service Providers filed motions with the Bankruptcy Court each
seeking (i) authorization to terminate its contract with the relevant Debtor and
immediately cease providing telecommunication services, (ii) immediate payment
for all services provided from the Petition Date, and/or (iii) a security
deposit and advance payments for any additional services provided. In part,
these motions argued that the Service Providers were utilities under Section 366
of the Bankruptcy Code and entitled to treatment under the specific provisions
of that section. The first Service Provider to file such a motion was WorldCom
(the "WorldCom Motion"). Although other Service Providers subsequently filed
parallel motions, WorldCom took the lead in litigating these issues.
Subsequently an adversary proceeding was commenced by the filing of a complaint
against WorldCom by the Debtors alleging several causes of action arising from
the contractual relationship between them (the "WorldCom Adversary Proceeding").
A hearing was held before the Bankruptcy Court on March 6, 1998 on the WorldCom
Motion, particularly with respect to the Section 366 issue. The Bankruptcy Court
reserved decision on this issue.
The Debtors believed that any interruption in services to its
customers would have a catastrophic effect on its business and would seriously
undermine its ability to sell the business within the context of the bankruptcy
case and provide any recovery to creditors. The Debtors and the Service
Providers ultimately negotiated an interim payment arrangement pursuant to which
the Debtors were required to make advance weekly payments to the various Service
Providers based on an estimate of the services to be provided in the upcoming
week. If the Debtors failed to make any required weekly payment, after a brief
notice period, the effected Service Provider could terminate service to the
Debtors without further order of the Bankruptcy Court.
The initial interim payment agreement, which was embodied in an order
approved by the Bankruptcy Court, covered the period from December 10 to
December 23, 1997. Subsequent orders (with certain amendments) extended this
initial interim payment order for various terms. On March 27, 1998 the
Bankruptcy Court approval the Fifth Interim Payment Order which provided for
continuation of the negotiated interim payment agreements without the need to
obtain additional orders.
On or about the Closing Date of the Sale, USC Telecom notified the
Debtors that it would no longer need services provided under certain Service
Provider contracts and payments to such Service Providers under the interim
orders ceased. These contracts, along with certain leases, were subsequently
rejected by the Debtors, however, USC Telecom continued to require services
under other contracts subsequent to the Closing Date and such services continued
to be delivered pursuant to the terms of the Management Agreement, discussed
herein AT Section IV.C.5. - "The Transition to EqualNet."
C. SALE OF ASSETS
1. THE PROCESS
In light of the Debtors' operating cash needs on the Petition Date and
the uncertain prospects for obtaining financing, the Debtors were not optimistic
that they would be able to reorganize the business and emerge from Chapter 11.
Instead, the Debtors intended to locate a purchaser for the business and to sell
it within the context of the Chapter 11 Cases. On December 23, 1997, the Debtors
moved the Bankruptcy Court for an order approving procedures for the provision
of information, solicitation of bids and submission of offers in connection with
a sale of substantially all of the Debtors' assets. An order approving the
procedures to govern a proposed sale was entered by the Bankruptcy Court on
January 9, 1998.
Pursuant to this order, the Debtors distributed bid solicitation
packages and entered into negotiations with a number of interested parties in
order to solicit offers for the purchase of the Debtors and for the additional
financing needed to fund operations and the advance payments to the Debtors'
Service Providers prior to the closing of a transaction. On January 15, 1998,
the Debtors and EqualNet and EqualNet Corp. entered into a proposed purchase
agreement, pursuant to which the Debtors agreed to sell substantially all of
their assets.
Under bankruptcy law, however, the Debtors were required to conduct an
auction of their assets in order to obtain the "highest and best" offer for
them. Therefore, on March 4, 1998, the Debtors held an auction at which they
received three proposals for the purchase of substantially all assets. At the
conclusion of the auction, the Debtors and the Committee jointly determined in
the reasonable exercise of their business judgment that the revised offer from
EqualNet and EqualNet Corp. was the highest and best offer for the Debtors'
assets. The Debtors and EqualNet and EqualNet Corp. entered into the Purchase
Agreement to reflect the revised offer.
After a hearing on March 6, 1998, the Bankruptcy Court entered an
order approving the Sale on March 9, 1998.
2. THE BUYER
The original purchaser, EqualNet Corp., a Delaware corporation, was a
wholly-owned subsidiary of EqualNet, a Texas corporation. EqualNet is a
long-distance telephone company that provided telecommunications service to
customers nationwide. At the time the Sale was approved, EqualNet marketed its
services primarily to small business customers with monthly long-distance bills
of less than $1,000 and used independent marketing agents and an internal sales
force in selling its services. EqualNet generated its sales volume primarily
through its network of independent marketing agents and through the acquisition
of customer accounts of other resellers. In early 1998, EqualNet entered into
several related agreements with the Willis Group LLC, a Texas limited liability
company (the "Willis Group"), and MCM Partners, a Washington limited
partnership. These agreements provided for a recapitalization of EqualNet and
the acquisition by EqualNet of certain telecommunications network assets and
switches. Subsequent to the approval of the Sale, EqualNet changed its name from
EqualNet Holding Corp. to EqualNet Communications Corp. In addition, EqualNet
created a wholly-owned subsidiary, USC Telecom, which took assignment of the
interests of EqualNet Corp., the original purchaser under the Purchase
Agreement.
On September 10, 1998, EqualNet Corp. filed a petition for relief
under Chapter 11 of the Bankruptcy Code, which case is pending in the United
States Bankruptcy Court for the Southern District of Texas, Houston Division.
EqualNet Corp. has filed a plan of reorganization as to which a confirmation
hearing is scheduled for April 26, 1999. EqualNet has advised the Debtors that
it is currently anticipated that the EqualNet Corp. plan will become effective
in mid-May 1999.
Among its other elements, the EqualNet Corp. plan of reorganization
provides for the creation of a trust for the benefit of holders of unsecured
claims which EqualNet will fund with cash, 3,000,000 shares of EqualNet Common
Stock and a collateralized guaranty which in effect, insures a minimum price for
1,500,000 of these shares. EqualNet filed a registration statement
("Registration Statement") pertaining to [these shares, as well as] shares held
by several entities including the Debtors, with the Securities and Exchange
Commission on March 31, 1999.
3. THE TERMS OF THE SALE
Under the Purchase Agreement, the Debtors agreed to sell substantially
all of their assets in exchange for: (i) the payment and discharge by EqualNet
Corp. of all obligations of the Debtors on the Closing Date in respect of the
outstanding principal amount of, and all accrued and unpaid interest on, the
debtor-in-possession facility provided by EqualNet in an amount of up to
$1,500,000 (the "EqualNet Facility"); (ii) a cash payment in an amount equal to
the excess of $3,000,000 over the outstanding principal amount of, and all
accrued and unpaid interest on, the EqualNet Facility on the Closing Date; (iii)
a cash payment in the amount of $472,500; (iv) the assumption of up to
$1,000,000 of the Greyrock DIP Facility; (v) a cash payment equal to all amounts
paid to satisfy arrearages in assumed leases or executory contracts, if any; and
(vi) shares of EqualNet Preferred Stock equal to the quotient of (A) 40% of the
annualized Revenue Amount, as defined in and adjusted pursuant to the Purchase
Agreement, and (B) $27.50. Each share of EqualNet Preferred Stock was
convertible into ten shares of EqualNet Common Stock.
4. THE EQUALNET FACILITY
In order for the Debtors to be able to continue to pay their operating
costs pending consummation of the Sale, the EqualNet Parties provided the
Debtors with the EqualNet Facility. Without the EqualNet Facility, the Debtors
would have been unable to continue operating until the Closing Date. Amounts
advanced pursuant to the EqualNet Facility were entitled to superpriority
administrative expense status and were secured to the extent provided in the
stipulation setting forth the terms of the EqualNet Facility. The EqualNet
Facility was due to mature on May 31, 1998, subject to automatic renewals. The
EqualNet Facility was extended prior to May 31, 1998.
Pursuant to the Bankruptcy Court's approval of the EqualNet Facility,
the liens securing the EqualNet Facility were junior and subordinate to (a) the
liens securing the Greyrock Facility, and (b) any payments made by Greyrock to a
Service Provider or to any third party in order to continue operations during
foreclosure of Greyrock's interest in its collateral. On March 13, 1998, the
Bankruptcy Court entered an order approving the EqualNet Facility. As of the
Closing Date, $1,500,000 was outstanding under the EqualNet Facility. The
EqualNet Parties also made payments of approximately $1,014,000 on account of
certain expenses chargeable to them pursuant to the Management Agreement.
5. THE TRANSITION TO EQUALNET
At the time the Court approved the sale of assets to the EqualNet
Parties, the parties recognized that, for various technical and operating
reasons, the transition of the Debtors' customers to EqualNet Corp.'s network
would take up to several months to accomplish. Therefore, in order to facilitate
the transition of the customers and to limit the cost and expense borne by the
Debtors through the Closing Date, the Debtors and the EqualNet Parties entered
into the Management Agreement on March 12, 1998, pursuant to which (i) the
EqualNet Parties agreed to take operational control of the Debtors and assume
financial responsibility for the Debtors' expenses as of March 17, 1998 and (ii)
the Debtors agreed to provide telecommunications services to the EqualNet
Parties from the Closing Date until the transition of the Debtors' customers was
completed. On March 24, 1998, the Bankruptcy Court approved the Management
Agreement.
As contemplated under the Management Agreement, the EqualNet Parties
took operational control of the Debtors as of March 17, 1998.
When the sale of assets was approved it was anticipated that the
closing would occur by the end of May 1998, and the Management Agreement was to
remain effective for a concurrent period. However, as the closing date was
postponed, the term of the Management Agreement was extended. At the time the
Closing occurred, the EqualNet Parties recognized that the transition had not
yet been completed and a further extension of the Management Agreement was
required. The Management Agreement was extended to September 29, 1998, on which
date it expired.
6. THE CLOSING
The Closing occurred on July 22, 1998. After satisfaction of their
obligations to EqualNet under the EqualNet Facility, including the additional
advances made under the Management Agreement, the Debtors received $555,000 in
Cash and 195,073 shares of EqualNet Preferred Stock. An additional 5,358 shares
of Preferred Stock were withheld by EqualNet at the Closing due to a dispute
over the treatment of certain charges as revenue.
Under the Purchase Agreement, the EqualNet Parties were required to
satisfy the Greyrock DIP Facility. However, at the time of the Closing, the
EqualNet Parties did not have sufficient funds to fully satisfy the Debtors'
outstanding obligations to Greyrock. Instead, the EqualNet Parties arranged for
a partial payment to Greyrock and issued an interest-bearing term note to
Greyrock due February 28, 1999 for the balance (the "USC Telecom Note"). Because
the Debtors' obligations remained unsatisfied, Greyrock retained its lien on all
of the Debtors' assets to secure repayment. This lien extended to the cash
proceeds of the Sale, in the amount of $555,000, which are being held in an
escrow account at Wells Fargo Bank. EqualNet and USC Telecom were unable to
satisfy the outstanding balance on the USC Telecom Note when it became due.
[TO BE UPDATED PRIOR TO DISCLOSURE STATEMENT HEARING]
7. POST-CLOSING ADJUSTMENTS
Under the Purchase Agreement and the Management Agreement, the
EqualNet Parties assumed a number of obligations which required performance or
satisfaction subsequent to the Closing Date. The EqualNet Parties' unperformed
obligations included, but were not limited to, the following:
a. Pursuant to the Management Agreement, the EqualNet Parties agreed
to compensate the Debtors for Operating Losses, as defined in the
Management Agreement, for the period between April 1, 1998 and
the Closing Date. Section 6(c) of the Management Agreement
required payment for the Operating Losses no later than 60 days
after the Closing Date. Although the Debtors timely provided the
EqualNet Parties with the income statement demonstrating that the
Operating Losses totaled $654,934 (which statement was
subsequently amended to include Operating Losses totaling
$732,395), the EqualNet Parties did not timely provide any
reimbursement to the Debtors' estates;
b. In conjunction with its takeover of the business operations, the
EqualNet Parties assumed responsibility for collecting certain
revenues and remitting them to the Debtors. As a result of
EqualNet's failure to timely submit required records, revenues in
the amount of $278,377 became stale and unbillable. EqualNet was
obligated to reimburse the Debtors for this uncollected revenue,
but failed to do so.
c. Pursuant to Section 3 of the Management Agreement, the EqualNet
Parties were permitted to use certain contracts and leases during
the term of the Management Agreement. The Debtors paid rent under
these leases, in the amount of $8,149, to allow USC Telecom to
continue to use certain switching facilities. The Debtors did not
receive the required reimbursement for these amounts.
d. The Debtors were advised by several Service Providers that they
were not paid for services rendered to the EqualNet Parties under
certain contracts after the Closing Date. Although the EqualNet
Parties assumed operational control under the Management
Agreement and liability to the Debtors for all expenses for these
contracts, the Debtors were not released from their contractual
obligations to such Service Providers and hence remained liable
for such amounts. The Debtors requested verification that all
Service Providers had been paid or immediate payment of all
outstanding amounts, including, but not limited to payment to
U.S. West in the amount of $73,659.
e. The shares of Preferred Stock withheld at Closing should have
been turned over to the Debtors.
f. EqualNet removed equipment under lease to the Debtors from the
Debtors' facility in Levelland which EqualNet acquired in the
asset purchase. The Debtors remained responsible for rental
payments on this equipment and for return of equipment to the
lessors. EqualNet did not provide an inventory of items taken or
inform the Debtors of the current location of the property.
Moreover, EqualNet had not returned any of the equipment to the
lessors or made payments on it.
When the Debtors' repeated requests for performance or satisfaction of
these obligations went unheeded, the Debtors had no alternative but to seek the
intervention of the Bankruptcy Court and, in November 1998, filed a motion
seeking an order compelling EqualNet to perform. After an evidentiary hearing on
December 23, 1998, the Bankruptcy Court issued an order and judgment (the
"Judgment") directing EqualNet and USC Telecom to:
a. Pay to the Debtors $812,772.00 in satisfaction of EqualNet and
USC Telecom's obligations for the Operating Losses and the stale
revenues;
b. Make prompt payment of the post-Closing Date services to U.S.
West, in particular, and to other Service Providers and make
prompt payment on account of the leases for switchroom
facilities;
c. Deliver the 5,325 shares of Preferred Stock withheld at Closing;
and
d. Account for, make all necessary payments, and take any other
required action with respect to the leased equipment
On January 18, 1999 EqualNet and USC Telecom filed an appeal to the
Judgment, but subsequently advised the Debtors that they would like to discuss
alternative means to satisfy the Judgment. The Debtors and EqualNet entered into
a stipulation suspending the appeal while settlement discussions proceeded.
EqualNet did deliver the Preferred Stock withheld at Closing, as well as
additional shares as paid-in-kind interest.
[STATUS - TO BE INSERTED PRIOR TO DISCLOSURE STATEMENT HEARING]
D. SETTLEMENT OF INTER-DEBTOR CLAIMS
1. THE INTER-DEBTOR SETTLEMENT AGREEMENT
Prior to the Petition Date, the Debtors' revenues were derived from
telecommunications services provided by the two operating Debtors, Addtel and
USC. However, the Debtors used these revenues to satisfy the joint and several
obligations of all of the Debtors.
The appropriate allocation of the proceeds from the Sale to EqualNet
as well as from the liquidation of the Debtors' remaining assets, between and
among the estates of the various Debtors presented conflicts between the various
Debtors' Estates and, ultimately, between creditors of the various Debtors. This
problem was further complicated by the failure of the various Debtors to
maintain complete records of intercompany transactions.
Due to these inherent tensions, in January 1998, one of the Debtors'
telecommunication service providers and a principal creditor of Addtel,
WorldCom, made a motion for the appointment of a trustee for the Addtel Estate
alleging that the unresolved inter-Debtor issues created conflicts between and
among the Debtors' Estates. Principal creditors of STEL and USC, as well as the
Committee, also recognized that the issue of inter-Debtor claims, and its effect
on the allocation of Sale proceeds and other assets, presented a fundamental
impediment to negotiation of a plan of reorganization. These various entities
and the Debtors' representatives determined that it was in the best interests of
the Debtors and their respective creditors to attempt to reach a consensual
solution regarding allocation and related issues. This intention was formalized
pursuant to a Stipulation and Order Regarding Settlement Process for Allocation
of Distribution Proceeds (the "Stipulation"), which was entered into by the
Debtors, the Committee, United States Trust Company of New York ("U.S. Trust"),
as Indenture Trustee for the 10% Convertible Notes issued by STEL, WorldCom, as
a creditor of Addtel, and U.S. West as a creditor of USC (collectively, the
"Creditor Representatives"). The Stipulation was approved by order of the
Bankruptcy Court dated March 27, 1998. The Stipulation provided for a period
during which the parties would conduct such investigation as each deemed
appropriate to determine the financial and operational relationships between and
among Addtel, USC, STEL and, in their discretion, the other Debtors, and engage
in negotiations with the goal of achieving a consensual allocation. In addition,
the Stipulation provided that certain fees and expenses of U.S. Trust, WorldCom,
and U.S. West incurred in connection with the settlement process would be
entitled to be paid as Administrative Expenses of the Estates.
During this period, the parties addressed both factual and legal
issues. In considering the parameters of the possible settlement, the two major
factual issues included (i) the appropriate amount of Intercompany Claims and
(ii) the proper allocation of unallocated corporate general and administrative
expenses. These issues, of course, had a direct impact on the balance sheets of
each entity and thereby influenced dramatically each Estate's available assets
for distribution to Unsecured Creditors. The major legal issues included (i) the
propriety of substantive consolidation, in whole or in part, of the Debtors,
(ii) the categorization of monies downstreamed by STEL as either debt or equity,
and (iii) the validity of claims by and against WorldCom.
At the request of the Creditor Representatives, the Debtors'
representatives produced extensive documentation and analyses regarding various
aspects of the Debtors' pre- and post-petition financial transactions and
inter-relationships. After the Creditors' Representatives' own analysis of these
materials, the Debtors and the Creditors' Representatives all participated in
numerous discussions regarding their respective positions as to the results of
the investigation. Throughout the period, the Debtors' representatives prepared
and refined numerous distribution scenarios which reflected (a) the different
perspectives from which the allocation issues could be analyzed, (b) the
evolving results of the investigation, and (c) the dialogues regarding the
factual and related legal analyses. The Debtors' representatives also prepared
scenarios which took into account different approaches to the allocation of the
Intercompany Claims and general Administrative Expenses paid by STEL which
benefited the other Debtors and the various approaches to estimation of
Intercompany Claims.
In an effort to reconcile these conflicting analyses and to avoid the
costs of litigation, the Debtors and the Creditor Representatives engaged in
extensive negotiations and formulated a proposal regarding settlement of
inter-Debtor issues and the allocation of the SALE PROCEEDS and other assets
(the "Inter-Debtor Settlement Agreement"). This Inter-Debtor Settlement
Agreement, which was approved by the Bankruptcy Court on July 27, 1998, provided
part of the framework for distributions set forth in the Plan. The Inter-Debtor
Settlement Agreement is annexed hereto as Exhibit C and is incorporated into the
Plan and this Disclosure Statement.
In brief, the Inter-Debtor Settlement Agreement provides that:
a. The Estates other than STEL and Addtel will form Consolidated
USC;
b. Cash, from the Debtors' operations and the sale of the Debtors'
assets, net of Allowed Administrative Expenses, Allowed Secured
Claims and Allowed Classified Priority Claims, which net amount
("Cash Proceeds") was estimated to be $1,500,000, will be
available to pay General Unsecured Creditors and would be
allocated 16% to Consolidated USC, 42% to Addtel and 42% to STEL;
c. Professionals will forgo up to 7.5% of all fees incurred up to
$150,000 subject to certain terms and conditions: $100,000 of
this fee reduction will provide initial funding for litigation
based on Causes of Action other than Preference Causes of Action;
this amount will not be repaid if the Professionals receive 92.5%
of their fees. The remaining $50,000 would be paid over to
Consolidated USC to be used for recoveries for its General
Unsecured Creditors;
d. Consolidated USC will also receive the first $50,000 recovered
from Preference Causes of Action, net of litigation expenses
(which $50,000 is the USC Preference Amount);
e. Recoveries from Preference Causes of Action, net of expenses and
the USC Preference Amount ("Preference Proceeds") will be shared
among the three Estates with 42% to STEL, 42% to Addtel and 16%
to Consolidated USC; and
f. Other litigation recoveries, net of expenses including the costs
and expenses of Litigation Counsel (the "Litigation Proceeds"),
will be shared 10% to Consolidated USC; 5% to Addtel and 85% to
STEL.
As discussed in the foregoing section, there were several
inter-related litigations pending between the Debtors and WorldCom at the time
the Inter-Debtor Settlement Agreement was negotiated. The Debtors and WorldCom
agreed upon a process for dealing with the matters pending between them and that
agreement was incorporated in the Inter-Debtor Settlement Agreement. WorldCom
and the Debtors agreed:
a. The evidentiary record of the hearing on the WorldCom Motion was
deemed to be incorporated into the evidentiary record of the
WorldCom Adversary Proceeding;
b. The Debtors would not incur additional fees and expenses in
excess of $1,000 in connection with the WorldCom Motion and the
WorldCom Adversary Proceeding;
c. If the Bankruptcy Court determined with respect to the WorldCom
Motion or the WorldCom Adversary Proceeding that (i) WorldCom was
not a utility (as that term is defined in Section 366 of the
Bankruptcy Code) or (ii) WorldCom was prohibited from imposing an
administrative hold on new business of the Debtors, then:
(i) WorldCom's unsecured non-priority claim against Addtel's
estate would be reduced by $15,000;
(ii) WorldCom could appeal to the District Court for the
District of Delaware and, if necessary, the Third Circuit and
could petition for certiorari to the Supreme Court of the United
States (the "Appeals"); and
(iii) the Debtors would not incur fees and expenses in
excess of $5,000 in connection with each Appeal.
d. If WorldCom was ultimately successful in any of the Appeals,
WorldCom's unsecured non-priority claim against Addtel's Estate
would be increased by $15,000;
e. WorldCom's counterclaim in the WorldCom Adversary Proceeding was
dismissed;
f. The Debtors would reduce their demands in Counts 1-5 of the
WorldCom Adversary Proceeding to a claim for a $15,000 reduction
of WorldCom's General Unsecured Claim against Addtel;
g. The Debtors, the Creditors' Committee and U.S. Trust Co. agreed
that they would not (i) seek to amend the complaint in the
WorldCom Adversary Proceeding to assert additional or increased
claims or demands against WorldCom or any of its subsidiaries,
officers, directors, employees or agents, (ii) seek to amend the
complaint in any manner inconsistent with the Inter-Debtor
Settlement Agreement, or (iii) seek to dismiss the complaint or
the WorldCom Adversary Proceeding (except pursuant to a motion
filed by WorldCom with the Debtors' and the Committee's consent);
and
h. Each party would bear its own costs and fees in the WorldCom
Adversary Proceeding and any Appeals.
At the time this Settlement Agreement was approved, the Debtors
estimated that, without Preference Proceeds or Litigation Proceeds, the total
net Cash Proceeds available for General Unsecured Creditors would be $1,5000,000
from which Consolidated USC creditors would receive a 14.7% recovery, Addtel
creditors an 11.8% recovery, and STEL creditors a 1.5% recovery.
2. DECLINE IN VALUE OF ESTATE ASSETS
The Inter-Debtor Settlement Agreement was premised on the belief that,
at the time a plan of reorganization was confirmed, the Debtors would have
sufficient assets to pay their Allowed Administrative Expense Claims, Allowed
Miscellaneous Secured Claims and Allowed Classified Priority Claims in full, and
to pay the Professionals at the agreed upon reduced amount. Under the Bankruptcy
Code, each of these categories of Claims must be paid in full or have agreed to
other treatment before Holders of General Unsecured Claims can receive any
distribution. Absent substantive consolidation of all Estates, such Claims would
each have to be paid from the discrete assets of the Estate within which the
specific Claim arose.
When the Debtors and the Committee accepted the EqualNet Parties'
offer for the purchase of the Debtors' assets, the EqualNet Common Stock was
trading at between $2.50 and $3.00 a share. However, by the summer of 1998, the
EqualNet Common Stock was trading at approximately $1.50 a share and for the six
months prior to the filing of this Disclosure Statement the average trading
price has been below $1.00 per share. The Debtors realized that, with such a
decline in value, they would not be able to fully satisfy these Claims and,
therefore, would be unable to make any distribution to Holders of General
Unsecured Claims.
3. THE ADMINISTRATIVE EXPENSE TREATMENT AGREEMENT
Despite this setback, the Debtors and the Creditor Representatives who
participated in developing the Inter-Debtor Settlement Agreement were interested
in bringing to confirmation a plan which would provide at least a reasonable
chance of recovery to Holders of General Unsecured Claims of STEL, Addtel and
Consolidated USC. To address this issue, the Administrative Expense Treatment
Agreement was developed, and was approved by the Bankruptcy Court on
________________, 1999. The provisions of the Administrative Expense Treatment
Agreement are incorporated in the Plan. The Administrative Expense Treatment
Agreement is attached hereto as Exhibit D and is incorporated into this
Disclosure Statement. The Administrative Expense Treatment Agreement includes
certain new distribution provisions dealing principally with the distributions
to Administrative Expense Claims and modified certain provisions of the
Inter-Debtor Settlement Agreement.
In brief, the Administrative Expense Treatment Agreement provides
that:
a. Professionals retained in the Debtors' cases will agree to accept
partial payment of their fees and expenses of as little as 50%;
if at the date which is 180 days after the hearing on the
Disclosure Statement there are not sufficient assets to pay
Professionals at least 50% of their fees and expenses, the
Chapter 11 Cases will be converted to Cases under Chapter 7.
b. Certain Service Providers have agreed to accept partial payment
of their outstanding Administrative Expense Claims of as little
as 50%;
c. Other Administrative Expense creditors have been or will be
approached about reducing their Administrative Expense Claims;
d. On the Initial Distribution Date, payments will be made from
Estate Cash, that is all Cash in the Estates from operations, the
sale of assets or other sources. On the Initial Distribution
Date, payments in full and in Cash will be made to the Holders of
(i) Allowed Administrative Expense Claims not subject to the
Administrative Expense Treatment Agreement or similar agreements,
(ii) Allowed Miscellaneous Secured Claims and (iii) Allowed
Classified Priority Claims. If such Claims are not yet Allowed,
the appropriate reserve will be funded;
e. On the Initial Distribution Date, Holders of Allowed
Administrative Expense Claims who entered into individual claim
reduction agreements will receive payment on the same basis as
the Professionals;
f. On the Initial Distribution Date, each Claimant covered by the
Administrative Expense Treatment Agreement will receive 50% of
its outstanding Allowed Administrative Expense Claim from Estate
Cash;
g. On the Initial Distribution Date, Professionals (including the
Settlement Professionals) will receive a minimum of 50% of their
Allowed fees and expenses. If after the above distributions have
been made there is Estate Cash remaining, all the Professionals
will receive distribution of these funds until all the
Professionals receive payment in full of their expenses from
Estate Cash; thereafter Estate Cash will be distributed solely to
Professionals until their receive distributions of up to 80% of
their Allowed fees and expenses from Estate Cash.
h. Once the recovery to Professionals reaches 80% from Estate Cash,
all remaining Estate Cash will be distributed so that recoveries
to Professionals increase to 92.5%, at the same rate that
recoveries to all other Holders of Administrative Expense Claims
increase to 100% and Holders of Claims in Classes 3-A, 3-B and
3-C receive up to an aggregate of $1,500,000, allocated pursuant
to the Inter-Debtor Settlement Agreement in the proportions set
forth below.
i. Any funds remaining after these distributions have been made
shall be distributed to General Unsecured Creditors.
Due to the change in circumstances, certain modifications needed to be
made to the Inter-Debtor Settlement Agreement and these modifications are
incorporated in the Administrative Expense Treatment Agreement.
a. The Inter-Debtor Settlement Agreement did not contemplate that
any Litigation Proceeds or Preference Proceeds would be used to
satisfy Allowed Administrative Expense Claims or the
Professionals fee and expense Claims. Pursuant to the
Administrative Expense Treatment Agreement, Preference Proceeds
will continue to be unavailable for such use. However, if the
payments on the Allowed Professional fee and expense Claims
exceed 50% but do not reach 80%, Litigation Proceeds will be
shared on a dollar for dollar basis between General Unsecured
Creditors and Professionals until such time as the Professionals
receive an 80% distribution on the Allowed Professional fees and
expenses.
b. If the Estate Cash is insufficient to make the distributions
required with respect to Allowed Administrative Claims,
Litigation Proceeds may be applied to satisfy the shortfall,
provided, however, that the Litigation Proceeds will be applied
according to the allocation set forth in the Inter-Debtor
Settlement Agreement to satisfy only the Allowed Administrative
Expense Claims arising in the corresponding Estates.
c. The Inter-Debtor Settlement Agreement is amended to provide that
(i) the $100,000 to fund the litigation other than with respect
to Preference Causes of Action, Litigation Counsel may be made
prior to Confirmation from Estate Cash, (ii) such amount may be
replenished from litigation recoveries, and (iii) such $100,000
will be repaid to the Estates from the first litigation
recoveries, net of litigation expenses, provided, however, that
in the event that the Professionals recover 92.5% of their fees,
such $100,000 shall be paid out of distribution to the
Professionals.
As stated above in paragraphs (f) and (h), once the recovery to
Administrative Expense Claimants reaches 50% from Estate Cash and the recovery
to Professionals (including Settlement Professionals) reaches 80% from Estate
Cash, Estate Cash will begin to be shared with Holders of Class 3-A through
Class 3-C Claims according to the following formula:2
2 If Litigation Proceeds are used for distributions for Administrative
Expense Claims, including Professionals Claims, this formula is
inapplicable.
A = Balance of Allowed and unpaid Administrative Expense Treatment
Agreement Claims up 100%
B = Balance of Allowed and unpaid Professional fee and expense
Claims up to 92.5%
C = $1,500,000 for Unsecured Claimants
Then each dollar of Estate Cash will be distributed as follows,
expressed as a percentage of the total amount outstanding:
Administrative Expense Treatment ___A____
Agreement Claimants A + B +C
Professionals ___B___
A + B +C
All General Unsecured Creditors ___C___
A + B +C
By way of example only, where A = $500,000, B = $1,000,000 and C = $1,500,000,
each dollar will be distributed in the following percentages:
Administrative Expense Treatment Agreement $ 500,000
-----------
Claimants = $3,000,000 = 16.7%
Professionals $1,000,000
----------
= $3,000,000 = 33.3%
All General Unsecured Creditors $1,500,000
= $3,000,000 = 50.0%
The distribution of these Cash Proceeds to General Unsecured Creditors
under this formula will be further allocated in accordance with the Inter-Debtor
Settlement Agreement, that is, 42% to Class 3-A (STEL), 42% to Class 3-B
(Addtel) and 16% to Class 3-C (Consolidated USC).
4. THE EFFECT OF THE AGREEMENTS
According to the Bankruptcy Code, the assets of any estate must be
used to fully satisfy allowed secured claims, allowed administrative expense
claims, including the fees and expenses of professionals retained in a case, and
allowed claims entitled to priority under Section 502 of the Bankruptcy Code
before any distribution can be made to general unsecured creditors of such
estate.
If this procedure were followed in the Debtors' cases there would
likely be no distribution to the General Unsecured Creditors of any of the
Debtors even if the litigation brought by the Litigation Counsel proved
successful. To avoid this outcome, various Holders of Administrative Expense
Claims, the Professionals and significant Unsecured Creditors have entered into
the Inter-Debtor Settlement Agreement and the Administrative Expense Treatment
Agreement. These Agreements modify the Code provisions on distributions to
provide General Unsecured Creditors with the opportunity to obtain a recovery in
the Debtors' Cases. Under these Agreements, the Administrative Expense
Claimants, including the Professionals, have agreed to a reduced distribution as
described in detail above. The intent of these Administrative Expense Claimants
and Professionals is to make some recovery available to General Unsecured
Creditors in a case where they would likely otherwise have received nothing.
The effects of the Inter-Debtor Settlement Agreement and the
Administrative Expense Treatment Agreement are summarized at Section III.B. -
"Summary of the Effect of the Inter-Debtor Settlement Agreement and the
Administrative Expense Treatment Agreement". In general, the Administrative
Expense Claimants (other than Professionals) will receive their distributions
solely from the Estates' proceeds from operations and the sale of assets,
including the Sale to the EqualNet Parties, that is, from the Estate Cash. Only
under certain limited circumstances may Administrative Expense Claimants derive
any benefit from recoveries from preference or other litigation; rather, in
general, all such recoveries will be dedicated to distributions to Classes 3-A
through 3-C in the allocation agreed to by the representatives of such Classes.
Moreover, under certain limited circumstances, professionals may derive some
benefit from litigation recoveries.
The Debtors' ability to satisfy the payment provisions of the
Inter-Debtor Settlement Agreement and the Administrative Expense Treatment
Agreement depends in large measure on the price at which the Debtors are able to
liquidate the shares of Common Stock of EqualNet which the Debtors received in
connection with the sale of the Debtors' assets. This issue is discussed in
greater detail at Section IX.B.- "Risk Factors - Risks Related to EqualNet."
E. DESCRIPTION OF THE EQUALNET PREFERRED STOCK
1. DESCRIPTION OF EQUALNET PREFERRED STOCK
As noted above, the EqualNet Preferred Stock represents a significant
component of the consideration for the sale of the Debtors' assets. Under
Section 3(e) of the Purchase Agreement, EqualNet was not obligated to provide
the Debtors on the Closing Date with Preferred Stock which had been registered
under the Securities Act of 1933, as amended ("Securities Act"), nor was
EqualNet obligated to register the Preferred Stock, or after conversion,
EqualNet Common Stock, at any certain time in the future. Therefore, until the
Preferred Stock or Common Stock was registered, the Debtors delivered a "No
Action" Letter from the SEC, or there existed a Final Order of the Bankruptcy
Court providing that the EqualNet Stock would be exempt from registration under
the Securities Act and any state law pursuant to Section 1145 of the Bankruptcy
Code, the EqualNet Stock would bear a legend indicating that the shares were
"restricted" and could not be sold in the open market or otherwise transferred,
pledged or hypothecated by the Debtors (except that the Debtors were able to
grant to Greyrock, which retained a security interest in the EqualNet Stock as
proceeds of its collateral, a security interest in the EqualNet Stock to secure
the Greyrock Facility) until such time that the resale and transfer of such
stock was registered under the Securities Act.
However, pursuant to the Purchase Agreement, conversion of the
Preferred Stock into Common Stock is at the option of the Debtors. Moreover, the
Debtors had the right to demand that EqualNet undertake the registration of the
EqualNet Stock. In January 1999 the Debtors made such a demand on EqualNet.
EqualNet included the shares of EqualNet Preferred Stock in a number equal to
the number of shares of Common Stock upon conversion in the Registration
Statement which it filed on March 31, 1999.
2. DESCRIPTION OF EQUALNET COMMON STOCK
The EqualNet Common Stock has a par value of $.01 and is currently
traded on NASDAQ. [As a result of the conversion of the EqualNet Preferred Stock
and the inclusion of the Common Stock in the Registration Statement, the Debtors
hold or will hold 2,067,070 shares of freely tradable EqualNet Common Stock.]
[Moreover, as a result of a settlement of the Judgment, the Debtors received
__________ additional shares of registered EqualNet Common Stock.]
3. LIQUIDATION OF EQUALNET STOCK
[TO BE INSERTED - DISCUSSION OF MOTION FOR ORDER APPROVING METHOD FOR
LIQUIDATING STOCK AND INVESTMENT GUIDELINES.] However, there can be no guarantee
that the Debtors will be able to timely liquidate the EqualNet Stock in light of
the relatively thin market for such shares and the potential for delisting by
NASDAQ. See Section IX. B.- "Risk Factors - Risks Related to EqualNet."
V. THE PLAN OF REORGANIZATION
The Debtors believe that through the Plan, holders of Allowed Claims
will more likely obtain a recovery from the Estates of the Debtors than any
recovery which would be available if the assets of the Debtors were liquidated
under Chapter 7 of the Bankruptcy Code.
The Plan, the Inter-Debtor Settlement Agreement and the Administrative
Expense Treatment Agreement, each of which is attached as an Exhibit hereto,
form part of this Disclosure Statement. The summary of the Plan set forth below
is qualified in its entirety by reference to the more detailed provisions set
forth in the Plan and the two Agreements.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
1. GENERAL
The Plan identifies a concept of Estate Cash, which is defined as the
aggregate Cash in all of the Debtors' Estates from operations, the sale of
assets or any other source. Distributors to Allowed Administrative Expense
Claims, including the Claims of Professionals, Allowed Miscellaneous Secured
Claims and Allowed Classified Priority Claims will be made from Estate Cash (and
subject to the limitations set forth in Section 3.03 of the Plan, from
Litigation Proceeds) without regard to the particular Estate from which a
specific Claim arose. Except with respect to such payments, the individual
Estates of STEL, Addtel and Consolidated USC will be recognized.
The Plan classifies Claims and Interests separately and provides
different treatment for different Classes of Claims and Interests in accordance
with the Bankruptcy Code. As described more fully below in this Section V.A.,
the Plan provides, separately for each Class, that Holders of certain Claims
will receive various amounts and types of consideration based on the different
rights of the Holders of Claims of each Class and based on the agreement with
respect to Administrative Claims and the negotiated settlement of inter-Debtor
Claims and allocation issues, each as approved by the Court. Holders of
Interests will receive no distribution under the Plan.
An Allowed Claim is classified in a particular Class only to the
extent that the Allowed Claim qualifies within the description of the Class and
is classified in a different Class to the extent the Claim qualifies within the
description of that different Class.
2. ADMINISTRATIVE EXPENSE CLAIMS
Administrative Expense Claims consist of all claims for a cost or
expense of administration of any of the Debtors' Cases allowable under Sections
503(b) and 507(a)(1) of the Bankruptcy Code, including, but not limited to, (a)
the fees and expenses of Professionals, (b) the US Trustee Fees, and (c) a Claim
given the status of an Administrative Expense Claim by Final Order of the
Bankruptcy Court (including the fees under Section 503(b) of the Bankruptcy Code
as which the Inter-Debtor Settlement Agreement, as approved by the Court,
granted administrative expense status). In accordance with Section 1123(a)(1) of
the Bankruptcy Code, Administrative Expense Claims have not been classified.
Pursuant to the Plan, each Allowed Administrative Expense Claim will
be paid 100% of the unpaid Allowed amount of the Administrative Expense Claim on
the Initial Distribution Date, the next Distribution Date after the date on
which the Claim becomes Allowed, or another date agreed to by the Liquidating
Officer and the Holder. However, if the Administrative Expense Claim is subject
to the Administrative Expense Treatment Agreement or a similar agreement, the
Claim will be accorded treatment under such agreement, as described in Section
IV.D.2. -"The Administrative Expense Treatment Agreement".
If any Administrative Expense Claimant enters into the Administrative
Expense Treatment Agreement or a similar agreement, and receives the minimum
payment agreed - to thereunder, such payment shall be in full satisfaction of
such Holder's Claim and the Holder may not pursue any means against the Debtors
or any other entity to recover the outstanding balance of such Claim.
The Debtors estimate that Allowed Administrative Expense Claims, other
than those for Professionals and US Trustee Fees, will total approximately
[$2,000,000] The Debtors estimate that Professionals' Claims through the
Effective Date will total approximately [$4,000,000].
While over $15,000,000 in Administrative Expenses relating to the
ordinary business operations of the Debtors during the Chapter 11 Case was paid
during the pendency of the Cases, due to the requirements of the Bankruptcy
Code, Professionals have received no payments for their services or
reimbursement of their expenses, despite their efforts on behalf of the Estates.
Administrative Expense Claims are not Impaired under the Plan.
Claimants who are not party to the Administrative Expense Treatment Agreement or
a similar agreement will receive 100% on their Claims. Parties to the
Administrative Expense Treatment Agreement or a similar agreement have agreed to
accept the treatment provided thereunder and are, therefore, unimpaired.
3. CLASSES 1-A THROUGH 1-C - MISCELLANEOUS SECURED CLAIMS
Class 1-A consists of Secured Claims against STEL; Class 1-B consists
of Secured Claims against Addtel; and Class 1-C consists of Secured Claims
against Consolidated USC. Claims in these classes are claims which were (a)
secured in whole or part, as of the Petition Date, by a lien which is valid,
perfected and enforceable under applicable law on property on which the Estate
has an interest and is not subject to avoidance under the Bankruptcy Code or
applicable non-bankruptcy law, or (b) subject to setoff under Section 553 of the
Bankruptcy Code, but, with respect to both case (a) and (b), only to the extent
of the particular Estate's interest in the value of the assets of property
securing any such Claim or the amount subject to setoff, as the case may be.
Under the Plan, on the Initial Distribution Date, at the discretion of
the Debtors and the Committee, each Holder of an Allowed Miscellaneous Secured
Claim will receive in full satisfaction of the Claim (i) the property securing
the Claim, (ii) a cash payment from Estate Cash equal to the Allowed amount of
the Secured Claim, or (iii) other treatment as to which the Debtors, the
Committee and the Holder have agreed.
The Debtors estimate that Allowed Miscellaneous Secured Claims in
Classes 1-A, 1-B and 1-C in the aggregate will be de minimus.
Class 1-A through Class 1-C Miscellaneous Secured Claims are not
Impaired under the Plan; therefore, the votes of the Holders of Claims in Class
1-A, Class 1-B and Class 1-C are not being solicited.
Liquidating STEL may contest or defend itself against any effort to
enforce a Secured Claim after Confirmation, even if the Debtors did not object
to the Claim before Confirmation. Unless a Secured Claim is paid in full on or
before the Initial Distribution Date, the lien will survive Confirmation and the
Debtor's discharge and any transfer of the underlying property and will remain
enforceable and subject to avoidance.
4. CLASS 2-A -- CLASSIFIED PRIORITY CLAIMS
Class 2-A consists of any and all Claims against any of the Debtors
entitled to priority payment under Section 507(a) of the Bankruptcy Code,
including, but not limited to, claims for taxes entitled to priority under
Section 507(a)(5) of the Bankruptcy Code, but excluding Administrative Expense
Claims. Under the Plan, to the extent that a Holder has not received full
payment on account of its Allowed Claim prior to the Initial Distribution Date,
on the Initial Distribution Date or the next Distribution Date after the date on
which the Classified Priority Claim is Allowed, each Holder of an Allowed
Classified Priority Claim will receive full payment from the Estate Cash of the
Allowed amount of such Claim in Cash.
The Debtors estimate that Allowed Classified Priority Claims will
total approximately $50,000.
Class 2-A Classified Priority Claims are not impaired under the Plan,
therefore, the votes of Holders of Class 2-A Claims are not being solicited.
5. CLASS 3-A THROUGH 3-C -- GENERAL UNSECURED CLAIMS
Class 3-A through Class 3-C consist of all Claims other than
Administrative Expense Claims, Classified Priority Claims, Secured Claims and
Intercompany Claims, including, but not limited to any Claim arising from the
rejection of all executory contracts or unexpired leases under Section 365 of
the Bankruptcy Code. Class 3-A consists of General Unsecured Claims against
STEL; Class 3-B consists of General Unsecured Claims against Addtel; Class 3-C
consists of all General Unsecured Claims against Consolidated USC.
The distributions to be made to Holders of Allowed Class 3 Claims, as
well as the timing of those distributions, reflect the agreements reached by the
Creditor Representatives included in the Inter-Debtor Settlement Agreement, as
approved by the Bankruptcy Court, and as subsequently amended by the
Administrative Expense Treatment Agreement. The distributions to Holders of
Allowed Class 3 Claims consist of three components: (a) Cash Proceeds, which is
comprised of the Class 3 Claimants' share of Estate Cash; (b) Preference
Proceeds, which consists of the proceeds from Preference Causes of Action, net
of litigation costs and the USC Preference Amount, and (c) Litigation Proceeds,
which consists of the proceeds, net of litigation expenses including the
$100,000 initial funding from the Estates, received on account of any Causes of
Action, including Preference Causes of Action, belonging to the Debtors'
Estates.
As a result of modifications to the Inter-Debtor Settlement Agreement
incorporated in the Administrative Expense Treatment Agreement, under certain
circumstances the full amount of net Litigation Proceeds may not be distributed
on account of Allowed Class 3 Claims. If Estate Cash is sufficient to provide a
50% recovery of Professionals' Allowed fee and expense Claims, but insufficient
to pay 80%, Litigation Proceeds will be shared equally between the Professionals
and Class 3 Claimants until the Professionals achieve an 80% recovery.
Moreover, if the Estate Cash is insufficient to make the distributions
required with respect to Allowed Administrative Expense Claims, Litigation
Proceeds may be applied to satisfy the shortfall, provided, however, that the
Litigation Proceeds will be applied according to the Administrative Expense
Claims arising in the corresponding Estate.
The first $1,500,000 of the Cash Proceeds distributed to all Class 3
Claimants with Allowed Claims will be delivered in the order and according to
the formula set forth in the Administrative Expense Treatment Agreement as
described in Section IV.D.3 - "The Administrative Expense Treatment Agreement."
After all Allowed Administrative Expense Claims (including the Claims of all
Professionals), Allowed Miscellaneous Secured Claims and Allowed Classified
Priority Claims have been satisfied pursuant to the Plan or the Administrative
Expense Treatment Agreement, any remaining Estate Cash, including any surplus
from reserves, will be distributed as Cash Proceeds to Holders of Allowed Class
3 Claims. All Cash Proceeds distributed on account of Allowed Class 3 Claims
will be allocated between and among Class 3-A, Class 3-B and Class 3-C in
accordance with the Inter-Debtor Settlement Agreement, that is, 42% to Class
3-A, 42% to Class 3-B and 16% to Class 3-C. Similarly, Litigation Proceeds and
Preference Proceeds will be allocated between and among Class 3-A, 3-B and 3-C
in accordance with the Inter-Debtor Settlement Agreement.
Therefore, under the Plan, each Holder of an Allowed Class 3-A Claim
will receive in full satisfaction of its Claim, its Pro Rata share of the STEL
General Unsecured Claim Distribution Amount which is the sum of 42% of the Cash
Proceeds, 85% of the Litigation Proceeds and 42% of the Preference Proceeds. The
distribution will be made on (a) the Initial Distribution Date or the next
Distribution Date following the date on which such Class 3-A Claim becomes an
Allowed Claim and (b) subsequent Distribution Dates. Distributions to Holders of
Allowed Class 3-A Claims based on ownership of the 10% Convertible Notes will be
subject to the lien rights of the Indenture Trustee as set forth in the
Indenture.
Under the Plan, each Holder of an Allowed Class 3-B Claim will receive
in full satisfaction of its Claim, its Pro Rata share of the Addtel General
Unsecured Claim Distribution Amount which is the sum of 42% of the Cash
Proceeds, 5% of the Litigation Proceeds and 42% of the Preference Proceeds. The
distribution will be made on (a) the Initial Distribution Date or the next
Distribution Date following the date on which such Class 3-B Claim becomes an
Allowed Claim and (b) subsequent Distribution Dates.
Under the Plan, each Holder of an Allowed Class 3-C Claim will receive
in full satisfaction of its Claim, its Pro Rata share of the Consolidated USC
General Unsecured Claim Distribution Amount which is the sum of 16% of the Cash
Proceeds, 10% of the Litigation Proceeds, 16% of the Preference Proceeds, plus
the first $50,000 recovered on Preference Causes of Action, if any, net of fees
and expenses of Litigation Counsel and any amounts required for re-funding of
the Expense Reserve (paid upon a determination that such excess amount exists) ,
and up to $50,000 from the Professionals' Fee Reduction which was a component of
the Inter-Debtor Settlement Agreement. The distribution will be made on (a) the
Initial Distribution Date or the next Distribution Date following the date on
which such Class 3-C Claim becomes an Allowed Claim and (b) subsequent
Distribution Dates, except that the $50,000 from preference litigation
recoveries will be paid only upon obtaining such a recovery and the $50,000
contribution from the Professional Fee Reduction will be paid only if and when
the Professionals receive a 92.5% recovery on their fees and expenses.
[The Debtors estimate that Allowed Class 3-A Claims will total
$___________, Allowed Class 3-B Claims will total $_______________ and Allowed
Class 3-C Claims will total $___________________.]
Classes 3-A through 3-C General Unsecured Claims are impaired under
the Plan. Holders of Class 3-A, Class 3-B and Class 3-C Claims are being
provided with an opportunity to vote to accept or reject the Plan.
6. CLASS 4-A INTERCOMPANY CLAIMS
Class 4-A consists of all Claims held by any Debtor (or any subsidiary
or Affiliate thereof) against any and all other Debtors (or any subsidiary or
Affiliate thereof) including, but not limited to, all derivative claims asserted
by or on behalf of one Debtor against another. Under the Plan, Holders of Class
4-A Claims will receive no distribution and retain no rights or property under
the Plan on account of their Claims. The Intercompany Claims will be canceled on
the Effective Date.
The Holders of Class 4-A Claims are Impaired under the Plan. Since the
Holders of Class 4-A Claims will receive no distribution and retain no rights or
Property on account of their Claims, they are presumed to have rejected the
Plan. The solicitation of votes from such Holders is not required under the
Bankruptcy Code.
7. CLASS 5-A STEL PREFERRED STOCK INTEREST
Class 5-A consists of all the equity or ownership interests in the
preferred stock of STEL. Under the Plan, Holders of Class 5-A STEL Preferred
Stock Interests will receive no distribution and retain no rights or property
under the Plan on account of their Interests. The STEL Preferred Stock Interests
will be canceled on the Effective Date.
The Holders of Class 5-A Interests are Impaired under the Plan. Since
the Holders of Class 5-A Interests will receive no distribution and retain no
rights or property, they are presumed to have rejected the Plan. The
solicitation of votes from such Holders is not required under the Bankruptcy
Code.
8. CLASS 6-A STEL COMMON STOCK INTERESTS
Class 6-A consists of all the equity or ownership interests in STEL,
including, but not limited to, the common stock of STEL. Under the Plan, Holders
of Class 6-A STEL Common Stock Interests will receive no distribution and retain
no rights or property under the Plan on account of their Interests. The STEL
Preferred Stock Interests will be canceled on the Effective Date.
The Holders of Class 6-A Interests are Impaired under the Plan. Since
the Holders of Class 6-A Interests will receive no distribution and retain no
rights or property, they are presumed to have rejected the Plan. The
solicitation of votes from such Holders is not required under the Bankruptcy
Code.
9. CLASS 7-A SUBSIDIARY COMMON INTERESTS
Class 7-A consists of all the equity or ownership interests of one
Debtor in any other Debtor. Under the Plan, Holders of Class 7-A Subsidiary
Common Stock Interests will receive no distribution and retain no rights or
property under the Plan on account of their Interests. The Subsidiary Common
Stock Interests will be canceled on the Effective Date.
The Holders of Class 7-A Interests are Impaired under the Plan. Since
the Holders of Class 7-A Interests will receive no distribution and retain on
rights or property, they are presumed to have rejected the Plan. The
solicitation of votes from such Holders is not required under the Bankruptcy
Code.
B. SUMMARY OF OTHER PROVISIONS OF THE PLAN
1. LIQUIDATING STEL AND LIQUIDATING OFFICER
The Debtors are no longer operating and have not operated or engaged
in business since July 22, 1998. The Plan provides for the liquidation of all of
the remaining assets of the Debtors. The Debtors shall be continued as
Liquidating STEL as set forth in Section 10.04 of the Plan for the limited
purpose of implementing the Plan and shall act through the Liquidating Officer.
On the Effective Date of the Plan all property of the Debtors remaining after
the Initial Distribution will vest with Liquidating STEL, including without
limitation, all (i) Cash, (ii) EqualNet Stock, (iii) non-cash assets, (iv) all
Causes of Action belonging to the Estates and (v) all other property and assets
of the Debtors; provided, however, that all Causes of Action, including
Preference Causes of Action, shall be pursued by Litigation Counsel and any
recoveries from such litigation will be distributed in accordance with the Plan,
including the provisions of the Inter-Debtor Settlement Agreement and the
Administrative Expense Treatment Agreement. The Liquidating Officer shall have
the right to abandon any assets in accordance with Section 554 of the Bankruptcy
Code, after notice and a hearing before the Bankruptcy Court. The rights,
responsibilities and scope of liability of the Liquidating Officer will be set
forth in detail in the Confirmation Order.
2. RETENTION OF RIGHTS TO PURSUE CAUSES OF ACTION AND APPOINTMENT OF
LITIGATION COUNSEL.
By order of the Bankruptcy Court dated __________, 1999, ___________
was appointed Litigation Counsel to investigate, evaluate and pursue all Causes
of Action belonging to the Estates, other than Preference Causes of Action, for
the benefit of all of the Debtors' Estates. Pursuant to Section 1123(b)(3) of
the Bankruptcy Code, the Litigation Counsel (as representative of the Debtors'
Estates) will retain and have the exclusive right to enforce against any Person
any and all Causes of Action (including, without limitation, all Causes of
Action arising under Sections 510, 544, 545, 546, 547, 548, 549, 550 and 553 of
the Bankruptcy Code or otherwise arising under the Bankruptcy Code and/or those
arising under other applicable law) that arose before the Effective Date,
including all Causes of Action of a trustee and debtor-in-possession under the
Bankruptcy Code, other than those expressly released or compromised as part of
or pursuant to the Plan.
The Litigation Counsel's actions will initially be funded with an
advance of $100,000 from the Estates. Litigation costs, including fees and
expenses of Litigation Counsel, above the initial $100,000 shall be funded
solely from litigation recoveries. The initial $100,000 advance shall be repaid
to the Estates, from litigation recoveries, from Causes of Action, including
Preference Causes of Action, net of all litigation costs including fees and
expenses of Litigation Counsel (unless the Professional Fee Reduction becomes
effective, in which case it shall be funded from the Professional Fee
Reduction). Litigation Counsel will have the discretion to decide which, if any,
Causes of Action should be pursued. There can be no guarantee, however, that
Litigation Counsel will commence any actions or otherwise pursue any of the
Causes of Action, including Preference Causes of Action. Even if litigation is
commenced with respect to certain Causes of Action, including Preference Causes
of Action, there can be no guarantee that the litigation will result in any
recovery by the Litigation Counsel or a recovery net of expenses sufficient to
provide a distribution of Litigation Proceeds or Preference Proceeds.
Nothing set forth in this paragraph or elsewhere in the Plan or
Disclosure Statement will in any way restrict or otherwise effect the right of a
Holder of an Allowed Administrative Expense Claim to pursue an action under
Section 506(c) of the Bankruptcy Code.
3. SUBSTANTIVE CONSOLIDATION
The Plan contemplates and is predicated upon the substantive
consolidation of USC, LDN, Uniquest, NATC and SWLDN into a single entity,
referred to as Consolidated USC or the Consolidated Debtors, for purposes of
Confirmation, consummation and implementation of the Plan. As a result of such
consolidation, on the Effective Date: (i) all Intercompany Claims held by any
one Consolidated Debtor against another will be canceled and no distribution
will be made on account thereof; (ii) all assets, and all proceeds, and all
liabilities of the Consolidated Debtors will be merged into Consolidated USC;
(iii) any obligation, including any guarantee, of any of the Consolidated
Debtors will be merged and treated as a single claim against Consolidated USC;
(iv) all joint obligations of the Consolidated Debtors or multiple Claims
against them shall be merged into a single obligation or Claim; (v) any Proof of
Claim Filed against in any of the Consolidated Debtors' Cases will be deemed
Filed against Consolidated USC; (vi) all duplicative Claims Filed against any of
the Consolidated Debtors will be expunged so that only one Claim survives; (vii)
all Interests of one Consolidated Debtor in another will be deemed automatically
canceled; and (ix) for purposes of setoff under Section 553 of the Bankruptcy
Code, all Consolidated Debtors shall be deemed a single entity, so that debts
due to one may be offset against Claims against that or any other Consolidated
Debtor.
4. ADMINISTRATIVE EXPENSE CLAIMS BAR DATE
The Debtors have established a bar date for the submission of requests
for payment of Administrative Expense Claims which applies to all Holders of
Administrative Expense Claims other than those for Professional fees and
expenses and US Trustee Fees. The Administrative Claims Bar Date is
____________. No requests for payment need to be filed on account of U.S.
Trustee Fees or ordinary course business expenses incurred during the wind-down
of the Debtors' business or after Confirmation of the Plan unless a dispute
exists. If the Liquidating Officer has made all of the payments due under the
Administrative Expense Treatment Agreement, the Liquidating Officer may pay any
expenses accruing after the Effective Date without any application to or
approval of the Bankruptcy Court, provided, however, that the refunding of
Litigation Counsel's efforts and the payment of Litigation Counsel's expenses,
including fees, from Litigation recoveries will not be subject to this
restriction regarding payment of Administrative Expense Claims.
If a Holder of an Administrative Expense Claim fails to File a request
for payment on or before the Administrative Expense Claims Bar Date, the Holder
will be permanently barred from doing so or attempting to enforce any claim
against the Debtors or Liquidating STEL thereafter.
5. FILING OF APPLICATIONS BY PROFESSIONALS FOR COMPENSATION AND
REIMBURSEMENT OF EXPENSES
None of the Professionals have received any payment of fees or
reimbursement of expenses since the Petition Date. The Debtors have established
___________ as the last date by which applications for Professional compensation
and reimbursement of expenses (the "Fee Applications") from the Petition Date
through ___________ must be filed by Professionals, Settlement Professionals and
those seeking compensation pursuant to Section 503(b)(3) through (b)(5) of the
Bankruptcy Code. A hearing on Fee Applications will be held _____________.
Pursuant to the order establishing the dates governing such applications, for
the period from [the last date covered by the initial Fee Applications] through
the Confirmation Hearing, Professionals must file monthly statements of fees and
expenses. Reserves in the aggregate amount of these monthly statements will be
established at the Confirmation Hearing and a hearing to consider applications
based on these monthly statements will take place as soon thereafter as
feasible.
Fee Applications must be Filed with the Bankruptcy Court and served
on: (a) White & Case, 1155 Avenue of the Americas, New York, NY 10036, Attn:
Andrew DeNatale; (b) The Bayard Firm, 919 Market Street, 16th Floor, Wilmington,
Delaware 19899, Attn: Scott Cousins; (c) Kelley, Drye & Warren,101 Park Avenue,
New York, NY 10178, Attn: Mark Bane; (d) Saul, Ewing, 222 Delaware Avenue, Suite
1200, Wilmington, DE 19810, Attn: Norman Pernick, and (e) Office of the United
States Trustee, 601 Walnut Street, Suite 950 West, Philadelphia, PA 19106, Attn:
Daniel K. Astin. Notice of filing of Fee Applications shall be given to all
parties-in-interest which have requested notice in the Debtors' cases no later
than 20 days prior to the hearing on the Fee Applications.
6. CONDITIONS TO EFFECTIVE DATE AND CONSUMMATION OF THE PLAN
The Effective Date will occur after each of the following conditions
has been satisfied or duly waived:
(a) An order finding that the Disclosure Statement contains adequate
information pursuant to Section 1125 of the Bankruptcy Code shall have been
entered.
(b) The Confirmation Order shall have been entered and shall have
become a Final Order.
(c) The articles of incorporation and by-laws of Reorganized STEL
shall have been amended to the extent necessary to effect or permit each of
the transactions contemplated in the Plan.
(d) All documents required to be delivered under the Plan on or prior
to the Effective Date shall have been executed and delivered by the parties
thereto.
(e) The Bankruptcy Court shall have entered an order (contemplated to
be part of the Confirmation Order) authorizing and directing the Debtors
and Liquidating STEL to take all actions necessary or appropriate to enter
into, implement and consummate any contracts, instruments, releases,
indentures and other agreements or documents created or adopted in
connection with the Plan.
(f) The USC Telecom Note shall have been paid-off in full, or Cash in
an amount equal to the outstanding amount of the USC Telecom Note shall
have been placed in an escrow account in favor of Greyrock, or such
condition shall have been waived by Greyrock.
(g) The Debtors must have made payments to Holders of Allowed Claims
entitled to be paid in full on or before the Effective Date and must have
made the required payments to Holders of Claims governed by the
Administrative Expense Treatment Agreement or similar agreements; and the
payments to Professionals must have totaled at least 50% of their then
Allowed Professional fees and expenses.
(h) All authorizations, consents and regulatory approvals required, if
any, in connection with the effectiveness of the Plan shall have been
obtained.
The Debtors may waive, by a writing signed by an authorized
representative and subsequently Filed with the Bankruptcy Court, one or more of
the conditions to Confirmation of the Plan; provided, that the Debtors must
obtain the prior written consent of Greyrock in order to waive the condition
regarding payment of the USC Telecom Note and the prior written consent of all
Holders of Administrative Expense Claims who are to receive distributions in an
amount less than the payments set forth in the Administrative Expense Treatment
Agreement or similar agreement with respect to payments which must be made prior
to the effectiveness of the Plan.
The Initial Distribution under the Plan shall be made on or before the
Effective Date, but, if made on the Effective Date shall be deemed to have been
made prior to the Plan becoming effective. The Filing with the Bankruptcy Court
of a certificate of the Liquidating Officer to the effect that the conditions in
Section 12.01 of the Plan have been met or waived and that Liquidating STEL has
substantially performed the obligations required under the Plan to be performed
by it on or before the Effective Date shall establish conclusively that the Plan
has been substantially consummated.
If the foregoing conditions have not been met or waived by the date
which is 180 days after the date of the hearing to approve the Disclosure
Statement (the "Conversion Date"), the Debtors shall convert the Cases to cases
under Chapter 7 of the Bankruptcy Code and a distribution of all available
assets will be made pursuant to the provisions applicable to a Chapter 7 Case
under the auspices of a Chapter 7 trustee or trustees. Such distributions will
be made without regard to the Inter-Debtor Settlement Agreement, the
Administrative Expense Treatment Agreement or similar agreements, provided,
however that the rights of parties in interest to pursue actions under Section
506(c) of the Bankruptcy Code shall be preserved; and further provided that the
WorldCom Settlement Agreement will survive the Conversion Date. The Debtors,
with the consent of the Committee, the Creditor Representatives and the U.S.
Trustee may extend the Conversion Date.
7. RESERVE FOR ESTIMATED EXPENSES
Prior to making any distributions under the Plan from Estate Cash or
Litigation Proceeds with respect to professional fees, the Debtors will fund an
Expense Reserve for the payment of any expenses then unpaid or anticipated to be
incurred by the Liquidating Officer in performing the obligations under the Plan
and otherwise winding up the Debtors' business. The Expense Reserve will be
funded from all Cash in the Debtors' Estates, including Estate Cash, Preference
Proceeds and Litigation Proceeds in that order, at the time the Reserve is
initially funded. If the Reserve is thereafter re-funded with the consent of the
Bankruptcy Court, the refunding will be made from all Cash then in the Debtors'
Estates, including Estate Cash, Preference Proceeds and Litigation Proceeds in
that order. Any surplus will be distributed to Holders of Allowed Claims in
accordance with the provisions of the Plan.
8. PROVISIONS RELATING TO DISPUTED CLAIMS
The Debtors or any party in interest may object to any claim, except a
Claim which is Allowed pursuant to the Plan. Any objection to a General
Unsecured Claim must be filed and served on the Holder thereof, the Committee
and the Debtors (if the context requires), on the later of (a) 120 days before
the initial date set for the Confirmation Hearing, (b) 30 days after the filing
of the Proof of Claim giving rise to the objection or (c) such other date as is
set by the Bankruptcy Court. Objections to Administrative Expense Claims,
Miscellaneous Secured Claims and Classified Priority Claims will be made by the
Debtors no later than 60 days before the date originally set for the
Confirmation Hearing or such other date as the Court may set. To the extent that
the Debtors or the Committee have not filed objections to Claims prior to
Confirmation, the Debtors may ask the Court to allow the Liquidating Officer to
pursue such claims' objections subsequent to Confirmation.
The Debtors anticipate that, in conjunction with the Committee, they
will object to duplicate claims and will move for reassignment of certain Claims
prior to the Confirmation Date.
The Debtors or the Liquidating Officer will create separate reserves
with respect to Disputed Claims in each Class. Each reserve will hold the
property which would otherwise be distributed to the Holder of a Disputed Claim.
The Debtors or the Liquidating Officer may seek an order on notice to the Holder
from the Bankruptcy Court estimating the Disputed Claim for purposes of creating
the reserve. Funds held in a reserve, to the extent practical, will be held in
an interest bearing account or invested in accordance with the Investment Order,
as such may be amended by the Bankruptcy Court.
When a Disputed Claim is Allowed by Final Order, in whole or in part,
the Debtors or the Liquidating Officer, as the context requires, shall make a
distribution to the Holder on the next Distribution Date.
After resolution of all Disputed Claims of a particular Class, any
surplus remaining in the reserve maintained on account of such Class will be
distributed to Holders of Allowed Claims in accordance with the provisions of
the Plan.
9. DUPLICATE CLAIMS OR CLAIMS ASSERTED AGAINST IMPROPER DEBTOR.
The assets and liabilities of USC, LDN, NATC, SWLDN and Uniquest will
be combined into Consolidated USC. Duplicate Claims Filed against these entities
will be automatically expunged so that only one Claim survives against
Consolidated USC. Duplicate Claims by a single Holder against STEL, Addtel
and/or Consolidated USC will be reviewed to determine against which single
Estate the Claim should properly be asserted. The Debtors will seek an order, on
notice to the Holder, expunging the duplicate Claim or Claims. Similarly,
certain Claims appear to have been asserted against the incorrect Debtor. The
Debtors, in conjunction with the Committee, will seek an order, on notice to the
Holder, reassigning any such Claim to the proper Estate.
10. UNCLAIMED PROPERTY
Unclaimed Property is any property that was distributed to a Claimant
but (a) remain unclaimed or (b) is returned as undeliverable with no forwarding
address within 180 days following distribution. However, if the distribution was
made by the issuance of a check and such check is not negotiated within 90 days
of issuance, the check will be deemed Unclaimed Property. Requests for
reissuance of a voided check must be made within 180 days of the date of
issuance. All Unclaimed Property reverts to and revests in Liquidating STEL
without regard for escheatment or similar laws. Unclaimed Property will become
available for distribution to Holders of Allowed Claims in accordance with the
terms of the Plan.
11. UNEXPIRED LEASES AND EXECUTORY CONTRACTS
Any unexpired leases or executory contracts that have not been assumed
or rejected by the Debtors prior to Confirmation are deemed rejected as of the
date the Confirmation Order becomes a Final Order. Moreover, unless otherwise
agreed between the parties, any contract, lease or other agreement not
terminated in accordance with its terms prior to the Confirmation Date is deemed
rejected as of the date the Confirmation Order becomes a Final Order. Any party
objecting to such rejection must File and serve on the Debtors and the Committee
its written objection no later than 20 days prior to the date first scheduled
for the Confirmation Hearing. Any party to a lease or contract rejected pursuant
to the Plan, must File a Proof of Claim for damages arising from the rejection
of such lease or contract no later than 30 days after the date on which the
Confirmation Order becomes a Final Order, unless the Bankruptcy Court sets
another date.
12. TIMING AND METHOD OF DISTRIBUTIONS
An initial distribution of property to Holders entitled to receive a
distribution will be made to Holders of Allowed Claims (or to the Indenture
Trustee in the case of Holders of 10% Convertible Notes) by the Debtors or the
Liquidating Officer on or before the Effective Date. On that date, Holders of
Allowed Claims entitled to be paid in full in Cash will receive payment in full
satisfaction of their Claims. In addition, parties to the Administrative Expense
Treatment Agreement or similar agreement with Allowed Claims will receive the
payments in the order and amounts set forth in the relevant agreement. See
Section IV.D.3. - "The Administrative Expense Treatment Agreement." Holders of
Allowed General Unsecured Claims in Classes 3-A through 3-C will receive
distributions in accordance with the payment scheme outlined in the
Administrative Expense Treatment Agreement, but the distributions will be
allocated in accordance with the Inter-Debtor Settlement Agreement. See Section
IV.D.1. - "The Inter-Debtor Settlement Agreement."
On or before the Initial Distribution Date, the Debtors or the
Liquidating Officer will also establish the Expense Reserve and the reserves for
the Classes of Disputed Claims.
Subsequent distributions will be made on additional Distribution Dates
which will occur no less frequently than every 90 days but only if Liquidating
STEL has at least $250,000 in the aggregate available to distribute. A Final
Distribution will be made no later than the date which is 120 days after the
date on which all Disputed Claims have been resolved or all assets including all
Causes of Action, have been monetized.
13. DISTRIBUTION PROVISIONS RELATING TO THE NOTES AND OTHER
SECURITIES
Distributions on account of an Allowed Claim based on a security of
the Debtor other than the 10% Convertible Notes will be made directly by the
Disbursing Agent or the Liquidating Officer to the Holder of such Claim.
Distributions on account of the 10% Convertible Notes, but not the March
Debenture or the August Debenture, will be made to the Indenture Trustee for
such Notes. The Indenture Trustee will in turn made a further distribution to
the Holders of Allowed Claims based on the 10% Convertible Notes in accordance
with the Plan provisions. As of the Effective Date, the Indenture will be
canceled, but the rights and duties as between the Indenture Trustee and the
Noteholders will not be impaired. Distributions made to Holders of 10%
Convertible Note Claims will be made subject to the then rights of the Indenture
Trustee under the Indenture for payment of its fees and expenses including the
fees and expenses of its counsel.
When a distribution is to be made to the Holder of a 10% Convertible
Note or other security, the instrument evidencing such obligation must be
provided to the Debtors or the Liquidating Officer prior to the distribution
being made. If the instrument was lost, stolen or mutilated, the Holder must
provide an affidavit and indemnity with respect to such instrument. Each Holder
of 10% Convertible Notes must surrender its Notes to the Indenture Trustee,
which in turn, will surrender them to the Debtors or the Liquidating Officer.
Each Holder of any other security, including the March Debenture, the August
Debenture, the Greyrock Facility and the EqualNet Facility, must surrender the
relevant instrument directly to the Debtors the Liquidating Officer. All such
instruments will be canceled as of the Effective Date.
Similarly, as of the Effective Date, all Interests in any of the
Debtors including any options, warrants, calls, subscriptions or similar rights
or agreements will be canceled with the exception that the shares in Liquidating
STEL issued upon the mergers discussed in Section 10.04 of the Plan will be held
by the Liquidating Officer until the Final Decree is issued, at which time these
shares will be canceled. Instruments evidencing such Interests need not be
returned to the Debtors or the Liquidating Officer.
14. FRACTIONAL DOLLARS AND SHARES
Payments of fractions of dollars will not be made; rather, the actual
payment will be rounded up or down to the nearest dollar, with half dollars
rounded down.
15. DEMINIMIS DISTRIBUTIONS
On any Distribution Date including the final Distribution Date, no
Cash payment of less than five ($5.00) dollars will be made. On any Distribution
Date prior to the final Distribution Date, entitlement to distribution in such
amount will be recorded and the funds will be reserved. If the aggregate
distribution to any Holder exceeds these threshold levels on a subsequent
Distribution Date, the aggregate amount will be distributed to such Holder.
16. MERGER OF CORPORATE ENTITIES
As of the Effective Date, the following mergers will be effective and
effectuated pursuant to the Confirmation Order without any further action by the
directors or shareholders of any of the Debtors: (i) Addtel and Consolidated USC
will be merged into STEL, and the surviving entity will be known as Liquidating
STEL; and (ii) any Affiliate of the Debtors may be merged into STEL or be
dissolved. To the extent that the Plan requires certain actions to be taken on
or before the Effective Date, including the making of certain payments, such
actions or payments shall be deemed to have been made prior to the mergers
referred to in this paragraph. The appropriate certificate of merger will be
filed and all other actions necessary to effectuate the mergers under Delaware
law will be taken. Simultaneous with the cancellation of the Debtors' Common
Stock, Liquidating STEL will issue 100 shares of authorized stock to the
Liquidating Officer which will hold this stock until the final Decree is issued
at which time such shares will be canceled. Promptly after the issuance of the
Final Decree, Liquidating STEL will be dissolved and the Board of Directors will
be dismissed. Any actions needed to effectuate the dissolution will be taken by
Liquidating STEL or the Liquidating Officer.
17. DISCHARGE AND RELEASE PROVISIONS
The distributions and rights under the Plan will completely satisfy,
discharge and release, as of the Effective Date, all Claims against and
Interests in any of the Debtors, except for any liens continuing pursuant to
Section 5.01(a) of the Plan. As of the Effective Date, the Confirmation Order
will provide a discharge and release of any all debts of and Claims against any
and all of the Debtors that arose any time before the Confirmation Date
regardless of whether a Proof of Claim was filed, the Claim was allowed pursuant
to Section 502 of the Bankruptcy Code, or the Holder voted for or against the
Plan. Such discharge and release will also operate as an injunction against any
entity commencing or continuing any action or employing any process or other
actions to collect or recover on any Claim within the parameters of the Plan,
provided, however, that nothing contained in the Plan will effect the right of a
Holder of an Allowed Administrative Expense Claim from pursuing an action
pursuant to Section 506(c) of the Bankruptcy Code.
The Confirmation Order will act as an injunction against any entity
from enforcing or attempting to enforce any Cause of Action against any present
or former officer, director, employee, attorney, accountant, financial advisor,
investment banker or agent of any of the Debtors as well as the Estates,
Liquidating STEL, the Liquidating Officer, Litigation Counsel, the Settlement
Professionals, the Committee, all members of the Committee in their capacity as
Committee members, the Indenture Trustee, Greyrock, only in its capacity as
Prepetition Lender, and all professionals retained by the Committee or any such
person based on, arising from or relating to, any act, omission or other
occurrence in connection with the Plan, the Chapter 11 Cases or the business
operations of the Debtors' during the Cases.
On the Effective Date, the Debtors will release and discharge all
present and former directors, officers, employees, attorneys, accountants,
financial advisors, investment bankers, and agents of, or acting for, the
Debtors or the Estates, Liquidating STEL, the Liquidating Officer, Litigation
Counsel, the Settlement Professionals, the Committee, all members of the
Committee in their capacity as Committee members, the Indenture Trustee,
Greyrock, but only in its capacity as Prepetition Lender, and all professionals
retained by the Committee (each a "Released Person") from any and all Causes of
Action existing as of the Effective Date arising from, based on or relating to
actions taken or omitted to be taken in good faith under or in connection with,
the Plan, in connection with the Chapter 11 Cases or the operation of the
Debtors business during the Cases. Such release will be binding on Liquidating
STEL. In consideration of the distributions under the Plan, each Holder of a
Claim or Interest is presumed to have absolutely, unconditionally, irrevocably
and forever released the Debtors, the Estates, Liquidating STEL, and each
Released Person, and any entity that may be derivatively liable through any of
the foregoing from any Claim or Cause of Action arising from or based on actions
taken or omitted to be taken in good faith under or in connection with the Plan,
in connection with the Chapter 11 Cases or the operation of the Debtors business
during the Cases. The Confirmation Order will also constitute an injunction
against any Person attempting to enforce any such Claim or Cause of Action
against of the entities receiving a release described in this paragraph.
18. EXCULPATION
Neither the Debtors, Liquidating STEL, the Liquidating Officer, the
Estates, Litigation Counsel, the Settlement Professionals nor any present
officer, director, employee, agent, attorney, accountant, investment banker or
financial advisor to any of them, shall be obligated in any manner under the
Plan or in respect thereof or by reason of the filing, negotiation, prosecution,
Confirmation, consummation or implementation of the Plan or the attempted
restructuring of the indebtedness of the Debtors after the Petition Date or any
action taken or not taken in connection therewith. Nor shall any of the
foregoing have or incur any liability to any Holder of a Claim or Interest or to
any other entity in respect of any matters or information provided or statement
made in this Disclosure Statement or omitted therefrom, except that (i) the
Debtors and Liquidating STEL will fulfill the obligations set forth in the Plan
and (ii) each entity including the foregoing will remain liable for its own
willful misconduct or gross negligence. Each entity will be entitled to rely
upon the advice of counsel with respect to its duties and responsibilities under
the Plan.
19. INDEMNIFICATION
Except as set forth in the following paragraph, all obligations of the
Debtors or the Estates to indemnify, or to pay contribution or reimbursement to
(whether pursuant to articles of incorporation, by-laws, contractual obligations
or any applicable law or otherwise), any of its present or former directors,
officers, agents, employees and representatives or any Holder of a Claim or
Interest treated in the Plan, or any trustee or agent acting for any such
Holder, or any person in any manner engaged, employed or indemnified in
connection with the issuance or sale of any Canceled Securities or any agent,
attorney, accountant, financial advisor, investment banker, employee or
representative or any heirs, representatives, successors or assigns of any
indemnified person, that may be outstanding, accrued or existing, or might
reasonably have been asserted, on the Confirmation Date in respect of any past,
present or future action, suit or proceedings shall be discharged under the
Plan, and all undertakings and agreements for or relating to any such
indemnification, contribution or reimbursement are hereby rejected and
terminated
No obligation of any of the Debtors, whether arising pursuant to law
or its articles of incorporation or by-laws or by contract or otherwise, to
indemnify, or to pay contribution or reimbursement to, any individual who served
as a director or officer of the Debtors at any time during the Chapter 11 Cases
shall be (i) discharged or impaired under the Plan, (ii) subordinated under
Section 510 of the Bankruptcy Code or otherwise, or (iii) disallowed. Any such
obligation that, under the Bankruptcy Code, has the priority of an
Administrative Expense Claim shall be entitled to such priority. No Proof of
Claim shall be required to preserve any such obligation. Liquidating STEL shall
assume and agree to pay all such obligations and further, shall defend,
indemnify and hold harmless each such individual from and against all related
claims, damages, losses, liabilities, costs and expenses (including the
reasonable fees and disbursements of legal counsel selected and employed by such
indemnified person, whether or not suit is brought). However, in addition to any
other existing limitation on such indemnity, no individual shall be indemnified
in respect of any claim, damages, liability, loss, cost or expense that has been
caused by such individual's own willful misconduct or gross negligence.
20. INSURANCE
The Debtors discharge shall not diminish or impair the enforceability
of insurance policies which may cover claims against the Debtors or any other
Person, including but not limited to present or former officers or directors of
any of the Debtors.
21. PROVISIONS RELATING TO WORLDCOM
As discussed above, at the time the Inter-Debtor Settlement Agreement
was negotiated, the Debtors and WorldCom agreed upon a process to deal with the
litigated issues between them. This agreement was incorporated in the
Inter-Debtor Settlement Agreement, as approved by the Bankruptcy Court and has
been specifically incorporated into the Plan. The elements of the agreement
between WorldCom and the Debtors are set forth in detail in this Disclosure
Statement at Section IV.D.1. - "The Inter-Debtor Settlement Agreement."
VI. VOTING INSTRUCTIONS AND PROCEDURES
A. GENERAL
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired and that will receive distributions under a Chapter 11 plan are
entitled to vote to accept or reject the plan. Generally, a claim or equity
interest as to which legal, equitable or contractual rights are altered is
"impaired." Classes of claims or equity interests in which the holders of claims
or equity interests will not receive or retain any property under a Chapter 11
plan are deemed to have rejected the plan and are not entitled to vote to accept
or reject the plan. Classes of claims or equity interests in which the holders
of claims or equity interests are unimpaired under a Chapter 11 are deemed to
have accepted the plan and are not entitled to vote thereon.
B. HOLDERS OF CLAIMS ENTITLED TO VOTE
As described above, the Plan categories consist of eight types of
Claims and Interests, classified into 7 Classes and divided, where applicable,
into three subcategories, A through C, representing STEL, Addtel, and
Consolidated USC, respectively. See Section V.A. - "The Plan -- Classification
and Treatment of Claims and Interests Under the Plan." The Debtors are seeking
the acceptance of the Plan by Holders of General Unsecured Claims against STEL
(Class 3-A); Holders of General Unsecured Claims against Addtel (Class 3-B) and
Holders of General Unsecured Claims against Consolidated USC (Class 3-C).
Holders of Miscellaneous Secured Claims against STEL, Addtel and
Consolidated USC (Classes 1-A through 1-C), Administrative Expense Claims (not
classified) and Classified Priority Claims (Class 2-A) are unimpaired under the
Plan and are conclusively presumed to have accepted the Plan.
The solicitation of acceptance of the Plan from Holders of
Intercompany Claims (Class 4-A), STEL Preferred Stock Interests (Class 5-A),
Common Stock Interests in STEL (Class 6-A) and Subsidiary Common Stock Interests
(Class 7-A) is not required because, under the Bankruptcy Code, such Holders are
conclusively presumed to have rejected the Plan. Note, however, that only the
Holders of Claims in Classes 3-A through 3-C against which no objections are
pending or that are Allowed at the time the vote on the Plan is solicited will
have their votes counted, unless the Holder and the Debtor agree otherwise or
the Bankruptcy Court so directs.
A Ballot for purposes of voting to accept or reject the Plan has been
enclosed with all copies of this Disclosure Statement mailed to Holders of
Impaired Claims in Classes that will receive a distribution under the Plan.
Accordingly, this Disclosure Statement (and the Exhibits and attachments
hereto), together with the accompanying Ballot and the related materials
delivered together herewith, are being furnished to Holders of Claims in Classes
3-A through 3-C. Such materials may not be relied upon or used for any purpose
by such Holders other than to determine whether or not to vote to accept or
reject the Plan.
C. VOTE REQUIRED TO CLASS ACCEPTANCE
The Bankruptcy Court will determine whether sufficient acceptances
have been received to confirm the Plan. A class of impaired claims is deemed to
have accepted a Chapter 11 plan if votes to accept the plan have been cast by
creditors (other than any entity designated under Section 1126(e) of the
Bankruptcy Code) that hold at least two-thirds in dollar amount and more than
one-half in number of the allowed claims that cast ballots (other than any
entity designated under Section 1126(e) of the Bankruptcy Code) that have
accepted or rejected the plan.
The Debtors also may seek Confirmation of the Plan under Section
1129(b) with respect to Classes 3-A through 3-C, to the extent that any Class
rejects, or is deemed to reject, the Plan. Section 1129(b) permits the
confirmation of a plan notwithstanding the nonacceptance of such plan by one or
more impaired classes of claims or equity interests. Under that section, a plan
may be confirmed if it does not "discriminate unfairly" and is "fair and
equitable" with respect to each nonaccepting class.
D. COUNTING OF BALLOTS FOR DETERMINING ACCEPTANCE OF THE PLAN
[BSI?] intends to count all Ballots validly executed by the Holders of
Impaired Claims entitled to vote, if received prior to the Voting Deadline (as
defined below), for purposes of determining whether each Impaired voting Class
has accepted or rejected the Plan.
E. VOTING DEADLINE
IN ORDER FOR YOUR BALLOT TO BE COUNTED, YOUR BALLOT MUST BE COMPLETED
AS SET FORTH ABOVE AND RECEIVED BY THE VOTING DEADLINE OF __:_0 _.M. EASTERN
STANDARD TIME, ON _______ __, 1999 (OR SUCH OTHER DATE TO WHICH THE BANKRUPTCY
COURT, ON REQUEST OF THE DEBTORS, EXTENDS SUCH DATE). ANY BALLOT WHICH IS
EXECUTED, BUT WHICH DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE
PLAN OR WHICH INDICATES BOTH AN ACCEPTANCE AND A REJECTION OF THE PLAN WILL NOT
BE COUNTED. YOUR ORIGINAL SIGNATURE IS REQUIRED ON THE BALLOT IN ORDER FOR YOUR
VOTE TO COUNT.
BALLOTS SHOULD BE MAILED IN THE ENVELOPE PROVIDED WITH SUCH BALLOTS
TO:
[address]
OR SENT BY OVERNIGHT COURIER OR HAND DELIVERY TO:
[address]
Ballots will not be accepted after the Voting Deadline, unless the
Bankruptcy Court, at the request of the Debtors, extends the Voting Deadline, in
which event the solicitation will terminate at the specified time on such
extended date. Except to the extent permitted by the Bankruptcy Court, Ballots
that are received after the Voting Deadline will not be accepted or used by the
Debtors in connection with the Debtors' request for Confirmation of the Plan (or
any permitted modification thereof).
Consistent with the provisions of Rule 3018 of the Bankruptcy Rules,
the Bankruptcy Court has fixed the Record Date, i.e., the time and date for the
determination of Holders of record of Claims who are entitled to vote on the
Plan, as the close of business, Eastern Standard Time, on _______ __, 1999.
F. VOTING PROCEDURES
Prior to the Petition Date, the Debtors did not maintain their books
and records in a manner which would enable them to readily determine as to which
Debtor any particular creditor's Claim should be attributed. For this reason,
the Debtors moved the Bankruptcy Court for an order directing that every
creditor which wished to participate in the case must file a proof of claim
indicating against which Debtor the Claim was asserted, with the exception of
the Holders of the 10% Convertible Notes because the Proof of Claim filed by
Indenture Trustee provided sufficient notice of their Claims. The Bankruptcy
Court entered such an order on April 27, 1998. Only Holders of Claims in
Impaired Classes which filed valid and timely Proofs of Claim and the Holders of
the 10% Convertible Notes who were deemed to have filed a Proof of Claim will be
entitled to vote on the Plan. The Debtors are providing copies of this
Disclosure Statement and Ballots to all such Holders of Claims in Classes 3-A
through 3-C
If you hold a Claim in more than one Class and you are entitled to
vote in more than one Class, you will receive separate Ballots which must be
used for each separate Class of Claims. Reference should be made to the
Disclosure Statement Order dated __________ __, 1999 attached as Exhibit B prior
to voting for specific voting instructions.
Unless otherwise directed by the Bankruptcy Court, all questions as to
the validity, form, eligibility (including time of receipt), acceptance, and
revocation or withdrawal of Ballots will be determined by the Bankruptcy Court
after notice and a hearing, pursuant to Bankruptcy Rule 3018(a). Any defects or
irregularities in connection with deliveries of Ballots must be cured within
such time as the Bankruptcy Court determines. Neither the Debtors nor any other
person will be under any duty to provide notification of defects or
irregularities with respect to deliveries of Ballots nor will any of them incur
any liabilities for failure to provide such notification.
If you are a holder of a Claim or Interest entitled to vote on the
Plan and did not receive a Ballot, received a damaged Ballot or lost your
Ballot, or if you have any questions concerning the Disclosure Statement, the
Plan or the procedures for voting on the Plan, please call Daniel P. Ginsberg,
White & Case, 1155 Avenue of the Americas, New York, NY 10039: (212) 819-8200 or
Scott D. Cousins, The Bayard Firm, 919 Market Street, P.O. Box 25130,
Wilmington, DE 19899: (302) 655-5000.
VII. CONFIRMATION AND CONSUMMATION OF THE PLAN
Described below are certain important considerations under the
Bankruptcy Code in connection with Confirmation and consummation of the Plan.
A. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold the Confirmation Hearing. The Confirmation Hearing in
respect of the Plan has been scheduled for _________ __, 2000 at __:_0 _.m.,
Eastern Standard Time, before the Honorable Peter J. Walsh, United States
Bankruptcy Judge at the United States Bankruptcy Court, 824 Market Street, ___
Floor, Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned
from time to time by the Bankruptcy Court without further notice except for an
announcement of the adjourned date made at the Confirmation Hearing or any
adjournment thereof. Notice of the Confirmation Hearing will be provided to all
Holders of Claims and other parties in interest who have requested notice in
these cases.
Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to Confirmation of the Plan. Objections to Confirmation of
the Plan must be made in writing, specifying in detail the name and address of
the Person objecting, the grounds for the objection, and the nature and amount
of the Claim held by the objector. Objections must be filed with the Bankruptcy
Court, together with proof of service, and served upon the parties so designated
in the Confirmation Hearing Notice, on or before the time and date designated in
that Notice as being the last date for serving and filing objections to
Confirmation of the Plan. Only timely filed and served objections to
Confirmation of the Plan will be considered by the Bankruptcy Court. Objections
to Confirmation of the Plan are governed by Bankruptcy Rules 3020(b) and 9014
and the local rules of the Bankruptcy Court.
B. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
At the Confirmation Hearing, the Bankruptcy Court will confirm the
Plan only if all of the requirements of Section 1129 of the Bankruptcy Code are
met. Among the requirements for confirmation of a plan are that the plan is (i)
accepted by all impaired classes of claims and equity interests, (ii) feasible
and (iii) in the "best interests" of creditors and stockholders which are
impaired under the plan.
However, as discussed below, the Debtors may, if necessary, request
Confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy Code.
Under Section 1129(b), the Bankruptcy Court will confirm the Plan despite the
lack of acceptance by an Impaired Class or Classes if the Bankruptcy Court finds
that (a) the Plan does not discriminate unfairly with respect to each
non-accepting Impaired Class, (b) the Plan is "fair and equitable" with respect
to each non-accepting Impaired Class, (c) at least one Impaired Class has
accepted the Plan (without counting acceptances by insiders) and (d) the Plan
satisfies the requirements set forth in Bankruptcy Code Section 1129(a) other
than Section 1129(a)(8).
The Debtors believe that, upon acceptance of the Plan by at least one
Impaired Class, determined without including any acceptance of the Plan by any
insider, the Plan will satisfy all the statutory requirements of Chapter 11 of
the Bankruptcy Code, that the Debtors have complied or will have complied with
all of the requirements of Chapter 11, and that the Plan has been proposed in
good faith.
1. THE PLAN DOES NOT DISCRIMINATE UNFAIRLY
The Bankruptcy Code requires that a plan not "discriminate unfairly"
with respect to each non-accepting Impaired Class. Essentially, this means that
each non-accepting Impaired Class must receive treatment reasonably consistent
with the treatment afforded to other Classes with similar legal Claims against
the Debtor. The Debtors believe that the Plan complies with this requirement.
2. THE PLAN IS FAIR AND EQUITABLE
The Bankruptcy Code establishes different "fair and equitable" tests
for holders of unsecured claims and secured claims. With respect to a Class of
Unsecured Claims that does not accept the Plan, the Debtors must demonstrate to
the Bankruptcy Court that either (a) each Holder of an Unsecured Claim of the
objecting Class receives or retains under the Plan property of a value equal to
the Allowed amount of its unsecured Claim or (b) the Holders of Claims or
Interests that are junior to the Claims of the Holders of such Unsecured Claims
will not receive or retain any property under the Plan. With respect to a Class
of Secured Claims that does not accept the Plan, the Debtors must demonstrate to
the Bankruptcy Court that either (a) the Holders of such Claims are retaining
the liens securing such Claims and that each Holder of a Claim of such Class
will receive deferred cash payments totaling at least the Allowed amount of such
Claim, of a value of at least the value of such Holder's interest in its
collateral, or (b) the Holders of such Claims will realize the indubitable
equivalent of such Claims under the Plan. The Debtors believe that the
distribution scheme described herein complies with the fair and equitable tests.
3. THE BEST INTERESTS TEST
Whether or not the Plan is accepted by each Impaired Class of Claims
entitled to vote on the Plan, in order to confirm the Plan the Bankruptcy Court
must, pursuant to Section 1129(a)(7) of the Bankruptcy Code, independently
determine that the Plan is in the best interests of each Holder of a Claim
Impaired by the Plan if the Plan is not unanimously accepted by such Class.
Thus, the Plan must provide each Holder of a Claim in such Impaired Class a
recovery on account of such Claim that has a value, as of the Effective Date, at
least equal to the value of the distribution such Holder would receive in a
liquidation of the Debtors under Chapter 7 of the Bankruptcy Code.
To determine the value that Holders of Impaired Claims would receive
if the Debtors were liquidated under Chapter 7, the Bankruptcy Court must
determine the aggregate dollar amount that would be generated from the
liquidation of the Debtors' assets if the Debtors' Chapter 11 Cases were
converted to Chapter 7 liquidation cases and the Debtors' assets were liquidated
by a Chapter 7 trustee (the "Liquidation Value"). The Liquidation Value would
consist of the net proceeds from the disposition of the Debtor's assets,
augmented by cash held by the Debtors and reduced by certain increased costs and
Claims that arise in a Chapter 7 liquidation case but that do not arise in a
Chapter 11 reorganization case.
The Liquidation Value available for satisfaction of unsecured Claims
against in the Debtors would be reduced by: (a) the Claims of secured creditors
to the extent of the value of their collateral, and (b) the costs, fees and
expenses of the liquidation under Chapter 7, which would include: (i) the
compensation of a trustee and its counsel and any other professionals retained,
(ii) disposition expenses, (iii) all unpaid expenses incurred by the Debtors
during the Chapter 11 Cases (such as compensation for attorneys, financial
advisors, investment bankers, brokers, auctioneers and accountants and the costs
and expenses of members of the Committee), (iv) litigation costs, and (v) Claims
arising from the operation of the Debtors during the pendency of the Chapter 11
Cases and the Chapter 7 liquidation case.
To determine whether the Plan is in the best interests of each
Impaired Class, the present value of the distributions from the proceeds of the
liquidation of the Debtors' assets and properties, after subtracting the amounts
attributable to the foregoing Claims, costs, fees and expenses, would then be
compared to the value of the property offered to such Classes of Claims and
Interests under the Plan on the Effective Date.
If the Debtors' cases were converted to Chapter 7, the Unsecured
Creditors would lose the benefits of the Administrative Expense Treatment
Agreement and the individual claim reduction agreements reached with other
Administrative Expense claimants. Moreover, the Inter-Debtor Claims Settlement
Agreement will not survive a conversion to Chapter 7. Without such a consensual
resolution of the allocation of claims between and among the Debtors' estates,
this issue will most likely be resolved through protracted and costly
litigation, the cost of which would reduce the amount available for distribution
to creditors. Without these agreements in place it is highly unlikely that
General Unsecured Creditors would receive any distribution in the Chapter 11
Cases, and less likely that they would receive any distribution in Chapter 7
Cases.
After considering the effects that a Chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in the Chapter
11 Cases, including the increased costs and expenses of a liquidation under
Chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisors to such trustee, the Debtors have determined that confirmation of the
Plan will provide each holder of an Allowed Claim with a recovery that is not
less than such Holder would receive pursuant to liquidation of the Debtors under
Chapter 7 liquidation.
Thus, the Debtors believe the Plan meets the requirements of section
1129(a)(7) of the Bankruptcy Code because, under the Plan, all holders of
Impaired Claims will receive distributions that have a value at least equal to
the value of the distribution that each such Person would receive if the Debtors
were liquidated under Chapter 7 of the Bankruptcy Code.
4. FEASIBILITY
Even if the Plan is accepted by each Class of Claims voting on the
Plan, and even if the Bankruptcy Court determines that the Plan satisfies the
best interests test, the Bankruptcy Code requires that, in order for the Plan to
be confirmed by the Bankruptcy Court, it must be demonstrated that Confirmation
of the Plan is not likely to be followed by the liquidation or the need for
further financial reorganization of the Debtors. The Plan provides for the
distribution of the proceeds of liquidation of the Debtors' assets under the
priorities established by the Bankruptcy Code, as otherwise agreed by the
various parties in interest or as previously approved by the Bankruptcy Court.
Thus, the Debtors believe that the Plan complies with the feasibility
requirement of Section 1129(a)(11) of the Bankruptcy Code.
VIII. ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed by the Bankruptcy Court and consummated,
the alternatives to the Plan include (a) liquidation of the Debtors under
Chapter 7 of the Bankruptcy Code, (b) an alternative plan of reorganization or
(c) dismissal of the Debtors' cases.
A. LIQUIDATION UNDER CHAPTER 7
If no plan can be confirmed, the Debtors' Chapter 11 Cases may be
converted to cases under Chapter 7 of the Bankruptcy Code, pursuant to which a
trustee would be appointed to liquidate the assets of the Debtors for
distribution to Claim Holders in accordance with the priorities established by
the Bankruptcy Code. For the reasons discussed above, under "Confirmation and
Consummation of the Plan - The Best Interests Test," the Debtors believe that
Confirmation of the Plan will provide each Holder of a Claim entitled to receive
a distribution under the Plan with a recovery that is not less (and is generally
expected to be substantially more) than it would receive pursuant to liquidation
of the Debtors under Chapter 7 of the Bankruptcy Code.
B. ALTERNATIVE PLAN
If the Plan is not confirmed, the Debtors or, as the Debtors'
exclusive period in which to file a plan of reorganization has expired, any
other party in interest would be entitled to file a different plan. As the
Debtors are no longer operating entities, such a plan would most likely involve
an alternate means of liquidating the Debtors' assets. The Debtors have explored
various other alternatives in connection with the formulation and development of
the Plan. The Debtors and the Committee believe that the Plan enables Holders of
Claims to realize the most value under the circumstances of these particular
Debtors' cases. The Plan is premised on distributions to creditors under the
priorities established by the Bankruptcy Code as otherwise agreed or as approved
by the Bankruptcy Court and is the result of extensive negotiations between the
Debtors, the Committee and certain creditors of various Debtors. An alternative
Chapter 11 plan would likely involve further discussions and reformulation -
increasing administrative expenses and thus reducing creditor distributions -
and likely would delay, perhaps significantly, the timing of distributions to
creditors.
IX. RISK FACTORS
The following is intended as a summary of certain risks associated
with the Plan, but is not exhaustive and must be supplemented by the analysis
and evaluation of the Plan and this Disclosure Statement as a whole by each
Holder of a Claim with such Holder's own advisors. The risk factors discussed
below assume confirmation and consummation of the Plan and the transactions
contemplated by the Plan, and do not include matters, other than risks
pertaining to the ability of the Debtors to fund the Plan and to pay holders of
Claims, that could prevent confirmation or consummation.
HOLDERS OF CLAIMS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET
FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE
STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY
REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK
FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED
IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.
A. BANKRUPTCY RISKS
1. OBJECTION TO CLASSIFICATION
Section 1122 of the Bankruptcy Code provides that a plan may place a
claim or an interest in a particular class only if such claim or interest is
substantially similar to the other claims or interests of such class. The
Debtors believe that the classification of Claims and Interests under the Plan
complies with the requirements set forth in the Bankruptcy Code. However, there
can be no assurance that the Bankruptcy Court will reach the same conclusion.
See Section V.A. - "The Plan - Classification and Treatment of Claims and
Interests Under the Plan."
2. RISK OF NONCONFIRMATION OF THE PLAN
Even if all Classes of Claims that are entitled to vote accept the
Plan, the Plan might not be confirmed by the Bankruptcy Court. Section 1129 of
the Bankruptcy Code sets forth the requirements for confirmation and requires,
among other things, that the confirmation of a plan of reorganization is not
likely to be followed by liquidation or the need for further financial
reorganization, and that the value of distributions to dissenting creditors and
equity security holders not be less than the value of distributions such
creditors and equity security holders would receive if the debtor were
liquidated under Chapter 7 of the Bankruptcy Code. The Debtors believe that the
Plan satisfies all the requirements for confirmation of a plan of reorganization
under the Bankruptcy Code. There can be no assurance, however, that the
Bankruptcy Court will also conclude that the requirements for Confirmation of
the Plan have been satisfied. See Section VII - "Confirmation and Consummation
of the Plan."
3. CONVERSION OF THE CASES
Although the Debtors are unable to make the statutorily required
payments to Holders of Administrative Expense Claims, Classified Priority Claims
and Secured Claims, the Debtors and the Committee have attempted to develop a
plan of reorganization which offers the prospect for providing a distribution to
General Unsecured Creditors with Allowed Claims. The agreement on the part of
certain Holders of Administrative Expense Claims, particularly certain Service
Providers and the Professionals, to take less than 100% of the distributions to
which each is entitled, as embodied in the Administrative Expense Treatment
Agreement, provides the basis for a plan which may provide a recovery to General
Unsecured Creditors. In particular, the Professionals agreed that, in the
interest of confirming a plan of reorganization, they would be willing to take
an initial distribution of 50% of their Allowed fees and expenses. However, at
the time that the Administrative Expense Treatment Agreement was developed, the
various parties concurred that if the Debtors were unable to make at least this
50% distribution to Professionals at the time of Confirmation, there would be no
meaningful prospect for the Plan to provide any distribution to General
Unsecured Creditors.
Therefore, if the 50% payment of Allowed fees and expenses of
Professionals cannot be made at the time of the Initial Distribution Date, the
Debtors will convert the Cases to a case or cases under Chapter 7 and any and
all remaining assets of the Debtors will be liquidated by a Chapter 7 trustee or
trustees.
Liquidation in Chapter 7 would proceed without regard to the terms of
the Administrative Expense Treatment Agreement and the Inter-Debtor Settlement
Agreement, but the WorldCom Settlement Agreement will survive conversion and be
binding on a Chapter 7 trustee.
B. RISKS RELATED TO EQUALNET
There are a number of risks associated with the Plan which are related
to the EqualNet Common Stock and confirmation of the EqualNet Corp. plan of
reorganization. First, in February 1999, EqualNet was the subject of a delisting
hearing before NASDAQ, on which its stock trades, based on EqualNet's failure to
meet certain minimum trading volume and market price requirements and minimum
net worth requirements. Although NASDAQ has taken no further action, there is no
guarantee that the EqualNet Common Stock will not be delisted.
Second, the Debtors may not be able to liquidate the EqualNet Common
Stock for an amount sufficient to make the payments contemplated under the Plan.
When the Debtors entered into the Purchase Agreement, EqualNet Common Stock was
trading at between $2.50 and $3.00 per share. However, during the six months
prior to the filing of this Disclosure Statement, the average trading price of
the Stock has been below $1.00. There can be no guarantee that the market price
will increase or that the Debtors will be able to liquidate all of their
holdings at advantageous prices in a timely manner.
[Third, to fulfill its post-closing obligations and to satisfy the
Judgment relating thereto, EqualNet offered to pay the Debtors $_________ upon
confirmation of the EqualNet Corp. plan of reorganization and to deliver
__________ additional shares of registered Common Stock to the Debtors. If the
Debtors do not receive the cash or additional shares, they may not be able to
confirm the Plan.] [Moreover, the EqualNet Parties agreed to deliver shares of
registered EqualNet Common Stock to Greyrock which will be liquidated by
Greyrock to satisfy the USC Telecom Note. If these shares are not delivered or
if the USC Telecom Note is not fully satisfied through liquidation of these
shares, Greyrock will likely foreclose on the cash from the sale of the Debtors'
assets, plus accrued interest, on which Greyrock has a lien.] In this
circumstance, the Debtors will not be able to make the required payments under
the Plan.
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion is a summary of certain U.S. federal income
tax consequences expected to result from the implementation of the Plan. This
discussion is based on the Internal Revenue Code of 1986, as amended (the "Tax
Code"), as in effect on the date of this Disclosure Statement and on United
States Treasury Regulations in effect (or in certain cases, proposed) on the
date of this Disclosure Statement, as well as judicial and administrative
interpretations thereof available on or before such date. All of the foregoing
are subject to change, which change could apply retroactively and could affect
the tax consequences described below. There can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view with respect
to one or more of the issues discussed below, and no ruling from the IRS has
been or will be sought with respect to any issues which may arise under the
Plan.
The following summary is for general information only and does not
purport to address all of the U.S. federal income tax consequences that may be
applicable to a particular Holder. The tax treatment of a Holder of an Allowed
Claim or Interest, as the case may be, may vary depending upon such Holder's
particular situation. The following discussion does not address state, local or
foreign tax considerations that may be applicable to the Debtors and Holders of
an Allowed Claim or Interest. This summary does not address tax considerations
applicable to Holders that may be subject to special tax rules, such as
financial institutions, insurance companies, dealers or traders in securities or
currencies, tax-exempt entities, persons that hold an equity interest or a
security in a Debtor as a position in a "straddle" or as part of a "hedging,"
"conversion" or "integrated" transaction for U.S. federal income tax purposes,
persons that have a "functional currency" other than the U.S. dollar, persons
who acquired an equity interest or a security in a Debtor in connection with the
performance of services and persons who are not United States persons (as
defined in the Tax Code). Finally, this summary does not address the U.S.
federal income tax consequences to any Holders of Allowed Claims or Interests
that will either be satisfied in full under the Plan or will receive no recovery
under the Plan.
EACH HOLDER OF AN ALLOWED CLAIM OR INTEREST IS URGED TO CONSULT ITS
OWN TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE IMPLEMENTATION OF THE PLAN.
A. U.S. FEDERAL INCOME TAX CONSEQUENCES TO DEBTORS
1. DISCHARGE OF INDEBTEDNESS INCOME
The difference between the amount by which the debt discharged exceeds
any consideration therefor will be cancellation of debt ("COD") income under the
Tax Code. Because the discharge of indebtedness of each Debtor will occur in a
bankruptcy proceeding under Title 11 of the United States Code, such Debtor will
be able to exclude the COD income from gross income. As a consequence of this
exclusion, such Debtor must reduce certain tax attributes. While not free from
doubt, such attribute reduction should occur on a separate company-by-company
basis even though the Debtors belong to a consolidated group. If so, attribute
reduction would apply separately with respect to each of the Debtors.
Pursuant to the Tax Code, attribute reduction would occur after the
tax liability for the taxable year of debt discharge is determined. COD income
will first be applied against a Debtor's remaining NOLs, on a dollar-for-dollar
basis. To the extent of such excess, if any, and assuming that certain other tax
attributes are not available, such Debtor will next be required to reduce the
basis of any property held on the first day of the taxable year following the
taxable year of debt discharge. Once the basis reduction limits have been
reached, all remaining COD income should be canceled.
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 a Debtor,
portions of payments made in consideration for the indebtedness underlying such
Allowed Claims which is allocated to accrued but unpaid interest should be
deductible by the Debtor. To the extent that a Debtor has previously taken a
deduction for accrued but unpaid interest, any amounts so deducted which give
rise to tax benefit, and are not excludable under Section 111 of the Tax Code,
will be excludable to the Debtor under Section 108 of the Tax Code. Such Debtor
will then be required to reduce its tax attributes as described above.
B. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF ALLOWED CLAIMS
1. IN GENERAL
The U.S. federal income tax consequences to Holders of Allowed Claims
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 the indebtedness it holds, the nature of the indebtedness owing to
it, and whether the Holder has previously claimed a bad debt or worthless
security deduction in respect of its Claim.
Holders of Allowed Claims should evaluate the U.S. federal income tax
consequences of the Plan to them based on their own particular circumstances and
should not rely solely on the general discussion herein.
2. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO EXCHANGING
HOLDERS
This discussion does not address the tax considerations applicable to
a Holder who (i) has previously claimed a deduction for worthlessness in respect
of such claim or (ii) holds such claim other than as a result of lending the
principal amount thereof to one of the Debtors. Consequently, any such Holder
should consult its own tax advisor as to its proper tax treatment.
a. Class 3-A: STEL General Unsecured Claims
Pursuant to the Plan, a Holder of a STEL General Unsecured Claim will
receive Cash Proceeds plus a share of the Litigation Proceeds and the Preference
Proceeds, if any. An exchanging Holder will recognize gain or loss in an amount
equal to the difference, if any, between the amount realized in respect of its
Allowed Claim (other than any Allowed Claim for accrued interest) and its
adjusted tax basis of its Allowed Claim. Such Holder's amount realized in
respect of its Allowed Claim generally will equal the sum of (i) Cash received
and (ii) the fair market value of any property received. A Holder's tax basis
will reflect the amount of any loss deduction previously taken with respect to
such claim and will not include any basis attributable to accrued interest. The
gain or loss should be capital in nature if such claim is a capital asset within
the meaning of Section 1221 of the Tax Code.
b. Class 3-B: Addtel General Unsecured Claims
Pursuant to the Plan, a Holder of an Addtel General Unsecured Claim
will receive Cash Proceeds plus a share of the Litigation Proceeds and the
Preference Proceeds, if any. An exchanging Holder will recognize gain or loss in
an amount equal to the difference, if any, between the amount realized in
respect of its Allowed Claim (other than any Allowed Claim for accrued interest)
and its adjusted tax basis of its Allowed Claim. Such Holder's amount realized
in respect of its Allowed Claim generally will equal the sum of (i) Cash
received and (ii) the fair market value of any property received. A Holder's tax
basis will reflect the amount of any loss deduction previously taken with
respect to such claim and will not include any basis attributable to accrued
interest. The gain or loss should be capital in nature if such claim is a
capital asset within the meaning of Section 1221 of the Tax Code.
c. Class 3-C: Consolidated USC General Unsecured Claims
Pursuant to the Plan, a Holder of a Consolidated USC General Unsecured
Claim will receive Cash Proceeds plus a share of the Litigation Proceeds and the
Preference Proceeds, if any. An exchanging Holder will recognize gain or loss in
an amount equal to the difference, if any, between the amount realized in
respect of its Allowed Claim (other than any Allowed Claim for accrued interest)
and its adjusted tax basis of its Allowed Claim. Such Holder's amount realized
in respect of its Allowed Claim generally will equal the sum of (i) Cash
received and (ii) the fair market value of any property received. A Holder's tax
basis will reflect the amount of any loss deduction previously taken with
respect to such claim and will not include any basis attributable to accrued
interest. The gain or loss should be capital in nature if such claim is a
capital asset within the meaning of Section 1221 of the Tax Code.
THE ABOVE SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
ALL HOLDERS OF ALLOWED CLAIMS AND INTERESTS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE
PLAN OF REORGANIZATION.
XI. CONCLUSION
The Debtors [and the Committee] believe that Confirmation of the Plan
is desirable and in the best interests of all Holders of Claims and Interests.
The Debtors [and the Committee] therefore urge you to vote to accept the Plan.
Dated: Wilmington, Delaware
May 12, 1999
SA TELECOMMUNICATIONS, INC.,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
<PAGE>
ADDTEL COMMUNICATIONS, INC.,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
LONG DISTANCE NETWORK, INC.,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
NORTH AMERICAN TELECOMMUNICATIONS
CORPORATION,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
UNIQUEST COMMUNICATIONS, INC.,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
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US COMMUNICATIONS, INC.,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
SOUTHWEST LONG DISTANCE NETWORK, INC.,
Debtor and Debtor-in-Possession
By: /s/ Albert B. Gordon, Jr.
Name: Albert B. Gordon, Jr.
Title: Interim Chief Executive Officer
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EXHIBIT A
THE PLAN
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EXHIBIT B
To Be Filed Prior to
Disclosure Statement Hearing
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EXHIBIT C
Term Sheet for Settlement of
Inter-Debtor Claims and
Joint Plan of Reorganization
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EXHIBIT D
To Be Filed Prior to
Disclosure Statement Hearing
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EXHIBIT E
To Be Filed Prior to
Disclosure Statement Hearing
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TABLE OF CONTENTS
Page
I. INTRODUCTION.............................................................2
A. Partially Consolidated Plan...........................................4
B. Potential Plan Recoveries Superior to Chapter 7 Liquidation...........4
C. Holders of Claims and Interests Entitled to Vote......................5
D. Voting Procedures.....................................................6
E. Confirmation Hearing..................................................7
II. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMSAND INTERESTS UNDER THE
PLAN AND THE AGREEMENTS.................................................8
A. Summary of Classification and Treatment of Claims and Interests Under
the Plan..............................................................8
B. Summary of the Effect of the Inter-Debtor Settlement Agreement and the
AdministrativeExpense Treatment Agreement............................11
C. No Guarantee of Recoveries...........................................14
III. GENERAL INFORMATION...................................................15
A. Overview of Chapter 11...............................................15
B. Description and History of Business..................................15
C. Events Leading Up to the Chapter 11 Cases............................17
IV. THE CHAPTER 11 CASES..................................................18
A. Continuation of Business; Stay of Litigation.........................18
B. Significant Events During the Chapter 11 Cases.......................18
C. Sale of Assets........................................................22
D. Settlement of Inter-Debtor Claims....................................27
E. Description of the EqualNet Preferred Stock..........................35
V. THE PLAN OF REORGANIZATION..............................................36
A. Classification and Treatment of Claims and Interests..................36
B. Summary of Other Provisions of the Plan..............................41
VI. VOTING INSTRUCTIONS AND PROCEDURES.....................................51
A. General..............................................................51
B. Holders of Claims Entitled to Vote...................................51
C. Vote Required to Class Acceptance....................................52
D. Counting of Ballots for Determining Acceptance of the Plan...........52
E. Voting Deadline......................................................52
F. Voting Procedures....................................................53
VII. CONFIRMATION AND CONSUMMATION OF THE PLAN.............................54
A. Confirmation Hearing.................................................54
B. Requirements for Confirmation of the Plan............................55
VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN............57
A. Liquidation Under Chapter 7..........................................57
B. Alternative Plan.....................................................58
IX. RISK FACTORS...........................................................58
A Bankruptcy Risks......................................................58
B. Risks Related to EqualNet............................................60
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.....................60
A. U.S. Federal Income Tax Consequences to Debtors......................61
B. U.S. Federal Income Tax Consequences to Holders of Allowed Claims....62
XI. CONCLUSION.............................................................63
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EXHIBITS
EXHIBIT A.........THE PLAN
EXHIBIT B.........TO BE FILED PRIOR TO DISCLOSURE STATEMENT HEARING
EXHIBIT C.........TERMS SHEET FOR SETTLEMENT OF INTER-DEBTOR CLAIMS AND
..................JOINT PLAN OF REORGANIZATION
EXHIBIT D.........TO BE FILED PRIOR TO DISCLOSURE STATEMENT HEARING
EXHIBIT E.........TO BE FILED PRIOR TO DISCLOSURE STATEMENT HEARING
