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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): APRIL 10, 1997
THE KRYSTAL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TENNESSEE 0-20040 62-0264140
(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
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ONE UNION SQUARE, CHATTANOOGA, TENNESSEE 37402
(Address of principal executive offices, including zip code)
(423) 757-1550
(Registrant's telephone number, including area code)
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ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
On April 10, 1997, the United States District Court for the Eastern
District of Tennessee (the "Bankruptcy Court") entered an order (the
"Confirmation Order") confirming the Second Amended and Restated Plan of
Reorganization, as amended and modified to date (the "Plan") of The Krystal
Company (the "Company"). The Confirmation Order and the Plan are filed,
respectively, as Exhibits 99.1 and 2 to this Form 8-K and are incorporated
herein by reference. The Confirmation Order became final on April 22, 1997.
The effective date under the Plan is the first business day after
satisfaction of the following conditions: (a) the Company shall have in its
possession, custody on control immediately available funds in an amount
sufficient to enable it to make all distributions required by the Plan to be
made and (b) all distributions required by the Plan to be made shall have
been made.
For a summary of the material features of the Plan, reference is
made to the information set forth under the caption "Summary" in the
Company's Disclosure Statement regarding its Plan dated February 27, 1997,
filed as Exhibit 99.2 to this Form 8-K and incorporated herein by reference.
The Disclosure Statement describes the Plan.
As of April 22, 1997, the Company had 7,478,568 shares of its common
stock, without par value ("Shares"), issued and outstanding. No Shares will
be issued in respect of claims or interests filed and allowed under the Plan.
For information as to the consolidated assets and liabilities of the
Company and its subsidiaries, reference is made to the consolidated balance
sheet contained in the Company's Annual Report on Form 10-K for the fiscal
year period ended December 29, 1996, filed as Exhibit 13 to this Form 8-K and
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
EXHIBITS
No. Description
2.1 Company's Second Amended and Restated Plan of Reorganization dated
February 24, 1997.
2.2 Preconfirmation Modification of Plan dated April 8, 1997.
13 * Form 10-K of the Company for the year ended December 29, 1996.
99.1 Bankruptcy Court Order Confirming Company's Second Amended and
Restated Plan of Reorganization.
99.2 Company's Disclosure Statement dated February 10, 1997, as Revised
February 24, 1997, to accompany Second Amended and Restated Plan of
Reorganization filed by The Krystal Company.
* Incorporated by reference from the Company's Form 10-K filed on
March 25, 1997. (File No. 0-20040).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
April 23, 1997 THE KRYSTAL COMPANY
By: /s/ CAMDEN B. SCEARCE
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Camden B. Scearce
Vice President and
Chief Financial Officer
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF TENNESSEE
CHATTANOOGA DIVISION
IN RE: )
) CHAPTER 11
THE KRYSTAL COMPANY, )
) CASE NO. 95-15306
DEBTOR. )
) JUDGE COOK
________________________________________)
SECOND AMENDED AND RESTATED PLAN OF REORGANIZATION
NOW COMES The Krystal Company, as debtor and debtor-in-possession, and
proposes the following Second Amended and Restated Plan of Reorganization
pursuant to Section 1121(a) of the Bankruptcy Code.
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the following terms have the
respective meanings specified below, unless the context otherwise requires:
(1) "ADMINISTRATIVE EXPENSE CLAIM" means an expense or claim that
is entitled to administrative status under Section 503(b) of the Bankruptcy Code
and to treatment
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under Section 507(a)(1) of the Bankruptcy Code, and any fees and charges
assessed against the Estate under Chapter 123 of Title 28 of the United States
Code.
(2) "ALLOWED AMOUNT" means, with regard to a Claim against the
Debtor, the dollar amount of such Claim that is an Allowed Claim.
(3) "ALLOWED CLAIM" or "ALLOWED INTEREST" means a Claim against the
Debtor or an Interest in the Debtor proof of which has been filed with the
Bankruptcy Court prior to the Bar Date or, if no proof of claim or proof of
interest was filed prior to the Bar Date, which Claim or Interest has been or
hereafter is listed by the Debtor in the Schedules as liquidated in amount, not
disputed and not contingent and, in all cases, as to which no objection to the
allowance thereof, or motion for the estimation thereof, has been interposed
within the applicable period of limitation fixed by the Plan, the Bankruptcy
Code, the Bankruptcy Rules or the Bankruptcy Court, or as to which an objection
or motion for estimation has been interposed, following which either (a) such
Claim or Interest has been allowed in whole or in part by a Final Order, or
(b) such Claim, Interest, objection, or motion otherwise has been withdrawn or
settled pursuant to a filed stipulation or Final Order.
(4) "AMENDED AND RESTATED PROVIDENT DOCUMENTS" means the
restructured note and security documents to be distributed to Provident on
account of its Class 3 Claims on the terms and conditions described in
Schedule 4.5 of this Plan.
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(5) "AMENDED AND RESTATED SCOTT DOCUMENTS" means the restructured
note and security documents to be distributed to Scott on account of its Class 4
Claims on the terms and conditions described in Schedule 4.6 of this Plan.
(6) "BANKRUPTCY CASE" means the bankruptcy case commenced on the
Filing Date by the Debtor by the filing of a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code, which case was filed and is pending in the
Bankruptcy Court as Case No. 95-15306.
(7) "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as
amended, 11 U.S.C. Sections 101, ET. SEQ., as now in effect or hereafter
amended.
(8) "BANKRUPTCY COURT" means the United States Bankruptcy Court for
the Eastern District of Tennessee, Chattanooga Division, or, in the event such
court ceases to exercise jurisdiction over the Bankruptcy Case, such court or
adjunct thereof that exercises jurisdiction over the Bankruptcy Case in lieu of
the United States Bankruptcy Court for the Eastern District of Tennessee,
Chattanooga Division.
(9) "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy
Procedure, as promulgated and amended under 28 U.S.C. Section 2075, as now in
effect or hereafter amended, together with the local rules adopted by the
Bankruptcy Court, or similar rules as may be in effect from time to time in the
Bankruptcy Court, to the extent applicable to the Bankruptcy Case.
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(10) "BAR DATE" means June 6, 1996, the date fixed by the Bankruptcy
Court as the deadline for filing of proofs of claim in the Bar Order.
(11) "BAR ORDER" means that certain Order dated March 1, 1996, and
entered by the Bankruptcy Court in the Bankruptcy Case on March 4, 1996, in
which, among other things, the Bankruptcy Court established the Bar Date.
(12) "BONDHOLDER CLAIMS" means the respective Allowed Claims of (a)
Prudential arising from the Prudential Documents, and (b) Great-West and
Jefferson-Pilot arising from the Great-West/Jefferson-Pilot Documents.
(13) "BUSINESS DAY" means any day other than a Saturday, a Sunday,
or another day on which commercial banks are authorized or required by law to
close in Chattanooga, Tennessee.
(14) "CASH" means cash, cash equivalents and other readily
marketable securities or instruments.
(15) "CAUSES OF ACTION" means such of the Debtor's property or such
of the property of the Estate as constitutes actions, causes of action, suits,
accounts, controversies, agreements, promises, rights to legal remedies, rights
to equitable remedies, rights to payment, and Claims and counterclaims, whether
known or unknown, reduced to judgment, not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured, and whether asserted or assertable directly or derivatively,
at law, in equity, by agreement, or otherwise.
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(16) "CHAPTER 11" means Chapter 11 of the Bankruptcy Code.
(17) "CLAIM" means a claim, whether or not asserted, known or
unknown, as such term is defined as in 11 U.S.C. Section 101(5).
(18) "CLASS" means a class of Claims or Interests as specified in
Article 3 of the Plan.
(19) "COMMITTEE" means the Official Committee of Unsecured Creditors
appointed in the Bankruptcy Case.
(20) "CONFIRMATION DATE" means the date on which the Confirmation
Order is entered on the docket of the Bankruptcy Court.
(21) "CONFIRMATION OF THE PLAN" or "CONFIRMATION" means entry by the
Bankruptcy Court of an order confirming the Plan in accordance with Chapter 11.
(22) "CONFIRMATION ORDER" means the order entered in the Bankruptcy
Case confirming the Plan.
(23) "CREDITOR" means a creditor as such term is defined in
11 U.S.C. Section 101(10).
(24) "DEBTOR-IN-POSSESSION" means the Debtor, when exercising its
rights, powers, and duties under Section 1107(a) of the Bankruptcy Code in the
Bankruptcy Case.
(25) "DEBTOR" means The Krystal Company, a corporation organized and
existing under the laws of the State of Tennessee, as debtor and Debtor-in-
Possession under Chapter 11 of the Bankruptcy Code.
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(26) "DEBTOR'S PROPERTY" means all property of any nature
whatsoever, real or personal, tangible or intangible, owned by the Debtor on the
Filing Date or acquired thereafter.
(27) "DESIGNATED NOTICE" means notice and an opportunity for a
hearing as provided for in Section 102(1) of the Bankruptcy Code, with notice
limited to the Debtor, counsel for the Debtor, the Committee, counsel for the
Committee, and such other parties in interest, if any, who, subsequent to the
Confirmation Date, file a request for such notice with the clerk of the
Bankruptcy Court and serve a copy of that request on counsel for the Debtor and
counsel for the Committee. On and prior to the Effective Date, Designated
Notice means notice pursuant to Bankruptcy Rule 2002 or as otherwise ordered by
the Bankruptcy Court.
(28) "DISBURSEMENT ACCOUNT" means one or more accounts established
by the Debtor under Section 7.2 hereunder for the purpose of making
Distributions to the holders of Allowed Claims under this Plan.
(29) "DISCLOSURE STATEMENT" means the written disclosure statement
proposed by the Debtor pursuant to Section 1125 of the Bankruptcy Code and
approved by an order of the Bankruptcy Court, as such Disclosure Statement may
be amended, modified or supplemented (and all appendices, exhibits and schedules
annexed thereto or referred to therein).
(30) "DISPUTED CLAIM" or "DISPUTED INTEREST" means an alleged Claim
or Interest, respectively, that is listed by the Debtor in its Schedules as
disputed, contingent or unliquidated, or proof of which has been filed with the
Bankruptcy Court prior to the Bar Date and as to which an objection to allowance
or a motion to estimate has been or is interposed,
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which objection or motion has not been settled, withdrawn, or determined by
Final Order. For the purposes of Distributions under the Plan, a Claim shall
also be considered a Disputed Claim if a proof of claim has been filed with the
Bankruptcy Court prior to the Bar Date with respect to such Claim and, before an
objection to such Claim has been or may be filed, (a) the amount or
classification of the Claim specified in the proof of claim exceeds the amount
or differs from the classification, as applicable, of any corresponding Claim
listed by the Debtor in the Schedules, (b) the amount of the Claim specified in
the proof of claim is for an unliquidated or contingent amount, in whole or in
part, (c) any corresponding Claim listed by the Debtor in the Schedules has been
listed as disputed, contingent or unliquidated, (d) no corresponding Claim has
been listed by the Debtor in the Schedules or (e) such Claim is subject to a
timely motion for estimation in accordance with the Bankruptcy Code and
Bankruptcy Rules, which motion has not been settled, withdrawn, or determined by
Final Order.
(31) "DISTRIBUTION" means the distribution under the Plan to holders
of Allowed Claims.
(32) "DISTRIBUTION ACCOUNT" means the interest bearing escrow
account established and maintained pursuant to Section 7.1 of the Plan.
(33) "DISTRIBUTION DATE" means the date which is the Effective Date.
(34) "EFFECTIVE DATE" means the first Business Day following the
tenth (10th) calendar day after the Confirmation Date.
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(35) "ESTATE" means the estate created in the Bankruptcy Case
pursuant to Section 541 of the Bankruptcy Code upon the commencement of the
Bankruptcy Case.
(36) "FILING DATE" means December 15, 1995.
(37) "FINAL ORDER" means an order or judgment of the Bankruptcy
Court as entered on its docket that has not been reversed, stayed pursuant to
Bankruptcy Rule 8005, modified or amended, and as to which the time to appeal,
petition for certiorari, or seek reargument or rehearing has expired and as to
which no notice of appeal, petition for certiorari, or motion for reargument or
rehearing was timely filed, or as to which any right to appeal, petition for
certiorari or seek reargument or rehearing has been waived in writing in a
manner satisfactory to the Debtor, or, without waiving the right to require a
party filing a notice of appeal or petition for certiorari to obtain a stay
pending an appeal, if a notice of appeal, petition for certiorari, or motion for
reargument or rehearing was timely filed, the order or judgment of the
Bankruptcy Court has been affirmed by the highest court to which the order or
judgment was appealed or from which the reargument or rehearing was sought, or
certiorari has been denied, and the time to file any further appeal or to
petition for certiorari or to seek further reargument or rehearing has expired.
(38) "FLSA" means the Fair Labor Standards Act, as amended,
29 U.S.C. Sections 200, ET. SEQ., as now in effect or hereafter amended.
(39) "FLSA CLAIM" means a Claim asserted against the Debtor by a
current or former employee of the Debtor for an alleged violation of the FLSA.
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(40) "FLSA CLAIMANT" means a Person who holds an FLSA Claim.
(41) "FLSA REPRESENTATIVE" means Harold L. North, Jr., in his
capacity as Legal Representative for the FLSA Claimants, pursuant to the Agreed
Order Granting the Motion of The Krystal Company for the Appointment of a Legal
Representative for FLSA Claimants and Denying Without Prejudice the Motion to
Appoint a Committee for FLSA Claimants entered by the Bankruptcy Court on
January 22, 1996, in the Bankruptcy Case.
(42) "GREAT-WEST" means Great-West Life & Annuity Insurance Company.
(43) "GREAT-WEST/JEFFERSON-PILOT DOCUMENTS" means that certain Note
Agreement dated as of May 1, 1994, executed by and among the Debtor, Great-West
and Jefferson-Pilot, the notes evidencing the loans under such Note Agreement,
and any and all documents and instruments related thereto, all as amended or
supplemented.
(44) "INSURANCE COMPANIES" means Great-West, Jefferson-Pilot and
Prudential.
(45) "INSURANCE COMPANY" means Great-West, Jefferson-Pilot or
Prudential.
(46) "INTEREST" means any equity security of the Debtor, within the
meaning of Section 101(16) of the Bankruptcy Code.
(47) "JEFFERSON-PILOT" means Jefferson-Pilot Life Insurance Company.
(48) "LIEN" means any charge against, encumbrance on, or interest in
property to secure payment of a debt or performance of an obligation.
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(49) "OUTSTANDING SECURITIES" means the shares of common stock of
the Debtor that were issued and outstanding on the Filing Date.
(50) "PERSON" means any individual, corporation, partnership,
limited liability company, association, joint stock company, trust,
unincorporated organization, joint venture, estate, government unit or any
public subdivision thereof or any other entity.
(51) "PLAN" means this Plan of Reorganization, as the same may be
modified from time to time in accordance herewith or pursuant to applicable law.
(52) "PRIORITY CLAIM" means a Claim that is entitled to priority
under Section 507(a) of the Bankruptcy Code, other than an Administrative
Expense Claim or a Tax Claim.
(53) "PROFESSIONAL COMPENSATION" means any amounts due as
compensation earned, and reimbursement for expenses incurred, by Professional
Persons for the Debtor, the Committee or the FLSA Representative and any amounts
which are allowable to members of the Committee pursuant to Section 503(b) of
the Bankruptcy Code, all in connection with administration of the Bankruptcy
Case.
(54) "PROFESSIONAL PERSON" means attorneys, accountants, appraisers,
auctioneers, or other professionals within the meaning of Section 327 of the
Bankruptcy Code employed by the Debtor or the Committee with the Bankruptcy
Court's approval. Professional Person also includes the FLSA Representative.
(55) "PROVIDENT" means Provident Life and Accident Insurance
Company.
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(56) "PROVIDENT DOCUMENTS" means the Indenture of Mortgage, Deed of
Trust and Security Agreement between the Debtor and Provident dated as of
October 1, 1986, the Bond Purchase Agreement between the Debtor and Provident
dated as of October 1, 1986, and the Bond executed by the Debtor payable to
Provident dated as of October 1, 1986 and any and all other documents and
instruments related thereto, all as amended and supplemented.
(57) "PRUDENTIAL" means The Prudential Insurance Company of America.
(58) "PRUDENTIAL DOCUMENTS" means that certain Note Agreement dated
as of September 26, 1989, executed by and between the Debtor and Prudential, the
notes evidencing the loans under such Note Agreement, and any and all documents
and instruments related thereto, all as amended or supplemented.
(59) "RETIREE BENEFITS" means retiree benefits as that term is
defined in Section 1114(a) of the Bankruptcy Code.
(60) "SECURED CLAIM"means a Claim to the extent such Claim is either
secured by a valid, unavoidable Lien on or in any of the Debtor's Property or
property of the Estate or based upon a valid, unexercised right of set off
against any of the Debtor's Property or property of the Estate pursuant to
Section 553 of the Bankruptcy Code, other than the Class 3 Provident Claims or
the Class 4 Scott Claims. Pursuant to Section 506(a) of the Bankruptcy Code, a
Claim shall be a Secured Claim to the extent of the value of such Creditor's
interest in the Estate's interest in such property, or to the extent of the
amount subject to set off, as the case may be, and
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shall be an Unsecured Claim to the extent that the value of such Creditor's
interest or the amount so subject to set off is less than the Allowed Amount of
such Allowed Claim.
(61) "SCHEDULES" means the schedules of assets and liabilities filed
by the Debtor in accordance with section 521 of the Bankruptcy Code and
Bankruptcy Rule 1007, as they may be amended or supplemented from time to time
in accordance with the Bankruptcy Code, Bankruptcy Rules or other applicable
law.
(62) "SCOTT" means Robert T. Scott, as Trustee.
(63) "SCOTT DOCUMENTS" means the Promissory Note, Deed to Secure
Debt and Assignment of Rent between the Debtor and Scott dated as of August 1,
1991, and any and all other documents and instruments related thereto, all as
amended and supplemented.
(64) "SUBSTANTIAL CONSUMMATION" or similar phrases shall be defined
as in Section 1101(2) of the Bankruptcy Code and shall for purposes of this Plan
and Bankruptcy Case mean the initial Distribution Date.
(65) "TAX CLAIM" means any Claim of federal, state, or local
governmental units for unpaid federal, state, or local taxes or duties entitled
to priority under Section 507(a)(8) of the Bankruptcy Code.
(66) "TIMELY OBJECTION" means a written objection served in the
manner required by Designated Notice within twenty (20) days (or such other time
period as may be set by the Bankruptcy Court) after receipt by the objecting
party of notice relating to the matter as to which the objection is interposed.
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(67) "UNCLAIMED FUNDS" means funds represented by a Distribution
check which remains uncashed after (a) as to any check not returned by the
United States Postal Service, one hundred eighty (180) days following the
mailing of the check to the last known address to the intended recipient, or
(b) as to any check returned by the United States Postal Service, one hundred
and eighty (180) days following the Debtor's or other sender's reasonable, good
faith attempt to ascertain the intended recipient's correct mailing address, and
if a correct mailing address is found within such time period, the remailing of
the check.
(68) "UNSECURED CLAIM" means any unsecured Claim arising prior to
the Filing Date that is not an Administrative Expense Claim, a Bondholder Claim,
a Priority Claim or a Tax Claim.
(69) "WORKERS COMPENSATION CLAIM" means an unsecured Claim against
the Debtor compensable under state workers compensation laws, of a past or
present employee of the Debtor, which Claim arises from an accident or injury
occurring prior to the Filing Date. Claims asserted by insurance companies,
sureties, governmental units, or other entities against the Debtor for payments
made by holders of Workers Compensation Claims do not constitute Workers
Compensation Claims; such Claims, to the extent they are Allowed Claims, shall
be treated as Unsecured Claims.
1.2 UNDEFINED TERMS. Any term used herein that is not defined herein, but
that is defined in the Bankruptcy Code, shall have the meaning ascribed to such
term in the Bankruptcy Code.
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1.3 OTHER TERMS. The words "herein," "hereof," "hereunder," and other
words of similar import refer to the Plan as a whole, not to any particular
section, subsection, or clause, unless the context otherwise requires. Whenever
it appears appropriate from the context, each term stated in the singular or the
plural includes the singular and the plural, and each pronoun stated in the
masculine, feminine, or neuter includes the masculine, feminine, and the neuter.
The rules of construction set forth in Section 102 of the Bankruptcy Code shall
apply, unless superseded herein or in the Confirmation Order.
1.4 TIME. Whenever the time for the occurrence or the happening of an
event as set forth in this Plan falls on a day which is not a Business Day, then
the time for the next occurrence or happening of said event shall be extended to
the next Business Day thereafter.
1.5 EXHIBITS. All appendices, exhibits, and schedules, if any, attached
to the Plan are incorporated into and are a part of the Plan as if set forth in
full herein.
ARTICLE 2
CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT
2.1 CLASSIFICATION. Claims and Interests are classified as set forth in
Article 3 of the Plan.
2.2 TREATMENT. The treatment of each Class of Allowed Claims and the
Class of Allowed Interests is specified in Article 4 of the Plan.
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2.3 IMPAIRMENT. Classes 3, 4, 5 and 6 are impaired under the Plan.
Classes 1, 2 and 7 are unimpaired.
ARTICLE 3
CLASSES OF CLAIMS AND INTERESTS
The Claims of Creditors and Interests holders, other than Administrative
Expense Claims and Tax Claims, shall be divided into Classes outlined in this
Article 3. A Claim or Interest is classified in a particular Class only to the
extent that the Claim or Interest qualifies within the description of the Class
and is classified in a different Class to the extent the Claim or Interest
qualifies within that different Class. Administrative Expense Claims and Tax
Claims are not classified, but shall be treated as outlined in Section 4.1 and
4.2 below.
3.1 CLASS 1 (PRIORITY CLAIMS). Class 1 shall consist of all Allowed
Claims against the Debtor that are Priority Claims.
3.2 CLASS 2 (SECURED CLAIMS). Class 2 shall consist of all Allowed Claims
against the Debtor that are Secured Claims.
3.3 CLASS 3 (PROVIDENT CLAIMS). Class 3 shall consist of all Allowed
Claims held by Provident against the Debtor arising from the Provident
Documents.
3.4 CLASS 4 (SCOTT CLAIMS). Class 4 shall consist of all Allowed Claims
held by Scott against the Debtor arising from the Scott Documents.
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3.5 CLASS 5 (UNSECURED CLAIMS). Class 5 shall consist of all Allowed
Claims against the Debtor that are Unsecured Claims.
3.6 CLASS 6 (BONDHOLDER CLAIMS) Class 6 shall consist of all Allowed
Claims that are Bondholder Claims.
3.7 CLASS 7 (INTERESTS). Class 7 shall consist of the Allowed Interests
in the Debtor arising from the legal, beneficial, or equitable ownership of the
Outstanding Securities.
ARTICLE 4
TREATMENT OF CLAIMS AND INTERESTS
4.1 ADMINISTRATIVE EXPENSE CLAIMS. The Allowed Claims that are
Administrative Expense Claims shall be paid (a) in full and in Cash on the later
of (i) the Distribution Date, or (ii) the date on which such Administrative
Expense Claim becomes due and payable pursuant to the terms thereof, the
agreement upon which such Administrative Expense Claim is based, or any
applicable Final Order, or (b) in such amount, on such other date, and upon such
other terms as may be contained in a Final Order or agreed upon between the
holder of the Administrative Expense Claim and the Debtor.
4.2 TAX CLAIMS. The Allowed Claims that are Tax Claims shall at the
option of the Debtor be paid (a) in full and in Cash on the later of (i) the
Distribution Date, or (ii) the date on which such Tax Claim becomes due and
payable pursuant to the terms thereof or any applicable Final Order, or (b) in
such amount, on such other date, and upon such other terms as may be
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contained in a Final Order or agreed upon between the holder of the Tax Claim
and the Debtor, or (c) in full and in Cash over a period not to exceed six years
from the date of assessment of such Tax Claim in equal installments not less
frequently than quarterly with interest at the rate specified in Section 6621 of
the Internal Revenue Code of 1986, as amended, or at such other rate as may be
specified in a Final Order.
4.3 CLASS 1 CLAIMS (PRIORITY CLAIMS). The Class 1 Claims are not
impaired. The Allowed Claims in Class 1 (a) shall be paid in full and in Cash
on the later of (i) the Distribution Date, or (ii) the date on which such
Allowed Claim becomes due and payable pursuant to the terms thereof, the
agreement upon which such Claim is based, or any applicable Final Order, or
(b) shall be paid in such amount, on such other date, and upon such other terms
as may be contained in a Final Order or agreed upon between the holder of the
Priority Claim and the Debtor.
4.4 CLASS 2 CLAIMS (SECURED CLAIMS). The Class 2 Claims are not impaired.
The Allowed Claims in Class 2 shall at the option of the Debtor (a) be paid in
full and in Cash on the Distribution Date or as soon thereafter as is
practicable, or (b) be paid in such amount, on such other date, and upon such
other terms as may be contained in a Final Order or agreed upon between the
holder of the Secured Claim and the Debtor, (c) be satisfied in full through a
transfer to the holder of the Secured Claim of the Debtor's interest in the
Debtor's Property or the property of the Estate upon which the holder of the
Secured Claim holds a Lien to secure such Allowed Claim, or (d) pursuant to
Section 1124(2) of the Bankruptcy Code shall be paid in full
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and in Cash over time after (i) the cure on the Distribution Date or as soon
thereafter as is practicable of any default that occurred before or after the
Filing Date (other than a default of the kind specified in Section 365(b)(2) of
the Bankruptcy Code), (ii) the reinstatement at the time of such cure of the
maturity of the Allowed Claim as such maturity existed before such default,
(iii) the compensation at the time of such cure to the holder of the Secured
Claim for any damages incurred as a result of any reasonable reliance by such
holder on any contractual provision or applicable law that entitled the holder
to demand or receive accelerated payment of such Allowed Claim after the
occurrence of a default, and (iv) otherwise leaving unaltered the legal,
equitable, or contractual rights to which the holder of the Secured Claim is
entitled with regard to such Allowed Claim. Any dispute between the Debtor and
the holder of an Allowed Claim in Class 2 with regard to the existence or cure
of defaults, the reinstatement of maturity, or amounts due as compensation for
cure of defaults or for reliance damages may be determined by the Bankruptcy
Court upon motion of either party to the dispute, except as otherwise provided
for herein.
4.5 CLASS 3 CLAIMS (PROVIDENT CLAIMS). The Class 3 Claims are impaired.
On the Distribution Date, Provident, as the holder of the Allowed Class 3
Claims, shall at the option of the Debtor (a) be paid in full and in Cash on the
Distribution Date, or (b) receive on account of such Claim Amended and Restated
Provident Documents on the terms set forth in Schedule 4.5 hereto and a Cash
Distribution on the Distribution Date in the amount set forth in Schedule 4.5
attached hereto, or (c) pursuant to Section 1124(2) of the Bankruptcy Code shall
be paid in full and in Cash over time after (i) the cure on the Distribution
Date or as soon thereafter as is
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practicable of any default that occurred before or after the Filing Date (other
than a default of the kind specified in Section 365(b)(2) of the Bankruptcy
Code), (ii) the reinstatement at the time of such cure of the maturity of the
Allowed Claim as such maturity existed before such default, (iii) the
compensation at the time of such cure to the holder of the Provident Claim for
any damages incurred as a result of any reasonable reliance by such holder on
any contractual provision or applicable law that entitled the holder to demand
or receive accelerated payment of such Allowed Claim after the occurrence of a
default, and (iv) otherwise leaving unaltered the legal, equitable, or
contractual rights to which the holder of the Provident Claim is entitled with
regard to such Allowed Claim. Any dispute between the Debtor and the holder of
an Allowed Claim in Class 3 with regard to the existence or cure of defaults,
the reinstatement of maturity, or amounts due as compensation for cure of
defaults or for reliance damages may be determined by the Bankruptcy Court upon
motion of either party to the dispute, except as otherwise provided for herein.
4.6 CLASS 4 CLAIMS (SCOTT CLAIMS). The Class 4 Claims are impaired. On
the Distribution Date, Scott, as the holder of the Allowed Class 4 Claims, shall
receive on account of such claim the Amended and Restated Scott Documents on the
terms set forth in Schedule 4.6 hereto and a Cash Distribution on the
Distribution Date in the amount set forth in Schedule 4.6 attached hereto at the
option of the Debtor (a) be paid in full and in Cash on the Distribution Date,
or (b) receive on account of such Claim Amended and Restated Scott Documents on
the terms set forth in Schedule 4.5 hereto and a Cash Distribution on the
Distribution Date in the amount set forth in Schedule 4.5 attached hereto, or
(c) pursuant to Section 1124(2) of the
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Bankruptcy Code shall be paid in full and in Cash over time after (i) the cure
on the Distribution Date or as soon thereafter as is practicable of any default
that occurred before or after the Filing Date (other than a default of the kind
specified in Section 365(b)(2) of the Bankruptcy Code), (ii) the reinstatement
at the time of such cure of the maturity of the Allowed Claim as such maturity
existed before such default, (iii) the compensation at the time of such cure to
the holder of the Scott Claim for any damages incurred as a result of any
reasonable reliance by such holder on any contractual provision or applicable
law that entitled the holder to demand or receive accelerated payment of such
Allowed Claim after the occurrence of a default, and (iv) otherwise leaving
unaltered the legal, equitable, or contractual rights to which the holder of the
Scott Claim is entitled with regard to such Allowed Claim. Any dispute between
the Debtor and the holder of an Allowed Claim in Class 4 with regard to the
existence or cure of defaults, the reinstatement of maturity, or amounts due as
compensation for cure of defaults or for reliance damages may be determined by
the Bankruptcy Court upon motion of either party to the dispute, except as
otherwise provided for herein.
4.7 CLASS 5 CLAIMS (UNSECURED CLAIMS). The Class 5 Claims are
impaired. The holders of Allowed Claims in Class 5 shall be paid in full in Cash
on the later of (1) the Distribution Date or (2) the date that such Claim
becomes an Allowed Claim. Notwithstanding the foregoing, at the option of the
Debtor exercised prior to the Distribution Date and with 5 days notice to the
holder of the Unsecured Claim, an Allowed Class 5 Claim pursuant to
Section 1124(2) of the Bankruptcy Code, may paid in full and in Cash over time
on account of
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its Allowed Class 5 Claim after (i) the cure on the Distribution Date or as soon
thereafter as is practicable of any default that occurred before or after the
Filing Date (other than a default of the kind specified in Section 365(b)(2) of
the Bankruptcy Code), (ii) the reinstatement at the time of such cure of the
maturity of the Allowed Claim as such maturity existed before such default,
(iii) the compensation at the time of such cure to the holder of the Unsecured
Claim for any damages incurred as a result of any reasonable reliance by such
holder on any contractual provision or applicable law that entitled the holder
to demand or receive accelerated payment of such Allowed Claim after the
occurrence of a default, and (iv) otherwise leaving unaltered the legal,
equitable, or contractual rights to which the holder of the Unsecured Claim is
entitled with regard to such Allowed Claim. Any dispute between the Debtor and
the holder of an Allowed Claim in Class 5 with regard to the existence or cure
of defaults, the reinstatement of maturity, or amounts due as compensation for
cure or defaults or for reliance damages may be determined by the Bankruptcy
Court upon motion of either party to the dispute, except as otherwise provided
for herein.
4.8 CLASS 6 (BONDHOLDER CLAIMS) The Class 6 Claims are impaired. The
treatment of Class 6 Claims is set out in the Term Sheet Evidencing Consensual
Treatment of Noteholder Claims Negotiated By and Among the Debtor and the
Noteholders ("Term Sheet) which is attached hereto as Exhibit 4.8 and expressly
and completely incorporated herein, including without limitation, the Term
Sheet's requirement that the Bondholder Claims shall be deemed to constitute
"Allowed Claims" to the extent of the respective distributions required in the
Term Sheet.
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4.9 CLASS 7 INTERESTS (OUTSTANDING SECURITIES). The holders of the
Allowed Interests in Class 7 shall continue to hold the Outstanding Securities
and shall retain unaltered the legal, equitable, and contractual rights to which
such holders are entitled with regard to such Allowed Interests.
ARTICLE 5
ACCEPTANCE OR REJECTION OF THE PLAN
5.1 VOTING CLASSES. Each holder of an Allowed Claim in Class 3, 4, 5 and
6 shall be entitled to vote to accept or reject the Plan.
5.2 ACCEPTANCE BY IMPAIRED CLASSES. An impaired Class of Claims shall
have accepted the Plan if (1) the holders (other than any holder designated
under section 1126(e) of the Bankruptcy Code) of at least two-thirds in amount
of the Allowed Claims actually voting in such Class have voted to accept the
Plan and (2) more than one-half in number (other than Claims held by any holder
designated under section 1126(e) of the Bankruptcy Code) of such Allowed Claims
actually voting in such Class have voted to accept the Plan.
5.3 PRESUMED ACCEPTANCE OF PLAN. Classes 1 and 2 are unimpaired under the
Plan and, therefore, are conclusively presumed to have accepted the Plan
pursuant to Section 1126(f) of the Bankruptcy Code.
5.4 CRAMDOWN. If all of the applicable requirements for confirmation of
the Plan are met as set forth in Section 1129(a) of the Bankruptcy Code except
subsection (8) thereof, the
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Debtor may, at its option, request the Bankruptcy Court to confirm the Plan
pursuant to section 1129(b) of the Bankruptcy Code, notwithstanding the
requirements of paragraph (8) of section 1129(a) of the Bankruptcy Code, on the
basis that the Plan is fair and equitable and does not discriminate unfairly
with respect to any impaired Class or Classes that have not accepted the Plan.
ARTICLE 6
TREATMENT OF EXECUTORY
CONTRACTS AND UNEXPIRED LEASES
6.1 ASSUMPTION. Subject to the requirements of Section 365 of the
Bankruptcy Code, on the Effective Date all executory contracts and unexpired
leases of the Debtor shall be deemed assumed, except any executory contracts or
unexpired leases that (a) were rejected prior to the Confirmation Date by Final
Order of the Bankruptcy Court or (b) are the subject of separate motions to
reject filed pursuant to Section 365 of the Bankruptcy Code before the entry of
the Confirmation Order. Any Final Order entered after the Confirmation Date by
the Bankruptcy Court authorizing the rejection of an executory contract or
unexpired lease shall cause such rejection to be a prepetition breach under
Sections 365(g) and 502(g) of the Bankruptcy Code, as if such relief was granted
and such order was entered prior to the Confirmation Date. Any Claim which
arises from the rejection of an executory contract or unexpired lease shall be
deemed to be an Unsecured Claim classified with other Unsecured Claims in Class
3. A proof of claim for any
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such Claim must be filed with the Bankruptcy Court by the earlier of (a) the
date set for the filing of such Claim in the Final Order authorizing the
rejection of the executory contract or unexpired lease to which the Claim
relates, or (b) thirty (30) days after the Confirmation Date.
6.2 DETERMINATION OF DISPUTES. Any disputes that are not the subject of
pending litigation as of the Confirmation Date between the Debtor and any holder
of an executory contract or unexpired lease which is being assumed pursuant to
this Plan with regard to the existence or cure of defaults, the sufficiency of
adequate assurance of future performance, or amounts due as compensation for
cure of defaults, may be determined by the Bankruptcy Court upon motion of
either party to the dispute, except as otherwise provided for herein.
ARTICLE 7
IMPLEMENTATION OF THE PLAN
7.1 DISTRIBUTION ACCOUNT. On or prior to the Distribution Date, the
Debtor shall establish the Distribution Account with a depository institution
having a place of business in Chattanooga, Tennessee, as may be selected by the
Debtor and approved by the Office of the United States Trustee. On the
Distribution Date, the Debtor shall deposit into the Distribution Account Cash
equal to the Distributions required on the Distribution Date under this Plan.
No withdrawals shall be made or permitted from the Distribution Account except
as provided for herein.
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7.2 DISBURSEMENT ACCOUNT. In addition to the foregoing, the Debtor may
establish one or more Disbursement Accounts for the purpose of making
Distributions to the holders of Allowed Claims or as may otherwise be necessary
or appropriate to enable them to carry out the provisions of this Plan. The
Debtor shall, from time to time, transfer Cash from the Distribution Account or
from the general operating funds of the Debtor into the Disbursement Accounts to
facilitate the making of Distributions to the holders of Allowed Claims as
required by this Plan.
7.3 SOURCES OF THE FUNDS. Funds sufficient to make the required
Distributions under this Plan will be derived from one or more of the following
sources: (a) Cash on hand generated from the operation of the Debtor's business,
(b) Cash proceeds from the sale, leasing or other disposition of any surplus or
investment assets not required in the ordinary course of operation of the
Debtor's business, or (c) Cash proceeds from loans or extensions of credit
obtained or to be obtained by the Debtor.
7.4 EXCESS FUNDS. The Cash, if any, remaining in the Distribution Account
after all Disputed Claims have been resolved and after all Distributions
required to be made under the Plan have been made to the holders of all Allowed
Claims shall be available for use by the Debtor in the ordinary course of its
business without restriction.
7.5 DISTRIBUTIONS. On the Distribution Date, the Debtor shall make the
Distributions under the Plan required to be made to the holders of Allowed
Claims.
7.6 FRACTIONAL CENTS. Notwithstanding any other provision of the Plan to
the contrary, no Distribution of fractions of cents will be made. Whenever any
Distribution of a
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fraction of a cent would otherwise be called for, the actual Distribution shall
reflect a rounding of such fraction to the nearest whole cent, with .50 cent
distributions being rounded up.
ARTICLE 8
DISPUTED CLAIMS, DISPUTED INTERESTS, RESERVES
AND MISCELLANEOUS DISTRIBUTION PROVISIONS
8.1 OBJECTIONS. As soon as is practicable after the Effective Date, but
in no event later than 60 days after the Effective Date, the Debtor shall file
objections to Claims or Interests or motions for estimation of Claims with the
Bankruptcy Court and shall serve such objections and motions upon the holders of
each Disputed Claim or Disputed Interests as to which an objection or motion is
filed, or upon such holder's counsel, if known. All objections shall be in
writing.
8.2 PROSECUTION OF OBJECTIONS. After entry of the Confirmation Order,
only the Debtor shall have authority to file, litigate, settle, or withdraw
objections to Disputed Claims or Disputed Interests.
8.3 AMENDMENT OF CLAIMS. Subject to Section 502(j) of the Bankruptcy
Code, and except as otherwise provided in the Plan, a Claim may be amended
(a) prior to the Confirmation Date, only as agreed upon by the Debtor and the
holder of such Claim or as otherwise permitted by Final Order, the Bankruptcy
Rules or applicable law or (b) after the Confirmation Date, to decrease, but not
increase, the face amount of such Claim.
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8.4 DISALLOWANCE OF SETTLED CLAIMS. All Claims alleged in proofs of claim
filed by holders of Claims that have been settled and satisfied pursuant to any
specific Final Order addressing such Claims, shall be deemed disallowed, except
to the extent of the settled amounts thereof which shall be deemed to be Allowed
but previously satisfied for purposes of this Plan; and it shall be unnecessary
for the Debtor, to file and prosecute objections to such Claims for purposes of
disallowing alleged amounts exceeding the settled amounts or other rights
contrary to the terms of the settlement.
8.5 DISALLOWANCE OF POSTPETITION ADDITIONS. The Debtor shall not be
required to make specific objections to proofs of claim that allege a right to
recover postpetition interest, penalties, fees, and other accruals with respect
to prepetition claims (except secured claims entitled to such accruals pursuant
to section 506(b) of the Bankruptcy Code and as otherwise provided by this
Plan), and any claim amounts attributable to such postpetition interest,
penalties, fees, and other accruals shall be disallowed in full upon entry of
the Confirmation Order, except as otherwise agreed to by the Debtor and the
holder of the Claim.
8.6 INTEREST. Each Creditor in Class 5 shall receive interest on the
principal portion of its Allowed Claim at the rate of eight and one-half percent
(8.5%) per annum (or such market rate of interest determined by the court to be
appropriate at the Confirmation Hearing) from the later of (1) the Filing Date
or (2) the date on which the Allowed Claim first became or becomes due until it
is paid, unless the Debtor and the Creditor have agreed on an interest rate
(whether as a result of a contractual agreement in connection with transactions
out of which the Claim arises
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or the settlement or compromise of a dispute concerning the applicable rate of
interest), in which case interest shall be paid at the agreed rate from the date
on which the Allowed Claim first became or becomes due until it is paid, except
as otherwise agreed to by the Debtor and the holder of the Claim.
8.7 DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS. Notwithstanding anything
to the contrary contained herein, no Distribution shall be made with respect to
all or any portion of any Disputed Claim unless and until the Disputed Claim
becomes an Allowed Claim.
8.8 UNCLAIMED FUNDS. All right, title and interest in and to any
Distribution that becomes Unclaimed Funds shall immediately and irrevocably vest
in, and revert to and become the property of, the Debtor, and the holder of the
Allowed Claim to which such Distribution relates shall be deemed to have no
further or additional Claim against the Debtor with regard to such Allowed Claim
or Distribution or the Unclaimed Funds represented thereby.
8.9 TRANSMITTAL OF DISTRIBUTED PROPERTY AND NOTICES. Except as otherwise
provided in the Plan and except as may otherwise be agreed to by the Debtor and
the holder of a particular Claim or Interest, any Cash or notice to which such
holder shall become entitled under the provisions of this Plan shall be
transmitted to such holder by first-class United States mail, postage prepaid,
in an envelope addressed to such holder as he or his authorized agent may direct
in a request filed with the Bankruptcy Court on or before the Effective Date,
but if no such request is filed, to the address shown in the Schedules, or, if a
different address is stated in a filed proof of claim, to the address contained
in the proof of claim. In all cases where delivery or
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distribution is effectuated by mail, the date of delivery or Distribution shall
be the date of mailing. Cash delivered in accordance with this Section will be
deemed delivered to the holder regardless of whether such Cash is actually
received by such holder.
8.10 RETURNED DISTRIBUTIONS. If a Distribution pursuant to the Plan to
any holder of an Allowed Claim is returned to the Debtor due to an incorrect or
incomplete address for the holder of such Allowed Claim, then the Debtor shall
use reasonable efforts to obtain an accurate address for such Creditor. If,
after one hundred and eighty (180) days, such reasonable efforts have not
yielded an accurate address for such holder, then the Cash to be distributed to
such Creditor shall be deemed to be Unclaimed Funds shall be treated as provided
under Section 8.8 of the Plan.
8.11 WITHHOLDING TAXES. Any federal, state or local withholding taxes or
other amounts required to be withheld under any applicable law shall be deducted
from any Distributions made hereunder. All holders of Allowed Claims as a
condition precedent to receiving any Distribution shall be required to provide
the Debtor with such information as they may reasonably require to effectuate
the withholding of all such taxes or other amounts..
8.12 DISTRIBUTION TO CERTAIN WAGE CLAIMANTS. The Debtor has entered into
a Settlement Agreement with approximately 6,000 current and former employees who
are represented by the law firm of Stewart, Estes & Donnell of Nashville,
Tennessee, who are asserting claims under the FLSA, as well as certain contract
claims. The Settlement Agreement has been submitted for approval by the
Bankruptcy Court. Any term used in this paragraph 8.12
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that is not defined in the Plan, but that is defined in the Settlement Agreement
shall have the meaning ascribed in the Settlement Agreement. The distribution
provided in the Settlement Agreement to the Wage Claimants represented by
Stewart, Estes & Donnell, acting under authority of certain Representative Wage
Claimants and with approval of those Representative Wage Claimants, shall be
distributed as follows:
(a) The Debtor shall pay $13 million dollars ($13,000,000.00) (the
"Settlement Amount") in a check or draft (if not wired) made payable to Stewart,
Estes & Donnell, on behalf of the Wage Claimants, less legally required
deductions for taxes, FICA and/or similar withholdings, which amounts shall be
determined as set forth in Paragraph 1(b) below. Such payment shall be made on
the Distribution Date.
(b) Stewart, Estes & Donnell shall be responsible for allocating
the Settlement Amount among the Wage Claimants and determining the portions of
the Settlement Amount representing backpay and an equal amount of liquidated
damages to the Wage Claimants. Currently, Krystal and the Wage Claimants
contemplate that the backpay portion of the Settlement Amount will be
approximately $4 million dollars ($4,000,000.00). No amounts will be allocated
to any contract claims since the Wage Claimants and Stewart, Estes & Donnell
acknowledge and agree that these contract claims are subject to substantial
meritorious defenses and counterclaims by Krystal and would be extremely
difficult to have certified as a class action. Following this allocation,
Stewart, Estes & Donnell will supply Krystal at least twenty (20) days prior to
confirmation of the Plan, but in no event prior to March 1, 1997, with a written
list of the
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gross amounts of backpay and liquidated damages allocated to each Wage Claimant
and the social security number and last known address of each Wage Claimant who
is to receive a payment from the Settlement Amount. Krystal will then calculate
the amount of withholding to be made with respect to the backpay portion of the
Settlement Amount, deduct such withholding amounts from the backpay portion of
the Settlement Amount, and pay the balance of the Settlement Amount to Stewart,
Estes & Donnell. Stewart, Estes & Donnell reserves the right to hold back a
certain portion of the liquidated damages portion of the Settlement Amount from
distribution to the Wage Claimants, if necessary, to provide for any unscheduled
and/or unanticipated claims or costs, if any, with the authorization of the
Representative Wage Claimants. Any amounts remaining in such hold back fund
shall, six (6) months after the initial distribution, be reallocated in
accordance with the original allocation. The percentage amount which Krystal
shall withhold from the backpay portion of the Settlement Amount for each Wage
Claimant for income taxes shall be determined pursuant to the IRS' "Tables for
Percentage Method of Withholding," Table 7 single person claiming one
withholding allowance - for annual payroll period, plus 6.2% for social security
taxes, plus 1.45% for Medicare taxes and any applicable state or local taxes.
Krystal shall withhold only those monies clearly required by applicable tax laws
and shall make no withholdings for amounts allocated to liquidated damages
unless it is legally compelled to do so. Krystal will prepare appropriate W-2's
and Form 1099's reflecting the above and distribute the same to the Wage
Claimants at the addresses provided by Stewart, Estes & Donnell on or before
January 31, 1998.
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(c) All disbursements of settlement proceeds by Stewart, Estes & Donnell
to the Wage Claimants shall be no later than 20 days after receipt of the
Settlement Amount by checks with the following legend:
"This payment is made pursuant to the Settlement Agreement
with The Krystal Company that includes a release of your
wage claims against it."
(d) In the event that any such checks are returned as Unclaimed Funds,
Stewart, Estes & Donnell shall retain the Unclaimed Funds for a period of one
year from the Confirmation Date and shall make a reasonable effort to distribute
Unclaimed Funds to the intended recipients. Any Unclaimed Funds will be
administered pursuant to 11 U.S.C. Section 347(b). All Unclaimed Funds shall be
held without interest by Stewart, Estes & Donnell in a special trust account for
a period of one (1) year from the confirmation of the Plan. Upon expiration of
that one (1) year period, all claims by the respective claimants to the said
distribution shall be barred; the Unclaimed Funds remaining in the special trust
account shall become property of the Debtor pursuant to 11 U.S.C. Section
347(b); and Stewart, Estes & Donnell shall disburse the remaining Unclaimed
Funds to the Debtor.
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ARTICLE 9
DISCHARGE, VESTING AND INJUNCTION
9.1 DISCHARGE OF THE DEBTOR. Except as otherwise provided in the Plan or
the Confirmation Order, in accordance with section 1141(d)(1) of the Bankruptcy
Code, entry of the Confirmation Order shall act as a discharge effective as of
the Effective Date of all debts of, Claims against, Liens on, and Interests in
the Debtor, and the Debtor's assets, or properties, including, without
limitation, the Debtor's Property or property of the Estate, which debts,
Claims, Liens, and Interests arose at any time before the entry of the
Confirmation Order. The discharge of the Debtor, shall be effective as to each
Claim, regardless of whether a proof of claim therefor was filed or whether the
Claim is an Allowed Claim or whether the holder thereof objects to Confirmation
of the Plan. On and after the Effective Date, as to each and every such
discharged Claim, Lien, and Interest, and except as is otherwise provided for
in the Plan, any holder of such Claim, Lien or Interest shall be precluded
from asserting against the Debtor or its assets or property, including,
without limitation, the Debtor's Property or property of the Estate, any
other or further Claim, Lien, or Interest based upon any document,
instrument, act, omission, transaction, or other activity of any kind or
nature that occurred before the Confirmation Date. Without limiting the
generality of the foregoing, (a) any Creditor having a Claim against the
Debtor that arose prior to the Filing Date and who failed to file a proof of
claim or elected not to file a proof of claim in the Bankruptcy Case on or
prior to the Bar Date is forever barred and
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precluded from asserting or prosecuting such Claim against the Debtor or its
assets and property, including, without limitation, the Debtor's Property or
property of the Estate, and (b) any Claimant who timely filed a proof of
claim in the Bankruptcy Case on or prior to the Bar Date is forever barred
and precluded from asserting or prosecuting its Claim against the Debtor or
its assets or property in any manner inconsistent with the terms of this Plan.
9.2 EFFECT OF CONFIRMATION; VESTING OF PROPERTY. Except as otherwise
provided for in the Plan or in the Confirmation Order, on the Effective Date
this Plan shall be binding on all parties in interest, including all Creditors,
regardless of whether any such Creditor filed a proof of claim, was the holder
of an Allowed Claim, or objected to Confirmation of the Plan. All of the
Debtor's Property and all of the property of the Estate, including, without
limitation, all Causes of Action, shall vest in the reorganized Debtor on the
Effective Date.
9.3 INJUNCTION. In accordance with Section 524 of the Bankruptcy Code,
the discharge provided by this Article and Section 1141 of the Bankruptcy Code,
INTER ALIA, acts as an injunction against the commencement or continuation of
any action, employment of process or act to collect, offset or recover the
Claims discharged hereby. In accordance therewith, the Confirmation Order shall
in all respects be deemed to constitute a permanent injunction prohibiting all
Persons holding any Claims, on or after the Confirmation Date, from, on account
of such Claims, taking any action to enforce rights, or alleged rights, against
the Debtor, against any of the Debtor's Property, against any property of the
Estate, or against any collateral in which said Creditors assert a Lien, which
rights, or alleged rights, are inconsistent with the terms of
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this Plan, as the same may be amended and modified prior to the Confirmation
Date, and as confirmed by the Bankruptcy Court. The injunction provided for
herein does not prohibit creditors from taking any enforcement action against
the Debtor, its property or any other person in the event that the Debtor fails
to comply with the terms of this Plan.
9.4 RETENTION AND ENFORCEMENT OF CAUSES OF ACTIONS. Except as otherwise
provided expressly in this Plan, in accordance with Section 1123(b) of the
Bankruptcy Code, the Debtor shall retain and may enforce subsequent to the
Effective Date any and all of the Causes of Action; provided, however, the
Debtor shall not have the right to enforce, and shall not seek to enforce or
prosecute in any manner, any Cause of Action for the recovery or avoidance of
transfers avoidable under the Bankruptcy Code to the extent that insolvency of
the Debtor at the time of the alleged transfer is a necessary element of such
Cause of Action.
9.5 CONTINUED CORPORATE EXISTENCE. Subsequent to the Effective Date, the
Debtor shall continue to exist as a corporation organized under the laws of the
State of Tennessee and qualified to do business in those states in which such
qualification is required.
9.6 MANAGEMENT; CONTINUED BUSINESS OPERATIONS. Subsequent to the
Effective Date the management of the Debtor shall be vested in its duly
authorized board of directors and officers and, subject to the direction of such
board of directors and officers, the Debtor shall be entitled to continue to
manage the Debtor's Property and the property of the Estate and to engage in
such business operations as are authorized by its articles of incorporation and
by-laws.
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9.7 CHARTER AMENDMENT. On or before the Confirmation Date the Debtor
shall obtain authorization from its board of directors and, if required, its
shareholders for the amendment of its articles of incorporation so as to
prohibit as of the Effective Date the issuance of any nonvoting equity
securities as required by Section 1123 (a) (6) of the Bankruptcy Code.
9.8 CONDITIONS TO CONFIRMATION. Confirmation of the Plan, and entry of
the Confirmation Order, shall be subject (1) to entry of a Final Order approving
the settlement of certain Claims filed by Stewart, Estes & Donnell on behalf of
their clients and, (2) the successful consummation of a loan transaction whereby
the Debtor will borrow at least $45,000,000 from a commercial lending
institution on or before the Distribution Date.
9.9 RETIREE BENEFITS. The Debtor after the Effective Date shall continue
all Retiree Benefits for the duration of the period the Debtor prior to the
Filing Date had obligated itself to provide such benefits.
9.10 CONDITIONS TO THE EFFECTIVE DATE. The occurrence of the "Effective
Date" shall be subject to satisfaction of the following conditions precedent:
(a) The Debtor shall have in its possession, custody or control
immediately available funds in an amount sufficient to enable
it to make all distributions required by the Plan to be made.
(b) All distributions required by the Plan to be made shall have
been made.
(c) The "Effective Date" shall occur no later than June 30, 1997.
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ARTICLE 10
MODIFICATION OF PLAN
10.1 MODIFICATION GENERALLY. This Plan may be modified pursuant to
Section 1127 of the Bankruptcy Code.
10.2 REQUIRED NOTICE. The Plan may be modified, before or after
Confirmation, without notice or hearing, or on such notice and hearing as the
Bankruptcy Court deems appropriate, if the Bankruptcy Court finds that the
proposed modifications do not materially and adversely affect the rights of any
parties in interest which have not had notice and an opportunity to be heard
with regard thereto. Without limiting the generality of the foregoing, the Plan
may be modified after notice and hearing to Persons that have requested notice
pursuant to Bankruptcy Rule 2002.
10.3 POSTCONFIRMATION AMENDMENT. After the entry of the Confirmation
Order, the Debtor may modify the Plan to remedy any defect or omission or to
reconcile any inconsistencies in the Plan or in the Confirmation Order, as may
be necessary to carry out the purposes and effects of the Plan, provided such
modification shall not materially or adversely affect the interests, rights,
treatment or Distribution of any Class of Allowed Claims or Allowed Interests
under the Plan.
10.4 POSTCONFIRMATION/PRECONSUMMATION AMENDMENT. After the Confirmation
Date and before Substantial Consummation of the Plan, the Debtor may modify the
Plan in any
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way that materially or adversely affects the interests, rights, treatment, or
distribution of a Class of Claims or Interests, provided: (a) the Plan, as
modified, meets applicable Bankruptcy Code requirements; (b) the Debtor obtains
Bankruptcy Court approval for such modification, after notice and a hearing; and
(c) the Debtor complies with Section 1125 of the Bankruptcy Code with respect to
the Plan, as modified.
10.5 CONSENT REQUIRED. The Plan may not be altered, amended or modified
without the written consent of the Debtor. Notwithstanding any provision
contained in the Plan to the contrary, the Debtor shall not cause the Plan to be
amended, modified or restated, in whole or in part, without the prior written
consent of each of the Insurance Companies, which consent shall not unreasonably
be withheld; provided, however, that each shall be deemed to have issued its
consent to a proposed modification, amendment or restatement (collectively, the
"Proposed Amendment") of the Plan if it shall have failed to have delivered to
the Debtor, within five (5) business days after the receipt by such Insurance
Company and its counsel of the Proposed Amendment, such Insurance Company's
written objection to the Proposed Amendment.
10.6 WITHDRAWAL OF THE PLAN. The Debtor reserves the right to modify or
withdraw the Plan at any time before the Confirmation Date.
ARTICLE 11
RETENTION OF JURISDICTION
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11.1 RETENTION OF JURISDICTION. Notwithstanding Confirmation of this Plan
or occurrence of the Effective Date, the Court shall retain jurisdiction over
the Bankruptcy Case through and after the Effective Date as to all matters,
including, but not limited to, those matters specifically set forth in this
Article 11. Prior to the entry of a final decree of the Bankruptcy Court
pursuant to Bankruptcy Rule 3022, the Bankruptcy Court shall retain
jurisdiction:
(1) over all Claims, Interests or rights in, Liens on or title to,
the Debtor's Property, its Estate and the Debtor, including, but not limited to,
over any equitable relief in connection therewith;
(2) to determine the allowability of Claims and Interests, upon
objection to such Claims by the Debtor;
(3) to determine any tax liability pursuant to Section 505 of the
Bankruptcy Code;
(4) to adjudicate any dispute under any executory contract or
unexpired lease assumed during the Bankruptcy Case pursuant to Section 365 of
the Bankruptcy Code, and to resolve all matters related to the assumption,
assumption and assignment, or rejection of any executory contract or unexpired
lease of the Debtor;
(5) to determine requests for payment of Administrative Expense
Claims;
(6) to resolve controversies and disputes regarding the
interpretation of this Plan;
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<PAGE>
(7) to implement the provisions of this Plan and enter orders in
aid of Confirmation and consummation of this Plan;
(8) to determine classification, voting, treatment, allowance,
estimation, withdrawal, disallowance or reconsideration of Claims, and Interests
and any objections relating thereto;
(9) to fix, liquidate or estimate impaired Claims or Interests;
(10) to modify the Plan pursuant to Section 1127 of the Bankruptcy
Code;
(11) to correct any defect, to cure any mistake or omission or
reconcile any inconsistency in the Plan or the Confirmation Order as may be
necessary or appropriate to carry out the purposes and intent of the Plan;
(12) to resolve disputes concerning any Disputed Claims, or the
administration thereof and Claims for disputed Distributions;
(13) to resolve any disputes concerning whether a person or entity
had sufficient notice of the Bankruptcy Case, the applicable Bar Date, the
hearing on the approval of the Disclosure Statement as containing adequate
information, the hearing on the Confirmation of the Plan for the purpose of
determining whether a Claim or Interest is discharged hereunder or for any other
purpose;
(14) to order the removal, pursuant to Section 1452 of Title 28 of
the United States Code, of any suit instituted against the Debtor or the Estate
and to hear and determine any action so removed;
- 40 -
<PAGE>
(15) to enter a Final Order closing the Bankruptcy Case; and
(16) to hear and determine such other matters as may be provided for
under Title 28 or any other Title of the United States Code and any reference to
the Bankruptcy Court, the Bankruptcy Code, the Bankruptcy Rules, other
applicable law, the Plan or the Confirmation Order.
11.2 FURTHER ASSURANCES. The Debtor shall be entitled to seek from the
Bankruptcy Court such further orders, judgments, injunctions, and rulings as it
deems necessary or appropriate to enable it to carry out and further the
intentions and purposes, and to give full effect to, the provisions of the Plan.
ARTICLE 12
REQUEST FOR CONFIRMATION
12.1 REQUEST FOR CONFIRMATION. The Debtor, as proponent of the Plan,
requests confirmation of the Plan in accordance with Section 1129 of the
Bankruptcy Code.
ARTICLE 13
CLOSING OF THE BANKRUPTCY CASE
13.1 CLOSING OF THE CASE; FINAL DECREE. At such time as the Bankruptcy
Case has been fully administered, that is, when all things requiring action by
the Bankruptcy Court have been done, and the Plan has been Substantially
Consummated, the Bankruptcy Case shall be
- 41 -
<PAGE>
closed. To close the Bankruptcy Case, the Debtor shall file an application for
final decree showing that the Bankruptcy Case has been fully administered, that
all U.S. Trustee quarterly fees have been paid and that the Plan has been
Substantially Consummated. The Bankruptcy Court after Designated Notice may
enter an order approving the report, granting the final decree, and closing the
Bankruptcy Case.
13.2 MONTHLY OPERATING REPORT AND QUARTERLY FEES. The Office of the
United States Trustee contends that (1) the Debtor is required to file monthly
operating reports and to pay quarterly fees until a final decree is entered, and
(2) the post-confirmation monthly reports should include a report as to when a
motion for a final decree is expected to be filed and the reasons why such a
motion cannot be filed presently. The Debtor disagrees with this contention,
but will file any monthly operating reports or pay any quarterly fees required
by Final Order of the Bankruptcy Court.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 SUCCESSORS AND ASSIGNS. The rights, benefits, and obligations of any
Person named or referred to in the Plan shall be binding upon, and shall inure
to the benefit of, the heirs, executors, administrators, successors, or assigns
of such Person.
14.2 CONFIRMATION ORDER AND PLAN CONTROL. To the extent the Confirmation
Order or the Plan is inconsistent with the Disclosure Statement or any agreement
entered into between
- 42 -
<PAGE>
or among the Debtor and any third party, except to the extent that any such
agreement has been expressly and completely incorporated herein, this Plan
controls the Disclosure Statement and any such agreements and the Confirmation
Order (and any other orders of the Bankruptcy Court) controls the Plan.
14.3 HEADINGS. The headings used in this Plan are inserted for
convenience only and neither constitute a portion of this Plan nor in any manner
affect the construction of the provisions of this Plan.
14.4 NOTICES. All Notices, requests and demands to or upon the Debtor, to
be effective, shall be in writing (including, without limitation, by facsimile
transmission) and, unless otherwise provided for herein, shall be deemed to have
been made when actually delivered or, in the case of notice by facsimile
transmission, when received and confirmed, and addressed as follows:
with respect to the Debtor,
The Krystal Company
One Union Square
Chattanooga, TN 37402
Attn: Camden Scearce
Chief Financial Officer
Telecopier: (423) 757-5622
- 43 -
<PAGE>
with a copy to,
David G. Epstein
Sarah Robinson Borders
KING & SPALDING
191 Peachtree Street
Atlanta, Georgia 30303-1763
Telecopier: (404) 572-5149
14.5 EXISTENCE OF THE COMMITTEE. The Committee shall continue to exist
until Substantial Consummation of the Plan shall have occurred.
14.6 NOTICE AND HEARING. Whenever notice and hearing is required after
the Confirmation Date and provisions with regard thereto are not otherwise
specified in this Plan, Designated Notice providing for Timely Objection shall
be sufficient. Whenever notice and hearing or Designated Notice is required,
notice may be given by the Debtor or by Professional Persons employed by the
Debtor or the Committee.
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<PAGE>
This 24th day of February, 1997.
THE KRYSTAL COMPANY
By: /s/ R. B. DAVENPORT, IV
------------------------------------
R. B. Davenport, IV, President
David G. Epstein
Sarah Robinson Borders
KING & SPALDING
191 Peachtree Street
Atlanta, Georgia 30303-1763
(404) 572-4600
ATTORNEYS FOR THE
KRYSTAL COMPANY
- 45 -
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF TENNESSEE
CHATTANOOGA DIVISION
____________________________________
)
IN RE: ) CHAPTER 11
)
THE KRYSTAL COMPANY, ) CASE NO. 95-15306
)
DEBTOR. ) JUDGE COOK
)
PRECONFIRMATION MODIFICATION OF PLAN
The above-captioned Debtor and Debtor-In-Possession herein, The Krystal
Company modifies the Plan of Reorganization filed on February 10, 1997, with
minor revisions on February 24, 1997, as follows:
Paragraph 9.8 of the Plan shall be modified to read:
9.8 CONDITIONS TO CONFIRMATION. Confirmation of the Plan
and entry of the Confirmation Order shall be subject to
(1) entry of a Final Order approving the settlement of
Certain Claims filed by Stewart, Estes & Donnell on behalf
of their clients and (2) the Debtor's obtaining a commitment
from a commercial lending institution or institutions,
satisfactory in form to both the Debtor and the Committee,
for funding on or before the Distribution Date of at least
$50,000,000.
<PAGE>
This modification has been reviewed and approved by the Committee and the
Insurance Companies and the attorney for the Claims filed by Stewart, Estes &
Donnell on behalf of their clients.
Dated: Atlanta, Georgia
April 8, 1997
Respectfully submitted,
KING & SPALDING
/s/ DAVID G. EPSTEIN
------------------------------
David G. Epstein
Georgia Bar No. 249533
Sarah Robinson Borders
Georgia Bar No. 610649
191 Peachtree Street
Atlanta, Georgia 30303
(404) 572-4600
ATTORNEYS FOR THE KRYSTAL COMPANY
2
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF TENNESSEE
CHATTANOOGA DIVISION
____________________________________
)
IN RE: )
)
THE KRYSTAL COMPANY, ) CASE NO. 95-15306
)
DEBTOR. ) CHAPTER 11
)
ORDER CONFIRMING SECOND AMENDED AND RESTATED PLAN
OF REORGANIZATION FILED BY THE KRYSTAL COMPANY
The Second Amended and Restated Plan of Reorganization filed by The Krystal
Company (the "Plan"), having been filed with the Court on February 10, 1997 by
The Krystal Company ("Krystal"); copies of the Plan, the Disclosure Statement
dated February 10, 1997, as revised February 24, 1997, to Accompany Second
Amended and Restated Plan of Reorganization Filed by The Krystal Company (the
"Disclosure Statement) and related documents having been distributed to all
creditors as provided in the Order Approving Disclosure Statement and Fixing
Time for Filing Acceptances or Rejection of Krystal's Second Amended Chapter 11
Plan, Fixing Date for Hearing on Confirmation and Time for Filing Objections to
Confirmation and Fixing Date, Time and Place for Hearing on Confirmation of
Plan, together with notice thereof and the Summary of Ballots having been filed
with the Court on April 9, 1997; the hearing on confirmation of the Plan having
been commenced on April 9, 1997 (the "Confirmation Hearing") and the Court
having considered all Objections; and upon the statements of counsel and the
evidence adduced at the Confirmation Hearing, and all of the proceedings held
before this Court; and the appearances of all interested parties having been
noted on the record of the Confirmation Hearing; and upon the Plan and the
<PAGE>
record of the Confirmation Hearing, the Court having found and concluded that
the Plan should be confirmed as reflected by the Court's ruling at the
conclusion of the Confirmation Hearing, which ruling is incorporated herein by
reference as though set forth in full; and after due consideration and
deliberation, it is hereby ORDERED, ADJUDGED, FOUND and DECREED that:
I. FINDINGS OF FACT
A. THE DISCLOSURE STATEMENT.
1. By order dated February 26, 1997, the Court approved the Disclosure
Statement as containing "adequate information" within the meaning of
section 1125 of the Bankruptcy Code.
B. SOLICITATION AND VOTING.
2. Based upon the certificate of service, dated December 26, 1996 filed
by Krystal, the Court finds that all persons required to receive notice of the
hearings held on December 23, 1996 and February 14, 1997 to consider the
adequacy of the Disclosure Statement, and the Confirmation Hearing, have
received due, proper, timely and adequate notice of such hearings in accordance
with the Order of this Court dated February 26, 1997 and have had an opportunity
to appear at and be heard at such hearings.
3. Krystal has solicited votes with respect to the Plan only from
Classes 3, 4, 5 and 6. Krystal's solicitation of votes with respect to the Plan
was conducted in good faith and in a manner consistent with the Bankruptcy Code.
4. Based upon the Certificate of Krystal, which was filed with the Court
on April 9, 1997, concerning acceptances and rejections of the Plan, the number
and amount of claims timely voting to accept the Plan, exclusive of any votes
cast by holders of claims subject to objection that have not obtained temporary
allowances of such claims for voting purposes, are as follows:
2
<PAGE>
- --------------------------------------------------------------------------------
VOTERS ACCEPTING VOTERS REJECTING
- --------------------------------------------------------------------------------
NUMBER AMOUNT NUMBER AMOUNT
------ ------ ------ ------
- --------------------------------------------------------------------------------
CLASS 3 1 $2,895,666.03 0 $0.00
(100%) (100%) (0%) (0%)
- --------------------------------------------------------------------------------
CLASS 4 1 $137,500.00 0 $0.00
(100%) (100%) (0%) (0%)
- --------------------------------------------------------------------------------
CLASS 5 7003 $39,965,926.30 19 $22,122.22
(99%) (99.94%) (1%) (.06%)
- --------------------------------------------------------------------------------
CLASS 6 3 $36,245,298.63 0 $0.00
(100%) (100%) (0%) (0%)
- --------------------------------------------------------------------------------
5. Based upon the numbers and amounts of claims set forth above, the
holders of at least two-thirds in amount and a majority in number of the allowed
claims in each of Class 3, 4, 5 and 6 actually voting have accepted the Plan,
exclusive of any votes cast by holders of claims subject to objection that have
not obtained temporary allowances of such claims for voting purposes.
C. THE PLAN SATISFIES THE REQUIREMENTS OF THE BANKRUPTCY CODE.
6. The Plan complies with the applicable provisions of the Bankruptcy
Code.
7. Krystal has complied with the applicable provisions of the Bankruptcy
Code.
8. The Plan was proposed in order to pay all Allowed Claims of Creditors
in full and to effect the reorganization of Krystal.
9. The Plan has been proposed in good faith and not by any means
forbidden by law.
3
<PAGE>
10. The Plan designates classes of claims and classes of equity interests.
With respect to each class of claims or equity interests under the Plan, each
claim or equity interest is substantially similar to the other claims or equity
interests in such class.
11. The Plan provides the same treatment for each claim or equity interest
in any particular class of claims or equity interests.
12. The Plan provides for the amendment on the Effective Date of Krystal's
articles of incorporation to prohibit the issuance of equity securities to the
extent required by section 1123(a)(6) of the Bankruptcy Code.
13. There is no governmental regulatory commission that has jurisdiction
over Krystal's rates, and the Plan does not provide for any change in Krystal's
rates.
14. Under the Plan, claims and equity interests in Classes 1, 2 and 7 are
unimpaired and, therefore, are conclusively presumed to accept the Plan and will
be paid or provided for in full.
15. Under the Plan, claims in Classes 3, 4, 5 and 6 are impaired and,
therefore, are entitled to vote on and have accepted the Plan.
16. Krystal has disclosed the identity and affiliations of any individual
proposed to serve, after confirmation of the Plan, as a director, officer or
voting trustee of Krystal or a successor to Krystal under the Plan and the
appointment to, or continuance in, such office of such individual, is consistent
with the interests of creditors and equity security holders and with public
policy.
4
<PAGE>
17. On the Effective Date of the Plan, (a) all of the Krystal's Property
shall revest in the reorganized Debtor, and (b) all claims against Krystal shall
be deemed claims against the reorganized Debtor.
18. The discharge and injunction contained in Article 9 of the Plan are
integral to the Plan and provide a material benefit to Krystal's Estate.
19. The Plan provides that any payment made or to be made by Krystal for
services or for costs and expenses in connection with the Chapter 11 Case, or in
connection with the Plan and incident to the Chapter 11 Case, has been approved
by or is subject to the approval of the Court.
20. The Plan provides adequate means for its implementation.
21. Confirmation of the Plan is not likely to be followed by liquidation
or further financial reorganization not proposed in the Plan.
22. Krystal will have sufficient funds to meet its postconfirmation
obligations, to pay for the costs of its operations and to satisfy all Allowed
Claims in accordance with the provisions of the Plan.
23. The distributions under the Plan will be at least equal to the
distributions that would be payable if this Case was a case under chapter 7 of
the Bankruptcy Code. Accordingly, the liquidation analysis under chapter 7
contained in the Disclosure Statement and as further presented at the
Confirmation Hearing clearly demonstrates that each holder of a claim or equity
interest in each impaired Class under the Plan either has accepted the Plan, or
will receive or retain under the Plan on account of such claim or interest
property of a value that is at least equal to the amount that such holder would
receive or retain in a chapter 7 liquidation of Krystal's Estate.
5
<PAGE>
24. The Plan provides that, except as otherwise agreed by the holder of
such claim, each holder of an allowed administrative expense claim will be paid
in full, in Cash, not later than the Effective Date for claims already matured
or past due as of the Effective Date, or in the ordinary course of payment for
claims not yet matured or past due as of the Effective Date. No holder of an
administrative expense claim has asserted a sustained objection to such holder's
treatment under the Plan and, therefore, each such holder is deemed to have
agreed to such treatment.
25. The Plan provides that each holder of an Allowed Priority Claim will
be paid in full, in Cash, not later than the later of the Effective Date or the
date on which such Allowed Priority Claim becomes due and payable pursuant to
the terms thereof, unless the holder of such claim has agreed to less favorable
treatment for such holder's claim. No holder of an Allowed Priority Claim has
objected to such holder's treatment under the Plan and, therefore, each such
holder is deemed to have agreed to such treatment.
26. The Plan provides for the payment on the Effective Date of all fees
payable under 28 U.S.C. Section 1930.
27. All payments relating to retiree benefits have been made since the
commencement of the Case in accordance with section 1114 of the Bankruptcy Code
and the Plan provides that the Debtor shall continue all Retiree Benefits for
the duration of the period Krystal has obligated itself to provide such
benefits; and.
28. Each impaired Class of claims entitled to vote on the Plan has voted
to accept the Plan.
II. CONCLUSIONS OF LAW
6
<PAGE>
A. THE COURT HAS JURISDICTION TO CONFIRM THE PLAN.
29. The Court has jurisdiction to consider confirmation of the Plan
pursuant to 28 U.S.C. Section 1334(b). The Confirmation Hearing is a core
proceeding pursuant to 28 U.S.C. Section 157(b)(2)(L) and venue properly lies in
this district pursuant to 28 U.S.C. Section 1408(a).
30. Krystal is a proper debtor under section 109 of the Bankruptcy Code
and is a proper proponent of the Plan under section 1121(a) of the Bankruptcy
Code.
B. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1122 OF THE BANKRUPTCY CODE.
31. Section 1122(a) of the Bankruptcy Code states that a plan may place a
claim or equity interest in a particular class if such claim or equity interest
is substantially similar to the other claims or equity interests of such class.
Section 1122(b) of the Bankruptcy Code provides that a plan may designate a
separate class of claims consisting only of every unsecured claim that is less
than or reduced to an amount that the court approves as reasonable and necessary
for administrative convenience. A classification scheme satisfies section 1122
of the Bankruptcy Code when a reasonable basis exists for the choices made and
all claims within a particular class are substantially similar.
32. The classification of claims and equity interests in the Plan is
reasonable and necessary to implement the Plan and, therefore, satisfies the
requirements of section 1122 of the Bankruptcy Code.
C. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(1) OF THE BANKRUPTCY
CODE.
33. The Plan designates classes of claims and equity interests and,
therefore, satisfies the requirements of section 1123(a)(1) of the Bankruptcy
Code.
7
<PAGE>
D. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(2) OF THE BANKRUPTCY
CODE.
34. The Plan specifies that Classes 1, 2 and 7 are unimpaired under the
Plan. Accordingly, the Plan satisfies the requirements of section 1123(a)(2) of
the Bankruptcy Code.
E. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(3) OF THE BANKRUPTCY
CODE.
35. Article 4 of the Plan specifies the treatment of each impaired Class
of claims and/or equity interests (i.e., Classes 3, 4, 5 and 6) and,
accordingly, the Plan satisfies the requirements of section 1123(a)(3) of the
Bankruptcy Code.
F. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(4) OF THE BANKRUPTCY
CODE.
36. Section 1123(a)(4) of the Bankruptcy Code requires a plan to provide
the same treatment for each claim or equity interest of a particular class,
unless the holder of a particular claim or equity interest agrees to less
favorable treatment of such particular claim or equity interest. The Plan
provides the same treatment for each claim or equity interest in each particular
Class and, accordingly, satisfies section 1123(a)(4) of the Bankruptcy Code.
G. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(5) OF THE BANKRUPTCY
CODE.
37. The Plan provides adequate means for the implementation thereof and,
accordingly, satisfies section 1123(a)(5) of the Bankruptcy Code.
H. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(6) OF THE BANKRUPTCY
CODE.
38. Section 1123(a)(6) requires a plan to provide for the inclusion in the
charter of the debtor, if the debtor is a corporation, or of any corporation to
which the debtor transfers all or any
8
<PAGE>
part of the debtor's estate or with which the debtor has merged or consolidated,
of a provision prohibiting the issuance of nonvoting equity securities.
39. On the Effective Date, the reorganized Debtor's certificate of
incorporation will be amended to prohibit the issuance of nonvoting equity
securities to the extent required by section 1123(a)(6) of the Bankruptcy Code.
40. The reorganized Debtor will not have more than one class of securities
possessing voting power for purposes of section 1123(a)(6).
41. Based upon the foregoing, the Plan satisfies the requirements of
section 1123(a)(6) of the Bankruptcy Code.
I. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1123(a)(7) OF THE BANKRUPTCY
CODE.
42. The Plan provides for the management of the reorganized Debtor in a
manner consistent with the interests of creditors and equity security holders
and with public policy. Accordingly, the Plan satisfies the requirements of
section 1123(a)(7) of the Bankruptcy Code.
J. THE ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
PURSUANT TO SECTION 1123(b)(2) OF THE BANKRUPTCY CODE IS IN THE BEST
INTERESTS OF KRYSTAL, ITS ESTATE AND CREDITORS.
43. In accordance with section 1123(b)(2) of the Bankruptcy Code, the Plan
provides for the assumption by Krystal of all executory contracts and unexpired
leases to which Krystal is a party on the Confirmation Date and which had not
previously been assumed or rejected.
44. Krystal's decision regarding the assumption of executory contracts and
unexpired leases is based upon and is within the sound business judgment of
Krystal and is in the best interests of Krystal, its Estate and its creditors.
9
<PAGE>
K. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(1) OF THE BANKRUPTCY
CODE.
45. The Plan complies with all of the applicable provisions of the
Bankruptcy Code.
L. KRYSTAL HAS SATISFIED THE REQUIREMENTS OF SECTION 1129(a)(2) OF THE
BANKRUPTCY CODE.
46. Section 1129(a)(2) of the Bankruptcy Code requires that the plan
proponent comply with all of the applicable provisions of the Bankruptcy Code.
47. Krystal has complied with all of the provisions of the Bankruptcy Code
and the Bankruptcy Rules governing notice, disclosure and solicitation in
connection with the Plan, the Disclosure Statement and all other matters
considered by the Court in connection with this Case.
48. Good, sufficient and timely notice of the Confirmation Hearing and of
all other hearings in this Chapter 11 Case has been given to all holders of
claims and equity interests and all other parties in interest to whom notice
should have been given.
49. The solicitation of votes from holders of claims was made following
approval of the Disclosure Statement and dissemination of the Disclosure
Statement to holders of claims in Classes that are impaired under the Plan and
entitled to vote and was made in good faith and in compliance with the
applicable provisions of the Bankruptcy Code and Bankruptcy Rules.
50. With respect to impaired Classes 3, 4, 5 and 6, the solicitation and
tabulation of ballots were properly performed.
51. Krystal has fulfilled all of the obligations and duties owed to its
Estate as required and set forth in sections 1107 and 1108 of the Bankruptcy
Code.
52. Therefore, Krystal has satisfied the requirements of
section 1129(a)(2) of the Bankruptcy Code.
10
<PAGE>
M. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(3) OF THE BANKRUPTCY
CODE.
53. In accordance with section 1129(a)(3) of the Bankruptcy Code, the Plan
has been proposed in good faith and not by any means forbidden by law. In
determining that the Plan has been proposed in good faith, the Court has
examined the totality of the circumstances surrounding the formulation of the
Plan.
54. The fact that the Plan has been accepted by Classes 3, 4, 5 and 6
demonstrates the determination of creditors that the Plan is in their best
interests and maximizes distributions available to them.
55. On the basis of the evidence presented at the Confirmation Hearing,
the Court finds and concludes that the Plan has been proposed with the
legitimate purpose of completing the reorganization of Krystal's business and to
maximize the returns available to creditors.
56. In light of all the circumstances, the Plan satisfies
section 1129(a)(3) of the Bankruptcy Code.
N. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(4) OF THE BANKRUPTCY
CODE.
57. In accordance with section 1129(a)(4) of the Bankruptcy Code, all
payments made or to be made by Krystal or by a person issuing securities or
acquiring property under the Plan, for services or for costs and expenses in or
in connection with the Case or the Plan and incident to this Case, have been
approved by or are subject to the approval of the Court as reasonable.
58. Accordingly, the Plan satisfies the requirements of section 1129(a)(4)
of the Bankruptcy Code.
O. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(5) OF THE BANKRUPTCY
CODE.
11
<PAGE>
59. Krystal has disclosed in the Disclosure Statement the identities and
affiliations of any individual proposed to serve, after confirmation of the
Plan, as a director, officer or voting trustee of Krystal, and the service of
such individuals is consistent with the interests of creditors and equity
security holders and with public policy. Accordingly, the requirements of
section 1129(a)(5)(A) of the Bankruptcy Code have been satisfied.
60. Krystal has adequately disclosed in the Disclosure Statement the
identities of insiders that will be employed or retained by the Reorganized
Debtor and the nature of any compensation for such insiders.
P. SECTION 1129(a)(6) OF THE BANKRUPTCY CODE IS NOT APPLICABLE TO THE PLAN.
61. The Plan does not provide for change in any rate that requires
regulatory approval. There is no governmental regulatory commission that has
jurisdiction over Krystal's rates. Therefore, section 1129(a)(6) of the
Bankruptcy Code is not applicable to the Plan.
Q. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(7) OF THE BANKRUPTCY
CODE.
62. Section 1129(a)(7) requires each creditor or equity interest holder in
an impaired class to accept the plan, or receive or retain under the plan on
account of such claim or interest property of a value, as of the effective date
of the plan, that is not less than the amount that such holder would receive or
retain if the debtor were liquidated under chapter 7 of the Bankruptcy Code.
63. Krystal has shown that the value of distributions to each creditor and
equity interest holder under the Plan is not less than the value of
distributions that each creditor and equity interest holder would receive in a
chapter 7 liquidation scenario.
12
<PAGE>
64. Based upon the record of the Confirmation Hearing and of the Case, the
Court finds that all holders of claims or equity interests in impaired Classes
will receive at least as much under the Plan as they would under a chapter 7
liquidation.
65. Accordingly, the Plan satisfies the "best interest of creditors" test
under section 1129(a)(7) of the Bankruptcy Code.
R. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(8) OF THE BANKRUPTCY
CODE.
66. Section 1129(a)(8) of the Bankruptcy Code requires that, with respect
to each class of claims or interests, such class has accepted the plan, or
such class is not impaired under the plan.
67. The claims in each of Classes 1, 2 and 7 are unimpaired and each
holder of a claim in each such Class is conclusively presumed to have accepted
the Plan and the solicitation of acceptances with respect to each such Class is
not required. In addition, each of impaired Classes 3, 4, 5 and 6 have accepted
the Plan. Accordingly, the requirements of section 1129(a)(8) have been
satisfied.
S. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(9) OF THE BANKRUPTCY
CODE.
68. The Plan provides for the payment in full, in Cash, of all claims
specified in section 507 of the Bankruptcy Code and, accordingly, satisfies the
requirements of all three subsections of section 1129(a)(9) of the Bankruptcy
Code.
T. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(10) OF THE
BANKRUPTCY CODE.
13
<PAGE>
69. Pursuant to section 1129(a)(10) of the Bankruptcy Code, at least one
impaired class of claims must accept the plan, determined without including any
acceptance of the plan by any insider.
70. The Plan satisfies section 1129(a)(10) because Classes 3, 4, 5 and 6,
all of the voting Classes, have accepted the Plan, determined without including
any acceptance of the Plan by an insider holding a claim in such Classes.
U. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(11) OF THE
BANKRUPTCY CODE.
71. Section 1129(a)(11) of the Bankruptcy Code requires that a plan must
be "feasible," that is, the Court must determine that confirmation of the plan
is not likely to be followed by the liquidation or further financial
reorganization of the debtor or its successor under the plan, unless such
liquidation or reorganization is proposed in the plan.
72. Krystal has demonstrated that it will have sufficient funds to meet
its postconfirmation obligations, to pay for the costs of its operations and to
satisfy claims as set forth in the Plan and to continue its businesses, the Plan
complies with the feasibility standard set forth in section 1129(a)(11) of the
Bankruptcy Code.
V. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(a)(12) OF THE
BANKRUPTCY CODE.
73. All fees payable under 28 U.S.C. Section 1930 have been paid or the
Plan provides for the payment, on or before the Effective Date, of all such
fees. Accordingly, the Plan satisfies the requirements of section 1129(a)(12)
of the Bankruptcy Code. Krystal shall continue to pay U.S. Trustee's fees and
to file monthly operating reports until a final decree is entered or until this
case is dismissed or converted to another chapter under the Bankruptcy Code.
14
<PAGE>
W. THE PLAN SATISFIES SECTION 1129(a)(13) OF THE BANKRUPTCY CODE WITH RESPECT
TO RETIREE BENEFITS.
74. All payments relating to retiree benefits have been made since the
commencement of the Case and the Plan provides for Krystal to continue to pay
such benefits for the duration of the period Krystal has obligated itself to
provide such benefits in satisfaction of Section 1129(a)(13) of the Bankruptcy
Code.
X. THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129(d) OF THE BANKRUPTCY
CODE.
75. The principal purpose of the Plan is not the avoidance of taxes or
avoidance of the requirements of Section 5 of the Securities Act of 1933, and
there has been no Objection filed by any governmental unit asserting such
avoidance. Therefore, the Plan satisfies the requirements of section 1129(d) of
the Bankruptcy Code.
Y. THE DISCHARGE AND INJUNCTION PROVISIONS OF THE PLAN ARE CONSISTENT WITH
SECTIONS 105, 1129 AND OTHER APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE.
76. This Court has jurisdiction to approve and order the discharge and
injunction, as provided in Article 9 of the Plan, pursuant to 28 U.S.C. Section
1334 and section 105 of the Bankruptcy Code.
77. Section 105(a) of the Bankruptcy Code permits the approval of the
discharge and the issuance of the injunction, as provided in Article 9 of the
Plan. The discharge and injunction provisions of the Plan are consistent with
sections 105 and 1129 and other applicable provisions of the Bankruptcy Code,
including section 524(e).
III. DECRETAL PROVISIONS
78. The Plan be, and it hereby is, confirmed.
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79. To the extent any Objections to confirmation of the Plan have not been
withdrawn prior to entry of this Order or are not cured by the relief granted
herein, all remaining Objections to confirmation of the Plan be, and they hereby
are, overruled and all withdrawn Objections be, and they hereby are, deemed
withdrawn with prejudice.
80. The Confirmation Date be, and it hereby is, the date on which the
Clerk of this Court enters this order on its docket.
81. The Effective Date be, and it hereby is, the first business day after
satisfaction of the conditions contained in section 9.10 of the Plan, which date
shall be at least ten days following the Confirmation Date.
82. The record of the Confirmation Hearing be, and it hereby is, closed.
83. In accordance with section 1141 of the Bankruptcy Code, the Plan and
its provisions be, and they hereby are, binding upon Krystal, the reorganized
Debtor, each person or entity acquiring or receiving property under the Plan,
and each holder of a claim against or equity interest in Krystal, whether or not
the claim or equity interest of such creditor or equity interest holder is
impaired under the Plan, such creditor or equity interest holder has filed, or
is deemed to have filed, a proof of claim or equity interest, and such creditor
or equity interest holder has accepted or rejected the Plan.
84. In accordance with section 1141 of the Bankruptcy Code, all property
of the Estate on the Effective Date shall, on the Effective Date, be, and it
hereby is, vested in the reorganized Debtor as designated in and provided for by
the Plan.
85. Except as otherwise provided in the Plan, on the Effective Date, the
transfer of any assets by Krystal or the reorganized Debtor as contemplated by
the Plan, and the vesting of the
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assets of Krystal in the reorganized Debtor pursuant to sections 1141(b) and (c)
of the Bankruptcy Code be, and they hereby are, on the Effective Date, free and
clear of all claims against and equity interests in Krystal, and liens or
encumbrances securing same, and the Plan and this Order supersede any Court
order issued prior to the date hereof that is inconsistent herewith.
86. Except as set forth in the Plan, on and after the Effective Date,
every holder of a claim or equity interest be, and they hereby are, precluded
and permanently enjoined from commencing or continuing any action, employment of
process or act to collect, offset or recover the Claims discharged by the Plan
and from taking any action to enforce rights, or alleged rights, against
Krystal, against any of Krystal's Property, against any property of the Estate,
or against any collateral in which said Creditors assert a Lien, which rights,
or alleged rights, are inconsistent with the terms of the Plan. The injunction
provided for herein and in the Plan does not prohibit creditors from taking any
enforcement action against Krystal, its property or any other person in the
event that Krystal fails to comply with the terms of the Plan.
87. All rights and Causes of Action accruing to Krystal be, and they
hereby are, assets of the Reorganized Debtor, which may pursue those rights and
Causes of Action as appropriate as set forth in the Plan, in accordance with
what is in the best interests of, and for the benefit of, the reorganized Debtor
and those creditors who will receive distributions subsequent to the Effective
Date.
88. The reorganized Debtor be, and it hereby is, authorized to be
represented by the professionals retained by Krystal, and such professionals are
hereby authorized to provide services to the reorganized Debtor without the
necessity of obtaining any other or further approvals of the Bankruptcy Court.
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89. The reorganized Debtor be, and it hereby is, ordered to file and serve
all objections to claims as soon as practicable, but in no event later than
sixty (60) days after the Confirmation Date; provided, however, that if no
objection has been filed by the above date, the claim to which the proof of
claim or scheduled claim relates shall be treated as an Allowed Claim if such
claim has not been allowed or disallowed earlier. Except as to objections
pending as of the Confirmation Date, after the Confirmation Date, only the
reorganized Debtor shall have the authority to prosecute, settle, compromise,
withdraw or litigate to judgment objections to claims and counterclaims.
90. The reorganized Debtor shall distribute Cash in accordance with the
relevant provisions of Articles 3, 4 and 7 of the Plan, in payment of all
Allowed Claims. The Plan shall not be deemed to have been substantially
consummated until such time as all conditions set forth in section 9.10 of the
Plan have been satisfied or have occurred and at least $35,000,000 of the
proceeds of the financing obtained to implement the Plan have been distributed
to Creditors in satisfaction of Allowed Claims. Nothing herein shall be deemed
to alter the definition of "substantial consummation" as set forth in the Plan.
91. The reorganized Debtor be, and it hereby is, authorized and directed
to take all necessary steps, and to perform all necessary acts, to consummate
the terms and conditions of the Plan.
92. The reorganized Debtor be, and it hereby is, ordered to distribute
Cash and other property in accordance with the applicable provisions of the
Plan.
93. On the Confirmation Date, all executory contracts and unexpired leases
that exist between Krystal and any person or entity, that have not been
previously assumed or rejected by
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order of the Court or which are not the subject of a motion to assume or reject
pending on the Confirmation Date, be, and they hereby are, assumed in accordance
with the provisions and requirements of section 365 of the Bankruptcy Code and
entry of the Confirmation Order by the Clerk of the Court shall constitute an
order approving such assumptions pursuant to section 365(a) of the Bankruptcy
Code.
94. All proofs of claim with respect to claims arising from the rejection
of executory contracts or unexpired leases must be filed with the Court no later
than thirty days after the Confirmation Date. Any claim not filed within such
time will be forever barred from assertion against the reorganized Debtor,
Krystal, the Estate and its property. Unless otherwise ordered by the Court,
all such claims arising from the rejection of executory contracts or unexpired
leases will be, and will be treated as, Class 5 claims.
95. Pursuant to sections 105(a) and 1127 of the Bankruptcy Code, this
Court hereby retains jurisdiction over any and all matters arising out of or
relating to the Chapter 11 Case, including, without limitation, (a) all matters
set forth in the Plan, (b) such other matters and purposes as may be necessary
or useful to aid in the confirmation and consummation of the Plan and its
implementation, and (c) any lawsuit or claim arising under, in connection with,
or based directly or indirectly on this Order.
96. All applications for payment of fees and expenses pursuant to
section 503(b) of the Bankruptcy Code be, and they hereby are, required to be
filed with the Court within thirty days after the Confirmation Date and any
requests for payment of such fees and expenses not filed within such time period
be, and they hereby are, discharged and forever barred except as otherwise may
be ordered by the Court.
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97. In accordance with section 1142 of the Bankruptcy Code, the
implementation and consummation of the Plan in accordance with its terms be, and
it hereby is, authorized and approved, including, without limitation, the
execution and delivery of all documents, instruments, certificates and
agreements to be entered into pursuant to the Plan by Krystal and/or any
successors to Krystal, including the reorganized Debtor, and the transfers of
property by and to Krystal and the reorganized Debtor contemplated to be made
pursuant to the Plan, including, without limitation, the granting of liens,
security interests and encumbrances to secure loans obtained to fund the
distributions required by the Plan.
98. In accordance with section 1142 of the Bankruptcy Code, the
reorganized Debtor and Krystal be, and they hereby are, authorized, empowered
and directed to execute, deliver, file and record any document, and to take any
action necessary or appropriate to implement, effectuate and consummate the Plan
in accordance with its terms, whether or not any such document is specifically
referred to in the Plan and without further application to or order of this
Court.
99. The reorganized Debtor be, and it hereby is, authorized and empowered
to take any and all actions as set forth and described in the Plan.
100. Except as provided by the Plan, on the Effective Date, (a) all of
Krystal's Property be, and they hereby are, revested in the reorganized Debtor,
(b) all claims against Krystal be, and they hereby are, deemed claims against
the reorganized Debtor, and (c) the reorganized Debtor shall be managed by the
officers and directors thereof, in good faith so as to maximize the value of the
reorganized Debtor's property, without the supervision or approval of the Court.
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101. The appointment of the officers and directors of the reorganized
Debtor as provided under the Plan be, and it hereby is, deemed to have occurred
and shall be in effect without any requirement of further action or order of the
Court.
102. All persons and entities holding claims or equity interests which are
dealt with under the Plan be, and they hereby are, directed to execute, deliver,
file and/or record all documents, and to take all actions necessary to
implement, effectuate and consummate the Plan in accordance with its terms, and
all such persons shall be bound by the terms and provisions of all documents to
be executed by them in connection with the Plan, whether or not such documents
actually have been executed by such persons.
103. In the event of any inconsistencies between the Plan and any agreement
or document intended to implement the provisions of the Plan, the provisions of
the Plan shall govern unless otherwise explicitly provided for in such
agreements or documents. Except that the order and the attached Settlement
approving the compromise and settlement of the FLSA Claims asserted by persons
represented by Stewart, Estes & Donnell shall govern over the terms of the Plan.
In the event of any inconsistencies between the Plan and this Order, the
provisions of this Order shall govern.
104. The failure specifically to include any particular provision of the
Plan in this Order shall not diminish or impair the efficacy of such provision,
it being understood the intent of the Court that the Plan be confirmed and
approved in its entirety.
105. To the extent any of the foregoing findings of fact constitute
conclusions of law, they are adopted as such. If any of the foregoing
conclusions of law constitute findings of fact, they are adopted as such.
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/s/ JAMES C. COOK
----------------------------------
UNITED STATES BANKRUPTCY JUDGE
PREPARED AND PRESENTED:
KING & SPALDING
By: /s/ SARAH R. BORDERS
---------------------------
David G. Epstein
Ga. Bar No. 249533
Sarah Robinson Borders
Ga. Bar No. 610649
191 Peachtree Street
Atlanta, Georgia 30303
(404) 572-4600
ATTORNEYS FOR THE KRYSTAL COMPANY
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Exhibit 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF TENNESSEE
CHATTANOOGA DIVISION
IN RE: )
) CHAPTER 11
THE KRYSTAL COMPANY, )
) CASE NO. 95-15306
DEBTOR. )
) JUDGE COOK
______________________________________ )
DISCLOSURE STATEMENT
DATED FEBRUARY 10, 1997,
AS REVISED FEBRUARY 24, 1997,
TO ACCOMPANY SECOND AMENDED AND
RESTATED PLAN OF REORGANIZATION
FILED BY THE KRYSTAL COMPANY
KING & SPALDING
191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
COUNSEL TO THE DEBTOR
<PAGE>
TABLE OF CONTENTS
ARTICLE I.- INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Purpose of The Disclosure Statement . . . . . . . . . . . . . . . . 1
B. Representations . . . . . . . . . . . . . . . . . . . . . . . . . . 1
C. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
D. Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. WHO IS THE DEBTOR? . . . . . . . . . . . . . . . . . . . . . . 2
2. HOW LONG HAS THE DEBTOR BEEN IN CHAPTER 11? . . . . . . . . . 2
3. WHAT IS CHAPTER 11? . . . . . . . . . . . . . . . . . . . . . 2
4. HAS A TRUSTEE BEEN APPOINTED IN THIS CHAPTER 11 CASE? . . . . 2
5. DOES THE BANKRUPTCY MEAN THAT THE KRYSTAL COMPANY WILL CEASE
DOING BUSINESS? . . . . . . . . . . . . . . . . . . . . . . . 3
6. HAS KRYSTAL PROPOSED A PLAN OF REORGANIZATION? . . . . . . . . 3
7. WHAT WILL BE THE SOURCE OF THE DISTRIBUTIONS UNDER THE PLAN? . 3
8. WHO VOTES ON THE PLAN? . . . . . . . . . . . . . . . . . . . . 3
9. HOW CAN I DETERMINE IF MY CLAIM IS ALLOWED? . . . . . . . . . 3
10. HOW CAN I DETERMINE IF MY CLAIM IS IMPAIRED? . . . . . . . . . 3
11. HOW CAN I DETERMINE IN WHICH CLASS MY CLAIM HAS BEEN PLACED? . 4
12. HOW CAN I DETERMINE WHAT I WILL RECEIVE UNDER THE PLAN? . . . 4
13. DO I HAVE TO VOTE FOR THE PLAN TO RECEIVE A DISTRIBUTION? . . 4
14. HOW IS THE PLAN ACCEPTED? . . . . . . . . . . . . . . . . . . 4
15. IF MY CLASS VOTES TO ACCEPT THE PLAN, DO I GET WHAT THE PLAN
PROVIDES FOR MY CLASS? . . . . . . . . . . . . . . . . . . . . 4
16. WHAT IS CONFIRMATION? . . . . . . . . . . . . . . . . . . . . 4
17. HOW DO I VOTE ON THE PLAN? . . . . . . . . . . . . . . . . . . 5
ARTICLE II. - GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 5
A. History of the Debtor . . . . . . . . . . . . . . . . . . . . . . . 5
B. Description of Debtor's Business . . . . . . . . . . . . . . . . . 6
C. Selected Historical Financial Data . . . . . . . . . . . . . . . . 7
D. Debtor's Management . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Debtor's Properties . . . . . . . . . . . . . . . . . . . . . . . .10
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F. Description of Debtor's Major Debt Agreements . . . . . . . . . . . 11
1. Prudential Loan Documents . . . . . . . . . . . . . . . . . . 11
2. Great-West/Jefferson Pilot Loan Documents . . . . . . . . . . 12
3. Provident Loan Documents . . . . . . . . . . . . . . . . . . . 12
4. First Tennessee Line of Credit. . . . . . . . . . . . . . . . 12
G. Other Significant Prepetition Liabilities . . . . . . . . . . . . . 12
1. Trade Claims . . . . . . . . . . . . . . . . . . . . . . . . . 12
2. Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Workers Compensation Claims . . . . . . . . . . . . . . . . . 13
4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 13
H. Historical Competition in Debtor's Industry . . . . . . . . . . . . 13
I. Aviation Operation . . . . . . . . . . . . . . . . . . . . . . . . 14
J. Events Leading to Chapter 11 Filing . . . . . . . . . . . . . . . . 14
K. Chapter 11 Case . . . . . . . . . . . . . . . . . . . . . . . . . . 15
L. Significant Events in the Bankruptcy Case . . . . . . . . . . . . . 15
1. Appointment of a Legal Representative. . . . . . . . . . . . . 15
2. Establishment of a Bar Date. . . . . . . . . . . . . . . . . . 16
3. Solicitation of Clients by Stewart Estes & Donnel . . . . . . 16
4. Claims Filed . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Quantification of FLSA Claims . . . . . . . . . . . . . . . . 17
6. Dismissal of Certain Wage Claims . . . . . . . . . . . . . . . 17
7. Maximum SED Claims . . . . . . . . . . . . . . . . . . . . . . 17
8. Settlement of Claims for Unpaid Wages. . . . . . . . . . . . 17
ARTICLE III. - BRIEF EXPLANATION OF CHAPTER 11 . . . . . . . . . . . . . . . 17
ARTICLE IV. - GENERAL OVERVIEW OF THE PLAN . . . . . . . . . . . . . . . . . 20
A. Resolution of Claims for Unpaid Wages . . . . . . . . . . . . . . 20
ARTICLE V. - CLASSIFICATION OF CLAIMS AND THE TREATMENT
OF EACH CLASS IN THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 20
A. Treatment of Priority Claims . . . . . . . . . . . . . . . . . . . 20
1. Administrative Expense Claims . . . . . . . . . . . . . . . . 20
2. Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3. Class 1 (Priority Claims) . . . . . . . . . . . . . . . . . . 22
B. Classification and Treatment of Secured Claims . . . . . . . . . . 22
1. Class 2 (Secured Claims) . . . . . . . . . . . . . . . . . . . 23
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2. Class 3 (Provident Claims) . . . . . . . . . . . . . . . . . . 23
3. Class 4 (Scott Claims) . . . . . . . . . . . . . . . . . . . . 24
C. Classification and Treatment of Unsecured Claims . . . . . . . . . 24
1. Class 5 (Unsecured Claims) . . . . . . . . . . . . . . . . . . 24
2. Class 6 (Bondholder Claims) . . . . . . . . . . . . . . . . . 25
D. Classification and Treatment of Interests in the Debtor . . . . . . 25
1. Class 7 (Interests) . . . . . . . . . . . . . . . . . . . . . 25
E. Payment of Interest on Allowed Claims . . . . . . . . . . . . . . . 25
F. Reservation of Rights . . . . . . . . . . . . . . . . . . . . . . . 26
G. Means of Implementation of Plan . . . . . . . . . . . . . . . . . . 26
H. Structure of the Reorganized Debtor . . . . . . . . . . . . . . . . 26
I. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
J. Distributable Property Under the Plan . . . . . . . . . . . . . . . 26
K. Executory Contracts and Unexpired Leases . . . . . . . . . . . . . 27
L. Assumption and Cure . . . . . . . . . . . . . . . . . . . . . . . . 27
M. Identity And Compensation of Insiders . . . . . . . . . . . . . . . 27
O. Waivers and Releases; Legal Effect of Plan Confirmation . . . . . . 28
P. Amendment of the Plan . . . . . . . . . . . . . . . . . . . . . . . 29
Q. Retention of Jurisdiction by the Court . . . . . . . . . . . . . . 29
ARTICLE VI. - CONDITIONS TO CONFIRMATION CONTAINED IN THE BANKRUPTCY CODE . . 29
A. Section 1129 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
B. Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
C. Confirmation Without Acceptance of All Impaired Classes - Cramdown 32
D. Best Interests Test . . . . . . . . . . . . . . . . . . . . . . . . 32
E. Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII. - ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 34
A. Continuation of Case . . . . . . . . . . . . . . . . . . . . . . . 34
B. Alternative Plans of Reorganization . . . . . . . . . . . . . . . . 35
C. Liquidation Under Chapter 7 . . . . . . . . . . . . . . . . . . . . 35
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2. Liquidation Analysis . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII. - RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 37
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ARTICLE IX. - TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE X. - DISCLAIMERS . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XI. - THE SIGNIFICANCE OF ALLOWANCE AND IMPAIRMENT . . . . . . . . . 39
A. Allowance of Claims. . . . . . . . . . . . . . . . . . . . . . . . 39
1. Allowed Claims . . . . . . . . . . . . . . . . . . . . . . . . 39
B. Impairment of Claims . . . . . . . . . . . . . . . . . . . . . . . 40
1. Definition of Impairment . . . . . . . . . . . . . . . . . . . 40
2. Classes Impaired Under the Plan . . . . . . . . . . . . . . . 40
ARTICLE XII. - OBJECTIONS TO CLAIMS . . . . . . . . . . . . . . . . . . . . . 40
A. Objection Procedure . . . . . . . . . . . . . . . . . . . . . . . . 40
1. Objections . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2. Responses . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XIII. - TEMPORARY ALLOWANCE AND ESTIMATION OF CLAIMS . . . . . . . . 41
A. Temporary Allowance of Claims for Voting Purposes . . . . . . . . . 41
B. Estimation of Claims for Distribution Purposes . . . . . . . . . . 41
ARTICLE XIV. - VOTING ACCEPTANCE AND CONFIRMATION . . . . . . . . . . . . . . 41
A. Voting Procedures and Requirements . . . . . . . . . . . . . . . . 41
B. Confirmation Hearing . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XV. - RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . 44
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ARTICLE I.
INTRODUCTION
A. PURPOSE OF THE DISCLOSURE STATEMENT.
Pursuant to Section 1125 of the Bankruptcy Code, The Krystal Company
(the "Debtor" or "Krystal") submits this Disclosure Statement to provide the
Debtor's Creditors and Interest holders with adequate information about the
Debtor and the Plan of Reorganization filed by the Debtor (the "Plan") to
enable such Creditors and Interest holders to make an informed judgment
regarding the acceptance or rejection of, or objection to, the Plan. This
Disclosure Statement discusses, among other things: voting instructions;
recovery information; classification; and the Debtor's history, business,
property and results of operations. It also includes a summary and analysis
of the Plan, as well as the terms of principal agreements to be entered into
in connection therewith. All Creditors and Interest holders are hereby
advised and urged to read this Disclosure Statement, the Plan and the other
exhibits annexed hereto in their entirety before voting to accept or reject
the Plan.
B. REPRESENTATIONS.
NO REPRESENTATIONS CONCERNING THE DEBTOR OR THE PLAN ARE AUTHORIZED OTHER
THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY REPRESENTATIONS OR
INDUCEMENTS TO SECURE YOUR ACCEPTANCE OR REJECTION OF THE PLAN OTHER THAN AS
CONTAINED HEREIN SHOULD NOT BE RELIED UPON BY YOU. INSTEAD, ANY SUCH
REPRESENTATION OR INDUCEMENT SHOULD BE REPORTED TO THE BANKRUPTCY COURT DIRECTLY
OR THROUGH COUNSEL FOR THE DEBTOR. THE DEBTOR IS UNABLE TO WARRANT OR REPRESENT
THAT THE INFORMATION CONTAINED HEREIN IS WITHOUT ANY INACCURACY, ALTHOUGH ALL
SUCH INFORMATION IS ACCURATE TO THE DEBTOR'S BEST KNOWLEDGE, INFORMATION AND
BELIEF. THE BANKRUPTCY COURT HAS NOT VERIFIED THE ACCURACY OF THE INFORMATION
CONTAINED HEREIN, AND THE BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE
STATEMENT DOES NOT IMPLY THAT THE BANKRUPTCY COURT ENDORSES OR APPROVES THE
PLAN, BUT ONLY THAT IF THE INFORMATION IS ACCURATE, IT IS SUFFICIENT TO PROVIDE
AN ADEQUATE BASIS FOR CREDITORS TO MAKE INFORMED DECISIONS WHETHER TO ACCEPT OR
REJECT THE PLAN. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION; NEITHER HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS
CONTAINED HEREIN.
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C. DEFINED TERMS.
Most words or phrases used in this Disclosure Statement shall have their
usual and customary meanings. Words or phrases defined in the Plan shall have
the definitions set forth in the Plan. Unless otherwise defined, the
capitalized terms used in this Disclosure Statement shall have the same meaning
as to the Bankruptcy Code or Rules.
D. SUMMARY.
1. WHO IS THE DEBTOR?
The Krystal Company, the owner, operator and franchisor of Krystal fast
food restaurants.
2. HOW LONG HAS THE DEBTOR BEEN IN CHAPTER 11?
Krystal filed its Chapter 11 petition on December 15, 1995 ("Filing Date").
3. WHAT IS CHAPTER 11?
Chapter 11 is the chapter of the Bankruptcy Code for business
reorganization. Under Chapter 11, a company attempts to restructure its
finances so that it can continue to operate its business and provide jobs,
pay its creditors and otherwise be a contributing part of the economy.
Formulation of a plan of reorganization is the primary purpose of a
Chapter 11 case.
A Chapter 11 plan sets forth and governs the treatment and rights to be
afforded to creditors and stockholders with respect to their Claims against
and equity interests in the Debtor. According to section 1125 of the
Bankruptcy Code, acceptances of a Chapter 11 plan may be solicited by the
Debtor only after a written disclosure statement has been provided to each
creditor or stockholder who is entitled to vote on the plan. This
Disclosure Statement is presented to creditors and stockholders to satisfy
the disclosure requirements contained in section 1125 of the Bankruptcy
Code.
4. HAS A TRUSTEE BEEN APPOINTED IN THIS CHAPTER 11 CASE?
No. In accordance with sections 1107 and 1108 of the Bankruptcy Code,
following the commencement of its Chapter 11 case, Krystal has remained in
possession of its property and continues to operate its business.
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5. DOES THE BANKRUPTCY MEAN THAT THE KRYSTAL COMPANY WILL CEASE DOING
BUSINESS?
No. Krystal intends to seek confirmation of the Plan which provides for it
to continue to operate its business.
6. HAS KRYSTAL PROPOSED A PLAN OF REORGANIZATION?
Yes. On November 15, 1996, Krystal filed its Plan with the Bankruptcy
Court. Modifications to the Plan were filed on January 9, 1997,
February 10, 1997, and February 24, 1997. A copy of that Plan, as
modified, is attached hereto as Exhibit A. This Disclosure Statement
explains certain provisions of the Plan to you and provides other important
information that you should consider before voting on the Plan.
7. WHAT WILL BE THE SOURCE OF THE DISTRIBUTIONS UNDER THE PLAN?
Distribution funds will be available from the more than $25,000,000 of cash
and other assets Krystal has on hand and at least $45,000,000 of cash
obtained from one or more loans or extensions of credit. Krystal
anticipates that distribution under the Plan will be leass than
$68,000,000.
8. WHO VOTES ON THE PLAN?
Creditors holding Allowed Claims may vote on the Plan provided that their
Claims are impaired by the treatment proposed in the Plan.
9. HOW CAN I DETERMINE IF MY CLAIM IS ALLOWED?
Article XI, beginning at page 37 of this Disclosure Statement, explains how
to determine if your Claim is allowed for voting purposes. Only holders of
Allowed Claims may vote on and receive distributions under the Plan.
10. HOW CAN I DETERMINE IF MY CLAIM IS IMPAIRED?
Article XI, Section B, at page 38 of this Disclosure Statement, will inform
you of the classes of Claims that are impaired under the Plan. You must
first determine in which class your Claim has been placed.
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<PAGE>
11. HOW CAN I DETERMINE IN WHICH CLASS MY CLAIM HAS BEEN PLACED?
Article V, beginning at page 20 of this Disclosure Statement, describes the
classes of Claims. The ballot tells you in which class the Debtor has
placed your Claim. If you disagree with the class in which the Debtor has
placed your Claim, you must file an objection with the Bankruptcy Court.
Refer to Article XII, Section A, at page 38 of this Disclosure Statement,
for further information on filing objections to confirmation of the Plan.
12. HOW CAN I DETERMINE WHAT I WILL RECEIVE UNDER THE PLAN?
Article V, beginning at page 20 of this Disclosure Statement, also
describes the treatment under the Plan for the different classes of Claims
13. DO I HAVE TO VOTE FOR THE PLAN TO RECEIVE A DISTRIBUTION?
No. If the Plan is confirmed, you will receive whatever the Plan provides
for the class in which your Claim has been placed, whether or not you vote
for the Plan by sending in your ballot.
14. HOW IS THE PLAN ACCEPTED?
For a class of Claims to accept the Plan, creditors holding at least 2/3 in
amount and more than 1/2 in number of the "voting" Claims must accept the
Plan. If you do not vote, you lose your right to be part of the
determination as to which way your class will vote. The votes for each
class, however, will be counted to determine whether the class as a whole
voted to accept or reject the Plan.
15. IF MY CLASS VOTES TO ACCEPT THE PLAN, DO I GET WHAT THE PLAN PROVIDES
FOR MY CLASS?
Not automatically. The Plan first must be confirmed by the Bankruptcy
Court. You must also have an Allowed Claim which is not a Disputed Claim.
16. WHAT IS CONFIRMATION?
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<PAGE>
Confirmation means that the Bankruptcy Court approves the Plan and it
becomes a binding contract between Debtors and their creditors. The
Bankruptcy Court must hold a confirmation hearing before it approves the
Plan. The Bankruptcy Court has ordered that the confirmation hearing
should be held on April 9, 1997, at 10:00 a.m., Eastern Standard Time, at
the United States Courthouse, Clerk of Court, Historic U.S. Courthouse, 31
East 11th Street, Chattanooga, Tennessee 37401. Refer to Article VI,
beginning at page 28 of this Disclosure Statement, for more information on
requirements for confirmation of the Plan.
17. HOW DO I VOTE ON THE PLAN?
To vote on the Plan, mark the accompanying ballot and return it in the
self-addressed envelope or to the following address: David G. Epstein,
King & Spalding, 191 Peachtree Street, N.E., Atlanta, GA 30303
TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY KING & SPALDING BEFORE 5:00
P.M., EASTERN STANDARD TIME TIME, ON MARCH 28, 1997.
Refer to Article XIV, Section A, beginning at page 39 of this Disclosure
Statement, for more information on voting.
ARTICLE II.
GENERAL INFORMATION
This part of the Disclosure Statement provides general information about
the Debtor and its Chapter 11 Bankruptcy Case. For more information about the
Debtor's business, refer to the Debtor's Form 10-K, attached hereto as Exhibit B
and Form 10-Q, attached hereto as Exhibit C. All historical financial
information herein should be read in conjunction with the Form 10-K and
Form 10-Q. References herein to any fiscal year are references to the twelve
months ending on the Sunday nearest December 31 of that year.
A. HISTORY OF THE DEBTOR.
Krystal was founded in Chattanooga, Tennessee, in 1932 by R.B. Davenport,
Jr. and J. Glenn Sherrill. Krystal began operations with one hamburger stand in
downtown Chattanooga; subsequently opened additional restaurants in Chattanooga;
entered the Atlanta market in 1934, and moved into Rome, Georgia in 1935, and
Columbus, Georgia and Nashville, Tennessee in 1936. During the 1950's and
1960's, Krystal gradually relocated restaurants from downtown to suburban
locations and, at the same time, its format evolved from "cook-to-order" items
to a more standardized menu.
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<PAGE>
Until the late 1960's, Krystal's centerpiece of growth was its small,
square KRYSTAL hamburger, referred to simply as a "KRYSTAL." In the late 1960's
Krystal decided to expand its menu to include larger hamburgers, fried chicken
and other entree items in an effort to compete with such fast food restaurant
chains as McDonald's which were growing rapidly nationwide. Krystal continued
with the strategy of competing head-to-head with mainstream fast food
restaurants until 1985. At this time, Krystal concluded that it should no
longer imitate the large national fast food restaurants. As a result, Krystal
pared down its menu and refocused its attention on the original KRYSTAL
hamburger.
In August 1985, Krystal completed a leveraged recapitalization whereby R.B.
Davenport, III, formed a holding company which purchased the equity interest of
other Davenport and Sherrill family members (the "LBO"). This holding company
was merged into Krystal concurrent with the closing of its initial public stock
offering in May 1992. Krystal's strategy since the LBO has been to: (i) enhance
the performance and image of existing restaurants by modernizing systems and
operations, emphasizing management training and staffing and improving customer
service and restaurant appearance; (ii) increase sales through renewed emphasis
on uniquely Krystal products and by introducing new menu items that complement
Krystal's traditional products; (iii) develop new restaurants principally, to
date, through franchising; and (iv) close and dispose of under-performing and
geographically remote restaurants.
B. DESCRIPTION OF DEBTOR'S BUSINESS.
Krystal develops, operates and franchises KRYSTAL restaurants. The Debtor
presently operates 239 KRYSTAL restaurants and 11 KRYSTAL KWIK restaurants.
Franchisees and licensees of the Debtor own 88 KRYSTAL restaurants. These 88
KRYSTAL restaurants are not involved in this Bankruptcy Case.
The restaurants in Krystal's system are presently located in Alabama,
Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina and Tennessee. Krystal employs approximately 9,000 persons,
including 700 restaurant managers and 60 area, district and regional managers,
170 corporate personnel and 7,700 full or part-time restaurant employees.
Approximately 8,000 of these employees are paid an average wage of $5.25 per
hour and about one-third (1/3) work less than 30 hours per week.
C. SELECTED HISTORICAL FINANCIAL DATA
Selected historical financial data relating to Debtor's business is
included in Debtor's Form 10-K, attached hereto as Exhibit B, and Form 10-Q,
attached hereto as Exhibit C.
D. DEBTOR'S MANAGEMENT
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<PAGE>
The Debtor's Board of Directors currently consists of five members, divided
into three classes serving staggered three-year terms. All directors of one
class hold their positions until the annual meeting of shareholders, at which
time the terms of the directors of such class expire. Executive officers of the
Debtor are appointed annually by the Board of Directors and serve at the Board's
discretion.
The Debtor's directors and officers are as follows:
OFFICER OR DIRECTOR POSITION
- ------------------- --------
Carl D. Long Chairman of the Board of Directors, Chief
Executive Officer and Director
R.B. Davenport, IV President, Chief Operating Officer and Director
Bruce V. Bloom Vice President - Development
Phillip E. McNeely Vice President - Real Estate/Construction
Michael C. Bass Vice President - Administration
Larry J. Reeher Vice President - Human Resources
Paul J. Frankenberg Vice President - Product Development and Quality
Assurance
Camden B. Scearce Vice President, Chief Financial Officer,
Secretary, Treasurer, Director
Jerry N. Scott Vice President - Operations
James R. Ventura Vice President - Franchise Operations
J. Alan Walker Vice President - Franchise Operations
Gordon L. Davenport, Jr. Vice President - Marketing and New Business
R. B. Davenport, III Director
J. Guy Beatty, Jr. Director
MR. LONG has served as Chairman and Chief Executive Office since 1990
and as a Director since 1981. He served as President from 1981 to 1992 and
as Vice President - Finance from 1977 to 1981. He has also been a director
of First Tennessee Bank, N.A. of Chattanooga since 1988. Prior to joining
Krystal, Mr. Long was employed as Group Vice President and Chief Financial
Officer of Ramada Inns, and Vice President and Chief Financial Officer of
Informatics, Inc.
MR. R.B. DAVENPORT, IV has served as President and Chief Operating
Officer since 1992 and as Director since 1985. He served as Vice President
- - Operations from 1988 until 1992 and as Vice President - Assistant to the
President from 1986 to 1988. Prior to that he served in various capacities
with Krystal since 1976. He has also been a director of First Tennessee
Bank, N.A. of Chattanooga, Tennessee since 1993.
MR. BLOOM has served as Vice President - Development since March 1992.
From 1990 to 1991 he was Vice President - Franchising, General Manager for
the Roy Rogers Division of
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<PAGE>
Hardee's Food Systems, Inc. From 1985 to 1990 he was Vice President -
Franchising for the Marriott Family Restaurants and Roy Rogers divisions of
Marriott Corporation. From 1982 to 1985 he was Director and subsequently Vice
President - Franchise Development for Perkins Family Restaurants, Inc.
MR. MCNEELY has served as Vice President - Real Estate/Construction
since June 1, 1992 and from 1989 to 1992 had served as Vice President -
Franchising. From 1984 to 1989, he served as Director of Real Estate. He
served as administrator of Real Estate Development from 1981 to 1984. From
1978 - 1981 he served in various financial and real estate management
positions with Burger Chef Systems, Inc., and prior to that, was an
accountant with Price Waterhouse & Co.
MR. BASS has served as Vice President - Administration since 1981. He
has served in various capacities with Krystal since 1979, including the
positions of Director of Purchasing and Director of Administration. From
1969 to 1979, he held various management positions with the Marriott
Corporation.
MR. REEHER has served as Vice President - Human Resources since 1995.
He served as Executive Vice President of Human Resources of Gardner
Merchant Food Services, Inc. from 1988 to 1995. From 1986 to 1988, he
served as Director of Personnel with Foodmaker, Inc.
MR. FRANKENBERG has served as Vice President - Product Development and
Quality Assurance since April 1990. He served as Director - Product
Development and Quality Assurance from 1985 to 1990. From 1984 to 1985 he
served as Director - Product Development for Godfather's Pizza, Inc. From
1981 to 1984 he served as Director- Product Development and Quality
Assurance for Perkins Restaurants, Inc.
MR. SCEARCE has served as a Director since 1991. He has served as
Vice President since 1981, as Secretary since 1978, and as Treasurer and
Chief Financial Officer since 1990. Prior to that, he was an accountant
with Arthur Andersen & Co. Mr. Scearce is a certified public accountant.
MR. SCOTT has served as Vice President - Operations since April 1996.
Prior to that time he served as Vice President - South Region since 1986.
From 1982 to 1986, he was Director of Operations for Hardee's Food System,
Inc. From 1970 to 1982, he held various positions in company and franchise
operations with Burger Chef Systems, Inc.
MR. VENTURA has served as Vice President - Franchise Operations since
May 1995. He served as Vice President - Operations from 1992 to 1995, and
as Vice President - North Region from 1984 to 1992. From 1983 to 1984, he
was Vice President of Operations for the Burger King Division of the Howard
Johnson Company. From 1970 to 1983 he held various management
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<PAGE>
positions with McDonald's Corporation, including Senior Regional Manager. Mr.
Ventura has announced that he is retiring from Krystal on December 31, 1996.
MR. WALKER currently jointly holds the position of Vice President -
Franchise Operations with Mr. Ventura in order to train to take over the
position after Mr. Ventura's retirement. Prior to this position, he had
served as Vice President - North Region since October 1, 1992. Mr. Walker
began his career with Krystal in 1982 as a management trainee and has
served Krystal in various operations positions.
MR. GORDON DAVENPORT has served as Vice President - Marketing and New
Business since November 1995. He was employed as Vice President - New
Business and Strategic Planning in August 1995. From 1986 to 1995, he was
with Warner Lambert Company in various domestic and international management
positions, including Director of Marketing and Sales for Warner Lambert's
Italian affiliate. Prior to Warner Lambert, he was Director of Marketing
for a professional sports team.
MR. R. B. DAVENPORT, III, has served as a Director since 1950. He
served as President from 1961 to 1973 and as Chairman of the Board of
Directors from 1973 to 1990. Mr. Davenport, III, is the father of R.B.
Davenport, IV.
MR. BEATTY has served as a Director since 1985. He has been a partner
in the law firm of Miller & Martin, Chattanooga, Tennessee, since 1963.
The following chart reflects Krystal's organization structure:
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE KRYSTAL COMPANY
Carl Long
Chairman of the Board, CEO
|
|
Rody Davenport, IV
President, COO
|
|
--------------------------------------------------------------------------------------------------------------------
| | | | | | |
| | | | | | |
| | Gordon Davenport Larry Reeher Cam Scearce Bruce Bloom Jim Ventura
Jerry Scott Mike Bass Vice President, Vice President, Vice President, Vice President, Alan Walker
Vice President, Vice President, Marketing & Human Resources Chief Financial Development Vice President,
Operations Administration New Business | Officer | Franchise Operations
| | | | |
| | | | ------|------
| ------------------------ | | | |
| | | Human Resources | | |
| Marketing | Department | | |
| Department | | Franchising |
| | | Department |
|---------------------|---------| | | |
Purchasing | Warehouse | | | |
| | | ---------------------- |
Training & Maintenance | | | |
Communications Department | Data Processing Accounting |
| Department Department |
| |
| |
Paul Frankenberg |
Vice President, Phil McNeely
Research & Development Vice President,
| Real Estate & Construction
| |
| |
| |
| |
|------------|------------| |------------|------------|
| | | | |
Research & Quality Consumer Construction Real Estate
Development Assurance Quality Control Department Department
</TABLE>
E. DEBTOR'S PROPERTIES.
As of September 29, 1996, the Debtor owned or leased a total of 250
real property sites for the operation of KRYSTAL and KRYSTAL KWIK
restaurants. Krystal owns 122 of those properties free and clear of liens
and 13 of those properties subject to mortgage indebtedness. Krystal
ground leases 64 restaurant properties and owns the buildings located on
such properties and leases the land and buildings at 51 additional
restaurant locations.
The average age of Krystal's restaurants is 18 years. The average
remaining life under Krystal's capital and operating leases is
approximately five years, without consideration of renewal privileges.
Including these renewal arrangements, the average life remaining is
approximately 13 years. Krystal's leases generally provide for fixed
rental payments, although some of Krystal's restaurant leases also include
percentage rental payments. Krystal also owns six and leases one
unimproved parcel of real property for future use as restaurant sites.
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<PAGE>
Krystal leases approximately 46,000 square feet of space in an office
building in Chattanooga for use as its corporate headquarters at an average
rate of approximately $12.00 per square foot. This lease expires in June
1998. The Debtor also leases additional office space for two regional
offices in Chattanooga and Atlanta.
Krystal also owns one and leases 27 restaurant sites in the Baltimore,
Washington, D.C. and St. Louis metropolitan areas, which it in turn
subleases or leases to Davco Restaurants, Inc., a public company which is a
Wendy's International, Inc. franchisee and a former affiliate of Krystal.
These subleases and leases were entered into between 1975 and 1978, and
Davco operates Wendy's restaurants on all of these properties. Krystal's
agreement with Davco provides that Davco pays to Krystal the rental
specified under the sublease plus 6% and all associated tenant costs. In
November 1987, Davco was sold to a group led by senior members of Davco's
management, none of whom are affiliated with Krystal. From 1983 until
1987, Davco was a subsidiary of a corporation in which Krystal held an
approximate 46% equity interest.
F. DESCRIPTION OF DEBTOR'S MAJOR DEBT AGREEMENTS
On January 17, 1996, the Debtor filed with the Bankruptcy Court a
Statement of Liabilities and Financial Affairs, listing the Debtor's
liabilities as of the Filing Date. The statements are too voluminous to
include in this Disclosure Statement. However, this section summarizes the
Debtor's major debt agreements. Prior to the filing of this Bankruptcy
Case, the Debtor was not in default under any of its major debt agreements.
Under applicable bankruptcy law, once this Bankruptcy Case was filed, no
payments could be made with respect to any of these obligations pending
confirmation of a plan of reorganization, except as provided in the
Bankruptcy Code or by order of the Bankruptcy Court.
1. PRUDENTIAL LOAN DOCUMENTS. On September 26, 1989, the Debtor
issued $20 million in original principal amount of unsecured notes to The
Prudential Insurance Company of America pursuant to a private placement.
The notes mature on May 31, 1999 and require principal amortization
payments as follows: $3 million principal reduction payments on May 31,
1996 and May 31, 1997; $5 million principal reduction payments on May 31,
1998, and May 31, 1999. As of the Filing Date, the Debtor was not in
default under these notes. The principal amount owed under the notes as of
the Filing Date was $16 million and the notes bear interest at the rate of
11.16% per year.
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<PAGE>
2. GREAT-WEST/JEFFERSON PILOT LOAN DOCUMENTS. On May 1, 1994,
Krystal finalized the private placement of $20 million of unsecured notes
to Great-West Life and Annuity Insurance Company and Jefferson-Pilot Life
Insurance Company. The notes were sold in two traunches of $10 million
each, with the first borrowing closing in May, 1994, and the second
borrowing closing in August, 1994. The notes mature on May 1, 2004 and
require $2.5 million principal reduction payments on May 1 of each year
beginning on May 1, 1997. As of the Filing Date, the Debtor was not in
default under these notes. The principal amount owed under the notes as of
the Filing Date was $20 million and the notes bear interest at the rate of
7.6% per year.
3. PROVIDENT LOAN DOCUMENTS. In October 1986, the Debtor issued $5
million in secured mortgage bonds to Provident Life and Accident Insurance
Company. The bonds are secured by mortgages on real property (and certain
related assets) in connection with 12 restaurants with a net book value of
$3,897,000.00. As of the Filing Date, the Debtor was not in default under
these bonds. The principal amount owed under the bonds as of the Filing
Date was $2,884,000.00 and the bonds bear interest at the rate of 10.5% per
year.
4. FIRST TENNESSEE LINE OF CREDIT. Krystal is obligated to First
Tennessee Bank, National Association under a Line of Credit Agreement with
respect to a line of credit extended by the Bank. The line of credit was
used to fund the extension of letters of credit to secure Krystal's
obligations under its workers' compensation plan and to certain of its
providers of utility services for deposit obligations. The principal
amount of the Debtor's contingent obligation under the line of credit was
$5,774,000.00 as of the Filing Date. As of September 29, 1996, that
contingent obligation had been reduced to $2,654,000.00.
G. OTHER SIGNIFICANT PREPETITION LIABILITIES
1. TRADE CLAIMS. As of the Filing Date, the Debtor owed
approximately $7.5 million in trade payables to its suppliers and vendors.
The Debtor was current on all Trade Claims as of the Filing Date.
2. LEASES. Krystal leases 115 of its restaurants and also leases
certain other properties and equipment. The store leases usually have
primary terms of up to 20 years with one to four renewal options for
additional 1-10 year periods. Under certain of these leases, Debtor is
subject to additional rentals based upon a percentage of sales. The leases
for other properties and equipment are for terms of up to 20 years. Most
of the restaurant leases require that Debtor provides for the payment of
real estate taxes, repairs and maintenance, and insurance.
As debtor-in-possession, Krystal has the right, subject to Bankruptcy
Court approval and certain other limitations, to assume or to reject
executory contracts and unexpired leases. In this context, "assumption"
means that Debtor agrees to perform its obligations and cure all existing
defaults under the contract or lease, and "rejection" means that Debtor is
relieved from its obligations
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<PAGE>
to perform further under the contract or lease but is subject to a Claim of
damages for the breach thereof. Krystal does not expect to close any material
number of stores or reject any material number of leases prior to the Effective
Date of the Plan. Claims resulting from rejection are treated as prepetition
General Unsecured Claims in the Plan. For more information, refer to Article V,
Section C.1, at page 24 of this Disclosure Statement.
3. WORKERS COMPENSATION CLAIMS. As of September 29, 1996, the
Debtor had recorded, for financial statement purposes only, $1,360,000.00
for prepetition workers compensation claims. The Debtor has obtained
authority from the Bankruptcy Court to pay workers' compensation claims (up
to $2,500,000.00) from and after the Petition Date so as to avoid the
necessity of drawing upon certain letters which secure the workers'
compensation obligations.
4. LITIGATION. As of the Filing Date, the Debtor was involved in
numerous lawsuits throughout the southeastern United States. These
lawsuits, which are prevented from proceeding as of the Filing Date because
of the automatic stay provisions of the Bankruptcy Code, include employment
and contract disputes, personal injury and other tort Claims, workers
compensation disputes and condemnation matters. In general, these matters
have not proceeded during the pendency of this case.
In addition to the foregoing, the Debtor has been sued for
allegedly violating the Fair Labor Standards Act. For a detailed
description of this litigation and its settlement, refer to Article II,
Section J, at page 14, and Article II, Section L at page 15 of this
Disclosure Statement.
H. HISTORICAL COMPETITION IN DEBTOR'S INDUSTRY
The fast food or quick service restaurant industry is highly
competitive with respect to price, quality and speed of service, restaurant
location and attractiveness of facilities, customer recognition and food
quality. The quick service industry is often significantly affected by
many factors, including changes in local, regional or national economic
conditions impacting consumer spending habits, demographic trends and
traffic patterns, changes in consumer tastes, consumer concerns about the
nutritional quality of quick service food, and increases in the number,
type and location of competing quick service restaurants. Krystal competes
primarily on the basis of speed of service, price, uniqueness of products,
name recognition and food quality. In addition, with respect to selling
franchises, Krystal competes with many restaurant franchisors and other
business concepts.
Each of the four leading national hamburger chains (McDonalds, Burger
King, Hardee's and Wendys) operates restaurants in each of Krystal's
metropolitan market areas. Krystal believes it is the largest regional
hamburger chain in these areas.
I. AVIATION OPERATION.
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<PAGE>
Through a subsidiary company, Krystal Aviation Co. and its wholly
owned subsidiary, Krystal Aviation Management Co., Krystal operates a fixed
base airport hangar operation and airplane management business in
Chattanooga. In January 1993, Krystal Aviation Co. acquired a competing
fixed base hangar operation in Chattanooga in order to obtain increased
market share. While the subsidiaries are profitable, Krystal entered into
this business in 1977 principally to facilitate access to restaurant
locations not readily served by commercial air service and has no current
intention of expanding this business. This operation sells fuel, rents
hangar space, and manages airplanes. As of September 30, 1996, the
operation employed approximately 40 people and had nine month revenues of
approximately $3.4 million. Krystal leases the sites for its aviation
operation.
J. EVENTS LEADING TO CHAPTER 11 FILING.
In July 1994, 41 current and former hourly restaurant employees of
Krystal filed suit against Krystal alleging violations of the Fair Labor
Standards Act of 1938 (the "FLSA") for failure to pay them and allegedly
"similarly situated" current and former hourly restaurant employees for
time allegedly worked on Krystal's behalf, seeking back wages, statutory
"liquidated damages", attorneys' fees and costs. After the District court
granted partial summary judgment in favor of the plaintiffs; that suit was
settled. However, four separate, similar suits were filed in four United
States district courts and were consolidated for pretrial proceedings in
the United States District Court for the Middle District of Tennessee (the
"Pending Cases"). Prior to the filing of this Bankruptcy Case, over 700
current and former Krystal hourly restaurant employees had filed Consents
to Become a Party Plaintiff in the Pending Cases. All of the Pending Cases
were, as of the Filing Date, in the very early stages of discovery.
On February 17, 1995, the plaintiffs in one of the Pending Cases,
filed a motion for court-supervised notice to prospective claimants.
Court-supervised notice was provisionally granted on August 28, 1995 and
the parties were directed to submit proposed forms of notice to the
District Court for consideration. The Debtor filed a motion for
reconsideration of the order granting order supervised notice on
September 12, 1995 and the Plaintiffs filed their response on September 26,
1995. The motion for reconsideration was pending at the time that the
Bankruptcy Case was filed.
Krystal's Chapter 11 filing was triggered by the direct and indirect
costs of litigation under the FLSA. Lawsuits under the FLSA are binding
only on a past or present employee who affirmatively elects to be bound by
joining the litigation as an actual party plaintiff. Section 216(b) of the
FLSA provides in pertinent part: "No employee shall be a party plaintiff to
any such action unless he gives his consent in writing to become such a
party and such consent is filed in the court, in which such action is
brought, " 29 U.S.C. Section 216(b).
As indicated above, as of the Filing Date, over 700 past and present
Krystal hourly restaurant employees had filed Consents to Become a Party
Plaintiff in the Pending Cases. Krystal had more
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<PAGE>
than 83,000 past and present hourly employees who had not asserted FLSA claims
that may not be time-barred and who would not be bound by judgments or
settlements in the Pending Cases. Because of this unusual "opt-in" structure to
section 216(b) litigation, Krystal could not completely and finally resolve
its FLSA liability, if any, to its current and former employees outside of
bankruptcy. As a result, the Bankruptcy Case was filed because it provided
Krystal with its sole opportunity to resolve completely and finally its
FLSA liability.
K. CHAPTER 11 CASE.
On December 15, 1995, Krystal filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the Eastern District of Tennessee for the purpose of
completely and finally resolving the various claims filed against Krystal
by current and former employees alleging violations of the FLSA.
L. SIGNIFICANT EVENTS IN THE BANKRUPTCY CASE.
1. APPOINTMENT OF A LEGAL REPRESENTATIVE. On the Filing Date,
Krystal filed a motion seeking the appointment of a legal representative
for the FLSA Claimants to "protect the legal rights and interests of FLSA
Claimants as a group" with the Bankruptcy Court. After the Filing Date,
pleadings were filed by the attorneys for certain of the FLSA Claimants
opposing the appointment of a legal representative, moving for the
appointment of a separate official committee for FLSA claimants, and
seeking the establishment of a claims bar date. The Bankruptcy Court heard
argument on these motions on January 22, 1996. Prior to a ruling by the
Bankruptcy Court, the parties reached a negotiated partial settlement which
provided for the appointment of a legal representative of the FLSA
Claimants for the limited purposes of participating in the resolution of
issues of notice to FLSA Claimants and the establishment of a bar date for
the filing of any Claims, including FLSA Claims, in this Bankruptcy Case.
2. ESTABLISHMENT OF A BAR DATE. On February 6, 1996, the
Bankruptcy Court entered an order establishing June 6, 1996 as the date by
which all Claims must be filed in order to receive a distribution in this
Bankruptcy Case (the "Bar Date"). In addition, the Bankruptcy Court
approved a form of notice to be provided to wage claimants regarding the
Bar Date, and approved a special proof of claim form to be sent to all wage
claimants.
3. SOLICITATION OF CLIENTS BY STEWART ESTES & DONNELL. Prior to the
hearing on the appointment of a legal representative, the law firm of
Stewart Estes & Donnell ("SED"), plaintiffs' counsel in the Pending Cases,
obtained from the Bankruptcy Court a list of the names and addresses of the
approximately 90,000 persons who had worked for Krystal at any time between
December 15, 1992 to December 15, 1995. SED used this list, which is a
matter of public record, to send solicitation letters to each former and
present Krystal employee urging them to retain SED to assert any FLSA
Claims against Krystal. SED contends that its solicitation of clients was
legal and ethical.
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<PAGE>
Neither the transmission of the solicitation letter, its form or content was
approved by the Bankruptcy Court. No assertion has been made to date that such
approval was necessary.
4. CLAIMS FILED. As of June 6, 1996, the Bar Date, 8,260 proofs of
claim were filed with the Bankruptcy Court asserting Claims for unpaid
wages. Krystal has reviewed each of those proofs of claim and determined
the following:
404 of the claimants could not be identified from Krystal's employment
records as ever having been employed by Krystal in any capacity prior
to the Petition Date.
7,856 of the claimants were identified as having been employed by
Krystal prior to the Petition Date.
211 of the claimants were identified as former employees of Krystal
who had not been employed by Krystal at any time during the applicable
maximum 3-year statute of limitations period under the FLSA.
7,645 of the claimants were identified as current or former employees
of Krystal who had been employed by Krystal at some time during this
applicable maximum 3-year statute of limitations period under the
FLSA.
A significant number of the Claims were duplicates.
Approximately 7,200 of the FLSA Claims were filed by SED on behalf of
clients they had solicited. None of these claims used the special form for
wage claimants or stated a dollar amount for the Claim asserted. SED
subsequently withdrew as counsel to approximately 1,200 of the persons on
whose behalf they had filed proofs of claim. Approximately 1,000 of the
FLSA Claims were filed PRO SE by claimants.
5. QUANTIFICATION OF FLSA CLAIMS. After the Bar Date, Krystal moved
the Bankruptcy Court to require the wage claimants to provide information
on the dollar amount of the Claim asserted by each claimant and the average
hours allegedly worked off the clock each week by each wage claimant. An
Agreed Order compelling the production of this information was entered on
July 1, 1996.
6. DISMISSAL OF CERTAIN WAGE CLAIMS. On November 4, 1996, the
Bankruptcy Court granted Krystal's objection to approximately 1,500 wage
Claims and dismissed such Claims for failure to comply with the Court's
orders regarding quantification of Claims. None of the claims of creditors
then represented by SED were dismissed pursuant to this Order.
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7. MAXIMUM SED CLAIMS. As of the date hereof, SED represents 6,013
claimants who have asserted an aggregate of approximately $23,000,000 in
FLSA claims and $7,500,000 in state law breach of contract claims for
unpaid wages. In addition, 504 pro se claimants have asserted aggregate
FLSA claims for approximately $900,000.
8. SETTLEMENT OF CLAIMS FOR UNPAID WAGES. In compliance with a
Scheduling Order entered in the Bankruptcy Case, Krystal has made
settlement offers to approximately 5,500 wage claimants. A number of the
settlement offers were for the full amount of the Claim asserted. Over 80%
of the settlement offers received by PRO SE claimants have been accepted
resulting in settlement of 205 claims for an aggregate of $104,920. In
addition, the Debtor and Claimants represented by SED have reached an
agreement pursuant to which all Claims asserted by Claimants represented by
SED for unpaid wages will be settled. Pursuant to such agreement, which
will require approval by the Bankruptcy Court, the Debtor will pay
$13,000,000 to the Claimants represented by SED to settle such Claims. The
Plan is contingent upon entry of an order approving this settlement.
ARTICLE III.
BRIEF EXPLANATION OF CHAPTER 11
-------------------------------
Chapter 11 is the principal reorganization chapter of the Bankruptcy
Code. It allows a business debtor to remain in operation and work out its
financial difficulties. Unlike in cases under Chapters 7, 12 or 13 of the
Bankruptcy Code, which automatically result in the appointment of a
trustee, the debtor in a Chapter 11 case remains in control of the estate
as the "debtor-in-possession," generally with the same powers and duties as
the trustee.
Upon filing a petition for Chapter 11 reorganization, and during the
pendency of a reorganization case, the Bankruptcy Code imposes an automatic
stay against creditors' attempts to collect or enforce, through litigation
or otherwise, claims against the debtor. The automatic stay provisions of
Section 362 of the Bankruptcy Code, unless lifted by court order, will
generally prohibit or restrict attempts by secured or unsecured creditors
or other claimants to collect or enforce any claims against the debtor that
arose prior to the commencement of the Chapter 11 case.
Formulation and confirmation of a plan of reorganization is the
principal purpose of a Chapter 11 reorganization case. The plan of
reorganization is the vehicle for satisfying allowed claims against a
debtor. After a plan of reorganization has been filed, the holders of
allowed claims against or interests in a debtor are permitted to vote to
accept or reject such plan. Section 1125 of the Bankruptcy Code requires
the debtor, before soliciting acceptances of the proposed plan, to prepare
a disclosure statement containing adequate information of a kind, and in
sufficient detail, to enable a hypothetical reasonable investor to make an
informed judgment about the plan. This disclosure statement is presented
to holders of claims or interests in impaired classes to satisfy the
requirements of Section 1125 of the Bankruptcy Code.
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The Bankruptcy Code defines acceptance of a plan of reorganization by
a class of claims as acceptance by a majority in number and at least two-
thirds in amount of those claims actually voting in such class. The
Bankruptcy Code defines acceptance of a plan of reorganization by a class
of interests as acceptance by holders of at least two-thirds of the number
of shares actually voting in such class. In the Bankruptcy Case, holders
of claims or interests who fail to return ballots will not be counted as
either accepting or rejecting the plan for purposes of determining whether
the plan is accepted or rejected.
Acceptances of a plan are solicited only from those persons who hold
allowed claims or interests in an impaired class. Classes of claims or
interests that are not "impaired" under a plan of reorganization are
conclusively presumed to have accepted the plan of reorganization.
Consequently, holders of claims or interests in such unimpaired classes are
not entitled to vote. A class of claims or equity interests is impaired
under a plan of reorganization unless, as set forth in Section 1124 of the
Bankruptcy Code, with respect to each claim or equity interest of such
class, the plan: (1) leaves unaltered the legal, equitable and contractual
rights of the holder of such claim or interest; or (2) notwithstanding any
contractual provision or applicable law that entitles the holder of a claim
or interest to demand or receive accelerated payment of such claim or
interest after the occurrence of a default: (a) cures any such default that
occurs before or after the commencement of the case under the Bankruptcy
Code other than a default of a kind specified in Section 365(b)(2) of the
Bankruptcy Code; (b) reinstates the maturity of such claim or interest as
such maturity existed before such default; (c) compensates the holder of
such claim or interest for any damages incurred as a result of any
reasonable reliance by such holder on such contractual provision or such
applicable law; and (d) does not otherwise alter the legal, equitable or
contractual rights to which such claim or interest entitles the holder of
such claim or interest.
Even if all classes of claims and interests accept a plan of
reorganization, the Bankruptcy Court nevertheless might not confirm that
plan. Section 1129(a) of the Bankruptcy Code sets forth the requirements
for confirmation of a plan of reorganization and, among other things,
requires that a plan of reorganization (1) comply with the applicable
provisions of the Bankruptcy Code and other applicable law, (2) be proposed
in good faith, (3) be accepted by at least one impaired class of creditors,
(4) be in the "best interest" of creditors and interest holders and (5) be
feasible. The "best interest" test generally requires that the value of
the consideration to be distributed under a plan to holders of claims or
interests who have not voted to accept the plan may not be less than those
parties would receive if the debtor were liquidated under a hypothetical
liquidation occurring under Chapter 7 of the Bankruptcy Code. Under the
"feasibility" requirement, the Court generally must find that there is a
reasonable probability that the debtor will be able to perform the
obligations incurred under the plan and to continue operations without the
need for further financial reorganization. If the proponent of a plan of
reorganization seeks confirmation of such plan under the "cramdown"
provisions of Section 1129(b) of the Bankruptcy Code, the court may confirm
a plan of reorganization if it meets all applicable requirements of
Section 1129(a) of the Bankruptcy Code (except Section 1129(a)(8), which
requires acceptance by all impaired classes) and if the
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<PAGE>
proponent of the plan shows that the plan (1) does not discriminate unfairly and
(2) is fair and equitable with respect to each impaired class of claims or
interests that has not accepted the plan of reorganization.
Under Section 1129(b) of the Bankruptcy Code, a plan of reorganization
is "fair and equitable" as to a class if, among other things, the plan
provides: (1) with respect to secured claims, that each holder of such
claim included in the rejecting class will receive or retain on account of
such claim property that has a value, as of the effective date of the plan,
equal to the allowed amount of such claim; and (2) with respect to
unsecured claims and interests, that the holder of any claim or interest
that is junior to the claims or interests of such class will not receive or
retain on account of such junior claim or interest any property at all
unless the senior class is paid in full. The Bankruptcy Court must
further find that the economic terms of the plan of reorganization do not
unfairly discriminate with respect to the particular objecting class, as
provided in Section 1129(b) of the Bankruptcy Code.
ARTICLE IV.
GENERAL OVERVIEW OF THE PLAN
----------------------------
This part of the Disclosure Statement summarizes the provisions of the
Plan. The Plan, after it has been confirmed, will constitute a contract
between the Debtor and its creditors and stockholders. This Disclosure
Statement does not constitute such a contract. Therefore, if any
discrepancies exist between the Plan and the following summary of the Plan,
the Plan will control. Because this section of the Disclosure Statement is
only a summary of the Plan, it is advisable to review carefully the Plan
for the full details of the treatment of creditors. As mentioned above,
the Plan is attached hereto as Exhibit A.
A. RESOLUTION OF CLAIMS FOR UNPAID WAGES. Substantially all
of the Claim for unpaid wages will be resolved by the entry of an
order approving the settlement reached between the Debtor and the
Claimants represented by SED. Approval of this settlement is a
condition to the effectiveness of the Plan.
B. PAYMENT OF CLAIMS. The Plan provides for payment in full in
Cash on the Distribution Date of all Allowed Claims. The Debtor
intends to obtain exit financing from a third party in the amount
of at least $45,000,000.00 to fund, in part, the payment of
Allowed Claims. The successful closing of a loan whereby the
Debtor borrows at least $45,000,000 is a condition to the
effectiveness of the Plan.
C. CONDITIONS TO EFFECTIVE DATE. The Plan also provides three
conditions precedent to the Effective Date: (1) The Debtor shall
have in its possession, custody, or control immediately available
funds in an amount sufficient to enable it to make
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<PAGE>
all distributions required by the Plan to be made; (2) all
distributions required by the Plan to be made shall have been
made and (3) the "Effective Date" shall be no later than June 30,
1997.
ARTICLE V.
CLASSIFICATION OF CLAIMS AND
----------------------------
THE TREATMENT OF EACH CLASS IN THE PLAN
---------------------------------------
A. TREATMENT OF PRIORITY CLAIMS.
1. ADMINISTRATIVE EXPENSE CLAIMS. Administrative Claims are
Claims that are accorded priority pursuant to Bankruptcy Code
section 503(b)(1). These are Claims for the actual and necessary costs of
preserving the Debtor's bankruptcy estate.
The Debtor has been authorized by the Bankruptcy Court to retain
attorneys, accountants and financial advisors to assist it during the
course of the Bankruptcy Case. Pursuant to section 330 of the Bankruptcy
Code, the Bankruptcy Court may authorize the Debtor to pay its
professionals for the services performed by those professionals and,
pursuant to Bankruptcy Code section 503(b)(1), the Claims of such
professionals for payment constitute administrative expense Claims.
Similar Claims will be asserted, and the Debtor will have similar
administrative expense payment obligations, with respect to the payment of
the fees and expenses of professionals retained by the Official Committee
of Unsecured Creditors and the Legal Representative.
Also included among the Claims in this class are the Claims of
postpetition trade creditors pursuant to the various trade credit
agreements between them and the Debtor.
Furthermore, (i) if the Debtor defaults under the terms of any
executory contract or unexpired lease assumed pursuant to order of the
Bankruptcy Court as provided for in Bankruptcy Code section 365 or under
the terms of any contract or lease entered into by it after the Filing
Date; or (ii) if the Debtor untimely rejects an unexpired lease or
executory contract that has not previously been assumed and the Debtor
receives a postpetition benefit under such contract, the non-Debtor parties
to such contracts and leases may assert administrative priority Claims that
would be placed within this class.
The Allowed Administrative Expenses Claims shall be paid in full in
Cash on the later of (a) the Distribution Date of the Plan or (b) the date
on which such Claims otherwise are due and payable in the ordinary course
of the Debtor's business in accordance with the terms of the parties'
business dealings or contract, unless the holder of the Claim has agreed to
less favorable treatment for its
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<PAGE>
Administrative Expense Claim. The Debtor anticipates that the Allowed Claims of
Professional Persons will be approximately $1,500,000.00.
2. TAX CLAIMS. Priority Tax Claims are unsecured tax Claims that
are accorded priority pursuant to Bankruptcy Code section 507(a)(8). The
taxes entitled to such priority are (i) taxes on income or gross receipts
that meet the requirements set forth in section 507(a)(8)(A); (ii) property
taxes meeting the requirements of section 507(A)(8)(B); (iii) taxes that
were required to be collected or withheld by the Debtor and for which the
Debtor is liable in any capacity as described in section 507(a)(8)(C);
(iv) employment taxes on wages, salaries, or commissions that are entitled
to priority pursuant to section 507(a)(3), to the extent that such taxes
also meet the requirements of section 507(a)(8)(D); (v) excise taxes of the
kind specified in sections 507(a)(8)(E); (vi) customs duties arising out of
the importation of merchandise that meet the requirements of sections
507(a)(8)(F); and (vii) prepetition penalties related to any of the
foregoing tax Claims to the extent such penalties are in compensation for
actual pecuniary loss as provided for in section 507(a)(8)(G).
The Allowed Tax Claims shall at the option of the Debtor be paid (a)
in full and in Cash on the later of (i) the Distribution Date or as soon
thereafter as is practicable, or (ii) the date on which such Tax Claim
becomes due and payable pursuant to the terms thereof or any applicable
Final Order, or (b) in such amount, on such other date, and upon such other
terms as may be contained in a Final Order or agreed upon between the
holder of the Tax Claim and the Debtor, or (c) in full and in Cash over a
period not to exceed six years from the date of assessment of such Tax
Claim in equal installments not less frequently than quarterly with
interest at the rate specified in Section 6621 of the Internal Revenue Code
of 1986, as amended, or at such other rate as may be specified in a Final
Order. The Debtor anticipates that the Allowed Tax Claims will be less than
$10,000.00.
3. CLASS 1 (PRIORITY CLAIMS): Class 1 is comprised of Priority
Claims, which are Claims entitled to priority under Bankruptcy Code section
507(a), other than administrative expenses described in section 507(a)(1)
and Tax Claims described in section 507(a)(7). Class 1 consists of the
following Claims: unsecured Claims for wages, salaries, or commissions, as
described and limited in section 507(a)(3); unsecured Claims for
contributions to an employee benefit plan, as described and limited in
section 507(a)(4); unsecured Claims of persons engaged in the production or
raising of grain or engaged as a United States fisherman, in each case to
the extent provided, and as described and limited in section 507(a)(5);
unsecured Claims of individuals, to the extent of $1,800 for each such
individual, arising from the deposit, before the commencement of the case,
of money in connection with the purchase, lease or rental of property, or
the purchase of services for personal, family or household use of such
individuals, that were not delivered or provided (section 507(a)(6)); and
unsecured Claims based on any commitment by the Debtor to certain
governmental entities for the purpose of maintaining the capital of an
insured depository institution, as provided in section 507(a)(8). The
Debtor anticipates that there will be no Claims asserted pursuant to
sections 507(a)(5), (6) or (8). The Debtor does not anticipate substantial
Claims being
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<PAGE>
brought under any of the other applicable clauses of section 507(a)(3) and
section 507(a)(4), because most of the Claims that would have been asserted
pursuant to that subsection (employee wage Claims) were paid pursuant to order
of the Bankruptcy Court.
The Allowed Claims in Class 1 (a) shall be paid in full and in Cash on
the later of (i) the Distribution Date or as soon thereafter as is
practicable, or (ii) the date on which such Allowed Claim becomes due and
payable pursuant to the terms thereof, the agreement upon which such Claim
is based, or any applicable Final Order, or (b) shall be paid in such
amount, on such other date, and upon such other terms as may be contained
in a Final Order or agreed upon between the holder of the Priority Claim
and the Debtor. The Debtor anticipates that the Allowed Class 1 Priority
Claims will be less than $10,000.00.
B. CLASSIFICATION AND TREATMENT OF SECURED CLAIMS.
1. CLASS 2 (SECURED CLAIMS): Class 2 shall consist of all Allowed
Claims against the Debtor that are Secured Claims. The Allowed Claims in
Class 2 shall at the option of the Debtor (a) be paid in full and in Cash
on the Distribution Date or as soon thereafter as is practicable, or (b) be
paid in such amount, on such other date, and upon such other terms as may
be contained in a Final Order or agreed upon between the holder of the
Secured Claim and the Debtor, (c) be satisfied in full through a transfer
to the holder of the Secured Claim of the Debtor's interest in the Debtor's
Property or the property of the Estate upon which the holder of the Secured
Claim holds a Lien to secure such Allowed Claim, or (d) pursuant to
Section 1124(2) of the Bankruptcy Code shall be paid in full and in Cash
over time after (i) the cure on the Distribution Date or as soon thereafter
as is practicable of any default that occurred before or after the Filing
Date (other than a default of the kind specified in Section 365(b)(2) of
the Bankruptcy Code), (ii) the reinstatement at the time of such cure of
the maturity of the Allowed Claim as such maturity existed before such
default, (iii) the compensation at the time of such cure to the holder of
the Secured Claim for any damages incurred as a result of any reasonable
reliance by such holder on any contractual provision or applicable law that
entitled the holder to demand or receive accelerated payment of such
Allowed Claim after the occurrence of a default, and (iv) otherwise leaving
unaltered the legal, equitable, or contractual rights to which the holder
of the Secured Claim is entitled with regard to such Allowed Claim. Any
dispute between the Debtor and the holder of an Allowed Claim in Class 2
with regard to the existence or cure of defaults, the reinstatement of
maturity, or amounts due as compensation for cure of defaults or for
reliance damages may be determined by the Bankruptcy Court upon motion of
either party to the dispute, except as otherwise provided for herein. The
Debtor anticipates that the Class 2 Secured Claims will be less than
$5,000.00.
2. CLASS 3 (PROVIDENT CLAIMS): Class 3 shall consist of all Allowed
Claims held by Provident against the Debtor arising from the Provident
Documents. On the Distribution Date, Provident, as the holder of the
Allowed Class 3 Claims, shall, at the option of the Debtor (a) be paid in
full and in Cash and on the Distribution date or (b) receive on account of
such Claim restructured
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<PAGE>
bond documents with identical maturity, interest rate, and security as the
Provident Documents. The principal arrearage owed to Provident as of the
Effective Date will be repaid in equal monthly installments for the first twelve
months following the Effective Date, or (c) pursuant to Section 1124(2) of the
Bankruptcy Code shall be paid in full and in Cash over time after (i) the cure
on the Distribution Date or as soon thereafter as is practicable of any default
that occurred before or after the Filing Date (other than a default of the kind
specified in Section 365(b)(2) of the Bankruptcy Code), (ii) the reinstatement
at the time of such cure of the maturity of the Allowed Claim as such maturity
existed before such default, (iii) the compensation at the time of such
cure to the holder of the Provident Claim for any damages incurred as a
result of any reasonable reliance by such holder on any contractual
provision or applicable law that entitled the holder to demand or receive
accelerated payment of such Allowed Claim after the occurrence of a
default, and (iv) otherwise leaving unaltered the legal, equitable, or
contractual rights to which the holder of the Provident Claim is entitled
with regard to such Allowed Claim. Any dispute between the Debtor and the
holder of an Allowed Claim in Class 3 with regard to the existence or cure
of defaults, the reinstatement of maturity, or amounts due as compensation
for cure of defaults or for reliance damages may be determined by the
Bankruptcy Court upon motion of either party to the dispute, except as
otherwise provided for herein. In addition, covenants under the existing
documents will be amended to allow for implementation of the Plan. The
Debtor anticipates that the Class 3 Claims will be in the amount of
$2,884,000.00.
3. CLASS 4 (SCOTT CLAIMS): Class 4 shall consist of all Allowed
Claims held by Scott against the Debtor arising from the Scott Documents.
On the Distribution Date, Scott, as the holder of the Allowed Class 4
Claims, shall at the option of the Debtor (a) be paid in full and in Cash
and on the Distribution date or (b) receive a restructured note and deed to
secure debt which provides for payment of the Allowed 4 Claims over a four
year period, with equal amortization. The note will bear interest at the
rate of 10% and will be secured by the same assets as presently secure the
Class 4 Claims or (c) pursuant to Section 1124(2) of the Bankruptcy Code
shall be paid in full and in Cash over time after (i) the cure on the
Distribution Date or as soon thereafter as is practicable of any default
that occurred before or after the Filing Date (other than a default of the
kind specified in Section 365(b)(2) of the Bankruptcy Code), (ii) the
reinstatement at the time of such cure of the maturity of the Allowed Claim
as such maturity existed before such default, (iii) the compensation at the
time of such cure to the holder of the Scott Claim for any damages incurred
as a result of any reasonable reliance by such holder on any contractual
provision or applicable law that entitled the holder to demand or receive
accelerated payment of such Allowed Claim after the occurrence of a
default, and (iv) otherwise leaving unaltered the legal, equitable, or
contractual rights to which the holder of the Scott Claim is entitled with
regard to such Allowed Claim. Any dispute between the Debtor and the
holder of an Allowed Claim in Class 4 with regard to the existence or cure
of defaults, the reinstatement of maturity, or amounts due as compensation
for cure of defaults or for reliance damages may be determined by the
Bankruptcy Court upon motion of either party to the dispute, except as
otherwise provided for herein. The Debtor anticipates that the Class 4
Claims will be in the amount of $120,000.00.
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<PAGE>
C. CLASSIFICATION AND TREATMENT OF UNSECURED CLAIMS.
1. CLASS 5 (UNSECURED CLAIMS): Class 5 shall consist of all
Unsecured Claims. Each holder of an Allowed Class 5 Claim shall receive on
the later of (1) the Distribution Date or (2) the date on which its Claim
becomes an Allowed Claim payment in full in Cash of its Allowed Class 5
Claim. At the option of the Debtor exercised prior to the Distribution
Date, and with 5 days notice to the holder of the Unsecured Claims, the
allowed Class 5 Claims pursuant to Section 1124(2) of the Bankruptcy Code
may be paid in full and in Cash over time on account of its Allowed Class 5
Claim after (i) the cure on the Distribution Date or as soon thereafter as
is practicable of any default that occurred before or after the Filing Date
(other than a default of the kind specified in Section 365(b)(2) of the
Bankruptcy Code), (ii) the reinstatement at the time of such cure of the
maturity of the Allowed Claim as such maturity existed before such default,
(iii) the compensation at the time of such cure to the holder of the
Unsecured Claim for any damages incurred as a result of any reasonable
reliance by such holder on any contractual provision or applicable law that
entitled the holder to demand or receive accelerated payment of such
Allowed Claim after the occurrence of a default, and (iv) otherwise leaving
unaltered the legal, equitable, or contractual rights to which the holder
of the Unsecured Claim is entitled with regard to such Allowed Claim. Any
dispute between the Debtor and the holder of an Allowed Claim in Class 5
with regard to the existence or cure of defaults, the reinstatement of
maturity, or amounts due as compensation for cure or defaults or for
reliance damages may be determined by the Bankruptcy Court upon motion of
either party to the dispute, except as otherwise provided for herein. The
Debtor believes that the Class 5 Unsecured Claims will not exceed
$60,000,000.00.
2. CLASS 6 (BONDHOLDER CLAIMS): Class 6 shall consist of all Allowed
Claims that are Bondholder Claims. The treatment of the Class 6
Bondholders Claims is set out in the Term Sheet which is attached to the
Plan and is expressly and completely incorporated therein.
D. CLASSIFICATION AND TREATMENT OF INTERESTS IN THE DEBTOR.
1. CLASS 7 (INTERESTS): Class 7 shall consist of the Interests of
the holders of Outstanding Securities of the Debtor. The Class 7 Interests
are unimpaired. On the Effective Date of the Plan, the holders of Class 7
Interests shall continue to hold the Outstanding Securities and shall
retain unaltered the legal, equitable, and contractual rights to which such
holders are entitled with regard to such Interests.
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<PAGE>
E. PAYMENT OF INTEREST ON ALLOWED CLAIMS.
Section 8.6 of the Plan provides that each Creditor holding a Class 5
Claim against the Debtor shall receive interest on the principal portion of
its Allowed Claim at the rate of eight and one-half percent (8.5%) per
annum (or such market rate of interest determined by the Bankruptcy Court
to be appropriate at the Confirmation Hearing) from the later of (1) the
Petition Date or (2) the date on which the Allowed Claim first became or
becomes due until it is paid, unless the Debtor and the Creditor have
agreed on an interest rate (whether as a result of a contractual agreement
in connection with transactions out of which the Claim arises or the
settlement or compromise of a dispute concerning the applicable rate of
interest), in which case interest shall be paid at the agreed rate from the
later of (1) the Petition Date or (2) the date on which the Allowed Claim
first became or becomes due until it is paid. The market rate of interest
shall mean the rate of eight and one-half percent (8.5%) per annum or such
other rate of interest as determined by the Bankruptcy Court at the
Confirmation Hearing to be a rate of interest which provides the holder of
such Claim with property of a value, as of the Effective Date of the Plan,
equal to the allowed amount of such Claim. The Debtor believes that
Creditors who are entitled to receive statutory liquidated damages, whether
actually awarded or not, as part of their Allowed Claim are not entitled to
also receive interest as part of their Claims.
F. RESERVATION OF RIGHTS.
The Debtor has not yet begun objecting to Claims other than FLSA
Claims and Contract Wage Claims, and the Claims' analysis process is still
underway. References to "Allowed Claims" in the Disclosure Statement do
not mean any such Claims have been Allowed by the Bankruptcy Court, agreed
to by the Debtor or are not subject to objection.
G. MEANS OF IMPLEMENTATION OF PLAN.
The Debtor will survive as a Reorganized Debtor and will continue to
engage in business after the Effective Date.
H. STRUCTURE OF THE REORGANIZED DEBTOR.
On and after the Effective Date, the Debtor will continue to be owned
by the holders of Outstanding Securities.
I. MANAGEMENT.
On and after the Effective Date, the Reorganized Debtor will continue
to be managed by the existing management of the Debtor (See, Article II,
Section B, page 6).
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J. DISTRIBUTABLE PROPERTY UNDER THE PLAN.
Under the Plan, the Reorganized Debtor will, on the Effective Date,
distribute Cash.
K. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
The Plan provides that on the Confirmation Date, all executory
contracts and unexpired leases of the Debtor will be deemed assumed by the
Debtor in accordance with Sections 365 and 1123 of the Bankruptcy Code,
except for executory contracts or unexpired leases that (i) are listed in
the Schedule of Rejected Executory Contracts and Unexpired Leases to the
Plan, which contracts and leases shall be deemed rejected on the
Confirmation Date, (ii) have been rejected by order of the Bankruptcy Court
or (iii) are the subject of a motion to reject pending on the Confirmation
Date. Entry of the Confirmation Order by the Clerk of the Bankruptcy Court
shall constitute approval of such assumptions and rejections pursuant to
Section 365 of the Bankruptcy Code.
The Debtor does not anticipate that it will reject a material number
of executory contracts and unexpired leases. Claims arising from the
rejection of executory contracts and unexpired leases will be treated as
Class 5 Claims. The Debtor believes that Claims arising from the rejection
of executory contracts and unexpired leases will not exceed $300,000.00.
L. ASSUMPTION AND CURE.
The Bankruptcy Code provides that, to assume executory contracts or
unexpired leases, a debtor must cure certain defaults. The Plan provides
that all payments to cure defaults that may be required by
Section 365(b)(1) of the Bankruptcy Code shall be made by the Debtor by
payment in Cash in full on the Effective Date or as otherwise agreed by the
Debtor and the other party to such executory contract or unexpired lease.
In the event of a dispute regarding (1) the amount of any such payments,
(2) the ability of the Debtor to provide adequate assurance of future
performance or (3) any other matter pertaining to assumption, any payments
required by Section 365(b)(1) of the Bankruptcy Code shall be made
following the entry of a Final Order resolving such dispute.
M. IDENTITY AND COMPENSATION OF INSIDERS.
The Debtor does not anticipate that any insiders will receive
compensation following confirmation of the Plan other than reasonable and
customary compensation for their services as directors and/or officers of
the Debtor and any distributions payable with respect to Interests held by
such persons.
N. PBGC CLAIMS.
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Krystal maintains a tax-qualified, defined benefit pension plan for
certain of its employees known as the Krystal Company Retirement Plan (the
"Plan"). The Plan is covered by the mandatory pension termination
insurance program in Title IV of the Employee Retirement Income Security
Act of 1974 ("ERISA"), 29 U.S.C. Sections 1301-1461 (1994), and certain benefits
under the Plan are therefore guaranteed by the Pension Benefit Guaranty
Corporation ("PBGC") in the event the Plan terminates with insufficient
assets to provide for those benefits.
The PBGC has filed a claim in this case for Unfunded Benefit
Liabilities ("UBLs"), as defined in 29 U.S.C. Section 1301(a)(18), relating to
the Plan. Debtor and its "controlled group," as that term is defined in
29 U.S.C. Section 1301(a)(14), are jointly and severally liable for the UBLs, as
well as Unpaid Minimum Funding Contributions, under 29 U.S.C. Sections 1082,
1362(c) and 26 U.S.C. Section 412, in the event the Plan should terminate. SEE
29 U.S.C. Section 1362. The UBL claim would only arise upon the termination of
the Plan. That claim, filed in the estimated amount of $6,356,000, is
based on the assumption that the Plan would be terminated as of April 30,
1996. The Debtor has no intention to terminate the Plan as of that date or
at any time prior to the confirmation of a Plan of Reorganization in this
case, and intends to continue to maintain the Plan, as a reorganized
Debtor, in accordance with ERISA, the Internal Revenue Code, and all other
applicable laws after confirmation of a Plan of Reorganization.
Accordingly, the Debtor expressly acknowledges for itself and all members
of its controlled group that nothing in the Disclosure Statement, the Plan
of Reorganization, or the confirmation order thereof shall discharge or
otherwise affect the statutory liability of the Debtor and any member(s) of
its controlled group under ERISA or other applicable law, or preclude the
PBGC from commencing any court action, or taking any other action, to
collect or recover from the Debtor or any member(s) of its controlled
group, or their successors, any claim which may arise under 29 U.S.C.
Section 1362 for UBLs relating to the Plan.
The PBGC has also filed a priority claim in the estimated amount of
$1,477.10 under 11 U.S.C. Section 507(a)(1) for unpaid premiums under 29 U.S.C.
Section 1307, which have arisen during the pendency of the bankruptcy case. The
PBGC has also filed an unliquidated claim for Unpaid Minimum Funding
Contributions relating to the Plan; however, at this time, it does not
appear that the Debtor owes any Unpaid Minimum Funding Contributions on
behalf of the Plan. The PBGC has indiated that it does not oppose
confirmation of the Plan and that in the event of confirmation of the Plan,
PBGC's Claims, other than a nominal claim for $1,477,10 for post-petition
premiums, would be withdrawn.
O. WAIVERS AND RELEASES; LEGAL EFFECT OF PLAN CONFIRMATION.
On the Effective Date, the Plan will, in general, discharge the Debtor
and revest it with property of the Estate free and clear of all liens and
claims and interests and permanently enjoin the holders of Claims and
Interests from commencing or maintaining actions with respect to such
Claims and Interests. The Debtor shall, pursuant to the terms of the Plan,
retain all causes of action, claims and rights against any person.
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P. AMENDMENT OF THE PLAN.
The Debtor may modify the Plan at any time before the entry of the
Confirmation Order, and after the entry of the Confirmation Order, the
Debtor may, upon order of the Court, amend or modify the Plan in accordance
with Section 1127(b) of the Bankruptcy Code, or remedy any defect or
omission or reconcile any inconsistency in the Plan in such manner as may
be necessary to carry out the purpose and intent of the Plan.
Q. RETENTION OF JURISDICTION BY THE COURT.
Notwithstanding entry of the Confirmation Order or Effective Date
having occurred, the Court will retain jurisdiction with respect to the
certain matters described in the Plan.
ARTICLE VI.
CONDITIONS TO CONFIRMATION
CONTAINED IN THE BANKRUPTCY CODE
A. SECTION 1129.
Section 1129 of the Bankruptcy Code, which sets forth the requirements
that must be satisfied in order for the Plan to be confirmed, lists the
following requirements for the approval of any plan of reorganization:
1. A plan must comply with the applicable provisions of the
Bankruptcy Code.
2. The proponent of a plan must comply with the applicable
provisions of the Bankruptcy Code.
3. A plan must be proposed in good faith and not by any means
forbidden by law.
4. Any payment made or to be made by the proponent, by the debtor or
by a person issuing securities or acquiring property under a plan, for
services or for costs and expenses in or in connection with the case, or in
connection with such plan and incident to the case, must be approved by, or
be subject to the approval of, the Bankruptcy Court as reasonable.
5. (a) (1) The proponent of a plan must disclose the identity and
affiliations of any individual proposed to serve, after confirmation of
such plan, as a director, officer or voting trustee of the debtor, an
affiliate of the debtor participating in a joint plan with the debtor, or a
successor to the debtor under such plan; and
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(2) The appointment to, or continuance in, such office of
such individual, must be consistent with the interests of creditors and
equity security holders and with public policy; and
(b) The proponent of a plan must disclose the identity of any
insider (as defined in the Bankruptcy Code) that will be employed or
retained by the reorganized debtor, and the nature of any compensation for
each insider.
6. Any governmental regulatory commission with jurisdiction, after
confirmation of a plan, over the rates of the debtor must approve any rate
change provided for in such plan, or such rate change is expressly
conditioned on such approval.
7. With respect to each impaired class of claims or interests --
a. Each holder of a claim or interest in an impaired class of
claims or interest must have accepted the plan or must receive or retain
under the plan on account of such claim or interest property of a value, as
of the effective date of the plan, that is not less than the amount that
such holder would so receive or retain if the debtor were liquidated under
Chapter 7 of the Bankruptcy Code on such date; or, if the class is a class
of secured claims that elects non-recourse treatment of the claims under
Section 1111(b) of the Bankruptcy Code, each holder of a claim in such
class will receive or retain under the plan on account of such claim
property of a value, as of the effective date of the plan, that is not
less than the value of such holder's interest in the estate's interest in
the property that secures such claims.
8. With respect to each class of claims or interests, such class
must accept the plan or not be impaired under the plan (subject to the
"cramdown" provisions discussed above and below under "Confirmation Without
Acceptance by All Impaired Classes").
9. Except to the extent that the holder of a particular claim has
agreed to a different treatment of such claim, a plan must provide that:
a. with respect to an administrative claim and certain claims
arising in an involuntary case, on the effective date of the plan, the
holder of the claim will receive on account of such claim cash equal to the
allowed amount of the claim;
b. with respect to a class of priority wage, employee benefit,
consumer deposit and certain other claims described in Section 507(a)(3)-
(6) of the Bankruptcy Code, each holder of a claim of such class will
receive:
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(1) if such class has accepted the plan, deferred cash
payments of a value, as of the effective date of the
plan, equal to the allowed amount of such claim; or
(2) if such class has not accepted the plan, cash on the
effective date of the plan equal to the allowed amount
of such claim; and
(3) with respect to a priority tax claim of a kind
specified in Section 507(a)(7) of the Bankruptcy Code,
the holder of such claim will receive on account of
such claim deferred cash payments, over a period not
exceeding six years after the date of assessment of
such claim, of a value as of the effective date of the
plan equal to the allowed amount of such claim.
10. If a class of claims is impaired under a plan, at least one class
of claims that is impaired under such plan must have accepted the plan,
determined without including any acceptance of the plan by any insider.
11. Confirmation of a plan must not be likely to be followed by the
liquidation, or the need for further financial reorganization, of the
debtor or any successor to the debtor under the plan, unless such
liquidation or reorganization is proposed in the plan. This is the so-
called "feasibility" requirement.
12. All fees payable under 28 U.S.C. Section 1930, as determined by the
court at the hearing on confirmation of the plan, must have been paid or
the plan must provide for the payment of all such fees on the effective
date of the plan.
13. A plan must provide for the continuation after its effective date
of payment of all retiree benefits, as that term is defined in Section 1114
of the Bankruptcy Code, at the level established pursuant to subsection
(e)(1)(B) or (g) of Section 1114 of the Bankruptcy Code, at any time prior
to confirmation of such plan, for the duration of the period the debtor has
obligated itself to provide such benefits.
This Disclosure Statement discusses three of the requirements for
confirmation with respect to voting: (a) acceptance by impaired classes;
(b) that the Plan be in the best interests of each holder of a Claim or
Interest in an impaired Class that has not voted to accept the Plan; and
(c) the feasibility of the Plan. The Debtor believes that the Plan meets
all the requirements of Section 1129(a) of the Bankruptcy Code (other than
as to voting, which has not taken place) and will seek a ruling of the
Bankruptcy Court to this effect at the hearing on confirmation of the Plan.
You are urged to consult your own counsel to evaluate each and every one of
the standards for confirmation of the Plan under the Bankruptcy Code.
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B. ACCEPTANCE.
A plan is accepted by an impaired class of claims if, of those who
vote, holders of two-thirds in dollar amount and a majority in number of
such claims of that class vote to accept the plan. A plan is accepted by
an impaired class of equity interests if, of those who vote, holders of
two-thirds of the number of shares in such class vote to accept such plan.
In both cases, only those holders of Claim or Interests, as the case may
be, who actually return a ballot count in this tabulation.
C. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES -
CRAMDOWN.
Although Section 1129(a)(8) of the Bankruptcy Code requires that a
Plan of Reorganization be accepted by each Class that is impaired by such
Plan, Section 1129(b) of the Bankruptcy Code provides that the Bankruptcy
Court may still confirm the Plan at the request of the Debtor if all the
requirements of Section 1129(a) (except Section 1129(a)(8)) are met and if,
with respect to each Class of Claims or Interests that is impaired under
the Plan and has not voted to accept the Plan, the Plan "does not
discriminate unfairly" and is "fair and equitable." This provision is
referred to commonly as "cramdown." In the event that all impaired classes
of Claims do not accept the Plan, the Debtor intends to seek confirmation
of the Plan under the cramdown provisions of Section 1129(b) of the
Bankruptcy Code with respect to any such non-accepting Class. The Debtor
believes, that, with respect to such Classes, the Plan meets the
requirements of Section 1129(b). The Debtor believes that the Court
should determine that the Plan is "fair and equitable" and "does not
discriminate unfairly" as to the holders of Claims or Interests.
D. BEST INTERESTS TEST.
Notwithstanding acceptance of the Plan by each impaired Class, to
confirm the Plan the Bankruptcy Court must determine that the Plan is in
the best interests of each holder of a Claim or Interest in an impaired
Class that has not voted to accept the Plan. Accordingly, if an impaired
Class does not unanimously accept the Plan, the "best interests" test of
Section 1129(a)(7) of the Bankruptcy Code requires that the Court find that
the Plan provides to each holder of a Claim or Interest in such impaired
Class a recovery on account of the holder's Claim or Interest that has a
value at least equal to the value of the Distribution that such holder
would instead receive if the Debtor were liquidated under Chapter 7 of the
Bankruptcy Code.
To estimate what members of each impaired Class of Claims or Interests
would receive if the Debtor was liquidated in a Chapter 7 case, the Court
must first determine the aggregate dollar amount that would be available if
the Bankruptcy Case was converted to a Chapter 7 liquidation case under the
Bankruptcy Code and the Debtor's property was liquidated by a Chapter 7
trustee (the "Liquidation Value"). The Liquidation Value would consist of
the net proceeds from the disposition of the assets of the Debtor,
augmented by the Cash held by the Debtor and reduced by certain
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increased costs, as described below, and Claims that arise in a Chapter 7
liquidation case but do not arise in a Chapter 11 reorganization case.
The Liquidation Value available to unsecured creditors would be
reduced by: (a) the Claims of secured creditors to the extent of the value
of their collateral; and (b) the costs and expenses of the liquidation
under Chapter 7. Those costs and expenses would include: (i) the
compensation of a trustee and its counsel and other professionals retained;
(ii) disposition expenses; (iii) litigation costs, including costs
associated with litigation that is avoided under the compromises reached
under the Plan; and (iv) Claims arising from the operation of the Debtor's
Estate during the pendency of the Bankruptcy Case and limited operations
during the Chapter 7 liquidation case. The liquidation itself would
trigger certain priority Claims, and would accelerate other priority
payments which would otherwise be payable in the ordinary course. These
priority Claims likely would be paid in full out of the unencumbered
liquidation proceeds before the balance would be made available to pay most
other Claims or to make any Distribution in respect of Interests.
Liquidation may also involve the rejection of additional executory
contracts of the Debtor and cause the incurrence of substantial additional
rejection damage Claims against it.
Considering the effect that a Chapter 7 liquidation would have on the
value of the Debtor, including the costs of and Claims resulting from a
Chapter 7 liquidation, the adverse effect of a forced sale on the prices of
the Debtor's assets, and the delay in the distribution of liquidation
proceeds, the Debtor believes that a Chapter 7 liquidation of the Debtor
would result in substantial diminution in the value to be realized under
the Plan by holders of Claims and Interests because of, among other
factors: (a) the failure to realize the maximum value of the Debtor's
property as a going concern; (b) additional administrative expenses
involved in the appointment of a trustee or trustees, attorneys,
accountants, and other professionals to assist each such trustee in a
Chapter 7 case; (c) additional expenses and Claims, some of which would be
entitled to priority in payment, which would arise by reason of the
liquidation and from the assumption or rejection of executory contracts in
connection with a cessation of the Debtor's operations; and (d) the
substantial time which would elapse before creditors would receive any
Distribution in respect of their Claims. Consequently, the Debtor believes
that the Plan, which provides for the continuation of the Debtor's
business, will provide a substantially greater ultimate return to holders
of Allowed Claims and Allowed Interests than would liquidation. See
Article VII, Section C at page 33 of this Disclosure Statement for
additional information on the Debtor's Liquidation Analysis.
E. FEASIBILITY.
Section 1129(a)(11) of the Bankruptcy Code requires that confirmation
should not be likely to be followed by the liquidation, or the need for
further financial reorganization, of the Debtor or any successor to the
Debtor (unless such liquidation or reorganization is proposed in the Plan).
For purposes of determining whether the Plan meets the requirement, the
Debtor has analyzed its ability
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to meet its respective obligations under the Plan. As part of this analysis,
the Debtor has prepared Projected Sources and Uses of Funds at the End of the
First Quarter of 1997, and other financial projections which are attahed as
Exhibit E. Based upon the projections, the Debtor believes that reorganization
under the Plan will meet the feasibility requirements of Section 1129(a)(11) of
the Bankruptcy Code.
ARTICLE VII.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtor believes that the Plan provides creditors and stockholders
the potential for the greatest realization on the Debtor's assets and,
therefore, is in the best interests of the creditors and stockholders. If
the Plan is not confirmed, however, this Chapter 11 case could continue;
alternative plans of reorganization could be proposed and/or confirmed; or
the Debtor's estate could be liquidated under Chapter 7 or Chapter 11 of
the Bankruptcy Code.
A. CONTINUATION OF CASE
If the Debtor remains in Chapter 11, it could continue for an
unspecified period of time to operate its business and manage its
properties as debtor in possession, but it would remain subject to the
restrictions imposed by the Bankruptcy Code and to the operating and
financial constraints associated with the Bankruptcy Case.
B. ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, the Debtor, or any other party in
interest in the case, could attempt to formulate and to propose a different
plan or plans of reorganization. Such plans might involve a reorganization
and continuation of the Debtor's business or liquidation of its assets.
C. LIQUIDATION UNDER CHAPTER 7
1. GENERAL
If no plan can be confirmed, the Chapter 11 Case may be converted to a
case under Chapter 7 of the Bankruptcy Code. In Chapter 7 cases, a trustee
would be elected or appointed to liquidate the Debtor's assets. The
proceeds of the liquidation would be distributed to the respective holders
of Allowed Claims against the Debtor in accordance with the priorities
established by the Bankruptcy Code.
Under Chapter 7, a secured creditor whose Claim is fully secured would
be entitled to full payment, including interest, from the proceeds of the
sale of its collateral. Unless its Claim is
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nonrecourse, a secured creditor whose collateral is insufficient to pay its
Claim in full would be entitled to assert an unsecured Claim for its deficiency.
Claims entitled to priority under the Bankruptcy Code would be paid in full
before any distribution to general unsecured creditors. Funds remaining after
payment of secured Claims and priority Claims would be distributed pro rata to
general unsecured creditors.
The Debtor believes that liquidation under Chapter 7 would result in
substantial diminution of the value of its estate because of (1) additional
administrative expenses involved in the appointment of a trustee and
attorneys, accountants and other professionals to assist such a trustee;
(ii) additional expenses and Claims, some of which would be entitled to
priority, that would arise by reason of the liquidation and from the
rejection of leases and other executory contracts in connection with a
cessation of the Debtor's operations; and (iii) failure to realize the
greater going-concern value of Debtor's assets.
2. LIQUIDATION ANALYSIS
The Debtor's management has prepared the Chapter 7 liquidation
analysis attached as Exhibit D hereto (the "Liquidation Analysis") to help
holders of Claims to reach their determination as to whether to accept or
reject the Plan. The Liquidation Analysis indicates the estimated values
which may be obtained by classes of Claims and classes of interests if the
Debtor's assets are sold, pursuant to a Chapter 7 liquidation, as an
alternative to continued operation of the business and payments under the
Plan. The Liquidation Analysis is based on Debtor's unaudited balance
sheet at September 29, 1996 and on assumptions described in the Liquidation
Analysis.
Underlying the Liquidation Analysis are a number of estimates and
assumptions that are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the
Debtor and management. The Liquidation Analysis is also based upon
assumptions with regard to liquidation decisions that are subject to
change. As such, the Liquidation Analysis is speculative in nature.
Accordingly, there can be no assurance that the values reflected in the
Liquidation Analysis would be realized if the Debtor was, in fact, to
undergo such a liquidation. Actual results could materially vary from
those contained herein.
The Committee of Unsecured Creditors has filed an objection to FLSA
Claims asserting that the liquidated damages portion of such Claims, to the
extent allowed, should be subordinated to the payment of all other
unsecured Claims against the Debtor under 11 U.S.C. Section 726(a)(4). This
objection has not been resolved, but if sustained would have no effect on
the amounts paid to creditors.
In addition, in the event that it is determined that the Debtor was
insolvent as of the Petition Date, the Debtor's three primary trade
creditors may have reclamation claims, which would be entitled to priority
under 11 U.S.C. Sections 503 and 546.
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FINANCIAL PROJECTIONS
The property and/or funds necessary to effect the transfers and
payments contemplated under the Plan will be provided by cash and other
assets of the Debtor has on hand and by cash generated by the consummation
of one or more loans. To assist creditors in assessing the Debtor's
ability to meet its obligations under the Plan, the Debtor has prepared the
projections attached hereto as Exhibit E.
ARTICLE VIII.
RISK FACTORS
LITIGATION
The principal factor in the Debtor's determination to file a petition
under Chapter 11 was the cost of litigation involving certain former and
current employees for alleged violations of the Fair Labor Standards Act.
Assuming approval of the settlement between the Debtor and the Claimants
represented by SED, the Debtor believes that it has or will have
sufficient resources to pay timely all Allowed Claims including the FLSA
Claims.
PROSPECTIVE FINANCIAL INFORMATION
The cash flow projections included in this Disclosure Statement are
dependent upon the Debtor achieving a certain level of financial results
and on the reliability of the assumptions contained in the financial
projections included herein. See "Projected Financial Information". The
Projections reflect numerous assumptions, including confirmation and
consummation of the Plan in accordance with its terms, the anticipated
future performance of the Debtor, industry performance, general business
and economic conditions and other matters, most of which are beyond the
control of the Debtor and some of which may not materialize. In addition,
unanticipated events and circumstances occurring subsequent to the
preparation of the Projections may affect the actual financial results of
the Debtor . Therefore, the actual results achieved throughout the period
covered by the projections will likely vary from projected results. These
variations may be material. See "Projected Financial Information".
The Projections do not assume or take into account the effects of any
extraordinary corporate action such as a merger, consolidation, sale of all
or substantially all the Debtor's assets, refinancing or recapitalization
of the Debtor.
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EXIT FINANCING
The Debtor's ability to pay all Allowed Claims in full on the
Distributuion Date is dependent upon the Debtor obtaining at least
$45,000,000.00 in new financing upon confirmation of the Plan.
COMPETITION
All aspects of the Debtor's operations are conducted in a highly
competitive environment. Competition within the fast food industry is
based on quality, service and pricing. The Debtor faces competition from
other national fast food companies, as well as regional and local fast food
service providers some of which have better financial resources or are
better established within a specific geographic region. The Debtor
believes that its distinctive product and regional focus enables it to
compete effectively. However, upon emergence from bankruptcy, it is
uncertain the extent to which the Debtor will be able to compete at
historical levels.
FINANCIAL RISK
Although the Debtor is expected to emerge from chapter 11 with a level
of debt that it will be able to support, due to the uncertainty regarding
economic and other business factors beyond their control, no assurance can
be given that the Debtor will be able to continue to meet its debt service
requirements as they become due. In addition, the Debtor's degree of
leverage may impose restrictions on, among other things, the Debtor's
ability to withstand competitive pressures or a continuation or worsening
of economic conditions, to expand its businesses or to take advantage of
significant new business opportunities that may arise.
ARTICLE IX.
TAX CONSEQUENCES
The Debtor has not obtained a tax opinion and expresses no opinion as
to the tax consequences to the holder of any Claim or Interest caused by
the terms of the Plan. The Debtor does not anticipate adverse tax
consequences respecting the treatment of Claims under the Plan. Because
the Creditors receive 100 cents on the dollar, the Debtor will experience
no forgiveness of indebtedness income.
BECAUSE THE DEBTOR EXPRESSES NO TAX ADVICE, IN NO EVENT WILL THE
DEBTOR OR ANY PROFESSIONAL ADVISORS ENGAGED BY IT BE LIABLE IF, FOR ANY
REASON, THE TAX CONSEQUENCES OF THE PLAN ARE OTHER THAN AS
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ANTICIPATED. CREDITORS MUST LOOK SOLELY TO AND RELY SOLELY UPON THEIR OWN
ADVISORS AS TO THE TAX CONSEQUENCES OF THE PLAN.
ARTICLE X.
DISCLAIMERS
The statements contained in this Disclosure Statement are made as of
the date hereof, and unless another time is specified herein, neither the
delivery of this Disclosure Statement nor an exchange of rights made in
connection herewith shall under any circumstances create an implication
that there has been a change in the facts set forth herein since the date
hereof.
No representations concerning the Debtor, the value of its property,
or the value of any benefits offered to holders of Claims or Interests in
connection with the Plan, are authorized by the Debtor, other than as set
forth in this Disclosure Statement. Any representations or inducements
made to secure acceptances which are contrary to the information contained
in this Disclosure Statement should not be relied on by you in arriving at
your decision.
ARTICLE XI.
THE SIGNIFICANCE OF ALLOWANCE AND IMPAIRMENT
To be entitled to receive a distribution under the Plan, a creditor
must have an Allowed Claim. To be entitled to vote on the Plan, however, a
creditor must have an Allowed Claim that is also impaired. If a Claim is
not Allowed, the creditor will not be entitled to vote on a plan or to
receive a distribution. Any class as to which no distribution will be made
under the Plan under any circumstances does not vote on the Plan and is
deemed not to have accepted it. Any class that is not impaired will be
deemed to have accepted the Plan.
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A. ALLOWANCE OF CLAIMS.
1. ALLOWED CLAIMS
A Claim is automatically Allowed if (i) a proof of claim has been
filed and no objections to the Claim are asserted, or (ii) the Claim is
listed in Debtor's Schedules and is not listed as disputed, contingent or
unliquidated unless the claim is a Disputed Claim which includes a claim
for which a proof of claim was filed in an amount different from the amount
listed on the Debtor's Schedules. The Debtor may object to the allowance
of a Disputed Claim up until 60 days after the Effective Date.
If a proof of claim is filed and an objection to that Claim is
asserted, the objection must be resolved before the Claim will be Allowed.
If a Claim scheduled on Debtor's Schedules is disputed, contingent, or
unliquidated, the Claim is not Allowed unless (i) a proof of claim is filed
on or before the Bar Date, and (ii) objections to the proof of claim are
resolved by Final Order. Debtor's Schedules are too voluminous to
reproduce in this Disclosure Statement but have been filed with the
Bankruptcy Court and may be reviewed there by creditors.
B. IMPAIRMENT OF CLAIMS
1. DEFINITION OF IMPAIRMENT
Under section 1124, a class of Claims is impaired under a plan
unless, with respect to each Claim of such class, (i) the plan leaves
unaltered the legal, equitable, and contractual rights to which such Claim
entitles the holder of such Claim; or (ii) all defaults are cured, the
original maturity of the Claim is reinstated, and the Claim is otherwise
treated as provided in clause (i).
2. CLASSES IMPAIRED UNDER THE PLAN
Classes 3, 4, 5 and 6 are impaired under the Plan.
ARTICLE XII.
OBJECTIONS TO CLAIMS
If an objection to a Claim has been filed, the Allowed amount of the
Claim, if any, will be resolved through the objection procedure. If an
objection has been filed, the creditor will not be entitled to vote on the
Plan unless the Claim has been temporarily Allowed by the Bankruptcy Court
for voting purposes. Refer to Article XIII, Section A, at page 39 of this
Disclosure Statement.
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A. OBJECTION PROCEDURE
1. OBJECTIONS
Debtor may file with the Bankruptcy Court an objection to the
proof of claim filed by any creditor. The objection must be filed with the
Bankruptcy Court and served in accordance with Bankruptcy Rule 3007 no
later than 60 days after the Effective Date. A copy of the objection must
be served upon the attorney of record for the creditor, upon the creditor
directly, if the same is not represented by an attorney, and upon Debtor
and attorneys for Debtor.
2. RESPONSES
If an objection to a Claim is filed, the creditor must file a
response to any such objection within the time period set by the Bankruptcy
Court. Copies of such responses must be served upon Debtor and attorneys
for Debtor. Failure to file timely a response as a result in a deemed
consent to the objection.
ARTICLE XIII.
TEMPORARY ALLOWANCE AND ESTIMATION OF CLAIMS
A. TEMPORARY ALLOWANCE OF CLAIMS FOR VOTING PURPOSES
The Bankruptcy Rules provide that any creditor may file a request that
the Bankruptcy Court temporarily allow its Claim for purposes of voting
when an objection to the Claim has been filed. The creditor holding such a
Claim will vote the Claim in the amount, if any, as is determined by Final
Order resolving the request for temporary allowance.
B. ESTIMATION OF CLAIMS FOR DISTRIBUTION PURPOSES
Creditors holding Claims that are contingent or unliquidated will not
receive any distribution until the allowance and amount of the Claim is
resolved through the Claims objection procedure. The Bankruptcy Code
provides that any party in interest may file a request that the Bankruptcy
Court estimate for purposes of distribution the amount of any contingent or
unliquidated Claim, if liquidation of the Claim would unduly delay
administration of the case. The creditor holding such a contingent or
unliquidated Claim will receive a distribution based on the amount, if any,
as is determined by final order resolving the request for estimation.
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ARTICLE XIV.
VOTING ACCEPTANCE AND CONFIRMATION
A. VOTING PROCEDURES AND REQUIREMENTS.
Pursuant to provisions of the Bankruptcy Code, only classes of claims
against or equity interest in a debtor that are impaired under the terms
and provisions of a plan of reorganization are entitled to vote to accept
or reject a plan. Classes of claims or interests that are not impaired are
deemed to have accepted the plan and are NOT entitled to vote on the plan.
By virtue of the provisions of the Plan, all Claims and Interests are
unimpaired and, therefore, are presumed to have accepted the Plan.
The Debtor does not believe that any class of creditors or
interestholders is entitled to vote on the Plan. Nevertheless, if voting
is required, after carefully reviewing the Plan in this Disclosure
Statement, please indicate your vote on each enclosed ballot and return it
in the preaddressed envelope provided for this purpose.
To be counted, ballots must be marked, signed and returned so that
they are received no later than 5:00 p.m. (E.S.T.) on March 28, 1997, at
the following address:
David G. Epstein
Sarah Robinson Borders
King & Spalding
191 Peachtree Street, Suite 4900
Atlanta, Georgia 30303
Ballots that are signed and returned, but not expressly voted either
for acceptance or rejection of the Plan, will be counted as ballots for
acceptance of the Plan. If your ballot is damaged or lost, or if you do
not receive a ballot, you may request a replacement by addressing a written
request to:
Al Bentley
The Krystal Company
The Krystal Building
One Union Square
Chattanooga, Tennessee 37402
or by telephoning Al Bentley at (423) 757-5664.
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Please follow the directions contained in the voting instructions
sheet accompanying the enclosed ballot carefully.
B. CONFIRMATION HEARING.
The Court will hold a hearing on Confirmation of the Plan on April 9,
1997 at 10:00 a.m. (Eastern Standard Time), in the United States Bankruptcy
Court, Eastern District of Tennessee, Historic U.S. Courthouse, 31 East
11th Street, Chattanooga, Tennessee 37401. Any objections to Confirmation
of the Plan must be in writing and must be filed with the Clerk of the
Court and served on counsel listed below to ensure RECEIPT by them on or
before March 28, 1997 at 5:00 p.m. (Eastern Standard Time). Counsel on
whom objections must be served are:
Counsel for the Debtor: David G. Epstein
Sarah Robinson Borders
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Counsel for the Committee: Dennis J. Connolly, Esq.
Alston & Bird
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3424
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ARTICLE XV.
RECOMMENDATION
The Debtor recommends that this Disclosure Statement for the Plan of
Reorganization be approved.
This 24th day of February, 1997.
THE KRYSTAL COMPANY
BY: /s/ R. B. DAVENPORT, IV
--------------------------------
R. B. Davenport, IV, President
David G. Epstein
State Bar No. 561206
Sarah Robinson Borders
State Bar No. 610649
KING & SPALDING
191 Peachtree Street
Atlanta, Georgia 30303-1763
(404) 572-4600
ATTORNEYS FOR DEBTOR-IN-POSSESSION
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