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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Year Ended December 31, 1997 Commission File No. 1-12462
TRI-LITE, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2515309
(State of incorporation or organization) (IRS Employer ID No.)
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2701 Junipero Street 14901 Broadway Avenue
Signal Hills, California 90806 Cleveland, Ohio 44137
(Address of principal executive offices) (Former address of principal executive offices)
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(562) 426-8622
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, no par value Not Applicable
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 13, or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
YES /_/ NO /x/
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES /_/ NO /x/
Aggregate market value of Common Shares held by non-affiliates on
January 31, 1999: Undetermined
Number of Common Shares Outstanding on January 31, 1999: 4,060,000
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Part I
Item 1. Business
(a) General development of business
Tri-Lite, Inc., was incorporated in 1988 under the laws of the
Commonwealth of Pennsylvania. As used in this report, the terms "Company",
"Tri-Lite" and "Registrant" refer to Tri-Lite, Inc. and subsidiaries.
The Company completed an initial public offering of its common stock in
October, 1993. The Company's shares were listed on the American Stock Exchange
under the symbol "NRG" until February 26, 1996 when they were delisted. The
Company's shares are anticipated to trade in the immediate future, on the
over-the-counter market.
Effective June 30, 1995, certain of the Company's wholly owned
subsidiaries were merged into Tri-Lite, Inc. Subsequent to these mergers the
Company operated through a parent company with operating divisions and three
wholly owned subsidiaries. The operating divisions did business under the names
Allite, Trio Lighting and NL Corporation. The wholly owned subsidiaries were
Prolite Lighting and Sign Maintenance Co., Inc.(Prolite), Self Powered Lighting,
Inc.(SPL), and NL Corporation De Mexico S.A. de C.V.
During 1995, the Company operated under two separate industry segments.
The Company's lighting fixture business segment involved the designing,
sourcing, manufacturing and marketing of recessed lighting, track lighting,
emergency lighting and decorative lighting for use in new construction and
remodeling of retail, commercial, industrial and residential buildings. The
Company's other segment included electrical energy management which involves
auditing, retrofitting, maintaining and managing lighting in order to reduce
energy consumption used for lighting of commercial and industrial buildings.
During the 4th quarter of 1995 the Company's Board of Directors decided
to discontinue the operations of it's electrical energy management segment. It
was determined that due to increased competition, decreasing liquidity and
continued difficulty in obtaining performance bonds it was not likely to achieve
profitabilty. Accordingly, the Company began winding down the segment's
operations.
Subsequent to December 31, 1995, the Company, its operating divisions
and its wholly owned subsidiaries experienced material changes in the mode of
conducting their respective businesses. The following chronology of events will
provide the basis for explaining the present status of the Company and its
remaining operating subsidiaries (Self Powered Lighting, Inc. and Aim Energy,
Inc.).
On October 26, 1995, the Company filed a complaint in the United States
District Court for the Northern District of Ohio, Eastern Division, against
Helionetics, Inc., seeking monetary damages, injunctive relief and declaratory
relief. In January 1996, Helionetics, Inc., filed an answer to this complaint
and filed a counterclaim against Tri-Lite, Inc., Lawrence A. Terkel and Star
Bank N.A. In conjunction with the Company's plan of reorganization, described
below, the lawsuit between the parties has been settled.
On November 20, 1995, the Company received formal notice from it's
primary lender, Star Bank N.A., that certain defaults had occurred under the
Financing Agreement dated July 13, 1995. Also on February 15, 1996, Star Bank
N.A. notified the Company of it's demand for payment in full of the Company's
credit facility. The demand required payment by February 20,
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1996. On February 23, 1996, the Court of Common Pleas, Cuyahoga County, Ohio
granted a motion by Star Bank N.A. for an Emergency Order Appointing a Receiver
to be charged with administration of properties during the special receivership
period.
On February 26, 1996, Tri-Lite, Inc., ( the "Debtor") filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code ( Case No. SA
96-12049 JR ), U.S. Bankruptcy Court, Central District of California and on
March 22, 1996 Self Powered Lighting, Inc. (SPL) also filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code (Case No. SA 96-13178 JR),
Central Distirct of California. On January 16, 1997, the Court confirmed the
Company's plan of reorganization. See attached Exhibit I for the Third Amended
Disclosure Statement For Third Amended Joint Chapter 11 Plan of Reorganization.
In May, 1997 the Court confirmed the plan of reorganization of SPL. See attached
Exhibit for the SPL's First Amended Chapter 11 Plan. The Company's approved plan
of reorganization was based upon Helionetics, Inc. and Ms. Susan Barnes acting
as its co-proponents. In April 1997, Helionetics also filed a voluntary petition
under Chapter 11 of the Bankruptcy Code (Case No. SA 97-14645 JR) with the U.S.
Bankruptcy Court, Central District of California. As a result, the funding of
the Company's reorganization plan was combined with that of Helionetics
bankruptcy plan, which included the provisions and methodology to fund the
Company's plan. In addition, due to Helionetics creditors under its plan, the
pay-out to the Company's creditors was negatively affected. The confirmation
hearing for the Chapter 11 Liquidating Plan of Helionetics, Inc. held on
November 24, 1998 was approved by the U.S. Bankruptcy Court on December 23,
1998. Provisions of the Combined Plans included the following:
o The Company will issue 87.5% (5% of which will be issued to the
Helionetics Committee of Unsecured Creditors (Helionetics Committee) pursuant to
a settlement agreement reached between the Helionetics Committee, the Company,
Susan Barnes and an affiliate) of the Company's "new" common stock to Ms. Susan
Barnes, as its co-proponent of the Company's plan of reorganization, and in
exchange for her agreement to forgo any claims on her approximately $4.3 million
secured claim against Helionetics, Inc. The shares are exempt from registration
requirements under the 33 Act pursuant to the exemption provided by Section 1145
of the Bankruptcy Code.
o The Company's unsecured creditors will receive up to 47% of their
allowed claims in cash as a result of the combined plan with Helionetics. The
approved reorganization plan of the Company called for a 70% pay-out to the
unsecured creditors. The payout is subject to the final determination of the
Helionetics own plan of reorganization . The plan required an initial payment to
the unsecured creditors of approximately 30% of the approved pay-out. However,
only approximately $426,700 initial payment was made in May 1997. Ms. Barnes
provided the funds for this initial payment.
o Helionetics contributed to the Company its interest (87.5%) in Aim
Energy, Inc.
o The Company will issue on a pro rata basis to its existing
shareholders (Class 6 claimant) 12.5% of its "new" common stock in exchange for
their existing "old common shares" outstanding which totalled 6,039,333 shares.
The new shares to be issued are exempt from registration pursuant to exemption
provided by Section 1145 of the Bankruptcy Code.
o Under the approved plan of reorganization of Self Powered Lighting,
Inc., all creditors of SPL will receive 100% of their allowed claims within 60
months from its effective date and the Company will retain its 100% interest in
SPL.
o Helionetics will cancel and release its claim against the Company for
$1,800,000 note receivable secured by all assets of the Company.
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o The Company will issue two secured promissory notes; a $800,000
senior note in favor of the Helionetics Committee and a $500,000 junior note in
favor of Ms. Susan Barnes. Both notes carries an interest rate of 10.5%. The
senior note matures on December 8, 2003. No payment is due on the junior note
until the senior note is fully paid. Both notes are subordinated to any new
financing that might be required by the Company.
Subsequent to February 23, 1996, Prolite Lighting and Sign Maintenance
Co. Inc., (Prolite) continued under the control and supervision of the Receiver.
On December 16, 1996, Tri-Lite made payment in full of all remaining balances
owed to Star Bank N.A. As a result, on January 1997, the Prolite Receivership
was terminated.
As a result of the Company's Chapter 11 filing and in conjunction with
the development of a plan of reorganization, the Company decided to discontinue
the operations of the NL Corporation division located in Cleveland, Ohio and its
remaining recessed lighting business.
The Company, as a result of the approved plan of reorganization, is now
comprised of the wholly owned subsidiary Self-Powered Ligthing, Inc.; the 87
1/2% owned Aim Energy, Inc. (see description of business) and the 100% owned
subsidiary, Prolite Lighting and Sign Maintenance Co., Inc. (an inactive
corporation).
At December 31, 1997, as a result of the confirmed plan of
reorganization, 87.5% of the Company's common stock was owned jointly by its
co-proponents, Helionetics and Susan Barnes. The ownership interest was
subsequently reduced by 5% pursuant to a settlement agreement between the
parties.
(b) Financial information about industry segments:
Prior to the approval of the Company's plan of reorganization, the
Company's business was in two business segments: (i) manufacturing and sale of
electrical lighting fixture including emergency exit signs, and (ii) energy
management. Financial information by industry segment for the Company is
presented in the financial statements accompanying this report. Currently as a
result of the approved plan of reorganization, the Company's business is now in
two business segments: (I) emergency lighting fixtures, and (ii) energy
conservation and safety equipment.
(c) Narrative description of business
Emergency Lighting Fixtures
1. Products
Through its wholly-owned subsidiary, Self Powered Lighting, Inc., the
Company is engaged in the manufacture and distribution of specialized emergency
and exit lighting fixtures. SPL offers two types of exit signs:
(1) low energy electrical
(2) no energy (self luminous) - represents approximately 75% of total
sales
Generally, SPL sells through a sales representative network. In-house sales
orders are handled by SPL's own internal marketing staff.
2. Manufacturing and Suppliers
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At December 31, 1997, the Company's manufacturing facility for SPL
products is located in West Nyack, New York. SPL's primary raw material vendor
is located in England. The 1996 Chapter 11 filing of the Company and SPL had the
effect of causing difficulty in maintaining its credit terms with all vendors.
However, in 1996, after a period of sourcing raw materials on a cash basis, SPL
has been able to re-establish credit terms with it's primary vendor and a
majority of its domestic vendors. Most finished products are supplied by a
foreign manufacturer located in the Republic of China and paid, generally, on a
letter of credit basis.
3. Working Capital Items
SPL maintained sufficient raw materials to sustain its manufacturing
operations. Finished goods are generally purchased to support existing backlog.
However, its ability to respond quickly to customer orders are somewhat hampered
by its limited working capital. This sometimes resulted in lost revenues. SPL
has in place a receivable factoring line of credit in the amount of $500,000
which it believes is sufficient at the present time but could require additional
funding if its plan of operations increase. The Company is also in the planning
stage of tapping the equity market to raise additional capital to settle
favorably its chapter 11 obligations.
4. Customers
During 1997, 1996 and 1995, SPL had no sales to a single customer which
totalled more than 10% of their total sales respectively. During 1998, SPL
obtained a "sole-source" agreement with Catalina Lighting (a NYSE company) to
supply its entire emergency and exit lighting requirements under the
Westinghouse brand name for resale to major home improvement chains. This
business is expected to increase over the next 2-5 years.
5. Seasonality and Backlog
SPL has no substantial seasonal factors that affect it's emergency
lighting fixture business. SPL's backlog at December 31, 1997, 1996, and 1995
totaled approximately $550,000, $1,100,000 and $443,000, respectively which is
anticipated to be shipped over the next 12 months. The backlog at December 1996
is unusually high due to supply problem related to Tritium, a key material used
in the manufacture of exit signs. The supply problem was resolved subsequently.
6. Competition
SPL is one of two manufacturers that supply emergency signs to the
airline industry. SPL is also one of four companies that manufacture and
distribute self luminous exit signs.
7. Research and Development
SPL has not expended and does not require significant funds for
development of new products.
8. Patents, Trademarks and Licenses
SPL has patents in place on certain of its products.
9. Environmental Matters
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SPL uses Tritium, a regulated raw material, in the manufacture of its
self luminous products. Tritium is a low energy isotope of hydrogen that emits a
soft beta ray. Tritium is naturally present in the atmosphere as a result of
cosmic ray bombardment of oxygen and nitrogen in the upper atmosphere as well as
outer space. Tritium Oxide is the regulated element in Tritium gas and would
have to be ingested for hours to be considered mildly dangerous. Tritium used in
exit signs is 96% pure and contains less than 1% Tritium Oxide. There have been
no reported incidents (harmful to either man or the environment) due to acute
exposure to Tritium. The Company employs a radiation safety officer who oversees
the Company's use of Tritium and sees to it that the Company complies with the
appropriate regulations. No additional capital expenditure is required by the
Company to comply with regulations.
10. Employees
At December 31, 1997, 1996 and 1995, SPL employed 25, 22 and 29
employees, respectively at locations in Elmsford, NY and in West Nyack, NY.
Energy Conservation and Safety Equipment Business - During 1997 the
Company operated its energy conservation and safety equipment business through
its 87 1/2% owned subsidiary, Aim Energy, Inc.
1. Products and services
The "Active Injection Mode Harmonic Conditioner" (the AIM Filter) is an
electronic device which mitigates or cancels harmonic current distortion, also
called Total Harmonic Distortion (THD). Harmonics waste energy, increase
electrical bills, overheat wires and equipment, create interference, cause
computers and computer controlled equipment to malfunction and interferes with
telecommunications. Harmonics can require expensive rewiring to avoid
overheating of wires and possible fires. Harmonics are an increasingly serious
hazard due to the greater use of devices to improve energy efficiency and the
rapid expansion in the use of computers and computer related equipment.
Harmonics. Alternating current (AC) is now universally used to deliver power in
electric power systems. AC power is known as "alternating" because the flow of
current is continuously reversing; positive current in any one wire becomes
negative current and vice versa. This happens 60 times per second in the United
States, Canada and Mexico and hence is called "60 cycle" power. Ideally, this
alternation occurs smoothly and continuously, e.g., from positive 110 volts to
negative 110 volts. If pictured on a graph (or oscilloscope), the alternation of
current forms a smooth "sine wave" and thus the current is known as
"sinusoidal". The flow of current is not smooth and continuous when there is
harmonic distortion of current. Harmonic distortion of current causes voltage
harmonics, i.e., increases or decreases in voltage from that which would conform
to a smooth sine wave.
Equipment such as computers, electronic ballasts (used by fluorescent lights),
welding equipment, battery chargers, motor speed control devices such as
variable speed drives ("VSDs"), and uninterruptible power supplies ("UPSs") all
use utility current to run an electronic power converter. The power converter
changes the normal AC power supplied by the utility into direct current ("DC")
(and in some cases back to the AC power) used by the machines. Power converters
draw current in pulses, and the effect of each pulse is to generate harmonic
distortion in the current carried by the wire. When harmonics from different
sources are in synchronization, the effect is amplified.
Problems Caused by Harmonics. Current harmonics waste energy, requiring
increased generation capacity and fuel use. Harmonics can cause computer shut
downs, tripped circuit
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breakers, overloading of electric equipment, failure of electronic parts,
premature failure of insulation on electrical wires ("conductors"), reduction in
capacity of the large conductors and the useful output of power generators and
serious reduction in the operating life of electrical motors.
Computers and computer controlled equipment must have essentially sinusoidal or
"clean" voltage to operate. Voltage harmonics can cause a computer to "crash",
resulting in lost data and reduced productivity. In addition telecommunications
equipment is now generally controlled by computers sensitive to harmonics,
telecommunications equipment can also suffer interference from harmonics,
degrading the quality of the signal. Medical equipment, such as computer
controlled monitors, CAT scanners, magnetic resonance imagers (MRI), and x-ray
equipment can also malfunction because of harmonics.
Building wiring and transformers can suffer overheating and premature aging in
the presence of harmonics. A problem found in large office buildings is a build
up of current on the neutral conductor of three phase systems. While these
conductors ideally would have no current flow at all, harmonics may cause them
to carry a current substantially in excess of the current on any other
conductor. This current can overheat the wire, requiring rewiring to prevent
electrical fires. As a result, building owners may expend substantial sums to
rewire or require tenants to limit or reduce the harmonics they create in order
to protect the building wiring and the integrity of other tenants' power supply.
Harmonics also cause transformers serving a building or a particular portion of
the building to overheat, and heavier duty, more expensive harmonic resistant
transformers ("x-rated transformers") are now required where harmonics are
anticipated.
Uninterruptible power supplies ("UPSs") are used to protect computers and
important equipment from power failure. Each UPS contributes harmonics because
of its AC/DC power converter, while at the same time supplying power to
equipment sensitive to harmonics. Thus, the UPS may require harmonic filtering
to limit the harmonics it creates in the building and protective circuits to
protect it against harmonics from other sources. In addition, harmonic filtering
may be necessary for successful synchronization of the UPS power supply and the
line power supply which is required for redundancy. A similar problem exists
with respect to standby emergency generators, which may be unable to operate in
a building with large harmonics due to an inability of the small generators to
generate sufficient current and/or an inability to synchronize with other power
sources (utility power or UPS power).
Harmonics also cause problems for utilities. Harmonics travel through the power
line to utility equipment, such as switches, transformers and the nearest
generators, potentially damaging such utility equipment. The utility must limit
harmonics on the line to serve their customers and protect their own equipment.
In addition, harmonics require larger conductors and generation capacity to
supply the power needed to do a given amount of useful work.
As an additional benefit, the AIM Filters also provide substantial power factor
correction. "Power factor" is the ratio of the watts of electricity consumed to
volt-amps on the circuit, expressed as a ratio. Thus, if a traditional
electricity meter indicates 80 watts consumed, but the utility is supplying 1
amp of power at 100 volts, or 100 volt-amps, the power factor would be .8.
Several United States utility companies have begun implementing surcharges for
large customers with low power factors to recover the cost of supplying the
larger volt-amps required by the customer. These surcharges are a material part
of electric bills for large customers with low power factors. The AIM Filter
increases the power factor, thus reducing the surcharge (in some cases the power
factor is corrected to a level where the user actually qualifies for a reduced
KWH rate charge); this may provide an additional cost justification for
installation of such filters. However, it should be noted that in many if not
most installations, the traditional alternative approach of adding power factor
correction capacitors and equipment may be
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adequate, and the AIM Filter must compete with these approaches as a means of
power factor correction.
The problems of harmonics are receiving growing attention worldwide. The
Institute for Electrical and Electronics Engineers, a principal standard setting
body for the industry, has promulgated its latest standard, IEEE 519-1992
Recommended Practice and Requirements for Harmonic Control in Electric Power
Systems, replacing a 1981 version. The new standard sets a limit on harmonics to
a maximum of 5% on total harmonic distortion of current ("TCD"), i.e., harmonic
variations in current, and 5% total harmonic distortion of voltage ("TVD").
While IEEE 519-1992 is a professional standard for electrical engineers, and
thus does not have the force of law, it is deemed to set the standard of care
for the profession and thus result in potential liability if a professional
authorizes a deviation therefrom and that deviation causes a loss. Compliance
with this or other similar standards may become required by law on a
state-by-state and country-by-country basis for new installations. In addition,
the standard may be adopted by utilities. For example, SaskPower, a Canadian
utility, requires compliance with this standard at the time of any change in the
utility connection.
Methods to Solve the Harmonics Problem. Several methods other than active
injection mode harmonic conditioners (such as the AIM Filters) are currently
used to mitigate the problem of harmonics. These include: passive filters,
zig-zag and phase shift transformers, and complex, higher order multiphase
rectifiers (e.g., 12 pulse, 18 pulse, 24 pulse, etc.). There are serious
limitations to the competing products and approaches.
Passive filters are the traditional approach. They must be designed for the
specific harmonic problem, often at significant engineering cost, and are thus
inflexible. In a dynamic environment, such as that caused by installation of new
VSD, UPS and computer equipment, harmonic distortion changes, and passive
filters will likely fail to mitigate harmonics and may even create resonance
problems due to interference of the filters with each other or other equipment.
This causes significant operational limitations. Thus, when used to address
harmonics in a building or other electrical environment, passive filters are
costly to design, time consuming to implement, and likely to require expensive
changes over time. Passive filters may be designed to mitigate the harmonics
caused by a particular device more easily, and this is the most common approach
to preventing harmonic problems. However, this fails to address harmonics from
other sources and there can be interference which defeats the filtering.
Zig-zag transformers and phase shift transformers are also used to reduce
harmonics. The installation of phase shift transformers in existing
installations may require extensive and expensive rewiring to balance loads, and
both types of transformers add additional power dissipation to the system.
Improved AC-DC converters using higher-order multiphase rectification can be
used to reduce the distortion generated by specific pieces of equipment. These
prevent only the particular pieces of equipment from causing a problem-they do
not protect the rectifier or the system itself from harmonics from other
sources.
Management believes the AIM Filters are superior to these alternative methods
because they can mitigate harmonics in existing installations without
necessitating extensive engineering studies or changes in the equipment. The AIM
Filters can adapt to changing harmonic conditions, and they are comparatively
simple and inexpensive to use. The AIM Filters are connected in parallel with
the existing AC power supply, meaning that failure of an AIM Filter will not
interrupt the power supply.
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The Company is currently marketing AIM Filters for three types of applications:
(1) three phase, three wire balanced loads; (2) three phase, four wire
unbalanced loads; and (3) single phase loads.
AIM Filters for three phase, three wire loads are suitable for use with products
such as VSDs, including both AC and DC motor speed controls, and are compatible
with other balanced loads, such as UPSs, fluorescent lighting ballasts,
mainframe computers and ultraviolet lighting. The AIM Filters in this category
handle voltages of 208, 240, 400, 480, 600 volts and provide currents of up to
25, 50 or 100 amps. Over 200 of the three phase, three wire AIM Filters have
been installed to date, including models in each of the five listed voltage
configurations.
AIM Filters do not address all power quality problems, The filters will not stop
large voltage surges caused, for instance, by lightning strikes; a separate
surge protector (together with a UPS or backup generator to maintain power) is
needed for this. The AIM Filters cannot correct voltage sags caused by the
utility system (as opposed to those caused by the harmonics), for which a UPS
would be necessary. The capabilities of the AIM Filters complement those of a
UPS or a back-up generator, eliminate problems caused by that equipment and
other equipment causing or sensitive to harmonics, and may be necessary in order
to use such equipment effectively.
2. Marketing
The first models of the AIM Filters are designed for use in the
commercial, industrial, and public utility sectors to install in water/sewage
treatment and other large facilities using VSD controlled motors; and office
building and institutions with significant use of VSDs, computers, UPSs, or
energy saving illumination. The AIM Filters can be used either in existing
installations with harmonic problems or in connection with installation of new
devices which are likely to cause harmonic problems, or can be sold together
with (or incorporated into) specific products which are likely to cause
harmonics.
One of the first focuses of AIM marketing has been to sell AIM Filters to those
organizations installing VSDs and UPSs in either existing facilities or new
facilities. The initial models of the AIM Filters are suitable to control the
harmonics caused by many types of VSDs and UPSs, and subsequent models will be
suitable for all but the largest VSDs and UPSs.
Installation of VSDs in existing buildings reduces electric consumption by 30%
to 50% of the electricity used by motors in elevators, fans, and HVAC. The
Company estimates that the expense of adding a VSD can be recovered quickly,
making the change highly cost-effective. The harmonics caused by VSD
installation may be unacceptable without harmonic filtering, and approaches to
harmonic filtering other than the AIM Filter have serious drawbacks. Thus, the
Company will market AIM Filters as a simple and cost effective way of using
VSDs, allowing recovery of the VSD cost savings. Even with the cost of the AIM
Filters, the Company believes that the cost of the VSD and filter can generally
be recovered in less than three years.
AIM has entered into representation agreements with independent companies which
sell and service VSDs and UPSs. These agreements generally are (but not always)
exclusive within a territory. The distributor buys and sells in his own name and
for his own account. He acts as an independent trader in regards to both the
Company and the customers without thereby being authorized to act in the name of
or on behalf of the Company or otherwise to bind the Company. AIM may contract
with one or more stocking distributors who may purchase the filters for resale.
In each case, the local representative will have local servicing
responsibilities for the products. In addition, AIM will retain the right to
sell directly to "national accounts" in territories serviced by a distributor,
but will pay the representative a reduced fee to supply local service. In areas
in which there are no distributors, AIM will market the filters directly. AIM
presently has eighteen
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(18) sales representatives covering the United States, Canada, Japan, Australia
and Europe. Plans are underway to add representatives.
AIM has also entered into a license and joint marketing venture with Shindengen
Corporation, a Japanese power supply company, in early 1998 for the purpose of
exploiting the Japanese and other Asian markets. The agreement calls for
delivery of fifty (50) AIM Filters.
3. Backlog
AIM has backlog of unfilled orders at December 31, 1997 of
approximately $100,000. Backlog in 1996 and 1995 is nominal due to the absence
of sales activities in those years.
4. Working Capital Items
AIM maintain a very limited parts inventory on hand due to its limited
resources. Parts are purchased from suppliers on a COD basis. This arrangement
was a result of the bankruptcy filing of Helionetics, Inc., its previous parent
company. Virtually no finished goods are maintained and products are built when
orders are received from customers. AIM finances its customers orders by
requiring a partial payment (generally 25%) from customers. These advances are
deducted later on from shipments to the customers. AIM offers discounts for
early payments of its receivables thereby improving its liquidity.
5. Patents and Licenses
AIM has two patents relating to the AIM Filters. While the Company
believes that the technology included in the patents significantly reduces the
cost of production and improves the performance of active harmonic filters as
compared to competitors' products, the patents will not prevent the development
of other active harmonic filters or other methods of dealing with or preventing
harmonics, and it is possible that competing products or approaches may have a
competitive advantage.
6. Research and Development
The Company is continuing refinement of the technology for smaller
applications and plans to incur additional engineering to reduce the cost of the
existing AIM Filters. The Company estimate the cost to complete this engineering
is approximately $250,000.
7. Employees
AIM currently has 6 employees. It employs a consultant for its
engineering and other technical requirements. AIM plans on hiring additional
engineering staff in 1999.
Discontinued Operations
As a result of the Chapter 11 filing in February 1996, the Company
discontinued and liquidated all of its operations, except for SPL.
The principal products and services of the discontinued operations were
as follows:
(a) lighting fixtures, which involves designing, sourcing,
manufacturing and marketing of recessed lighting, track lighting and decorative
lighting and (b) electrical energy management, which involves auditing,
retrofitting, maintaining and managing lighting in order to reduce energy
consumption used for lighting of industrial and commercial buildings. The
electrical management business operated through Prolite Lighting and Sign
Maintenance Co.,
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Inc. and its subsidiary. The remaining subsidiaries (Allite, Inc., Trio
California, Inc., Trio Lighting, Inc., and NL Corporation) comprised the
lighting fixture division.
Revenues for 1996 and 1995 of these discontinued operations were $5,509,800 and
$19,337,000 respectively.
Item 2. Properties
At December 31. 1997, the Company leased the following properties:
(a) Corporate offices and warehouse of SPL California operations - a
single industrial building with approximately 15,400 square ft.
and annual rent of $74,064. The lease expiration is December 1,
2002.
(b) Manufacturing plant and offices of SPL in New York - a 14,000 sq.
ft. single industrial building with annual rental of $63,000 for
the first year ending May 1995; $70,000 for the second, third and
fourth year; $73,060 for the fifth, sixth and seventh year and
$76,300 for the eight, ninth and tenth year, which will expire May
2005.
Item 3. Legal Proceedings
Other than ordinary routine litigation incidental to the business, the Company
and it's subsidiaries are involved in the following material legal proceedings:
In October 1995, the Company filed a complaint in the U.S. District
Court for the Northern District of Ohio against Helionetics, Inc. (Helionetics),
its majority shareholder, for $2 million in compensatory damages and $2 million
in punitive damages for the alleged repudiation and revocation of Helionetics
guaranty of the Company's credit facility with its senior lender, along with
other cause of actions. Helionetics disputed all of the Company's claims.
Helionetics as a response, filed a counter-complaint against Star Bank in the US
District Court, Northern District of Ohio (Case No. 1:95CV2289) which case was
transferred to the US Bankruptcy Court, Central District of California in May
1996 (Case No. SA 96-1523JR). The complaint against Star Bank was dismissed as
part of the bankruptcy proceedings and the Company's complaint against
Helionetics were no longer being pursued by the Company.
Item 4. Submission of Matters to a Vote of the Security Holders
Each security holder of record on February 26, 1996, received the
Company's Third Amended Disclosure Statement For Third Amended Joint Chapter 11
Plan of Reorganization and a ballot to vote their approval or disapproval of
such Plan.
PART II
11
<PAGE>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) In conjunction with the Company's plan of reorganization, the
Company's equity will be recapitalized. The reorganized company will issue new
Tri-Lite Common Stock to satisfy the requirements of Section 6.6 of the plan.
The plan calls for issuance of 12.5% of the Company's new common stock of
4,000,000 shares, or 500,000 shares, to the existing shareholders. As of January
31, 1999, the Company has 6,039,333 shares outstanding of the old common stock.
A description of these requirements is set forth in the attached Chapter 11
Disclosure Statement at Exhibit I. As of January 1999, there is no established
public trading market for the Company's stock. The Company is actively pursuing
viable alternatives to establish a market for the Company's common shares.
(b) At January 31, 1999 there were approximately 3,450 holders of the
Company's common stock.
(c) The Company presently intends to retain future earnings, if any, to
provide funds for use in the operation and expansion of its businesses.
Accordingly, the Company does not anticipate paying cash dividends on its
common stock in the foreseeable future.
12
<PAGE>
Item 6. Selected Financial Data
The following tables summarize certain selected financial data for the periods
presented for the Company on a consolidated basis. The data for the years ended
December 31, 1997, 1996 and 1995 should be read in conjunction with the more
detailed audited consolidated financial statements for such years presented
elsewhere herein.
<TABLE>
<CAPTION>
Income Statement Data
- ---------------------
December 31
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $ 5,084,800 $ 8,047,000 $ 22,947,500 $ 19,865,000 $ 4,568,000
Income(Loss) from
Continuing operations $ (974,900) $(4,212,700) $(11,640,100) $ (2,441,000) $(1,129,000)
Discontinued operations - $ - $ (1,447,700) $ (1,610,000) $ 871,000
Extraordinary item 576,300 - - - -
Income(Loss) Per Share $ (0.10) $ (0.70) $ (2.17) $ (1.06) $ 0.12
Cash Dividends Per Share N/A N/A N/A N/A N/A
Balance Sheet Data
- ------------------
Total Assets $ 1,363,200 $ 2,375,900 $ 6,166,900 $ 19,507,000 $ 9,513,000
Long Term Obligations:
Due to Parent $ - $ 1,866,500 $ 1,980,000 $ 6,175,000 $ 2,597,000
Other Long Term Debt $ 1,866,000 $ - $ 3,365,100 $ 106,000 $ 48,000
Liabilities Subject
to Compromise $ 5,721,600 $ 6,148,300 - - -
</TABLE>
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's overall financial condition during 1997 and 1996 has
changed significantly as a result of the Company's filing for protection under
Chapter 11 of the Bankruptcy Code in February 1996 resulting from the decision
by Star Bank to roll up and terminate the Company's line of credit.
Liquidity and Capital Resources
For essentially all of 1996, the Company operated as a debtor in
possession and was liquidating its Prolite subsidiary under the direction of a
court appointed receiver. Proceeds from the Prolite liquidation were used to pay
down the Star Bank loan. Additionally, almost all activities were directed to
the reduction of the Star Bank loan balance which was completed in early
December 1996. A receivable financing facility was obtained with a financial
institution in December 1996 which essentially funded the remaining operations
of the Company, namely SPL and the Allite operations for the year of 1997. The
receivable financing, however, had very onerous provisions in terms of interest
rate and other factoring cost. AIM Energy, Inc., contributed to Tri-Lite
pursuant to the Chapter 11 reorganization plan, operated from its own limited
resources. Its liquidity for the year of 1997 was provided, in part, from
occasional loans from Ms. Susan Barnes. In addition, advances were required from
most of its customer orders which enabled AIM to purchase required parts. These
sources of liquidity, while helpful, naturally hampered the efficient operation
of AIM.
Working capital was a deficit in 1997, 1996, and 1995 of $1,231,800,
$1,433,600 and $343,800, respectively. The deficit was a direct result of
decreased receivables and inventories of $876,000, $3,411,000 and $7,923,000,
respectively for 1997, 1996 and 1995 which was caused by the Chapter 11
proceedings. Payables and accrued expenses decreased by $638,000, $3,213,000 and
$818,000 in 1995, 1996 and 1997. In 1997, pre-petition trade accounts payables,
pre-petition did not change significantly due to the Chapter 11 proceedings
which stayed all pre-petition liabilities. A significant accrued liability
relates to the bankruptcy proceedings which is primarily administrative cost.
The funding for the Company's plan of reorganization which was approved
on January 16, 1997 was partly provided by Ms. Susan Barnes contribution of
$426,737. This amount was used to fund the first payment to the unsecured
creditors. The remaining balance due to unsecured creditors will be funded from
the proceeds of the sale of Helionetics holding of shares of Laser Photonics,
Inc. pursuant to the collateral pledge agreement between the Company and
Helionetics. A senior secured promissory note of $800,000 was issued by the
Company in favor of the Committee of the Unsecured Creditors of Helionetics in
addition to a subordinated junior promissory note of $500,000 in favor of Ms.
Susan Barnes. The final distribution to unsecured creditors was dependent upon
final resolution of the Helionetics Chapter 11 proceedings.
No substantial capital expenditures were made in 1996 and 1997; and
there were no substantial capital expenditures anticipated in 1998.
Subsequent Event
In June 1998, SPL replaced its receivable financing facility with a
financial institution and entered into a financing agreement with another
institution on more favorable terms. The new financing agreement requires SPL to
pay the prime rate of interest, as defined, plus 6% on advances equal to 80% of
its eligible account receivables.
14
<PAGE>
In March 1998, AIM entered into a license agreement with Shindengen
Electric Manufacturing Company, Ltd. (Shindengen) whereby it received $300,000
for granting to Shindengen the right and license to design, manufacture and sell
the AIM products in Japan and Asia. The agreement calls for payment to AIM of a
4% royalty for sales of AIM products by Shindengen and an initial order of 50
AIM units.
The Company expects to receive by the end of March 1999 or early in
April a UL (Underwriter Laboratories) approval on its AIM products. The Company
currently hold a CE Mark on its AIM products that enable it to sell in Europe.
The Company's liquidity needs continued to be provided by its own
internal operations, however, the Company needed additional working capital to
fund its increasing backlog and the engineering cost required to reduce its AIM
filters cost.
Results of Operations -
1997 vs 1996
------------
Revenues for the year ended December 31, 1997 were $5,085,800, a
decline of 37% from the 1996 revenues of $8,047,000. The decrease in 1997
revenues was primarily a reflection of the Chapter 11 proceedings.
The loss from continuing operations for 1997 and 1996 amounted to
$974,900 and $4,212,700, respectively. During 1997 the operations of the Company
were comprised mostly of SPL and three quarters of the year for AIM. The 1997
combined gross margin of approximately 33% was unfavorably affected by the
margin contribution of the discontinued lighting fixtures division. Excluding
the effect of such discontinued division, gross margin was approximately 44%
compared to 32% in 1996.
Selling, general and administrative expenses, as a percent of sales
were 47% and 48% for 1997 and 1996, respectively. The unusually high percentage
of expenses in 1996 was the result of the Chapter 11 bankruptcy filing. 1996
expenses included Chapter 11 administrative cost of approximately $1 million,
accrual for employment contracts allowed as unsecured claims ($983,000), and
write off of receivable from NL de Mexico ($529,000).
Interest expense of $302,000 in 1996 was the result of the Star Bank
loan which was fully paid off in December 1996.
Included in 1997 income was the gain on Chapter 11 proceedings of
$576,300 as a result of the gain recognized on the initial payment to the
unsecured creditors.
The profitability in 1997, while improved, continued to be impacted by
the Chapter 11 proceedings specifically in the areas of Chapter 11
administrative cost and the higher cost charged by the receivable financing
facility. The Company anticipate an improved profitability in 1998. The
improvement will be attributed to: lower interest (factoring) cost as a result
of a new receivable financing facility obtained in June 1998; consolidation of
AIM's full year of operations in 1998 which will reflect the favorable effect in
results of operations of the Shindengen agreement; the effect of cost savings
implemented at SPL and reduced Chapter 11 administrative cost.
1996 vs 1995
------------
Revenues for 1996 and 1995 were $8,047,000 and $22,947,500,
respectively or a decrease of $14,900,500 or 65%. The decline in 1996 like in
1997 was the direct result of the
15
<PAGE>
Chapter 11 proceedings which essentially reorganized the Company's operations by
the discontinuance of the electrical lighting fixtures business segment except
for SPL's operations.
[B
The loss of $4,212,700 in 1996 compared with a loss of $11,640,100 for
1995. In 1995 the loss on discontinued operations of $1,447,700 relate to
Prolite, the energy management segment of the Company. The loss in 1995 included
the effect of the Chapter 11 filing in 1996. It included various asset valuation
provisions: inventories and receivables reserves of $1.8 million; $600,000 fixed
assets valuation allowance; $3.4 million write off of goodwill; and $200,000
miscellaneous general accruals. The decline in profitability in 1995 commenced
in the second quarter of 1995 and continued on until the fourth quarter. Up
until the second quarter of 1995, the Company experienced liquidity problems. In
July 1995, a new line of credit was obtained from Star Bank primarily as a
result of Mr. Lawrence Terkel's efforts. Mr. Terkel was President and operating
officer of the Company at the time. Mr. Terkel had been serving as President and
Chief Executive Officer of NL Corporation, the Company's wholly-owned subsidiary
in Cleveland, Ohio. A significant condition of the new loan was a required
change to the Company's Board of Directors and management team. Additionally,
the bank and Mr. Terkel required Helionetics to guaranty the line of credit.
Business conditions within the Company, already difficult, deteriorated
dramatically coincident with the installation of the new board of directors and
new management team led by Mr. Lawrence Terkel. The loan covenants which the
Company had agreed to in July 1995 at the time of the new management takeover,
were in default by October 1995 and culminated with the first notice by Star
Bank in January 1996 to the Helionetics board of directors of such default. The
Star Bank notice gave the Helionetics board fourteen (14) days to correct the
default in the approximate $5 million loan. Shortly thereafter, Mr. Terkel and
the entire board of directors of the Company, at the Helionetics' board request,
tendered their resignations. The Company was then in default of its Star Bank
loan and was incurring significant losses from operations. In February 1996,
Chapter 11 proceedings were instituted to protect the Company's assets from Star
Bank's foreclosure proceedings. Operations in 1996 were severely curtailed as a
result of the Chapter 11 filing and reflect the winding down of the lighting
products business other than that of SPL. The manufacturing operations in Mexico
were essentially shut down and Prolite was liquidated in 1996 by a court
appointed receiver.
Interest expense in 1996 and 1995 was approximately $302,000 and
$600,500, respectively. The decrease was the result of pay-downs in the Star
Bank loan as a result of the bankruptcy.
Impact of Recently Issued Accounting Standards
The FASB has issued Statement of Financial Accounting Standards 130
"Reporting Comprehensive Income" and Statement of Financial Accounting Standards
131 "Disclosures About Segments of an Enterprise and Related Information".
Statement 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
as all changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, Statement 130 requires that
all items that are required to be recognized under current account standards as
components of comprehensive income be reported in a financial statement that
displays with the same prominence as other financial statements. Statement 131
supersedes Statement of Financial Accounting Standards 14 "Financial Reporting
For Segments of a Business Enterprise". Statement 131 establishes standards on
how public companies report financial information about operating segments in
interim financial statements that are issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas and
major customers. Statement 131 defines operating segments as components of a
company about which separate financial in formation is available that is
evaluated regularly by the chief operating decision makers in evaluating how to
allocate resources and in assessing performance.
16
<PAGE>
Statements 130 and 131 are effective for financial statement periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on the future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of these
standards.
Also, in June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting
for Derivative Instruments and Hedging Activities". This statement is effective
for fiscal years beginning after June 15, 1999. Earlier application is
encouraged; however, the Company does not anticipate adopting SFAS No. 133 until
the fiscal year beginning January 1, 2000. SFAS No. 133 requires that an entity
recognize all derivatives as assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company does not
believe the adoption of SFAS No. 133 will have a material impact on assets,
liabilities or equity. The Company has not yet determined the impact of SFAS No.
133 on the income statement or the impact on comprehensive income.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement benefits" and SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage banking Enterprise" were issued in 1998 and are not expected to
impact the Company regarding future financial statement disclosures, results of
operations and financial position.
Year 2000 Problem
The Company has reviewed its operations as it relates to the Year 2000
issues. The effect on the Company's operations of the Year 2000 issues are
minimal. SPL products do not utilize parts or processes that the Year 2000
issues need to address. AIM's products are analog based and therefore have no
Year 2000 issues. An estimated capital expenditures of approximately
$25,000-$30,000 however, will be required to update the Company's computer
hardware, network and management systems to make it Year 2000 compliant.
Implementation of these changes is anticipated to occur in the second quarter of
1999.
For vendors and suppliers, the Company believes, while assurance cannot
be made, that its sources of materials and parts will not be affected by the
Year 2000 problems. Important suppliers of the Company's manufacturing needs and
customers are either major or fairly large corporations which we believe would
be in compliance of the Year 2000.
Item 7 (a). Quantitative and Qualitative Disclosures About Market Risk.
The Company does not have any market risk sensitive instruments at
December 31, 1997.
Item 8. Financial Statements and Supplementary Data
The financial statements prepared in accordance with Regulation S-X are
set forth beginning on page F-1 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
17
<PAGE>
Reference is made to the information set forth in the Current Report
(Form 8-K) dated December 28, 1995 and the Current Report (Form 8-K) dated May
3, 1996. Such Reports are incorporated by reference.
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The names and ages of the directors and executive officers of the
Company as of January 31, 1999 are as follows:
Name Age @ 12/98 Position
---- ----------- --------
E. Maxwell Malone 61 Director, President and
Chief Executive Officer
Jack Katz 39 Director, President & CEO,
Self-Powered Lighting, Inc.
Ernest Dageford 64 Director, President & CEO,
Aim Energy, Inc.
Adrian Cayetano 54 Director and Principal Accounting
Officer
Fred de Boom 62 Director
The directors shall serve until the next annual meeting of shareholders
or until their successors are elected. Background information on the Company's
current Directors and Officers is as follows:
E. Maxwell Malone - is currently President and Chief Executive Officer
of the Company since October 1997. He is currently the President and Director of
Helionetics, Inc. since 1990. Helionetics, Inc. filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in April 1997; and its Liquidating Plan
approved in December 1998. Mr. Malone was a founder and, from its inception in
August 1987, through June 1989, Chairman of the Board, President and Chief
Executive Officer of Bristol Research, a manufacturer of primary processing
boards for personal computers. Mr. Malone served as President of Pick Systems
Corporation and Pencor International Corp., two computer software firms. Mr.
Malone was a co-founder of Microdata Corporation, a manufacturer of computer
systems acquired by McDonnell Douglas Corporation in 1978. Prior to that, Mr.
Malone was also a senior programmer for Lockheed Missiles & Space corporation
and Control Data Corporation as well as an instructor of Applied Statistics at
Southern Illinois University.
Jack Katz has served as President of Self-Powered Lighting since 1996.
He served as a director of the Company since April 1997. Mr. Katz has been in
the lighting business for over ten years and had served as Regional Vice
President of Catalina Lighting, Inc., a NYSE company, from November 1995 till
September 1996. He was President of Allite, Inc., a subsidiary of the Company,
from January 1993 to November 1995.
Ernest Dageford - Mr. Dageford served as President and Chief Executive
Officer of Aim Energy, Inc. since 1992. He has been a Vice President of Energy
Resource Group of JWP in New York from 1986 to 1992. From 1976 to 1986, Mr.
Dageford was an owner and President of Climatron, Inc., a developer and
manufacturer of computerized controls to monitor and control industrial
commercial buildings. Climatron subsequently was sold to JWP of New York. Prior
to 1976, Mr. Dageford served in various project engineering capacity with
several electronics
19
<PAGE>
companies in the areas of power quality. Mr. Dageford' educational background is
in Physics and Electronics and did graduate work in Plasma Physics.
Adrian Cayetano - Mr. Cayetano was a consultant of the Company since
November 1997 and served as Director and Principal Accounting Officer beginning
in December 1998. He served as Controller of Helionetics, Inc. from May 1990 to
August 1996. Helionetics, Inc. filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in April 1997 and obtained approval of its Liquidating Plan in
December 1998. Mr. Cayetano is a Certified Public Accountant in California and a
member of the California Society of Certified Public Accountants. He worked as
an auditor with Pricewaterhouse International in Manila, Philippines for five
years until 1972. Mr. Cayetano holds a degree in Business Administration with a
major in Accounting and had one year graduate studies work in business.
Fred de Boom - Mr. De Boom was elected as a director in January 1999.
He is currently a principal of Sonfad Associates, an investment banking services
company specializing in corporate finance services for middle market companies.
Mr. De Boom had over 30 years experience with 3 leading commercial banks as a
commercial lending specialist. He has a degree in business from Michigan State
University and holds an MBA from the University of Southern California.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal sation Awards Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Maxwell
Malone
CEO 1997 24,000(6)
A. Alvin
Katz
CEO 1996 120,000 6,000(5)
1995 120,000(1) 6,000(5) 75,000(2)
Lawrence A.
Terkel
CEO 1995 94,408(3)
Jack Katz
President,
Self Powered
Lighting
1997 96,000 6,000(5)
1996 88,000 6,000(5)
Ernest
Dageford
President,
Aim Energy,
Inc.
1997 125,000(6)
</TABLE>
(1) Served as CEO from 1/1/95 to 7/15/95 and from 2/15/96 to July 1997.
(2) Represents payment on one year non-compete agreement.
20
<PAGE>
(3) Served as CEO from 7/15/95 to 2/15/96.
(4) The Company also reimburses all reasonable, ordinary and necessary business
expenses.
(5) Represent car allowance paid.
(6) Represent current earnings and do not represent actual payments in 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial
ownership as of January 31, 1999, of the Company's common stock, by any person
who is known to the Company to be the beneficial owner of more than five percent
of the Company's voting securities and by each director and by officers and
directors of the Company as a group.
Name and address of Amount and nature Percent
beneficial owner of beneficial ownership of class
- --------------------------------------------------------------------------------
Susan E. Barnes
6026 W. 6th Street
Los Angeles, California 90024 2,802,000 shares 67.0%
Jack Katz *
2701 Junipero Street
Signal Hill, California 90806 300,000 shares 7.2%
E. Maxwell Malone 100,000 shares 2.4%
Ernest Dageford 200,000 shares 4.8%
Adrian Cayetano 75,000 shares 1.8%
All current directors and officers
as a group(4) 675,000 shares 16.1%
* This address also applies to all persons listed.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with management and others:
As of December 31, 1997, the Company owed Helionetics, Inc., it's
former principal shareholder, $1,866,500 on a note payable including interest at
10%. Helionetics cancelled and released its claim against the note as part of
the Company's plan of reorganization.
During 1995, the Company leased certain real property located in
Cleveland, Ohio, from Lawrence A. Terkel, the Company's President and Chief
Executive Officer from July 15, 1995 to February 15, 1996. The properties were
owned by Mr. Terkel, his brother and father. The lease was rejected in
bankruptcy and the amount of $149,453 was included in the allowed claims of
unsecured creditors.
As of December 31, 1995, 1996 and 1997, the Company owed Richard B.
Barnett, Senior VP - Marketing from July 15, 1995 to February 28, 1996, $195,000
on a note payable. This note and accrued interest has been settled in
conjunction with the Company's plan of reorganization for $180,000. See the
Company's Chapter 11 Disclosure Statement at Exhibit I.
During 1995, the Company sublet certain office and warehouse space
located in Irvine, California, from Helionetics, Inc., its principal
shareholder. The Company vacated the Irvine
21
<PAGE>
property in August, 1995, when it relocated to an office/warehouse facility in
Santa Ana, California, which it leased from an unrelated party. During 1995,
total accrual relating to the lease of the Irvine property amounted to $120,000.
The Company made no payments on the lease.
Ms. Susan Barnes, as co-proponent of the Company's plan of
reorganization, will receive 82.5% of the newly issued common stock of the
Company. In addition, pursuant to the settlement agreement between the Committee
of the Unsecured Creditors of Helionetics and Ms. Barnes, the Company will issue
a junior subordinated secured promissory note of $500,000 with interest of 10.5%
in favor of Ms. Barnes. Regardless of any payment terms set forth in the junior
note, in no event shall the junior note to Ms. Barnes oblige the Company to pay
until such time as all principal, interest and others sums payable to the Senior
Note of $800,000 have been fully satisfied.
Ms. Barnes had loaned the Company in 1996 and 1997 a total of
approximately $218,400 and at December 31, 1997 had an outstanding loan to the
Company of $142,668.
22
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules.
(1) The following financial statements of Tri-Lite, Inc. and
Subsidiaries are included in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Operations--For the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statement of Stockholder's Equity(Deficit)--For the
period from January 1, 1995 through December 31, 1997
Consolidated Statements of Cash Flows--For the Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Schedule II - Valuation and qualifying accounts
(3) See Exhibit Index
(b) Reports on Form 8-K--The Company filed Reports on Form 8-K dated December
28, 1995, February 14, 1996 and February 18, 1997 and are hereby incorporated by
reference.
(c) Exhibits--The response to this portion of Item 14 is submitted as a separate
section of this report.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRI-LITE, INC.
By: \s\ E. Maxwell Malone Date: March 9, 1999
---------------------
E. Maxwell Malone
President and Chief Executive Officer
By: \s\ Adrian Cayetano Date: March 9, 1999
---------------------
Adrian Cayetano
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: \s\ E. Maxwell Malone Date: March 9, 1999
---------------------
E. Maxwell Malone, President, Chief Executive
Officer, Principal Executive Officer
By: \s\ Adrian O. Cayetano Date: March 9, 1999
----------------------
Adrian O. Cayetano, Director, Principal
Accounting Officer
By: \s\ Jack Katz Date: March 9, 1999
---------------------
Jack Katz, Director
By: \s\ Ernest Dageford Date: March 9, 1999
---------------------
Ernest Dageford, Director
By: \s\ Fred de Boom Date: March 9, 1999
---------------------
Fred de Boom, Director
24
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For the Years Ended
December 31, 1997, 1996 and 1995
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report ............................................... F-2
Consolidated Balance Sheets - December 31, 1997 and 1996 ................... F-3
Consolidated Statements of Operations - For the Years Ended
December 31, 1997, 1996 and 1995 ..................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit) -
For the Period from January 1, 1995 through
December 31, 1997 ................................................... F-5
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1997, 1996 and 1995 ..................................... F-6
Notes to Consolidated Financial Statements ................................. F-8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Tri-Lite, Inc. and Subsidiaries
Signal Hill, California
We have audited the consolidated balance sheets of Tri-Lite, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three year period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of Tri-Lite, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audit referred to above includes audits of the financial statement schedule
listed under Item 14(a)(2) of Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.
/s/ HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 15, 1999
F-2
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 83,970 $ 140,126
Accounts receivable - trade, less allowance
for doubtful accounts of $47,059 and
$327,244 in 1997 and 1996, respectively 529,428 1,073,734
Inventories, net 317,771 649,844
Prepaid expenses and other 34,412 55,088
Note receivable - Officer 20,000 20,000
------------ ------------
Total current assets 985,581 1,938,792
------------ ------------
PROPERTY AND EQUIPMENT:
Machinery and equipment 1,178,885 1,542,703
Leasehold improvements 344,724 344,724
------------ ------------
1,523,609 1,887,427
Less accumulated depreciation and amortization
(1,277,565) (1,604,598)
------------ ------------
Net property and equipment 246,044 282,829
OTHER ASSETS 131,604 154,265
------------ ------------
TOTAL ASSETS $ 1,363,229 $ 2,375,886
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,769,502 $ 2,407,523
Notes payable and long-term debt - current portion 305,242 729,607
Note payable - related party 142,668 235,348
------------ ------------
Total current liabilities 2,217,412 3,372,478
LONG-TERM LIABILITIES:
Liabilities Subject to Compromise 5,721,602 6,148,340
Notes payable and long-term debt - less current portion 565,962 -
Note payable to Helionetics, Inc. - 1,866,540
Note payable to Helionetics Inc., Official Committee of
Unsecured Creditors 800,000 -
Note payable, related party 500,000 -
------------ ------------
Total liabilities 9,804,976 11,387,358
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10) - -
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 10,000,000 shares authorized,
4,000,000 and 6,039,333 shares issued and
outstanding at December 31, 1997 and 1996, respectively
11,813,346 11,813,346
Contributed capital 968,335 -
Accumulated deficit (21,223,428) (20,824,818)
------------ ------------
Total stockholders' equity (deficit) (8,441,747) (9,011,472)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,363,229 $ 2,375,886
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 5,084,837 $ 8,047,095 $ 22,947,527
COST OF REVENUES 3,429,895 5,444,776 16,740,119
------------ ------------ ------------
Gross profit 1,654,942 2,602,319 6,207,408
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
2,412,791 3,835,635 12,741,021
------------ ------------ ------------
LOSS FROM OPERATIONS (757,849) (1,233,316) (6,533,613)
OTHER (INCOME) EXPENSES:
Interest expense 37,199 302,002 600,564
Other (14,237) 307,345 (23,386)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
REORGANIZATION ITEMS, PROVISION FOR
INCOME TAXES, DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM
(780,811) (1,842,663) (7,110,791)
Reorganization items (Note 4) 194,063 2,370,025 4,529,365
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM
(974,874) (4,212,688) (11,640,156)
PROVISION FOR INCOME TAXES - - -
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM
(974,874) (4,212,688) (11,640,156)
DISCONTINUED OPERATIONS:
Loss from discontinued business segment
net of income taxes of $ -0-, $ -0- and
$ -0- for 1997, 1996 and 1995,
respectively - - (1,447,704)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (974,874) (4,212,688) (13,087,860)
Extraordinary item - gain from debt
reduction associated with Chapter
11 proceedings, net of income
taxes of $ -0- 576,264 - -
------------ ------------ ------------
NET INCOME (LOSS) $ (398,610) $ (4,212,688) $(13,087,860)
============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE:
(Loss) from continuing operations $ (.24) $ (.70) $ (1.93)
Discontinued operations - - (0.24)
Extraordinary item .14 - -
------------ ------------ ------------
Net income (loss) $ (.10) $ (.70) $ (2.17)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,000,000 6,039,333 6,016,182
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
---------------------------- CONTRIBUTED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1994, as previously
reported 4,349,333 $ 8,514,723 $ 65,291 $ (3,524,270) $ 5,055,744
Prior period adjustment (Note 5) - (1,286,328) (65,291) - (1,351,619)
------------ ------------ ------------ ------------ ------------
BALANCES, January 1, 1995, as adjusted 4,349,333 7,228,395 - (3,524,270) 3,704,125
Common stock issued for services 80,000 60,000 - - 60,000
Debt converted to common stock 1,458,317 4,374,951 - - 4,374,951
Common stock issued for
inventory purchase 151,683 150,000 - - 150,000
Net loss - - - (13,087,860) (13,087,860)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1995 6,039,333 11,813,346 - (16,612,130) (4,798,784)
Net loss - - - (4,212,688) (4,212,688)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1996 6,039,333 11,813,346 - (20,824,818) (9,011,472)
Elimination of old stockholders
interests (6,039,333) - - - -
Issuance of new shares 4,000,000 - - - -
Capital Contribution - - 426,739 - 426,739
Net debt forgiveness between related
parties - - 541,596 - 541,596
Net (loss) - - - (398,610) (398,610)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1997 4,000,000 $ 11,813,346 $ 968,335 $(21,223,428) $ (8,441,747)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (974,874) $ (4,212,688) $(11,640,156)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 56,689 237,447 330,261
Loss due to impairment of long lived assets
37,400 319,264 209,145
Services and inventory paid through the
issuance of common stock - - 210,000
Bad debt expense 26,329 40,301 3,337
Inventory reserve (315,940) (1,072,237) 1,425,501
Write-off of goodwill - - 3,529,284
Gain on Reorganization 1,117,860 - -
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Accounts receivable 824,491 1,467,344 955,841
Inventories 648,013 3,277,704 3,232,391
Prepaid expenses and other 43,357 (71,079) 346,016
Accounts payable and accrued expenses (1,162,532) 2,650,893 1,102,166
Liabilities subject to compromise (426,739) - -
------------ ------------ ------------
Net cash provided by (used in) operating
activities from continuing operations (125,946) 2,636,949 (296,214)
------------ ------------ ------------
Net (loss) from discontinued operations - - (1,447,704)
Loss on disposal of assets - - 159,186
Bad debt expense - - 682,918
Changes in operating assets - - 445,294
------------ ------------ ------------
Net cash (used in) operating
activities from discontinued operations - - (160,306)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash loaned to related party - - (20,000)
Purchases of property and equipment (19,904) - -
------------ ------------ ------------
Net cash (used in) investing activities (19,904) - (20,000)
------------ ------------ ------------
</TABLE>
(continued)
F-6
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit $ - $ - $ 13,353,265
Payments on line of credit (424,365) (3,074,554) (13,283,624)
Proceeds from the issuance of notes payable - 729,607 -
Principal payments on notes payable - (230,660) (88,624)
Payments on note payable to related party - 37,051 (28,703)
Net borrowings from related party 87,320 - -
Net proceeds from capital contribution 426,739 - -
------------ ------------ ------------
Net cash provided by (used in) financing
activities
89,694 (2,538,556) (47,686)
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (56,156) 98,393 (524,206)
CASH AND CASH EQUIVALENTS, at beginning of year 140,126 41,733 565,939
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of year $ 83,970 $ 140,126 $ 41,733
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 15,256 $ 302,002 $ 540,539
============ ============ ============
Taxes $ - $ - $ -
============ ============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of note payable to Helionetics: $ (1,800,000) $ - $ 4,374,950
============ ============ ============
Issuance of notes payable to:
Helionetics, Inc. Official Committee
of unsecured creditors $ 800,000 $ - $ -
Ms. Susan Barnes 500,000 - -
------------ ------------ ------------
$ 1,300,000 $ - $ -
============ ============ ============
Conversion of SPL accounts payable to
note payable $ 565,962 $ - $ -
============ ============ ============
</TABLE>
F-7
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
General - Tri-Lite, Inc. and its subsidiaries (the "Company")
manufacture and distribute emergency electrical lighting fixtures
for commercial and residential use and energy conservation and
safety equipment for retail and commercial facilities. As of
December 31, 1997, Tri-Lite, Inc. (Tri-Lite) has two wholly owned
subsidiaries, Self Powered Lighting, Inc. (SPL), and Prolite
Lighting and Sign Maintenance Co., Inc. (Prolite), and an 87.5%
owned subsidiary, AIM Energy, Inc.
On February 15, 1996, the Company's primary lender, Star Bank
demanded payment in full of the Company's credit facility by
February 20, 1996 as a result of certain loan provision defaults
which had not been cured. On February 23, 1996, the Court of Common
Pleas, Cuyahoga County, Ohio granted Star Bank an emergency order
appointing a receiver to collect and remit to Star Bank all
collections on accounts receivable of the Company. In response, on
February 26, 1996, Tri-Lite filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code with the U.S. Bankruptcy
Court, Central District of California. At the time of the Bankruptcy
Filing, Helionetics, Inc. owned approximately 49 percent of
Tri-Lite. Additionally, as of that date, Susan Barnes was the
Beneficial owner or controlled 37.6 percent of Helionetics, Inc. Due
to the above described actions of Star Bank, SPL filed its own
voluntary petition under Chapter 11 of the United States Bankruptcy
Code with the U.S. Bankruptcy Court, Central District of California
on March 22, 1996.
Under Chapter 11, certain claims against a Company in existence
prior to the filing of the petition for relief under the federal
bankruptcy laws are stayed while the Company continues business
operations as a Debtor-in-possession. These claims are reflected in
the December 31, 1997 and 1996, Balance Sheet as "Liabilities
Subject to Compromise." Claims against the Company's assets which
are secured against the Companies assets ("secured claims") are also
stayed, although the holders of such claims have the right to move
the court for relief from the stay. Secured claims are secured
primarily by liens on the Company's property and equipment.
On January 16, 1997, the Bankruptcy Court approved the Tri-Lite Plan
of Reorganization with Helionetics, Inc. and Susan Barnes as
co-proponents of the plan. In April 1997, Helionetics, Inc filed a
voluntary petition under Chapter 11 of the United States Bankruptcy
Code with the U.S. Bankruptcy Court, Central District of California.
As a result, the funding of the Company's reorganization plan was
combined with that of Helionetics, Inc. The Helionetics Bankruptcy
Plan, which included the provisions and methodology to fund the
Tri-Lite plan, were approved by the US Bankruptcy Court on December
23, 1998. Provisions of the Combined Plan include the following:
o Under the plan, the Company will issue 4,000,000 "new shares",
replacing all pre-petition common shares, with 82.5% of its
"new" Tri-Lite common stock going to Ms. Susan Barnes in
exchange for her agreement to forgo any claims on her
approximately $4.3 million secured claim against Helionetics,
Inc.
o The shareholders of record immediately prior to the bankruptcy
filing of the Company will receive 12.5% of the "new" Tri-Lite
common stock.
o The Helionetics, Inc. Official Committee of Unsecured Creditors
("Helionetics Committee") will receive 5% of the "new" Tri-Lite
common stock.
F-8
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Helionetics, or Ms. Susan Barnes at her sole option, will pay
the unsecured creditors of Tri-lite, Inc, up to 47% of their
allowed claims in cash. The actual disbursement is subject to
the finalized Helionetics Bankruptcy Plan.
o Helionetics, Inc. will forgive its $1,800,000 note receivable
and related accrued interest due from the Company.
o Tri-Lite will issue two interest bearing notes payable to
Helionetics, Inc. Official Committee of Unsecured Creditors
($800,000) and to Susan Barnes ($500,000). The effect of these
note issuances, net of the debt forgiven as described
immediately above, has been reflected as a credit to
contributed capital in the accompanying Statement of
Stockholders' Equity (Deficit), since such transaction occurred
between related parties.
o Helionetics, Inc. will contribute to the Company its ownership
in AIM Energy, Inc. This transaction has been recorded as a
reorganization of entities under common control. The Company
received no asset s or liabilities in its acquisition of AIM.
Additionally, AIM had insignificant operations prior to its
acquisition.
In March 1997, the court approved the SPL of Reorganization. Under
the provisions of the Plan, all creditors will receive 100% of their
allowed claims, with interest, within 60 months of the effective
date and Tri-Lite will retain its interest in SPL.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned and
partially-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Accounts Receivable and Concentration of Credit Risk - Credit Risk
represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off the
balance sheet) that arise from financial instruments, exist for
groups of customers or groups of counterparties when they have
similar economic characteristics that would cause their ability to
meet contractual obligations to be similarly effected by changes in
economic or other conditions described below.
The Company sells predominately to retail companies and to
commercial and industrial companies. Approximately 60% of the
Company's SPL subsidiary's revenues are derived from the Airline
industry in the United States. The Company performs periodic credit
evaluations of its customers and does not require collateral. The
Company maintains allowances for potential credit losses and such
losses have been within management's expectations.
F-9
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories - Inventories are valued at the lower of cost (first-in,
first-out) or market. At December 31, 1997 and 1996, inventories
consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials and component parts $ 354,879 $ 374,623
Work-in-process 18,867 647,136
----------- -----------
373,746 1,021,759
Allowance for obsolescence (55,975) (371,915)
----------- -----------
$ 317,771 $ 649,844
=========== ===========
</TABLE>
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization is computed over the estimated useful
lives of the assets or the remaining terms of the leases using the
straight-line method.
Useful lives for property and equipment are as follows:
Machinery and equipment 3 to 12 years
Leasehold improvements 5 years or life of lease, whichever
is less
Goodwill - Goodwill represents the excess of purchase price over
fair value of net assets acquired. Because of the magnitude of the
Company's losses and its petition for relief under Chapter 11 (See
Note 1), goodwill of $3,529,284 was written-off as of December 31,
1995 and was included in selling, general and administrative
expenses in the accompanying Statement of Operations.
Income Taxes - The Company accounts for income taxes under the
liability method, which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statements
and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
Revenue Recognition - Revenue for product sales is recognized upon
shipment. The Company records a provision for the effect of
anticipated returned products at the time units are shipped.
Revenues for management services are recognized when the services
are provided.
Revenues on contracts performed by the Company's discontinued
segment were recorded using the percentage of completion method of
accounting. At the time a loss on the contract became known, the
entire amount of the estimated loss on the contract was recognized.
Product Development Expenditures - Product development expenditures
are charged to operations as incurred.
F-10
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warranties - The Company recognizes the full estimated cost of
warranty expense at the time of shipment.
Earnings Per Share - The Company follows Statement of Financial
Accounting Standards No. 128 when calculating earnings per share.
Basic earnings per share excludes dilution and is calculated by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity.
Common stock equivalents for the years ended December 31, 1997, 1996
and 1995 were anti-dilutive and excluded in the earnings per share
computation.
Statement of Cash Flows - For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be
cash equivalents.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The
actual results could differ from those estimates.
The Company's financial statements are based upon a number of
significant estimates, including the allowance for doubtful
accounts, technological obsolescence of inventories, the estimated
useful lives selected for property and equipment, realizability of
deferred tax assets and goodwill, allowance for sales returns, and
warranty reserve. Due to the uncertainties inherent in the
estimation process, it is at least reasonably possible that these
estimates will be further revised in the near term and such
revisions could be material.
Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the cost of assets or other assets may
be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's
carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
As a result of its net losses and petition for relief under Chapter
11, the Company consolidated its manufacturing and warehouse
operations and eliminated unprofitable products. Certain leasehold
improvements and machinery and equipment were abandoned or disposed
of. These assets were written down to their net realizable value
upon disposal. Write downs of $91,812 and $600,000 are included in
reorganization items in the accompanying Statements of Operations as
of December 31, 1996 and 1995, respectively.
Stock-Based Compensation - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for
Stock-Based Compensation" (FAS123) which the Company adopted January
1, 1996. FAS123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on fair value.
F-11
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Companies that do not adopt the fair value accounting rules must
disclose the impact of adopting the new method in the notes to the
financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for on the
fair value method. The Company has elected not to adopt the fair
value accounting prescribed by FAS123 for employees, but is subject
to the disclosure requirements prescribed by FAS123.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, are determined at discrete points in
time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, which includes
all cash, accounts receivable, accounts payable, and long-term debt,
approximates the carrying value in the consolidated financial
statements at December 31, 1997 and 1996.
Impact of Recently Issued Accounting Standards - The FASB has issued
Statement of Financial Accounting Standards 130 "Reporting
Comprehensive Income" and Statement of Financial Accounting
Standards 131 "Disclosures About Segments of an Enterprise and
Related Information." Statement 130 establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined as all changes
in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, Statement 130
requires that all items that are required to be recognized under
current account standards as components of comprehensive income be
reported in a financial statement that displays with the same
prominence as other financial statements. Statement 131 supersedes
Statement of Financial Accounting Standards 14 "Financial Reporting
for Segments of a Business Enterprise". Statement 131 establishes
standards on how public companies report financial information about
operating segments in interim financial statements that are issued
to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major
customers. Statement 131 defines operating segments as components of
a company about which separate financial information is available
that is evaluated regularly by the chief operating decision makers
in evaluating how to allocate resources and in assessing
performance.
Statements 130 and 131 are effective for financial statement periods
beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully
evaluate the impact, if any, the standards may have on the future
financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these
standards.
Also, in June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities". This
statement is effective for fiscal years beginning after June 15,
1999. Earlier application is encouraged; however, the Company does
not anticipate adopting SFAS No. 133 until the fiscal year beginning
January 1, 2000. SFAS No. 133 requires than an entity recognize all
derivatives as assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company
does not believe the adoption of SFAS No. 133 will have a material
impact on assets, liabilities or equity. The Company has not yet
determined the impact of SFAS No. 133 on the income statement or the
impact on comprehensive income.
F-12
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" and SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage banking Enterprise" were
issued in 1998 and are not expected to impact the Company regarding
future financial statement disclosures, results of operations and
financial position.
3. BASIS OF PRESENTATION:
AICPA Statement of Position No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP No.
90-7") allows certain companies to adopt a "fresh-start" method of
accounting if the reorganization value ("approximate fair value") of
the assets of the Company immediately before confirmation of the
Plan was less than the total of all post-petition liabilities and
allowed pre-petition claims, and holders of the existing voting
shares immediately before the confirmation of the Plan would receive
less than 50% of the voting shares of the emerging company.
Management believes that since pre-confirmation stockholders (or
their affiliates or control persons) received in excess of 50% of
the "new" Tri-Lite Common Shares after emerging from bankruptcy,
fresh start accounting is not applicable.
The financial statements have been prepared on a going concern
basis, which contemplates, among other things, the realization of
assets and the satisfaction of liabilities in the normal course of
business. However, there is doubt about the Company's ability to
continue as a going concern because of the magnitude of its losses
of its stockholders' deficit of $8,441,747 and its working capital
deficit of $1,231,831 as of December 31, 1997. The Company's
continued existence is dependent upon its ability to raise
substantial capital, to increase sales and to significantly improve
operations.
Management has taken several actions in response to these
conditions. Management believes that operations and product
offerings have been consolidated sufficiently to generate operating
profits and cash flows. Management has also negotiated new credit
facilities which will improve the Company's ability to finance
working capital requirements. Management believes that these actions
will allow the Company to continue as a going concern.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or
the amount and classification of liabilities or any other adjustment
that might be necessary should the Company be unable to continue as
a going concern.
F-13
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. REORGANIZATION ITEMS:
The effects of transactions and adjustments related to
reorganization activities were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Impairment recognized on long-lived
assets
$ - $1,305,874 $4,191,430
Professional fees 194,063 1,064,151 337,935
---------- ---------- ----------
Total reorganization items $ 194,063 $2,370,025 $4,529,365
========== ========== ==========
</TABLE>
5. ACQUISITIONS:
Effective January 1, 1994, the Company acquired from Helionetics all
of the outstanding shares of Self Powered Lighting, Inc. (SPL), in
exchange for 550,000 shares of the Company's common stock valued at
approximately $448,000 which was the historical cost of the net
assets of SPL at December 31, 1993. Upon the Company's filing of an
application with the American Stock Exchange for the listing of the
550,000 shares, the American Stock Exchange did not grant the
Company approval to issue such shares to Helionetics. On August 3,
1994, the Company entered into an agreement with Helionetics to
issue a $1,800,000 note payable in exchange for the 550,000 shares
of the Company's common stock issued to acquire SPL.
The accompanying Consolidated Statement of Stockholders' Equity
(Deficit) includes a prior period adjustment to various December 31,
1994 Stockholders' Equity accounts to properly record the above
transaction in accordance with Accounting Principal Board Opinion
Number 16. Due to the transaction occurring between entities under
common control the transaction has been recorded by charging the
excess of the purchase price over the historical net book value to
Stockholders' Equity
6. DISCONTINUED OPERATIONS:
Having experienced significant losses in its electrical energy
management segment, the Company's Board of Directors decided on
December 31, 1995 to discontinue the operations by winding down open
customer contracts and liquidating its assets.
F-14
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 1995 a net loss before income tax
benefit of $1,447,704 was generated from the discontinued segment,
as follows:
Revenue $10,261,073
-----------
Expenses:
Cost of sales 9,030,335
Selling, general and
administrative 2,595,463
Interest expense 82,979
-----------
Total Expenses 11,708,777
-----------
Loss before provision for
income taxes $(1,447,704)
===========
As the result of the Chapter 11 filing in February 1996, the Company
discontinued and liquidated all of it's lighting fixtures operations
that involved designing, sourcing, manufacturing and marketing
recessed lighting track lighting, and decorative lighting.
As of December 31, 1996, all related assets and liabilities of the
lighting fixture businesses were written off and included in the
results from continuing operations for the period then ended. Losses
for the years ended December 31, 1996 and 1995 related to these
activities were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenue $ 5,685,434 $ 23,201,172
------------ ------------
Expenses:
Cost of sales 4,133,137 18,423,682
Selling, general and administrative 5,415,885 14,688,464
Interest and other expense 606,311 1,177,472
------------ ------------
Total Expenses 10,155,333 34,289,618
------------ ------------
Loss before provision for income $ (4,469,899) $(11,088,446)
============ ============
</TABLE>
7. NOTES PAYABLE TO RELATED PARTIES:
Note payable to Helionetics, Inc. of $1,800,000 as of December 31,
1996 bears interest at 10% per annum, payable monthly. The note is
secured by the net assets of SPL and is subordinate to the Company's
bank debt.
Interest expense related to this note for the year ended December
31, 1995 amounted to approximately $180,000. Interest expense
accruals during 1997 and 1996 were stayed due to the various
bankruptcy proceedings.
F-15
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Helionetics bankruptcy proceedings, the Helionetics,
Inc. Official Committee of Unsecured Creditors ("Helionetics
Committee") entered into a settlement agreement with the Company,
Ms. Susan Barnes and her affiliates, and Bernard B. Katz, whereby
82.5% of Company's then issued and outstanding common shares would
be issued to Ms. Susan Barnes, and 5% is to be issued to the
Helionetics Committee. The Agreement also called for Helionetics to
cancel and release it's $1,800,000 promissory note secured by all
the assets of the Company. In addition, the Company will issue a
senior secured promissory note in the amount of $800,000 in favor of
the Helionetics Committee and a secured junior subordinated
promissory note in the amount of $500,000 in favor of Ms. Susan
Barnes. Both notes will bear interest at 10.5% and are subordinated
to any new financing that the Company may require. Additionally, Ms.
Barnes loaned the Company in 1996 and 1997 a total of approximately
$218,400 and at December 31, 1997 such loan had an outstanding
balance of $142,668. The loan bears interest at the prime rate plus
2% and is due on demand.
8. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at December 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accounts Payable to Self-Powered
Lighting creditors, due in installments
through August 2002, bearing interest
at the bank's prime rate plus 2% $ 565,962 $ -
Advances from Altres Financial for
accounts receivable factored at a
discount rate of 1.5% plus related
service fees 305,242 729,607
--------- ---------
Subtotal 871,204 729,607
Less: Current Portion (305,242) (729,607)
--------- ---------
Total notes payable and long-term
debt, less current portion $ 565,962 $ -
========= =========
</TABLE>
In December 1996, the Company entered into an agreement to factor up
to $1,000,000 in accounts receivable, $200,000 minimum per month, at
a discount of 20%. The company is entitled to a rebate of the
commissions less 1.25% of the amount factored plus 0.35% for every
ten days past 30 days an account is outstanding, a daily funds
charges equal to prime plus 1% dividend by 360 and a monthly
collateral fee of 0.25%. The factor may also maintain a reserve of
5% of the outstanding balance on accounts factored. As of December
31, 1997 and 1996, the face amount of receivables factored was
$354,214 and $825,827, respectively.
F-16
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LIABILITIES SUBJECT TO COMPROMISE:
Liabilities subject to compromise as of December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------------------- --------------------
<S> <C> <C>
Trade payables and accrued expenses $ 3,520,776 $ 3,947,513
Taxes 291,775 291,775
Commissions 257,765 257,765
Other expenses 338,025 338,026
Note payable 180,000 180,000
Claims under rejected executory 1,133,261 1,133,261
------------------- --------------------
Total $ 5,721,602 $ 6,148,340
=================== ====================
</TABLE>
The note payable at December 31, 1997 and 1996 bears interest at a
bank's prime rate plus 2% and is due in monthly installments of
$2,000, plus interest, through November 1999. Interest expense
related to this note for the year ended December 31, 1995 amounted
to approximately $20,000.
10. COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its facilities and certain equipment
under noncancellable leases expiring at various dates through 2005.
Future annual minimum rental commitments in the aggregate under
these noncancellable leases are as follows:
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
1998 $139,440
1999 156,049
2000 162,370
2001 169,300
2002 163,170
Thereafter 184,392
--------
$974,721
========
Total rental expense related to all operating leases amounted to
$235,827, $408,480 and $467,852 in 1997, 1996 and 1995,
respectively.
During 1995, the Company leased certain real property located in
Cleveland, Ohio, from Lawrence A. Terkel, the Company's President
and Chief Executive Officer from July 15, 1995 to February 15, 1996.
The properties were owned by Mr. Terkel, his brother and father. The
lease was rejected in bankruptcy and the amount of $149,453 was
included in the allowed claims of unsecured creditors.
During 1995, the Company sublet certain office and warehouse space
located in Irvine, California, from Helionetics, Inc., it's
principal shareholder. The Company vacated the Irvine property in
August, 1995, when it relocated to an office/warehouse facility in
Santa Ana, California, which it leased from an
F-17
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unrelated party. During 1995, total rent expense accrued relating to
the lease of the Irvine property amounted to $120,000.
Litigation - In the ordinary course of business, there are various
claims and lawsuits brought by or against the Company. In the
opinion of management, the ultimate outcome of these matters will
not materially affect the Company's operations or financial
position.
Helionetics is a defendant in class actions seeking unspecified
damages allegedly resulting from the purported violation of federal
securities laws. In the opinion of Company management, the ultimate
outcome of these actions will not have any impact on the Company's
consolidated financial statements.
Employment Contracts - The Company had entered into employment
agreements with several officers of the Company. These agreements
were voided by the Bankruptcy Court. The Company has accrued the
amounts allowed by the Bankruptcy Court under these agreements as of
December 31, 1996.
11. INCOME TAXES:
The Company's total income tax expense was $ -0- for each of the
years December 31, 1997, 1996 and 1995
Income tax expense (benefit) for the years ended December 31, 1997,
1996, and 1995 differed from the amount computed by applying the
U.S. Federal income tax rate of 34% for each period as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
expense (benefit) $ 48,615 34% $(1,585,683) (34%) $(4,616,257) (34%)
Nondeductible expenses - 0% - 0% 1,284,060 9%
Change in the beginning-of-
the-year balance of the
valuation allowance for
deferred tax assets (48,615) (34%) 1,585,683 34% 3,332,197 25%
State taxes, net of federal
tax benefit - 0% - 0% - 0%
----------- ----------- ----------- ----------- ----------- -----------
$ - 0% $ - 0% $ - 0%
=========== =========== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to
significant portions of the deferred taxes at December 31, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current deferred tax assets (liabilities):
Accounts receivable due to allowance for doubtful
accounts $ 18,889 $ 131,349
Inventories due to allowance for obsolescence 22,467 149,279
Compensated absences, principally due to accrual
for financial reporting purposes 49,361 43,068
Accrued expenses, principally due to accrual for
financial reporting purposes 810,952 688,609
Write-down of assets for book not tax 128,874 128,874
Other 4,027 74,434
----------- -----------
1,034,570 1,215,613
Less valuation allowance (1,034,570) (1,215,613)
----------- -----------
Net current deferred tax assets $ - $ -
=========== ===========
Long-term deferred tax assets (liabilities):
Asset acquisition basis adjustment (130,848) (130,848)
Depreciation and amortization (27,268) 101,735
Net operating loss carryforwards 6,951,789 6,533,019
Less valuation allowance (6,793,673) (6,503,906)
----------- -----------
Net long-term deferred tax assets $ - $ -
=========== ===========
</TABLE>
As of December 31, 1997, the Company had net operating loss carry
forwards for federal and state purposes of approximately $19,362,000
and $2,760,000, respectively, which expire in 2012 and 2002. The
benefit of the net operating losses to offset future taxable income
is subject to reduction or limitation of use as a result of
consolidated return filing regulations and additional limitations
relating to a greater than 50% change in ownership. The change in
the valuation allowance for the year ended December 31, 1997 and
1996 was $108,724 and $65,656, respectively.
F-19
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY:
Stock Option Plan - On October 26, 1993, the Company's Board of
Directors and stockholders approved the issuance of options to
purchase 300,000 shares of the Company's common stock. The 1993
Stock Option Plan (the Plan) is intended to qualify under Section
422 of the Internal Revenue Code. The options fully vest at the time
of issuance, are exercisable up to ten years from the date of grant
and are nontransferable. In the event an option is granted to a 10%
shareholder, such option must be granted at 110% of the fair market
value and expire five years from the date of grant. On the date of
adoption, the Board of Directors granted 300,000 shares at their
fair market value of $4.625 per share. Through December 31, 1995, no
options had been exercised. As a result of the Company's Chapter 11
Bankruptcy filing, all options were cancelled.
13. SEGMENT INFORMATION:
During the year ended December 31, 1995, the Company operated in two
industry segments, as follows:
1. The lighting fixture business segment
2. The electrical energy management segment
During the fourth quarter of 1995, the Company's Board of Directors
decided to discontinue the operations of the electrical energy
management segment. Accordingly, the operations of that segment have
been shown in the accompanying Statement of Operations as
discontinued operations.
During the year ended December 31, 1996 the Company operated only in
one industry segment, the lighting fixture business segment.
During the year ended December 31, 1997 the Company operated again
in two industry segments, as follows:
1. The lighting fixture business segment
2. The energy conservation and safety equipment business
segment
Identifiable assets by industry are those assets that are used in
the Company's operations in each industry. Corporate assets are,
principally, cash and cash equivalents.
F-20
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning the Company's operations and related
information in its two different industry segments for the year
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
ENERGY
CONSERVATION AND ADJUSTMENTS
LIGHTING FIXTURE SAFETY EQUIPMENT AND
BUSINESS SEGMENT BUSINESS SEGMENT ELIMINATIONS CONSOLIDATED
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET SALES TO UNAFFILIATED
CUSTOMERS $ 4,743,521 $ 341,316 $ - $ 5,084,837
INTERSEGMENT SALES - - - -
--------------- --------------- ---------------- ----------------
TOTAL REVENUES $ 4,734,521 $ 341,316 $ - $ 5,084,837
=============== =============== ================ ================
OPERATING PROFIT (LOSS) $ (906,273) $ (45,639) $ - $ (951,912)
=============== =============== ================
GENERAL CORPORATE (EXPENSES) (37,199)
OTHER INCOME (EXPENSE), net 14,237
----------------
LOSS BEFORE INCOME TAXES $ 974,874
================
IDENTIFIABLE ASSETS AT
DECEMBER 31, 1997 $ 1,218,920 $ 60,339 $ - $ 1,279,259
=============== =============== ================
CORPORATE ASSETS 83,970
----------------
TOTAL ASSETS AT DECEMBER 31,
1997 $ 1,363,229
================
DEPRECIATION AND AMORTIZATION $ 56,689 $ - $ - $ 56,689
=============== =============== ================ ================
CAPITAL EXPENDITURES $ 19,904 $ - $ - $ 19,904
=============== =============== ================ ================
</TABLE>
Total revenue by segment includes both sales to unaffiliated
customers, as reported in the Company's consolidated statement of
operations, and intersegment sales where applicable which are
accounted for at prices approximating market for such products.
Operating profit is total revenue less operating expenses, none of
the following items has been added or deducted: general corporate
expenses; dividend, interest, and miscellaneous income; interest
expense; income taxes; and extraordinary item.
F-21
<PAGE>
<TABLE>
TRI-LITE, INC AND SUBSIDIARIES
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- --------------------------------------------- ---------- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts - trade $ 327,244 $ 26,329 $ - $ 306,514(1) $ 47,059
Reserve for inventory obsolescence 371,915 - - 315,940(2) 55,975
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts - trade 286,943 31,305 - (8,996)(1) 327,244
Reserve for inventory obsolescence 1,444,152 115,585 - 1,187,822 (2) 371,915
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts - trade 283,607 737,660 - 734,324 286,943
Reserve for inventory obsolescence 216,033 1,228,119 - - 1,444,152
</TABLE>
- ----------
(1) Use of allowance in write-off of scheduled bad debts
(2) Use of allowance in write-off of obsolete inventories
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
FORM 10-K
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
I Third Amended Disclosure Statement for Third Amended Joint
Chapter 11 Plan of Reorganization
II Third Amended Joint Chapter 11 Plan of Reorganization
as Modified
III Fourth Amended Disclosure Statement describing Helionetics,
Inc. Third Amended Chapter 11 Liquidation Plan
IV Settlement Agreement between the Helionetics Official
Committee of Creditors Holding Unsecured Claims, Helionetics,
Tri-Lite, Inc., KB Equities, Bernard Katz, Susan Barnes
V First Amended Chapter 11 Plan of Self Powered
Lighting, Inc.
<PAGE>
JEFFREY W. BROKER - State Bar No. 53226
SEAN A. O'KEEFE - State Bar No. 122417
LAUREN B. LESSLER - State Bar No. 167311
BROKER & O'KEEFE PROFESSIONAL CORPORATION
4695 Mac Arthur Court, Suite 1200
Newport Beach, CA 92660
Mailing Address:
P.O. Box 19729
Irvine, CA 92623-9729
Telephone: (714) 222-2000
Facsimile: (714) 222-2022
Special Reorganization Counsel
for Debtor and Debtor-in-Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re
TRI-LITE, INC., a Pennsylvania corporation
Debtor and
Debtor-in-Possession.
Case No. SA 96-12049 JR
Chapter 11 Proceeding
THIRD AMENDED DISCLOSURE
STATEMENT FOR THIRD AMENDED
JOINT CHAPTER 11 PLAN OF
REORGANIZATION
DISCLOSURE STATEMENT HEARING:
DATE: November 7, 1996
TIME: 10:30 a.m.
PLACE: Courtroom 606
34 Civic Center Drive
Santa Ana, CA
CONFIRMATION HEARING:
DATE: January 16, 1997
TIME: 11:30 a.m.
PLACE: Courtroom 606
34 Civic Center Drive
Santa Ana, CA
<PAGE>
THE CO-PLAN PROPONENTS BELIEVE THAT THE PLAN OF REORGANIZATION DISCUSSED HEREIN
IS IN THE BEST INTERESTS OF CREDITORS AND STOCKHOLDERS. THE OFFICIAL COMMITTEE
OF CREDITORS HOLDING UNSECURED CLAIMS RECOMMENDS THAT THE PLAN BE APPROVED PER
THE LETTER FROM ITS ATTORNEYS ATTACHED HERETO AS EXHIBIT "1." ALL CREDITORS AND
STOCKHOLDERS ARE URGED TO VOTE IN FAVOR OF THE PLAN. THIS DOCUMENT MAY NOT BE
USED TO SOLICIT ANY ACCEPTANCE OR REJECTIONS OF THE PLAN DISCUSSED HEREIN UNTIL
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT. ALL
CREDITORS AND STOCKHOLDERS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS
ENTIRE DISCLOSURE STATEMENT AND THE PLAN PRIOR TO SUBMITTING BALLOTS PURSUANT TO
THE SOLICITATION OF VOTES ON THE PLAN.
I.
INTRODUCTION
Tri-Lite, Inc., a Pennsylvania corporation, the Debtor and
Debtor-in-Possession in this Chapter 11 case (hereinafter "Debtor"),
Helionetics, Inc., a California corporation (hereinafter "Helionetics") and
Susan Barnes (hereinafter "Barnes") provide this Third Amended Disclosure
Statement for Joint Chapter 11 Plan of Reorganization (the "Disclosure
Statement") to all of the Debtor's known Creditors and Stockholders. This
Disclosure Statement is furnished for the purpose of soliciting acceptances to
the Third Amended Joint Chapter 11 Plan of Reorganization (the "Plan") which has
been filed with the United States Bankruptcy Court for the Central District of
California.
Section 1125 of Title 11 of the United States Code (the "Bankruptcy
Code") requires that at the time the Plan is delivered to the Debtor's
creditors, it must be accompanied by a Disclosure Statement which has been
approved by the Bankruptcy Court. The purpose of this Disclosure Statement is to
provide adequate information of a kind, and in sufficient detail, so far as is
reasonably practicable, in light of the nature and history of the Debtor and the
condition of the Debtor's books and records, to enable a typical creditor or
interest holder to make an informed
-2-
<PAGE>
judgment about the Plan and to enable such creditor to determine whether it is
in his, her or its best interest to vote for (accept) or against (reject) the
Plan.
This Disclosure Statement contains a description of the Plan and
other information relevant to the decision as to whether to vote for (accept) or
against (reject) the Plan. The Debtor, the Committee, Helionetics and Barnes
strongly urge you to read this Disclosure Statement because it contains
important information concerning the Debtor's history, business, results of
operations, management, properties, assets and liabilities as well as setting
forth a separate summary of the Plan.
To vote to accept or reject the Plan, a creditor must indicate its
acceptance or rejection thereof on the ballot which accompanies this Disclosure
Statement and return it to Broker & O'Keefe Professional Corporation in the
envelope provided, at the place and by the time specified on the ballot. Each
class of creditors allowed to vote on the Plan will be deemed to have accepted
the Plan if the Plan is accepted by valid ballots cast by creditors in that
class holding at least two-thirds (66 2/3%) in dollar amount and more than one
half (50%) in number of the allowed claims of creditors in that class actually
voting on the Plan or by interest holders holding at least two thirds (66 2/3%)
of allowed interests actually voting on the Plan. ONLY PROPERLY EXECUTED BALLOTS
TIMELY TENDERED TO COUNSEL FOR THE DEBTOR WILL BE COUNTED AS HAVING VOTED ON THE
PLAN.
Since mail delays may occur, and because time is of the essence, it
is important that ballots be mailed well in advance of the date specified
thereon. Any ballots received after that date will not be included in any
calculation to determine whether the Debtor's creditors will be deemed to have
accepted or rejected the Plan.
THIS IS A SOLICITATION BY THE DEBTOR, HELIONETICS AND BARNES AS
CO-PLAN PROPONENTS. THE REPRESENTATIONS HEREIN ARE THOSE OF THE DEBTOR AND NOT
OF ITS ATTORNEYS OR CONSULTANTS, EXCEPT AS OTHERWISE SPECIFICALLY INDICATED. NO
REPRESENTATIONS CONCERNING THE DEBTOR, INCLUDING, BUT NOT LIMITED TO,
REPRESENTATIONS AS TO ITS FUTURE OPERATIONS, CASH FLOW PROJECTIONS, THE VALUE OF
ITS PROPERTIES, OR ANY
-3-
<PAGE>
TAX EFFECT OF THE TRANSACTIONS PROPOSED UNDER THE PLAN, ARE AUTHORIZED BY THE
DEBTOR OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. THE SOURCES FOR
INFORMATION IN THE DISCLOSURE STATEMENT ARE FROM THE BOOKS AND RECORDS OF THE
DEBTOR UNLESS OTHERWISE INDICATED. ANY REPRESENTATIONS OR INDUCEMENTS MADE TO
SECURE ACCEPTANCE OF THE PLAN THAT ARE IN ADDITION TO OR DIFFERENT FROM THE
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY
ANY PARTY IN INTEREST. ANY SUCH ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD
BE REPORTED TO THE DEBTOR'S ATTORNEYS WHO, IN TURN, WILL DELIVER THE INFORMATION
TO THE COURT FOR SUCH ACTION AS THE COURT MAY DEEM TO BE APPROPRIATE.
THE COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT ONLY INDICATES
THAT THE DISCLOSURE STATEMENT CONTAINS "ADEQUATE INFORMATION" FOR THE PURPOSE OF
THE SOLICITATION OF ACCEPTANCES TO THE PLAN BY THE DEBTOR, HELIONETICS AND
BARNES AS CO-PLAN PROPONENTS. THE OFFICIAL COMMITTEE OF CREDITORS HOLDING
UNSECURED CLAIMS RECOMMENDS THAT THE PLAN BE APPROVED. THIS DISCLOSURE STATEMENT
HAS NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE
COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
STATEMENTS CONTAINED HEREIN.
II.
DEFINITIONS, INTERPRETATION AND
RULES OF CONSTRUCTION
(A) Definitions
The definitions contained in the Bankruptcy Code are incorporated
herein. Whether or not inconsistent with definitions contained in the
Bankruptcy Code, the following terms used herein shall have the following
meanings:
2.1 Alvin Katz: A. Alvin Katz, the President of the
Debtor.
-4-
<PAGE>
2.2 Administrative Claim: A Claim for costs and expenses
of administration allowed under Section 503(b) of the Bankruptcy Code and
referred to in Section 507(a)(1) of the Bankruptcy Code, including, without
limitation: (a) the actual and necessary costs and expenses incurred after the
Petition Date of preserving the Estate and operating the business of the Debtor
(such as wages, salaries or commissions for services); (b) compensation for
legal, financial advisory, accounting and other services and reimbursement of
expenses awarded or allowed under Sections 330(a) or 331 of the Bankruptcy Code;
and (c) all fees and charges assessed against the Estate under 28 U.S.C. ss.
1930.
2.3 AIM: AIM Energy, Inc., a corporation organized under
the laws of the state of Delaware, which is 100% owned by Helionetics. This
entity owns all proprietary rights to the AIM Filter.
2.4 AIM Filter: A filter which eliminates Harmonics by
capturing unwanted Harmonic current flows, reducing both current and voltage
distortion, reducing the energy wasted due to harmonics and eliminating harmful
effect on equipment. The entirety of the proprietary rights to the AIM filter is
owned by AIM.
2.5 Allowed Claim: A Claim against the Debtor to the
extent that-
(a) the Claim was scheduled in the list of creditors
prepared and filed with the Bankruptcy Court by the Debtor and not listed as
disputed, contingent or unliquidated as to amount; or
(b) a proof of claim
(1) was timely filed; or
(2) is deemed filed under applicable law or
by reason of an order of the Bankruptcy Court; and
(c) (1) the Debtor or Reorganized Debtor does not file
an objection within a time fixed by the Bankruptcy Court and the Claim is not
otherwise a Disputed Claim (but only to the extent that such Claim is not a
Disputed Claim);
(2) the Claim is allowed (and only to the
extent allowed) by a Final Order; or
-5-
<PAGE>
(3) the Claim is specifically allowed under
this Plan.
An Allowed Claim shall not include unmatured or post-petition
interest unless otherwise stated in the Plan.
2.6 Allowed Amount: The amount of any Claim against the Debtor
determined in accordance with Sections 502 and 506(a) of the Bankruptcy Code and
any other applicable section(s) of the Bankruptcy Code, and recognized by the
Debtor as valid or allowed by Final Order of the Court, except to the extent
described or defined otherwise herein.
2.7 Allowed Class . . . Claim: An Allowed Claim in the particular
Class described in the Plan or Disclosure Statement.
2.8 Allowed Priority Claim: An Allowed Claim entitled to priority
pursuant to Sections 507(a)(3), (4) or (6) of the Bankruptcy Code.
2.9 Allowed Secured Claim: An Allowed Claim secured by a lien,
security interest or other charge against the property in which the estate has
an interest, or which is subject to set-off under Section 553 of the Bankruptcy
Code, to the extent of the value, determined in accordance with Section 506(a)
of the Bankruptcy Code, of the interest of the holder of such secured Claim in
the estate's interest in such property, or to the extent of the amount subject
to any set-off, as the case may be. An Allowed Secured Claim may include
post-petition interest if permitted under Section 506(b) of the Code.
2.10 Allowed Tax Claim: An Allowed Unsecured Claim that is entitled
to priority pursuant to Section 507(a)(8) of the Code.
2.11 Approval Date: The date on which an order approving the
Debtors' Disclosure Statement, or an amended version thereof, is entered by the
Clerk of the Bankruptcy Court on the Court's docket.
2.12 Avoidance Action: Any adversary proceeding brought to seek the
recovery of money or property on account of transactions avoidable under
Sections 544, 547, 548, 549 or 550 of the Bankruptcy Code.
2.13 Ballot: The Document by which the holder of a Claim or Interest
classified under the Plan shall vote to reject or accept the Plan.
-6-
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2.14 Bankruptcy Code or Code: Title 11 of the United States Code, as
now in effect or hereafter amended. All citations in the Plan or Disclosure
Statement to section numbers are to the Code unless otherwise expressly
indicated.
2.15 Bankruptcy Court or Court: The United States Bankruptcy Court
for the Central District of California or such successor court or tribunal as
may hereafter be confirmed or created by lawful authority with power to confirm
reorganization plans under Chapter 11, Title 11 of the United States Code and
all other applicable statutes, rules and regulations.
2.16 Bankruptcy Rules or Rules: The Federal Rules of Bankruptcy
Procedure and the Local Bankruptcy Rules for the United States Bankruptcy Court
for the Central District of California, as now in effect or hereafter amended.
2.17 Bar Date: The last date for filing Claims, which was 60 days
after service of the notice thereof on Creditors. The Bar Date expired as to all
known Creditors no later than June 7, 1996. After the hearings relating to the
rejection of leases, employment and consulting contracts on May 23, 1996, a
second Bar Date notice was sent to affected claimants with a Second Bar Date of
August 16, 1996 only for such claimants.
2.18 Barnes: Susan Barnes, the spouse of Bernard Katz and the
beneficial holder of approximately 37% of the outstanding common stock of
Helionetics, an affiliate, stockholder and administrative creditor of the
Debtor, and a co-proponent of the Plan.
2.19 Barnett: Richard B. Barnett, an individual asserting a Claim
secured by an alleged lien junior to that of Star Bank. This Claim has been
classified as the Class 2 Claim and is disputed by the Debtor.
2.20 Bernard Katz: Bernard Katz, the Chairman of the Board of the
Debtor and of Helionetics as well as the spouse of Susan Barnes.
2.21 Business Day: Any day, other than a Saturday, Sunday or legal
holiday as defined in Bankruptcy Rule 9006(a).
2.22 Case: The within Chapter 11 proceeding, known as In re
Tri-Lite, Inc., a Pennsylvania corporation, bearing Case No. SA 96-12049 JR,
pending before the United States Bankruptcy Court, Central District of
California.
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2.23 Cash: Cash and Cash equivalents, including but not limited to
bank deposits, wire transfers, checks, and other similar items.
2.24 Cash Collateral: cash, negotiable instruments, documents of
title, securities, deposit accounts, or other cash equivalents within the
meaning of Section 363(a) of the Bankruptcy Code.
2.25 Claim: Any right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or, a
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right is an equitable remedy or is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
2.26 Claimants or Creditors: Persons or entities holding Allowed
Claims.
2.27 Class: A category of holders of Claims which are substantially
similar to other Claims and into which Allowed Claims and Allowed Secured Claims
are grouped and classified pursuant to Article IV of the Plan. The Classes
provided for in the Plan are the following:
A) Class 1: Star Bank, N.A. as the holder of an Allowed
Secured Claim, which is secured by a first priority consensual lien on the
Debtor's inventory, accounts receivable, and other operating assets.
B) Class 2: Barnett, as the holder of a disputed Secured
Claim allegedly secured by a second priority consensual lien on the Debtor's
inventory, accounts receivable and other operating assets.
C) Class 3: All Claimants holding Allowed Unsecured
Claims less than, equal to, or voluntarily reduced by the holder thereof to
$500.
D) Class 4: All Claimants holding Allowed Unsecured
Claims other than Claims included in Class 3.
E) Class 5: Helionetics, Inc., as the holder of an
Allowed Secured Claim allegedly secured by a consensual lien on the Debtor's
inventory, accounts receivable, and other operating assets arising from the SPL
Purchase Agreement.
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F) Class 6: The Stockholders (Equity Security Holders)
of the Debtor, including Helionetics and Barnes.
2.28 Committee: The Official Committee of Creditors Holding
Unsecured Claims in the Debtor's estate.
2.29 Common Stock: The Common Stock in the Debtor held by
Stockholders.
2.30 Confirmation: The entry by the Clerk of the Bankruptcy Court on
the Court's docket of the Confirmation Order.
2.31 Confirmation Date: The date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the Court docket.
2.32 Confirmation Order: The order entered by the Clerk of the
Bankruptcy Court confirming the Plan.
2.33 Creditor: Any person or entity holding an Allowed Claim or
Claims against the Debtor within the meaning set forth in Section 101(10) of the
Bankruptcy Code.
2.34 Debt: Liability on a claim as set forth in Section 101(12) of
the Bankruptcy Code.
2.35 Debtor: Tri-Lite, Inc., a Pennsylvania corporation, the Debtor
and Debtor-in-Possession in this Chapter 11 case. The Debtor is a co-proponent
of the Plan.
2.36 Debtor-in-Possession: The Debtor, when acting in the capacity
of representative of the Estate in the Debtor's Case.
2.37 Disbursing Agent: The Debtor and/or any other person or persons
designated under this Plan to disburse property pursuant to this Plan.
2.38 Disclosure Statement: The Disclosure Statement accompanying the
Plan as required by Section 1125 of the Bankruptcy Code and approved by an Order
of the Bankruptcy Court.
2.39 Disputed Claim: A Claim as to which a proof of claim has been
Filed or deemed Filed under applicable law, as to which an objection has been or
may be timely Filed by the Debtor or Reorganized Debtor and which objection, if
timely Filed, has not been withdrawn on or before any date fixed for Filing such
objections by the Plan or by Order of the Bankruptcy Court and has not been
overruled or denied by a Final Order. Prior to the time that an objection to a
claim has
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been or may be timely Filed, for the purposes of the Plan a Claim shall be
considered a Disputed Claim in its entirety if: (i) the amount of the Claim
specified in the proof of claim exceeds the amount of any corresponding Claim
scheduled by the Debtor in its Schedules of Assets and Liabilities; (ii) any
corresponding Claim scheduled by the Debtor in its Schedules of Assets and
Liabilities has been scheduled as disputed, contingent, or unliquidated,
irrespective of the amount scheduled; or (iii) no corresponding Claim has been
scheduled by the Debtor in its Schedules of Assets and Liabilities.
2.40 Effective Date: The Effective Date of the Plan shall be the
forty-fifth (45th) calendar day after the Confirmation Date, unless said date
falls upon a Saturday, Sunday or holiday, in which case the Effective Date shall
be the next business day and on which no stay of the Confirmation Order is in
effect.
2.41 Equity Security: Common stock of the Debtor.
2.42 Equity Security Holder: A Stockholder owning common stock of
the Debtor. These parties have been classified as the holders of Class 6 Claims.
2.43 Estate: The estate created in this Chapter 11 Case for the
Debtor under Section 541 of the Bankruptcy Code.
2.44 Executory Contract: Any unexpired lease or executory contract
of the Debtor as defined in Section 365 of the Bankruptcy Code.
2.45 File or Filed: A pleading filed with the Clerk of the
Bankruptcy Court in this Chapter 11 Case.
2.46 Final Order: An order or judgment of the Bankruptcy Court, or
other court of competent jurisdiction, as entered on the docket in the Case,
which has not been reversed, stayed, modified or amended, and as to which (i)
the time to appeal or seek certiorari has expired and no appeal or petition for
certiorari has been timely filed, or (ii) any appeal that has been or may be
taken or any petition for certiorari that has been or may be filed has been
resolved by the highest court to which the order or judgment was appealed or
from which certiorari was sought.
2.47 Harmonics: Current and voltage distortion on AC power lines.
This distortion increases electrical bills, overheats wires and equipment,
wastes energy and creates electrical
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interference which can cause computers and computed controlled-equipment to
malfunction and interfere with telecommunications. The AIM Filter is designed to
address the problem of Harmonics.
2.48 Helionetics: Helionetics, Inc., a publicly-held California
corporation and a reporting Company under the Securities and Exchange Act of
1934. Helionetics is the principal shareholder of the Debtor and is the owner of
approximately forty-nine percent (49%) of the Debtor's common stock. Helionetics
is an "affiliate" of the Debtor within the meaning set forth in Section
101(2)(A) of the Bankruptcy Code. Helionetics is a co-proponent of the Plan.
2.49 Helionetics Litigation: The civil litigation pending against
Helionetics filed by the Debtor in the United States District Court, Northern
District of Ohio, Case No. 1:95CV2289, which was removed by the Debtor to the
United States Bankruptcy Court, Central District of California on May 23, 1996,
and assigned Adversary No. SA 96-1523 JR.
2.50 Helionetics Stock: Common Stock in Helionetics to be issued by
Helionetics to Class 2 and Class 4 Creditors under the Plan.
2.51 Lawrence A. Terkel: The owner of approximately ten percent
(10%) of the Debtor's common stock.
2.52 New Tri-Lite Common Stock: Twenty-five million (25,000,000)
authorized and four million (4,000,000) shares of New Common Stock in the
Reorganized Debtor to be issued under the Plan.
2.53 Order: An order or judgment of the Bankruptcy Court as entered
by the Clerk of the Court on the docket in this Case.
2.54 Person: Any natural person, corporation, general partnership,
limited partnership, association, joint stock company, joint venture, estate,
trust, government or any political subdivision thereof, governmental unit (as
defined in Section 101(41) of the Bankruptcy Code), official committee appointed
by the United States Trustee, or other legal entity.
2.55 Petition Date: February 26, 1996, the date upon which the
Debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code with
the Bankruptcy Court.
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2.56 Plan: The Third Amended Joint Chapter 11 Plan of Reorganization
proposed by the Debtor and Helionetics in this Case, and all exhibits,
schedules, releases, and other attachments annexed thereto, as the same may be
amended, modified or supplemented from time to time in accordance with the Code.
2.57 Priority Tax Claim: An Allowed Claim entitled to priority under
Section 507(a)(8) of the Bankruptcy Code.
2.58 Prolite: Prolite Lighting and Sign Maintenance Co., Inc., a
Pennsylvania corporation, a wholly owned subsidiary of the Debtor.
2.59 Pro Rata: proportionately so that the ratio of (a) the amount
of property distributed at any time on account of a particular Allowed Claim to
(b) the amount of the Allowed Claim is the same as the ratio of the amount of
property distributed at the same time on account of all Allowed Claims of the
Class in which the particular Allowed Claim is included to the amount of all
Allowed Claims in that Class.
2.60 Reorganized Debtor: Tri-Lite, Inc., a Pennsylvania corporation
which, on and after the Confirmation Date, shall assume all of the rights and
obligations of the Debtor together with title to and control of the Debtor's
assets and liabilities upon Confirmation of the Plan, as such rights,
obligations, assets and liabilities are modified in the Plan.
2.61 Scheduled: Set forth on the Schedules of Asset and Liabilities
on file with the Clerk of the Bankruptcy Court.
2.62 Schedules of Assets and Liabilities: The Schedules of Assets
and Liabilities filed by the Debtor with the Clerk of the Bankruptcy Court, as
the same have been or may be amended from time to time prior to the Effective
Date of the Plan.
2.63 Secured Claim: Any Claim that is secured by a lien on property
in which the Estate has an interest or that is subject to setoff under Section
553 of the Bankruptcy Code.
2.64 Secured Creditor: The holder of an Allowed Secured Claim in
this Case.
2.65 Section 1111(b) Election: An election by a Secured Creditor
with an interest in property of the Estate that is not of inconsequential value,
pursuant to the provisions of Section 1111(b) of the Bankruptcy Code, to have
its entire Allowed Claim treated as fully secured.
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In order to constitute an effective Section 1111(b) Election, such an election
must be made in writing prior to the conclusion of the hearing on the Disclosure
Statement.
2.66 Star Bank: Star Bank, National Association, the holder of the
Class 1 Claim.
2.67 Stipulation: That certain Revised Stipulation For 1)
Sequestration; 2) Interim Use; 3) Turnover of Cash Collateral; 4) Repayment of
Secured Debt entered into by and between the Debtor and Star Bank on April 29,
1996 and approved by the Bankruptcy Court pursuant to its Order entered on April
30, 1996. A true and correct copy of the Stipulation is attached to the
Disclosure Statement as Exhibit "2."
2.68 SPL: Self Powered Lighting, Inc., a New York corporation, a
wholly owned subsidiary of the Debtor.
2.69 SPL Purchase Agreement: That certain agreement for the purchase
by the Debtor from Helionetics of all of the common stock of SPL.
2.70 Stockbroker: The person designated by the Court to liquidate
and sell Helionetics Stock for the benefit of the Class 2 and Class 4 Claimants
under the Plan.
2.71 Stockholder: The holder of record as of the Effective Date of
an Equity Security (common stock) of the Debtor. These parties have been
classified as the holders of Class 6 Claims.
2.72 Unclassified Claims: The Allowed Amount of: (i) all
administrative expenses of the Debtor's Chapter 11 Case, allowed pursuant to
Section 503(b) of the Bankruptcy Code, and (ii) all Allowed, Unsecured Claims
entitled to priority pursuant to Section 507(a)(1),(3), (4) and (8) of the
Bankruptcy Code for wages, salaries, vacation, severance, sick pay or
commissions.
2.73 Unsecured Claims: The Allowed Amounts of those Claims against
the Debtor for which there are no assets of the Debtor serving as security, but
not including any priority Claims.
2.74 Unsecured Creditors: Creditors holding Allowed, Unsecured
Claims against the Debtor for which there are no assets of the Debtor serving as
security, but not including priority Claims.
2.75 33 Act: The Federal Securities Act of 1933.
(B) Defined Terms.
Any term used in the Plan or the Disclosure Statement that is not
defined in the Plan, either
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in Article II, Section A (Definitions) or elsewhere, but that is used in the
Bankruptcy Code or the Bankruptcy Rules has the meaning assigned to that term in
the Bankruptcy Code or the Bankruptcy Rules.
(C) Rules of Interpretation.
For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (b) any reference in the Plan to a
contract, instrument, release or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions; (c) any references in the Plan to an existing document or Exhibit
Filed or to be Filed means such document or Exhibit, as it may have been or may
be amended, modified or supplemented; (d) unless otherwise specified in a
particular reference, all references in the Plan to Sections, Articles and
Exhibits are references to Sections, Articles and Exhibits of or to the Plan;
(e) the words "herein," "hereof," "hereto," "hereunder" and others of similar
import refer to the Plan in its entirety rather than to only a particular
portion of the Plan; (f) captions and headings to Articles and Sections are
inserted for convenience of reference only and are not intended to be a part of
or to affect the interpretation of the Plan; and (g) the rules of construction
set forth in Section 102 of the Bankruptcy Code shall apply.
(D) Time Periods.
In computing any period of time prescribed or allowed by the Plan,
the provisions of Bankruptcy Rule 9006(a) shall apply.
III.
VOTING
Under the Bankruptcy Code, no one may solicit your acceptance or
rejection of the Plan unless, at the time of or before such solicitation, there
was transmitted to you a summary of the Plan, and a written, court-approved
Disclosure Statement containing adequate information. In particular, Section
1125(e) of the Bankruptcy Code provides:
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(e) A person that solicits acceptance or rejection of a plan, in
good faith and in compliance with the applicable provisions of this
Title, or that participates, in good faith and in compliance with
the applicable provisions of this Title, in the offer, issuance,
sale, or purchase of a security, offered or sold under the plan, of
the debtor, of an affiliate participating in a joint plan with the
debtor, or of a newly organized successor to the debtor under the
plan, is not liable, on account of such solicitation or
participation, for violation of any applicable law, rule, or
regulation governing solicitation of acceptance or rejection of a
plan or the offer, issuance, sale, or purchase of securities.
It is important that you vote. Whether or not a creditor votes on
the Plan, such creditor will be bound by the terms and treatment set forth in
the Plan if the Plan is confirmed. Absent some affirmative act constituting a
vote, non-voting creditors will not be included in the tally submitted to the
Court in connection with the hearing on confirmation of the Plan.
In order to vote for or against the Plan, a Creditor must have filed
a proof of claim on or before the Bar Date unless his, her or its Claim was
scheduled in this case by the Debtor without a notation that the Claim was
disputed, unliquidated or contingent. Any such Creditor is, to the extent
scheduled, deemed to have filed a Claim, and, absent objection, such Claim is
deemed Allowed. In order to determine whether you are entitled to vote
notwithstanding the failure to timely file a proof of claim, you should review
the Debtor's Schedules D, E and F, on file with the Clerk of the Court and any
amendments thereto. If your Claim is not scheduled, or if it is scheduled as
contingent, disputed, or unliquidated and you did not file a Claim prior to the
Bar Date, you are not entitled to vote. The Debtor has filed a list of its
Stockholders with the Clerk of the Bankruptcy Court.
Allowance of a Claim or interest for voting purposes does not
necessarily mean that all or a portion of the Claim or interest will be allowed
for distribution purposes. Any Claim in this case is subject to an order
disallowing it for distribution purposes or for voting purposes on motion of any
party in interest.
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A Creditor or Stockholder may vote to accept or reject the Plan by
filling out and mailing a ballot to Debtor's counsel. Each creditor or
Stockholder is urged to promptly complete the ballot accepting the Plan and
return it to Broker & O'Keefe Professional Corporation, P.O. Box 19729, Irvine,
California, 92623-9729, as instructed on the ballot. Creditors in Classes 2 and
4 are required to provide the Debtor with additional information at the time
they vote relating to the delivery of Helionetics Stock under the Plan. PLEASE
BE SURE TO PROPERLY COMPLETE THE FORM AND LEGIBLY IDENTIFY THE NAME OF THE PARTY
VOTING THEREON.
Any creditor holding Claims in more than one impaired Class must
file one ballot for each such Class. If you have received the incorrect ballot
or if you believe you are entitled to vote in more than one Class, additional
ballots may be obtained upon written request to counsel for the Debtor at the
above referenced address.
If the Plan is rejected by one or more impaired Classes of Claims or
Interests, the Plan or a modification thereof may still be confirmed by the
Court if the Court determines, among other requirements, that the Plan does not
discriminate unfairly and is fair and equitable with respect to the rejecting
Class or Classes of Claims or Interests impaired by the Plan. The Debtor,
Helionetics and Barnes, as the co-Plan proponents, will request such a
determination (commonly referred to as a "cramdown") if the Plan or
modifications thereof is not accepted by all of the impaired Classes of Claims
and Interests held by Creditors and Stockholders.
IV.
DESCRIPTION OF THE DEBTOR
(A) Corporate Structure
The Debtor is a publicly held corporation organized under the laws
of the State of Pennsylvania. Helionetics and Susan Barnes are collectively the
majority shareholders of the Debtor as the owners of in excess of fifty percent
(50%) of the outstanding common stock of the Debtor. Lawrence Terkel is the
owner of approximately ten percent (10%) of the outstanding common stock of the
Debtor. The remainder of the outstanding common stock of the Debtor is held by
approximately 3,450 Stockholders.
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Prior to the Petition Date, the Debtor was operating manufacturing
and assembly facilities in Cleveland, Ohio, Philadelphia, Pennsylvania, Santa
Ana, California, along with the component manufacturing facility in Juarez,
Mexico. The Debtor and its two (2) wholly owned domestic subsidiaries, SPL and
Prolite, specialize in two related areas of the lighting industry: (1)
production and sale of lighting fixtures; and (2) electrical energy management.
The Debtor's lighting fixture business involves the design, manufacture,
sourcing and marketing of recessed lighting fixtures, track lighting, emergency
lighting, decorative lighting, and energy saving lighting fixtures for using in
new construction and remodeling or retail, commercial, industrial and
residential buildings. The Debtor's electrical energy management business
involves auditing, retrofitting, maintaining and managing lighting in order to
reduce energy consumption in lighting used in commercial and industrial
buildings.
SPL manufactures self-luminous safety signs for the commercial and
aircraft markets. These commercial signs are designed to meet NFPA Life Safety
Code as well as Underwriters Laboratories requirements. Since the 1960's, SPL
has been manufacturing self-luminous aircraft and other types of safety markers
for aircraft doors and cockpits, which meet or exceed all FAA requirements. SPL
also produces self-luminous EXIT signs and other safety signs for commercial
buildings. In the late 1980's SPL added a series of low energy EXIT signs to its
product line utilizing Light Emitting Diode (LED) technology. SPL anticipates an
increase in both its commercial self-luminous and LED business over the next
five (5) years.
Although SPL and the Debtor remain viable going concerns, the
Prolite operation was closed pre-petition and its assets are in the process of
being liquidated by a state-court receiver. On March 22, 1996, SPL filed for
protection under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court, Central District of California, case no. SA 96-13178 JR to
preserve its ongoing operations in light of collection efforts by Star Bank
which included the installation of a state court receiver. SPL was located in
Elmsford, New York, but has moved substantially all of its business operations
to West Nyack, New York.
The Debtor continues to operate a facility in Juarez Mexico through
its wholly-owned Mexican subsidiary, NL Corporation de Mexico A.S. de C.V. (the
"Juarez Facility"). The Juarez
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Facility manufactures certain component parts for the Debtor's operations on a
cost-efficient basis. The Debtor anticipates the continued operation of the
Juarez Facility after confirmation of its Plan.
(B) Management of the Debtor Pre- and Post-Petition
The President of the Debtor, Alvin Katz, has over twenty-five years
of experience in every aspect of the lighting industry, including management,
sales, marketing, distribution and manufacturing. Alvin Katz served as the
president of the Debtor continuously from its organization in 1988 to June of
1995. In June of 1995, he resigned the foregoing position at the insistence of
Star Bank, and a management team headed by Lawrence Terkel took over the
operations of the Debtor which moved from Irvine, California to facilities owned
by the Terkel family and leased to the Debtor in Cleveland, Ohio. Lawrence
Terkel disputes the contention that Mr. Katz' resignation was at the insistence
of Star Bank. Mr. Katz was retained by the Debtor as an independent consultant
in June of 1995. In this position, he was responsible for the Debtor's home
center sales operations. Although his title changed as indicated above, Mr. Katz
continued to play a role in the Debtor's operations.
On or about February 16, 1996, Lawrence Terkel and his management
team abruptly abandoned their positions with the Debtor after significant losses
were disclosed and Star Bank declared its credit facility to be in default.
Lawrence Terkel disputes the foregoing contention. Alvin Katz was requested by
the Debtor's newly constituted Board of Directors to assume the title and job
responsibilities of president of the Debtor.
Alvin Katz became president of the Debtor effective February 25,
1996. He is presently responsible for making all strategic decisions regarding
the prospective operations of the Debtor, in consultation with its board of
directors, and oversees all aspects of the Debtor's operations, including sales,
marketing, accounts receivable collections, and working with the accounting
staff.
(C) Disclosure of Management (Officers and Directors) of the Debtor
and Helionetics Post-Confirmation and Disclosure of Proposed Insider
Compensation Post-Confirmation Pursuant to 11 U.S.C. ss.1129(a)(5)
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(i) Management of the Debtor Post-Confirmation
The president of the Debtor, Alvin Katz, will continue to serve in
that capacity Post-Confirmation. The Chief Financial Officer of the Reorganized
Debtor will be R. Melbourne Haughton. The secretary of the Reorganized Debtor
will be Camille Traino. The directors of the Reorganized Debtor will be the
following individuals: Bernard Katz (Chairman of the Board), Chaim Markheim and
E. Maxwell Malone.
(ii) Management of Helionetics Post-Confirmation
Helionetics, an affiliate of the Debtor and a co-proponent
participating in the joint Plan with the Debtor, will have as its officers
Post-Confirmation the following persons: Bernard Katz, Chairman of the Board; E.
Maxwell Malone, president; Chaim Markheim, secretary; Chaim Markheim, treasurer.
Creditors in Classes 2 and 4 are urged to read Exhibit "8" which is a true and
correct copy of the Form 10-K (the Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934) for Helionetics' 1995 fiscal year, filed
with the Securities and Exchange Commission on August 13, 1996. Exhibit "8" was
not prepared by the Debtor. The directors of Helionetics Post-Confirmation will
be the following persons: Bernard Katz (Chairman of the Board), Chaim Markheim,
Richard Sergo and E. Maxwell Malone. The Debtor believes that the management
structure of the Debtor and Helionetics Post-Confirmation is consistent with the
interests of creditors and equity security holders and with public policy.
(iii) Proposed Insider Compensation Post-Confirmation
The president of the Debtor, Alvin Katz, will have the following
compensation package Post-Confirmation: His salary will be $110,000 per year,
with a bonus calculated at 10% of the Reorganized Debtor's pre tax cash profit.
He will be issued by Helionetics, on the Effective Date, 50,000 shares of
Helionetics common stock. Mr. Katz will have one demand registration right
entitling him to register on a Form S8 registration statement under the 33 Act,
and at the expense of Helionetics, the aforesaid Helionetics common stock. He
will be issued from Helionetics a sufficient number of outstanding shares of New
Tri-Lite Common Stock which Helionetics will receive under the Plan so that
Alvin Katz will own two percent (2%) of the outstanding New Tri-Lite Common
Stock. He will be provided with an automobile allowance of $500.00 per month,
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reimbursement of his reasonable business expenses, and medical, life and dental
insurance coverage. The foregoing arrangement will be for a three year period
following the Effective Date. If the Reorganized Debtor (excluding AIM) does not
achieve a ten percent (10%) operating profit for the calendar year ending
December 31, 1997, the Board of Directors of the Reorganized Debtor, at its sole
option, may terminate the employment arrangement with Alvin Katz. If the
Reorganized Debtor (excluding AIM) does not post an operating profit for the
calendar year ending December 31, 1997 the resignation of Alvin Katz will be
automatic.
The Salary of R. Melbourne Haughton will be $85,000 per year. He
will be eligible for an annual bonus at the discretion of the president which is
subject to the approval by the Board of Directors of the Reorganized Debtor.
The Tri-Lite Directors will be compensated in the following fashion:
Directors will be paid $300 per Board of Directors meeting, plus there will be
issued annually to each Director, including Alvin Katz, options to acquire New
Tri-Lite Common Stock equal to 1/2% of Tri-Lite's post-confirmation common stock
outstanding, at an exercise price of at market and a term of 5 years.
The following individuals are currently employed by the Debtor and
will continue to be employed post-confirmation by the Reorganized Debtor, and
are related to Alvin Katz:
<TABLE>
<CAPTION>
Name Title Relationship Compensation
- ---- ----- ------------ ------------
<S> <C> <C> <C>
Jeffrey Katz National Sales Manager, Son of Alvin Katz $62,500 per year
Trio Lighting
Robin Katz Administrative Assistant Daughter of Alvin Katz $25,000 per year
</TABLE>
V.
EVENTS PRECIPITATING THE CHAPTER 11 FILING
In June of 1995, the Debtor and SPL entered into a loan agreement
with Star Bank, pursuant to which Star Bank made available to the Debtor a five
million dollar ($5,000,000) line of credit (the "Loan"). The Loan is allegedly
guaranteed by Prolite and Helionetics. A condition to the Loan was Mr. Lawrence
Terkel having complete control of the Debtor and the Debtor moving its base of
operations to Cleveland, Ohio. In furtherance of this requirement, Helionetics
agreed to a 'Standstill Agreement' at Star Bank's insistence. As security for
the Loan, Star Bank obtained a
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first priority consensual lien on the Debtor's and SPL's inventory, accounts
receivable, and other operating assets.
The Debtor paid down the Loan dramatically during January and
February, 1996. This was due to the "ratcheting down" of availability under the
line of credit, the receipt by Star Bank of liquidation proceeds from Prolite,
and Star Bank's collections of cash from the lockbox attributable to the
receivable collections of both the Debtor and SPL. On February 16, 1996, after
Mr. Lawrence Terkel and his management team abruptly resigned, Star Bank stopped
honoring all checks, including payroll checks, drawn on the Debtor's bank
account. Bernard Katz personally covered a portion of the February, 1996 payroll
which Star Bank refused to honor.
In February of 1996, Star Bank declared a default under the terms of
the Loan, and on February 23, 1996, it obtained an order appointing a receiver
to collect and turnover to Star Bank all accounts receivable collections from
the Debtor, SPL and Prolite. As a result of the receiver's actions, the Debtor
was deprived of critically needed cash to satisfy its normal operating expenses.
Immediately before the Petition Date, Star Bank refused to allow the receiver,
who had taken possession of the Debtor's facilities, to use collections to pay
the Debtor's employees, thereby precipitating an immediate crisis. The Debtor
immediately found itself with literally no employees and no funds with which to
run a formerly viable enterprise. The Debtor filed its Chapter 11 Case intending
to use the "breathing spell" afforded by Chapter 11 to enable the Debtor to
reorganize its affairs and pay the claims of Creditors through a plan of
reorganization.
VI.
DESCRIPTION OF THE DEBTOR'S ASSETS
The Debtor filed its Schedules with the Clerk of the Court on April
2, 1996. The Debtor's tangible assets consist of inventory, accounts receivable,
and machinery and equipment. The Debtor used the best available financial
information in its possession at that time in the preparation of Schedule B -
Personal Property.
The Debtor scheduled its ownership in SPL, Prolite and the Mexican
operation as well as potential claims against Star Bank, former officers and
directors of the Debtor, and against Helionetics in "unknown" amounts. With
regard to SPL, that entity is presently in Chapter 11
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proceedings as described at Article VII (B), infra. As a result, the Debtor has
valued its equity interest in the Liquidation Analysis at zero in view of the
unsettled nature of its interest in SPL. Prolite, as described at Article IV
(A), supra, was closed pre-petition and its assets are in the process of being
liquidated by a receiver. The Debtor has valued its equity interest in Prolite
at zero in the Liquidation Analysis. The Juarez Facility manufactures certain
parts for the Debtor's operations as described at Article IV (A), supra. The
only perceived value is the approximately $100,000 in raw materials and
equipment located there, which the Debtor has described in the Liquidation
Analysis. The Debtor retains all litigation claims, including preferences and
fraudulent transfer claims, under the Plan. The Debtor has set forth in response
to Question 3 in its Statement of Financial Affairs filed with the Court on
April 2, 1996, all payments made to creditors in the 90 days preceding the
Petition Date. Because of the nature of the Plan and the speed with which it has
been proposed, the Debtor has not undertaken a 'preference analysis' nor has it
undertaken a 'fraudulent transfer' analysis.
The Debtor recently completed a periodic physical inventory of its
lighting products and arrived at a valuation at cost of $929,316 as of September
15, 1996. In addition, the Debtor owns additional raw material inventory,
machinery and equipment having an estimated value of in excess of $300,000 which
was not included in the recent inventory. The Debtor prepared a detailed aging
of its accounts receivable as of September 15, 1996. The gross amount of
accounts receivable as of September 15, 1996 was $1,136,707. Of this amount
$282,047 was in the 'current' category; $237,987 was over 30 days, $112,048 was
over 60 days; $504,624 was over 90 days.
VII.
SIGNIFICANT EVENTS DURING PENDENCY OF CASE
(A) Cash Collateral and Emergency Financing.
Shortly after the Petition Date, the Debtor filed a motion to use
cash collateral which was considered by the Court on March 14, 1996. At this
hearing, the Court authorized the Debtor the use of sixty percent (60%) of the
gross collections from the Debtor's business operations to pay the Debtor's
ordinary and necessary operating expenses. The remaining forty percent (40%) of
the
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cash collateral after disbursement to the Debtor was to be utilized for the
immediate application against the accrued interest, advances and principal in
that order to the extent funds are available, claimed to be owed to Star Bank by
the Debtor. A final hearing regarding cash collateral was set for April 8, 1996.
However, because of ongoing negotiations between Star Bank and the Debtor, the
cash collateral hearing was continued to April 29, 1996.
On March 18, 1996, the Debtor attended a final hearing on the
Debtor's Motion for Order Approving Entry Into Post-Petition Financing Agreement
(the "Financing Motion") The Court granted the Financing Motion and entered an
order approving the same on March 26, 1996 (the "Financing Order"). Pursuant to
the Financing Order, the Debtor was authorized to enter into a post-petition
financing agreement with Ms. Susan Barnes in the amount of up to $125,000. The
Debtor was given authority to draw upon the line of credit provided by Ms.
Barnes on an "as needed" basis only to meet the needs of the Debtor's ordinary
and necessary business operations. The Debtor was required to give immediate
notice to Star Bank and to the Committee in the event of any borrowing. As of
the date of this Disclosure Statement, the Debtor has borrowed approximately
$50,000 under the Financing Order, which was used to fund payroll and some
necessary operating expenses.
(B) The Voluntary Chapter 11 of SPL.
On March 22, 1996, SPL, a wholly owned subsidiary of the Debtor also
filed for protection under Chapter 11 of the Bankruptcy Code as Case No. SA
96-13178 JR to preserve its ongoing operations in light of collection efforts by
Star Bank which included the installation of a state court receiver. SPL has
been operating as a Debtor-in-Possession and it is contemplated that SPL will
propose a plan in the immediate future and emerge from Chapter 11 in the first
quarter of 1997.
(C) The Cash Collateral Stipulation with Star Bank.
At the hearing on April 29,1996, the Debtor, Star Bank and the
Committee presented the Court with the Joint Stipulation For 1) Sequestration;
2) Interim Use; 3) Turnover of Cash Collateral; 4) Repayment of Secured Debt
entered into by and between the Debtor and Star Bank (the "Stipulation"). A true
and correct copy of the Stipulation is attached hereto as Exhibit "2." Pursuant
to the Stipulation, so long as Star Bank does not breach the terms of the
Stipulation, the
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Debtor agreed to satisfy the entire obligation to Star Bank by December 15,
1996. In addition, by April 30, 1996, the Debtor shall have paid Star Bank
$100,000 or a maximum of $150,000 based on retaining thirty-five percent (35%)
of gross collections. Due to the high level of account receivable collections,
Star Bank was paid the full $150,000 for the month of April. From the period of
May, 1996 to December 1996, the Debtor is to pay Star Bank $150,000 per month
through Star Bank retaining thirty-five percent (35%) of gross collections. The
payments shall be made by the last Business Day of each month. Pursuant to the
Stipulation, the Debtor is to abide by certain reporting requirements. For
example, the Debtor is to provide Star Bank, Barnett and the Committee with
among other reports, weekly disbursement reports, weekly shipment reports, and
monthly accounts receivable runs. Please refer to Exhibit "2" for a complete
copy of the Stipulation. During the pendency of this case, the Debtor paid Star
Bank directly in excess of $1,050,000 through September 30, 1996.
(D) Claims.
The Debtor filed its Schedules and Statement of Financial Affairs
with the Clerk of the Bankruptcy Court in a timely fashion. In Schedule D, the
Debtor scheduled the secured claim of Star Bank in the amount of $1,650,000. In
Schedule E, the Debtor listed 70 creditors holding unsecured priority claims in
the aggregate amount of $111,460. In Schedule F, the Debtor listed 557 creditors
holding nonpriority unsecured claims in the aggregate amount of $3,991,414 as
undisputed and listed four (4) disputed creditors in the amount of $57,138.
The Debtor brought on for hearing on April 1, 1996 a motion to
confirm the rejection of a nonresidential real property lease in Philadelphia,
Pennsylvania as of April 1, 1996. The Debtor brought on for hearings in May and
June, 1996, motions regarding the rejection of three (3) month to month leases
and one alleged multi-year lease of nonresidential real property in Cleveland,
Ohio. The Court granted the motions and set various timeframes for the rejection
of the Cleveland leases. All locations in Cleveland, Ohio will have been vacated
and surrendered to the landlords by no later than July 1, 1996. Possible
unsecured claims will be asserted by the landlords which the Debtor believes
will augment the creditors in Schedule F, unsecured nonpriority claims, Class 4
under the Plan.
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The Debtor brought on for hearing on May 23, 1996 motions to reject
a number of employment and consulting contracts. The Court granted the motions
and the Debtor believes that the parties to the employment and consulting
contracts may file claims. The Debtor believes that it has defenses to possible
claims which may be asserted by certain of the parties to the employment and
consulting contracts. The rejection of the non-residential leases and employment
contracts described herein will save the Debtor over $50,000 per month in
operating expenses and aids the Debtor in the streamlining of its operations.
The Debtor estimates that scheduled and nonscheduled unsecured
nonpriority claims filed in this case will be in the amount of approximately $5
million. The Debtor anticipates objecting to certain of the landlord and
employment/consulting contract claims and believes that the ultimate amount of
unsecured nonpriority claims which will not be disputed by the Debtor in this
matter will be approximately $4.5 million.
On April 5, 1996, the Court entered an Order setting a "Bar Date"
for filing claims in this case 60 days after service of the notice thereof. The
first Bar Date is June 7, 1996. Undisputed creditors were not required to file
proofs of claim. After the hearings relating to the rejection of leases,
employment and consulting contracts, a second Bar Date notice was sent to
affected claimants with a Second Bar Date of August 16, 1996 only for such
claimants.
(E) Consolidation of Debtor's Business Operations in Santa
Ana, California.
In an effort to streamline its operations, the Debtor recently
consolidated its operations in Santa Ana, California through the closing of its
production facilities located at 14901 Broadway, 9615 Meech Avenue, 9500 Meech
Avenue and 9400 Meech Avenue in Cleveland, Ohio (collectively the "Cleveland
Location"). All real estate leases at the Cleveland Location were rejected
pursuant to Orders of the Bankruptcy Court with the last occupancy date on three
of the locations being July 1, 1996 as previously indicated. In connection with
this consolidation, the Debtor determined that a sale of a large portion of the
machinery and equipment located at the Cleveland Location will allow the Debtor
to effectively manage its future operations. The Debtor decided that a sale by
public auction would be the most expeditious manner in which to sell the
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Equipment. Accordingly, the Debtor applied to the Court for an order authorizing
the employment of Tauber Arons Auctioneers, Inc. to conduct a public auction of
the Equipment.
On May 23, 1996 the Bankruptcy Court authorized the sale at public
auction of the Equipment which took place on June 18, 1996. The proceeds of sale
were delivered to Star Bank to be deposited into the lock box account and
utilized by the Debtor in accordance with the terms of the Stipulation.
The Debtor is a party to a collective bargaining agreement for a
period of three years with the International Brotherhood of Electrical Workers,
Local Union 1377, dated December 3, 1994, relating to the manufacturing
operations which were in place pre-petition at the Cleveland Location. This
creditor timely filed a proof of claim in the amount of $2,835.96. There is no
business being carried on by the Debtor at the Cleveland Location and the
collective bargaining agreement has no relevance to scope of the Debtor's
ongoing operations. As a result, the collective bargaining agreement is
burdensome to the Debtor. The Debtor is taking steps pursuant to Section 1113 of
the Bankruptcy Code to effectuate the rejection of the collective bargaining
agreement in accordance with the provisions thereof. The Debtor believes that
any claim for damages arising from the rejection of the collective bargaining
agreement will not be in a significant amount, if any. If the Court does not
permit the rejection of the collective bargaining agreement, the Debtor believes
nonetheless that there is no future monetary impact upon the Debtor thereunder.
The Debtor's national sales manager, Mr. Jeffrey Katz, the son of
Alvin Katz, resides near Columbus, Ohio and incurred costs to travel back and
forth from Columbus to the Cleveland Location. The Debtor determined that it
would be beneficial to the Debtor's business operations if the Debtor moved the
warehouse and distribution (non-manufacturing) operations currently located in
the Cleveland Location to Columbus, Ohio. Accordingly, the Debtor applied to the
Court for authority to enter into an agreement with Ohio Equities, Inc. for the
lease of 11,000 square feet of industrial real property located at 6925
Americana Parkway in Columbus, Ohio for a period of three (3) years. By entering
into the new lease, the Debtor will reduce its rent expenses by approximately
$174,000 per year while still servicing major accounts in the midwest and
eastern parts of the country. The Court approved the Debtor's request on May 23,
1996 and the Debtor
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executed the proposed lease. The Debtor expects the Columbus facility to be
fully operational by August 1, 1996.
The Debtor continues to operate the Juarez Facility which
manufactures certain component parts for the Debtor's operations on a
cost-efficient basis. The Debtor anticipates the continued operation of the
Juarez Facility after confirmation of its Plan.
(F) Present Operations and Financial Condition of the
Debtor.
The Debtor centralized the majority of its operations in its
facility in Santa Ana, California. All administrative and accounting functions
were relocated from Cleveland, Ohio to the Santa Ana facility. The Debtor
operates a warehouse in Columbus, Ohio under the supervision of Jeffrey Katz to
service accounts in the midwest. The Juarez Facility is operating in close
coordination with the component part inventory needs of the Santa Ana facility.
Presently, the Debtor has 20 employees at the Santa Ana facility. The Debtor
anticipates increasing this number to 25 employees over the next 12 months as
its sales activity increases. The Debtor has 5 employees in Columbus, Ohio and
anticipates increasing this number to 7 over the next 12 months as its sales
activity increases.
The Debtor is current in all of its post-petition accounts payable.
Attached hereto as Exhibit "3" collectively are copies of the Operating Reports
furnished to the Office of the United States Trustee by the Debtor through the
reporting period ending August 31, 1996. Since the Petition Date, the Debtor has
made substantial progress in streamlining its operations and believes that its
finished goods inventory will stabilize at a value (at cost) of approximately
$1.4 million. The Debtor's "current" (under 90 days) accounts receivable as of
September 15, 1996 are approximately $632,083. The Debtor anticipates that its
gross sales for the month of October, 1996 will be approximately $450,000 since
the Columbus, Ohio facility is fully operational and is making its anticipated
contribution to the Debtor's anticipated sales volume. Attached hereto as
Exhibit "4" are copies of the Form 10-Q filed by the Debtor with the Securities
and Exchange Commission for the First, Second and Third calendar quarters of
1995.
Attached hereto as Exhibit "5" is a five-year projection (the
"Projection") of the Reorganized Debtor's operations which have been prepared by
the Debtor's management. The
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Projection is based upon certain reasonable assumptions described therein and
represent the best efforts of the Debtor's management to set forth anticipated
business operations. The Debtor has not included any projections for any other
entity within Exhibit "5" and has limited its analysis in that Projection to the
present business operations of the Debtor.
Attached hereto as Exhibit "5A" is a five year projection of the
operations of the Debtor which has been combined in summary form with five-year
projections of SPL and AIM. It is assumed that the Reorganized Debtor will
maintain its 100% stock ownership in SPL post-confirmation. As discussed at
Article XII (E), infra, on the Effective Date it is assumed that Helionetics
shall contribute to the Reorganized Debtor all of its interest in AIM. The
five-year projection of SPL was prepared by management of SPL. The five-year
projection of AIM was prepared by Ernest Dageford, the president of AIM.
Attached hereto as Exhibit "5B" is a five year projection of the
operations of the Debtor which has been combined in summary form with the
five-year projections of SPL and AIM referenced in the preceding paragraph along
with a five-year projection of RETRO-LITE, INC. It is assumed as indicated in
the preceding paragraph that the Reorganized Debtor will maintain its 100% stock
ownership in SPL post-confirmation and as discussed at Article XII (E), infra,
on the Effective Date it is also assumed that Helionetics shall contribute to
the Reorganized Debtor all of its interest in AIM. As discussed at Article XII
(G), infra, Helionetics is in discussions for its possible acquisition of
RETRO-LITE, INC. and the possible subsequent contribution thereof by Helionetics
to the Reorganized Debtor. However, at this date there is no binding contract
for such an acquisition, and talks are only in a preliminary stage. The
five-year projection of RETRO-LITE, INC. was prepared by management of
RETRO-LITE, INC.
The statements regarding future sales growth are "forward-looking"
statements that involve many risks and uncertainties that will cause actual
results to differ, perhaps materially, from those set forth therein. Among these
risks and uncertainties are the uncertainty of market penetration and resulting
sales volume, the ability to control costs and maintain margins, the
availability, amount and costs of capital required to expand various business
segments, the availability of talented personnel to manage and expand the
business, the risks of technology obsolescence, competition
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from better financed competitors, market acceptance of products, reliance on
suppliers for components and raw materials, regulatory requirements and
restrictions, and general trends in the economy and overseas markets beyond the
control of management, as well as other risks.
(G) Pledge Agreement between Committee and Helionetics.
Prior to the hearing on the adequacy of the Debtor's Disclosure
Statement which was scheduled initially for August 29, 1996, Helionetics advised
the Committee that it was unwilling to proceed with the terms and conditions as
set forth in the proposed Plan of Reorganization and requested that the
Committee agree to certain modifications to the original Plan. Among other
things, Helionetics requested that the Committee agree to (i) permit Helionetics
to make distributions under the Plan to the Class 4 unsecured creditors over a
two year period instead of a one year period as previously required by the
original Plan, and (ii) permit Helionetics to elect, at its option, to make
distributions to the Class 4 unsecured creditors in the form of free trading
Helionetics Stock or Cash payments.
The Committee was willing to modify the Plan as requested by
Helionetics provided that Helionetics, among other things, execute and deliver
to the Committee a Letter Agreement and Pledge Agreement which provide, among
other things, for Helionetics to grant and transfer to the Committee, for the
benefit of the Class 4 unsecured creditors, a first priority security interest
in 1,100,000 shares of issued and outstanding Helionetics common stock.
Helionetics agreed and thereafter executed the Letter Agreement and Pledge
Agreement dated as of August 28, 1996.
On September 3, 1996 the Bankruptcy Court approved a stipulation
between Helionetics, the Committee and the Debtor, a true and correct copy of
which is attached hereto as Exhibit "10," to enter into the Letter Agreement and
Pledge Agreement. On August 28, 1996, the Board of Directors of Helionetics
issued a resolution approving the Letter Agreement and Pledge Agreement.
Thereafter, Helionetics delivered to the Committee's legal counsel a temporary
stock certificate representing the pledge of 1,100,000 shares of issued and
outstanding Helionetics common stock.
The Letter Agreement and Pledge Agreement provide that if Helionetics shall (i)
revoke its support of the Plan at any time prior to confirmation of the Plan by
the Bankruptcy Court, or (ii) fail to
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comply with the terms of the Plan regarding any of the required distributions
thereunder, the Committee, on behalf of the Class 4 unsecured creditors, may
exercise any and all of the rights and remedies set forth in the Pledge
Agreement including, without limitation, to sell the pledged stock and apply the
sale proceeds to offset or reduce any remaining obligations owed to Class 4
unsecured creditors from Helionetics under the Plan.
(H) Barnes Agreement.
The Barnes/Helionetics Agreement ("Barnes Agreement") is an
agreement effective November 7, 1996, by and between Helionetics and Susan
Barnes as the two signers. Susan Barnes ("Barnes") is the principal shareholder
of Helionetics, Barnes and Helionetics together hold more than 50% of the
Debtor's existing Common Stock as a voting block, and Barnes is the spouse of
Bernard Katz, the Chairman of the Board of Directors of the Debtor and
Helionetics. The Barnes Agreement gives Barnes the option, but not the
obligation, to provide the Helionetics Stock (or Cash, at her option) to be
delivered periodically to Class 2 and Class 4 Creditors under the Plan. Attached
hereto as Exhibit "11" is a true and correct copy of the Barnes Agreement.
VIII.
PENDING LITIGATION
The initiation of the Debtor's Chapter 11 proceeding gave rise to an
automatic stay pursuant to Section 362 of the United States Bankruptcy Code,
which effectively stayed any pending pre-petition litigation against the Debtor,
and any litigation that could have been brought prior to the Petition Date. All
Creditors and parties in interest holding pre-petition Claims against the Debtor
were required to file those Claims by the Bar Date. To the extent that these
Claims were not filed by the Bar Date, they are barred. A description of the
items of material litigation that the Debtor is involved in is attached hereto
as Exhibit "6". The Debtor removed the Helionetics Litigation described in
Exhibit "6" to the Bankruptcy Court on May 23, 1996. The Debtor retains all
litigation claims, including preference and fraudulent transfer claims, under
the Plan. The Debtor has set forth in response to Question 3 in its Statement of
Financial Affairs filed with the Court on April 2, 1996, all payments made to
creditors in the 90 days preceding the Petition Date. Because of the nature of
the Plan and the speed with which it has been proposed, the
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Debtor has not undertaken a 'preference analysis' nor has it undertaken a
'fraudulent transfer' analysis. On October 21, 1996 the United States Trustee
filed a motion to dismiss or convert the Debtor's case to one under Chapter 7.
The Committee and the Debtor intend to vigorously oppose the motion and urge
that the Court confirm the Plan as being in the best interests of creditors and
parties in interest.
IX.
CLASSIFICATION OF CLAIMS AND INTERESTS
(A) Treatment Of Unclassified Claims.
Unless the holder of a particular claim agrees otherwise, all
Allowed Administrative Claims and all Allowed Unsecured Priority Claims shall be
paid in full, in cash, on the Effective Date, or as soon thereafter as such
Administrative Claims or Allowed Priority Claims have been allowed by Final
Order of the Court. The Debtor estimates that unpaid Allowed Administrative
Claims will be approximately $150,000 by the Effective Date and estimates that
Allowed Priority Claims will be approximately $100,000 as of the Effective Date.
The holders of Allowed Claims described by Section 507 (a) (8) of
the Bankruptcy Code, i.e. unsecured priority tax claims, shall receive deferred
cash payments, as provided for under Section 1129 (a)(9)(C) of the Bankruptcy
Code, equal to the value of their Allowed Claims as of the Effective Date. Such
deferred cash payments shall be payable as follows: From and after the Effective
Date, these claims shall bear interest at the rate of seven percent (7%) per
annum. The balance owed on said claims shall be paid in seventy two (72) equal
monthly installments of principal and interest, with the first payment being due
on the fifteenth (15th) day of the first full month following the assessment
date.
(B) Treatment of Classified Claims.
In order to comply with the terms of Section 1129 of the Bankruptcy
Code, and to provide for the orderly payment of claims, the Plan divides the
Claims of creditors into six (6) separate classes. For purposes of satisfying
Debtor's obligations created under the Plan, the Claims of the Creditors and
Interest Holders of the Debtor have been classified as follows:
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Class 1: Star Bank, as the holder of an Allowed Secured Claim in the
approximate amount of $1,000,000, secured by a first priority consensual lien
encumbering the Debtor's inventory, accounts receivable, and other operating
assets. In the worst case scenario, in the event that Star Bank is not timely
paid or the Court declares the Debtor to be in material default under the
Stipulation, its Allowed Secured Claim may be as high as $1,150,000.
Class 2: Barnett, as the holder of a disputed Secured Claim in the
approximate amount of $225,000 allegedly secured by a second priority consensual
lien encumbering the Debtor's inventory, accounts receivable, and other
operating assets.
Class 3: All Claimants holding Allowed Unsecured Claims less than,
equal to, or voluntarily reduced by the holder thereof to $500.
Class 4: All Claimants holding Allowed Unsecured Claims other than
Claims included in Class 3, in the approximate amount of $4,000,000 to
$5,000,000.
Class 5: Helionetics, Inc., as the holder of an Allowed Secured
Claim allegedly secured by a consensual lien on the Debtor's inventory, accounts
receivable, and other operating assets, in the approximate amount of $1,850,000,
arising from the SPL Purchase Agreement.
Class 6: The Stockholders (Equity Security Holders), including
Helionetics and Barnes, holding Common Stock of the Debtor.
Each Creditor and Equity Security Holder (Stockholder) should
carefully read both the Plan and this Disclosure Statement to determine into
which particular class its claim fits, and how the claims in that particular
class are treated by the Plan.
X.
SUMMARY OF PLAN
Below is a summary of the treatment accorded Allowed Claims under
the Plan:
Class Treatment Summary
----- -----------------
1 The holder of the Class 1 Claim, Star Bank, shall be
treated in accordance with the terms of the Stipulation
entered into by and between Star Bank and the Debtor on
April 29, 1996 and entered by the Clerk of the Court on
April 30, 1996. The Stipulation provides, inter alia, that
Star Bank shall receive monthly paydowns in the amount of
$150,000 during the course of the administration of the
Debtor's case by the last business day of each month
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commencing April 30, 1996, with the entire remaining
balance of principal, interest and other charges all due
on December 15, 1996. The Debtor will continue to make the
payments called for under procedures set forth in the
Stipulation on a monthly basis and pay the remaining
balance of principal, interest and other charges to the
Class 1 Claimant by December 15, 1996. The Debtor and the
Committee reserve the right to object to Star Bank's proof
of claim or otherwise assert claims and rights against
Star Bank as expressly provided in the Stipulation, in
particular at paragraphs 18, 21 and 29 thereof.
2 The Class 2 Claimant shall have a choice of two different
treatments under the Plan, being Periodic Cash Payments or
a Helionetics Stock Delivery The Class 2 Claimant shall
select his option for treatment on the Ballot accompanying
the Plan. In the event that the Class 2 Claimant indicates
his desire to receive Helionetics Stock but does not
properly complete the instructions for sale of the
Helionetics Stock accompanying the Ballot, he will be sent
Helionetics Stock on the Effective Date pursuant to the
valuation formula described hereinbelow in exchange for
his Class 2 Claim.
OPTION 1: Periodic Cash Payments: This option is mandatory
if the Class 2 Claimant does not vote or votes against the
Plan. The Class 2 Claimant shall retain the priority of his
liens, if any, on the assets of the Debtor as security for
the balance owed on his Allowed Secured Claim, including
Post-Petition interest calculated at the contract rate.
Notwithstanding the foregoing, the Class 2 Claimant shall
subordinate the priority of his liens, if any, to a new
lender for the purpose of (1) replacement of the Allowed
Secured Claim of the Class 1 Claimant and (2) the
furnishing to the Debtor or the Reorganized Debtor of
additional working capital with a new loan in an authorized
principal balance of up to $5,000,000.
From the Confirmation Date to the date the Class 2
Claimant's Allowed Secured Claim is paid in full, the
balance outstanding shall bear interest at a fixed annual
rate determined by adding two percentage points (2%) to the
yield on five year United States Treasury Securities as of
the Confirmation Date. No portion of the Class 2 Allowed
Secured Claim shall include attorneys' fees, default
interest, late penalties or similar charges or costs of any
kind, accrued or incurred post-petition, unless the same
have been approved by the Court in accordance with the
procedure set forth in Article X, Section 10.1 of the Plan.
After the Confirmation Date, the Class 2 Claimant shall
receive payments on his Allowed Secured Claim equal to the
interest accruing on such claim after the Confirmation Date
plus the amortization of principal based upon a ten year
schedule. The first such payment shall be due and payable
on the first day of the first full month following the
Effective Date and like payments shall be due and payable
on the first day of every month thereafter. The entire
balance due and owing on the Class 2 Claimant's Allowed
Secured Claim shall be paid in full on or before the first
(1st) day of the sixtieth (60th) full month after the
Effective Date.
In the event that the Reorganized Debtor fails to make the
payment due on the Class 2 Claimant's Allowed Secured Claim
in accordance with the above payment schedule, and such
nonpayment remains uncured for a period of ten (10) days
after written notice of said nonpayment is transmitted to
the
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Reorganized Debtor, then the Class 2 Claimant may pursue
any and all remedies available to him under state law and
the Bankruptcy Code.
OPTION 2: Helionetics Stock Delivery: The Class 2 Claimant
shall receive a delivery of Helionetics Stock having an
aggregate value as of the Confirmation Date, as measured by
the closing price of the Helionetics Stock on that date in
the over the counter market, equal to seventy (70) cents
for each one (1) dollar of Allowed Secured Claim held by
the Class 2 Creditor, calculated with the accrual of
Post-Petition interest at the contract rate, in exchange
for his Claims against the Debtor. No portion of the Class
2 Allowed Secured Claim shall include attorneys' fees,
default interest, late penalties or similar charges or
costs of any kind, accrued or incurred post-petition,
unless the same have been approved by the Court in
accordance with the procedure set forth in Article X,
Section 10.1 of the Plan. The Helionetics Stock will be
delivered under the exemption from Section 5 registration
under the 33 Act provided by Section 1145 of the Code and
be 'free trading' in the hands of the recipient Class 2
Creditor (so long as the Class 2 Claimant is not a 10% or
more shareholder or controlling person of Helionetics).
The Helionetics Stock shall be delivered in the following
manner: As soon as practicable following the Confirmation
Date there will be an initial delivery of Helionetics Stock
to or for the benefit of the Class 2 Claimant from
Helionetics (or at the sole option of Barnes, from Barnes)
having an aggregate value as of the Confirmation Date equal
to seventy (70) cents for each one (1) dollar of Allowed
Secured Claim held by the Class 2 Creditor, calculated with
the accrual of post-petition interest at the contract rate.
At the option of the Class 2 Claimant by electing on the
Ballot pertaining to the Plan, this delivery of Helionetics
Stock will be delivered to a stockbroker who has been
designated by the Court pursuant to the Plan, which
stockbroker will be instructed under the Plan to liquidate
and sell the Helionetics Stock for the account of the Class
2 Claimant in an ordinary trading transaction as soon as
practicable following the Confirmation Date in sufficient
amount to obtain net cash proceeds equal to seventy (70)
cents for each one (1) dollar of Allowed Secured Claim held
by the Class 2 Creditor, calculated with the accrual of
post-petition interest at the contract rate. Such proceeds
will be delivered to the Class 2 Claimant shortly after the
Effective Date. From time to time following the
Confirmation Date at the request of the stockbroker,
Helionetics (or at the sole option of Barnes, from Barnes)
will deposit additional Helionetics Stock as may be
required by the stockbroker to ensure that the net cash
proceeds payable to the Class 2 Claimant from the sale of
the Helionetics Stock (if he elects to participate) will in
fact equal a net of seventy (70) cents for each one (1)
dollar of Allowed Secured Claim held by the Class 2
Creditor, calculated with the accrual of post-petition
interest at the contract rate, after payment of such
stockbroker's fees and expenses, which in accordance with
the Plan shall not exceed amounts payable in regular and
customary brokerage transactions. . Provided, however, that
is no event at any one time, in the aggregate when combined
with Helionetics Common Stock delivered for sale to the
stockbroker by Class 4 Claimants, shall the stockbroker
hold for sale shares of the Common Stock of Helionetics
equal to or in excess of ten percent (10%) of the then
outstanding Common Stock of Helionetics.
Helionetics is a reporting company under the Securities
Exchange Act of 1934, and will be current in filing all of
its corporate reports under this Act at the time of
distribution of Helionetics Common Stock to Class 2 and
Class 4
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Claimants. Helionetics' Common Stock is traded in the
over-the-counter market, also called the Bulletin Board,
and are not listed on any stock exchange or NASDAQ. The
shares are volatile, and have experienced recent swings in
price and volume, as well as significant spreads between
bid and ask prices. Prospective recipients of the
Helionetics Common Stock should consult with their own
investment advisers as to the nature of these shares and
the risks associated with their ownership.
3 The Holder(s) of Allowed Unsecured Claim(s) of less than
$500, or who voluntarily reduce their claims to $500 by
the date set by the Court, will be paid in Cash 70% of the
amount of their Allowed Secured Claim, calculated without
the accrual of Post-Petition interest, on or before the
Effective Date.
4 Each Class 4 Claimant shall receive deliveries of
Helionetics Stock or cash, or combinations or both from
Helionetics (or at the sole option of Barnes, from
Barnes), equal to seventy (70) cents for each one (1)
dollar of Allowed Unsecured Claim held by each Class 4
Unsecured Creditor, calculated without the accrual of
Post-Petition interest, in exchange for their Claims
against the Debtor. The Helionetics Stock will be
delivered under the exemption from Section 5 registration
under the 33 Act provided by Section 1145 of the Code and
shall be 'free trading' upon receipt by the Class 4
Unsecured Creditors (so long as the Class 4 Claimants
individually or in the aggregate are not 10% or more
shareholders or controlling persons of Helionetics). The
Helionetics Stock or cash, or combinations of both, shall
be delivered to Class 4 Unsecured Creditors in the
following manner:
Initial Delivery: As soon as practicable following the
Confirmation Date, but in any event no later than thirty
(30) days after the Confirmation Date, there will be an
initial delivery (the "Initial Delivery") by Helionetics
(or at the sole option of Barnes, from Barnes), of either
(i) Helionetics Stock having an aggregate value based upon
a price per share equal to the average closing price of a
share of Helionetics Stock over the five (5) consecutive
trading days following the Confirmation Date, equal to
thirty (30) cents for each one (1) dollar of Allowed
Unsecured Claim held by each Class 4 Unsecured Creditor,
calculated without the accrual of post-petition interest,
or (ii) a Cash payment equal to thirty (30) cents for each
one (1) dollar of Allowed Unsecured Claim held by each
Class 4 Unsecured Creditor, calculated without the accrual
of post-petition interest, at the option of Helionetics.
Within ten (10) days prior to the Initial Delivery,
Helionetics or Barnes will send via regular mail written
notice to the Debtor and a representative of the Committee
of the form of the Initial Delivery (i.e., whether in all
Cash or in all Helionetics Stock). At the option of each
Class 4 Claimant who so elects on the Ballot pertaining to
the Plan (each, a "Participating Class 4 Claimant"), in the
event that the Initial Delivery is in the form of
Helionetics Stock, such stock will be delivered to a
stockbroker who has been designated by the Court pursuant
to the Plan (the "Designated Broker"). The Designated
Broker will be instructed under the Plan to liquidate and
sell the Helionetics Stock for the account of the
Participating Class 4 Claimant solely pursuant to ordinary
trading transactions as those terms are used in Section
1145 of the Bankruptcy Code as soon as practicable
following the Confirmation Date in sufficient amount to
obtain net cash proceeds equal to thirty (30) cents for
each one (1) dollar of Allowed Unsecured Claim held by such
Claimant, calculated without the accrual of post-petition
interest. Such proceeds will be distributed to the
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Participating Class 4 Claimants shortly after the Effective
Date. Pursuant to the Plan, the Designated Broker shall be
entitled to a commission for selling the Helionetics Stock
for the account of each Participating Class 4 Claimant not
in excess of the usual and customary broker's commission.
The Designated Broker will be required to deliver a copy of
the Plan and Disclosure Statement to each offeree and
purchaser of the Helionetics Stock. From time to time
following the Initial Delivery, at the request of the
Designated Broker, Helionetics (or at the sole option of
Barnes, Barnes) will deliver to each Participating Class 4
Claimant and deliver to the Designated Broker for the
account thereof, additional Helionetics Stock as may be
required to ensure that the net cash proceeds payable to
each Participating Class 4 Claimant from the sale of the
Helionetics Stock under the Initial Delivery will in fact
equal a net thirty (30) cents for each one (1) dollar of
Allowed Unsecured Claim calculated without the accrual of
post-petition interest, after payment of the Designated
Broker's usual and customary fees and expenses. In the
event that the Initial Delivery is in the form of
Helionetics Stock, those Class 4 Claimants who (a) do not
vote on the Plan and return the Ballot or (b) do not
properly complete the instructions for sale of the
Helionetics Stock accompanying the Ballot, or (c) elect not
to sell their Helionetics Stock through the use of the
Designated Broker (in each case, a "Non-Participating Class
4 Claimant"), will be delivered their Helionetics Stock at
the time of the Initial Delivery pursuant to the valuation
formula described hereinabove. Each Non-Participating Class
4 Claimant shall not be entitled to receive any additional
deliveries of Helionetics Stock described above,
notwithstanding that the net cash proceeds received by such
Non-Participating Class 4 Claimant upon the sale of its
Helionetics Stock does not equal thirty (30) cents for each
one (1) dollar of Allowed Unsecured Claim held by such
Claimant, calculated without the accrual of post-petition
interest. Pursuant to the Plan, in no event at any one
time, in the aggregate when combined with Helionetics
Common Stock delivered for sale to the Designated Broker by
the Participating Class 4 Claimants, shall the Designated
Broker hold for sale shares of the Common Stock of
Helionetics equal to or in excess of ten percent (10%) of
the then outstanding Common Stock of Helionetics. At the
time of the Initial Delivery, the Helionetics Stock pledged
to the Committee by Helionetics shall be revalued at the
closing market price as of the date of such Initial
Delivery, and any pledged Helionetics Stock representing
value in excess of 115% of the remaining outstanding
amounts owed and unpaid to Class 4 Claimants under this
Plan after such Initial Delivery shall be returned to
Helionetics, subject to the Committee's receipt of a new
certificate representing the reduced amount of pledged
Helionetics Stock, along with a stock power executed in
blank. Subsequent Deliveries: There will be subsequent
deliveries to Class 4 Unsecured Creditors, of either (i)
Helionetics Stock having an aggregate value equal to an
additional forty (40) cents for each one (1) dollar of
Allowed Unsecured Claim held by each Class 4 Unsecured
Creditor, calculated without the accrual of post-petition
interest, or (ii) periodic Cash payments equal to a total
of forty (40) cents for each one (1) dollar of Allowed
Unsecured Claim held by each Class 4 Unsecured Creditor,
calculated without the accrual of post-petition interest,
at the option of Helionetics (or at the sole option of
Barnes) ("Subsequent Deliveries"), as set forth below.
Helionetics Stock available to the Participating Class 4
Claimants shall be delivered to the Designated Broker to be
sold for their account. The Subsequent Deliveries, whether
in Cash or Helionetics Stock, shall be payable in four
installments on each of the following dates (or, if such
date is not a regular business day, on the first business
day thereafter):
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Six (6) Months after Effective Date: 7.5%
Twelve (12) Months after Effective Date: 15.0%
Eighteen (18) Months after Effective Date: 22.5%
Twenty-Four (24) Months after Effective Date: 55.0%
-----
Total 100%
Each of the Subsequent Deliveries may be, at the option of
Helionetics (or at her option by Barnes), either entirely
in the form of Helionetics Stock or entirely in Cash, and
Helionetics (or at its option by Barnes) may, in its
discretion, alternate the form of each delivery. However,
not more than fifteen (15) days nor less than ten (10) days
prior to the scheduled date of each of the Subsequent
Deliveries, Helionetics (or Barnes) will send via regular
mail written notice to the Debtor and a representative of
the Committee of the form of the delivery (i.e., whether in
Cash or in Helionetics Stock). If Helionetics elects to
deliver Helionetics Stock, it shall be valued for the
purposes of each such Subsequent Delivery at a price per
share equal to the average closing price of a share of
Helionetics Stock over the five (5) consecutive trading
days up to and including the trading day immediately prior
to the date of such notice. Helionetics may, at its sole
option (or Barnes, at her sole option), accelerate the date
of any scheduled delivery hereunder; provided, however,
that Helionetics (or Barnes) shall not be permitted to
accelerate a Subsequent Delivery in the form of Helionetics
Stock, if the Helionetics Stock to be delivered to the
Designated Broker, when aggregated with the Helionetics
Stock previously delivered to and still held by the
Designated Broker, would cause the Designated Broker to
hold on behalf of the Participating Class 4 Claimants
Helionetics Stock equal to or in excess of ten percent
(10%) of the then outstanding Common Stock of Helionetics.
At the time of each Subsequent Delivery, the Helionetics
Stock pledged to the Committee by Helionetics shall be
revalued at the closing market price as of the date of such
Subsequent Delivery, and any pledged Helionetics Stock
representing value in excess of 115% of the remaining
outstanding amounts owed and unpaid to Class 4 Claimants
after such Subsequent Delivery shall be returned to
Helionetics subject to the Committee's receipt of a new
certificate representing the reduced amount of pledged
Helionetics Stock, along with a stock power executed in
blank.
Debtor's Counsel will issue a qualified opinion that the
delivery of the aforesaid shares of Helionetics Common
Stock under the Plan and their resale by creditors into
public markets is exempt from Section 5 registration under
the 33 Act pursuant to Section 1145 of the Code and Section
4(1) of the 33 Act. Helionetics shall obtain all
appropriate board resolutions and other corporate authority
necessary to enter into the transactions contemplated
herein prior to December 15, 1996.
The Court will be requested to make appropriate findings in
the Confirmation Order that: (i) title to the Helionetics
Stock to be delivered to Class 4 Claimants will pass to the
Class 4 Claimants only upon the delivery of the Helionetics
Stock to the Class 4 Claimants or to the Designated Broker
who will sell the Helionetics Stock for their account
pursuant to ordinary trading transactions, as applicable;
(ii) the Helionetics Stock previously pledged to the
Committee by stipulation approved by the Court on September
3, 1996 upon foreclosure of the pledge in accordance with
the Security Agreement will be exempt from Section 5
registration under the 33 Act pursuant to Section 1145 of
the Bankruptcy Code and Section 4(1) of the 33
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Act and, upon confirmation of this Plan, following such
foreclosure, shall be available for immediate resale as
described herein without registration under Section 5 of
the 33 Act; (iii) as long as the Class 4 Unsecured
Creditors individually or in the aggregate are not 10% or
more stockholders or controlling persons of Helionetics,
the offer and sale of the Helionetics Stock to the Class 4
Unsecured Creditors under the Plan, and the offer and sale
of the Helionetics Stock by the Class 4 Unsecured Creditors
into the public market, including without limitation the
offer and sale of Helionetics Stock by the Designated
Broker on behalf of each Participating Class 4 Claimant,
will be exempt from the registration requirements under
Section 5 of the 33 Act pursuant to the exemptions provided
by Section 1145 of the Code and Section 4 (1) of the 33
Act; (iv) each offer and sale by the Designated Broker of
the Helionetics Stock in accordance with the Plan is an
"ordinary trading transaction" under Section 1145(b)(1) of
the Code; (v) neither the Class 4 Unsecured Creditors, nor
the Committee, nor the Designated Broker, nor the Debtor is
an "underwriter" as defined under Section 1145 of the Code
and, accordingly, are none of such persons are
"underwriters" under Section 2(11) of the 33 Act, with
respect to the delivery, offer, sale and issuance of the
Helionetics Stock; (vi) Barnes and Helionetics are
"affiliates" of the Debtor as defined in Section 101(2) of
the Code; (vii) the offer and sale of the New Tri-Lite
Common Stock to the Class 6 interest holders and to
Helionetics and/or Barnes, will be exempt from the
registration requirements under Section 5 of the Securities
Act of 1933 pursuant to the exemptions provided by Section
1145 of the Code; and (viii) the New Tri-Lite Common Stock
to be offered and sold to Helionetics and Barnes as Class 6
interest holders, will be offered and sold in the manner
specified under subsection (a)(1) of Section 1145 of the
Code, such offer and sale will be deemed to be a public
offering as specified in subsection (c) of Section 1145 of
the Code, and such stock shall be available for immediate
resale subject to volume limitations on resale applicable
to "affiliates" of an issuer who have received
"non-restrictive" securities in a public offering as set
forth in Securities and Exchange Commission Rule 144, the
exemptions provided by Section 1145 of the Code, and
Section 4(1) of the 33 Act.
Helionetics is a reporting company under the Securities
Exchange Act of 1934, and will be current in filing all of
its corporate reports under this Act at the time of
distribution of Helionetics Common Stock to Class 2 and
Class 4 Claimants. Helionetics' Common Stock is traded in
the over-the-counter market, also called the Bulletin
Board, and are not listed on any stock exchange or NASDAQ.
The shares are volatile, and have experienced recent swings
in price and volume, as well as significant spreads between
bid and ask prices. Prospective recipients of the
Helionetics Common Stock should consult with their own
investment advisers as to the nature of these shares and
the risks associated with their ownership.
5 In consideration of the Debtor having compromised through
an appropriate Order of the Bankruptcy Court dismissing
the Helionetics Litigation immediately after the Effective
Date regarding the SPL Purchase Agreement and any other
relief sought by the Debtor against Helionetics, and in
consideration of the allowance of Helionetics' Allowed
Class 5 Secured Claim in the amount of approximately
$1,850,000, (i) the Debtor will retain all of its right,
title and interest in the common stock of SPL; (ii)
Helionetics (or at her sole option Barnes)will cause
sufficient Helionetics Stock or Cash to be delivered to
meet the requirements of Sections 6.2, 6.3, 6.4.1 and
6.4.2 of the Plan to satisfy the requirements for the
exchange of the Claims of Class 2
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and 4 Claimants; and (iii) on the Effective Date
Helionetics shall contribute to the Reorganized Debtor all
of its interest in AIM which is intended to transfer to the
Reorganized Debtor all proprietary rights to the AIM
Filter.
The Class 5 Claimant shall retain the priority of its liens
on the assets of the Debtor as security for the balance
owed on its Allowed Secured Claim, including Post-Petition
interest calculated at the non-default contract rate.
Notwithstanding the foregoing, the Class 5 Claimant shall
subordinate the priority of its liens to a new lender for
the purpose of (1) replacement of the Allowed Secured Claim
of the Class 1 Claimant and (2) the furnishing to the
Debtor or the Reorganized Debtor of additional working
capital with a new loan in an authorized principal balance
of up to $5,000,000.
No portion of the Class 5 Allowed Secured Claim shall
include attorneys' fees, default interest, late penalties
or similar charges or costs of any kind, accrued or
incurred post-petition, unless the same have been approved
by the Court in accordance with the procedure set forth in
Article X, Section 10.1 of the Plan.
From the Confirmation Date until the Class 5 Allowed
Secured Claim is paid in full, the balance outstanding
shall bear interest at a fixed rate of seven and one-half
percent (7.5%) per annum. After the Confirmation Date, the
Class 5 Claimant shall receive semi-annual payments of
interest only, with the first payment due on the first
(1st) day of the sixth month following the Effective Date
with the entire balance due and owing on the Class 5
Claimant's Allowed Secured Claim to be paid in full by on
or before the first (1st) day of the seventy-second (72nd)
full month after the Effective Date.
In the event that the Reorganized Debtor fails to make any
payment due on the Class 5 Claimant's Allowed Secured Claim
in accordance with the above payment schedule, and such
nonpayment remains uncured for a period of ten (10) days
after written notice of said nonpayment is transmitted to
the Reorganized Debtor, the outstanding obligation shall
accelerate and the Class 5 Claimant may pursue any and all
remedies available to it under state law and the Bankruptcy
Code.
6 On the Effective Date all Common Stock and securities in
the Debtor shall be automatically canceled and the
Debtor's Articles shall be automatically amended to
authorize the issuance of up to twenty-five million
(25,000,000) shares of New Tri-Lite Common Stock, of which
four million (4,000,000) shares will be issued under the
Plan. All members of Class 6, with the exception of
Helionetics and Barnes, shall be issued on a pro rata
basis 12.5% of the New Tri-Lite Common Stock in the
Reorganized Debtor in exchange for their existing "old
common shares" of the Debtor currently outstanding and in
their hands. Helionetics will contribute to the
Reorganized Debtor on the Effective Date all of its
interest in AIM, which is intended to transfer to the
Reorganized Debtor all proprietary rights to the AIM
Filter. Helionetics and/or Barnes shall be issued 87.5% of
the New Tri-Lite Common Stock in the Reorganized Debtor in
exchange for their respective "old common shares" of the
Debtor currently outstanding and in their hands in
proportion to the shares of Helionetics Stock (or at their
option, Cash) they respectively deliver to Class 2 and 4
Creditors, in a transaction exempt from registration under
the 33 Act, pursuant to Section 1145 of the Code. In the
event Barnes elects to deliver no Helionetics Stock or
Cash to Class 2 and Class 4 Creditors, then the 87.5%
block of New Tri-Lite Common Stock shall be allocated
between Barnes and Helionetics, in proportion to their
holdings of "old common
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shares" of the Debtor.
The Court will be requested to make appropriate findings in
the Confirmation Order that: (i) title to the New Tri-Lite
Common Stock to be delivered to Class 6 Claimants
(including Barnes and/or Helionetics) will pass to the
Class 6 Claimants only upon the delivery of New Tri-Lite
Stock certificates; (ii) the issuance of the New Tri-Lite
Stock to the Class 6 members and to Helionetics JV, Barnes
and/or Helionetics under the Plan, will be exempt from the
registration requirements under Section 5 of the 33 Act
pursuant to the exemption provided by Section 1145 of the
Code; (iii) neither the Class 6 members nor the Debtor
(excluding Helionetics and Helionetics JV), is an
"underwriter" as defined under Section 1145 of the Code;
(iv) the New Tri-Lite Common Stock to be issued to the
Class 6 members, excluding Helionetics JV, Barnes and/or
Helionetics, shall be available for immediate resale
without registration under Section 5 of the 33 Act,
pursuant to the exemptions provided by Section 1145 of the
Bankruptcy Code and Section 4(1) of the 33 Act; (v) the
Helionetics JV is an "affiliate" of the Debtor as defined
in Section 101(2) of the Code; (vi) the offer and sale of
the New Tri-Lite Common Stock to the Class 6 interest
holders and to Helionetics and/or the Helionetics JV, will
be exempt from the registration requirements under Section
5 of the Securities Act of 1933 pursuant to the exemptions
provided by Section 1145 of the Code; and (vii) the New
Tri-Lite Common Stock to be offered and sold to the Class 6
interest holders, including Helionetics and the Helionetics
JV, will be offered and sold in the manner specified under
subsection (a)(1) of the Section 1145 of the Code, will be
deemed to be a public offering as specified in subsection
(c) of Section 1145 of the Code, and shall be available for
immediate resale subject to volume limitations on resale
applicable to "affiliates" of an issuer who have received
"non-restrictive" securities in a public offering as set
forth in Securities and Exchange Commission Rule 144, the
exemptions provided by Section 1145 of the Code, and
Section 4(1) of the 33 Act.
All prepetition executory contracts and unexpired leases in which the Debtor is
the lessor or lessee and which have not been previously rejected during the
course of this Chapter 11 case which are set forth on Exhibit "7" hereto shall
be assumed through the Plan. All other prepetition executory contracts and/or
unexpired leases not previously assumed or rejected during the course of this
Chapter 11 case shall be deemed rejected by the Plan. All claims arising from
the rejection of executory contracts and/or unexpired leases which have been
deemed rejected by the Plan must be filed with the Court within thirty (30) days
of the Confirmation Date or shall be barred. The foregoing is a summary of the
Plan. All creditors should read the Plan in its entirety.
XI.
IMPAIRMENT OF CLAIMS
All Classes of Creditors are impaired under the Plan.
XII.
MEANS OF EXECUTION
(A) Financing of Cash Distributions on Effective Date. Helionetics'
loan of funds to the Debtor (or Barnes' loan of funds to the Debtor, in her sole
discretion), or the proceeds of other
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new financing, and the Debtor's internally generated cash will be used to pay
Unclassified Claims by on or before the Effective Date and the payment to Class
3 Unsecured Creditors. It is estimated that approximately $250,000 in Cash will
be necessary to pay Unclassified Claims and the Class 3 Unsecured Creditors by
the Effective Date, which included estimated attorneys' and accountants' fees
which have not been paid by the Debtor during the course of the case. The
Reorganized Debtor is also to be the Disbursing Agent for the purposes of any
Cash distributions under the Plan. The Transfer Agents for Helionetics and the
Reorganized Debtor shall handle the delivery of Helionetics Stock and New
Tri-Lite Common Stock to Creditors (or to the Stockbroker designated by the
Court if they so elect) and Interest Holders under the Plan.
(B) Payments to Star Bank. The Debtor will continue with its efforts
to secure replacement financing for its business operations and will have a new
institutional lender or Susan Barnes on terms satisfactory to her in place by
December 15, 1996 to insure the availability of the final payment due Star Bank
at that time. The Debtor does not at this time have a written commitment from an
institutional replacement lender for Star Bank, although several potential
lenders have expressed interest. The Debtor intends to replace Star Bank by
November 30, 1996 if at all possible.
(C) Delivery of Helionetics Stock or Cash. Helionetics (or at her
sole option Barnes) will cause sufficient Helionetics Stock to be issued or, at
its option, Cash, to meet the requirements of Sections 6.2, 6.4.1 and 6.4.2 of
the Plan to satisfy the requirements for the exchange of the Claims of Class 2
and 4 Claimants. The Helionetics Stock will be delivered for the benefit of the
Class 2 and 4 Claimants under the exemption from registration provided by
Section 1145 of the Bankruptcy Code. Attached hereto as Exhibit "8" is a true
and correct copy of the Form 10-K (the Annual Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934) filed by Helionetics for its 1995
fiscal year with the Securities and Exchange Commission on August 13, 1996.
Exhibit "8" was not prepared by the Debtor. Since that date, Helionetics has
continued to file reports as required under the Securities Exchange Act of 1934.
Copies of all filed reports may
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be obtained from the Securities and Exchange Commission, Public Reference
Department, 450 5th Street, N.W., Washington D.C. 20549 or from Helionetics,
6849 Havenhurst Ave., Van Nuys, CA 92406, telephone (818) 778-0000, fax (818)
778-1111.
(D) Compromise of Controversy re: Helionetics Litigation. The
Helionetics Litigation will have been compromised, pursuant to a noticed hearing
under Bankruptcy Rule 9019, in such a fashion concurrently with the hearing on
Confirmation and contingent upon Confirmation of the Plan that the Debtor shall
be authorized to dismiss with prejudice its claims against Helionetics
immediately after the Effective Date. Helionetics is to specifically retain any
and all claims and causes of action it may hold against Star Bank and its
employees or agents and any and all other claims or causes of action it may have
against any third parties as a Stockholder of the Debtor.
(E) Contribution of Aim to the Reorganized Debtor. On the Effective
Date, Helionetics shall contribute to the Reorganized Debtor all of its interest
in AIM which is intended to transfer to the Reorganized Debtor all proprietary
rights to the AIM Filter. The further development by the Reorganized Debtor of
the AIM Filter described in more detail hereinbelow may lead to an overall
increase in the value of the Reorganized Debtor. This anticipated increase in
value will not only benefit those Creditors receiving Helionetics Stock under
the Plan but the Class 6 existing Stockholders of Tri-Lite as well who will
receive New Tri-Lite Common Stock under the Plan in exchange for their present
interests in the Debtor.
(i) Overview
Through the DECC Division of Helionetics, an Active Injection Mode
filter ("AIM") was developed which eliminates or significantly reduces AC power
line distortions (harmonics). This product, based on proprietary technology,
including two patents (one of which is pending), all owned by Helionetics,
provides cost effective solutions which Helionetics believes are not currently
available in the marketplace, which should allow power users to more readily
meet the proposed stringent regulatory IEEE (Institute of Electrical and
Electronics Engineers) standard, "IEEE 519-1992" which requires electrical
engineers and consultants to design systems to "limit" the
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harmonics created by new users and new installations. These standards are
difficult and expensive to achieve using traditional approaches for harmonic
filtering.
Efforts are being made throughout the world to conserve electrical
energy so as to limit increases in electric energy costs, reduce the waste of
non-renewable energy resources, and limit the environmental. impact of electric
power production. These efforts increasingly rely on energy conserving motors
and lighting.
A serious side effect of using such devices, as well as of using
computers, uninterruptible power supplies for computers and similar devices, is
the creation of current and voltage distortion on AC power lines ("harmonics").
Harmonics increase electrical bills, overheat wires and equipment, waste energy
and interfere with telecommunications. These effects have led to new
professional standards, most notably IEEE Standard 519-1992.
Helionetics believes that AIM Filters may be the most cost effective
means of mitigating the harmonics problem in a variety of applications. AIM
Filters eliminate harmonics by capturing unwanted harmonic current flows,
reducing both current and voltage distortion, reducing the energy wasted due to
harmonics and eliminating harmful effects on equipment. AIM Filters are an
outgrowth of a device designed by DECC engineers for military uses. Since the
first pre- production model of an AIM Filter was installed in March, 1994, over
50 AIM Filters have been delivered for installation.
The potential market for AIM products has been derived from numerous
studies for products which produce harmonics in significant quantities.
Organizations like Frost & Sullivan, Integrated Marketing Resource, and Drucker
Research have defined the markets for variable speed (AC & DC motor speed
controllers) and UPS (uninterruptible power supplies). Each study very closely
parallels the other regarding market potentials for each product class. In
addition to these studies, specific contact has been made with some of these
manufacturers, such as Emerson Industrial Controls, Liebert, Allen Bradley,
Robicon, Fischer-Porter and Exide Electronics.
The size of the USA market for AC and DC motor speed controllers is
expected to be over $1 billion for 1996. Integrated Marketing Resource put the
USA market for UPS at $2 billion for 1994. Within these markets approximately
15% of the sales numbers include harmonic mitigation
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equipment. That means that approximately $450 million of harmonic mitigation
equipment is sold by the suppliers of harmonic distortion causing equipment.
Additionally, new products such as ultraviolet (UV) disinfection
systems are being placed in the wastewater market. Fischer-Porter has stated the
market potential for 1997 at $50 million. Each of these UV systems requires
harmonic mitigation. Each harmonic mitigation system will be approximately 9-10%
of the total sales or $5 million.
It is widely believed in industrial/commercial circles that the USA
and Canada are 1/3 of the world market, and that Europe and the Pacific rim are
each 1/3 of the worldwide market for these products. Thus, worldwide it is
projected that total harmonic suppression dollars expended in 1996 could be as
much as $1.5 billion.
(ii) AIM Products
The "Active Injection Mode Harmonic Conditioners" (the "AIM
Filters") are based in part on technology Helionetics developed for and used in
mission critical power conditioning equipment sold to the military under
military specifications. AIM Filters are designed to alleviate the growing
problem of harmonics in the worldwide electric power system infrastructure.
Harmonics waste energy, increase electrical bills, overheat wires and equipment,
create interference, cause computers and computer-controlled equipment to
malfunction and interfere with telecommunications. Harmonics can require
expensive rewiring to avoid overheating of wires and has caused facility fires.
Harmonics are an increasingly serious hazard due to the greater use of devices
to improve energy efficiency and the rapid expansion in the use of computers and
computer related equipment.
Alternating current (AC) is now universally used to deliver power in
electric power systems. AC power is known as "alternating" because the flow of
current is continuously reversing: positive current in any one wire becomes
negative current and vice versa. This happens 60 times per second in the United
States and Canada, and hence is called "60 cycle" power. Ideally this
alternation occurs smoothly and continuously, e.g., from positive 110 volts to
negative 110 volts. If pictured on a graph (or oscilloscope), the alteration of
current forms a smooth "sine wave" and thus the current is known as
"sinusoidal." However, the flow of current is not smooth and
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continuous when there is harmonic distortion of current. Harmonic distortion of
current causes voltage harmonics, i.e. increases or decreases in voltage from
that which would conform to a smooth sine wave.
Equipment such as computers, electronic ballasts (used by
fluorescent lights), welding equipment, battery chargers, motor speed control
devices such as variable speed drives ("VSDs") and uninterruptible power
supplies ("UPSs") all use utility current to run an electronic power converter.
The power converter changes the normal AC power supplied by the utility into
direct current ("DC") (and in some cases back to the AC power) used by the
machines. Power converters draw current in pulses, and the effect of each pulse
is to generate harmonic distortion in the current carried by the wire. When
harmonics from different sources are in synchronization, the effect is
amplified.
Current harmonics waste energy, requiring increased generation
capacity and fuel use. Harmonics can cause computer shut downs, tripped circuit
breakers, overloading of electric equipment (especially transformers), failure
of electronic parts, premature failure of insulation on electrical wires
("conductors"), and a reduction in capacity of the large conductors and the
useful output of power generators.
Computers and computer controlled equipment must have essentially
sinusoidal or "clean" voltage productivity. In addition to the fact that
telecommunications equipment is now generally controlled by computers sensitive
to harmonics, telecommunications equipment can also suffer interference from
harmonics, degrading the quality of the signal. Medical equipment, such as
computer controlled monitors, CAT scanners, magnetic resonance imagers (MR), and
X-ray equipment can also malfunction because of harmonics.
Building wiring and transformers can suffer overheating and
premature aging in the presence of harmonics. A now common problem found in
large office buildings is a build up of current on the neutral conductor of
three phase systems. While these conductors ideally would have no current flow
at all, harmonics may cause them to carry a current substantially in excess of
the current on any other conductor. This current can overheat the wire,
requiring rewiring to prevent electrical fires. As a result, building owners may
expend substantial sums to rewire or
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require tenants to limit or reduce the harmonics they create in order to protect
the building wiring and the integrity of other tenants' power supplies.
Harmonics also cause transformers serving a building or a particular portion of
the building to overheat, and heavier duty, more expensive harmonic resistant
transformers ("K-rated transformers") are required where harmonics are
anticipated.
Uninterruptible power supplies are used to protect computers and
important equipment from power failure. Each UPS contributes harmonics because
of its AC/DC power converter, while at the same time supplying power to
equipment sensitive to harmonics. Thus, the UPS may require harmonic filtering
to limit the harmonics it creates in the building and protective circuits to
protect it against harmonics from other sources. In addition, harmonic filtering
may be necessary for the successful synchronization of the UPS power supply and
the line power supply which is required for redundancy. A similar problem exists
with respect to standby emergency generators, which may be .unable to operate in
a building with large harmonics due to an inability of the small generators to
supply sufficient current and/or an inability to synchronize with other power
sources (utility power or UPS power).
Harmonics spread not only throughout a building, but also from the
building to the utility power distribution network. If the harmonics from
different buildings are in synchronization, the problems they cause can spread
to other buildings.
Harmonics also cause problems for utilities. Harmonics travel
through power lines to utility equipment, such as switches, transformers and the
nearest generator, potentially damaging such utility equipment. The utility must
limit harmonics on the line to serve their customers and protect their own
equipment. In addition, harmonics require larger conductors and generation
capacity to supply the power needed to do a given amount of useful work.
As an additional benefit, the AIM Filters also provide substantial
power factor correction. "Power factor" is the ratio of the watts of electricity
consumed to volt-amps on the circuit, expressed as a ratio. Thus, if a
traditional electricity meter indicates 80 watts consumed, but the utility is
supplying 1 amp of power at 100 volts, or 100 volt-amps, the power factor would
be 0.8 PF. Several United States utility companies have begun implementing
surcharges for large customers with low power factors to recover the cost of
supplying the larger volt-amps required by the customer. Those surcharges are a
material part of electric bills for large
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customers with low power factors. The AIM Filter increases the power factor,
thus reducing the surcharge; this may provide an additional cost justification
for installation of such filters. However, it should be noted that in many if
not most installations, the traditional alternative approach of adding power
factor corrections capacitors and equipment may be adequate, and the AIM Filter
must compete with these approaches as a means of power factor correction.
Helionetics is currently marketing AIM Filters for three types of
applications: (1) three phase, three wire balanced loads; (2) three phase, four
wire unbalanced loads; and (3) single phase loads. AIM Filters for three phase,
three wire loads are suitable for use with products such as VSDs, including both
AC and DC motor speed controls, and are compatible with other balanced loads,
such as UPSs, fluorescent lighting ballasts, mainframe computers and ultraviolet
lighting. The AIM Filters in this category handle voltages of 200, 208, 240,
400, 480, 600 volts and provide currents of up to 25, 50 or 100 amps. The first
model of the AIM filters, a 400 volt, 100 amp, three phase, three wire unit
designed for industrial applications, operated successfully since its
installation in March 1994, and has exceeded its performance specifications.
Over 50 of the three phase, three wire AIM Filters have been installed to date,
including models in each of the six listed voltage configurations.
The AIM Filters do not address all power quality problems. The
filters will not stop large voltage surges caused, for instance, by lightning
strikes; a separate surge protector (together with a UPS or backup generator to
maintain power) is needed for this. The AIM Filters cannot correct voltage sags
caused by the utility system (as opposed to those caused by the harmonics), for
which a UPS would be necessary. The capabilities of the AIM Filters complement
those of a UPS, or static Var Generator, or a back-up generator, eliminate
problems caused by that equipment and other equipment causing or sensitive to
harmonics, and may be necessary in order to use such equipment effectively.
The AIM Filters can be used either in existing installations with
harmonic problems or in connection with installation of new devices which are
likely to cause harmonic problems, or can be
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sold together with (or incorporated into) specific products which are likely to
cause harmonics. The first models of the AIM Filters were designed for use in
the commercial, industrial, and public utility sectors to install in
water/sewage treatment and other large facilities using VSD controlled motors,
and in office buildings and institutions with significant use of VSDs,
computers, UPSs, or energy saving illumination. Subsequent models of the AIM
Filters are suitable for all but the largest VSDs and UPSs.
Installation of VSDs in existing buildings reduces electric
consumption by 30% to 50% of the electricity used by motors in elevators, fans,
and HVAC. Helionetics estimates that the expense of adding a VSD can be
recovered quickly, making the change highly cost-effective. The harmonics caused
by the VSD installation may be unacceptable without harmonic filtering, and
Helionetics believes that approaches to harmonic filtering other than the AIM
Filter have serious drawbacks. Thus, Helionetics intends to market AIM Filters
as a simple and cost-effective way of using VSDs, allowing recovery of the VSD
cost savings. Even with the cost of the AIM Filters, Helionetics believes that
the cost of the VSD and filter can generally be recovered in less than three
years.
Helionetics expects water and sewage treatment facilities to use
VSDs, since they use large electric motors to pump and aerate water and sewage.
Harmonics generated by these installations can be corrected through passive
filters, but only after extensive engineering has been undertaken to determine
the precise source and nature of the problem and to design suitable filters.
Passive filters require engineering to be redone every time new sources of
harmonics arise.
The first pre-production unit of the AIM Filter was installed in a
water treatment facility in California which makes extensive use of large
electric motors powered by VSDs. The VSDs caused such severe harmonics that the
motors could not be properly operated. The AIM Filter reduced the harmonics
generated by the unit on which it was installed to below even the most stringent
standards of IEEE 519-1992. AIM expects to sell this version of the filter to
other customers for approximately $10,000. The estimated cost of alternatives
for this installation would have been over $20,000 and probably would not have
achieved compliance with IEEE 519-1992.
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Because office buildings use electric motors for elevators and
heating, ventilating and air conditioning (HVAC), use of VSDs would be highly
cost-effective. However, the harmonics must be controlled. Office buildings also
contain equipment such as computers, printers and UPSs, which both create
harmonics and are very sensitive to harmonics created by other sources. Thus,
harmonic control or mitigation may well be essential to the use of VSDs and to
the electrical "health" of the building itself.
Factories, refineries and similar installations may need to control
harmonics to permit reliable operation of computer controlled systems, and in
some areas to limit utility power factor surcharges and comply with utility
power quality requirements. Filters have been specified for future installations
following the successful trial period by Exide, IBM/Canada, Toshiba and Siemens
(VSD installations) and the DuPont Corporation among others.
IEEE-519-1992 has been placed into the Provential Electric Code for
Saskatchewan, Northwest territories, and Alberta, Canada with a significantly
corresponding increase in orders from those areas. The majority of AIM filters
have been sold to Canada. Japan is introducing harmonic control with a new
specification not yet released. Europe is controlling harmonics with IEC-555-2
which also forms the basis for the forthcoming Japanese specification. Most
specifications are similar to IEEE-591-1992. Helionetics anticipates that this
regulatory climate will become more intolerant of harmonic distortion and will
continue to spread to other governmental entities thereby giving further impetus
to the sales environment for AIM filters. While ANSI/IEEE-519-1992 is not a
"Law" in the United States (at this time), the practice is followed by
consulting engineers whenever there is a new installation, or an addition or
modification into a major existing installation. If the consultant does not
follow the practices and recommendations in IEEE-519-1992, he is liable for any
failures or losses resulting from such-"poor practice" which can professionally
affect his license (and has engineering liability exposure implications).
(iii) Marketing
AIM has entered into representation agreements with independent
companies which sell and service VSDs and UPSs. These agreements generally are
exclusive within a territory. It is anticipated that these representatives
generally will be paid a portion of the price of each AIM Filter
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they sell as a sales commission, and will not buy the filters for resale.
However, AIM may contract with one or more stocking distributors who may
purchase the filters for resale. In each case, the local representatives will
have local servicing responsibilities for the products. In addition, AIM will
retain the right to sell directly to "national accounts" in territories serviced
by a distributor, but will pay the representative a reduced fee to supply local
service. In areas in which there are no distributors, AIM will market the
filters directly.
AIM may engage in other similar or related activities which are
complementary to the sale of AIM Filters. For example, AIM may sell other power
conditioning equipment, including surge suppressers, UPSs, other types of active
or passive harmonic filters, power factor correction equipment, or similar
devices. These may be purchased for resale, sold under joint marketing
arrangements, or manufactured by AIM. They may use similar or different
technology. The goal of such activities would be to exploit markets in which the
AIM filter alone is not adequate for the customer and to take advantage of
opportunities resulting from marketing of AIM Filters and related products.
However, there can be no assurance that these other activities will be
initiated, or if they are whether they will be successful.
AIM has also conducted extensive talks with a major Japanese power
supply company. Although no assurance can he given that an ultimate business
relationship will develop from these talks (now going onto over 18 months),
there appears to be a significant interest in creating a joint venture
partnership with Shindengen Corp. in Japan for the purpose of exploiting the
Japanese and other Asian markets. Their harmonic problems are severe. The
discussions have included not only Helionetics and Shindengen, but also the
Ministry of International Trade and Industry (MITI) in the Japanese Government.
Helionetics is now scheduling an extensive testing sequence of all models of the
AIM filter at the Japan Electrical Testing lab (JET), so that the AIM filter may
be authorized as a high technology electrical import for Japan.
The following is the most current marketing information (as of
October 17, 1996) available to Helionetics:
o The European Common Market
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AIM and VSD Technical Services of Dunfermline, Scotland are
combining efforts to market the AIM conditioner in the European Common Market.
Ian Evan and Graham Brookes of VSD Technical Services will arrive at AIM's
corporate offices the week of October 20 to finalize the joint venture. VSD has
been searching for a company which designs and manufactures an active harmonic
filter to add to their product line. According to Mr. Evans, AIM was one of five
companies under consideration, but chose AIM due to its enhanced product line
and product performance.
Mr. Evans believes the AIM filter is a solution for the harmonic
distortion that exists on the offshore oil well platforms located in the North
Atlantic Sea. He states the platforms are now using electronic variable speed
drives to increase the pumps' efficiencies, which in turn has caused severe
electrical harmonic distortion. The oil companies have attempted various
conventional methods such as passive filter to mitigate the harmonic problem
with little success. Mr. Evans and Mr. Brookes' 25 years of experience in
designing and marketing pumping systems leads them to the conclusion that AIM's
active filter will solve the problem.
Mr. Evans and Mr. Brooks state both Germany and Italy imposed strict
limits on harmonic emissions which is in conformance with new legislation
recently voted into law. This legislation, EN61000-1 through -3, deals with
electrical loads 16 amps and lower. Dash 4 through 6 deal with electrical loads
greater than 16 amps which will be enforced by June of 1998. VSD Technical
Services perceives the AIM products as being important in the regulation of
harmonic generating equipment in order to conform with this new legislation.
o Canadian Market
CPE, Inc. a Canadian sales and service representative, announced the
forming of a new corporation to exclusively sell AIM's products. This new
company will be staffed with highly qualified sales, engineering, and service
personnel. CPE has integrated the AIM filter with variable speed drives,
uninterruptable power supplies and other like products for the last four years.
CPE Inc. is selling these products to major companies such as IBM, Amdahl, Du
Point, and providential government buildings, etc. Mr. Les Mac, president of
CPE, feels the AIM product has a broad
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spectrum of applications and has performed very successfully. He states, "It is
a business by itself," and further acknowledges the company will triple their
use of the AIM products in 1997.
o European Eastern Block Community
AIM is in negotiations with an international firm for the rights to
sell AIM products in the Eastern Block European Nations. The collapse of the
Soviet Union has caused the Eastern European Nations to utilize various energy
saving devices such as variable speed drives and electronic fluorescent lighting
to save energy. At the same time they have installed computers and modern
communication systems which are needed to stay competitive in today's global
market. These devices and systems have created the predictable problem of
harmonic currents. AIM does not have any definite marketing numbers as yet;
however, it is clear the market is substantial.
o Japanese Market
AIM has shipped its first AIM filter for evaluation to Shindengen
Corporation in Japan. Mr. Dageford, AIM's president, will be in Japan during
testing of the unit. In addition to witnessing this test, he is completing
details for the sale and distribution of the product. The Japanese electrical
grid is overloaded with harmonic currents and this problem needs to be solved.
An active filter such as the type manufactured by AIM is the correct method to
mitigate the harmonic currents. It is clear the Japanese market is sizable and
is in eminent need for the technology AIM's products have to offer.
Mr. Dageford reports from Tokyo that the negotiations with Daitsu
Corporation and Shindengen Electric Manufacturing Company, LTD ("Shindengen")
are proceeding well. Discussions consist of marketing and a possible joint
venture for producing the AIM filter.
The testing of the first AIM filter for the Japanese and Pacific Rim
markets will begin on October 22, 1996 at the Shindengen research facility in
Hanno City, Japan. Mr. Hiroshi Morinaga of Daitsu Corporation believes if the
test performs well, the market for the AIM filter is substantial and immediate.
Mr. Narito Iyatomi of Shindengen believes that the AIM filter could solve a
major harmonic problem for the power supplies they provide to the
telecommunication industry. Mr. Yasuo Adachi, manager of the equipment division
of Shindengen believes that they are extremely interested and will take steps to
ensure the immediate testing of the AIM filter.
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o United States Market
AIM is in discussions with a large passive filter manufacturer to
supply name brand equipment for distribution through their sales network. The
firm has indicated that the AIM filter will fill a gap in their product line. If
details such as overlapping sales representation are solved, the increased sales
benefit to AIM would be immediate.
(iv) Backlog/Inventory
A renewed marketing and sales effort began in July of 1996. The
backlog has increased by $200,000.
(v) Design/Manufacturing
The first pre-production model of the AIM Filter was installed in
early 1994, in a California water treatment facility, and it has reduced
harmonics to below the level set in the performance specifications. Over 60
three phase, three wire AIM Filters have been installed to date. Helionetics has
commenced production of limited quantities of additional AIM Filters, which will
be available for sale by AIM. Helionetics is continuing refinement of the
technology for smaller applications, and AIM will have the use of such
refinements pursuant to the License.
The design team for the AIM Conditioner is the group which developed
it for military use and industrial applications. The production units, being
designed to marketing standards as provided by AIM Energy, have three distinct
applications: three phase 3 wire loading; three phase 4 wire loading; and a
single phase power product for low power applications. The first 3 wire load
model was completed in 1993 and a unit was delivered in March, 1994.
(vi) Competition
While the AIM Filter technology is based on well-known theory, the
first commercial models of "active" harmonic filters were only recently made
available by a competitor of AIM and sales of the AIM Filters did not start
until June of 1994. Marketing of the product will require education of potential
purchasers as to the advantages of the product over traditional approaches to
reduce harmonics which include passive filters, rewiring and larger transformers
or use of more technically sophisticated and costly power converters. In a
significant portion of AIM's potential
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market, traditional approaches of managing harmonics may be required by building
codes and standards.
AIM believes the only other commercially available active harmonic
filters are made by Mitsubishi Heavy Industries, Meiden, Mesta, and Merlin Gerin
(a company based in France). The Mitsubishi product is much more expensive than
the other available filters.
Mitsubishi is a very large company which has far greater resources
than Helionetics. As demand for active mitigation of harmonics increases, it can
be expected that additional companies will enter this business. While
Helionetics believes the AIM Filters have substantial advantages over the
competing products, the growing investment in this area may produce a highly
competitive and possible superior product. AIM must compete with many companies
offering alternative means of addressing harmonics, and many of these have
greater resources. Moreover, the problem of harmonics can be addressed through
other conventional means, including improved electronic converters and passive
filters, which may be required by applicable codes.
(vii) Patents and Licenses
Helionetics has two patents relating to the AIM Filters; one has
been granted and one is pending. While Helionetics believes that the technology
included in the patents significantly reduces the cost of production and
improves the performance of active harmonic filters as compared to competitors'
products, the patents will not prevent the development of other active harmonic
filters or other methods of dealing with or preventing harmonics, and it is
possible that competing products or approaches may have a competitive advantage.
Moreover, there can be no assurance that the second patent pending will be
granted. The Patent and Trademark Office has indicated that the initial
submission did not provide sufficient proof of patentability but Helionetics
believes it has now provided sufficient evidence through a supplemental
submission. The second application was filed in June 1994. Helionetics will seek
patent protection for one or both of the inventions in foreign countries, where
the potential market justifies the cost, but such applications depend on the
grant of US patent.
(viii) Research and Development
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The AIM Filter design has been finalized for larger three phase,
three wire loads and small single phase loads in the commercial, industrial and
public utility sectors for use in water/sewage treatment facilities and
factories using variable speed drive ("VSD") controlled motors; and office
buildings and institutions with significant use of VSDs, computers,
uninterruptible power supplies ("UPSs"), or energy saving illumination systems.
Helionetics believes that the marketing potential of AIM Filters of the current
design is greatest for three phase, three wire loads, which typically serve the
heavier loads within those markets, such as large VSD controlled motors.
However, Helionetics anticipates that a large portion of the potential market
for AIM Filters will be for three phase, four wire loads and single phase loads,
such as those used in office buildings for personal computers and many types of
lighting. Helionetics has demonstrated the applicability of the current design
for such loads.
The first pre-production model of the AIM Filters was installed in
early 1994, in a California water treatment facility, and has reduced harmonics
to below the level set in the IEEE-519-1992 performance specifications. As of
April 1996, a total of over 50 three phase, three wire AIM Filters have been
installed. Helionetics has commenced production of limited quantities of
additional AIM filters, which will be available for sale by AIM. AIM is
marketing these filters to industrial, commercial and public utility operators.
Helionetics is continuing refinement of the technology for smaller applications,
and AIM will have the use of such refinements pursuant to the License.
(ix) Employees
As of December 31, 1995, AIM Energy was being assisted by the DECC
engineering group and other DECC personnel from time to time, but had no
individuals in whole or in significant part on the AIM products.
The statements regarding future sales growth are "forward-looking"
statements that involve many risks and uncertainties that will cause actual
results to differ, perhaps materially, from those set forth therein. Among these
risks and uncertainties are the uncertainty of market penetration and resulting
sales volume, the ability to control costs and maintain margins, the
availability, amount and costs of capital required to expand various business
segments, the availability of talented
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personnel to manage and expand the business, the risks of technology
obsolescence, competition from better financed competitors, market acceptance of
products, reliance on suppliers for components and raw materials, regulatory
requirements and restrictions, and general trends in the economy and overseas
markets beyond the control of management, as well as other risks.
(F) Issuance of New Tri-Lite Common Stock. The Reorganized Debtor
will issue New Tri-Lite Common Stock to meet the requirements of Section 6.6 of
the Plan. The New Tri-Lite Common Stock will be issued to Class 6 members and to
Barnes and/or Helionetics in exchange for their "old common shares" of Tri-Lite,
Inc. currently outstanding and in their hands, as an exchange of new Debtor
securities for existing interests in the Debtor under the exemption from Section
5 registration under the 33 Act provided by Section 1145 of the Bankruptcy Code.
(G) Possible Contribution of Retro-Lite, Inc. to the Reorganized
Debtor. Helionetics is in discussions with Retro-Lite, Inc., a Texas corporation
("Retro-Lite") for its possible acquisition. However, at this date there is no
binding contract for such acquisition, and talks are only in a preliminary
stage. In the event that Helionetics ultimately acquires Retro-Lite, it is
contemplated that Helionetics would contribute Retro-Lite to the Reorganized
Debtor.
Retro-Lite is a recently organized corporation and commenced
business in 1995. The shareholders are KB Equities (a corporation 100% owned by
Susan Barnes), Linda Perez (the daughter of Bernard Katz, the Chairman of the
Board of Helionetics and the Debtor) and Blake Scott. Retro-Lite had sales of
approximately $400,000.00 with a net income of approximately $40,000.00 in 1995
and projects sales for 1996 to be approximately $900,000.00 with a net income of
approximately $90,000.00.
Retro-Lite is in the business of electrical energy management
including auditing, retrofitting, maintaining and managing lighting in order to
reduce energy consumption in lighting used in commercial and industrial
buildings. In the area of lighting audits, analysis is made of light levels,
energy consumption, fixture types and fixture quantities. A computer analysis of
that information is provided to the customer, outlining energy savings, light
levels, environmental impact and return on investment. Retrofitting involves the
installation of new electronic lighting technologies which can provide (i) a
12-36 month payback based on energy savings, (ii) increased
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light levels, (iii) improved color rendering (iv) lower maintenance costs and
(v) reduced air conditioning load. Lighting maintenance involves scheduled
customized inspections of the customer's lighting system based upon facility
requirements. Project management involves the overseeing of completion
schedules, working hours, storage, security concerns, disposal and clean-up
procedures and compliance with OSHA regulations.
The statements regarding future sales growth are "forward-looking"
statements that involve many risks and uncertainties that will cause actual
results to differ, perhaps materially, from those set forth therein. Among these
risks and uncertainties are the uncertainty of market penetration and resulting
sales volume, the ability to control costs and maintain margins, the
availability, amount and costs of capital required to expand various business
segments, the availability of talented personnel to manage and expand the
business, the risks of technology obsolescence, competition from better financed
competitors, market acceptance of products, reliance on suppliers for components
and raw materials, regulatory requirements and restrictions, and general trends
in the economy and overseas markets beyond the control of management, as well as
other risks.
XIII.
LIQUIDATION ANALYSIS
Section 1129 (a) (7) (A) of the Bankruptcy Code provides as follows:
"With respect to each impaired class of claims or interests
(A) each holder of a claim or interest of such class -
(i) has accepted the plan; or
(ii) will 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 this title on such date... ."
The Plan has been designed to enable the Debtor to pay the claims of
all creditors and to maximize the going concern value of the Debtor. As
indicated in the quoted materials regarding
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Section 1129 (a) (7) (a), each holder of a Claim or Interest must either accept
the Plan or receive under the Plan property having a value, as of the Effective
Date of the Plan, that is not less than the amount that such Claimant of
Interest Holder would receive if the case was converted to a Chapter 7
liquidation. Under the Plan as proposed, the unsecured creditors in the
'convenience' Class 3 will receive in Cash 70% of their allowed claims and
members of Class 4 (general unsecured) will receive deliveries of Helionetics
Stock or cash from Helionetics (or at the sole option of Barnes, from Barnes) in
an amount equal to seventy (70) cents for each one (1) dollar of Allowed
Unsecured Claim held by each Class 4 Unsecured Creditor, calculated without the
accrual of Post-Petition interest, in exchange for their Claims against the
Debtor. In addition, Class 6 Stockholders of the Debtor, with the exception of
Helionetics or Barnes, will be issued on a pro rata basis 12.5% of the New
Tri-Lite Common Stock in the Reorganized Debtor in exchange for their interests
in the Debtor. The Debtor believes that in a Chapter 7 liquidation Claimants in
Classes 3 and 4 and the Stockholders (Class 6) would receive no recovery.
If the Plan is not confirmed, the Debtor believes that one of two
likely scenarios will occur. Under the first scenario, Star Bank, the holder of
the first lien on the assets of the Debtor, will ultimately obtain relief from
the automatic stay since the Debtor would have no alternatives acceptable to its
Committee. Under these circumstances, the Creditors would be forced to witness
the foreclosure by Star Bank on its collateral, followed by Barnett and then by
Helionetics (to the extent it has a valid security interest in the Debtor's
assets. The Debtor believes that the creditors would be left with the causes of
action against Star Bank, the Debtor's former officers and directors, and
Helionetics without any financial resources to pursue the litigation. Under
these circumstances, the Debtor believes that there would be little if any
recovery for unsecured creditors and no recovery at all for Stockholders of the
Debtor.
Under a second scenario, the failure to confirm a Plan would likely
result in the conversion of the Debtor's Chapter 11 case to one under Chapter 7
of the Bankruptcy Code. Under these circumstances, the newly appointed Chapter 7
trustee, who would be totally unfamiliar with the Debtor's business operations,
would be faced with the task of operating the Debtor under distressed
conditions, while attempting to fend off an anticipated motion for relief from
stay filed
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by Star Bank and, perhaps, Barnett as well as Helionetics. To the extent that
the Trustee could accomplish an asset sale under these conditions, the Debtor
believes that the net result would be that there would be nothing left for
unsecured creditors or for the Debtor's Stockholders. Attached hereto as Exhibit
"9" is a liquidation analysis setting forth the foregoing two scenarios.
XIV.
EFFECT OF CONFIRMATION OF PLAN
Confirmation of the Plan and entry of the Final Decree shall
discharge the Debtor of all debts and obligations that arose before the
Confirmation Date. The assumption by the Reorganized Debtor of the obligations
pursuant to the Plan as confirmed, together with substantial consummation of the
Plan, shall constitute payment in full of all such debts. Thereafter, Claimants
may enforce payment of their debts only as modified and restructured in the
Plan. Claimants may enforce such payment in courts of competent jurisdiction
after substantial consummation of the Plan. The Plan shall be considered to be
substantially consummated upon commencement of distribution of cash pursuant to
the Plan, i.e., transfer of cash to the Administrative Claimants.
As of the Confirmation Date the provision of the Cash Collateral
Order in this proceeding shall be superseded by the terms of the Plan, and the
Debtor's obligations to creditors shall thereafter be as provided for in the
Plan. To the extent that the Debtor timely performs all of its obligations under
the Plan, it shall be entitled to use all cash on hand and income from its
operations for any purpose that is consistent with the best interests of
creditors.
XV.
AMENDMENTS TO LEGAL DOCUMENTS
All documents setting forth the Debtor's pre petition obligations to
creditors shall be deemed modified as of the Effective Date in accordance with
the terms of the Plan. Moreover, to the extent that any claimant is holding a
negotiable instrument signed by the Debtor which reflects a pre petition claim,
that negotiable instrument is not only deemed modified by the terms of the Plan
but must also plainly reflect on its face that it has in fact been modified.
This notation must be placed on said negotiable instruments within five days of
the Effective Date, and no payments shall be made to the holders of any such
instrument until it has proved that this action has in fact
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<PAGE>
been taken. All claims that were recourse as of the Petition Date shall remain
recourse, and all claims that were nonrecourse shall remain nonrecourse. All
existing liens on property of the estate shall be deemed modified or
extinguished as provided in the Plan.
XVI.
MATTERS TO CONSIDER BEFORE VOTING
ON THE DEBTOR'S CHAPTER 11 PLAN
(A) What is Necessary for Court Approval of a Plan. Chapter 11
permits the readjustment of secured debt, unsecured debt and equity interests. A
Chapter 11 Plan may provide less than full satisfaction of senior indebtedness
and payment of junior indebtedness, and may even provide some return to equity
interest holders absent full satisfaction of indebtedness, so long as no
impaired class votes against the Plan.
If an impaired class votes against the Plan, confirmation of the
Plan is still possible ("cramdown") so long as the Plan is fair and equitable
and the non-consenting class if afforded certain treatment defined by the Code.
That certain treatment may be very broadly defined as giving a claimant the
"full value" of his claim or interest. Such value is determined by the Court and
balanced against the treatment afforded the dissenting class of creditors. If
the latter is equal to or greater than the former, the Plan may be confirmed
despite the objection of that dissenting class, depending upon the treatment of
junior claims and interests. In particular, senior claims must be satisfied in
full prior to payment of junior claims or interests, unless the holder of senior
claims agree to different treatment. This principle, commonly known as the
"absolute priority rule," applies only in cases when a class of unsecured claims
or equity interests is impaired and does not accept the Plan. In that event, the
absolute priority rule does not apply to all classes of unsecured claims and
equity interests, but only to the dissenting class and classes junior to the
dissenting class.
In the event a class is unimpaired, it is automatically deemed to
have accepted the Plan. The Debtor believes that Classes 1 through 6 are
impaired (as defined in Section 1124 of the Code) under the Plan. If there is no
dissenting class, the test for confirmation of the Plan is whether the Plan is
feasible and in the best interests of creditors. In simple terms, a Plan is in
the "best interests
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<PAGE>
of creditors and interest holders" if the Plan will provide a better recovery to
the creditors and interest holders than they would obtain if the Debtor was
liquidated and the proceeds distributed in accordance with bankruptcy
liquidation priorities. The Court, in considering this factor, need not consider
any other alternative to the Plan but liquidation.
(B) Modification of the Plan. The Debtor may propose amendments or
modifications to the Plan at any time prior to Confirmation or at the
Confirmation hearing, without leave of the Court, upon proper notice. After
confirmation, the Debtor may, with the approval of the Court, and so long as it
does not materially or adversely affect the interest of Creditors or Equity
Security Holders, remedy any defect or omission, or reconcile any
inconsistencies in the Plan, or the Order of Confirmation, as may be necessary
to carry out the purposes of the Plan.
(C) Substantial Consummation. The Plan will be substantially
consummated upon commencement of distributions called for under the Plan.
(D) Alternatives to the Plan. Although this Disclosure Statement is
intended to provide information to assist in the formation of a judgment as to
whether to vote for or against the Plan, and although Creditors are not being
offered through that vote an opportunity to express an opinion concerning
alternatives to the Plan, a brief reminder of the alternative to the Plan is in
order. This alternative includes what would happen in a liquidation of the
Debtor through conversion of the case to one under Chapter 7. See, Liquidation
Analysis at Article XIII, supra.
The Debtor believes the proposed Plan to be in the best interests of
its creditors and interest holders. It is the Debtor's view that the Class 3, 4
and 6 Claimants would receive no recovery under a Chapter 7 liquidation, absent
significant litigation, as opposed to the payments and Helionetics Stock or Cash
deliveries projected to occur under the Plan.
THE DEBTOR HAS ATTEMPTED TO SET FORTH THE LIKELY LIQUIDATION
ALTERNATIVE TO ITS PROPOSED PLAN. THE DEBTOR, HOWEVER, CAUTIONS CREDITORS THAT A
VOTE MUST BE FOR OR AGAINST THE PLAN. THE VOTE ON THE PLAN DOES NOT INCLUDE A
VOTE ON THE LIKELY LIQUIDATION ALTERNATIVE TO THE PLAN. THERE IS NO ASSURANCE
THAT THE LIKELY LIQUIDATION ALTERNATIVE WILL, IN FACT, OCCUR IF THE PLAN IS NOT
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<PAGE>
ACCEPTED. IF YOU BELIEVE THE LIKELY LIQUIDATION ALTERNATIVE IS PREFERABLE TO THE
PLAN AND YOU WISH TO URGE IT UPON THE COURT, YOU SHOULD CONSULT WITH AN
ATTORNEY. PLEASE BEAR IN MIND THAT THE OFFICIAL COMMITTEE OF CREDITORS HOLDING
UNSECURED CLAIMS RECOMMENDS THAT THE PLAN BE APPROVED.
(E) Specific Considerations in Voting. All of the foregoing gives
rise to the following implications and risks concerning the Plan. While the Plan
provides for certain payments or distributions, such payments will apply only to
Allowed Claims. Under the Code, a Claim may not be paid until it is "Allowed." A
Claim will be Allowed in the absence of an objection. A Claim to which an
objection has been filed will be heard by the Court at a regularly scheduled
evidentiary hearing and will be allowed in full or in part or disallowed. The
Debtor may, in certain cases, request that the claims objection procedure be
modified and that the matter be considered an adversary proceeding. Accordingly,
payment on all Claims may be delayed until objections to such Claims are
ultimately settled.
(F) Disclosure Required by the Code Before the Plan Can be
Confirmed. The Code requires disclosure of certain facts as follows: There are
no payments or promises made of the kind specified in section 1129(a)(5) of the
Code which have not previously been disclosed to the Court.
XVII.
CONCLUSION
The materials provided in this Disclosure Statement are intended to
assist you in voting on the Plan in an informed fashion. If the Plan is
confirmed, you will be bound by its terms. Therefore, you are urged to review
this material and to make such further inquiries you deem appropriate, and then
cast an informed vote on the Plan.
DATED: November __, 1996 Tri-Lite, Inc., a Pennsylvania corporation
By: ______________________________
A. Alvin Katz
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<PAGE>
Its: President
DATED: November __, 1996 Helionetics, Inc., a California corporation
By: ______________________________
E. Maxwell Malone
Its: President
DATED: November __, 1996
By: ______________________________
Susan Barnes
Presented by:
BROKER & O'KEEFE
PROFESSIONAL CORPORATION
By: ______________________________
Jeffrey W. Broker
Sean A. O'Keefe
Lauren B. Lessler
Special Reorganization Counsel
for Debtor and Debtor-in-Possession
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<PAGE>
EXHIBITS
Number Description
- ------ -----------
1 LETTER FROM COUNSEL TO THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS
2 REVISED STIPULATION FOR: (1) SEQUESTRATION; (2) INTERIM USE;
(3) TURNOVER OF CASH COLLATERAL; (4) REPAYMENT OF SECURED DEBT;
AND ORDER THEREON ENTERED INTO BY AND BETWEEN STAR BANK,
NATIONAL ASSOCIATION, TRI-LITE, INC., SELF POWERED LIGHTING,
INC. AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS APPROVED
BY THE BANKRUPTCY PER ITS ORDER ENTERED APRIL 30, 1996
3 U.S. TRUSTEE OPERATING REPORTS
4 DEBTOR'S FORM 10-Q FILINGS FOR THE FIRST, SECOND AND THIRD
QUARTERS, 1995
5 FIVE (5) YEAR PROJECTION OF THE REORGANIZED DEBTOR'S OPERATIONS
5A FIVE (5) YEAR SUMMARY PROJECTION OF THE REORGANIZED DEBTOR'S
OPERATIONS INCLUDING SPL AND AIM
5B FIVE (5) YEAR SUMMARY PROJECTION OF THE REORGANIZED DEBTOR'S
OPERATIONS INCLUDING SPL, AIM AND RETRO-LITE, INC.
6 SUMMARY OF PENDING LITIGATION
7 LEASES AND EXECUTORY CONTRACTS BEING ASSUMED UNDER THE PLAN
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<PAGE>
8 FORM 10-K (THE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934) FILED BY HELIONETICS,
INC. WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13,
1996
9 LIQUIDATION ANALYSIS
10 STIPULATION TO APPROVE PLEDGE AGREEMENT BETWEEN THE OFFICIAL
COMMITTEE OF UNSECURED CREDITORS AND HELIONETICS, INC.; ORDER
THEREON
11 BARNES AGREEMENT
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<PAGE>
JEFFREY W. BROKER - State Bar No. 53226
SEAN A. O'KEEFE - State Bar No. 122417
LAUREN B. LESSLER - State Bar No. 167311
BROKER & O'KEEFE PROFESSIONAL CORPORATION
4695 Mac Arthur Court, Suite 1200
Newport Beach, CA 92660
Telephone: (714) 222-2000
Facsimile: (714) 222-2022
Special Reorganization Counsel
for Debtor and Debtor-in-Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re
TRI-LITE, INC., a Pennsylvania corporation
Debtor and
Debtor-in-Possession.
Case No. SA 96-12049 JR
Chapter 11 Proceeding
THIRD AMENDED JOINT CHAPTER 11
PLAN OF REORGANIZATION AS
MODIFIED
DISCLOSURE STATEMENT HEARING:
DATE: November 7, 1996
TIME: 10:30 a.m.
PLACE: Courtroom 606
34 Civic Center Drive
Santa Ana, CA
CONFIRMATION HEARING:
DATE: January 16, 1997
TIME: 11:30 a.m.
PLACE: Courtroom 606
34 Civic Center Drive
Santa Ana, CA
<PAGE>
TO THE HONORABLE JOHN E. RYAN, UNITED STATES BANKRUPTCY JUDGE,
CREDITORS AND PARTIES IN INTEREST:
ARTICLE I
INTRODUCTION
Tri-Lite, Inc., a Pennsylvania corporation, the Debtor and
Debtor-in-Possession in this Chapter 11 case (hereinafter "Debtor"),
Helionetics, Inc., a California corporation (hereinafter "Helionetics") Laser
Photonics, Inc., a Delaware Corporation (hereinafter "LPI") and Susan Barnes
(hereinafter "Barnes") hereby jointly propose a Second Amended Chapter 11 Plan
of Reorganization (the "Plan") for the resolution of the claims of Creditors and
Stockholders (Equity Security Holders) of the Debtor. Reference is made to the
Second Amended Disclosure Statement for Joint Chapter 11 Plan of Reorganization
(the Disclosure Statement") for a discussion of the Debtor's history, business
operations, properties and financial information, and for a summary of this Plan
and related matters.
All holders of Claims and Equity Security Interests are encouraged to
read this Plan and the accompanying Disclosure Statement in their entirety
before voting to accept or reject this Plan. No materials, other than the
Disclosure Statement and the Exhibits and Schedules attached thereto and
referenced therein, have been approved by the United States Bankruptcy Court for
the Central District of California for use in soliciting acceptances or
rejections of this Plan.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, ALL STATEMENTS IN THIS
PLAN AND THE ACCOMPANYING DISCLOSURE STATEMENT CONCERNING THE HISTORY OF THE
DEBTOR'S BUSINESS, THE PAST OR PRESENT FINANCIAL CONDITION OF THE DEBTOR,
TRANSACTIONS TO WHICH THE DEBTOR WAS OR IS A PARTY, OR THE EFFECT OF
CONFIRMATION OF THIS PLAN ON CREDITORS AND INTEREST HOLDERS ARE ATTRIBUTABLE
EXCLUSIVELY TO THE DEBTOR, AND NOT TO COUNSEL TO THE DEBTOR.
<PAGE>
ARTICLE II
DEFINITIONS, INTERPRETATION, AND
RULES OF CONSTRUCTION
A) Definitions
The definitions contained in the Bankruptcy Code are incorporated
herein. Whether or not inconsistent with definitions contained in the Bankruptcy
Code, the following terms used herein shall have the following meanings:
2.1 Alvin Katz: A. Alvin Katz, the President of the Debtor.
2.2 Administrative Claim: A Claim for costs and expenses of
administration allowed under Section 503(b) of the Bankruptcy Code and referred
to in Section 507(a)(1) of the Bankruptcy Code, including, without limitation:
(a) the actual and necessary costs and expenses incurred after the Petition Date
of preserving the Estate and operating the business of the Debtor (such as
wages, salaries or commissions for services); (b) compensation for legal,
financial advisory, accounting and other services and reimbursement of expenses
awarded or allowed under Sections 330(a) or 331 of the Bankruptcy Code; and (c)
all fees and charges assessed against the Estate under 28 U.S.C. ss. 1930.
2.3 AIM: AIM Energy, Inc., a corporation organized under the laws of
the state of Delaware, which is 100% owned by Helionetics. This entity owns all
proprietary rights to the AIM Filter.
2.4 AIM Filter: A filter which eliminates Harmonics by capturing
unwanted Harmonic current flows, reducing both current and voltage distortion,
reducing the energy wasted due to harmonics and eliminating harmful effect on
equipment. The entirety of the proprietary rights to the AIM filter is owned by
AIM.
2.5 Allowed Claim: A Claim against the Debtor to the extent that-
(a) the Claim was scheduled in the list of creditors
prepared and filed with the Bankruptcy Court by the Debtor and not listed as
disputed, contingent or unliquidated as to amount; or
<PAGE>
(b) a proof of claim
(1) was timely filed; or
(2) is deemed filed under applicable law or
by reason of an order of the Bankruptcy Court; and
(c) (1) the Debtor or Reorganized Debtor does not file
an objection within a time fixed by the Bankruptcy Court and the Claim is not
otherwise a Disputed Claim (but only to the extent that such Claim is not a
Disputed Claim);
(2) the Claim is allowed (and only to the
extent allowed) by a Final Order; or
(3) the Claim is specifically allowed under
this Plan.
An Allowed Claim shall not include unmatured or post-petition
interest unless otherwise stated in the Plan.
2.6 Allowed Amount: The amount of any Claim against the Debtor
determined in accordance with Sections 502 and 506(a) of the Bankruptcy Code and
any other applicable section(s) of the Bankruptcy Code, and recognized by the
Debtor as valid or allowed by Final Order of the Court, except to the extent
described or defined otherwise herein.
2.7 Allowed Class . . . Claim: An Allowed Claim in the particular
Class described in the Plan or Disclosure Statement.
2.8 Allowed Priority Claim: An Allowed Claim entitled to priority
pursuant to Sections 507(a)(3), (4) or (6) of the Bankruptcy Code.
2.9 Allowed Secured Claim: An Allowed Claim secured by a lien,
security interest or other charge against the property in which the estate has
an interest, or which is subject to set-off under Section 553 of the Bankruptcy
Code, to the extent of the value, determined in accordance with Section 506(a)
of the Bankruptcy Code, of the interest of the holder of such secured Claim in
the estate's interest in such property, or to the extent of the amount subject
to any set-off, as the case may be. An Allowed Secured Claim may include
post-petition interest if permitted under Section 506(b) of the Code.
<PAGE>
2.10 Allowed Tax Claim: An Allowed Unsecured Claim that is entitled
to priority pursuant to Section 507(a)(8) of the Code.
2.11 Approval Date: The date on which an order approving the
Debtors' Disclosure Statement, or an amended version thereof, is entered by the
Clerk of the Bankruptcy Court on the Court's docket.
2.12 Avoidance Action: Any adversary proceeding brought to seek the
recovery of money or property on account of transactions avoidable under
Sections 544, 547, 548, 549 or 550 of the Bankruptcy Code.
2.13 Ballot: The Document by which the holder of a Claim or Interest
classified under the Plan shall vote to reject or accept the Plan.
2.14 Bankruptcy Code or Code: Title 11 of the United States Code, as
now in effect or hereafter amended. All citations in the Plan or Disclosure
Statement to section numbers are to the Code unless otherwise expressly
indicated.
2.15 Bankruptcy Court or Court: The United States Bankruptcy Court
for the Central District of California or such successor court or tribunal as
may hereafter be confirmed or created by lawful authority with power to confirm
reorganization plans under Chapter 11, Title 11 of the United States Code and
all other applicable statutes, rules and regulations.
2.16 Bankruptcy Rules or Rules: The Federal Rules of Bankruptcy
Procedure and the Local Bankruptcy Rules for the United States Bankruptcy Court
for the Central District of California, as now in effect or hereafter amended.
2.17 Bar Date: The last date for filing Claims, which was 60 days
after service of the notice thereof on Creditors. The Bar Date expired as to all
known Creditors no later than June 7, 1996. After the hearings relating to the
rejection of leases, employment and consulting contracts on May 23, 1996, a
second Bar Date notice was sent to affected claimants with a Second Bar Date of
August 16, 1996 only for such claimants.
<PAGE>
2.18 Barnes: Susan Barnes, the spouse of Bernard Katz and the
beneficial holder of approximately 37% of the outstanding common stock of
Helionetics, an affiliate, stockholder and administrative creditor of the
Debtor, and a co-proponent of the Plan.
2.19 Barnett: Richard B. Barnett, an individual asserting a Claim
secured by an alleged lien junior to that of Star Bank. This Claim has been
classified as the Class 2 Claim and is disputed by the Debtor.
2.20 Bernard Katz: Bernard Katz, the Chairman of the Board of the
Debtor and of Helionetics as well as the spouse of Susan Barnes.
2.21 Business Day: Any day, other than a Saturday, Sunday or legal
holiday as defined in Bankruptcy Rule 9006(a).
2.22 Case: The within Chapter 11 proceeding, known as In re
Tri-Lite, Inc., a Pennsylvania corporation, bearing Case No. SA 96-12049 JR,
pending before the United States Bankruptcy Court, Central District of
California.
2.23 Cash: Cash and Cash equivalents, including but not limited to
bank deposits, wire transfers, checks, and other similar items.
2.24 Cash Collateral: cash, negotiable instruments, documents of
title, securities, deposit accounts, or other cash equivalents within the
meaning of Section 363(a) of the Bankruptcy Code.
2.25 Claim: Any right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or, a
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right is an equitable remedy or is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
2.26 Claimants or Creditors: Persons or entities holding Allowed
Claims.
2.27 Class: A category of holders of Claims which are substantially
similar to other Claims and into which Allowed Claims and Allowed Secured Claims
are grouped and classified pursuant to Article IV of the Plan. The Classes
provided for in the Plan are the following:
<PAGE>
A) Class 1: Star Bank, N.A. as the holder of an Allowed
Secured Claim, which is secured by a first priority consensual lien on the
Debtor's inventory, accounts receivable, and other operating assets.
B) Class 2: Barnett, as the holder of a disputed Secured
Claim allegedly secured by a second priority consensual lien on the Debtor's
inventory, accounts receivable and other operating assets.
C) Class 3: All Claimants holding Allowed Unsecured
Claims less than, equal to, or voluntarily reduced by the holder thereof to
$500.
D) Class 4: All Claimants holding Allowed Unsecured
Claims other than Claims included in Class 3.
E) Class 5: Helionetics, Inc., as the holder of an
Allowed Secured Claim allegedly secured by a consensual lien on the Debtor's
inventory, accounts receivable, and other operating assets arising from the SPL
Purchase Agreement.
F) Class 6: The Stockholders (Equity Security Holders)
of the Debtor, including Helionetics and Barnes.
2.28 Committee: The Official Committee of Creditors Holding
Unsecured Claims in the Debtor's estate.
2.29 Common Stock: The Common Stock in the Debtor held by
Stockholders.
2.30 Confirmation: The entry by the Clerk of the Bankruptcy Court on
the Court's docket of the Confirmation Order.
2.31 Confirmation Date: The date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the Court docket.
2.32 Confirmation Order: The order entered by the Clerk of the
Bankruptcy Court confirming the Plan.
2.33 Creditor: Any person or entity holding an Allowed Claim or
Claims against the Debtor within the meaning set forth in Section 101(10) of the
Bankruptcy Code.
2.34 Debt: Liability on a claim as set forth in Section 101(12) of
the Bankruptcy Code.
<PAGE>
2.35 Debtor: Tri-Lite, Inc., a Pennsylvania corporation, the Debtor
and Debtor-in-Possession in this Chapter 11 case. The Debtor is a co-proponent
of the Plan.
2.36 Debtor-in-Possession: The Debtor, when acting in the capacity
of representative of the Estate in the Debtor's Case.
2.37 Disbursing Agent: The Debtor and/or any other person or persons
designated under this Plan to disburse property pursuant to this Plan.
2.38 Disclosure Statement: The Disclosure Statement accompanying the
Plan as required by Section 1125 of the Bankruptcy Code and approved by an Order
of the Bankruptcy Court.
2.39 Disputed Claim: A Claim as to which a proof of claim has been
Filed or deemed Filed under applicable law, as to which an objection has been or
may be timely Filed by the Debtor or Reorganized Debtor and which objection, if
timely Filed, has not been withdrawn on or before any date fixed for Filing such
objections by the Plan or by Order of the Bankruptcy Court and has not been
overruled or denied by a Final Order. Prior to the time that an objection to a
claim has been or may be timely Filed, for the purposes of the Plan a Claim
shall be considered a Disputed Claim in its entirety if: (i) the amount of the
Claim specified in the proof of claim exceeds the amount of any corresponding
Claim scheduled by the Debtor in its Schedules of Assets and Liabilities; (ii)
any corresponding Claim scheduled by the Debtor in its Schedules of Assets and
Liabilities has been scheduled as disputed, contingent, or unliquidated,
irrespective of the amount scheduled; or (iii) no corresponding Claim has been
scheduled by the Debtor in its Schedules of Assets and Liabilities.
2.40 Effective Date: The Effective Date of the Plan shall be the
forty-fifth (45th) calendar day after the Confirmation Date, unless said date
falls upon a Saturday, Sunday or holiday, in which case the Effective Date shall
be the next business day and on which no stay of the Confirmation Order is in
effect.
2.41 Equity Security: Common stock of the Debtor.
2.42 Equity Security Holder: A Stockholder owning common stock of
the Debtor. These parties have been classified as the holders of Class 6 Claims.
<PAGE>
2.43 Estate: The estate created in this Chapter 11 Case for the
Debtor under Section 541 of the Bankruptcy Code.
2.44 Executory Contract: Any unexpired lease or executory contract
of the Debtor as defined in Section 365 of the Bankruptcy Code.
2.45 File or Filed: A pleading filed with the Clerk of the
Bankruptcy Court in this Chapter 11 Case.
2.46 Final Order: An order or judgment of the Bankruptcy Court, or
other court of competent jurisdiction, as entered on the docket in the Case,
which has not been reversed, stayed, modified or amended, and as to which (i)
the time to appeal or seek certiorari has expired and no appeal or petition for
certiorari has been timely filed, or (ii) any appeal that has been or may be
taken or any petition for certiorari that has been or may be filed has been
resolved by the highest court to which the order or judgment was appealed or
from which certiorari was sought.
2.47 Harmonics: Current and voltage distortion on AC power lines.
This distortion increases electrical bills, overheats wires and equipment,
wastes energy and creates electrical interference which can cause computers and
computed controlled-equipment to malfunction and interfere with
telecommunications. The AIM Filter is designed to address the problem of
Harmonics.
2.48 Helionetics: Helionetics, Inc., a publicly-held California
corporation and a reporting company under the Securities and Exchange Act of
1934. Helionetics is the principal shareholder of the Debtor and is the owner of
approximately forty-nine percent (49%) of the Debtor's common stock. Helionetics
is an "affiliate" of the Debtor within the meaning set forth in Section
101(2)(A) of the Bankruptcy Code. Helionetics is a co-proponent of the Plan.
2.49 Helionetics Litigation: The civil litigation pending against
Helionetics filed by the Debtor in the United States District Court, Northern
District of Ohio, Case No. 1:95CV2289, which was removed by the Debtor to the
United States Bankruptcy Court, Central District of California on May 23, 1996,
and assigned Adversary No. SA 96-1523 JR.
<PAGE>
2.50 Helionetics Stock: Common Stock in Helionetics to be delivered
by Helionetics or by Barnes to Class 2 and Class 4 Creditors under the Plan.
2.51 Lawrence A. Terkel: The owner of approximately ten percent
(10%) of the Debtor's common stock.
2.52 LPI: Laser Photonics Inc., a publicly held Delaware corporation
and a reporting company under the Securities and Exchange Act of 1934. LPI is an
"Affiliate" of the Debtor within the meaning set forth in Section 101(2)(B) of
the Bankruptcy Code because Helionetics, itself an affiliate of the Debtor
within the meaning set forth in Section 101(2)(A) of the Bankruptcy Code, owns a
majority of the current issued and outstanding common stock of LPI.
2.53 LPI Stock: 2,000,000 shares of LPI common stock owned by
Helionetics.
2.54 New Tri-Lite Common Stock: Twenty-five million (25,000,000)
authorized and four million (4,000,000) shares of New Common Stock in the
Reorganized Debtor to be issued under the Plan.
2.55 Order: An order or judgment of the Bankruptcy Court as entered
by the Clerk of the Court on the docket in this Case.
2.56 Person: Any natural person, corporation, general partnership,
limited partnership, association, joint stock company, joint venture, estate,
trust, government or any political subdivision thereof, governmental unit (as
defined in Section 101(41) of the Bankruptcy Code), official committee appointed
by the United States Trustee, or other legal entity.
2.57 Petition Date: February 26, 1996, the date upon which the
Debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code with
the Bankruptcy Court.
2.58 Plan: The Third Amended Joint Chapter 11 Plan of Reorganization
proposed by the Debtor and Helionetics in this Case, and all exhibits,
schedules, releases, and other attachments annexed thereto, as the same may be
amended, modified or supplemented from time to time in accordance with the Code.
2.59 Priority Tax Claim: An Allowed Claim entitled to priority under
Section 507(a)(8) of the Bankruptcy Code.
<PAGE>
2.60 Prolite: Prolite Lighting and Sign Maintenance Co., Inc., a
Pennsylvania corporation, a wholly owned subsidiary of the Debtor.
2.61 Pro Rata: proportionately so that the ratio of (a) the amount
of property distributed at any time on account of a particular Allowed Claim to
(b) the amount of the Allowed Claim is the same as the ratio of the amount of
property distributed at the same time on account of all Allowed Claims of the
Class in which the particular Allowed Claim is included to the amount of all
Allowed Claims in that Class.
2.62 Reorganized Debtor: Tri-Lite, Inc., a Pennsylvania corporation
which, on and after the Confirmation Date, shall assume all of the rights and
obligations of the Debtor together with title to and control of the Debtor's
assets and liabilities upon Confirmation of the Plan, as such rights,
obligations, assets and liabilities are modified in the Plan.
2.63 Scheduled: Set forth on the Schedules of Asset and Liabilities
on file with the Clerk of the Bankruptcy Court.
2.64 Schedules of Assets and Liabilities: The Schedules of Assets
and Liabilities filed by the Debtor with the Clerk of the Bankruptcy Court, as
the same have been or may be amended from time to time prior to the Effective
Date of the Plan.
2.65 Secured Claim: Any Claim that is secured by a lien on property
in which the Estate has an interest or that is subject to setoff under Section
553 of the Bankruptcy Code.
2.66 Secured Creditor: The holder of an Allowed Secured Claim in
this Case.
2.67 Section 1111(b) Election: An election by a Secured Creditor
with an interest in property of the Estate that is not of inconsequential value,
pursuant to the provisions of Section 1111(b) of the Bankruptcy Code, to have
its entire Allowed Claim treated as fully secured. In order to constitute an
effective Section 1111(b) Election, such an election must be made in writing
prior to the conclusion of the hearing on the Disclosure Statement.
2.68 Star Bank: Star Bank, National Association, the holder of the
Class 1 Claim.
2.69 Stipulation: That certain Revised Stipulation For 1)
Sequestration; 2) Interim Use; 3) Turnover of Cash Collateral; 4) Repayment of
Secured Debt entered into by and between the
<PAGE>
Debtor and Star Bank on April 29, 1996 and approved by the Bankruptcy Court
pursuant to its Order entered on April 30, 1996. A true and correct copy of the
Stipulation is attached to the Disclosure Statement as Exhibit "2."
2.70 SPL: Self Powered Lighting, Inc., a New York corporation, a
wholly owned subsidiary of the Debtor.
2.71 SPL Purchase Agreement: That certain agreement for the purchase
by the Debtor from Helionetics of all of the common stock of SPL.
2.72 Stockbroker: The person designated by the Court to liquidate
and sell Helionetics Stock for the benefit of the Class 2 and Class 4 Claimants
under the Plan.
2.73 Stockholder: The holder of record as of the Effective Date of
an Equity Security (common stock) of the Debtor. These parties have been
classified as the holders of Class 6 Claims.
2.74 Unclassified Claims: The Allowed Amount of: (i) all
administrative expenses of the Debtor's Chapter 11 Case, allowed pursuant to
Section 503(b) of the Bankruptcy Code, and (ii) all Allowed, Unsecured Claims
entitled to priority pursuant to Section 507(a)(1),(3), (4) and (6) of the
Bankruptcy Code for wages, salaries, vacation, severance, sick pay or
commissions.
2.75 Unsecured Claims: The Allowed Amounts of those Claims against
the Debtor for which there are no assets of the Debtor serving as security, but
not including any priority Claims.
2.76 Unsecured Creditors: Creditors holding Allowed, Unsecured
Claims against the Debtor for which there are no assets of the Debtor serving as
security, but not including priority Claims.
2.77 33 Act: The Federal Securities Act of 1933.
B) Defined Terms.
Any term used in the Plan or the Disclosure Statement that is not
defined in the Plan, either in Article II, Section A (Definitions) or elsewhere,
but that is used in the Bankruptcy Code or the Bankruptcy Rules has the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
<PAGE>
C) Rules of Interpretation.
For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (b) any reference in the Plan to a
contract, instrument, release or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions; (c) any references in the Plan to an existing document or Exhibit
Filed or to be Filed means such document or Exhibit, as it may have been or may
be amended, modified or supplemented; (d) unless otherwise specified in a
particular reference, all references in the Plan to Sections, Articles and
Exhibits are references to Sections, Articles and Exhibits of or to the Plan;
(e) the words "herein," "hereof," "hereto," "hereunder" and others of similar
import refer to the Plan in its entirety rather than to only a particular
portion of the Plan; (f) captions and headings to Articles and Sections are
inserted for convenience of reference only and are not intended to be a part of
or to affect the interpretation of the Plan; and (g) the rules of construction
set forth in Section 102 of the Bankruptcy Code shall apply.
D) Time Periods.
In computing any period of time prescribed or allowed by the Plan,
the provisions of Bankruptcy Rule 9006(a) shall apply.
ARTICLE III
TREATMENT OF UNCLASSIFIED CLAIMS
3.1 Unless the holder of a particular claim agrees otherwise, all
Allowed Administrative Claims and all Allowed Unsecured Priority Claims shall be
paid in full, in Cash, on the Effective Date, or as soon thereafter as such
Administrative Claims or Allowed Priority Claims have been allowed by Final
Order of the Court. The holders of Allowed Administrative Claims may, at the
sole option of such holder, receive Helionetics Stock or New Tri-Lite Common
Stock in whole or partial satisfaction of such Claims. Such stock will be issued
under the exemption from Section 5 registration under the 33 Act provided by
Section 1145 of the Code and shall be `free trading' upon receipt by the holders
of such Claims. However, unless the holder of an Allowed Administrative
<PAGE>
Claim elects to be paid in stock, it shall be paid in Cash. The Debtor estimates
that unpaid Allowed Administrative Claims will be approximately $150,000 by the
Effective Date and estimates that Allowed Priority Claims will be approximately
$100,000 as of the Effective Date.
3.2 The holders of Allowed Claims described by Section 507 (a) (8)
of the Bankruptcy Code, i.e. unsecured priority tax claims, shall receive
deferred cash payments, as provided for under Section 1129 (a)(9)(C) of the
Bankruptcy Code, equal to the value of their Allowed Claims as of the Effective
Date. Such deferred cash payments shall be payable as follows: From and after
the Effective Date, these claims shall bear interest at the rate of seven
percent (7%) per annum. The balance owed on said claims shall be paid in seventy
two (72) equal monthly installments of principal and interest, with the first
payment being due on the fifteenth (15th) day of the first full month following
the assessment date.
3.3 After the Effective Date, the Allowed Unsecured Priority Tax
Claim of the Internal Revenue Service shall bear interest at a fixed interest
rate of 9% per annum. After the Effective Date, said Claimant shall receive
monthly payments of interest and principal, calculated on the basis of a twenty
(20) year amortization table. The first such payment shall be due and payable on
the fifteenth (15th) day of the first full month following the Effective Date,
and like payments shall be due and payable on the fifteenth (15th) day of each
and every month thereafter. The entire balance due and owing attributable to
each of the various tax periods set forth on the Allowed Unsecured Priority Tax
Claim shall be paid in full on or before the seventy-second (72nd) full month
from the date upon which each of the tax periods which are the subject matter
thereof were assessed.
ARTICLE IV
CLASSIFICATION OF CLAIMS AND INTERESTS
For purposes of satisfying Debtor's obligations created under the
Plan, the Claims of the Creditors and Interest Holders of the Debtor have been
classified as follows:
4.1 Class 1: Star Bank, as the holder of an Allowed Secured Claim in
the approximate amount of $1,000,000, secured by a first priority consensual
lien encumbering the Debtor's inventory, accounts receivable, and other
operating assets.
<PAGE>
4.2 Class 2: Barnett, as the holder of a disputed Secured Claim in
the approximate amount of $225,000 allegedly secured by a second priority
consensual lien encumbering the Debtor's inventory, accounts receivable, and
other operating assets.
4.3 Class 3: All Claimants holding Allowed Unsecured Claims less
than, equal to, or voluntarily reduced by the holder thereof to $500.
4.4 Class 4: All Claimants holding Allowed Unsecured Claims other
than Claims included in Class 3, in the approximate amount of $4,000,000 to
$5,000,000.
4.5 Class 5: Helionetics, Inc., as the holder of an Allowed Secured
Claim allegedly secured by a consensual lien on the Debtor's inventory, accounts
receivable, and other operating assets, in the approximate amount of $1,850,000,
arising from the SPL Purchase Agreement.
4.6 Class 6: The Stockholders (Equity Security Holders), including
Helionetics and Barnes, holding Common Stock of the Debtor.
ARTICLE V
TREATMENT OF UNIMPAIRED CLASSES
All Creditors and Stockholders in Classes 1 through 6 are impaired
under the Plan.
ARTICLE VI
TREATMENT OF IMPAIRED CLASSES
6.1 Class 1: The holder of the Class 1 Claim, Star Bank, shall be
treated in accordance with the terms of the Stipulation entered into by and
between Star Bank and the Debtor on April 29, 1996 and entered by the Clerk of
the Court on April 30, 1996. The Stipulation provides, inter alia, that Star
Bank shall receive monthly paydowns in the amount of $150,000 during the course
of the administration of the Debtor's case by the last business day of each
month commencing April 30, 1996, with the entire remaining balance of principal,
interest and other charges all due on December 15, 1996. The Debtor will
continue to make the payments called for under procedures set forth in the
Stipulation on a monthly basis and pay the remaining balance of principal,
interest and other charges to the Class 1 Claimant by December 15, 1996. The
Debtor and the Committee reserve the
<PAGE>
right to object to Star Bank's proof of claim or otherwise assert claims and
rights against Star Bank as expressly provided in the Stipulation, in particular
at paragraphs 18, 21 and 29 thereof.
6.2 Class 2: The Class 2 Claimant shall retain the priority of his
liens on the assets of the Debtor as security for the balance owed on his
Allowed Secured Claim, including Post-Petition interest calculated at the
contract rate. The Class 2 Claimant shall have an Allowed Secured Claim which
shall be the sum of the following: Principal of $195,000, unpaid interest
accruing prior to December 1, 1995 in the amount of $665.45, and the amount of
all interest that shall accrue, from and including December 1, 1995, on said
principal at the contract rate (prime plus 1.5%) through the Effective Date. On
the Effective Date, all accrued but unpaid interest shall be added to principal.
Thereafter, the Class 2 Claimant's Allowed Secured Claim shall accrue interest
and be amortized as set forth below.
From the Confirmation Date to the date the Class 2 Claimant's
Allowed Secured Claim is paid in full, the principal balance outstanding shall
bear interest at a fixed annual rate of 10% per annum. No portion of the Class 2
Allowed Secured Claim shall include attorneys' fees, default interest, late
penalties or similar charges or costs of any kind, accrued or incurred
post-petition, unless the same have been approved by the Court in accordance
with the procedure set forth in Article X, Section 10.1 hereof. Any future
default shall entitle the holder of the Class 2 Claim to recover his reasonable
attorneys' fees and costs of collection.
After the Confirmation Date, the Class 2 Claimant shall receive
payments on his Allowed Secured Claim equal to the interest accruing on such
claim after the Confirmation Date plus the amortization of principal based upon
a straight line eight year schedule. The first such payment shall be due and
payable on the first day of the first full month following the Effective Date
and shall consist of 1/96 of the amount of outstanding principal plus accrued
interest and like payments shall be due and payable on the first day of every
month thereafter. The entire balance due and owing on the Class 2 Claimant's
Allowed Secured Claim shall be paid in full on or before the first (1st) day of
the thirty-sixth (36th) full month after the Effective Date.
<PAGE>
Notwithstanding the foregoing, the Class 2 Claimant shall
subordinate the priority of his liens to a new lender for the purpose of the
furnishing to the Debtor or the Reorganized Debtor of additional working capital
through a new loan in an authorized principal balance of up to $5,000,000 (the
"New Loan"). The New Loan is to have the following lending parameters: The New
Loan is to be funded upon (a) no more than 80% of the Reorganized Debtor's
eligible accounts receivable; (b) no more than 50% of the value (at cost) of the
Reorganized Debtor's finished goods inventory; and (c) no more than 50% of the
forced liquidation value of the Reorganized Debtor's office furnishings,
machinery and equipment. The Class 2 Claimant shall execute such documentation
as may reasonably be required by a lender in connection with such New Loan(s)
confirming the foregoing and the Class 2 Claimant's subordination of the
priority of his liens to the liens in favor of such lender.
As additional security for the performance by the Reorganized Debtor
of its obligations hereunder, Helionetics will guarantee the Reorganized
Debtor's performance of its obligations hereunder and Helionetics will secure
its performance under its guarantee by pledging for the benefit of the Class 2
Claimant 100,000 shares of common stock in LPI currently owned by Helionetics.
On the twelfth (12th) and twenty-fourth (24th) months following the Effective
Date there shall be a revaluation of the LPI stock pledged for the benefit of
the Class 2 Claimant. Helionetics will deliver such additional LPI stock to the
pledgeholder as may be required to maintain a market value of the pledged LPI
stock in an amount equal to a minimum of 100% of the then outstanding principal
balance owed by the Reorganized Debtor to the Class 2 Claimant under the Plan
within seven days of the date of such valuation. The LPI Stock pledged by
Helionetics for the benefit of the Class 2 Claimant pursuant to the Plan will be
exempt from Section 5 registration under the 33 Act pursuant to Section 1145 of
the Bankruptcy Code and Section 4(1) of the 33 Act and, after confirmation of
this Plan upon any foreclosure of the LPI Stock shall be available for immediate
resale as described herein without registration under Section 5 of the 33 Act.
In the event that the Reorganized Debtor fails to make the payment
due on the Class 2 Claimant's Allowed Secured Claim in accordance with the above
payment schedule, and such
<PAGE>
nonpayment remains uncured for a period of ten (10) days after written notice of
said nonpayment is transmitted to the Reorganized Debtor, then the Class 2
Claimant may pursue any and all remedies available to him under state law and
the Bankruptcy Code.
6.1 Class 3: The Holder(s) of Allowed Unsecured Claim(s) of less
than $500, or who voluntarily reduce their claim(s) to $500 by the date set by
the Court, will be paid in Cash 70% of the amount of their Allowed Unsecured
Claim, calculated without the accrual of Post-Petition interest, on or before
the Effective Date.
6.2 Class 4: Each Class 4 Claimant shall receive deliveries of
Helionetics Stock or cash, or combinations of both from Helionetics (or at the
sole option of the Barnes, from Barnes), equal to seventy (70) cents for each
one (1) dollar of Allowed Unsecured Claim held by each Class 4 Unsecured
Creditor, calculated without the accrual of Post-Petition interest, in exchange
for their Claims against the Debtor. The Helionetics Stock will be delivered
under the exemption from Section 5 registration under the 33 Act provided by
Section 1145 of the Code and shall be `free trading' upon receipt by the Class 4
Unsecured Creditors (so long as the Class 4 Claimants individually or in the
aggregate are not 10% or more shareholders or controlling persons of
Helionetics). The Helionetics Stock or cash, or combinations of both, shall be
delivered to Class 4 Unsecured Creditors in the following manner:
6.4.1 Initial Delivery: As soon as practicable following
the Confirmation Date, but in any event no later than thirty (30) days after the
Confirmation Date, there will be an initial delivery (the "Initial Delivery") by
Helionetics (or, at the sole option of Barnes, from Barnes), of either (i)
Helionetics Stock having an aggregate value based upon a price per share equal
to the average closing price of a share of Helionetics Stock over the five (5)
consecutive trading days following the Confirmation Date, equal to thirty (30)
cents for each one (1) dollar of Allowed Unsecured Claim held by each Class 4
Unsecured Creditor, calculated without the accrual of post-petition interest, or
(ii) a Cash payment equal to thirty (30) cents for each one (1) dollar of
Allowed Unsecured Claim held by each Class 4 Unsecured Creditor, calculated
without the accrual of post-petition interest, at the option of Helionetics.
Within ten (10) days prior to the
<PAGE>
Initial Delivery, Helionetics or Barnes will send via regular mail written
notice to the Debtor and a representative of the Committee of the form of the
Initial Delivery (i.e., whether in all Cash or in all Helionetics Stock). At the
option of each Class 4 Claimant who so elects on the Ballot pertaining to the
Plan (each, a "Participating Class 4 Claimant"), in the event that the Initial
Delivery is in the form of Helionetics Stock, such stock will be delivered to a
stockbroker who has been designated by the Court pursuant to the Plan (the
"Designated Broker"). The Designated Broker will be instructed under the Plan to
liquidate and sell the Helionetics Stock for the account of the Participating
Class 4 Claimant solely pursuant to ordinary trading transactions as those terms
are used in Section 1145 of the Bankruptcy Code as soon as practicable following
the Confirmation Date in sufficient amount to obtain net cash proceeds equal to
thirty (30) cents for each one (1) dollar of Allowed Unsecured Claim held by
such Claimant calculated without the accrual of post-petition interest. Such
proceeds will be distributed to the Participating Class 4 Claimants shortly
after the Effective Date. Pursuant to the Plan, the Designated Broker shall be
entitled to a commission for selling the Helionetics Stock for the account of
each Participating Class 4 Claimant not in excess of the usual and customary
broker's commission. The Designated Broker will be required to deliver a copy of
the Plan and Disclosure Statement to each offeree and purchaser of the
Helionetics Stock. From time to time following the Initial Delivery, at the
request of the Designated Broker, Helionetics (or at the sole option of Barnes,
Barnes) will deliver to each Participating Class 4 Claimant and deliver to the
Designated Broker for the account thereof, additional Helionetics Stock as may
be required to ensure that the net cash proceeds payable to each Participating
Class 4 Claimant from the sale of the Helionetics Stock under the Initial
Delivery will in fact equal a net thirty (30) cents for each one (1) dollar of
Allowed Unsecured Claim calculated without the accrual of post-petition
interest, after payment of the Designated Broker's usual and customary fees and
expenses. In the event that the Initial Delivery is in the form of Helionetics
Stock, those Class 4 Claimants who (a) do not vote on the Plan and return the
Ballot or (b) do not properly complete the instructions for sale of the
Helionetics Stock accompanying the Ballot, or (c) elect not to sell their
Helionetics Stock through the use of the Designated Broker (in each case, a
"Non-Participating Class 4 Claimant"), will be
<PAGE>
delivered their Helionetics Stock at the time of the Initial Delivery pursuant
to the valuation formula described hereinabove. Each Non-Participating Class 4
Claimant shall not be entitled to receive any additional deliveries of
Helionetics Stock described above, notwithstanding that the net cash proceeds
received by such Non-Participating Class 4 Claimant upon the sale of its
Helionetics Stock does not equal thirty (30) cents for each one (1) dollar of
Allowed Unsecured Claim held by such Claimant calculated without the accrual of
post-petition interest. Pursuant to the Plan, in no event at any one time, in
the aggregate when combined with Helionetics Common Stock delivered for sale to
the Designated Broker by the Participating Class 4 Claimants, shall the
Designated Broker hold for sale shares of the Common Stock of Helionetics equal
to or in excess of ten percent (10%) of the then outstanding Common Stock of
Helionetics. At the time of the Initial Delivery, the LPI Stock pledged to the
Committee by Helionetics shall be revalued and dealt with under the terms of the
Amended and Restated Pledge Agreement, dated as of January 23, 1997 and related
documents.
6.4.2 Subsequent Deliveries: There will be subsequent
deliveries to Class 4 Unsecured Creditors, of either (i) Helionetics Stock
having an aggregate value equal to an additional forty (40) cents for each one
(1) dollar of Allowed Unsecured Claim held by each Class 4 Unsecured Creditor,
calculated without the accrual of post-petition interest, or (ii) periodic Cash
payments equal to a total of forty (40) cents for each one (1) dollar of Allowed
Unsecured Claim held by each Class 4 Unsecured Creditor, calculated without the
accrual of post-petition interest, at the option of Helionetics (or at the sole
option of Barnes)("Subsequent Deliveries"), as set forth below. Helionetics
Stock available to the Participating Class 4 Claimants shall be delivered to the
Designated Broker to be sold for their account. The Subsequent Deliveries,
whether in Cash or Helionetics Stock, shall be payable in four installments on
each of the following dates(or, if such date is not a regular business day, on
the first business day thereafter):
Six (6) Months after Effective Date: 7.5%
Twelve (12) Months after Effective Date: 15%
Eighteen (18) Months after Effective Date: 22.5%
Twenty-Four (24) Months after Effective Date: 55%
<PAGE>
Total 100%
Each of the Subsequent Deliveries may be, at the option of
Helionetics (or at her option by Barnes), either entirely in the form of
Helionetics Stock or entirely in Cash, and Helionetics (or Barnes at her option)
may, in its discretion, alternate the form of each delivery. However, not more
than fifteen (15) days nor less than ten (10) days prior to the scheduled date
of each of the Subsequent Deliveries, Helionetics (or Barnes at her option) will
send via regular mail written notice to the Debtor and a representative of the
Committee of the form of the delivery (i.e., whether in Cash or in Helionetics
Stock). If Helionetics elects to deliver Helionetics Stock, it shall be valued
for the purposes of each such Subsequent Delivery at a price per share equal to
the average closing price of a share of Helionetics Stock over the five (5)
consecutive trading days up to and including the trading day immediately prior
to the date of such notice. Helionetics may, at its sole option, (or Barnes, at
her sole option) accelerate the date of any scheduled delivery hereunder;
provided, however, that Helionetics (or Barnes) shall not be permitted to
accelerate a Subsequent Delivery in the form of Helionetics Stock, if the
Helionetics Stock to be delivered to the Designated Broker, when aggregated with
the Helionetics Stock previously delivered to and still held by the Designated
Broker, would cause the Designated Broker to hold on behalf of the Participating
Class 4 Claimants Helionetics Stock equal to or in excess of ten percent (10%)
of the then outstanding Common Stock of Helionetics. At the time of each
Subsequent Delivery, the LPI Stock pledged to the Committee by Helionetics shall
be revalued and dealt with under the terms of the Amended and Restated Pledge
Agreement, dated as of January 23, 1997, and related documents.
Debtor's Counsel will issue a qualified opinion that the delivery of
the aforesaid shares of Helionetics Common Stock under the Plan and their resale
by creditors into public markets is exempt from Section 5 registration under the
33 Act pursuant to Section 1145 of the Code and Section 4(1) of the 33 Act.
Helionetics shall obtain all appropriate board resolutions and other corporate
authority necessary to enter into the transactions contemplated herein prior to
December 15, 1996.
The Court will be requested to make appropriate findings in the
Confirmation Order that: (i) title to the Helionetics Stock to be delivered to
Class 4 Claimants will pass to the Class 4 Claimants
<PAGE>
only upon the delivery of the Helionetics Stock to the Class 4 Claimants or to
the Designated Broker who will sell the Helionetics Stock for their account
pursuant to ordinary trading transactions, as applicable; (ii) the LPI Stock
pledged pursuant to the stipulation approved by the Court on September 3, 1996,
as modified by the Amended and Restated Pledge Agreement, dated as of January
23, 1997, and related documents and corresponding Stipulation to be filed with
the Court prior to the entry of the Confirmation Order, will be exempt from
Section 5 registration under the 33 Act pursuant to Section 1145 of the
Bankruptcy Code and Section 4(1) of the 33 Act and, after confirmation of this
Plan upon any foreclosure of the LPI Stock shall be available for immediate
resale as described herein without registration under Section 5 of the 33 Act;
(iii) as long as the Class 4 Unsecured Creditors individually or in the
aggregate are not 10% or more stockholders or controlling persons of
Helionetics, the offer and sale of the Helionetics Stock to the Class 4
Unsecured Creditors under the Plan, and the offer and sale of the Helionetics
Stock by the Class 4 Unsecured Creditors into the public market, including
without limitation the offer and sale of Helionetics Stock by the Designated
Broker on behalf of each Participating Class 4 Claimant, will be exempt from the
registration requirements under Section 5 of the 33 Act pursuant to the
exemptions provided by Section 1145 of the Code and Section 4 (1) of the 33 Act;
(iv) each offer and sale by the Designated Broker of the Helionetics Stock in
accordance with the Plan is an "ordinary trading transaction" under Section
1145(b)(1) of the Code; (v) neither the Class 4 Unsecured Creditors, nor the
Committee, nor the Designated Broker, nor the Debtor, is an "underwriter" as
defined under Section 1145 of the Code and, none of such persons are
"underwriters" under Section 2(11) of the 33 Act, with respect to the delivery,
offer, sale and issuance of the Helionetics Stock; (vi) Barnes and Helionetics
are "affiliates" of the Debtor as defined in Section 101(2) of the Code; (vii)
the offer and sale of the New Tri-Lite Common Stock to the Class 6 interest
holders and to Helionetics and/or Barnes, will be exempt from the registration
requirements under Section 5 of the Securities Act of 1933 pursuant to the
exemptions provided by Section 1145 of the Code; and (viii) the New Tri-Lite
Common Stock to be offered and sold to Helionetics and Barnes as Class 6
interest holders, will be offered and sold in the manner specified under
subsection (a)(1) of Section 1145 of the Code, such
<PAGE>
offer and sale will be deemed to be a public offering as specified in subsection
(c) of Section 1145 of the Code, and such stock shall be available for immediate
resale subject to volume limitations on resale applicable to "affiliates" of an
issuer who have received "non-restrictive" securities in a public offering, as
set forth in Securities and Exchange Commission Rule 144, the exemptions
provided by Section 1145 of the Code, and Section 4(1) of the 33 Act.
6.5 Class 5: In consideration of the Debtor having compromised
through an appropriate Order of the Bankruptcy Court dismissing the Helionetics
Litigation immediately after the Effective Date regarding the SPL Purchase
Agreement and any other relief sought by the Debtor against Helionetics, and in
consideration of the allowance of Helionetics' Allowed Class 5 Secured Claim in
the amount of approximately $1,850,000, (i) the Debtor will retain all of its
right, title and interest in the common stock of SPL; (ii) Helionetics (or at
her sole option Barnes) will cause sufficient Helionetics Stock or Cash to be
delivered to meet the requirements of Sections 6.2, 6.3, 6.4.1 and 6.4.2 of the
Plan to satisfy the requirements for the exchange of the Claims of Class 2, 3
and 4 Claimants; and (iii) on the Effective Date Helionetics shall contribute to
the Reorganized Debtor all of its interest in AIM which is intended to transfer
to the Reorganized Debtor all proprietary rights to the AIM Filter.
The Class 5 Claimant shall retain the priority of its liens on the
assets of the Debtor as security for the balance owed on its Allowed Secured
Claim, including Post-Petition interest calculated at the non-default contract
rate. Notwithstanding the foregoing, the Class 5 Claimant shall subordinate the
priority of its liens, to a new lender for the purpose of (1) replacement of the
Allowed Secured Claim of the Class 1 Claimant and (2) the furnishing to the
Debtor or the Reorganized Debtor of additional working capital with a new loan
in an authorized principal balance of up to $5,000,000.
No portion of the Class 5 Allowed Secured Claim shall include
attorneys' fees, default interest, late penalties or similar charges or costs of
any kind, accrued or incurred post-petition, unless the same have been approved
by the Court in accordance with the procedure set forth in Article X, Section
10.1 hereof.
<PAGE>
From the Confirmation Date until the Class 5 Allowed Secured Claim
is paid in full, the balance outstanding shall bear interest at a fixed rate of
seven and one-half percent (7.5%) per annum. After the Confirmation Date the
Class 5 Claimant shall receive semi-annual payments of interest only, with the
first payment due on the first (1st) day of the sixth month following the
Effective Date with the entire balance due and owing on the Class 5 Claimant's
Allowed Secured Claim to be paid in full by on or before the first (1st) day of
the seventy-second (72nd) full month after the Effective Date.
In the event that the Reorganized Debtor fails to make any payment
due on the Class 5 Claimant's Allowed Secured Claim in accordance with the above
payment schedule, and such nonpayment remains uncured for a period of ten (10)
days after written notice of said nonpayment is transmitted to the Reorganized
Debtor, the outstanding obligation shall accelerate and the Class 5 Claimant may
pursue any and all remedies available to it under state law and the Bankruptcy
Code.
6.6 Class 6: On the Effective Date all Common Stock and securities
in the Debtor shall be automatically canceled and the Debtor's Articles shall be
automatically amended to authorize the issuance of up to twenty-five million
(25,000,000) shares of New Tri-Lite Common Stock, of which four million
(4,000,000) shares will be issued under the Plan. All members of Class 6, with
the exception of Helionetics and Barnes, shall be issued on a pro rata basis
12.5% of the New Tri-Lite Common Stock in the Reorganized Debtor in exchange for
their existing "old common shares" of the Debtor currently outstanding and in
their hands. Helionetics will contribute to the Reorganized Debtor on the
Effective Date all of its interest in AIM, which is intended to transfer to the
Reorganized Debtor all proprietary rights to the AIM Filter. Helionetics and/or
Barnes shall be issued 87.5% of the New Tri-Lite Common Stock in the Reorganized
Debtor in exchange for their respective "old common shares" of the Debtor
currently outstanding and in their hands in proportion to the shares of
Helionetics Stock (or at their option, Cash) they respectively deliver to Class
2 and 4 Creditors, in a transaction exempt from registration under the 33 Act,
pursuant to Section 1145 of the Code. In the event Barnes elects to deliver no
Helionetics Stock or Cash to Class 2 and Class 4
<PAGE>
Creditors, then the 87.5% block of New Tri-Lite Common Stock shall be allocated
between Barnes and Helionetics, in proportion to their holdings of "old common
shares" of the Debtor.
The Court will be requested to make appropriate findings in the
Confirmation Order that: (i) title to the New Tri-Lite Common Stock to be
delivered to Class 6 Claimants (including Barnes and/or Helionetics) will pass
to the Class 6 Claimants only upon the delivery of New Tri-Lite Stock
certificates; (ii) the issuance of the New Tri-Lite Stock to the Class 6 members
and to Barnes and/or Helionetics under the Plan, will be exempt from the
registration requirements under Section 5 of the 33 Act pursuant to the
exemption provided by Section 1145 of the Code; (iii) neither the Class 6
members nor the Debtor (excluding Helionetics and Barnes), is an "underwriter"
as defined under Section 1145 of the Code; (iv) the New Tri-Lite Common Stock to
be issued to the Class 6 members, excluding Barnes and/or Helionetics, shall be
available for immediate resale without registration under Section 5 of the 33
Act, pursuant to the exemptions provided by Section 1145 of the Bankruptcy Code
and Section 4(1) of the 33 Act; (v) Barnes and Helionetics are "affiliates" of
the Debtor as defined in Section 101(2) of the Code; (vi) the offer and sale of
the New Tri-Lite Common Stock to the Class 6 interest holders and to Helionetics
and/or Barnes, will be exempt from the registration requirements under Section 5
of the Securities Act of 1933 pursuant to the exemptions provided by Section
1145 of the Code; and (vii) the New Tri-Lite Common Stock to be offered and sold
to the Class 6 interest holders, including Helionetics and Barnes, will be
offered and sold in the manner specified under subsection (a)(1) of Section 1145
of the Code, will be deemed to be a public offering as specified in subsection
(c) of Section 1145 of the Code, and shall be available for immediate resale
subject to volume limitations on resale applicable to "affiliates" of an issuer
who have organized "non-restrictive" securities in a public offering, as set
forth in Securities and Exchange Commission Rule 144, the exemptions provided by
Section 1145 of the Code, and Section 4(1) of the 33 Act.
<PAGE>
ARTICLE VII
MEANS FOR EXECUTION OF THE PLAN
7.1 Financing of Cash Distributions on Effective Date: Helionetics'
loan of funds to the Debtor (Barnes' loan of funds to the Debtor, in her sole
discretion), or the proceeds of new financing, and the Debtor's internally
generated cash will be used to pay Unclassified Claims by on or before the
Effective Date and the payment to Class 3 Unsecured Creditors.
7.2 Payments to Star Bank: The Debtor will continue with its efforts
to secure replacement financing for its business operations and will have a new
institutional lender or Susan Barnes on terms satisfactory to her in place by
December 15, 1996 to insure the availability of the final payment due Star Bank
at that time.
7.3 Delivery of Helionetics Stock or Cash: Helionetics (or at her
sole option, Barnes) will cause sufficient Helionetics Stock or Cash to be
delivered to meet the requirements of Sections 6.2, 6.4.1 and 6.4.2 of the Plan
to satisfy the requirements for the exchange of the Claims of Class 2 and 4
Claimants. The Helionetics Stock will be delivered for the benefit of the Class
2 and 4 Claimants under the exemption from Section 5 registration under the 33
Act provided by Section 1145 of the Bankruptcy Code as described in the Plan.
7.4 Compromise of Controversy re: Helionetics Litigation: The
Helionetics Litigation will have been compromised, pursuant to a noticed hearing
under Bankruptcy Rule 9019, in such a fashion concurrently with the hearing on
Confirmation and contingent upon Confirmation of the Plan that the Debtor shall
be authorized to dismiss with prejudice its claims against Helionetics
immediately after the Effective Date. Helionetics is to specifically retain any
and all claims and causes of action it may hold against Star Bank and its
employees or agents and any and all other claims or causes of action it may have
against any third parties as a Stockholder of the Debtor.
7.5 Contribution of AIM: On the Effective Date Helionetics shall
contribute to the Reorganized Debtor all of its interest in AIM which is
intended to transfer to the Reorganized Debtor all proprietary rights to the AIM
Filter.
<PAGE>
7.6 Issuance of New Tri-Lite Common Stock: The Reorganized Debtor
will issue New Tri-Lite Common Stock to meet the requirements of Section 6.6 of
the Plan. The New Tri-Lite Common Stock will be issued to Class 6 members and to
Barnes and/or Helionetics in exchange for their "old common shares" of Tri-Lite,
Inc. currently outstanding and in their hands, as an exchange of new Debtor
securities for existing interests in the Debtor under the exemption from Section
5 registration under the 33 Act provided by Section 1145 of the Bankruptcy Code.
ARTICLE VIII
REQUEST FOR FINDING OF FAIR AND EQUITABLE
TREATMENT OF IMPAIRED CLASSES
Pursuant to Section 1129(b) of the Bankruptcy Code, the Debtor,
Helionetics and Barnes, as the co-proponents of this Chapter 11 Plan, hereby
request that this Court find that the provisions of this Plan provide fair and
equitable treatment to those Claimants who are impaired under the Plan and who
elect not to accept the Plan, and that this Court confirm the Plan ("cramdown")
notwithstanding the requirement of Section 1129(a)(8) of the Bankruptcy Code as
to such Claimants.
ARTICLE IX
CONDITIONS PRECEDENT TO DISTRIBUTIONS UNDER THE PLAN
In addition to the other terms and conditions set forth herein, the
following shall constitute conditions precedent to any Claimant's or Interest
Holder's right to participate in the distributions under the Plan:
9.1 As a condition to participation in the distribution under the
Plan, all Creditors shall execute and deliver to the Reorganized Debtor or join
in the execution or delivery of any instrument necessary for consummation of the
Plan.
9.2 Within fifteen (15) business days of the Confirmation Date, the
Class 2 Claimant shall provide the Reorganized Debtor with evidence that a
legend has been placed upon the original of its promissory note reflecting the
fact that said note has been modified and amended by and in accordance with the
Plan. In the event the Class 2 Claimant fails to comply with this provision, it
<PAGE>
shall not be entitled to receive payments or accrue interest on its Claim after
the Confirmation Date until this condition is satisfied.
9.3 As a condition to participation in distribution under the Plan,
any Person against whom a turnover judgment has been entered in this case shall
turn over to the Reorganized Debtor the property, or the value thereof, ordered
turned over by such judgment. No Person against whom a turnover judgment has
been entered shall have any right to participate in distributions under the Plan
until such Person turns over to the Reorganized Debtor the required amount, or
the value thereof, and such Person shall forfeit any rights to distribution
which the Plan contemplates and which would have occurred during the period of
noncompliance with any turnover judgment. Any rights of any such Person to
participate in distributions under the Plan shall terminate six months from the
Confirmation Date in the event such Person has not by that time turned over to
the Reorganized Debtor the required property or the value thereof.
Notwithstanding the foregoing, nothing contained herein shall limit any right of
the Reorganized Debtor to enforce any judgment of the Court.
9.4 As a condition to participation in distribution under the Plan,
any Person against whom a preference judgment has been entered shall turn over
to the Reorganized Debtor the property preferentially transferred or the value
thereof. No Person shall have any right to participate in distributions under
the Plan until such Person turns over to the Reorganized Debtor the required
property or the value thereof and such Person shall forfeit any rights to
distributions which the Plan contemplates and which would have occurred during
the period of noncompliance with any preference judgment. Any right of any
Person to participate in distributions under the Plan shall terminate five years
from the Confirmation Date in the event such Person has not by that time turned
over to the Reorganized Debtor the required property or the value thereof.
Notwithstanding the foregoing, nothing contained herein shall limit any right of
the Reorganized Debtor to enforce any judgment of the Court.
<PAGE>
ARTICLE X
DISALLOWANCE OF CLAIMS/RETENTION OF PROPERTY
10.1 Notwithstanding anything to the contrary herein, no attorney's
fees or other "professional" fees (as the term "professional" is defined in 11
U.S.C. ss. 327), default interest, late penalties or any similar charges claimed
after the Petition Date shall be compensable by the Debtor or out of property of
the estate, nor shall the same constitute part of an Allowed Claim, until the
Creditor seeking to recover such fees and charges from the Debtor or the estate
has had such fees and charges approved by the Bankruptcy Court as "reasonable"
or otherwise properly payable by the Debtor or the estate. Such approval must be
made through a motion for the recovery of same, made on no less than twenty-one
(21) days' written notice to the Debtor, its attorneys, and the Office of the
United States Trustee. Any professional fees or default interest, late penalties
or similar charges claimed after the Petition Date claimed by a Creditor of the
estate as compensable by the Debtor or the estate which have not been approved
through the above procedure within sixty (60) days after the Effective Date
shall be barred.
10.2 Notwithstanding anything contained herein, the Reorganized
Debtor shall have the right to request the Court to disallow any Claim of any
Person from which property is recoverable under section 542, 543, 550, or 553 of
the Bankruptcy Code or that is a transferee of a transfer avoidable under
section 544, 545, 547, 548, or 549 of the Bankruptcy Code unless such Person or
transferee has paid the amount, or turned over any such property for which such
Person or transferee is liable.
10.3 Except as otherwise specifically provided herein, the
Reorganized Debtor shall retain all property of the estate including any rights
under avoidance actions, and including but not limited to any claims or causes
of action it may have against Star Bank and its employees or agents and any and
all other claims or causes of action it may have against any third parties which
shall become property of the Reorganized Debtor.
10.4 All claims objections shall be filed within six (6) months
after the Effective Date, unless the Reorganized Debtor obtains an extension of
this deadline through a noticed motion. If a
<PAGE>
claims objection is filed, the claimant will not receive any distributions
called for under the Plan until the first day of the first full month after a
Final Order has been rendered by the Bankruptcy Court, or another court of
competent jurisdiction, establishing the amount and priority of such claim.
10.5 Any payment(s) called for under the Plan which include (a)
checks issued by the Reorganized Debtor which have been returned as
undeliverable without a property forwarding address, or (b) checks issued by the
Reorganized Debtor which were not mailed or delivered because of the absence of
a proper address with which to mail or deliver same) shall be deposited by the
Reorganized Debtor into an interest bearing unclaimed property reserve to be
held in trust for the benefit of the holders of Allowed Claims entitled thereto
under the terms of the Plan. For a period of two (2) years following the
Effective Date, such unclaimed property shall be held in the unclaimed property
reserve for the benefit of the holders of Allowed Claims which have failed to
claim such property. Prior to the expiration of two (2) years following the
Effective Date, such unclaimed property due the holder of an Allowed Claim shall
be released from the unclaimed property reserve and delivered to such holder
upon presentation of proper proof by such holder of its entitlement thereto. At
the end of the second year following the Effective Date, the holders of Allowed
Claims theretofore entitled to said unclaimed property shall cease to be
entitled thereto and the same shall thereupon become the property of the
Reorganized Debtor.
ARTICLE XI
DESIGNATION OF REORGANIZED DEBTOR
AS REPRESENTATIVES OF ESTATE
Pursuant to Section 1123(b)(3)(B) of the Code, the Reorganized
Debtor is hereby designated as the representative of the estate of the Debtor.
The Reorganized Debtor is also to be the Disbursing Agent for the purposes of
any Cash distributions under the Plan. The Transfer Agents for Helionetics and
the Reorganized Debtor shall handle the delivery of Helionetics Stock and New
Tri-Lite Common Stock to Creditors (or to the Stockbroker designated by the
Court if they so elect) and Interest Holders under the Plan.
<PAGE>
ARTICLE XII
MODIFICATION OF PLAN
The Debtor may propose amendments or modifications to this Plan at
any time prior to confirmation or at the confirmation hearing, without leave of
the Court, upon proper notice. After confirmation, the Debtor may, with the
approval of the Court, and so long as it does not materially or adversely affect
the interest of creditors, remedy any defect or omission, or reconcile any
inconsistencies in the Plan, or the order of confirmation, in such manner as may
be necessary to carry out the purposes of this Plan.
ARTICLE XIII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
All prepetition executory contracts and unexpired leases in which
the Debtor is the lessor or lessee and which have not been previously rejected
during the course of this Chapter 11 case which are set forth on Exhibit "8"
hereto shall be assumed through the Plan. All other prepetition executory
contracts and/or unexpired leases not previously assumed or rejected during the
course of this Chapter 11 case shall be deemed rejected by the Plan. All claims
arising from the rejection of executory contracts and/or unexpired leases which
have been deemed rejected by the Plan must be filed with the Court within thirty
(30) days of the Confirmation Date or shall be barred.
ARTICLE XIV
EFFECT OF CONFIRMATION
14.1 From and after the Confirmation Date, the Debtor will be
discharged from any and all debts dischargeable under Section 1141(d) of the
Bankruptcy Code, and confirmation of the Plan, which shall occur on the
Confirmation Date shall otherwise have all of the effects provided in Section
1141 of the Bankruptcy Code which are not inconsistent with the terms of the
Plan.
14.2 From and after the Confirmation Date all loan documents, trust
deeds and other contracts documenting claims against the Debtor shall be deemed
modified and/or superseded completely, as the case may be, by the terms of the
Plan. After the Confirmation Date, Claims shall be paid only in accordance with
the Plan, and any effort by any Claimant to compel the Debtors to
<PAGE>
pay such Claimant more than its Allowed Claim, or to pay its Claim in any manner
other than as provided for in the Plan shall constitute a violation of the
Confirmation Order and Section 1141 of the Bankruptcy Code.
14.3 All claimants holding negotiable instruments signed by the
Debtor which reflect a prepetition claim, shall cause a legend or notation to be
placed conspicuously on the face of any such instrument stating that the terms
of this instrument have been modified by the terms of the Plan. This legend or
notation must be placed on said negotiable instruments within five (5) days of
the Effective Date, and no payments shall be made to the holders of any such
instrument until they have proved that this action has in fact been taken.
14.4 From and after the Confirmation Date, any cash collateral
stipulation or order regarding the use of cash collateral then effective in this
proceeding, shall be rendered null and void, and the terms of the Plan shall be
controlling.
14.5 Pursuant to Section 1142(a) of the Bankruptcy Code,
notwithstanding any other applicable non-bankruptcy law, rule or regulation
relating to financial condition, the Debtor is authorized to carry out the terms
of the Plan. Moreover, all claimants holding liens on the Debtor's properties,
are directed, pursuant to Section 1142(b) of the Bankruptcy Code, to execute or
deliver, or to join in the execution or delivery, of any instrument or other
document required to effect a transfer of property dealt with by the Plan, and
to perform any other act, including the satisfaction of any lien that is
necessary for the consummation of the Plan. To the extent that any lienholder
fails to comply with this provision, the Debtor may seek an order from the
Bankruptcy Court, on an expedited basis, compelling compliance with this
provision, and during the time period encompassed by this compliance, no
payments shall be made to the noncomplying Creditor under the Plan, and any such
Creditor shall be responsible for all costs and damages incurred by the Debtor
as a result of its noncompliance with this provision.
14.6 On the Effective Date the Committee shall remain in existence
for the sole and exclusive purpose of enforcing the Committee's rights and
remedies in the event of Debtor's failure to comply with all terms of the Plan
including, but not limited to, enforcing the Committee's rights
<PAGE>
under the Letter Agreement and the Pledge Agreement with Helionetics. The
Committee will not have any rights, responsibilities or obligations after the
Effective Date except for the limited purpose set forth herein. Upon Debtor's
satisfaction of all provisions of the Plan vis-a-vis Class 4 Creditors, the
Committee shall dissolve and the members of such Committee released and
discharged from all rights and duties as committee members arising from or
related to this Case. The Committee's members and professionals shall only be
entitled to compensation and reimbursement from the estate for post-Effective
Date services rendered for the limited purpose set forth herein and said
compensation and reimbursement of expenses shall not exceed the sum of
$35,000.00 for these post-Effective Date services; provided, however, that this
$35,000.00 limitation does not pertain to pre-Effective Date fees and expenses
of the Committee and its professionals. Except as set forth herein, the members
of the Committee shall not be entitled to compensation or reimbursement of
expenses for any services rendered after the Effective Date, except for services
rendered and expenses incurred in connection with any applications for allowance
of compensation and reimbursement of expenses pending on the Effective Date.
ARTICLE XV
RETENTION OF JURISDICTION
The Court shall retain jurisdiction of this Chapter 11 case until
this Plan has been fully consummated, pursuant to and for the purposes set forth
in the Code, and specifically for the purpose of:
15.1 Classification of the Claim of any Creditor in the
reexamination of Claims which have been allowed for the purposes of voting for
the determination of such objections as may be filed to Creditors' Claims. The
failure by the Debtor to object to or examine any claim for the purpose of
voting shall not be deemed to be a waiver of the Debtor's right to object to or
reexamine the Claim in whole or in part.
15.2 The allowance of compensation or other administrative expenses.
15.3 To hear and determine Claims concerning state, local, and
federal taxes pursuant to Sections 346, 505, 525, and 1146 of the Bankruptcy
Code.
<PAGE>
15.4 To hear and determine any action or proceeding brought by
Debtor under Sections 510,543, 544, 545, 548, 549, 550, 551, and 553 of the
Bankruptcy Code, whether such action or proceeding is brought before or after
the Effective Date.
15.5 To hear and determine all actions and proceedings which relate
to pre-confirmation matters brought by the Debtor whether such action or
proceeding is brought before or after the Effective Date.
15.6 The determination of any issues relating to the assumption or
rejection of executory contracts and unexpired leases including the assumption
or rejection of executory contracts or unexpired leases not expressly dealt with
herein.
15.7 The modification of this Plan after Confirmation pursuant to
the Bankruptcy Rules and Title 11 of the United States Code.
15.8 The enforcement and interpretation of the terms of this Plan.
15.9 The correction of any defects, the curing of any omission, or
the reconciliation of any inconsistency of this Plan or in the Confirmation
Order as may be necessary to carry out the purposes and intent of this Plan.
15.10 The entry of any order, including injunctions, necessary to
enforce title, rights and powers of the Debtor and to impose such limitations,
restrictions, terms and conditions of such title, rights and powers as this
Court may deem necessary including, without limitation, any right of the Debtor
to recover assets pursuant to any of the relevant provisions of the Bankruptcy
Code.
15.11 The determination of the validity, extent and priority of all
liens and security interests against property of the Debtor's Chapter 11 estate.
15.12 To hear and determine such matters and make such orders as are
consistent with the Plan as may be necessary or desirable to carry out the
provisions thereof and to adjudicate any disputes arising under or relating to
any order entered by the Court in this proceeding.
<PAGE>
15.13 The entry of an order concluding and terminating this Chapter
11 case.
DATED: February __, 1997 Tri-Lite, Inc., a Pennsylvania corporation
By: ______________________________
A. Alvin Katz
Its: President
DATED: February __, 1997 Helionetics, Inc., a California corporation
By: ______________________________
E. Maxwell Malone
Its: President
DATED: February __, 1997 Laser Photonics, Inc., a Delaware corporation
By: ______________________________
Steven Qualls
Its: President
DATED: February __, 1997
By: ______________________________
Susan Barnes
Presented by:
BROKER & O'KEEFE
PROFESSIONAL CORPORATION
By: ______________________________
Jeffrey W. Broker
<PAGE>
Special Reorganization Counsel
for Debtor and Debtor-in-Possession
<PAGE>
EXHIBIT "7"
LEASES AND EXECUTORY CONTRACTS
BEING ASSUMED UNDER THE PLAN
1. That certain lease of nonresidential real property dated July 31,
1995 by and between Ambrose B. Schnieders and Aleta B. Schnieders, as lessors
and Tri-Lite, Inc., a Pennsylvania corporation as lessee, pertaining to the
premises located at 2615 South Rouselle Street, Santa Ana, California.
2. That certain lease of nonresidential real property dated as of
June 1, 1996 by and between Ohio Equities, Inc., as lessor and Tri-Lite, Inc., a
Pennsylvania corporation as lessee, pertaining to the premises located at 6925
Americana Parkway, Columbus, Ohio.
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE NO.
I Introduction .......................................................... 2
II Definitions, Interpretation, And Rules Of Construction ................ 3
A) Definitions ...................................................... 3
B) Defined Terms .................................................... 12
C) Rules of Interpretation .......................................... 12
D) Time Periods ..................................................... 13
III Treatment Of Unclassified Claims ...................................... 13
IV Classification Of Claims And Interests ................................ 14
V Treatment Of Unimpaired Classes ....................................... 14
VI Treatment Of Impaired Classes ......................................... 15
VII Means For Execution Of Plan ........................................... 25
VIII Request For Finding Of Fair And Equitable Treatment Of Impaired
Classes ............................................................. 27
IX Conditions Precedent To Distributions Under The Plan .................. 27
X Disallowance Of Claims/Retention Of Property .......................... 28
XI Designation Of Reorganized Debtor As Representatives Of Estate ........ 30
XII Modification Of Plan .................................................. 30
XIII Executory Contracts and Unexpired Leases .............................. 31
XIV Effect Of Confirmation ................................................ 31
XV Retention Of Jurisdiction ............................................. 33
<PAGE>
PROOF OF SERVICE
1013A (3) CCP
STATE OF CALIFORNIA, COUNTY OF ORANGE
I am employed in the aforesaid County. I am over the age of 18 and
not a party to the above-entitled action. My business address is 4695 MacArthur
Court, Suite 1200, Newport Beach, California 92660.
On March 3, 1997, I served the pleading described as THIRD AMENDED
JOINT CHAPTER 11 PLAN OF REORGANIZATION AS MODIFIED on the interested parties in
this action by placing true and correct copies thereof enclosed in sealed
envelopes, with postage prepaid, addressed as follows:
<TABLE>
<CAPTION>
United States Trustee Committee of Unsecured Creditors Spec Not Atty- Richard Barnett
- --------------------- -------------------------------- ------------------------------
<S> <C> <C>
Michael J. Hauser, Esq. Craig Barbarosh, Esq. Michael H. Weiss, Esq.
Office of the United States Trustee Pillsbury Madison & Sutro LLP Weiss, Scolney, Spees, Danker & Shinderman
600 W. Santa Ana Blvd., Suite 501 600 Anton Blvd., Suite 1100 1875 Century Park East, Suite 800
Santa Ana, CA 92701 Costa Mesa, CA 92626 Los Angeles, CA 90067
</TABLE>
/_/ Via Fax
/_/ Via Overnight Mail
/_/ Via Hand Delivery
/x/ Via First Class Mail
I am "readily familiar" with the firm's practice of the collection
and processing of correspondence for mailing. Under that practice, it would be
deposited with the U. S. postal service on that same day, with postage thereon
fully prepaid at Newport Beach, California in the ordinary course of the firm's
business. I am aware that, on motion of the party served, service is presumed
invalid if the postal cancellation date or postage meter date is more than one
day after the date of deposit for mailing as set forth in this affidavit.
I declare under penalty of perjury that the foregoing is true and
correct.
Executed on March 3, 1997, at Newport Beach, California.
______________________________
Susan Duncan
<PAGE>
PAUL J. COUCHOT - State Bar No. 131934
RICHARD H. GOLUBOW - State Bar No. 160434
WINTHROP COUCHOT
PROFESSIONAL CORPORATION
3 Civic Plaza, Suite 280
Newport Beach, CA 92660
Telephone: (949) 720-4100
Facsimile: (949) 720-4111
Attorneys for Debtor and Debtor in Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SANTA ANA DIVISION
In re
HELIONETICS, INC.,
Debtor and
Debtor in Possession.
Bk. No. SA 97-14645-JR
In a Case Under Chapter 11 of the Bankruptcy
Code (11 U.S.C. ss. 1101 et seq.)
FOURTH AMENDED DISCLOSURE
STATEMENT DESCRIBING DEBTOR'S
THIRD AMENDED CHAPTER 11
LIQUIDATING PLAN
DISCLOSURE STATEMENT HEARING
DATE: October 5, 1998
TIME: 11:30 a.m.
CTRM: 606
34 Civic Center Plaza
Federal Building, Rm. 506
Santa Ana, CA 92701
PLAN CONFIRMATION HEARING
DATE: November 24, 1998
TIME: 1:30 p.m.
CTRM: 606
34 Civic Center Plaza
Federal Building, Rm 506
Santa Ana, CA 92701
<PAGE>
I. INTRODUCTION
Helionetics, Inc. is the Debtor (hereinafter referenced as the "Debtor"
or "Helionetics") in a Chapter 11 bankruptcy case pending before the United
States Bankruptcy Court of the Central District of California ("Court"). On
March 31, 1997 five creditors commenced an involuntary Chapter 7 proceeding
against the Debtor. On May 2, 1997 the Debtor consented to an order for relief
and converted its Chapter 7 case to one under Chapter 11. Chapter 11 allows the
Debtor, and under some circumstances, creditors and other parties in interest,
to propose a plan of reorganization, specifically herein, the Debtor's Third
Amended Chapter 11 Plan ("Plan"). The Debtor is the party proposing the Plan
sent to you in the same envelope as this document (the "Plan Proponent"). THE
DOCUMENT YOU ARE READING IS THE DISCLOSURE STATEMENT FOR THE ENCLOSED PLAN.
The Plan is a liquidation plan. The Plan Proponent seeks to accomplish
payments under the Plan by the distribution of approximately $6,681,433.00. This
amount is comprised of those proceeds generated by the sale of the Debtor's
3,750,000 shares of Laser Photonics, Inc., common stock in the aggregate amount
of $7,096,247, the sale of the Debtor's disputed secured claim against AccuLase
Inc. for $1,000,000, and accrued interest earned up to and including the
Effective Date, less all post-petition payments made up to and including the
Effective Date. In addition, Tri-Lite, Inc. ("Tri-Lite"); Self-Powered Lighting,
Inc. ("SPL"); and AIM Energy, Inc. and AIM Technology, Inc. (collectively "AIM")
will execute an $800,000 interest bearing secured promissory note in favor of
the Official Committee of Unsecured Creditors of the Helionetics estate (the
"Helionetics Committee") (All of the above referenced assets are hereinafter
collectively referred to as the "Estate Funds"). The effective date ("Effective
Date") of the proposed Plan is the tenth (10th) business day following the date
that the order confirming the Plan is entered on the bankruptcy court docket.
A. Purpose of This Document
This Disclosure Statement summarizes what is in the Plan, and tells you
certain information relating to the Plan and the process the Court follows in
determining whether or not to confirm the Plan.
-2-
<PAGE>
READ THIS DISCLOSURE STATEMENT CAREFULLY IF YOU WANT TO KNOW ABOUT:
(1) WHO CAN VOTE OR OBJECT,
(2) WHAT THE TREATMENT OF YOUR CLAIM IS (i.e., what your claim
will receive if the Plan is confirmed), AND HOW THIS TREATMENT
COMPARES TO WHAT YOUR CLAIM WOULD RECEIVE IN LIQUIDATION,
(3) THE HISTORY OF THE DEBTOR AND SIGNIFICANT EVENTS DURING THE
BANKRUPTCY,
(4) WHAT THINGS THE COURT WILL LOOK AT TO DECIDE WHETHER OR NOT TO
CONFIRM THE PLAN,
(5) WHAT IS THE EFFECT OF CONFIRMATION, AND
(6) WHETHER THIS PLAN IS FEASIBLE.
This Disclosure Statement cannot tell you everything about your rights.
You should consider consulting your own lawyer to obtain more specific advice on
how this Plan will affect you and what is the best course of action for you.
Be sure to read the Plan as well as the Disclosure Statement. If there
are any inconsistencies between the Plan and the Disclosure Statement, the Plan
provisions will govern.
The Code requires a Disclosure Statement to contain "adequate
information" concerning the Plan. The Court has approved this document as an
adequate Disclosure Statement, containing enough information to enable parties
affected by the Plan to make an informed judgment about the Plan. Any party can
now solicit votes for or against the Plan.
B. Deadlines for Voting and Objecting; Date of Plan Confirmation
Hearing
THE COURT HAS NOT YET CONFIRMED THE PLAN DESCRIBED IN THIS DISCLOSURE
STATEMENT. IN OTHER WORDS, THE TERMS OF THE PLAN ARE NOT YET BINDING ON ANYONE.
HOWEVER, IF THE COURT LATER CONFIRMS THE PLAN, THEN THE PLAN WILL BE BINDING ON
THE DEBTOR AND ON ALL CREDITORS AND INTEREST HOLDERS IN THIS CASE.
-3-
<PAGE>
1. Time and Place of the Confirmation Hearing
The hearing where the Court will determine whether or not to
confirm the Plan will take place on November 24, 1998 at 1:30 p.m., in Courtroom
606, United States Bankruptcy Court Central District of California, 34 Civic
Center Plaza, Federal Building, Santa Ana, California, 92701.
2. Deadline For Voting For or Against the Plan
If you are entitled to vote, it is in your best interest to
timely vote on the enclosed ballot and return the ballot in the enclosed
envelope to Ms. Lori Gauthier at Winthrop Couchot Professional Corporation, 3
Civic Plaza, Suite 280, Newport Beach, California 92660, Attn.: Ms. Lori
Gauthier.
Your ballot must be received by November 16, 1998 or it will
not be counted.
3. Deadline For Objecting to the Confirmation of the Plan
Objections to the confirmation of the Plan must be filed with
the Court and received by Debtor's Counsel and Committee Counsel by November 16,
1998.
4. Identity of Person to Contact for More Information
Regarding the Plan
Any interested party desiring further information about the
Plan should contact either Debtor's counsel, Paul J. Couchot, Esq. at Winthrop
Couchot Professional Corporation, 3 Civic Plaza, Suite 280, Newport Beach, CA
92660; telephone number (949) 720-4100 or counsel to the Helionetics Committee
("Committee Counsel"), Jeffrey I. Golden, Esq., at Albert, Weiland & Golden,
LLP, 650 Town Center Drive, Suite 1350, Coast Mesa, California 92626, telephone
number (714) 966-1000.
C. Disclaimer
All assets of the Debtor have been liquidated to cash or notes.
Further, the Debtor is no longer an operating entity. Accordingly, the
Disclosure Statement describes a liquidating plan and therefore is not based
upon financial data concerning the Debtor. The latest financial data of the
Debtor to which the Debtor has access is the Debtor's annual 10-K report for the
year 1995 and quarterly 10-Q reports for the first three-quarters of 1996, filed
with the Securities and Exchange Commission. Because of the condition of the
Debtor's books and records, this is the most recent
-4-
<PAGE>
information the Debtor has in its possession. Squar Milner & Reehl, as the
Committee's financial advisors, filed the Debtor's tax returns for 1996 and 1997
and will be filing the Debtor's tax returns for 1998. These documents may be
requested from Squar, Milner & Reehl upon the payment of copying costs and
postage.
The information contained in this Disclosure Statement as well as the
financial information upon which the Debtor's Plan is formulated was provided by
Chaim Markheim, former Vice President and Chief Operating Officer of the Debtor,
and Adrian Cayetano, a director of the Debtor and former controller of the
Debtor. The Plan Proponent represents that everything stated in the Disclosure
Statement is true to the Plan Proponent's best knowledge. The Court has not yet
determined whether or not the Plan is confirmable and makes no recommendation as
to whether or not you should support or oppose the Plan.
II. BACKGROUND
A. Description and History of the Debtor's Business
The Debtor is a publicly held California corporation. Prior to 1995,
it was a reporting company under the Securities and Exchange Act of 1934. The
Debtor was primarily in the business of holding interests in other companies. It
had been in business since 1970. On or about May 2, 1996, the date the order for
relief was entered, the Debtor held interests in the following companies: Helio
Computers Inc., KSW, Inc., Laser Photonics, Inc., Marinco Computer Products,
Sentinel Systems, Inc., and Tri-Lite, Inc. During the course of the Chapter 11
proceeding, the Debtor sold all of its interests in Laser Photonics, Inc.
Additionally, pursuant to the Bankruptcy Court approved K/B II Agreement by and
between the Helionetics Committee, Susan E. Barnes, Bernard Katz, K/B Equities
and the Debtor, the Debtor will transfer to Susan Barnes (1) its interest in
Marinco Computer Products, Inc. and its interest in KSW, Inc. and (2) 82.5% of
its interest in Tri-Lite. (This agreement is more fully described below.)
Accordingly, on the Effective Date, the Debtor will have interests in the
following companies: Helio Computers, Inc., and Sentinel Systems, Inc.
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<PAGE>
B. Principals/Affiliates of Debtor's Business
The Debtor's current officers and directors are Bernard Katz, E.
Maxwell Malone, Adrian Cayetano, Ernest Dageford and Jack H. Katz.
The principal shareholder of the Debtor is Susan E. Barnes ("Barnes"),
spouse of Bernard Katz. As of March 31, 1996, Barnes owned approximately 37.6%
of the Debtor's common stock. Barnes will play neither an active nor a passive
role in the Debtor and intends to give the present board of directors her proxy
to vote.
E. Maxwell Malone, Chaim Markheim, and Richard Sergo own, respectively,
1.9%, 1.4% and 1.5% of the common stock of the Debtor. All officers and
directors as a group (3 persons) own 4.9% of the Debtor's common stock. Since
the filing of the Debtor's bankruptcy petition, no compensation has been paid to
any officer or director.
C. Management of the Debtor Before and After the Bankruptcy
As stated above, the Debtor's current officers and directors are
Bernard Katz, E. Maxwell Malone, Adrian Cayetano, Ernest Dageford and Jack H.
Katz. Debtor's past officers and directors include the foregoing (except Adrian
Cayetano) and Chaim Markheim and Richard Sergo.
D. Events Leading to Chapter 11 Filing
A brief summary of the circumstances that led to the filing of this
Chapter 11 case follows:
On March 31, 1997, Bo B. and Hevka Sramek, David K. Marquardson, Trico
S & T, and Jordan-Taylor, Inc. dba Industrial Resources, filed an involuntary
petition under chapter 7 of the Bankruptcy Code against the Debtor (the
"Petitioning Creditors"). The Petitioning Creditors asserted the following
claims against the Debtor in connection with the filing of the involuntary
petition: Srameks asserted a claim in the amount of $2,404,333.00 plus interest;
Trico asserted a claim in the amount of $388,414.00 plus interest; Marquardson
asserted a claim in the amount of $6,281.05 and Jordan-Taylor asserted a claim
in the amount of $4,183.52. All of these claims allegedly arise from judgments
obtained by said creditors. Subsequent to the filing of the involuntary
petition, the Debtor consented to the entry of an order for relief under chapter
11 of the Bankruptcy Code. The order for relief was entered on May 2, 1997.
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<PAGE>
E. Members of the Helionetics Committee
The members of the Helionetics Committee are: (1) B. Bo Sramek and
Hevka Sramek; (2) Trico S & T; (3) Paige & Associates; (4) Arvel R. Bowyer; and
(5) Daniel J. Coplan.
F. Significant Events During the Bankruptcy
1. Bankruptcy Proceedings
The following is a chronological list of significant events
that have occurred during this case:
(a) Motion For Limited Relief For the Automatic Stay/Motion
to Compromise Controversy
On or about June 2, 1997, the Debtor filed a Motion For Order
(1) Approving Stipulation for Limited Relief From the Automatic Stay And (2)
Determining Helionetics Receipt of Tri-Lite Stock To Be Free and Clear of All
Liens. This motion would allow the liquidation of up to 2 million shares of the
Laser Photonics, Inc., stock ("LPI Stock") pledged to the Tri-Lite Creditors
Committee to satisfy allowed obligations owing to Tri-Lite administrative
claimants. The stipulation was entered into between Helionetics and the Tri-Lite
Committee. The Helionetics' Committee and the Office of the United States
Trustee filed an opposition and joinder to opposition, respectively. By its
opposition, the Helionetics' Committee asserted that the Helionetics' estate had
claims against various insiders and affiliates, including, without limitation,
Susan Barnes, Bernard Katz, Tri-Lite and other entities. The Helionetics'
Committee also believed that the Pledge Agreement and the Tri-Lite Plan were
avoidable as preferences and as fraudulent conveyances under 11 U.S.C. sections
547 and 548 and were executory contracts, which may be rejected. Broker &
O'Keefe and Tri-Lite, Inc., filed joinders to the Debtor's Motion. The Tri-Lite
Committee strenuously disputed the contentions of the Helionetics Committee.
The parties set forth above negotiated a settlement regarding
the disputes and differences between them arising out of the Pledge Agreement
and the LPI Stock. The settlement became the subject of a Motion To Approve
Compromise of Controversy filed by the Debtor and subsequently refiled by the
Helionetics Committee. On August 11, 1997, a hearing was held on the Motion to
Compromise Controversy. At the hearing the Court authorized the sale of the
pledged
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<PAGE>
two million shares of LPI Stock by the Tri-Lite Committee pursuant to certain
terms and conditions for a minimum of $1.10 per share. The shares were sold by
the Tri-Lite Committee. Debtor's counsel and Committee Counsel are holding the
sales proceeds in a segregated blocked interest bearing account.
(b) Motion to Dismiss or Convert Pursuant to Section 1112(b)
On or about June 17, 1997, the Office of the United States
Trustee filed a Motion to Dismiss or Convert Case Under Section 1112(b). The
basis for the Motion was the Debtor's noncompliance with the United States
Trustee's 7-day and 15-day requirements. Upon the Debtor's compliance with the
15 day and 7 day requirements of the Unites States Trustee' Office the Motion to
Dismiss was withdrawn.
(c) Motion for Order Fixing Bar Date
On or about July 18, 1997, the Debtor filed its Motion For
Order Fixing Bar Date under Local Rule 111(a)(7). The Bar Date was November 12,
1997. A Supplemental Bar Bate by which certain creditors were to file a proof of
claim was February 9, 1998. Also a separate bar date for interest holders to
file a proof of interest was March 9, 1998. Check your copy of the Bar Date
Notice you received to see which date applies to your claim or interest.
(d) Motion For Order Approving Intercreditor (Subordination)
Agreement between Helionetics, Inc. and Baxter Healthcare
Corporation
On August 4, 1997, the Debtor filed its Motion For Order
Approving Intercreditor (Subordination) Agreement Between Helionetics, Inc. And
Baxter Healthcare Corporation (the "Subordination Motion"). The Debtor is the
holder of a first priority lien against all of the assets of AccuLase for loans
made to AccuLase in the approximate amount of $3,000,000.
The relief requested in the Subordination Motion contemplated
Court approval for the Debtor to subordinate its security interest in AccuLase,
Inc.'s ("AccuLase") technology regarding excimer laser systems as applied to the
cardiovascular and vascular markets to the security interest which AccuLase
proposed to grant to Baxter under the terms of that certain
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<PAGE>
Master Technology Agreement entered into by and between Baxter and AccuLase.
Pursuant to the Master Technology Agreement, Baxter and AccuLase also entered
into a License Agreement and a Manufacturing Agreement. By the terms of the
aforementioned agreements, Baxter will be the exclusive licensee of certain
technological know-how regarding excimer laser systems as applied to
cardiovascular and vascular markets and AccuLase will be the exclusive
manufacturer of these laser systems. In order to ensure AccuLase's performance
of its obligations as set forth in the Master Technology Agreement, the
Manufacturing Agreement and License Agreement, Baxter requested that it be given
a first priority security interest in that certain technology of AccuLase which
is the subject of the Master Technology Agreement, the License Agreement and the
Manufacturing Agreement.
At the time of the Subordination Motion, the Debtor owned
approximately sixty percent (60%) of LPI. LPI owns approximately seventy-six
(76%) of AccuLase. The Debtor expected to benefit from the successful
commercialization of AccuLase's technology as contemplated by the Master
Technology Agreement because the commercialization would substantially increase
the value of the Debtor's LPI Stock.
At the August 13, 1997 hearing on the Subordination Motion,
the Court authorized the subordination of the Debtor's security interest in the
technology to that of Baxter subject to additional terms and conditions
requested by the Helionetics Committee. Because of the execution of the Master
Technology Agreement and Court approval thereof, the Debtor believes that the
value of its LPI Stock rose approximately 70%.
(e) Sale of AccuLase Claim
On August 29, 1997, the Debtor filed a motion to sell its
secured claim against AccuLase, in the purported amount of $2,972,000 plus
interest ("AccuLase Claim"), to Pennsylvania Merchant Group for $1,000,000 in
cash. The motion was approved by the Court on September 8, 1997. Subsequently,
the sale of the AccuLase Claim closed and $1,000,000 was transferred to the
trust account of Winthrop Couchot P.C., Debtor's counsel to be distributed
pursuant to the terms of the Tri-Lite Agreement.
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<PAGE>
(f) Motion To Extend Exclusivity
The Debtor filed its Original Chapter 11 Plan on August 29,
1997. A proposed disclosure statement was not filed at that time as the Debtor
was in negotiations with parties in an effort to reach a consensual plan. The
Debtor filed a motion to extend its solicitation exclusivity, which expired on
October 28, 1997. The Debtor sought an extension up and until January 26, 1997.
The Helionetics Committee opposed the Debtor's request and a hearing was
scheduled for December 8, 1997. Said hearing was continued to December 22, 1997
and subsequently to January 13, 1997 whereat the parties stipulated to a
conditional extension of the exclusivity period regarding solicitation to
February 11, 1998.
(g) Barnett Settlement
Pursuant to Tri-Lite's confirmed plan of reorganization,
Richard Barnett, a class two secured creditor of Tri-Lite, Inc., was to receive
a security interest in 100,000 shares of LPI Stock. Mr. Barnett also has a
second priority interest in all assets of Tri-Lite. The Helionetics Committee
and the Tri-Lite Committee took the position that Mr. Barnett's security
interest in the 100,000 shares of LPI Stock, which was in the possession of
Jeffrey Broker, Esq., was not perfected and may be avoided and preserved for the
benefit of the creditors of Helionetics pursuant to 11 U.S.C. ss.ss. 544, 547,
550 and 551. Mr. Barnett disputed the Helionetics Committee's position regarding
the perfection of his security interest.
The Helionetics Committee, the Tri-Lite Committee and Barnett
have settled their disputes (the "Barnett Settlement"). Pursuant to the Barnett
Settlement, Barnett has turned over his 100,000 shares of LPI Stock to the
Helionetics Committee so that said shares could be sold in accordance with the
Tri-Lite Agreements. The 100,000 shares were sold and the proceeds from that
sale shall be disbursed pursuant to the Tri-Lite Agreements (defined below). Mr.
Barnett in return has received a class 4 claim under the Tri-Lite Plan in the
amount of $180,000 in addition to his present class 4 claim under the Tri-Lite
Plan. A true and correct copy of the Barnett Settlement may be requested from
Debtor's counsel upon payment of copying costs and postage. The Barnett
Settlement was approved by the Court on or about February 2, 1998.
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<PAGE>
(h) Settlement of Tri-Lite Committee Lien Dispute
On September 3, 1997 the Debtor, the Helionetics Committee,
Tri-Lite and the Tri-Lite Committee attended a settlement conference with Judge
John Ryan in an effort to resolve all disputes between the parties. The dispute
centered around the distribution of the $2,200,000 sale proceeds received as a
result of the liquidation of the Debtor's two million shares of LPI Stock and
all other LPI Stock owned by Helionetics, subject to the Tri-Lite Committee's
lien, that were purportedly pledged as a guaranty of performance of the
confirmed Tri-Lite plan. The Helionetics Committee asserted among other things
that the pledge was avoidable as a fraudulent conveyance.
A settlement was reached between the Debtor, the Helionetics
Committee, Tri-Lite and the Tri-Lite Committee (the "Tri-Lite Agreement"). A
true and correct copy of the Tri-Lite Agreement may be requested from Debtor's
counsel upon payment of copying costs and postage. The Tri-Lite Agreement
provides a mechanism for the sale and a formula by which the proceeds from the
sale of 3,750,000 shares of LPI Stock and the AccuLase Note will be distributed
between the Helionetics estate and the Tri-Lite estate. The Tri-Lite Agreement
provides that, to the extent possible, the administrative claims of both estates
will be paid, the remaining obligations under the Tri-Lite plan will be paid and
the allowed unsecured claims of Helionetics creditors will be paid.
A further agreement was reached between only the Debtor and
the Helionetics Committee whereby it was agreed that the Debtor would assign to
the Helionetics Committee all of its rights to prosecute claims, rights, and
causes of actions of Helionetics against insiders of Helionetics and all of its
subsidiaries and claims against affiliates or subsidiaries and any of the
subsidiaries (the "Tri-Lite Agreement II"). A true and correct copy of the
Tri-Lite Agreement II may be requested from Debtor's counsel upon payment of
copying costs and postage. The Tri-Lite Agreement and the Tri-Lite Agreement II
are collectively referred to herein as the Tri-Lite Agreements.
In order to effectuate the Tri-Lite Agreements, the Tri-Lite
Committee and the Helionetics Committee entered into another agreement whereby
both Committees agreed that
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<PAGE>
all obligations of Helionetics to the Tri-Lite Committee, (the Tri-Lite Class 4
general unsecured creditors and the Tri-Lite administrative claimants,) which
are secured by the Debtor's LPI Stock, also included obligations to the
Helionetics Committee and the estate pursuant to the court approved Tri-Lite
Agreement. This agreement referred to herein as the Pledge Agreement Amendment
is embodied in the First Amendment To The Amended and Restated Pledge Agreement,
which was approved by the Court on, or about December 8, 1997. A true and
correct copy of the Pledge Agreement Amendment may be requested from Debtor's
counsel upon payment of copying costs and postage.
The Pledge Agreement Amendment and the Tri-Lite Agreement
expressly delineate the scope of the underlying obligations which are secured by
the LPI Stock and clarifies that the disposition, sale, offer or foreclosure of
the LPI Stock by the Tri-Lite Committee and its agents and brokers in strict
compliance with the terms of the Tri-Lite Agreement shall in no way alter or
limit the exemptions and protections provided to the Tri-Lite Committee and its
agents and brokers with respect to security regulations as previously set forth
in the Tri-Lite Confirmation Order. A true and correct copy of the Tri-Lite
Confirmation Order may be requested from Debtor's counsel upon payment of
copying costs and postage. Accordingly, all LPI Stock owned by Helionetics
remains covered by the Pledge Agreement, exempt from securities laws and free
trading under the Tri-Lite Plan pursuant to the Bankruptcy Code.
(i) Lawrence Fund Settlement
On or about October 14, 1997, the Helionetics Committee filed
a Motion for Temporary Restraining Order and Preliminary Injunction with respect
to the Lawrence Fund. The Helionetics Committee by such motion sought a
temporary restraining order and preliminary injunction prohibiting the Lawrence
Fund from transferring, disposing or encumbering the stock certificates of Laser
Photonics, Inc. and KSW Inc., which were in the possession of the Lawrence Fund
or being held by the Clerk of the United States District Court of the Southern
District of New York ("Court Clerk") pursuant to an order entered on or about
August 12, 1996 against Barnes and in favor of the Lawrence Fund for turnover.
The Debtor joined this motion. On or about November 6, 1997, the Helionetics
Committee, Lawrence Fund L.P., Feivel Gottlieb, Irwin
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Zalcberg, and Susan Barnes entered into a stipulation whereby all certificates
of LPI Stock currently held by the Court Clerk would be turned over to counsel
for the Helionetics Committee.
The LPI stock certificate has been turned over and sold with
proceeds to be distributed in accordance with the Tri-Lite Agreements.
(j) Sale of LPI Stock
On or about November 13, 1997, the Helionetics Committee and
the Tri-Lite Committee filed a Motion for Authority to Sell LPI Stock. At that
time, the Debtor's remaining 1,750,000 shares of LPI Stock were held by the
following entities, all of whom subsequently agreed to turn over the LPI Stock
so that the Helionetics Committee and the Tri-Lite Committee could sell it:
================================================================================
IDENTITY NO. OF SHARES
- --------------------------------------------------------------------------------
Jeffrey Broker, Esq. 100,000
- --------------------------------------------------------------------------------
District Court in New York 625,000
- --------------------------------------------------------------------------------
Altres Financial 200,000
- --------------------------------------------------------------------------------
Susan Barnes 825,000
================================================================================
On November 25, 1997, the Court authorized the Tri-Lite and
Helionetics Committees to sell the 1,750,000 shares of LPI Stock free and clear
of liens and interests pursuant to the Tri-Lite Agreements. During the months of
March and April, 1998, the Tri-Lite Committee, sold the Debtor's remaining
1,750,000 shares of LPI common stock for a net price of $2.80 per share.
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<PAGE>
(k) Employment of Professionals
The Court has approved the employment of the following
professionals:
<TABLE>
<CAPTION>
===========================================================================================================================
Entry of Order Fees Approved and
Description of Professionals Firm Name Approving Employment Paid To Date
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Debtor's Insolvency Counsel Winthrop Couchot Professional July 3, 1997 $260,030.75
Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Counsel to the Official Committee Albert, Weiland & Golden July 18, 1997 $229,403.33
of Unsecured Creditors
- ---------------------------------------------------------------------------------------------------------------------------
Public Accountants to the Committee Squar, Milner & Reehl July 11, 1997 $114,543.20
===========================================================================================================================
</TABLE>
2. Significant Adversary Proceedings
The following significant adversary proceedings and motions
are still pending:
(a) Settlement of Insider Litigation
As stated above, in June of 1997, the Debtor had filed a
motion to approve a stipulation for relief from the automatic stay which would
allow liquidation of up to 2 million shares of certain pledged LPI stock ("LPI
Stock"). The stipulation was entered into between the Debtor and the Tri-Lite
Committee. The Helionetics Committee opposed the sale on the grounds that the
Helionetics estate has claims against various insiders and affiliates of
Tri-Lite, including, without limitation, Susan Barnes, Bernard Katz, Tri-Lite
and other entities. The Helionetics Committee also believes that the agreement
by which the LPI stock had been pledged as security and the Tri-Lite Plan were
avoidable as preferences and as fraudulent conveyances under 11 U.S.C. sections
547 and 548 and were also executory contracts which may be rejected. The
Tri-Lite Committee strenuously disputed the contentions of the Helionetics
Committee.
A settlement of these disputes between the Debtor, the
Helionetics Committee, Susan Barnes ("Barnes"), Bernie Katz ("Katz"), K/B
Equities, Inc., and Tri-Lite, Inc., was reached and memorialized in that certain
term sheet dated November 13, 1997 (the "K/B Agreement") which was approved by
the Court on or about November 25, 1997. The K/B
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Agreement is superseded by the K/B II Agreement approved by the Bankruptcy Court
on October 5, 1998. A true and correct copy of the K/B II Agreement may be
requested from Debtor's counsel upon payment of copying costs and postage.
The salient terms of the K/B II Agreement are as follows:
(1) Susan Barnes shall waive any and all
claims she may have or had against the Debtor's estate, including the $4,311,000
Barnes-K/B Claim, except for any claims she may have against the Debtor that
stems from equitable subrogation rights she may have in the $153,644 Colyear
Trust Claim.
(2) Tri-Lite, SPL and AIM shall execute an
interest bearing promissory note in the amount of $800,000(1) in favor of the
Helionetics Committee. The note is to be secured by the assets of Tri-Lite,(2)
and the assets and stocks of AIM and SPL, both subsidiaries of Tri-Lite. In the
event of a default under this note, all of the security shall automatically
revert to the Helionetics Committee subject to the rights of non-insider third
party intervening creditors.
(3) Tri-Lite, AIM and SPL shall execute an
interest-bearing promissory note in the amount of $500,000.00 in favor of
Barnes. The note is to be secured by the assets of Tri-Lite, AIM and SPL in a
position junior to that of the $800,000.00 note in favor of the Helionetics
Committee and SPL's unsecured creditor claims. The $500,000.00 note does not get
paid until the $800,000.00 note has been paid in full and the SPL unsecured
creditors have been paid in full under the terms of SPL's plan of
reorganization.
(4) 24,000 shares of KSW, Inc. stock shall
inure to the benefit of Susan Barnes and shall not be turned over to the
Debtor's estate.
(5) Any interest the Debtor's estate has in
Marinco Computers Products, Inc., shall be turned over to Susan Barnes.
- ----------
(1) The value of the note is unknown. Because both the Helionetics Committee
and the Office of the United States Trustee believe Tri-Lite, Inc. may have
little value, it could be that the note is also of little value.
(2) Tri-Lite, Inc., was recently re-registered under the name of Prime
Technology, Inc.
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<PAGE>
(6) Susan Barnes shall obtain 82.5% of New
Tri-Lite stock along with all voting rights.(1)
(7) Susan Barnes shall turnover (and has
turned over) all shares of LPI Stock which she holds and all rights she has in
said shares of LPI Stock shall be assigned to the Helionetics Committee.
(8) The $1,800,000 note from Tri-Lite in
favor of the Debtor shall be cancelled.
(9) Subject to certain limitations set forth
in the K/B II Agreement, there shall be general and mutual releases of claims
between and among all parties to the K/B II Agreement.
(b) Subordination Litigation
On May 26, 1998, the Debtor filed its complaints to
subordinate the asserted claims of Paige & Associates and Arvel Bowyer pursuant
to section 510(b) of the Bankruptcy Code. The Debtor has since settled both
matters. Under the terms of the settlement with Paige, Paige will have an
allowed general unsecured Class 6 claim in the amount of $64,173.76 and an
allowed unsecured subordinated section 510(c) Class 7 Claim in the amount of
$24,956.46. Under the terms of
- ----------
(1) Unbeknownst to the Debtor, the Debtor's counsel, Bernie Katz, Susan Barnes
or Susan Barnes' counsel, on October 5, 1998, Arvel Bowyer sought and
obtained in the Orange County, CA Superior Court, case no. 747201, a
temporary restraining order enjoining and restraining Katz and Barnes from
in any way transferring or selling, among other things, the Tri-Lite Stock
transferred to Barnes under the terms of the K/B II Agreement. Bowyer's
request for a TRO was the result of Bowyer's pre-petition judgment against
Sentinel Systems, Inc., Bernie Katz, Chaim Markheim, Richard Sergo and the
Debtor. It is the opinion of the Debtor's Board of Directors that this
pending state court litigation may impact the value of the $800,000 note,
performance of Tri-Lite under the terms of the $800,000 note and the value
of the existing Tri-Lite Stock including the Tri-Lite Stock transferred to
Barnes or the Helionetics Committee by way of the K/B II Agreement. The
Helionetics Committee does not believe that the pending state court
litigation will have any impact on the value of the $800,000 note,
performance of Tri-Lite under the terms of the $800,000 note or the value
of the existing Tri-Lite Stock including the Tri-Lite Stock transferred to
Barnes or the Helionetics Committee by way of the K/B II Agreement.
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<PAGE>
the settlement with Bowyer, Bowyer will have an allowed general unsecured Class
6 Claim in the amount of $537,095.78, an allowed unsecured subordination ss.
510(c) Class 7 Claim in the amount of $95,000 and an allowed Class 4
priority-wage claim in the amount of $4,000.
Without initiating a lawsuit, the Debtor was able to
negotiate a settlement with Sramek, regarding the subordination of the Sramek
Claim. Under the terms of the proposed settlement with Sramek, Sramek will have
an allowed general unsecured Class 6 Claim in the amount of $1,900,000 and an
allowed unsecured subordinated ss. 510(c) Class 7 Claim in the amount of
$709,109.35.
The Debtor intends to subordinate the Class Action Claim,
the Levatter & Brainerd Claim (defined below) and certain other investor claims
pursuant to Section 510(b) of the Bankruptcy Code by way of the Plan (see
Treatment for Class 8 Interest Holders).
3. Other Legal Proceedings
In addition to the proceedings discussed above, the Debtor is
the defendant in a class action suit styled In re Helionetics, Inc. Securities
Litigation. Upon the filing of the Debtor's bankruptcy petition, the District
Court entered an order removing the class action from the Court's active
caseload. A pre-trial meeting of counsel was scheduled for April 9, 1997.
Neither the Debtor nor any of the non-debtor defendants attended the meeting
because the court had taken the case off the court's active caseload.
Thereafter, plaintiffs filed an objection to the court's removal of the case
from the court's active case load and requested that the court enter a $30
million default judgment against the nondebtor defendants because the nondebtor
defendants did not attend the April 9, 1997 pre-trial meeting. The Debtor filed
an opposition to the plaintiffs' objection and request for default judgment,
which the nondebtor defendants joined. Plaintiffs' counsel filed a reply
thereto. The court took the matter of the request for a default judgment under
submission and scheduled a pre-trial conference for August 11, 1997 at 2:00 p.m.
The court subsequently took the pre-trial conference off calendar and advised
that it would issue a ruling on the request for a default judgment without the
need for oral argument. The request for a default judgment was denied.
The Debtor is also a defendant in an action entitled Levatter
& Brainerd vs. AccuLase, Inc., et al. (the "Levatter & Brainerd Claim"), which
is presently pending in the Superior
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<PAGE>
Court of California in the County of San Diego. The action as to all defendants
was removed to the appropriate federal district court. The District Court
remanded the action back to the State Court as to all defendants except
Helionetics. The action as to Helionetics is presently stayed in District Court
pursuant to ss. 362 of the Bankruptcy Code.
4. Potential Litigation Against Insiders
The Debtor and the Helionetics Committee have agreed that the
Helionetics Committee will pursue any claims against the Debtor's insiders and
the recovery of any and all avoidance actions including without limitation,
preferential transfers and fraudulent transfers. The Helionetics Committee has
not completed its analysis of all such actions nor of the claims against
insiders but believes that the following claims may exist:
(a) Potential action against the directors and officers
of the Debtor and their insurance carriers.
(b) Potential action against Davis & Associates and Don
Davis in connection with the Cardio Dynamics transaction;
(c) Potential action against the purchaser of the Cardio
Dynamics stock; and
(d) Potential actions against insiders that may assert
claims against the Helionetics estate.
5. Procedures Implemented to Resolve Financial Problems
As stated above, the Debtor's Plan does not contemplate the
ongoing operations of Helionetics. The Debtor is, essentially, a holding company
in its present form. The Plan proposes to pay creditors from the proceeds from
the sale of its LPI Stock and, its secured claim against AccuLase, as well as
proceeds from litigation to be undertaken by the Helionetics Committee.
Accordingly, the implementation of preventative procedures to solve operational
financial problems of the Debtor is inapplicable to this particular debtor.
6. Current and Historical Financial Condition
As previously stated, the Debtor is not an operating company.
All its valuable assets have been sold resulting in gross cash sale proceeds of
$8,096,247. The Debtor therefore does not
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generate income from sales or production nor does the Debtor incur operational
expenses. As also stated, the most recent financial data which the Debtor has is
its 10K and 10-Q filed reports with the Securities and Exchange Commission for
the year 1995. It is impossible at this time for the Debtor to construct
financial reports regarding the 1996 and 1997 financial years. The Debtor does,
however, expect to receive from Squar, Milner & Reehl certain information
regarding the 1996, 1997 and 1998 fiscal years since Squar, Milner & Reehl is
preparing the Debtor's tax returns for those years. Such information can be
obtained from Squar, Milner & Reehl upon the payment of appropriate copying
costs and postage. The identity and fair market value of the estate's assets are
listed on Exhibit A.
III. SUMMARY OF THE PLAN OF REORGANIZATION
A. What Creditors and Interest Holders Will Receive Under The
Proposed Plan
As required by the Bankruptcy Code, the Plan classifies claims and
interests in various classes according to their right to priority. The Plan
states whether each class of claims or interests is impaired or unimpaired. The
Plan provides the treatment each class will receive.
B. Unclassified Claims
Certain types of claims are not placed into voting classes; instead
they are unclassified. They are not considered impaired and they do not vote on
the Plan because they are automatically entitled to specific treatment provided
for them in the Bankruptcy Code. As such, the Proponent has not placed the
following claims in a class.
1. Administrative Expenses
Administrative expenses are claims for costs or expenses of
administering the Debtor's Chapter 11 case which are allowed under Code section
507(a)(1). The Code requires that all administrative claims be paid on the
Effective Date of the Plan, unless a particular claimant agrees to a different
treatment.
The following chart lists all of the Debtor's ss. 507(a)(1)
administrative claims and their treatment under the Plan (see Exhibit F for
detailed information about each administrative expense claim:
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<TABLE>
=====================================================================================================================
<S> <C> <C>
Winthrop Couchot Estimated additional fees, through Paid in full from Estate Funds on
Professional Corporation confirmation, of approximately the later of the Effective Date or
$219,969 (which includes a holdback date of allowance
in the amount of $39,252.62)
- ---------------------------------------------------------------------------------------------------------------------
Albert, Weiland & Golden Estimated additional fees, through Paid in full from Estate Funds
confirmation, of approximately on the later of the Effective
$250,597 (which includes a holdback Date or date of allowance
in the amount of $29,395.12)
- ---------------------------------------------------------------------------------------------------------------------
Squar, Milner & Reehl Estimated additional fees,through Paid in full from Estate Funds
confirmation, of approximately on the later of the Effective
$125,457 (which includes a holdback Date or date of allowance
date of allowance of $15,436.62)
- ---------------------------------------------------------------------------------------------------------------------
Clerk's Office Fees Unknown Paid in full from Estate Funds on
Effective Date
Other Administrative $ 23,500.00 Paid in full from Estate Funds on
Expenses, Including Office Effective Date
of the U.S. Trustee Fees
- ---------------------------------------------------------------------------------------------------------------------
Total Approx. $619,533
=====================================================================================================================
</TABLE>
Court Approval of Fees Required
The Court must rule on all fees listed in this chart before
the fees will be owed. For all fees except Clerk's Office fees and U.S.
Trustee's fees, the professional in question must file and serve a properly
noticed fee application and the Court must rule on the application. Only the
amount of fees allowed by the Court will be owed and required to be paid under
this Plan.
The Debtor estimates that it will need to pay approximately
$619,533 of administrative claims on the Effective Date of the Plan unless the
claimants agreed to be paid later or the Court has not yet ruled on the claim.
As indicated elsewhere in this Disclosure Statement, the source of the cash to
pay these estimated administrative claims is the remaining proceeds from the
sale of the 3,750,000 shares of LPI Stock, the sale of the Debtor's secured
claim against AccuLase for $1,000,000 (which have already occurred) and interest
earned up to and including the Effective Date.
-20-
<PAGE>
2. Priority Tax Claims
Priority tax claims include certain unsecured income,
employment and other taxes described by Code section 507(a)(8). The Code
requires that each holder of such a section 507(a)(8) priority tax claim
receive the present value of such claim in deferred cash payments, over a
period not exceeding six years from the date of the assessment of such tax.
The following chart lists all of the Debtor's section
507(a)(8) priority tax claims and their treatment under the Plan:
<TABLE>
<CAPTION>
=====================================================================================================================
Description Amount Owed(1) Treatment
----------- -------------- ---------
<S> <C> <C>
Name = IRS $29,377.50 Payment in full on Effective Date
Type of tax = Payroll
Date tax assessed = 1996
- ---------------------------------------------------------------------------------------------------------------------
Name = State of CA-EDD $6,387.38 Payment in full on Effective Date
Type of tax = State Withholding Tax
Date tax assessed = Unknown
- ---------------------------------------------------------------------------------------------------------------------
Name = Treasurer/Tax Collector O.C. $28,310.69 Payment in full on Effective Date
Type of tax = personal property tax
Date tax assessed = Unknown
- ---------------------------------------------------------------------------------------------------------------------
Name = State Franchise Tax Board $3,515.03 Payment in full on Effective Date
Type of tax = Payroll
Date tax assessed = 1996
- ---------------------------------------------------------------------------------------------------------------------
Total $67,590.60
=====================================================================================================================
</TABLE>
- ----------
(1) Nothing contained herein shall be deemed a waiver or release of any party's
rights to object to the amount or classification of the following claims.
-21-
<PAGE>
C. Classified Claims and Interests
1. Classes of Secured Claims
Secured claims are claims secured by liens on property of the
estate. The following chart lists all classes containing Debtor's secured
pre-petition claims and their treatment under the Plan:
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1(a) Name = Alleged Secured Claim of Susan Barnes and any Yes No, treatment in accordance
and all claims of K/B Equities & Bernard Katz with K/B II Agreement which
(hereinafter the "K/B Claim") (Disputed) is incorporated herein by
reference.
Alleged Collateral Description = $6,637,136.00 in cash
(proceeds from sale of LPI Stock and AccuLase Note).
Tri-Lite Committee alleges that Barnes does not have a
lien on LPI sale proceeds. Instead she is a "sold out
junior".
Collateral value = approximately $6,637,136.00 in cash
Priority of security int. = subordinated to the claim
of the Tri-Lite Creditors Committee with respect to the
LPI Stock only; otherwise first priority.
Principal owed = $4,311,000; Pre-pet. Arrearage amount
= n/a; Post-pet. Arrearage amount = n/a
Total claim amount = asserted amount $4,311,000
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
==============================================
CLASS TREATMENT
- ----------------------------------------------
<S> <C>
1(a) The holders of the allowed Class 1
Claims shall be treated in accordance
with the terms of that certain agreement
entered into by and between the Debtor,
the Helionetics Committee, Barnes, Katz,
K/B Equities, Tri-Lite and the Tri-Lite
Committee (the "K/B II Agreement").
Pursuant to the K/B II Agreement, Barnes
shall have no claims or interest in the
Helionetics estate except for any claims
she may have which stem from equitable
subrogation rights she may have in the
Class 1(e) $153,644 Colyear Trust Claim.
Susan Barnes will, however, among other
things, receive 82.5% of New Tri-Lite
Stock; retain 24,000 KSW shares; retain
all her shares in Marinco; and receive a
$500,000.00 note against AIM, SPL and
Tri-Lite secured by their assets (junior
to the Committee's $800,000.00 secured
note). The $500,000 note does not get
paid until the $800,000.00 note has been
paid in full and the SPL unsecured
claims are paid in full in accordance
with the SPL plan of reorganization.
- -----------------------------------------------------------
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(b) Name = Richard C. Pinney No No Pursuant to Claim no.16, this
claimant alleges a secured claim
Alleged Collateral Description against the estate based upon a
= Unknown November 2, 1995 judgment for
unpaid wages. This claim is
Collateral value = Unknown subject to a pending objection
from the Helionetics Committee
Priority of security int. = on the grounds that this
Unknown claimant has presented no
evidence of a security
Principal owed = $18,547.60 interest. The hearing on the
objection to this claim is
Pre-pet. Arrearage amount = scheduled for October 26, 1998.
Unknown The Helionetics Committee
believes that, at best, this
Post pet. Arrearage amount = claimant has a general unsecured
n/a Class 6 claim against the
estate. To the extent any
Total Claim Amount = $18,547.60 collateral or proceeds therefrom
is insufficient to pay the
allowed secured portion of the
claim in full, the deficiency
claim shall be classified and
paid pursuant to treatment of
Class 6 claimants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(c) Name = Trico S&T No No Pursuant to Claim no.51, this
claimant alleges a secured claim
Alleged Collateral Description against the estate based upon a
= Unknown July 29, 1992 judgment. It is
anticipated that a Bankruptcy
Collateral value = Unknown court determination of this
claim shall occur prior to the
Priority of security int. = Effective Date. The Debtor
Unknown believes that, at best, this
claimant has a general unsecured
Principal owed = $369,310.19 Class 6 claim against the
estate. The secured portion of
Pre-pet. Arrearage amount = this claim, if any, shall be
Unknown paid in accordance with the
priority of such claim from the
Post pet. Arrearage amount = collateral or proceeds of such
n/a collateral on the Effective
Date. To the extent any
Total Claim Amount = collateral or proceeds therefrom
$369,310.19 is insufficient to pay the
allowed secured portion of the
claim in full, the deficiency
claim shall be classified and
paid pursuant to treatment of
Class 6 claimants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(d) Name = Jose R. Mundoza No No Pursuant to Claim no.53, this
claimant alleges a secured claim
Alleged Collateral Description against the estate for unpaid
= Unknown vacation and wages from the
period January 1, 1996 to
Collateral value = Unknown February 29, 1997. This claim
is subject to a pending
Priority of security int. = objection from the Helionetics
Unknown Committee on the grounds that
this claimant has presented no
Principal owed = $5,800.00 evidence of a security
interest. The hearing on the
Pre-pet. Arrearages amount = objection to this claim is
Unknown scheduled for October 26, 1998.
The Helionetics Committee
Post pet. Arrearage amount = believes that, at best, this
n/a claimant has a general unsecured
Class 6 claim against the
Total Claim Amount = $5,800.00 estate. To the extent any
collateral or proceeds therefrom
is insufficient to pay the
allowed secured portion of the
claim in full, the deficiency
claim shall be classified and
paid pursuant to treatment of
Class 6 claimants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(e) Name = Richard C. Colyear No No Pursuant to Claim no.54, this
Testamentary Trust claimant alleges a secured claim
against the estate based upon a
Alleged Collateral Description August 24, 1995 judgment for
= Unknown rent or a long-term lease and
attorneys' fees and costs. This
Collateral value = Unknown claim is subject to a pending
objection from the Helionetics
Priority of security int. = Committee on the grounds that
Unknown this claimant has presented no
evidence of a security
Principal owed = $153,643.57 interest. The hearing on the
objection to this claim is
Pre-pet. Arrearages amount = scheduled for October 26, 1998.
Unknown The Helionetics Committee
believes that, at best, this
Post pet. Arrearage amount = claimant has a general unsecured
n/a Class 6 claim against the
estate. To the extent any
Total Claim Amount = collateral or proceeds therefrom
$153,643.57 is insufficient to pay the
allowed secured portion of the
claim in full, the deficiency
claim shall be classified and
paid pursuant to treatment of
Class 6 claimants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(f) Name = Richard O'Niel No No Pursuant to Claim no.67, this
claimant alleges a secured claim
Alleged Collateral Description for legal services performed.
= Client files This claim is subject to a
pending objection from the
Collateral value = $0 Helionetics Committee on the
grounds that this claimant has
Priority of security int. = presented no evidence of a
First security interest. The hearing
on the objection to this claim
Principal owed = $179,869.58 is scheduled for October 26,
1998. The Helionetics Committee
Pre-pet. Arrearages amount = believes that, at best, this
Unknown claimant has a general unsecured
Class 6 claim against the
Post pet. Arrearage amount = estate. To the extent any
n/a collateral or proceeds therefrom
is insufficient to pay the
Total Claim Amount = allowed secured portion of the
$179,869.58 claim in full, the deficiency
claim shall be classified and
paid pursuant to treatment of
Class 6 claimants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(g) Name = Treasurer/Tax Collector No No Pursuant to Claim no. 73, this
of Orange County claimant alleges a secured claim
for property taxes. The
Alleged Collateral Description Committee has objected to this
= Proceeds from the sale of claim on the basis that the
the AccuLase Note. statute of limitations for
collection has run. The hearing
Collateral value = on the objection to this claim
approximately $1,000,000.00 is scheduled for October 26,
1998. The Helionetics Committee
Priority of security int. = believes that, at best, this
Unknown (depends on whether claimant has a general unsecured
any other secured claims exist) Class 6 claim against the
estate. To the extent any
Principal owed = $60,636.61 collateral or proceeds therefrom
is insufficient to pay the
Pre-pet. Arrearages amount = allowed secured portion of the
Unknown claim in full, the deficiency
claim shall be classified and
Post pet. Arrearage amount = paid pursuant to treatment of
n/a Class 6 claimants.
Total Claim Amount = $60,636.61
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(h) Name = Steven G. Trapp No No Pursuant to Claim no.75, this
claimant alleges a secured claim
Alleged Collateral Description based upon a judgment obtained
= Proceeds from the sale of on November 25, 1995. This claim
the AccuLase Note. is subject to a pending
objection from the Helionetics
Collateral value = Committee as to perfection of a
approximately $1,000,000.00 security interest. The hearing
on the objection to this claim
Priority of security int. = is scheduled for October 26,
Unknown (depends on whether 1998. To the extent any
any other secured claims exist) collateral or proceeds therefrom
is insufficient to pay the
Principal owed = $1,600.00. allowed secured portion of the
claim in full, the deficiency
Pre-pet. Arrearages amount = claim shall be classified and
Unknown paid pursuant to treatment of
Class 6 claimants.
Post pet. Arrearage amount =
n/a
Total Claim Amount = $1,600.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1(I) Name = John and Margaret Murphy No No Claim number 88 is based upon
amounts allegedly owed by
Alleged Collateral Description Helionetics to this claimant for
= Proceeds from the sale of notes dated between February 13,
the AccuLase Note. 1991 and September 5, 1991
between the claimants and
Collateral value = Sentinel, a non-debtor. The
approximately $1,000,000.00 Debtor has objected to this
claim on the grounds that, among
Priority of security int. = other things, this claim is not
Unknown (depends on whether a secured claim and is not an
any other secured claims exist) obligation of the Debtor. The
hearing on the objection to this
Principal owed = $136,000.00 claim is scheduled for October
19, 1998. The Debtor believes
Pre-pet. Arrearages amount = that, at best, this claimant has
Unknown a general unsecured Class 6
claim against the estate. To the
Post pet. Arrearage amount = extent any collateral or
n/a proceeds therefrom is
insufficient to pay the allowed
Total Claim Amount = secured portion of the claim in
$136,000.00 full, the deficiency claim shall
be classified and paid pursuant
to treatment of Class 6
claimants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2 Name = Tri-Lite Administrative No No, treatment in All holders of allowed Class 2
Creditor Claims accordance with Claims have been treated in
Tri-Lite accordance with the terms of
Collateral Agreement and that certain agreement entered
description = $6,637,136.00 in Tri-Lite into by and between the Debtor,
cash Agreement II the Helionetics Committee,
which are Tri-Lite and the Tri-Lite
Collateral value = incorporated Committee (the "Tri-Lite
$6,637,136.00 in cash herein by Agreement")(1), and that certain
reference. agreement entered into by and
Priority of between the Debtor and the
security int. = Helionetics Committee (the
First Priority (Disputed by "Tri-Lite Agreement II").
Helionetics Committee as Pursuant to both of these
avoidable transfer) agreements, the dispute
regarding the security for this
Principal owed = $936,000; claim has been resolved.
$934,347 has already been paid Payments to Commence on
pursuant to the Tri-Lite Effective Date.
Agreements.
Estimated Pay-out =
Pre-pet. Arrearage approximately
Amount = n/a $936,000 (100%)
Post-pet. Arrearage Total estimated unpaid claim
Amount = n/a amount = $1,653.00.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) A true and correct copy of the Tri-Lite Agreement and the Tri-Lite
Agreement II may be requested from Debtor's counsel upon payment of copying
costs and postage. In the event of an inconsistency between the Plan and
the Tri-Lite Agreement and the Tri-Lite Agreement II, the terms of the
Tri-Lite agreements shall control.
-31-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3 Name = Secured Claim of No Yes All holders of allowed Class 3
Official Committee of claims shall be treated in
Unsecured Creditors for accordance with the terms of the
Tri-Lite ("the Tri-Lite Tri-Lite Agreement and the
Committee") Tri-Lite Agreement II. All
creditors of Tri-Lite as defined
Collateral description = in the confirmed Tri-Lite Third
$6,637,136.00 in cash Amended Plan of Reorganization,
Collateral value = . as Modified are bound by the
$6,637,136.00 in cash terms of the Tri-Lite
Agreements. Payments to commence
Priority of Security int. = on Effective Date. Pursuant to
First Priority (Disputed by both of these agreements, the
Helionetics Committee as dispute regarding the security
avoidable transfer) for this claim has been
resolved. The foregoing
Principal owed = $3,708,605 treatment shall be deemed to be
in full satisfaction of all
Pre-pet. Arrearage claims against both the Debtor
Amount = n/a and Tri-Lite.
Post-pet. Arrearage Estimated Pay-out = 66.51% of
amount = n/a allowed Class 3 claims based
upon the $3,708,605 amount of
Total claim amount = $3,708,605 claims which represents 70% of
(This amount represents seventy the total allowed unsecured
percent (70%) of the total allowed claims of Tri-Lite less the
unsecured claims of Tri-Lite, $426,737 already paid to Tri-Lite
Inc. less the $426,737 creditors. The gross payout to allowed
already paid on account of class 3 claims based upon 100% of the
allowed unsecured claims of Tri-Lite claims is 47%. Pursuant to the
Tri-Lite, Inc. by the Tri-Lite Agreements Debtor is
reorganized Tri-Lite, Inc.) only obligated to pay up to 70%
of Tri-Lite allowed unsecured
claims.
====================================================================================================================================
</TABLE>
-32-
<PAGE>
2. Classes of Priority Unsecured Claims
Certain priority claims that are referred to in ss.ss. 507(a)(3), (4),
(5), (6), and (7) of the Bankruptcy Code are required to be placed in classes.
These types of claims are entitled to priority treatment as follows: the Code
requires that each holder of such a claim receive cash on the Effective Date
equal to the allowed amount of such claim. However, a class of unsecured
priority claim holders may vote to accept deferred cash payments of a value, as
of the Effective Date, equal to the allowed amount of such claim.
The following chart lists all classes containing Debtor's 507(a)(3),
(a)(4), (a)(5), (a)(6), and (a)(7) priority unsecured claims and their treatment
under the Plan. (See Exhibit G for more detailed information about each priority
unsecured claim.)
<TABLE>
<CAPTION>
=========================================================================================================================
CLASS # DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4 Priority unsecured claims Yes No Paid in full in cash on
pursuant to Section 507(a)(3) Effective Date from
(Wage Claims) Estate Funds
Total amount of claims =
Estimated $60,038.87 Estimated Pay-Out = 100%.
- -------------------------------------------------------------------------------------------------------------------------
5 Priority unsecured claims Yes No Paid in full in cash on
pursuant to 507(a)(4) Effective Date from
(Contributions To Employee Estate Funds
Benefit Plan)
Total amount of claims = Estimated Pay-Out = 100%
Estimated $52,660.22
=========================================================================================================================
</TABLE>
3. Class of General Unsecured Claims
General unsecured claims are unsecured claims not entitled to priority
under Code Section 507(a). The following chart identifies the Plan's treatment
of the class containing all of Debtor's general unsecured claims. (See Exhibit
H-1 for detailed information about each general unsecured claim.)
-33-
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
CLASS # DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Holders of allowed Class 6
6 General Unsecured Claims See Exhibit Yes claims shall receive pro rata
Total Amount Of Estimated H-1 share of Estate Funds, after
General Unsecured is $6,600,000 payment of allowed
which is the sum of unsecured administrative and priority
claims not subject to claims and allowed classes 4
subordination under Bankruptcy and 5 claims pursuant to the
Code Section 510(b) or (c). See, terms set forth in the
Exhibit "J". Tri-Lite Agreement and the
Tri-Lite Agreement II. Payments
commence on the later of
Effective Date or date of
allowance of such claim and
continue until all Estate Funds
are liquidated.
The estimated pay out to Class
6 general unsecured creditors
is 65.48%. If the three
conditions set forth below are
not resolved by the Effective
Date, the Disbursing Agent will
pay no more than 40.7% of
allowed claims to creditors
holding undisputed claims and
shall deposit in a segregated
account ("Reserve Account") the
balance of the funds until such
time that the Disbursing Agent
determines that additional
funds are available as a result
of the satisfaction of the
following conditions: (1) there
is a determination by the Court
as to all claims which the
Debtor or the Helionetics
Committee seeks to subordinate;
(2) the Debtor's post-petition
tax liabilities have been
determined and approved; and
(3) all disputed claims are
resolved. See Exhibit J for the
estimated pay-out percentages
at each phase of the
post-confirmation process.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-34-
<PAGE>
4. Class(es) of Unsecured Claims Subordinated under 11 U.S.C. ss.
510(c) of the Bankruptcy Code
The following chart identifies the Plan's treatment of the class of
interest holders subordinated under Bankruptcy Code ss. 510(c).
<TABLE>
<CAPTION>
=========================================================================================================================
CLASS # DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7 Unsecured Claims No Yes Holders of allowed Class 7 Claims shall
Subordinated under receive pro rata share, if any, of
11 U.S.C.ss. 510(c) Estate Funds after payments of allowed
to those claims of administrative and priority claims and
Class 6 General allowed Classes 2,3,4,5 and 6 Claims.
Unsecured Creditors The estimated pay out to Class 7
includes the creditors is 0%. See, Exhibit J.
subordinated claims
of Bowyer ($95,000),
Sramek ($709,109.35)
and Paige
($24,956.46).
=========================================================================================================================
</TABLE>
5. Class(es) of Interest Holders and Claims Subordinated under 11
U.S.C.ss. 510(b) of the Bankruptcy Code
Interest holders are the parties who hold ownership interest (i.e.,
equity interest) in the Debtor. If the Debtor is a corporation, entities holding
preferred or common stock in the Debtor are interest holders. If the Debtor is a
partnership, the interest holders include both general and limited partners. If
the Debtor is an individual, the Debtor is the interest holder. The following
chart identifies the Plan's treatment of the class of interest holders and
claims subordinated under 11 U.S.C. ss. 510(b). (See Exhibit I for more detailed
information about each interest holder and see Exhibit H-2 for more detailed
information about each claim which the Debtor seeks to subordinate under 11
U.S.C. ss. 510(b)). Exhibit H-2 is neither an all inclusive nor a final list of
those alleged claims which the Debtor believes may be subject to subordination
under Section 510(b) and therefore, the Debtor's subordination of such claims
herein shall be without prejudice to the
-35-
<PAGE>
Debtor's filing additional subordination actions under ss. 510(b) by way of
separate adversary proceedings. Exhibit H-2 includes a list of interest holders
that have either filed or served proofs of claim against the estate alleging
they hold claims (as opposed to equity interests) against the estate based upon
their status as purchasers or sellers of the Debtor's stock. Confirmation of the
Plan will result in all of these claims, as well as any claim of other interest
holders listed on Exhibit I, to be deemed subordinated pursuant to 11 U.S.C. ss.
510(b). All such interest holders shall be treated as Class 8 interest holders
without further Court order.
The Levatter & Brainerd Claim, the Class Action Claim and certain
investor claims identified on Exhibit H-2 shall be subordinated upon entry of
the order confirming the Plan. The Levatter & Brainerd Claim, the Class Action
Claim and the investor claim holders shall be treated as Class 8 interest
holders without further Court order.
<TABLE>
<CAPTION>
=========================================================================================================================
CLASS # DESCRIPTION INSIDERS IMPAIRED TREATMENT
Y/N Y/N
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8 Shareholders, the Yes, as to Yes Cancellation of existing interest, if
holders of the shareholders. any, Holders of allowed Class 8
Levatter & Brainerd No, as to interests or claims shall receive no
Claim, the Class subordinated distribution under the Plan.
Action Claim and creditors.
certain investor
claims, and holders
of any other Allowed
Unsecured Claims
Subordinated by the
Plan or separate
Bankruptcy Order
pursuant to 11 U.S.C.
ss. 510(b). See,
Exhibit H-2.
=========================================================================================================================
</TABLE>
-36-
<PAGE>
D. Means of Effectuating the Plan
1. Funding for the Plan
The Plan will be funded by the approximate $6,681,433.00 in
proceeds remaining from the sale of the Debtor's 3,750,000 shares of LPI Stock
and the sale of the Debtor's purported $2,972,000 secured claim against AccuLase
together with interest earned thereon. In addition the Plan will also be funded
by an $800,000 interest bearing secured promissory note executed by Tri-Lite,
Inc., AIM and SPL in favor of the Helionetics Committee. The distribution of the
proceeds will be determined by the K/B II Agreement, the Tri-Lite Agreements and
the priority scheme set forth in the Bankruptcy Code. In summary, these
agreements provide that a pool of funds will be established consisting of the
proceeds from the sale of the 3,750,000 shares of LPI Stock and the proceeds
from the sale of the Debtor's secured claim against AccuLase, Inc. This pool
fund has been established. As of September 9, 1998, the Debtor and the
Helionetics Committee hold jointly by way of a trust account at Southern
California Bank approximately $6,637,136 (referred to herein as "Estate Fund").
Projected accrued interest on the amount held in the Estate Fund up to and
including the Effective Date will be approximately $44,297.00. Thus, the
estimated cash available for distribution will be approximately $6,681,433.00.
By Court order, the allowed administrative claims of Tri-Lite,
Inc. ($914,347.00) together with the allowed first and second interim fees of
the professionals of this estate (collectively, $603,978) and certain
miscellaneous expenses (including United States Trustee's fees in the amount of
$19,427) have been paid from the Estate Funds. After paying all remaining
professional fees and other administrative claims (including the Class 2 Claim,
estimated at $621,186.00), paying an amount to Tri-Lite pursuant to the Tri-Lite
Agreement (estimated at $179,268.00), payment of priority tax claims in the
amount of $67,591.00 and payment of Class 4 and 5 priority claims (total of
approximately $112,698.00), and considering the additional interest earned, the
remaining amount of cash on hand (approximately $5,700,690.00) will be
distributed based upon the relative amount of allowed unsecured claims in each
case. The remaining allowed unsecured claims in the Tri-Lite, Inc., case have
been fixed at $3,708,605.00 which amount represents seventy percent (70%) of the
total allowed unsecured claims in that case minus the
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$426,737 already paid by the reorganized Tri-Lite, Inc. After giving the Debtor
credit for its equivalent of the $426,737 already paid by the Tri-Lite
Committee, the Estate Fund is reduced by all subsequent allowed administrative
claims in the Debtor's case and increased by any interest earned. Each will be
divided between the Debtor and Tri-Lite, Inc., in accordance with the following
percentages:
Tri-Lite, Inc.'s % = 3,708,605/ (3,708,605 + Allowed Unsecured
Claims of the Debtor).
Debtor's % = 1-Tri-Lite Inc.'s %
Attached hereto as Exhibit J is a report which sets forth the
calculations upon which the distributions under the Plan are based. These
calculations assume that the Debtor has approximately $6,600,000 of allowed
unsecured claims, the Levatter & Brainerd Claim, the Class Action Claim and
certain investor claims are subordinated pursuant to 11 U.S.C. ss. 510(b), the
total amount of unpaid administrative claims in the Debtor's case is
approximately $619,533 and the total amount of administrative claims in the
Tri-Lite, Inc., case is $936,000. Pursuant thereto, the Debtor's distribution
percentage would be 65.48% while Tri-Lite's distribution percentage would be
66.51%.
2. Reserved Funds for Disputing Claims
To the extent any claim or interest is disputed, if the Plan
otherwise provides for payment on account of such claim or interest, funds will
be held in a Reserve Account in an amount sufficient to accord such claim or
interest the treatment set forth in the Plan until such time that the claim or
interest is allowed. The interest-bearing reserve account shall be held in the
name of the Disbursing Agent (defined below).
3. Post-Confirmation Management
The Disbursing Agent (defined below) shall be responsible for
all disbursements proposed under the Plan and any of the duties or
responsibilities delegated to it by the Helionetics Committee or the
Post-Confirmation Committee pre- or post-confirmation. The Helionetics Committee
or the "Post-Confirmation Committee" shall be responsible for administering or
abandoning any other property of the estate.
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4. Disbursing Agent
The Helionetics Committee and the Debtor shall designate the
Disbursing Agent on or before the Effective Date. The Disbursing Agent shall
make all distributions provided for under the Plan with two exceptions:
distributions to the Class 2 and Class 3 creditors will be disbursed by the
disbursing agent identified in the Tri-Lite Agreement. The Disbursing Agent
shall serve with a bond which is to be paid from the Estate Funds and shall
receive the blended rate of up to $150.00 per hour for distribution services
rendered and shall be reimbursed for all out-of-pocket expenses incurred without
further Court order. The funds to be disbursed by the Disbursing Agent will be
maintained in a segregated interest-bearing trust account. The Disbursing
Agent's sole function is to disburse funds in accordance with the Plan.
5. Post-Confirmation Committee
On the Effective Date, the Helionetics Committee shall
dissolve and members of the Helionetics Committee shall be released and
discharged from all rights and duties as committee members arising from or
relating to this case. The members of the Post-Confirmation Committee shall be
the same as the members of the Helionetics Committee.
On the Effective Date, the Post-Confirmation Committee shall
remain in existence for the sole and exclusive purpose of replacing the
Helionetics Committee and acting in accordance with the Plan, including, without
limitations, enforcing the Committee's rights and remedies in the event of a
default by parties to the K/B II Agreement; pursuing litigation; objecting to
claims; and administering and liquidating any assets which are vested in the
Post-Confirmation Committee by the Plan. The Post-Confirmation committee may
employ professionals such as attorneys and accountants to assist it with its
duties. The Post-Confirmation Committee will not have any other rights,
responsibilities or obligations after the Effective Date except for the limited
purpose set forth herein. Upon satisfaction of all provisions of the Plan, the
Post-Confirmation Committee shall dissolve and the members of the
Post-Confirmation Committee shall be released and discharged from all rights and
duties as committee members arising from or related to this Case. The
professionals of the Post-Confirmation Committee shall only be entitled to
compensation and reimbursement from the Estate Funds for post-Effective Date
services rendered for the limited
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purpose set forth herein. Any such professional fees and expenses shall be
submitted by invoice upon ten days notice to Debtor's counsel, the
Post-Confirmation Committee Chairperson and the Office of the United States
Trustee. After such ten day period, if there is no objection and request for
hearing by the noticed parties, the fees and expenses shall be paid from the
Estate Funds. The Post-Confirmation chairperson shall be Hevka Sramek.
6. Claim Objections
The Helionetics Committee or the Post-Confirmation Committee
shall be primarily responsible for all objections to claims held by insiders of
the Debtor. The Debtor's counsel shall be primarily responsible for prosecuting
all subordination actions except for subordination actions against the Debtor's
insiders and employees, which shall be the sole responsibility of the
Helionetics Committee or the Post-Confirmation Committee. However, any other
party in interest may seek to subordinate or object to any claims but shall bear
its own costs and fees for doing so.
E. Risk Factors
The projected distribution to creditors is a function of the amount of
claims allowed against the Debtor. The Debtor has to the best of its ability
estimated the claims amount which it believes will be allowed. However, this is
only an estimate based upon (1) the Debtor's and the Helionetics Committee's
anticipated success on certain claim objections and (2) the Debtor's assumption
that certain claims asserted against the Debtor are subject to subordination
pursuant to 11 U.S.C. ss. 510(b). The Debtor's and the Committee's success with
respect to the claim objections and the subordination of certain claims will
directly impact the amount paid out to holders of allowed unsecured claims. See
Exhibit H-1, for those claims the Debtor or the Committee intends to object to
and the basis for said objection. See Exhibit H-2 of this Disclosure Statement
regarding the claims the Debtor believes are subject to subordination under
Section 510(b).
F. Other Provisions of the Plan
1. Executory Contracts and Unexpired Lease
The Debtor rejected its lease of commercial property located
in Van Nuys, California, by not assuming the lease within the sixty (60) day
time period required by 11 U.S.C. ss.365. The Debtor will reject two (2)
agreements it has with Xerox Corporation regarding the lease
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of two (2) copy machines. The rejection shall be effective upon entry of the
order confirming the Debtor's plan of reorganization. Any deficiency claim which
Xerox Corporation has against the Debtor or the estate is a Class 6 general
unsecured claim which will be paid pursuant to the terms of the Plan. See
Exhibit C and D for further details on the rejection/assumption of unexpired
leases and executory contracts.
THE BAR DATE FOR FILING A PROOF OF CLAIM BASED ON A CLAIM
ARISING FROM THE REJECTION OF A LEASE OR CONTRACT IS THIRTY DAYS FROM THE
EFFECTIVE DATE. Any claim based on the rejection of a contract or lease will be
barred if the proof of claim is not timely filed, unless the Court later orders
otherwise.
2. Revesting of Sentinel Computer, Inc. and Helio Computer,
Inc. in the Debtor
Upon entry of the order confirming the Plan, the estate's
stock interest in Sentinel Computer, Inc., and Helio Computer, Inc., shall
revest in the Debtor. The Post-Confirmation Committee, in order to maximize the
value of assets of the estate or reduce the liabilities of the estate, is
authorized under the Plan to dissolve or file voluntary bankruptcy petitions for
Sentinel Computer, Inc., and Helio Computer, Inc., either pre- or
post-confirmation of the Plan.
3. Reissuance of Stock
The Plan provides that at the option of the Helionetics
Committee or the Post-Confirmation Committee, the Debtor shall issue shares of
stock in the Debtor to either the Helionetics Committee, the Post-Confirmation
Committee, or any entities designated by either committee.
The Debtor and the Helionetics Committee or the
Post-Confirmation Committee will cause to be prepared a qualified opinion that
the delivery of the aforesaid shares of Helionetics stock under the Plan and
their resale into public markets is exempt from Section 5 registration under the
33 Act pursuant to Section 1145 of the Code and Section 4(1) of the 33 Act. The
Debtor and the Helionetics Committee or the Post-Confirmation Committee, upon
agreement, may employ professionals to assist them in preparing the opinion.
Helionetics shall obtain all appropriate board resolutions and other corporate
authority necessary to enter into the transactions contemplated
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herein. The Court will be requested to make appropriate findings in the
Confirmation Order in support thereof.
4. Dissolution of the Debtor
Upon disbursement of all Estate Funds in accordance with the
Plan, the Post-Confirmation Committee shall take actions to wind up and dissolve
the Debtor in accordance with California state law.
5. Changes in Rates Subject To Regulatory Commission Approval
This Debtor is not subject to governmental regulatory
commission approval of its rates.
6. Retention of Jurisdiction
The Court will retain jurisdiction to the extent provided by
law.
G. Tax Consequences of Plan
CREDITORS AND INTEREST HOLDERS CONCERNED WITH HOW THE PLAN MAY AFFECT
THEIR TAX LIABILITY SHOULD CONSULT WITH THEIR OWN ACCOUNTANTS, ATTORNEYS, AND/OR
ADVISORS. The following disclosure of possible tax consequences is intended
solely for the purpose of alerting readers about possible tax issues this Plan
may present to the Debtor. The Proponent CANNOT and DOES NOT represent that the
tax consequences contained below are the only tax consequences of the Plan
because the Tax Code embodies many complicated rules which make it difficult to
state completely and accurately all the tax implications of any action.
The Helionetics Committee has retained the accountancy firm of Squar,
Milner and Reehl ("SMR") to give advice on certain tax matters involving the
Debtor, including the tax liability, if any, generated by the sale of the
Debtor's 3,750,000 shares of LPI Stock and the AccuLase Note.
Capital gains were generated in 1997 and 1998 by the sale of the
Debtor's 3,750,000 shares of LPI Stock. SMR believes that the Debtor will have
no tax liability for the 1997 year since any capital gain incurred in 1997 by
the sale of the LPI Stock will likely be offset by the capital loss resulting
from the sale of the AccuLase Note in 1997.
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SMR believes that the Debtor has substantial net operating loss
carryovers ("NOLs") which were generated prior to 1997. It is possible that the
Internal Revenue Service ("IRS") may not agree with SMR's position regarding the
NOLs and elect to under-take an audit. The use of NOLs can be substantially
limited where there has been a change in ownership exceeding 50% within a three
year time frame pursuant to Internal Revenue Code Section 382. Accordingly, the
NOLs may or may not be available to offset any capital gains.
In 1998 the sale of 1,750,000 shares of LPI stock at $2.80 per share
generated a capital gain of roughly $3,500,000 assuming the tax basis of such
shares is $.75 per share. Without knowing what losses will be generated in 1998
from the final winding up of the estate, it is impossible to know at this time
how much of the NOLs (or other carryovers), if any, will be required to offset
any 1998 taxable income.
The last tax returns filed by the Debtor were for 1995 after which
operations essentially ceased, no further accounting took place and the Debtor's
records were moved to a warehouse. SMR undertook the preparation of the
consolidated 1996 tax returns from what data was available. The 1996 returns
were filed in July 1998, the 1997 returns were filed in September 1998 and the
1998 returns will be filed as soon as possible thereafter. It is currently
anticipated that a reserve for taxes in the approximate amount of $1,500,000
will be necessary if any distributions are to be made prior to the final
determination of estate tax liability.
IV. CONFIRMATION REQUIREMENTS AND PROCEDURES
PERSONS OR ENTITIES CONCERNED WITH CONFIRMATION OF THIS PLAN SHOULD
CONSULT WITH THEIR OWN ATTORNEYS BECAUSE THE LAW ON CONFIRMING A PLAN OF
REORGANIZATION IS VERY COMPLEX. The following discussion is intended solely for
the purpose of alerting readers about basic confirmation issues, which they may
wish to consider, as well as certain deadlines for filing claims. The Proponent
CANNOT and DOES NOT represent that the discussion contained below is a complete
summary of the law on this topic.
Many requirements must be met before the Court can confirm a Plan. Some
of the requirements include that the Plan must be proposed in good faith,
acceptance of the Plan, whether
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the Plan pays creditors at least as much as creditors would receive in a Chapter
7 liquidation, and whether the Plan is feasible. These requirements are not the
only requirements for confirmation.
A. Who May Vote or Object
1. Who May Object to Confirmation of the Plan
Any party in interest may object to the confirmation of the
Plan, but as explained below not everyone is entitled to vote to accept or
reject the Plan.
2. Who May Vote to Accept/Reject the Plan
A creditor or interest holder has a right to vote for or
against the Plan if that creditor or interest holder has a claim which is both
(1) allowed or allowed for voting purposes and (2) classified in an impaired
class.
(a) What Is an Allowed Claim/Interest
As noted above, a creditor or interest holder must
first have an allowed claim or interest to have the right to vote. Generally,
any proof of claim or interest will be allowed, unless a party in interest
brings a motion objecting to the claim. When an objection to a claim or interest
is filed, the creditor or interest holder holding the claim or interest cannot
vote unless the Court, after notice and hearing, either overrules the objection
or allows the claim or interest for voting purposes.
THE BAR DATE FOR CREDITORS TO FILE A PROOF OF CLAIM
IN THIS CASE IS NOVEMBER 12, 1997. A SUPPLEMENTAL BAR DATE FOR FILING A PROOF OF
CLAIM HAS BEEN SET AS FEBRUARY 9, 1998. ALSO A SEPARATE BAR DATE FOR INTEREST
HOLDERS TO FILE A PROOF OF INTEREST HAS BEEN SET AS MARCH 9, 1998.
A creditor may have an allowed claim or interest even
if a proof of claim or interest was not timely filed. A claim is deemed allowed
if (1) it is scheduled on the Debtor's schedules and such claim is not scheduled
as disputed, contingent, or unliquidated, and (2) no party in interest has
objected to the claim. Consult Exhibits F through I to see how the Plan
Proponent has characterized your claim or interest.
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(b) What Is an Impaired Claim/Interest
As noted above, an allowed claim or interest only has
the right to vote if it is in a class that is impaired under the Plan. A class
is impaired if the Plan alters the legal, equitable, or contractual rights of
the members of that class. For example, a class comprised of general unsecured
claims is impaired if the Plan fails to pay the members of that class 100% of
what they are owed.
In this case, the Proponent believes that Classes 3,
6, 7 and 8 are impaired and that holders of claims in Classes 3, 6 and 7 are
entitled to vote to accept or reject the Plan. Class 8 is not entitled to vote
or accept or reject the Plan because Class 8 does not receive or retain any
value under the Plan. The Proponent believes that Classes 1(a) through 1(I), 2,
4, and 5 are unimpaired and that holders of claims in each of these classes
therefore do not have the right to vote to accept or reject the Plan. Parties
who dispute the Proponent's characterization of their claim or interest as being
impaired or unimpaired may file an objection to the Plan contending that the
Proponent has incorrectly characterized the class.
3. Who Is Not Entitled to Vote
The following four types of claims are not entitled to vote:
(1) claims that have been disallowed; (2) claims in unimpaired classes; (3)
claims entitled to priority pursuant to Code sections 507(a)(1), (a)(2), and
(a)(8); and (4) claims in classes that do not receive or retain any value under
the Plan. Claims in unimpaired classes are not entitled to vote because such
classes are deemed to have accepted the Plan. Claims entitled to priority
pursuant to Code sections 507(a)(1), (a)(2), and (a)(7) are not entitled to vote
because such claims are not placed in classes and they are required to receive
certain treatment specified by the Code. Claims in classes that do not receive
or retain any value under the Plan do not vote because such classes are deemed
to have rejected the Plan. EVEN IF YOUR CLAIM IS OF THE TYPE DESCRIBED ABOVE,
YOU MAY STILL HAVE A RIGHT TO OBJECT TO THE CONFIRMATION OF THE PLAN.
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4. Who Can Vote in More Than One Class
A creditor whose claim has been allowed in part as a secured
claim and in part as an unsecured claim is entitled to accept or reject a Plan
in both capacities by casting one ballot for the secured part of the claim and
another ballot for the unsecured claim.
5. Votes Necessary to Confirm the Plan
If impaired classes exist, the Court cannot confirm the Plan
unless (1) at least one impaired class has accepted the Plan without counting
the votes of any insiders within that class, and (2) all impaired classes have
voted to accept the Plan, unless the Plan is eligible to be confirmed by
"cramdown" on non-accepting classes, as discussed later in Section (IV.A.8.).
6. Votes Necessary for a Class to Accept the Plan
A class of claims is considered to have accepted the Plan when
more than one-half (1/2) in number and at least two-thirds (2/3) in dollar
amount of the claims which actually voted, voted in favor of the Plan. A class
of interests is considered to have accepted the Plan when at least two-thirds
(2/3) in amount of the interest-holders of such class which actually voted,
voted to accept the Plan.
7. Treatment of Nonaccepting Classes
As noted above, even if all impaired classes do not accept the
proposed Plan, the Court may nonetheless confirm the Plan if the nonaccepting
classes are treated in the manner required by the Code. The process by which
nonaccepting classes are forced to be bound by the terms of a Plan is commonly
referred to as "cramdown." The Code allows the Plan to be "crammed down" on
nonaccepting classes of claims or interests if it meets all consensual
requirements except the voting requirements of 1129(a)(8) and if the Plan does
not "discriminate unfairly" and is "fair and equitable" toward each impaired
class that has not voted to accept the Plan as referred to in 11 U.S.C. ss.
1129(b) and applicable case law.
8. Request for Confirmation Despite Nonacceptance by Impaired
Class(es)
The party proposing this Plan, the Debtor, asks the Court to
confirm this Plan by cramdown on impaired Classes 3, 6, 7 or 8, if any of these
classes do not vote to accept the Plan.
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Please note that the proposed plan treatment described by this Disclosure
Statement cannot be crammed down on the following classes: none.
B. Liquidation Analysis
Another confirmation requirement is the "Best Interest Test", which
requires a liquidation analysis. Under the Best Interest Test, if a claimant or
interest holder is in an impaired class and that claimant or interest holder
does not vote to accept the Plan, then that claimant or interest holder must
receive or retain under the Plan property of a value not less than the amount
that such holder would receive or retain if the Debtor were liquidated under
Chapter 7 of the Bankruptcy Code.
In a Chapter 7 case, the Debtor's assets are usually sold by a Chapter
7 trustee. Secured creditors are paid first from the sales proceeds of
properties on which the secured creditor has a lien. Administrative claims are
paid next. Next, unsecured creditors are paid from any remaining sales proceeds,
according to their rights to priority. Unsecured creditors with the same
priority share in proportion to the amount of their allowed claim in
relationship to the amount of total allowed unsecured claims. Finally, interest
holders receive the balance that remains after all creditors are paid, if any.
For the Court to be able to confirm this Plan, the Court must find that
all creditors and interest holders who do not accept the Plan will receive at
least as much under the Plan as such holders would receive under a Chapter 7
liquidation. The Plan Proponent maintains that this requirement is met here for
the following reasons:
In the event that the Debtor were to now be a debtor under chapter 7,
the funds that would become available to the estate would be less than under a
Chapter 11. The estate would have to bear the burden of the trustee's fees and
the administrative expenses incurred by the trustee's professionals while they
familiarize themselves with this case. The Chapter 7 administrative expenses
would be in addition to the Chapter 11 administrative expenses already incurred
thereby reducing the available funds to be distributed to creditors of the
estate. The Debtor in possession is in a position which allows it to disburse
the funds to holders of allowed claims at the least cost to the estate.
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Below is a demonstration, in balance sheet format, that all creditors
and interest holders will receive today at least as much under the Plan as such
creditor or interest holder would receive under a Chapter 7 liquidation. (See
Exhibit E for a detailed explanation of how the following assets are valued.)
ASSETS VALUED AT LIQUIDATION VALUES:
CURRENT ASSETS
a. Cash on hand $6,637,136.00
TOTAL CURRENT ASSETS approx. $6,637,136.00
FIXED ASSETS
a. Office furniture & equipment N/A
b. Machinery & equipment N/A
c. Automobiles N/A
d. Buildings & Land N/A
TOTAL FIXED ASSETS N/A
OTHER ASSETS
a. Customer list N/A
b. Other intangibles (patents) N/A
c. Stock of Sentinel Computers, Inc. $0.00
d. Stock of Helio Computers, Inc. $0.00(1)
TOTAL OTHER ASSETS N/A
TOTAL ASSETS AT LIQUIDATION VALUE
$ 6,637,136.00
==============
Less:
Secured creditor's recovery $0.00(2)
Less:
Chapter 7 trustee fees and expenses $350,000.00
Less:
Chapter 11 administrative expenses $250,000.00
Less:
Priority claims, excluding
administrative expense claims $180,289.69
Less:
Debtor's claimed exemptions $0.00
========
- ----------
(1) Debtor values the Sentinel and Helio stock at $0 because these entities
have no assets and no ongoing operations.
(2) Pursuant to the K/B II Agreement and the court-approved Tri-Lite Agreement,
no creditor would hold a secured claim against the estate. This liquidation
analysis assumes that the chapter 7 trustee will assume the K/B II
Agreement and the Tri-Lite Agreements pursuant to which the estate of
Tri-Lite will receive 36% of the remaining sale proceeds and Helionetics
will receive 64% of the remaining sale proceeds.
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(1) Balance of $6,637,136.00 for payment of Secured Claim of Official
Committee of Unsecured Creditors $2,060,892 of Tri-Lite, Inc., as set
forth in the Tri-Lite Agreements (Claim amount $3,708,605).
(2) Balance of $6,637,136.00 for payment of the allowed claims against the
Debtor, including Section 507(a)(3), (a)(4) and (a)(8) as well as
allowed unsecured nonsubordinated and subordinated claims and chapter 7
trustee fees and professional fees as set forth in the Tri-Lite
Agreements.
% OF THEIR CLAIMS WHICH UNSECURED CREDITORS WHOSE CLAIMS ARE NOT SUBJECT TO
SUBORDINATION WOULD RECEIVE OR RETAIN IN A CH. 7 LIQUIDATION: = 65.48%
Below is a demonstration, in tabular format, that all creditors and
interest holders will receive at least as much under the Plan as such creditor
or holder would receive under a Chapter 7 liquidation.
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<TABLE>
<CAPTION>
===========================================================================================================
CLAIMS & CLASSES PAYOUT PERCENTAGE UNDER THE PLAN PAYOUT PERCENTAGE IN CHAPTER 7
LIQUIDATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Administrative Claims 100% 100%
- -----------------------------------------------------------------------------------------------------------
Priority Tax Claims 100% 100%
- -----------------------------------------------------------------------------------------------------------
Class 1 (a)- Disputed Secured Claim
Barnes
Barnes has no claim or interest Barnes has no claim or interest
in the Debtor's estate except in the Debtor's estate except
for any claims she may have for any claims she may have
which stem from equitable which stem from equitable
subrogation rights she may have subrogation rights she may have
in the Colyear Trust Claim. in the Colyear Trust Claim.
Barnes will, however, among Barnes will, however, among
other things, receive 82.5% of other things, receive 82.5% of
New Tri-Lite Stock; retain New Tri-Lite Stock; retain
24,000 KSW shares; retain all 24,000 KSW shares; retain all
her shares in Marinco; and her shares in Marinco; and
receive a $500,000.00 note receive a $500,000.00 note
against AIM, SPL and Tri-Lite against AIM, SPL and Tri-Lite
secured by their assets (junior secured by their assets (junior
to the Committee's $800,000.00 to the Committee's $800,000.00
secured note). The $500,000 note secured note). The $500,000 note
does not get paid until the does not get paid until the
$800,000.00 note has been paid $800,000.00 note has been paid
in full and the SPL unsecured in full and the SPL unsecured
claims are paid in full in claims are paid in full in
accordance with the SPL plan of accordance with the SPL plan of
reorganization. reorganization.
- -----------------------------------------------------------------------------------------------------------
Class 1(b)-Disputed Secured Claim 100% 100%
of Richard C. Pinney
- -----------------------------------------------------------------------------------------------------------
Class 1(c)-Disputed Secured Claim 100% 100%
of Trico S & T
- -----------------------------------------------------------------------------------------------------------
Class 1(d)-Disputed Secured Claim 100% 100%
of Jose R. Mundoza
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class 1(e)-Disputed Secured Claim 100% 100%
of Richard C. Colyear Testamentary
Trust
- -----------------------------------------------------------------------------------------------------------
Class 1(f)-Disputed Secured Claim 100% 100%
of Richard O'Niel
- -----------------------------------------------------------------------------------------------------------
Class 1(g)-Disputed Secured Claim 100% 100%
of Orange County Tax Collector
- -----------------------------------------------------------------------------------------------------------
Class 1(h)-Disputed Secured Claim 100% 100%
of Steven G. Trapp
- -----------------------------------------------------------------------------------------------------------
Class 1(I)-Disputed Secured Claim 100% 100%
of John and Margaret Murphy
- -----------------------------------------------------------------------------------------------------------
Class 2 - Tri-Lite Administrative 100% 100%
Creditors
- -----------------------------------------------------------------------------------------------------------
Class 3 - Noninsider creditors of 66.51%/47% 66.51%/47%
Tri-Lite
- -----------------------------------------------------------------------------------------------------------
Class 4- Priority Unsecured Claims 100% 100%
pursuant to Section 507(a)(3)
- -----------------------------------------------------------------------------------------------------------
Class 5 - Priority Unsecured Claims 100% 100%
pursuant to Section 507(a)(4)
- -----------------------------------------------------------------------------------------------------------
Class 6 - General Unsecured Claims 65.48% 65.48%(1)
Not Subject To Subordination
- -----------------------------------------------------------------------------------------------------------
Class 7 Unsecured Claims 0% 0%
Subordinated under Section 510(c)
- -----------------------------------------------------------------------------------------------------------
Class 8 Interest Holders and Claims 0% 0%
Subordinated Under Section 510(b)
===========================================================================================================
</TABLE>
(1) The Debtor and the Helionetics Committee believe that creditors and
interest holders would receive no more or less in a chapter 7 liquidation
than they would receive under the proposed plan. However, it is believed
that the distribution would be slower in a chapter 7 case.
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C. Feasibility
Another requirement for confirmation involves the feasibility of the
Plan, which means that confirmation of the Plan is not 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.
There are at least two important aspects of a feasibility analysis. The
first aspect considers whether the Debtor will have enough cash on hand on the
Effective Date of the Plan to pay all the claims and expenses which are entitled
to be paid on such date. The Plan Proponent maintains that this aspect of
feasibility is satisfied as illustrated here:
Cash on hand on the Effective Date: $6,637,136.00(1)
To Pay: Administrative claims (approx. $619,533.00)
--------------------
To Pay: Statutory costs & charges (approx. $23,500.00)
To Pay: Other Plan Payments due
on the Effective Date (approx. $361,210.00)
The Debtor will have on hand on the Effective Date the amount of approximately
$6,681,433.00. Additionally the estate will receive the benefit of an $800,000
interest bearing secured promissory note(2) executed by Tri-Lite, Inc., AIM and
SPL in favor of the Helionetics Committee for the payment of allowed claims of
the Debtor's estate.
Attached hereto as Exhibit J is a Report of Accountants (Squar, Milner
& Reehl, Inc.) and attorneys (Albert, Weiland & Golden, LLP) for the Official
Committee of Unsecured Creditors on Projected Distributions to Unclassified
Claimants and to all Classes of Creditors, which sets forth the estimated plan
payments by way of dollar amount and percentage and the method by which these
figures were arrived at.
- ----------
(1) Pursuant to a Court order, the Tri-Lite Professionals have already been
paid the amount of $934,347. Allowed administrative claims of the Debtor's
and the Helionetics' Committee's professionals in the amount of $603,977.00
and miscellaneous expenses (including United States Trustee fees in the
amount of $19,427.00 have also been paid pursuant to order of the Court.
(2) The value of the note is unknown. Because both the Helionetics Committee
and the Office of the United States Trustee believe Tri-Lite, Inc., has
little value, it could be that the note is also of little value.
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The second aspect considers whether the Proponent will have enough cash
over the life of the Plan to make the required Plan payments. The Debtor's Plan
does not contemplate payments over the life of the Plan. Rather, the Plan
proposed by the Debtor is the vehicle by which the Debtor will distribute the
proceeds from the sale of the LPI Stock, the Debtor's secured claim against
AccuLase and the proceeds from post confirmation litigation. The Plan Proponent
has provided no financial information on a going forward basis.
YOU ARE ADVISED TO CONSULT WITH YOUR ACCOUNTANT OR FINANCIAL ADVISOR IF YOU HAVE
ANY QUESTIONS PERTAINING TO THESE FINANCIAL STATEMENTS.
In summary, the Plan proposes to pay all creditors, on account of their
allowed claims and interests, subject to reserves for taxes, disputed claims,
and subordinated claims, on the Effective Date from the proceeds of the sale of
the LPI Stock, the Debtor's secured claim against AccuLase, and recovery from
Post-Confirmation litigation.
V. EFFECT OF CONFIRMATION OF PLAN
A. Discharge
In accordance with 11 U.S.C. section 1141 and to the extent permitted
by law, the Plan provides a discharge of liability for payment of debts incurred
before confirmation of the Plan and approval of the Tri-Lite Agreements and the
K/B II Agreement.
B. Revesting of Property
Except as provided in Section (V.E.), and except as provided elsewhere
in the Plan, the confirmation of the Plan revests all of the property of the
estate in the Post-Confirmation Committee.
C. Modification of Plan
The Proponent of the Plan or the Helionetics Committee may modify the
Plan at any time before confirmation. However, the Court may require a new
disclosure statement and/or revoting on the Plan.
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The Plan Proponent or the Post-Confirmation Committee may also seek to
modify the Plan at any time after confirmation only if (1) the Plan has not been
substantially consummated and (2) the Court authorizes the proposed
modifications after notice and a hearing.
D. Post-Confirmation Status Report
Within 120 days of the entry of the order confirming the Plan, Plan
Proponent or the Committee shall file a status report with the Court explaining
what progress has been made toward consummation of the confirmed Plan. The
status report shall be served on the United States Trustee, the twenty largest
unsecured creditors, and those parties who have requested special notice.
Further status reports shall be filed every 120 days and served on the same
entities.
E. Post-Confirmation Conversion/Dismissal
A creditor or party in interest may bring a motion to convert or
dismiss the case under section 1112(b), after the Plan is confirmed, if there
is a default in performing the Plan. If the Court orders the case converted to
Chapter 7 after the Plan is confirmed, then all property that had been property
of the Chapter 11 estate, and that has not been disbursed pursuant to the Plan,
will revest in the Chapter 7 estate. The automatic stay will be reimposed upon
the revested property, but only to the extent that relief from stay was not
previously authorized by the Court during this case.
The order confirming the Plan may also be revoked under very limited
circumstances. The Court may revoke the order if the order of confirmation was
procured by fraud and if a party in interest brings an adversary proceeding to
revoke confirmation within 180 days after the entry of the order of
confirmation.
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F. Final Decree
Once the estate has been fully administered as referred to in
Bankruptcy Rule 3022, the Plan Proponent, or such other party as the Court shall
designate in the Plan Confirmation Order, shall file a motion with the Court to
obtain a final decree to close the case.
Date: October ____, 1998
____________________________________
E. Maxwell Malone, CEO and
President of Helionetics, Inc.,
the Debtor and Debtor in Possession
WINTHROP COUCHOT
PROFESSIONAL CORPORATION
By: ________________________________
Paul J. Couchot
Richard H. Golubow
Attorneys for Plan Proponents
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SUPPORTING DECLARATION
I, E. Maxwell Malone, declare:
1. I am the CEO and President of Helionetics, Inc., the Debtor and
Debtor-in-Possession herein (the "Debtor"). All of the matters to which I will
testify in this declaration are based upon my own personal knowledge, are true
and correct and, if called upon to testify, I could and would competently
testify to the facts set forth herein.
2. As CEO and President, I have personal knowledge of all of the
Debtor's operations.
3. I have assisted the Debtor's counsel in the preparation of the
Disclosure Statement and Plan of Reorganization filed herewith. To the best of
my knowledge the information contained in the Disclosure Statement and the Plan
of Reorganization is truthful and accurate.
I declare under penalty of perjury under the laws of the United States
of America that the foregoing is true and correct.
DATED: October _____, 1998 _________________________________
E. MAXWELL MALONE
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TABLE OF CONTENTS
I. INTRODUCTION 2
A. Purpose Of This Document 2
B. Deadlines For Voting And Objecting; Date Of Plan
Confirmation Hearing 3
C. Disclaimer 4
II. BACKGROUND 5
A. Description and History of the Debtor's Business 5
B. Principals/Affiliates of Debtor's Business 6
C. Management of the Debtor Before and After the bankruptcy 6
D. Events leading to Chapter 11 filing 6
E. Members Of The Helionetics Committee 7
F. Significant Events During The Bankruptcy 7
III. SUMMARY OF THE PLAN OF REORGANIZATION 19
A. What Creditors And Interest Holders Will Received Under
The Proposed Plan 19
B. Unclassified Claims 19
C. Classified Claims And Interests 22
D. Means Of Effectuating The Plan 37
E. Risk Factors 40
F. Other Provisions Of The Plan 40
G. Tax Consequences Of Plan 42
IV. CONFIRMATION REQUIREMENTS AND PROCEDURES 43
A. Who May Vote Or Object 44
B. Liquidation Analysis 47
C. Feasibility 52
V. EFFECT OF CONFIRMATION OF PLAN 53
A. Discharge 53
B. Revesting Of Property 53
C. Modification Of Plan 53
D. Post-Confirmation Status Report 54
E. Post-Confirmation Conversion/Dismissal 54
F Final Decree
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PROOF OF SERVICE
STATE OF CALIFORNIA, COUNTY OF ORANGE
I am employed in the County of Orange, State of California. I am over
the age of 18 and not a party to the within action; my business address is 3
Civic Plaza, Suite 280, Newport Beach, California 92660.
On 10/19/98 I served the foregoing documents described FOURTH AMENDED
DISCLOSURE STATEMENT DESCRIBING DEBTOR'S THIRD AMENDED CHAPTER 11 LIQUIDATING
PLAN on the interested parties in this action by placing the true copies thereof
enclosed in sealed envelopes addressed as follows:
PLEASE SEE ATTACHED SERVICE LIST
I am "readily familiar" with the firm's practice of collection and
processing of correspondence of mailing. Under that practice it would be
deposited with the U.S. Postal Service on that same date with postage thereon
fully prepaid at Newport Beach, California in the ordinary course of business. I
am aware that on motion of the party served, service is presumed invalid if
postal cancellation date or postage meter date is more than one day after date
of deposit for mailing an affidavit.
I declare that I am employed in the office of a member of the bar of
this court at whose direction this service was made.
Executed on 10/19/98, at Newport Beach, California.
__________________________________
Jeannie R. McCoy
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SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is made, executed and entered
into by and between the following parties, each of whom is individually referred
to as a "Party", and all of whom are collectively referred to as the "Parties" :
The Official Committee of Creditors Holding Unsecured Claims
("Helionetics Committee") in the Chapter 11 bankruptcy case In re
Helionetics, Inc., which was filed on March 31, 1997, as Case No.
SA-97-14645-JR (the "Helionetics Case") ;
Helionetics, Inc., a California corporation ("Helionetics") the debtor,
and debtor-in-possession in the Helionetics Case;
Tri-Lite, Inc., a Pennsylvania corporation ("Tri-Lite") , the
reorganized debtor in the Chapter 11 bankruptcy case in re Tri-Lite,
Inc., which was filed on February 26, 1996, as Case No. SA-96-12049-JR
(the "Tri-Lite Case") .
K/B Equities, Inc., a Nevada corporation ("K/B") ;
Bernard Katz, a married man ("Katz") ; and
Susan Barnes, a married woman ("Barnes") .
R E C I T A L S :
A. One or more of the Parties may own or have an ownership interest in AIM
Energy, Inc., a Delaware corporation and AIM Technology, Inc., a Delaware
corporation (collectively "AIM") .
B. One or more of the Parties may own or have an ownership interest in Marinco
Computer Products, Inc., a Delaware corporation ("Marinco").
C. One or more of the Parties may own or have an ownership interest in Self
Powered Lighting, Inc., a New York corporation ("SPL"), the reorganized debtor
in the Chapter 11 bankruptcy case entitled In re Self Powered Lighting, Inc., as
Case No. SA-96-13178-JR (the "SPL Case") .
D. Barnes is believed to be the sole shareholder of K/B.
E. Katz and Barnes are husband and wife.
F. The Helionetics Committee through its counsel has sought to recover from
various persons 1,750,000 shares of the stock of Laser Photonics, Inc., a
Delaware corporation (the LPI Shares").
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G. All 1,750,000 LPI Shares were sold pursuant to an Order entered in the
Helionetics Case on or about January 8, 1998, at a sales price of $2.80
per share, gross of fees and taxes.
H. The 1,750,000 LPI Shares were previously held as follows:
1. 825,000 LPI Shares were in the possession of Barnes;
2. 625,000 LPI Shares were in the possession of the Clerk of the
United States District Court for the Southern District of New
York, in that certain case entitled Lawrence Fund, L. P. et al
vs. Helionetics, Inc. et al (Case No. 95 Civ 1005 (RPP)
consolidated with Case No. 96 Civ. 5726 (RPP) , and were
alleged by Barnes to have been held by said Court for the
benefit of Barnes;
3. 200,000 LPI Shares were in the possession of Altres Financial;
and
4. 100,000 LPI Shares were in the possession of attorney Jeffrey
Broker as the agent for Barnes, for the benefit of Richard
Barnett, an alleged creditor of Tri-Lite.
I. The Helionetics Committee through its counsel has sought to recover from
various persons a total of 649,000 shares of stock (the "KSW Shares") of KSW
Inc., a Delaware corporation ("KSW"). The status of the KSW Shares is believed
to be as follows:
1. 24,000 KSW Shares are presently held by Barnes (the "24,000
KSW Shares") ; and
2. The Lawrence Fund, a New York limited partnership (the
Lawrence Fund") allegedly had a claim or judgment (the
Lawrence Fund Claim") against Helionetics, Barnes and/or Katz,
in the approximate amount of $625,000.00. 625,000 KSW Shares
(the "625,000 KSW Shares") were once owned by Helionetics;
they were allegedly transferred by Barnes to the Lawrence Fund
to satisfy the Lawrence Fund Claim. The 625,000 KSW Shares
were then allegedly transferred by the Lawrence Fund to KSW.
KSW allegedly paid the Lawrence Fund, as consideration for
such transfer, the approximate sum of $625,000.00.
J. The Helionetics Committee and Helionetics claim that under the Plan of
Reorganization confirmed in the Tri-Lite Case and the Written settlement
agreement ("Committee Settlement Agreement") entered into between the
Helionetics Committee, Helionetics and The Official Committee of the Creditors
Holding Unsecured Claims in the Tri-Lite Case ("Tri-Lite Committee"),
Helionetics owns and is entitled to maintain and receive 87.5% of the issued and
outstanding common shares of stock of Tri-Lite pursuant to the Tri-Lite Plan.
The issued and
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outstanding common shares of stock of Tri-Lite (authorized pursuant to the
Tri-Lite Plan) shall be referred to as the "Tri-Lite Shares." Tri-lite
represents that currently there are 4,060,000 current issued and outstanding
common shares of Tri-Lite stock.
K. Barnes claims that she is entitled to receive the same Tri-Lite Shares which
are referenced in Recital "J".
L. A secured claim ("Colyear Trust Claim") in the amount of $153,643.57 was
filed on behalf of the Richard C. Colyear Trust ("Colyear Trust") .
M. Barnes claims that: (1) Barnes paid to the Colyear Trust from her own funds
certain sums to settle the Colyear Trust Claim and any other claims of the
Colyear Trust against Helionetics; and (2) the Colyear Trust assigned the
Colyear Trust Claim to Barnes in consideration for such payment, or alternately,
that Barnes has a claim in subrogation against Helionetics by reason of Barnes
having made such payment on behalf of Helionetics.
N. In addition to the claims by Barnes described in Recitals "K" and "M", Barnes
and/or K/B have asserted against Helionetics in the Helionetics Case one or more
than one claim in the total amount of $4,311,000.00 (collectively, the
"Barnes-K/B claim"). The Barnes-K/B Claim was based, in part, upon loans and
advances allegedly made by Barnes and/or K/B to Helionetics prior to the filing
of the petition in the Helionetics Case, and for rent allegedly owed by
Helionetics to Barnes and/or K/B for the use by Helionetics of a building
allegedly owned by Barnes and/or K/B. Barnes and K/B allege that the Barnes-K/B
claim was secured by a pledge by Helionetics of the LPI Shares.
O. Katz alleges and maintains that he has made no claim against Helionetics, the
Helionetics Committee, or any officer, director, shareholder, member, agent,
representative, employee, attorney, successor, assignee, transferee, trustee,
receiver, executor or administrator of either Helionetics or the Helionetics
Committee, in connection with any of the various matters referenced in this
Agreement, and that there exists no basis for any such claim.
P. The Helionetics Committee believes that all of the claims by Barnes and K/B
in the Helionetics Case may be subordinated to the claims of other creditors or
avoided in their entirety. The Committee also believes it has claims against the
Board of Directors of Helionetics and Susan Barnes. K/B and Barnes dispute the
assertion.
Q. Helionetics holds a claim against Tri-Lite in the amount of approximately
$1,850,000.00 (the "Helionetics Tri-Lite Claim") , which Helionetics alleges is
secured by all assets of Tri-Lite, with the possible exception of the interest
of Tri-Lite, if any, in the LPI Shares.
R. The Parties previously obtained approval of the Court in the
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Helionetics Case, pursuant to an Order entered on March 4, 1998, to execute and
enter into a settlement along the terms outlined in a letter from Helionetics
Committee counsel Jeffrey Golden to Barnes counsel John Fischer dated November
14, 1997. However, that proposed settlement was never executed by the Parties.
S. Helionetics and the Helionetics Committee believe that the proposed
settlement referenced in Recital "R" is of no force or effect because it was
never executed by the parties, and because the proposed settlement provided
according to its own terms that referenced in Recitals "F" and "G" were sold for
a price of less than $3.00 per share, and as noted in Recital "G", the LPI
Shares were sold for only $2.80 per share.
T. Barnes and K/B claim that although the proposed settlement referenced in
Recital "R" was never executed by the parties, it should none-the-less be
enforceable, because: (a) the Court in the Helionetics Case had authorized the
Parties to execute and enter into such a settlement, (b) the letter by Jeffrey
Golden referenced in Recital "R" contains a formula to address any sale of the
LPI Shares for less than $3.00 per share, and (c) any ambiguity should be
resolved against the Helionetics Committee.
U. The Parties desire pursuant to this Agreement to once and forever settle any
and all present and future claims, disputes, allegations and defenses of any
kind or nature that any Party may have against any one or more than one of the
other Parties, which may result from, relate to, or otherwise arise in
connection with any of the matters referenced in this Agreement.
V. The Parties desire that this Agreement fully supersede any prior or
contemporaneous negotiations, discussions, or agreements, including without
limitation those memorialized in the letter by Jeffrey Golden to John Fischer
referenced in Recital "R".
W. Eric Barnes misappropriated property and assets of AIM and has not yet
returned them. Some of the property and assets acquired may have been acquired
from funds of AIM or its affiliates. AIM is taking all appropriate action to
recover such property and assets.
PURSUANT TO THE FOREGOING RECITALS and for good and valuable
consideration, the receipt and adequacy of which is acknowledged, the
Parties covenant, agree and declare as follows:
ARTICLE 1.
APPROVAL OF AGREEMENT BY COURT
1.1 Obligation of Parties to Seek Approval of Agreement.
Each Party Shall in good faith exercise all reasonable efforts which may be
required of such Party to cause the Bankruptcy Court in the Helionetics Case to
issue a final binding order approving this Agreement, including without
limitation promptly executing and delivering any motions or declarations or
other items of support that may be reasonably required in connection therewith.
Notice of the hearing before said Court seeking the approval of this Agreement
shall be served on all of the creditors in the Helionetics Case and all the
creditors in the Tri-Lite Case.
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Any order will not be deemed final until any applicable appeal periods have
expired without the filing of an appeal therefrom. Each Party shall appear at
the hearing on the motion seeking the approval of this Agreement by said court,
and at any subsequent hearings relating to such approval including without
limitation any appeal of any action by said Court regarding this Agreement.
1.2. Remainder of Agreement Contingent Upon Court Approval.
All of the terms of this Agreement, with the sole exception of the terms set
forth in this Article 1, are contingent upon the issuance of a final binding
order by the Bankruptcy Court in the Helionetics Case approving the Agreement.
If this Agreement is not approved pursuant to Section 1.1, then this Agreement
shall automatically terminate and be of no further force or effect. If this
Agreement is terminated pursuant to this Section, then such termination shall
have no effect on the previously issued Order which is referenced in Recital
"R".
ARTICLE 2.
TERMS OF SETTLEMENT
2.1. Cancellation of $1,850,000 Claim against Tri-Lite.
Helionetics hereby waives and releases the $1,850,000.00 claim by Helionetics
against Tri-Lite in the Tri-Lite Case, and shall promptly execute and deliver to
Tri-Lite any documents reasonably required to notice or effectuate same. This
claim is the claim described in Recital "Q" as the "Helionetics Tri-Lite Claim".
2.2. Cancellation of $4,311,000 Claim Against Helionetics.
Barnes and K/B hereby waive and release the $4,311,000.00 claim against
Helionetics in the Helionetics Case, and shall promptly execute and deliver to
Helionetics any documents reasonably required to notice or effectuate the same.
This claim is the claim described in Recital "N" as the "Barnes-K/B Claim".
Notwithstanding the foregoing, to the extent that any portion of the
$4,311,000.00 Barnes-K/B Claim is secured by any lien(s) on assets of
Helionetics, such lien(s) shall be hereby avoided and preserved for the benefit
of the Helionetics Committee on behalf of the creditors of Helionetics pursuant
to 11 U.S.C. Section 551 and any other applicable provisions of the Bankruptcy
Code.
2.3. Waiver by Katz of Any and all Claims Held by Katz.
Katz hereby warrants and represents that Ka5tz has not asserted any claim
against Helionetics or the Helionetics Committee in the Helionetics Case, and
Katz hereby waives and releases any claim Katz may have against Helionetics or
the Helionetics Committee, whether in the Helionetics Case, or otherwise.
2.4. Non-Waiver of "Colyear Trust Claim". Barnes shall not be deemed
to have waived by reason of this Agreement any interest Barnes may have in the
Colyear Trust Claim, or any claim Barnes may have against Helionetics based upon
the payment allegedly made by Barnes to the Colyear Trust on behalf of
Helionetics, as described in Recital "M"; provided, however that the Colyear
Trust Claim shall not be deemed to be a secured claim and shall, at most, have
general unsecured status. Neither Helionetics nor the Helionetics Committee will
be
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deemed to have waived by reason of this Agreement any defenses or objections
to any such claims.
2.5. Conveyance of any Interest in 1,650,000 Shares of LPI. Barnes,
Katz, Tri-Lite and K/B hereby transfer, assign and convey to the Helionetics
Committee on behalf of Helionetics, and hereby waive any and all right, title,
interest or claim they may have in or to, the proceeds from the sale of
1,650,000 Shares of LPI. The 1,650,000 Shares of LPI referenced in the Section
2.5 are all of the 1,750,000 LPI Shares, except of 100,000 Shares of LPI
referenced in Section 2.6. Barnes, Katz, Tri-Lite and K/B shall promptly take
all actions and promptly execute and deliver to the Helionetics Committee all
documents reasonably required to notice or effectuate same. Barnes represents
that she does not have an interest in or own any LPI Shares other than 1,750,000
LPI Shares.
2.6. Conveyance of Any Interest in 100,000 Shares of LPI.
Helionetics, Barnes, Katz, Tri-Lite and K/B hereby transfer, assign and convey
to the Helionetics Committee and the Tri-Lite Committee, in such proportions as
shall be hereafter determined pursuant to the Committee Settlement Agreement
referenced in Recital "J", and hereby waive, any and all right, title, interest
or claim they may have in or to, the proceeds from the sale of 100,000 Shares of
LPI. The 100,000 Shares of LPI which are the subject of this Section 2.6 are all
of the 1,750,000 LPI Shares, except for the 1,650,000 Shares of LPI referenced
in Section 2.5. Barnes, Katz, Tri-Lite and K/B shall promptly take all actions
and promptly execute and deliver to the Helionetics Committee all documents
reasonably required to notice or effectuate same. Once a final determination is
made pursuant to the Committee Settlement Agreement as to the relative rights
and interests of the Helionetics Committee and the Tri-Lite committee in and to
the proceeds from the sale of those 100,000 Shares of LPI, and the Helionetics
Committee and the Tri-Lite Committee have each received their respective share
of such proceeds, any proceeds received by the Helionetics Committee shall be
used a follows:
(a) first, to pay the allowed administrative fees and costs in the SPL
Case, pro-rata to each administrative claimant according to the amount
of its allowed administrative claim which remains unpaid as of the date
of such distribution, in accordance with the Plan of Reorganization
confirmed in the SPL Case. There is presently a dispute with respect to
the amount of the allowed administrative fees and costs of Broker and
O'Keefe which remain unpaid. SPL shall bring the dispute before the
Bankruptcy Court for summary resolution.
(b) second, to the extent that there are funds available following the
distribution provided for in Section 2.6(a), to pay the allowed
unsecured claims in the case referenced in Section 2.6(a) which have
become payable pursuant to the terms of the Plan of Reorganization
confirmed in that case, pro-rata to each unsecured creditor according
to the amount of its allowed claim which has become payable but remains
unpaid as of the date of such distribution, in accordance with the Plan
of Reorganization confirmed in that case.
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(c) third, to the extent that there are funds available following the
distribution provided for in Section 2.6 (b), the next One Hundred
Forty Thousand Dollars ($140,000.00) shall be distributed pro-rata as
follows:
(1) 42.86% to AIM Energy, Inc., until the sum of Sixty
Thousand Dollars ($60,000.00) has been distributed to
AIM Energy, Inc., for the purpose of providing AIM
Energy, Inc. with necessary working capital; and
(2) 57.14% to Hein & Associates, until the sum of Eighty
Thousand Dollars ($80,000.00) has been distributed to
Hein & Associates, to compensate Hein & Associates
for the preparation of audits, income tax returns and
financial statements for Helionetics, AIM energy,
Inc., SPL and/or Tri-Lite.
(d) fourth, to the extent that there are funds available following the
distribution provided for in Section 2.6(c), any such remaining funds
shall be disbursed fifty percent (50%) to AIM Energy, Inc., and fifty
percent (50%) to SPL, to provide working capital for said entities.
To the extent that any Party has any ownership interest in or control over
Helionetics, AIM Energy, Inc., SPL and/or Tri-Lite, such Party shall exercise
its best efforts to cause such proceeds to be utilized solely for the aforesaid
purposes. No Party makes any warranty or representation that adequate funds will
be available from the sale of the 100,000 LPI Shares to enable any or all of the
distributions provided for in this Section 2.6 to be made.
2.7 Conveyance of any Interest in the 24,000 KSW Shares. The Helionetics
Committee and Helionetics hereby transfer, assign and convey to Barnes, and
hereby waive, any and all right, title, interest or claim either may have in or
to the 24,000 KSW Shares and any proceeds therefrom, except for the interests of
the Helionetics Committee and Helionetics, if any which arise pursuant to this
Agreement. Barnes represents that she does not have an interest in or own any
other KSW Shares other than the 24,000 KSW Shares. The Helionetics Committee and
Helionetics shall each promptly execute and deliver to Barnes any documents
reasonably required to notice or effectuate same.
2.8 Conveyance of Any Interest in the 625,000 KSW Shares. The
Helionetics Committee and Helionetics believe that at the time of the alleged
transfer of the 625,000 KSW Shares by the Lawrence Fund to KSW, the value of the
625,000 Shares exceeded the sum of $625,000.00 allegedly paid by KSW for such
Shares, such that the Helionetics Committee and/or Helionetics may have a claim
against KSW and/or Lawrence Fund by reason of such transfer. Neither the
Helionetics Committee nor Helionetics waive any right either may have to pursue
such claim. However, if the Helionetics Committee or Helionetics pursue such
claim, then regardless of the result of such action, the Lawrence Fund shall be
entitled to retain the approximately $625,000.00 received by the Lawrence Fund
for such Shares, as consideration for the release and/or satisfaction of the
Lawrence Fund Claim, and the Helionetics Committee and Helionetics shall be
entitled to receive only the net resulting recovery, if any, in excess of said
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amount. Except as otherwise set forth in this Section 2.8, Barnes, Katz,
Tri-Lite and K/B hereby transfer, assign and convey to the Helionetics Committee
for the benefit of Helionetics, and hereby waive any and all right, title,
interest or claim they may have in or to any such claim or any proceeds
resulting therefrom. (For example and by the way of illustration only, if
Helionetics and/or Helionetics Committee pursued such a claim, and if it was
determined in such proceeding that the fair market value of the 625,000 KSW
Shares was actually $937,500.00, then the sum of approximately $625,000.00 would
be retained by the Lawrence Fund in satisfaction of the Lawrence Fund Claim, and
the Helionetics Committee would entitled to receive the remaining $312,500.00
for the benefit of the creditors of Helionetics).
2.9. Conveyance of Any Interest in the Tri-Lite Shares. The
Helionetics Committee and Helionetics hereby transfer, assign and convey to
Barnes, and hereby waive, any and all right, title, and interest or claim any of
them may have in or to 82.5% of the Tri-Lite shares and any proceeds therefrom,
except for the interests of the Helionetics Committee and Helionetics, if any,
which arise pursuant to this Agreement. Accordingly, the Helionetics Committee
retains any and all ownership, right, title, interest or claim (and all voting
rights) in and to 5% of the Tri-Lite shares. The Helionetics Committee freely
owns the 5%, except of course, to the extent shares are sold by the Helionetics
Committee. The parties intend that the 5% of Tri-Lite Shares owned and retained
by the Helionetics Committee are truly owned for all purposes and are not
collateral for the Secured Promissory Note. Tri-Lite agrees that such stock
ownership shall not be diluted; the Helionetics Committee shall always own 5% of
the Tri-Lite shares. No additional shares of stock of Tri-Lite will be issued,
or alternatively, if Tri-Lite issues additional shares, Tri-Lite shall cause to
be transferred to Secured Party additional shares such that the total percentage
ownership of Tri-Lite represented by the shares owned by Secured Party following
the issuance of such additional shares is identical to the total percentage
ownership of Tri-Lite represented by shares owned by Secured Party prior to the
issuance of such additional shares. Secured Party agrees to provide five days
prior notice to Tri-Lite of any proposed sale of Tri-Lite shares. Susan Barnes
agrees to provide 5 days prior notice to the Helionetics Committee of any
proposed sale of the Tri-Lite shares. The Helionetics committee and Helionetics
shall each promptly execute and deliver to Barnes any documents reasonably
required to notice or effectuate same.
2.10. Conveyance of Any Interest in the Shares of Marinco. The
Helionetics Committee and Helionetics hereby transfer, assign and convey to
Barnes, and hereby waive, any and all right, title, interest or claim any of
them may have in or to, the shares of Marinco and any proceeds therefrom, except
for the interests of the Helionetics Committee and Helionetics, if any, which
arise pursuant to this agreement. The Helionetics Committee and Helionetics
shall promptly execute and deliver to Barnes any documents reasonably required
to notice or effectuate same. This transfer, assignment, conveyance and waiver
was made based solely upon representations by Tri-Lite, K/B, Katz and Barnes
that (a) the balance sheet, income and loss statement and other financial
statements for Marinco ("Marinco Computer Products") dated as of 12/31/97, which
were provided by said parties to Squar, Milner & Reehl, Inc., were true,
accurate, complete and not misleading in any material respect between said date
and the effective date of this Agreement. The transfer, assignment, conveyance
and waiver pursuant to this
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Section 2.10 shall be null and void ab initio if it is subsequently determined
that any such representations were materially false or misleading when made.
2.11. $800,000.00 Senior Promissory Note. Concurrently upon the
execution of this agreement, Tri-Lite, AIM and SPL (collectively, the "Senior
Note Obligors") shall execute and deliver to the Helionetics Committee, on
behalf of Helionetics, a Secured Promissory Note ("Senior Note"), in the form
attached as Exhibit "A", made payable to The Helionetics Committee in the
original principal amount of Eight Hundred Thousand Dollars ($800,000.00). The
Senior Note Obligors shall pay to the Helionetics Committee all principal,
interest and other sums required under the Senior Note by the dates provided for
therein. The Senior Note Obligors shall be jointly and severally liable for the
payment of the Senior Note and for the performance of the obligations of the
Senior Note Obligors under the Senior Note. The obligations of the Senior Note
Obligors under the Senior Note shall be prior, senior and superior to the
obligations of the obligors under the Junior Note referenced in the Section 2.12
below, and the priority of any liens or security interests established to secure
the obligations of the Senior Note Obligors under the Senior Note shall be
prior, senior and superior to any liens or security interests established to
secure the obligations of the obligors under the Junior Note referenced in the
Section 2.12 below. The Senior Note and the obligations of the Senior Note
Obligors pursuant to the Senior Note shall be secured as follows:
2.11.1 Senior Security Agreement. Concurrently upon the execution of
this Agreement, Tri-Lite, Barnes, Katz, AIM and SPL, as debtors, and
the Helionetics Committee, as secured party, shall execute and enter
into a security agreement ("Senior Security Agreement"), in the form
attached as Exhibit "B", pursuant to which debtors shall irrevocably
pledge, encumber and assign to the secured party as security for the
payment of the Senior Note and for the performance by the Senior Note
Obligors of their obligations under the Senior Note, the interests and
assets of the debtors which are described in the Senior Security
Agreement. The Senior Security Agreement shall provide that upon any
default, either by the Senior Note Obligors under the Senior Note or by
any debtor under the Senior Security Agreement, the Bankruptcy Court in
the Helionetics Case shall then conduct a Court-supervised sale of any
and all assets described in the Senior Security Agreement, pursuant to
the provisions of 11 U.S.C. Sections 363, 1123, 1129, and 1141. This
special remedy established in favor of the Helionetics Committee shall
be in addition to any and all other remedies provided for in the Senior
Security Agreement or provided for by law. The fully executed Senior
Note, Senior Security Agreement, financing statements, and any other
instruments required pursuant to the Senior Security Agreement,
including without limitation stock certificates and/or shares of stock,
shall be delivered to Albert, Weiland & Golden, LLP ("AW&G"), and shall
be held by AW&G until the entry of
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<PAGE>
the Order described in Sections 1.1 and 1.2. Immediately upon the entry
of such Order, the financing statements shall be filed and all other
acts required to perfect the security interests provided for in the
Senior Security Agreement shall immediately be taken.
2.11.2 Financial Information on Obligors and Debtors.
Until such time as the Senior Note has been paid in full, the
Helionetics Committee and its agents shall have the right at any time
to inspect the premises and review the books, records and accountings
of Tri-Lite, AIM and SPL, and Tri-Lite, AIM and SPL shall cause to be
provided to the Helionetics Committee and its agents: (a) within ten
(10) business days following the end of each calendar month, an
accounting, which may be provided in journal form, of all receipts and
all disbursements of Tri-Lite, AIM and SPL; and (b) within forty-five
(45) calendar days following the end of each calendar quarter (or more
frequently and/or sooner, if any such report is prepared more
frequently or sooner) update income and loss statements, balance sheets
and financial statements for said entities. This provision is material
and must be performed timely.
2.12 $500,00 Junior Promissory Note. Concurrently upon the execution
of this Agreement, but following the execution and delivery of the Senior Note
referenced in Section 2.11 above, Tri-Lite (the "Junior Note Obligor") shall
execute and deliver to Barnes, a Promissory Note ("Junior Note"), in the form
attached as Exhibit "C", made payable to Barnes in the original principal amount
of Five Hundred Thousand Dollars ($500,000.00). Except as set forth in the next
sentence of this Agreement, the Junior Note Obligor shall pay Barnes all
principal, interest and other sums required under the Junior Note by the dates
set forth therein. Regardless of any payment dates set forth in the Junior Note,
in no event shall the Junior Note Obligor pay or cause to be paid to or for the
benefit of Barnes any sum which may become due or payable pursuant to the Junior
note or any security agreement or other document executed in connection with the
Junior Note, until such time as all principal, interest and other sums payable
pursuant to the Senior Note or any security agreement or other document executed
in connection with the Senior Note, have been paid in full, and all other duties
of the Senior Note Obligors under the Senior note and of the debtors under any
security agreements executed to secure the Senior Note, have been fully
satisfied. The obligations of the Junior Note Obligor under the Junior Note
shall be junior and subordinate to the obligations of the Senior Note Obligors
under the Senior Note, and the priority of any liens or security interests
established to secure the obligations of the Junior Note Obligor under the
Junior Note shall be and at all times shall remain subsequent, junior and
subordinate to any liens or security interests established to secure the
obligations of the Senior note Obligors under the Senior Note. The Junior Note
and the obligations of the Junior Note Obligors under the Junior Note shall be
secured as follows:
2.12.1 Junior Security Agreement. Concurrently upon the execution of
this Agreement, Katz, AIM and SPL, as debtors, and Barnes, as secured
party, shall execute and enter into a security Agreement ("Junior
Security Agreement"), in the form attached as Exhibit "D", pursuant to
which the debtors shall irrevocably pledge, encumber and assign to the
secured party as security for the payment of the Junior Note and for
the performance by the Junior Note Obligors of their obligations under
the Junior
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<PAGE>
Note, the interests and assets of the debtors described in the Junior
Security Agreement. The Junior Security Agreement shall provide that
any liens or security interests established thereunder shall be and
shall at all times remain subsequent, junior and subordinate to the
liens and security interests established pursuant to the Senior
Security Agreement referenced in Section 2.11.1. The collateral
described in the Senior Security Agreement will include all assets of
Tri-Lite all assets of AIM, all shares of stock of AIM, all assets of
SPL, all shares of stock of SPL, and 50,000 shares of stock of
Tri-Lite. The Junior note shall provide that the Junior Note and any
security agreement executed to secure the Junior Note shall be void ab
initio with respect to any collateral described in the Senior Security
Agreement which is foreclosed upon pursuant to the Senior Security
Agreement, and that in no event shall any person who acquires any
collateral through any foreclosure conducted pursuant to the Senior
Security Agreement be deemed to have assumed or become subject to any
obligation of the borrower under the Junior Note by reason of having
acquired such collateral, nor shall collateral acquired through any
foreclosure pursuant to the Senior Security Agreement be subject to the
Junior Note or any security agreement executed to secure the Junior
Note. The fully executed Junior Note, Junior Security Agreement,
financing statements and any other instruments required pursuant to the
Junior Security Agreement shall be delivered to Albert, Weiland &
golden, LLP ("AW&G"), and shall be held by AW&G until the entry of the
Order described in Sections 1.1 and 1.2. Upon entry of such Order, AW&G
shall release such documents to Barnes, and all other acts required to
perfect the junior security interests provided for in the Junior
Security Agreement shall immediately be taken.
2.13. Subordinating Senior and Junior Note to New Financing. The
secured parties under any security agreements securing the Senior Note or the
Junior Note shall agree to subordinate their respective security interests under
any such security agreements, with the exception of the interest of the secured
party under the Senior Security Agreement, in the shares of stock pledged
pursuant to the Senior Security Agreement, to any security interest that may be
established in favor of any third party lender providing new commercially
reasonable and necessary operating financing to AIM, SPL and/or Tri-Lite;
provided, however, that it shall be the burden of AIM, SPL and/or Tri-Lite, to
demonstrate that any such financing is commercially reasonable, it is necessary
to conduct the business and affairs of AIM, SPL and /or Tri-Lite in a good,
prudent and businesslike manner, and that none of the proceeds from any such
financing will be used to pay any salary, debt or reimbursement to Katz, Barnes
or any affiliate of Katz or Barnes. The secured party under any such security
agreement may refuse to grant any such subordination if such secured party
believes that such subordination is not required pursuant to this Agreement, and
will not be deemed to be in breach of this Agreement if it is subsequently
determined by the court having jurisdiction over such matter that such
subordination should be granted, provided that such secured party shall execute
any such subordination promptly following any such determination by any such
court. However, in no event shall any subordination in favor of any third party
lender affect the relative rights and interests of the secured parties under any
security agreements executed to secure the Senior Note, and of the secured
parties under any security agreements executed to secure the Junior Note. The
Helionetics Committee shall have the authority to subordinate the Senior Note
and Senior Security Agreement to new loans by Barnes, should the Committee so
desire.
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<PAGE>
2.14. Intercompany Transfers. SPL and AIM shall not transfer any
assets, property or funds to any other affiliate, insider, related entity,
including, without limitation, Tri-Lite, absent advance written consent from the
Committee's designated representative.
ARTICLE 3
RELEASE OF CLAIMS
3.1. Definition of a Claim for Purposes of this Article. For
purposes of this Article 3, "Claim" shall mean and refer to any claims, demands
right, obligations, duties, debts, liens, encumbrances, levies, contracts,
agreements, promises, covenants, understandings, damages, injuries, actions,
causes of action, expenses, costs, charges, attorneys' fees, judgements, orders
and liabilities of any kind, whether in law, equity or otherwise, whether known
or unknown, and whether or not concealed or hidden.
3.2 Release of Claims by Helionetics and the Helionetics Committee.
Except for: (a) Claims, if any, which are retained pursuant to the terms of this
Agreement; (b) obligations which are created pursuant to this Agreement; (c)
Claims, if any, which arise by reason of any breach or default of this
Agreement: and (d) Claims, if any, which arise due to acts, errors or omissions
which occur subsequent to the effective date of this Agreement; Helionetics and
the Helionetics Committee, for and on behalf of themselves and their respective
successors, assigns, grantees and administrators (collectively, the "Releasing
Parties"), hereby now and forever release, discharge and promise not to sue
Tri-Lite, K/B, Barnes or Katz, or any administrators, attorneys, heirs,
successors, executors, trustees or assigns of said Parties (collectively, the
"Released Parties"), from any and all Claims which said Releasing Parties may
now own or hold, or have at any time prior hereto owned or held, or may in the
future own or hold, against said Released Parties, resulting from, arising out
of, or otherwise relating in any way to, the acts, errors, omissions, business,
affairs, dealings and conduct of Tri-Lite, Helionetics, AIM and or SPL,
including without limitation the specific matters a disputes referenced in this
Agreement. It is the intention of the Releasing Parties that by executing this
Agreement, this Agreement shall be effective as a complete and absolute bar to
each and every Claim which is referenced in this Agreement. In furtherance of
this intention, the Releasing Parties hereby waive any and all rights and
benefits conferred upon the Releasing Parties pursuant to the provisions of
Section 1542 of the California Civil Code, which states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
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<PAGE>
3.3 Release of Claims by Tri-Lite, K/B, Barnes and Katz. Except for:
(a) Claims, if any, which are retained pursuant to the terms of this Agreement;
(b) obligations which are created pursuant to this Agreement; (c) Claims, if
any, which arise by reason of any breach or default of this Agreement; and (d)
Claims, if any, which arise due to acts, errors or omissions which occur
subsequent to the effective date of this Agreement; Tri-Lite, K/B, Barnes and
Katz, for and on behalf of themselves and their respective administrators,
successors, assigns and grantees (collectively, the "Releasing Parties"), hereby
now and forever release, discharge and covenant not to sue Helionetics and the
Helionetics Committee, or any officers, directors, employees, members, agents,
affiliates, administrators, attorneys, heirs, successors, executors, trustees or
assigns of said Parties (collectively, the ("Released Parties"), with respect to
any and all Claims, the acts, errors, omissions, business, affairs, dealings and
conduct of Tri-Lite, Helionetics, AIM and/or SPL, including without limitation
and specific matters and disputes referenced in this Agreement. Also, the
Releasing Parties now and forever hereby release, discharge and covenant not to
sue the Released Parties with respect to any Claims for lender liability, which
said Releasing Parties may now own or hold, or have at any time prior hereto
owned or held, or mat in the future own or hold, against said Released Parties,
resulting from, arising out of or otherwise relating in any way to, the
negotiation, preparation, execution, implementation and enforcement of this
Agreement, the Senior Note attached hereto as Exhibit "A" and the Senior
Security Agreement attached hereto as Exhibit "B" and all other documents
executed in connection with this Agreement. It is the intention of the Releasing
Parties that by executing this Agreement, this Agreement shall be effective as a
complete and absolute bar to each and every Claim referenced in this Agreement.
In furtherance of this intention, the Releasing Parties hereby waive any and all
rights and benefits conferred upon the Releasing Parties pursuant to the
provisions of Section 1542 of the California Civil Code, which state as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
3.4. Binding Effect. To the fullest extent permitted by law, the
terms of this Agreement, including all benefits derived by any Party pursuant to
the terms of this Agreement, shall be binding on all of the Parties and on all
of the creditors in the Helionetics Case and all of the creditors in the
Tri-Lite Case; Provided, however, that nothing in this Agreement shall amend,
restrict, alter or affect: (a) any Claim held by any creditor of Tri-Lite; (b)
any claim held against any creditor of Tri-Lite; (c) any claim held by any
creditor of Helionetics, including without limitation any member of the
Helionetics Committee; and (d) any claim held against any creditor of
Helionetics, including without limitation any member of the Helionetics
Committee.
3.5. No Release of Claims Against a Subsequent Transferee. The
release of claims pursuant to Section 3.1 does not include those claims, if any,
which may be held by Helionetics and/or by the Helionetics Committee, against
any person, where such person is
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<PAGE>
alleged to be a subsequent transferee as to any asset to which Helionetics
and/or the Helionetics Committee may be entitled, or as to the proceeds from any
such asset, and where such Claim is for the recovery of such asset or the
recovery of such proceeds. Nothing contained in this Agreement shall prohibit
Helionetics and/or Helionetics Committee from naming Tri-Lite, K/B, Barnes or
Katz in any action for the purpose of establishing the initial transferee
condition in such action, and Tri-Lite, K/B, Barnes and Katz shall exercise
their good faith best efforts to assist the Helionetics Committee and
Helionetics in such action.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
4.1. Legal Capacity to Contract. Each party represents that, subject
to the entry of an order by the Bankruptcy Court approving of this Agreement
pursuant to Section 1.1, it has the requisite power, authority and legal
capacity to make, execute, enter into and deliver this Agreement and to fully
perform its duties and obligations under this Agreement, and that neither this
Agreement not the performance by such Party of any duty or obligation under this
Agreement will violate any other contract, agreement, covenant or restriction by
which such Party is bound.
4.2. No Prior Assignments. Each Party represents that it has not
pledged, transferred or assigned to any third party any right, interest, claim,
or cause of action being transferred, conveyed, released or compromised pursuant
to this Agreement, and such Party shall indemnify all other Parties from and
against any third party claim asserting such a pledge, transfer or assignment of
any such right, interest, claim or cause of action.
4.3. No Undisclosed Inducements. Each Party represents that it
executed and entered into this Agreement in reliance solely upon its own
independent investigation and analysis of the facts and circumstances, and that
no representations, warranties or promises other than those set forth in this
Agreement were made by any Party or any employee, agent or legal counsel of any
Party to induce said Party to execute this Agreement.
4.4. No Admission of Liability. This Agreement has been negotiated
and executed for the purpose of settling the various disputes described herein
and obtaining the release of any known, suspected or unknown claims that the
Releasing Parties may have against the Released Parties with respect to the
various disputes described herein. The execution of this Agreement by any Party
does not constitute, infer or evidence the truth of any claim, the admission of
any liability, the validity of any defense or the existence of any circumstance
or fact which could constitute a basis for any claim, liability or defense,
other than for the purpose of enforcing the terms and provisions of this
Agreement.
4.5. Representation by Counsel. Each Party represents that is has
acted pursuant to the advice of legal counsel of its own choosing in connection
with the negotiation, preparation and execution of this Agreement, or that it
was advised to obtain the advice of such legal
14
<PAGE>
counsel, had ample opportunity to obtain the advice of such legal counsel and
willfully declined to obtain the advice of such legal counsel.
4.6. Truth and Accuracy of Representations and Warranties. Each of
the representations, warranties and covenants set forth in this Agreement shall
be, and the Party making the same shall cause them to be, true and correct as of
the time of execution of this Agreement and as of the time of the entry by the
Court pursuant to Section 1.1 of the order approving this Agreement.
4.7. Survival. Each of the statements, certifications,
representations, warranties, covenants, disclosures, disclaimers, waivers and
other agreements contained in this Agreement shall survive the execution of this
Agreement, the payment of any settlement consideration provided for in this
agreement, and the dismissal of any legal actions referenced in this Agreement.
ARTICLE 5.
GENERAL TERMS AND PROVISIONS:
5.1. Entire Agreement. This Agreement shall constitute the sole and
entire agreement between the Parties with respect to the settlement of disputes
and release of claims provided for herein. Any and all prior or contemporaneous
agreements and negotiations, whether oral or written, with respect to the
subject matter of this Agreement, are hereby superseded. No employee or agent of
any Party has authority to orally modify any term or condition of this
Agreement, or to make any representation or agreement other than as contained in
this Agreement. Unless any representation or agreement is contained in this
Agreement or is added pursuant to a written agreement executed by all Parties,
it shall not be binding nor otherwise affect the validity of this Agreement.
5.2. Amendment of Agreement. No modification of, deletion from, or
addition to this Agreement shall be effective unless made in writing and
executed by each Party hereto.
5.3. Construction of Agreement. The provisions of this Agreement
shall be liberally construed to effectuate the intended settlement of the
disputes and the release of all related claims. Section headings have been
inserted for convenience only and shall not be given undue consideration in
resolving questions of construction or interpretation. For purposes of
determining the meaning of, or resolving any ambiguity with respect to, any
word, phrase, term or provision of this Agreement, each Party shall be deemed to
have had equal bargaining strength in the negotiation of this Agreement and
equal control over the preparation of this document, such that neither the
Agreement nor any uncertainty or ambiguity herein shall be arbitrarily construed
or resolved against any Party under any rule of construction.
5.4. Further Assurances. Each Party shall promptly execute any and
all instruments and documents and take all other actions, including without
limitation the payment of money, that may be required to effectuate the
contemplated settlement and release.
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<PAGE>
5.5. Gender and Quantitative Use. Wherever the context of this
Agreement may so require, the gender shall include the masculine, feminine and
neuter, and the quantitative usage of any word, term or phrase shall include the
singular and plural.
5.6. Enforcement of Agreement. Each Party to this Agreement shall
have the right to enforce by proceedings at law or in equity all of the terms
and provisions of this Agreement, including without limitation the right to
prosecute proceedings at law or in equity against the person(s) who have
violated or who are attempting to violate any of such terms or provisions, to
enjoin such person(s) from doing so, to cause such violation to be remedied,
and/or to recover damages for such violation.
5.7. Waiver. The failure by any Party to enforce any term or
provision of this agreement shall not constitute a waiver of the right to
enforce the same term or provision, or any other term or provision, thereafter.
No Waiver by any Party of any term or provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision of this agreement,
whether or not similar, nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided in writing.
5.8. Severability. In the event that any term or provision of this
Agreement is held by any court of competent jurisdiction to be illegal, invalid
or unenforceable for any reason, then the remaining portions of this Agreement
shall nonetheless remain in full force and effect, unless such portion of the
Agreement is so material that its deletion would violate the obvious purpose and
intent of the Parties.
5.9. Litigation Costs and Attorneys' Fees. If any Party(s) shall
commence legal proceedings against any other Party(s) to enforce the provisions
of this Agreement or to declare any rights of obligations under this Agreement,
then the prevailing Party(s) shall recover from the losing Party(s) its/their
costs of suit, including attorneys' fees, as shall be determined by the court.
5.10. Governing Law. This Agreement is made under and shall be
construed in accordance with and governed by the laws of the State of
California, without giving effect to the principles of conflicts of law. All
Parties consent to the jurisdiction of the United States Bankruptcy Court -
Central District of California, Santa Ana Division, for the purpose of resolving
any disputes which may arise under this Agreement. If for any reason said
Bankruptcy Court shall decline to accept such jurisdiction, then the Parties
shall be deemed to have consented to the jurisdiction of California Courts and
to the venue in Orange County, California.
5.11. Counterparts. This Agreement may be executed in any number of
identical counterparts, each of which is an original, an all of which together
constitute one and the same agreement.
5.12. Incorporation of Exhibits. The following Exhibits to this
Agreement, as now existing or as from time to time amended, modified or
supplemented by the written agreement of
16
<PAGE>
the Parties, are incorporated into and made fully a part of this Agreement, as
though set forth in their entirety in this Agreement:
Exhibit "A" - $800,000 Senior Promissory Note
Exhibit "B" - Senior Security Agreement
Exhibit "C" - $500,000 Junior Promissory Note
Exhibit "D" - Junior Security Agreement
5.13. Inurement. This Agreement shall inure to the benefit of and be
fully binding upon each of the Parties and upon their respective heirs,
executors, successors, assigns and grantees.
5.14. Notices. Any payments to be made or any notices or other
communications to be given pursuant to this Agreement shall be delivered to the
appropriate Party at the address shown below, until written notice of a
different address is given by such Party in accordance with this Section. Any
payments to be made pursuant to this Agreement shall be deemed made only upon
actual receipt. Any notices or other communications must be in writing. Any
notices or other communications given by personal service shall be deemed to
have been received upon delivery . Any notices or other communications given by
first class mail, postage prepaid, addressed to the address required by this
Section, shall be deemed to have been received three Business Days following the
deposit thereof with the United States Post Office. Any notices or other
communications given by overnight courier service shall be deemed to have been
received on the date of delivery confirmed by the courier service. Any notice
given by facsimile transmission shall be deemed to have been received on the
date upon which the recipients facsimile machine electronically confirms the
receipt of such notice, provided that a copy of any such notice given by
facsimile transmission shall also be sent to the recipient by first class mail,
postage prepaid, addressed to the address required by this Section. Telephone
numbers, if listed below, have been listed for convenience purposes only, and
not for the purposes of giving notice pursuant to this Agreement.
The "Committee":
The Official Committee of Creditors
(In re Helionetics/Case SA-97-14645-JR)
Attention: Hevka H. Sramek
19211 Edgehill Drive
Irvine, CA 92715
Telephone: (714) 856-1203
Facsimile: (714) 854-1123
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<PAGE>
A COPY OF ANY NOTICE TO THE COMMITTEE MUST ALSO BE SENT TO:
Albert, Weiland & Golden, LLP
Attention: Jeffrey I. Golden
650 Town Center Drive - Suite 1350
Costa Mesa, CA 92626
Telephone: (714) 966-1000
Facsimile: (714) 966-1002
"Helionetics": Helionetics, Inc.
Attention: Hevka H. Sramek
19211 Edgehill Drive
Irvine, CA 92715
Telephone: (714) 856-1203
Facsimile: (714) 854-1123
A COPY OF ANY NOTICE TO HELIONETICS MUST ALSO BE SENT TO:
B. Katz, Chairman
Attention:_____________________
2701 Junipero
Signal Hill, CA 90806
Telephone: (562) 426-8622
Facsimile: (562) 426-7473
"Tri-Lite": Tri-Lite, Inc.
Attention: Ernest Dageford
2710 Junipero Street
Signal Hill, CA 90806
Telephone: (562) 426-8622
Facsimile: (562) 426-7473
A COPY OF ANY NOTICE TO TRI-LITE MUST ALSO BE SENT TO:
B. Katz, Chairman
Attention:___________________
2701 Junipero
Signal Hill, CA 90806
Telephone: (562) 426-8622
Facsimile: (562) 426-7473
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<PAGE>
"Barnes": Susan Barnes
541 Loring Avenue
Los Angeles, CA 90024
Telephone: (310) 470-8413
Facsimile: (310) 470-3153
"Katz": Bernard Katz
541 Loring Avenue
Los Angeles, CA 90024
Telephone: (310) 475-9793
Facsimile: (310) 470-3153
"K/B": K/B Equities, Inc.
Attention: Susan Barnes
541 Loring Avenue
Los Angeles, CA 90024
Telephone: (310) 470-8413
Facsimile: (310) 470-3153
A COPY OF ANY NOTICE TO K/B MUST ALSO BE SENT TO:
K/B Equities, Inc.
Attention: Susan Barnes
541 Loring Avenue
Los Angeles, CA 90024
Telephone: (310) 470-8413
Facsimile: (310) 470-3153
ALSO, A COPY OF ANY NOTICE TO ANY PARTY MUST ALSO BE SENT TO:
Squar, Milner & Reehl, Inc.
Attention: Chris Reehl
4100 Newport Place - Third Floor
Newport Beach, CA 92660
Telephone: (714) 222-2999
Facsimile: (714) 222-2989
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<PAGE>
THE UNDERSIGNED PARTIES TO THIS AGREEMENT have made, executed
and entered into this Agreement.
"Helionetics Committee"
The Official Committee of Creditors Holding
Unsecured Claims in the Chapter 11 bankruptcy
Case In re Helionetics, Inc., which was filed
On March 31, 1997, as Case No. SA-97-14645-JR
By:
----------------------------------
(signature)
----------------------------------
(typed or printed name)
----------------------------------
(title or capacity)
"Helionetics"
Helionetics, Inc., a California corporation, the debtor and
debtor-in-possession in the Chapter 11 bankruptcy case In re
Helionetics, Inc., which was filed on March 31, 1997, as Case
No. SA-97-14645-JR
By:
----------------------------------
(signature)
----------------------------------
(typed or printed name)
----------------------------------
(title or capacity)
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<PAGE>
"Tri-Lite"
Tri-Lite, Inc., a California corporation the reorganized debtor
in the Chapter 11 bankruptcy case In re Tri-Lite, Inc., which
was filed on February 26, 1996, as Case No. SA-96-12049-JR
By:
----------------------------------
(signature)
----------------------------------
(typed or printed name)
----------------------------------
(title or capacity)
"K/B"
K/B Equities, Inc., a Nevada corporation
By:
----------------------------------
(signature)
----------------------------------
(typed or printed name)
----------------------------------
(title or capacity)
"Katz"
-----------------------------------
Bernard Katz
"Barnes"
-----------------------------------
Susan Barnes
21
<PAGE>
JEFFREY W. BROKER - State Bar No. 53226
SEAN A. O'KEEFE - State Bar No. 122417
LAUREN B. LESSLER - State Bar No. 167311
BROKER & O'KEEFE PROFESSIONAL CORPORATION
4695 MacArthur Court, Suite 1200
Newport Beach, CA 92660
Telephone: (714) 222-2000
Facsimile: (714) 222-2022
Special Reorganization Counsel
for Debtor and Debtor-in-Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re Bk. No. SA 96-13178 JR
SELF POWERED LIGHTING, INC., In a Case Under Chapter 11 of the
a New York corporation, Bankruptcy Code (11 U.S.C. Section
1101 et seq.)
Debtor and Debtor-in- DEBTOR'S FIRST AMENDED DISCLOSURE
Possession. STATEMENT DESCRIBING DEBTOR'S FIRST
AMENDED CHAPTER 11 PLAN
Disclosure Statement Hearing
Date: April 2, 1997
Time: 9:30 a.m.
Ctrm: Courtroom 606
34 Civic Center Plaza
Santa Ana, CA
Plan Confirmation Hearing
Date: May 28, 1997
Time: 10:30 a.m.
Ctrm: Courtroom 606
34 Civic Center Plaza
Santa Ana, CA
<PAGE>
I.
INTRODUCTION
Self Powered Lighting, Inc., a New York corporation, is the Debtor and
Debtor-in-Possession ("Debtor") in a Chapter 11 bankruptcy case. On March 22,
1996 , Self Powered Lighting, Inc. commenced a bankruptcy case by filing a
voluntary Chapter 11 petition under the United States Bankruptcy Code ("Code"),
11 U.S.C. Section 101 et seq. Chapter 11 allows the Debtor, and under some
circumstances, creditors and other parties in interest, to propose a plan of
reorganization ("Plan"). The Plan may provide for the Debtor to reorganize by
continuing to operate, to liquidate by selling assets of the estate, or a
combination of both. Self Powered Lighting, Inc. is the party proposing the Plan
sent to you in the same envelope as this document. THE DOCUMENT YOU ARE READING
IS THE DISCLOSURE STATEMENT FOR THE ENCLOSED PLAN.
This is a reorganizing Plan. In other words, the Proponent seeks to
accomplish payments under the Plan out of revenues generated from its operations
for the purpose of paying off the claims of undisputed general unsecured
creditors over a sixty (60) month period and paying off the claims of general
unsecured creditors having claims of $500 or less (or who elect to reduce their
claims to $500) in full over a six (6) month period. The Effective Date of the
proposed Plan is 45 days after the entry of an Order confirming the Plan as the
same may be amended or modified.
A. Purpose of This Document
This Disclosure Statement summarizes what is in the Plan, and tells you
certain information relating to the Plan and the process the Court follows in
determining whether or not to confirm the Plan.
READ THIS DISCLOSURE STATEMENT CAREFULLY IF YOU WANT TO KNOW ABOUT:
(1) WHO CAN VOTE OR OBJECT,
(2) WHAT THE TREATMENT OF YOUR CLAIM IS, (i.e., what your claim
will receive if the Plan is confirmed) AND HOW THIS TREATMENT
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COMPARES TO WHAT YOUR CLAIM WOULD RECEIVE IN LIQUIDATION,
(3) THE HISTORY OF THE DEBTOR AND SIGNIFICANT EVENTS DURING THE
BANKRUPTCY,
(4) WHAT THINGS THE COURT WILL LOOK AT TO DECIDE WHETHER OR NOT TO
CONFIRM THE PLAN,
(5) WHAT IS THE EFFECT OF CONFIRMATION, AND
(6) WHETHER THIS PLAN IS FEASIBLE. This Disclosure Statement
cannot tell you everything about your rights. You should
consider consulting
your own lawyer to obtain more specific advice on how this Plan will affect you
and what is the best course of action for you.
Be sure to read the Plan as well as the Disclosure Statement. If there
are any inconsistencies between the Plan and the Disclosure Statement, the Plan
provisions will govern.
The Code requires a Disclosure Statement to contain "adequate
information" concerning the Plan. The Bankruptcy Court ("Court") has approved
this document as an adequate Disclosure Statement, containing enough information
to enable parties affected by the Plan to make an informed judgment about the
Plan. Any party can now solicit votes for or against the Plan.
B. Deadlines for Voting and Objecting; Date of Plan Confirmation Hearing
THE COURT HAS NOT YET CONFIRMED THE PLAN DESCRIBED IN THIS DISCLOSURE
STATEMENT. IN OTHER WORDS, THE TERMS OF THE PLAN ARE NOT YET BINDING ON ANYONE.
HOWEVER, IF THE COURT LATER CONFIRMS THE PLAN, THEN THE PLAN WILL BE BINDING ON
ALL CREDITORS AND INTEREST HOLDERS IN THIS CASE.
1. Time and Place of the Confirmation Hearing
The hearing where the Court will determine whether or not to confirm
the Plan will take place on May 28, 1997 at the hour of 10:30 A.M., in Courtroom
606, 34 Civic Center Plaza, Santa Ana CA 92701.
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2. Deadline For Voting For or Against the Plan
If you are entitled to vote, it is in your best interest to timely vote
on the enclosed ballot and return the ballot in the enclosed envelope to Broker
& O'Keefe Professional Corporation, 4695 MacArthur Court, Suite 1200, Newport
Beach, CA 92660.
Your ballot must be received by 5:00 P.M. on May 21 , 1997 or it will
not be counted.
3. Deadline For Objecting to the Confirmation of the Plan
Objections to the confirmation of the Plan and supporting evidence must
be filed with the Court and served upon counsel to the Plan Proponent, Broker &
O'Keefe Professional Corporation, 4695 MacArthur Court, Suite 1200, Newport
Beach, CA 92660 and the Office of the United States Trustee, 600 West Santa Ana
Blvd., Suite 501, Santa Ana CA 92701 by 5:00 P.M. on May 21, 1997.
4. Identity of Person to Contact for More Information Regarding
the Plan
Any interested party desiring further information about the Plan should
contact Broker & O'Keefe Professional Corporation, 4695 MacArthur Court, Suite
1200, Newport Beach, CA 92660 to the attention of Jeffrey W. Broker, Esq.
C. Disclaimer
The financial data relied upon in formulating the Plan is based on the
Debtor's books and records prepared in the ordinary course of business by
persons whose job it is to prepare same. The information contained in this
Disclosure Statement is provided by Renee Becker, controller of the Debtor, in
consultation with Jack Katz, the president of the Debtor, and the Board of
Directors of the Debtor. The Plan Proponent represents that everything stated in
the Disclosure Statement is true to the Plan Proponent's best knowledge. The
Court has not yet determined whether or not the Plan is confirmable and makes no
recommendation as to whether or not you should support or oppose the Plan.
II.
BACKGROUND
A. Description and History of the Debtor's Business
The Debtor is a corporation, organized under the laws of the State of
New York.
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The Debtor is in the business of manufacturing self-luminous safety
signs for the commercial and aircraft markets. The Debtor has been in this
business since 1968. These commercial signs are designed to meet NFPA Life
Safety Code as well as Underwriters Laboratories requirements. Since the 1960's,
SPL has been manufacturing self-luminous aircraft and other types of safety
markers for aircraft doors and cockpits, which meet or exceed all FAA
requirements. SPL also produces self-luminous EXIT signs and other safety signs
for commercial buildings. In the late 1980's SPL added a series of low energy
EXIT signs to its product line utilizing Light Emitting Diode (LED) technology.
SPL anticipates an increase in both its commercial self-luminous and LED
business over the next five (5) years. The Debtor's business at the time of the
commencement of this case was carried on at two locations, but operations have
been consolidated during the course of this case into a single facility located
at 169 Western Highway, Bradley Corporate Park, West Nyack, NY 10994.
B. Principals/Affiliates of Debtor's Business
The members of the board of directors of the Debtor are Bernard Katz
(Chairman of the Board), Chaim Markheim and E. Maxwell Malone. The directors
have served without compensation during the course of the Chapter 11 case.
Tri-Lite, Inc., a Pennsylvania corporation ("Tri-Lite"), is the 100% shareholder
of the Debtor. Tri-Lite is a Debtor in proceedings under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court, Central District of
California, Santa Ana Division, case no. SA 96-12049 JR. Alvin Katz, the brother
of Bernard Katz, served as the president of the Debtor without compensation from
February, 1996 through August, 1996. Jack Katz, the son of Bernard Katz, took
over as president of the Debtor in August, 1996. He is compensated as follows:
$88,000 per year salary, a car allowance of $500 per month, medical and life
insurance, and has been promised 1% of the New Tri-Lite common stock forthcoming
as a result of its reorganization.
C. Management of the Debtor Before and After the Bankruptcy
Key management of the Debtor before the bankruptcy was filed were the
following persons: Joseph Zanfordino, chief operating officer and Renee Becker,
controller.
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Key management of the Debtor during the course of the bankruptcy are:
Jack Katz, president, Joseph Zanfordino, chief operating officer and Renee
Becker, controller.
Key management of the Debtor after the bankruptcy are anticipated to
be: Jack Katz, president, Joseph Zanfordino, chief operating officer and Renee
Becker, controller.
D. Events Leading to Chapter 11 Filing
Here is a brief summary of the circumstances that led to the filing of
this Chapter 11 case:
In June of 1995, the Debtor and Tri-Lite entered into a loan agreement
with Star Bank, pursuant to which Star Bank made available to the Debtor and
Tri-Lite a five million dollar ($5,000,000) line of credit (the "Loan"). The
Loan is allegedly guaranteed by Prolite and Helionetics. As security for the
Loan, Star Bank obtained a first priority consensual lien on the Debtor's and
Tri-Lite's inventory, accounts receivable, and other operating assets.
The Debtor and Tri-Lite paid down the Loan dramatically during January
and February, 1996. This was due to the "ratcheting down" of availability under
the line of credit, the receipt by Star Bank of liquidation proceeds from
Prolite, and Star Bank's collections of cash from the lockbox attributable to
the receivable collections of both the Debtor and Tri-Lite.
In February of 1996, Star Bank declared a default under the terms of
the Loan, and on February 23, 1996, it obtained an order appointing a receiver
to collect and turnover to Star Bank all accounts receivable collections from
the Debtor, Tri-Lite and Prolite. As a result of the receiver's actions, the
Debtor was deprived of critically needed cash to satisfy its normal operating
expenses. Before the Petition Date, Star Bank refused to allow the receiver, who
had taken possession of the Debtor's facilities, to use collections to pay the
Debtor's employees, thereby precipitating a crisis. The Debtor immediately found
itself with literally no employees and no funds with which to run a formerly
viable enterprise. The Debtor filed its voluntary Chapter 11 Case on March 22,
1996 intending to use the "breathing spell" afforded by Chapter 11 to enable the
Debtor to reorganize its affairs and pay the claims of Creditors through a plan
of reorganization.
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E. Significant Events During the Bankruptcy
1. Bankruptcy Proceedings
The following is a chronological list of significant events which have
occurred during this case:
(A) Cash Collateral and Emergency Financing Shortly after the
Petition Date, the Debtor filed a motion to use cash collateral which was
considered by the Court on March 28, 1996. At this hearing, the Court authorized
the Debtor the use of one hundred percent (100%) of the gross collections from
the Debtor's business operations to pay the Debtor's ordinary and necessary
operating expenses, pursuant to an Order entered on April 24, 1996. On April 29,
1996 the Court entered its Order re Final Hearing on Debtor's Motion for Use of
Cash Collateral, continuing the previously authorized use of cash collateral..
On April 29, 1996, the Debtor attended a final hearing on the Debtor's
Motion for Order Approving Entry Into Post-Petition Financing Agreement (the
"First Financing Motion") The Court granted the First Financing Motion and
entered an order approving the same on March 26, 1996 (the "First Financing
Order"). Pursuant to the First Financing Order, the Debtor was authorized to
enter into a post-petition financing agreement with Helionetics in the amount of
up to $20,000. The Debtor was given authority to draw upon the line of credit
provided by Helionetics on an "as needed" basis only to meet the needs of the
Debtor's ordinary and necessary business operations.. As of the date of this
Disclosure Statement, the Debtor had borrowed approximately $20,000 under the
First Financing Order, which was used to fund payroll and some necessary
operating expenses. This borrowing has been repaid by the Debtor.
On July 15, 1996, the Debtor attended a final hearing on the Debtor's
Motion for Order Approving Entry Into Post-Petition Financing Agreement With
Susan Barnes (the "Second Financing Motion") The Court granted the Second
Financing Motion and entered an order approving the same on July 16, 1996 (the
"Second Financing Order"). Pursuant to the Second Financing Order, the Debtor
was authorized to enter into a post-petition financing agreement with Susan
Barnes in the amount of up to $100,000. The Debtor was given authority to draw
upon the line of credit provided by Barnes on an "as needed" basis only to meet
the needs of the Debtor's
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ordinary and necessary business operations. As of the date of this Disclosure
Statement, the Debtor had borrowed approximately $35,000 under the Second
Financing Order, which was used to fund payroll and some necessary operating
expenses. This borrowing has been repaid.
(B) The Cash Collateral Stipulation with Star Bank
At the hearing on April 29,1996, the Debtor, Star Bank Tri-Lite and the
Unsecured Creditors' Committee in the Tri-Lite case presented the Court with the
Joint Stipulation For 1) Sequestration; 2) Interim Use; 3) Turnover of Cash
Collateral; 4) Repayment of Secured Debt entered into by and between the Debtor
and Star Bank (the "Stipulation"). Pursuant to the Stipulation, so long as Star
Bank does not breach the terms of the Stipulation, the Debtor agreed to satisfy
the entire obligation to Star Bank by December 15, 1996. The Debtor complied
with the terms of the Stipulation and Star Bank was refinanced by Altres Funding
in a timely fashion. The Debtor's Plan does not seek to alter or modify any of
the rights of Altres under its financing documentation.
(C) Claims The Debtor filed its Schedules and Statement of Financial
Affairs with the Clerk of the Bankruptcy Court in a timely fashion. In Schedule
D, the Debtor scheduled the secured claim of Star Bank in the amount of
$1,500,000. As indicated above, this creditor was paid via a refinancing through
Altres which funded in a timely fashion. The Plan does not seek to alter any
rights of Altres in this case. In Schedule E, the Debtor listed 29 creditors
holding unsecured priority claims in the amount of $51,918 with an additional
non-priority unsecured portion of $17,492. In Schedule F, the Debtor listed
approximately 200 creditors holding nonpriority unsecured claims in the
aggregate amount of $486,309 as undisputed. Several; claims will be asserted by
the landlord (the "Landlord") at the Elmsford, New York facility (the "Elmsford
Facility") which was occupied and subsequently vacated during the course of the
Chapter 11 case, which the Debtor believes increase the claims made against the
Estate. The Debtor has been advised by the Landlord that such claims include:
(i) a claim filed against the estate in the amount of $26,432.36, secured by a
security deposit, which claim was for the outstanding and unpaid rent and other
charges due prepetition under the lease for the Elmsford Facility (the "Elmsford
Lease"); (ii) an administrative claim for approximately $62,000, less a portion
of the aforementioned
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security deposit, in connection with certain outstanding and unpaid rent, taxes
and other charges claimed by the Landlord to be due under the Elmsford Lease;
and (iii) potential claims against the Debtor for any damages incurred or other
costs associated with the environmental radiological clean-up and remediation
activities of the Debtor and/or T. H. Lehman in connection with the Elmsford
Facility. The Debtor believes that the liquidation of the potential claims
against the debtor will occur by April 30, 1997. An unsecured claim in the
amount of $1,000,000, being claim no. 127 has been filed on behalf of Dorothy
Compitello based upon an alleged age discrimination claim. This claim is
disputed and has been classified as the Class 2 Claim. The Debtor estimates that
it has no liability to this claimant but will have on file an objection to this
claim prior to the hearing on confirmation of the Plan. (See 2A immediately
below for a more detailed discussion of this claim). In addition, Colonia
Insurance Company ("Colonia") has filed an unsecured claim in the amount of
$359,301, being claim no. 126. This claim is disputed and has been classified as
the Class 3 Claim. This claim is based upon a performance bond procured on
behalf of Prolite Sign and Maintenance Co., Inc. ("Prolite") pertaining to a job
at the University of Maryland. The Debtor alleges that the job was completed
during the course of this Chapter 11 case and that Colonia's claim has been
satisfied. Colonia has recourse against the University of Maryland for payments
due under the job, has claims against Prolite, Helionetics, and Tri-Lite, Inc.
The Debtor is advised that Tri-Lite intends to object to an identical claim
filed by Colonia in its Chapter 11 case. The Debtor estimates that it has no
liability to Colonia but will have on file an objection to this claim prior to
the hearing on confirmation of the Plan.
(D) Consolidation of Debtor's Business Operations in West Nyack,
New York
At the commencement of this case, the Debtor was paying rent on two
facilities: Elmsford, New York and West Nyack, New York. After protracted
negotiations with the State of New York Department of Labor, the Debtor was able
to satisfy the financial requirements for the transfer of its hazardous
materials license to the new facility in West Nyack, New York. As of the end of
December, 1996, the Debtor's entire operations were out of the West Nyack
facility.
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(E) Environmental Clean-up of Former Facility in Elmsford, New
York
In July of 1996, Robert Martin Company, LLC ("Robert Martin") filed a
Proof of Claim in the amount of $26,432.36 for the outstanding and unpaid rent
and other charges due prepetition under the Elmsford Lease (the "RM Prepetition
Claim"). The Debtor is informed and believes that Robert Martin also holds both
(i) a security deposit which it received prepetition from the Debtor in
connection with the Elmsford Lease, which amounts to approximately $44,316.86 as
of March 1, 1997 (the "Security Deposit"), and (ii) in conjunction with Robert
Martin's successor in interest, CALI CW Realty Associates L.P. d/b/a RM CW
Associates ("Cali"), an administrative claim for the outstanding and unpaid
rent, taxes and other amounts due under the Elmsford Lease after the filing of
the petition in the amount of $62,000 (the "RM Administrative Claim"). In
addition, both Robert Martin and Cali have advised the Debtor that they hold
potential claims against the Debtor for any damages incurred or other costs
associated with the environmental radiological clean-up and remediation
activities of the Debtor and/or T. H. Lehman which currently are ongoing at the
Elmsford Facility (collectively the "Environmental Claims").
There remained environmental issues at the Debtor's former facility in
Elmsford, New York. Pursuant to an agreement with T. H. Lehman & Co., that
company was responsible for assuming the costs of all environmental remediation
at the Debtor's former facility. The cleanup plan was approved by the State of
New York and a licensed remediation contractor was employed to perform the
necessary remediation work. Work commenced in December, 1996 and is expected to
last approximately 3 months. Assuming that such environmental remediation work
is completed properly and to the satisfaction of the Landlord, the Debtor
believes that it will have no financial responsibility for any of the cleanup
costs associated with the Elmsford facility. However, as set forth in Section
II.E.(C) above and in the preceding paragraph, there may be potential
Environmental Claims by the Landlord against the Debtor for any damages incurred
or other costs associated with the environmental radiological clean-up and
remediation activities of the Debtor and/or T. H. Lehman in connection with the
Elmsford Facility. The Debtor believes that the liquidation of the potential
Environmental Claims against the debtor will occur by April 30, 1997.
The Court has approved the employment of the following professionals:
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(F) Broker & O'Keefe Professional Corporation
The Court approved the employment of this professional as special
reorganization counsel pursuant to an order entered on April 24, 1996.
(G) Davis & Associates
The Court approved the employment of this professional as special
reorganization counsel pursuant to an order entered on May 20, 1996.
Currently, the following significant adversary proceedings and motions
are pending: none.
2. Other Legal Proceedings
In addition to the proceedings discussed above, the Debtor is currently
involved in the following nonbankruptcy legal proceedings:
(A) Dorothy Compitello v. Self Powered Lighting, Inc., pending in the
State of New York Executive Department, Division of Human Rights. This matter is
an age discrimination claim arising from a job termination which allegedly took
place on October 4, 1991. This litigation is disputed. An unsecured claim in the
amount of $1,000,000 was filed with the Bankruptcy Court by Ms. Compitello's
legal counsel. The Debtor disputes the Claim and believes that it has no
liability to this claimant who has been classified as the Class 2 Claimant.
3. Actual and Projected Recovery of Preferential or Fraudulent Transfers
The Debtor does not believe that the expenses associated with
preference or fraudulent transfer litigation would be cost effective in this
case. As a result, no such litigation is expected to be filed by or on behalf of
the Debtor.
4. Procedures Implemented to Resolve Financial Problems
To attempt to fix the problems that led to the bankruptcy filing,
Debtor has implemented the following procedures: Debtor has obtained a more
cooperative lender, has consolidated its operations, has a reliable future
source of supply of tritium, and is expanding its customer base.
5. Current and Historical Financial Conditions
The Debtor has operated profitably throughout the pendency of this case
with the exception of the months of June, November and December, 1996. The
reason for the exception for those months is twofold: A critical shortage of
tritium, which is essential to the manufacture of the
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Debtor's products (which Debtor has corrected) and seasonal slowdown. January,
1997 will be again profitable and the Debtor anticipates a steady supply of
tritium in the foreseeable future.
The identity and fair market value of the estate's assets are listed in
Exhibit A. Possible claims against Star Bank, former officers of the Debtor and
T. H. Lehman are listed at an unknown value. See also the Debtor's financial
history set forth in Exhibit B which includes financial statements for the
calendar years 1993, 1994 and 1995, a monthly analysis for calendar year 1996,
as well as projections pertaining to the Plan.
III.
SUMMARY OF THE PLAN OF REORGANIZATION
A. What Creditors and Interest Holders Will Receive Under The Proposed
Plan
As required by the Bankruptcy Code, the Plan classifies claims and
interests in various classes according to their right to priority. The Plan
states whether each class of claims or interests is impaired or unimpaired.
The Plan provides the treatment each class will receive.
B. Unclassified Claims
Certain types of claims are not placed into voting classes; instead
they are unclassified. They are not considered impaired and they do not vote on
the Plan because they are automatically entitled to specific treatment provided
for them in the Bankruptcy Code. As such, the Proponent has not placed the
following claims in a class.
1. Administrative Expenses
Administrative expenses are claims for costs or expenses of
administering the Debtor's Chapter 11 case which are allowed under Bankruptcy
Code Section 507(a)(1). The Code requires that all administrative claims be paid
on the Effective Date of the Plan, unless a particular claimant agrees to a
different treatment.
The following chart lists all of the Debtor's Section 507(a)(1)
administrative claims and their treatment under the Plan (see Exhibit F for
detailed information about each administrative expense claim):
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Name Amount Owed Treatment
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Broker & O'Keefe Professional $50,000 (approx.) Paid in full on Effective Date unless agrees to
Corporation a different treatment
- ---------------------------------------------------------------------------------------------------------------------
Davis & Associates $14,000 (approx.) Paid in full on Effective Date unless agrees to
a different treatment
- ---------------------------------------------------------------------------------------------------------------------
Robert Martin Company, LLC and $44,000 (approx. after Paid in full on Effective Date unless agrees to
its successor, CALI CW Realty application of security a different treatment
Associates LP, d/b/a RM CW deposit)
Associates
- ---------------------------------------------------------------------------------------------------------------------
Clerk's Office Fees $1,000 (approx.) Paid in full on Effective Date
- ---------------------------------------------------------------------------------------------------------------------
Office of the U.S. Trustee Fees Unknown at this time Paid in full on Effective Date
- ---------------------------------------------------------------------------------------------------------------------
TOTAL: $109,000 (approx.)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Court Approval of Fees Required:
The Court must rule on all fees listed in this chart before the fees
will be owed. For all fees except Clerk's Office fees and U.S. Trustee's fees,
the professional in question must file and serve a properly noticed fee
application and the Court must rule on the application. Only the amount of fees
allowed by the Court will be owed and required to be paid under this Plan.
As indicated above, the Debtor will need to pay approximately $109,000
worth of administrative claims on the Effective Date of the Plan unless the
claimant has agreed to be paid later or the Court has not yet ruled on the
claim. As indicated elsewhere in this Disclosure Statement, Debtor will have
approximately $175,000 in cash on hand on the Effective Date of the Plan. The
source of this cash will be from operations, possible third party borrowings,
and borrowing under its credit facility.
2. Priority Tax Claims
Priority tax claims include certain unsecured income, employment and
other taxes described by Bankruptcy Code Section 507(a)(8). The Bankruptcy Code
requires that each holder of such a Section 507(a)(8) priority tax claim receive
the present value of such claim in deferred cash payments, over a period not
exceeding six years from the date of the assessment of such tax.
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The following chart lists all of the Debtor's Section 507(a)(8)
priority tax claims and their treatment under the Plan: (None under the Plan)
C. Classified Claims and Interests
1. Classes of Secured Claims
Secured claims are claims secured by liens on property of the estate.
The following chart lists all classes containing Debtor's secured pre-petition
claims and their treatment under the Plan:
(None under the Plan other than the secured claim of the Landlord. The
Debtor has agreed that the Landlord may immediately apply the security deposit
it holds to its pre-petition claim and that it may also apply its security
deposit against its administrative claim. As a result, there is no `treatment'
of the Landlord's claim, as such, under the Plan)
Notwithstanding the provisions of 11 U.S.C. Section 1141, the
Factoring Agreement (Post-Petition Bankruptcy Financing) dated December
16, 1996 between Debtor and Altres Financial, L.P., the Addendum to
Factoring Agreement dated December 16, 1996, and any other amendments,
modifications or replacements thereof (whether entered into before or
after confirmation of the Plan), the Security Agreement dated December
16, 1996 between Helionetics, Inc. and Altres Financial, L.P. and the
Guarantee dated February 24, 1997 executed by Helionetics, Inc. in
favor of Altres Financial, L.P., shall continue in full force and
effect after confirmation of the Plan and the security interests,
assignments, and liens created or to be created thereby shall be
retained and remain in full force and effect, unless otherwise agreed
in writing by Debtor and Altres Financial, L.P. Such security
interests, assignments and liens shall secure obligations owing to
Altres Financial, L.P. incurred and arising both before and after
confirmation of the Plan.
2. Classes of Priority Unsecured Claims
Certain priority claims that are referred to in Bankruptcy Code
Sections 507(a)(3), (4), (5), (6), and (7) are required to be placed in classes.
These types of claims are entitled to priority treatment as follows: The
Bankruptcy Code requires that each holder of such a claim receive cash on the
Effective Date equal to the allowed amount of such claim. However, a class of
unsecured
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priority claim holders may vote to accept deferred cash payments of a value, as
of the Effective Date, equal to the allowed amount of such claim.
The following chart lists all classes containing Debtor's Section
507(a)(3), (a)(4), (a)(5), (a)(6), and (a)(7) priority unsecured claims and
their treatment under the Plan (see Exhibit G for more detailed information
about each priority unsecured claim).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS # DESCRIPTION IMPAIRED TREATMENT
(Y/N)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
1 Priority unsecured claims pursuant NO Paid in full in cash on Effective Date
to Section 507(a)(3)
Total amt of claims =
$50,465.87
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Class of General Unsecured Claims
General unsecured claims are unsecured claims not entitled to priority
under Bankruptcy Code Section 507(a). The following chart identifies the Plan's
treatment of the class containing all of Debtor's general unsecured claims (see
Exhibit H for detailed information about each general unsecured claim):
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLASS # DESCRIPTION IMPAIRED TREATMENT:
(Y/N)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
2 Disputed general Impaired; claim Pymt interval: Semi-Annual after initial payment
unsecured claim No. 127 in this class is on Effective Date ("ED") and annual after the
filed on behalf of entitled to vote first year
Dorothy Compitello(1) on the Plan Est. pymt amt/interval:
Total amount of claim: Effective Date: 5%
$1,000,000 6 months after ED: 5% plus interest
Total claim estimated by 12 months after ED 10% plus interest
the Debtor: 0 24 months after ED: 20% plus interest
36 months after ED: 20% plus interest
48 months after ED: 20% plus interest
60 months after ED: 20% plus interest
Begin date: Effective Date (June, 1997)
End date: June, 2002
Interest rate %:
Fixed rate of two percentage points (2%)
over the Prime Rate of Interest as published
in the Wall Street Journal on the Effective
Date
Total payout %: (100%)
Total dollar payout: The principal amount of
the allowed claim as of the Allowance Date
plus interest as provided for above.
3 Disputed general Impaired; claim
unsecured claim No. in this
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This claim is disputed. Debtor intends to object to this claim. Debtor
will request that the Court not "allow" this claim against the Debtor for
distribution purposes until there is a final judgment from a Court of competent
jurisdiction and no further appeals therefrom are permissible under applicable
state or federal law (the "Allowance Date").
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<TABLE>
<S> <C> <C>
class is Pymt interval: Semi-Annual after initial payment
126 of Colonia Insurance entitled to vote on Effective Date ("ED") and annual after the
Company.(2) on the Plan first year
Total amount of claim: Est. pymt amt/interval:
$358,301 Effective Date: 5%
Total claim estimated by 6 months after ED: 5% plus interest
the Debtor: 0 12 months after ED 10% plus interest
24 months after ED: 20% plus interest
36 months after ED: 20% plus interest
48 months after ED: 20% plus interest
60 months after ED: 20% plus interest
Begin date: Effective Date (June, 1997)
End date: June, 2002
Interest rate %:
Fixed rate of two percentage points (2%)
over the Prime Rate of Interest as published
in the Wall Street Journal on the Effective
Date
Total payout %: (100%)
Total dollar payout: The principal amount of
the allowed claim as of the Allowance Date
plus interest as provided for above.
</TABLE>
- --------
(2) This claim is disputed. Debtor intends to object to this claim. Debtor
will request that the Court not "allow" this claim against the Debtor for
distribution purposes until there is a final judgment from a Court of competent
jurisdiction and no further appeals therefrom are permissible under applicable
state or federal law (the "Allowance Date").
-17-
<PAGE>
<TABLE>
<S> <C> <C> <C>
4 General unsecured claims Impaired; claims Pymt interval: Semi-Annual after initial payment
Total amount of claims = in this class are on Effective Date ("ED") and annual after the
$500,000 (approx.) entitled to vote first year
on the Plan Est. pymt amt/interval:
Effective Date: 5%
6 months after ED: 5% plus interest
12 months after ED 10% plus interest
24 months after ED: 20% plus interest
36 months after ED: 20% plus interest
48 months after ED: 20% plus interest
60 months after ED: 20% plus interest
Begin date: Effective Date (June, 1997)
End date: June, 2002
Interest rate %:
Fixed rate of two percentage points (2%)
over the Prime Rate of Interest as published
in the Wall Street Journal on the Effective
Date
Total payout %: (100%)
Total dollar payout: Approx. $500,000,
representing the principal amount of the
allowed claims of unsecured creditors plus
interest as provided for above.
5 General unsecured claims Impaired; claims Pymt interval: Semi-Annual after initial payment
consisting of a in this class are on Effective Date ("ED")
convenience class of $500 entitled to vote Est. pymt amt/interval:
or less or who elect to on the Plan Effective Date: 50%
reduce to $500 on the 6 months after ED: 50% plus interest
ballots relating to the Begin date: Effective Date (June, 1997)
confirmation of the Plan End date: December, 1997
Total amount of claims in Interest rate %:
this Class are estimated Fixed rate of two percentage points (2%) over
to be (90) in number the Prime Rate of Interest as published in the
Total dollar amount of Wall Street Journal on the Effective Date
claims in this class is Total payout %: (100%)
estimated to be in the Total dollar payout: $18,500 plus accrued
amount of $18,500 interest
</TABLE>
-18-
<PAGE>
4. Class of Interest Holder
Interest holders are the parties who hold ownership interest (i.e.,
equity interest) in the Debtor. Since the Debtor is a corporation, entities
holding preferred or common stock in the Debtor are interest holders. The
following chart identifies the Plan's treatment of the class of the Interest
Holder (see Exhibit I for more detailed information about the Interest Holder):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLASS # DESCRIPTION IMPAIRED TREATMENT
(Y/N)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
6 Interest holder Not Impaired; claims Retains interest in the Debtor.
in this class are
not entitled to vote
on Plan; class is
deemed to have
accepted Plan
</TABLE>
D. Means of Effectuating the Plan
1. Funding for the Plan
The Plan will be funded by the following: Revenues generated by the
Debtor from its operations, along with possible borrowing from a new financial
entity which would provide account receivable and inventory and equipment
financing, along with possible borrowing from parties which have previously lent
funds to the Debtor.
2. Post-Confirmation Management
The post-confirmation management of the Debtor will be Jack Katz,
Joseph Zanfordino and Renee Becker.
3. Disbursing Agent
The Reorganized Debtor shall act as the Disbursing Agent for the
purpose of making all distributions provided for under the Plan. The Disbursing
Agent shall serve without bond.
E. Risk Factors
The proposed Plan has the following risks:
A) Future Operations. The majority of payments called for under the
Plan are based on the Debtor's payment thereof out of future operations. The
Debtor believes that its projections will be met and that the necessary payments
scheduled to be made to unsecured creditors will be made in a
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<PAGE>
timely fashion. The possibility exists that the projections will not be met and
the Debtor placed in position in which it would be unable to make the payments
called for under the Plan. The Debtor believes, however, that the future market
for its products is good, that it has put procedures in place to maximize future
profitability, and that it is confident that it will be in a position to meet
its projected payment schedule.
B) Disputed Claims. The Debtor has made certain assumptions regarding
certain disputed claims which it has classified as Classes 2 and 3. Debtor has
been advised by its outside litigation counsel that the likelihood of a
significant recovery, if any, by Class 2 Claimant Dorothy Compitello is remote
based upon the facts discovered to date. The Debtor has been advised that the
claim upon which the Class 3 Claim of Colonia Insurance has been filed has been
satisfied by performance by Prolite or its subcontractors. The possibility
exists that the Debtor's assumptions will be in error. In such event, the Plan
nonetheless proposes paying out both claims, with interest, over an extended
period of time to allow for the full payment thereof.
F. Other Provisions of the Plan
1. Executory Contracts and Unexpired Leases
a. Assumptions
The following are the unexpired leases and executory contracts to be
assumed as obligations of the reorganized Debtor under this Plan (see Exhibit C
for more detailed information on unexpired leases to be assumed and Exhibit D
for more detailed information on executory contracts to be assumed (none under
the Plan)):
1) Bradley Corporate Park (West Nyack, New York facility)
2) Toshiba Easy Lease (copier)
3) Republic Leasing Company (production machinery)
4) Pitney Bowes Credit Corp. (postage machine)
On the Effective Date, each of the unexpired leases and executory
contracts listed above shall be assumed as obligations of the Reorganized
Debtor. The Order of the Court confirming the Plan shall constitute an Order
approving the assumption of each lease and contract listed above. If you are a
party to a lease or contract to be assumed and you object to the assumption of
your lease
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<PAGE>
or contract, you must file and serve your objection to the Plan within the
deadline for objecting to the confirmation of the Plan. See Section I.B.3. of
this document for the specific date.
b. Rejections
On the Effective Date, the following executory contracts and unexpired
leases will be rejected:
1) Spalding Office Systems (microfilm camera; repossessed during the
case)
The Order Confirming the Plan shall constitute an Order approving the
rejection of the lease or contract. If you are a party to a contract or lease to
be rejected and you object to the rejection of your contract or lease, you must
file and serve your objection to the Plan within the deadline for objecting to
the confirmation of the Plan. See Section I.B.3. of this document for the
specific date.
THE BAR DATE FOR FILING A PROOF OF CLAIM BASED ON A CLAIM ARISING FROM
THE REJECTION OF A LEASE OR CONTRACT IS 30 DAYS FROM THE EFFECTIVE DATE. Any
claim based on the rejection of a contract or lease will be barred if the proof
of claim is not timely filed, unless the Court later orders otherwise.
2. Changes in Rates Subject To Regulatory Commission Approval
This Debtor is not subject to governmental regulatory commission
approval of its rates.
3. Retention of Jurisdiction
The Court will retain jurisdiction to the extent provided by law.
G. Tax Consequences of Plan
CREDITORS AND INTEREST HOLDERS CONCERNED WITH HOW THE PLAN MAY AFFECT
THEIR TAX LIABILITY SHOULD CONSULT WITH THEIR OWN ACCOUNTANTS, ATTORNEYS, AND/OR
ADVISORS. The following disclosure of possible tax consequences is intended
solely for the purpose of alerting readers about possible tax issues this Plan
may present to the Debtor. The Proponent CANNOT and DOES NOT represent that the
tax consequences contained below are the only tax consequences of the Plan
because the Tax Code embodies many complicated rules which make it difficult to
state completely and accurately all the tax implications of any action.
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<PAGE>
The following are the tax consequences which the Plan will have on the
Debtor's tax liability: None because the claims of creditors are being paid in
full over the life of the Plan. There is no debt forgiveness under the Plan.
IV.
CONFIRMATION REQUIREMENTS AND PROCEDURES
PERSONS OR ENTITIES CONCERNED WITH CONFIRMATION OF THIS PLAN SHOULD
CONSULT WITH THEIR OWN ATTORNEYS BECAUSE THE LAW ON CONFIRMING A PLAN OF
REORGANIZATION IS VERY COMPLEX. The following discussion is intended solely for
the purpose of alerting readers about basic confirmation issues, which they may
wish to consider, as well as certain deadlines for filing claims. The Proponent
CANNOT and DOES NOT represent that the discussion contained below is a complete
summary of the law on this topic.
Many requirements must be met before the Court can confirm a Plan. Some
of the requirements include that the Plan must be proposed in good faith,
acceptance of the Plan, whether the Plan pays creditors at least as much as
creditors would receive in a Chapter 7 liquidation, and whether the Plan is
feasible. These requirements are not the only requirements for confirmation.
A. Who May Vote or Object
1. Who May Object to Confirmation of the Plan
Any party in interest may object to the confirmation of the Plan, but
as explained below not everyone is entitled to vote to accept or reject the
Plan.
2. Who May Vote to Accept/Reject the Plan
A creditor or interest holder has a right to vote for or against the
Plan if that creditor or interest holder has a claim which is both (1) allowed
or allowed for voting purposes and (2) classified in an impaired class.
a. What Is an Allowed Claim/Interest
As noted above, a creditor or interest holder must first have an
allowed claim or interest to have the right to vote. Generally, any proof of
claim or interest will be allowed, unless a party in interest brings a motion
objecting to the claim. When an objection to a claim or interest is filed, the
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<PAGE>
creditor or interest holder holding the claim or interest cannot vote unless the
Court, after notice and hearing, either overrules the objection or allows the
claim or interest for voting purposes.
THE BAR DATE FOR FILING A PROOF OF CLAIM IN THIS CASE WAS JULY 7, 1996.
A creditor or interest holder may have an allowed claim or interest even if a
proof of claim or interest was not timely filed. A claim is deemed allowed if
(1) it is scheduled on the Debtor's schedules and such claim is not scheduled as
disputed, contingent, or unliquidated, and (2) no party in interest has objected
to the claim. An interest is deemed allowed if it is scheduled and no party in
interest has objected to the interest. Consult Exhibits F through L to see how
the Proponent has characterized your claim or interest.
b. What Is an Impaired Claim/Interest
As noted above, an allowed claim or interest only has the right to vote
if it is in a class that is impaired under the Plan. A class is impaired if the
Plan alters the legal, equitable, or contractual rights of the members of that
class. For example, a class comprised of general unsecured claims is impaired if
the Plan fails to pay the members of that class 100% of what they are owed.
In this case, the Proponent believes that classes 2, 3, 4 and 5 are
impaired and that holders of claims in each of these classes are therefore
entitled to vote to accept or reject the Plan. The Proponent believes that
classes 1 and 6 are unimpaired and that holders of claims in each of these
classes therefore do not have the right to vote to accept or reject the Plan.
Parties who dispute the Proponent's characterization of their claim or interest
as being impaired or unimpaired may file an objection to the Plan contending
that the Proponent has incorrectly characterized the class.
3. Who Is Not Entitled to Vote
The following four types of claims are not entitled to vote: (1) claims
to which objections have been filed or that have been disallowed; (2) claims in
unimpaired classes; (3) claims entitled to priority pursuant to Bankruptcy Code
Sections 507(a)(1), (a)(2), and (a)(8), and (4) claims in classes that do not
receive or retain any value under the Plan. Claims in unimpaired classes are not
entitled to vote because such classes are deemed to have accepted the Plan.
Claims entitled to priority pursuant to Bankruptcy Code Sections 507(a)(1),
(a)(2), and (a)(7) are not entitled to vote because such claims are not placed
in classes and they are required to receive certain treatment
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<PAGE>
specified by the Code. Claims in classes that do not receive or retain any value
under the Plan do not vote because such classes are deemed to have rejected the
Plan. EVEN IF YOUR CLAIM IS OF THE TYPE DESCRIBED ABOVE, YOU MAY STILL HAVE A
RIGHT TO OBJECT TO THE CONFIRMATION OF THE PLAN.
4. Who Can Vote in More Than One Class
A creditor whose claim has been allowed in part as a secured claim and
in part as an unsecured claim is entitled to accept or reject a Plan in both
capacities by casting one ballot for the secured part of the claim and another
ballot for the unsecured claim.
5. Votes Necessary to Confirm the Plan
If impaired classes exist, the Court cannot confirm the Plan unless (1)
at least one impaired class has accepted the Plan without counting the votes of
any insiders within that class, and (2) all impaired classes have voted to
accept the Plan, unless the Plan is eligible to be confirmed by "cramdown" on
non-accepting classes, as discussed later in Section IV.A.8.
6. Votes Necessary for a Class to Accept the Plan
A class of claims is considered to have accepted the Plan when more
than one-half (1/2) in number and at least two-thirds (2/3) in dollar amount of
the claims which actually voted, voted in favor of the Plan. A class of
interests is considered to have "accepted" the Plan when at least two-thirds
(2/3) in amount of the interest-holders of such class which actually voted,
voted to accept the Plan.
7. Treatment of Nonaccepting Classes
As noted above, even if all impaired classes do not accept the proposed
Plan, the Court may nonetheless confirm the Plan if the nonaccepting classes are
treated in the manner required by the Bankruptcy Code. The process by which
nonaccepting classes are forced to be bound by the terms of a Plan is commonly
referred to as "cramdown." The Bankruptcy Code allows the Plan to be "crammed
down" on nonaccepting classes of claims or interests if it meets all consensual
requirements except the voting requirements of Section 1129(a)(8) and if the
Plan does not "discriminate unfairly" and is "fair and equitable" toward each
impaired class that has not voted to accept the Plan as referred to in Section
1129(b) and applicable case law.
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<PAGE>
8. Request for Confirmation Despite Nonacceptance by Impaired
Class(es)
The party proposing this Plan will ask the Court to confirm this Plan
by cramdown on impaired classes 2, 3, 4 and 5 if any of these classes do not
vote to accept the Plan.
Please note that the proposed Plan treatment described by this
Disclosure Statement cannot be crammed down on the following classes: none.
B. Liquidation Analysis
Another confirmation requirement is the "Best Interest Test", which
requires a liquidation analysis. Under the Best Interest Test, if a claimant or
interest holder is in an impaired class and that claimant or interest holder
does not vote to accept the Plan, then that claimant or interest holder must
receive or retain under the Plan property of a value not less than the amount
that such holder would receive or retain if the Debtor were liquidated under
Chapter 7 of the Bankruptcy Code.
In a Chapter 7 case, the Debtor's assets are usually sold by a Chapter
7 trustee. Secured creditors are paid first from the sales proceeds of
properties on which the secured creditor has a lien. Administrative claims are
paid next. Next, unsecured creditors are paid from any remaining sales proceeds,
according to their rights to priority. Unsecured creditors with the same
priority share in proportion to the amount of their allowed claim in
relationship to the amount of total allowed unsecured claims. Finally, interest
holders receive the balance that remains after all creditors are paid, if any.
For the Court to be able to confirm this Plan, the Court must find that
all creditors and interest holders who do not accept the Plan will receive at
least as much under the Plan as such holders would receive under a Chapter 7
liquidation. The Plan Proponent maintains that this requirement is met here for
the following reasons: The liquidation value of the Debtor's assets is not equal
to 100% of the projected claims which will be paid by the Reorganized Debtor in
this case.
Below is a demonstration, in balance sheet format, that all creditors
and interest holders will receive at least as much under the Plan as such
creditor or interest holder would receive under a Chapter 7 liquidation. (See
Exhibit E for a detailed explanation of how the following assets are valued).
This information is provided by the Debtor's books and records as of December
31, 1996:
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<PAGE>
ASSETS VALUED AT LIQUIDATION VALUES:
CURRENT ASSETS
a. Cash on hand $137,000
b. Accounts receivable $147,000 (75% of book value)
c. Inventories $120,000 (30% of book value)
TOTAL CURRENT ASSETS $404,000
FIXED ASSETS
a. Office furniture & equipment $26,000 (20% of book value)
b. Machinery & equipment $36,000 (20% of book value)
c. Automobiles $1,000 (50% of book value)
d. Buildings & Land $0
TOTAL FIXED ASSETS $63,000
OTHER ASSETS
a. Deposits $0
b. Litigation claims $ Unknown
TOTAL OTHER ASSETS $0
TOTAL ASSETS AT LIQUIDATION VALUE $467,000
Less:
Secured creditor's recovery $250,000
Less:
Chapter 7 trustee fees and expenses $25,000
Less:
Chapter 11 administrative expenses $109,000
Priority claims, excluding
administrative expense claims $50,465
Less:
Debtor's claimed exemptions $0
(1) Balance for unsecured claims $77,000
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<PAGE>
(2) Total amt of unsecured claims $500,000 (approx. - undisputed)
% OF THEIR CLAIMS WHICH UNSECURED CREDITORS WOULD RECEIVE OR RETAIN IN A CHAPTER
7 LIQUIDATION = 15%
% OF THEIR CLAIMS WHICH UNSECURED CREDITORS WILL RECEIVE OR RETAIN UNDER THIS
PLAN: = 100%
Below is a demonstration, in tabular format, that all creditors and
interest holders will receive at least as much under the Plan as such creditor
or holder would receive under a Chapter 7 liquidation:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLAIMS & CLASSES PAYOUT PERCENTAGE PAYOUT PERCENTAGE IN CHAPTER 7 LIQUIDATION
- ----------------- ----------------- ------------------------------------------
UNDER THE PLAN
--------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Administrative Claims 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
Priority Claims 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
Class 1 - Priority Wage Claims 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
Class 2 - Disputed Compitello 100% Less than 100%
Claim
- ---------------------------------------------------------------------------------------------------------------------
Class 3 - Disputed Colonia 100% Less than 100%
Insurance Claim
- ---------------------------------------------------------------------------------------------------------------------
Class 4 - General Unsecured Claims 100% Less than 100%
- ---------------------------------------------------------------------------------------------------------------------
Class 5 - General Unsecured 100% Less than 100%
convenience class
- ---------------------------------------------------------------------------------------------------------------------
Class 6 - Interest Holder Retains interest Loses interest
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
C. Feasibility
Another requirement for confirmation involves the feasibility of the
Plan, which means that confirmation of the Plan is not 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.
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<PAGE>
There are at least two important aspects of a feasibility analysis. The
first aspect considers whether the Debtor will have enough cash on hand on the
Effective Date of the Plan to pay all the claims and expenses which are entitled
to be paid on such date. The Plan Proponent maintains that this aspect of
feasibility is satisfied as illustrated here:
<TABLE>
<S> <C> <C>
Cash Debtor anticipates it will have on hand by Effective Date: $200,000
To Pay: Administrative claims -$109,000
To Pay: Statutory costs & charges -$1,000
To Pay: Other Plan Payments due on Effective Date -$50,465 + Classes 4
and 5 payments
($35,000)
Balance after paying these amounts................ $4,000 (approx)
</TABLE>
The sources of the cash Debtor anticipates it will have on hand by the Effective
Date, as shown above are:
$17,900 Cash in DIP Account (as of 2/20/97)
+$90,000 Additional cash DIP will accumulate from net earnings between
now and Effective Date
+$70,000 Borrowing from Factoring Line3
+$25,000 Third Party Borrowing4
+0 Capital Contributions
+0 Other
$202,900 Total
Borrowing is from Debtor's existing post-petition line of credit with
Altres and will be paid back as follows: In accordance with the terms and
conditions of the existing loan documentation.
The second aspect considers whether the Proponent will have enough cash
over the life of the Plan to make the required Plan payments.
- --------
(3) Debtor expects its availability to significantly increase as a result of
an anticipated increase in its sales.
(4) Debtor may need to borrow funds from parties who have previously loaned
funds to it during the course of this case. Such parties are identified at
Section II.E.1.(A) hereinabove. To the extent that these funds are not
available, the Debtor will have to make arrangements with one or more
admininstrative claimants to take payments over time. Ms. Susan Barnes has
indicated her commitment to make funds available to the Debtor.
-28-
<PAGE>
The Proponent has provided financial statements which include both
historical and projected financial information. Please refer to Exhibit B for
the relevant financial statements. YOU ARE ADVISED TO CONSULT WITH YOUR
ACCOUNTANT OR FINANCIAL ADVISOR IF YOU HAVE ANY QUESTIONS PERTAINING TO THESE
FINANCIAL STATEMENTS.
In summary, the Plan proposes to pay the claims of unsecured creditors
each six months after an initial payment on the Effective Date . As Debtor's
financial projections demonstrate, Debtor will have an average cash flow, after
paying operating expenses, reserving payments to creditors before interest and
post-confirmation taxes, of approximately $250,000 or more each six months for
the life of the Plan. The final Plan payment is expected to be paid on June,
2002 for Classes 2, 3 and 4. The Plan Proponent contends that Debtor's financial
projections are feasible. As shown by Debtor's historical financial statements,
Debtor's average net income, after paying operating expenses and taxes, in the
three years preceding the filing of this bankruptcy case is ($5,980). During
1994, with annual sales of $3,488,057, the Debtor's net income, after paying
operating expenses and taxes, was $305,055. Debtor's average monthly sales have
varied during the course of the bankruptcy case as a result of interruption in
its supply of tritium, an element critical to the manufacture of its
self-luminous safety signs. Monthly sales have been in excess of $255,000 for
seven (7) out of the 10 months it has been in Chapter 11, with a positive net
income on an accrual basis per the monthly operating reports filed with the
Office of the United States Trustee for those months of $114,000, after making
provision for the extraordinary expenses relating to Chapter 11 in the form of
attorneys' fees and accounting costs attributable thereto. Sales in May, 1996
were $298,371; September, 1996 were $321,765 and January, 1997 were
approximately $314,000. The Debtor posted losses on its monthly operating
reports for three (3) months during the course of the case: June, 1996 ($93,153
on sales of $79,723); November, 1996 ($57,903 on sales of $150,632) and
December, 1996 ($82,521 on sales of $99,179). The drop in sales for each of the
aforementioned three months was solely due to the shortage of tritium in the
Debtor's operations.
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<PAGE>
The Debtor has located a reliable future source of tritium and has a
firm work order backlog in excess of $1,000,000. Furthermore, as discussed
earlier in the Disclosure Statement at Section II.D.4., Debtor has implemented
procedures to decrease costs and increase income to make sure that its sales
will consistently be above the minimum $300,000 per month level throughout the
course of the Plan payment period.
V.
EFFECT OF CONFIRMATION OF PLAN
A. Discharge
This Plan provides that upon confirmation of the Plan, the Debtor shall
be discharged of liability for payment of debts incurred before confirmation of
the Plan to the extent specified in Bankruptcy Code Section 1141.
However, the discharge will not discharge any liability imposed by the Plan.
B. Revesting of Property in the Debtor
Except as provided in Section V.E., and except as provided elsewhere in
the Plan, the confirmation of the Plan revests all of the property of the estate
in the Debtor.
C. Modification of Plan
The Proponent of the Plan may modify the Plan at any time before
confirmation. However, the Court may require a new disclosure statement and/or
revoting on the Plan.
The Proponent of the Plan may also seek to modify the Plan at any time
after confirmation only if (1) the Plan has not been substantially consummated
and (2) the Court authorizes the proposed modifications after notice and a
hearing.
D. Post-Confirmation Status Report
Within 120 days of the entry of the order confirming the Plan, Plan
Proponent shall file a status report with the Court explaining what progress has
been made toward consummation of the confirmed Plan. The status report shall be
served on the United States Trustee, the twenty largest unsecured creditors, and
those parties who have requested special notice. Further status reports shall be
filed every 120 days and served on the same entities.
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<PAGE>
E. Post-Confirmation Conversion/Dismissal
A creditor or party in interest may bring a motion to convert or
dismiss the case under Bankruptcy Code Section 1112(b), after the Plan is
confirmed, if there is a default in performing the Plan. If the Court orders the
case converted to Chapter 7 after the Plan is confirmed, then all property that
had been property of the Chapter 11 estate, and that has not been disbursed
pursuant to the Plan, will revest in the Chapter 7 estate. The automatic stay
will be reimposed upon the revested property, but only to the extent that relief
from stay was not previously authorized by the Court during this case.
The order confirming the Plan may also be revoked under very limited
circumstances. The Court may revoke the order if the order of confirmation was
procured by fraud and if a party in interest brings an adversary proceeding to
revoke confirmation within 180 days after the entry of the order of
confirmation.
F. Final Decree
Once the estate has been fully administered as referred to in
Bankruptcy Rule 3022, the Plan Proponent, or such other party as the Court shall
designate in the Plan Confirmation Order, shall file a motion with the Court to
obtain a final decree to close the case.
Date: March ___, 1997 SELF POWERED LIGHTING, INC.,
Debtor and Debtor-in-Possession
(PLAN PROPONENT)
By: ________________________________
JACK KATZ, President
BROKER & O'KEEFE
PROFESSIONAL CORPORATION
By: _______________________________
JEFFREY W. BROKER
Special Reorganization Counsel
for Debtor and Debtor-in-Possession
-31-
<PAGE>
VI.
SUPPORTING DECLARATION
OF JACK H. KATZ
I, Jack H. Katz, do hereby declare and state as follows:
1. The matters testified to herein are based upon my own personal
knowledge, and if called as a witness, I could and would competently testify
thereto.
2. I am the President and Chief Executive Officer of Self-Powered
Lighting, Inc., a New York corporation, the debtor and debtor in possession
herein (the "Debtor"). As a result, I am authorized to make this declaration in
support of the Debtor's Original Disclosure Statement Describing Debtor's
Original Chapter 11 Plan (the "Disclosure Statement").
3. The Debtor filed its voluntary petition under Chapter 11 of the
Bankruptcy Code on March 22, 1996 (the "Petition Date").
4. The Debtor is a wholly owned subsidiary of Tri-Lite, Inc., a
Pennsylvania corporation ("Tri-Lite"). Tri-Lite is a publicly held corporation
and Helionetics, Inc. ("Helionetics") and Susan Barnes hold in excess of fifty
percent (50%) of Tri-Lite's outstanding stock. Tri-Lite purchased one hundred
percent (100%) of the Debtor's common stock from Helionetics in 1995.
5. Tri-Lite and the Debtor specialize in the manufacture and
sale of lighting fixtures. In particular, the Debtor is in the business of
manufacturing self-luminous safety signs for the commercial and aircraft
markets. The Debtor has been in this business since 1968. These commercial signs
are designed to meet NFPA Life Safety Code as well as Underwriters Laboratories
requirements. Since the 1960's, SPL has been manufacturing self-luminous
aircraft and other types of safety markers for aircraft doors and cockpits,
which meet or exceed all FAA requirements. SPL also produces self-luminous EXIT
signs and other safety signs for commercial buildings. In the late 1980's SPL
added a series of low energy EXIT signs to its product line utilizing Light
Emitting Diode (LED) technology. SPL anticipates an increase in both its
commercial self-luminous and LED business over the next five (5) years. The
Debtor's business at the time of the commencement of this case was carried on at
two locations, but operations have
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<PAGE>
been consolidated during the course of this case into a single facility located
at 169 Western Highway, Bradley Corporate Park, West Nyack, NY 10994. The Debtor
manufactures and markets exit and emergency signage for use in aircraft and
commercial buildings.
6. In June of 1995, the Debtor and Tri-Lite as co-borrowers
entered into a loan agreement (the "Loan") with Star Bank, N.A. (the "Bank")
pursuant to which the Bank made available a five million dollar ($5,000,000)
line of credit (the "Loan"). As security for the Loan, the Bank was granted a
lien on substantially all of the Debtor's and Tri-Lite's inventory, accounts
receivable, and other operating assets.
7. Tri-Lite was declared in default under the Loan as early as
September 1995 and Helionetics was never advised thereof. In fact, it was not
until late January of 1996 that Helionetics first learned of the claimed
default.
8. On December 6, 1996, this Court entered its Order Granting
Debtor's Motion for Order Approving Entry into Post-Petition Replacement
Financing Agreement, which permitted the Debtor to replace the Bank with Altres
Financial as Tri-Lite's senior secured lender.
9. During the course of this case, the Debtor was granted
final permission from several New York state agencies to complete the move of
its business operations, which involve the working with radioactive materials,
from Elmsford, New York (the "Elmsford Facility") to a new, state of the art
facility located in West Nyack, New York (the "West Nyack Facility").
10. The Debtor has made substantial progress in the
reorganization of its business affairs since this proceeding's inception. The
Debtor completed its move from the Elmsford Facility to the West Nyack Facility.
The Debtor has also arranged for the radioactive clean-up of the Elmsford
Facility through its former sole shareholder, T. H. Lehman & Co. Thus, upon
satisfaction of the obligations owed to the lessor of the Elmsford Facility, the
Debtor will save well over $9,000 per month on its current monthly rent
obligation alone.
11. Furthermore, I have been diligently soliciting new
customers and am currently working toward securing new stable sources of
supplies of the radioactive material tritium used in manufacturing certain of
the Debtor's key products. The Debtor experienced shortages of tritium briefly
during three months while it was in Chapter 11, which had a damaging effect upon
monthly
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shipments (sales). I firmly believe that the tritium supply problem has been
corrected and that the Debtor can be assured a steady supply for years to come.
In short, the Debtor is continuing to make strides to ensure its success.
12. I have conferred with management of the Debtor in
preparing the liquidation analysis set forth at Section IV.B. of the Disclosure
Statement. Preliminarily, the information is as of December 31, 1996. The Debtor
had substantial cash on hand at that time ($137,000) but has expended a
substantial amount of cash in the purchase of tritium and in maintaining a
current status in its trade payables. The Debtor estimates that in the event the
case was converted to a chapter 7, customers would be tardy in payments and
would assert claims for warranty work and possibly contract-related damages for
lack of future shipments. The inventories of raw materials and limited finished
good is valued at a realistic net value taking into account the fact that the
radioactive materials would be difficult to dispose of and that the remaining
products would be sold at a distressed price. Similarly, the liquidation
valuation for office furniture and equipment and machinery and equipment is
based upon the specialized nature of the equipment, its age, the fact that a
large part of same is in areas where radioactive materials are present, and the
experience of the Tri-Lite corporate parent with an auction of excess office
furniture, machinery and equipment last summer in Cleveland, Ohio where the
results were very disappointing. It should also be noted that in the event of a
Chapter 7 that the new facility in West Nyack would have to be remediated, which
is a substantial cost item we simply have been unable to quantify at this point.
I do know that T. H. Lehman & Co. is paying in excess of $220,000 to complete
the remediation of the Elmsford Facility.
13. Sales for the month of January, 1997 increased
dramatically from November and December, 1996. This was due to the location of a
reliable source of supply of tritium. The Debtor has a firm work order backlog
in excess of $1,000,000. The Debtor has implemented procedures for decreasing
costs. In particular, the Debtor is no longer paying rent on two facilities as
it did during the entirety of 1996. In addition, the consolidation of operations
at a state of the art facility will result in cost savings at the production
level. The Debtor is expanding its business base and is actively going after
sales in new markets. I am convinced that sales will, in the future,
consistently
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remain at the $300,000 level or greater per month and that the projections
attached to the Disclosure Statement as part of Exhibit B are feasible.
I declare under penalty of perjury that the foregoing is true and
correct. Executed this ___ day of March, 1997, at Newport Beach,
California.
--------------------------------------
JACK H. KATZ
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EXHIBIT A - LIST OF ALL ASSETS(1)
ASSETS VALUED AT BOOK VALUES (as of December 31, 1996):
CURRENT ASSETS
a. Cash on hand $137,000
b. Accounts receivable $196,000
c. Inventories $394,000
TOTAL CURRENT ASSETS $727,000
FIXED ASSETS
a. Office furniture & equipment (at cost) $130,000
b. Machinery & equipment (at cost) $183,000
c. Automobiles $2,000
d. Leasehold improvements - West Nyack $229,000
e. (Leasehold improvements - Elmsford)(2) $0
f. (Less Accumulated Depreciation) $316,000
TOTAL FIXED ASSETS $228,000
OTHER ASSETS
a. Possible litigation claims - Star Bank, Former $ Unknown
Officers and Directors, and T. H. Lehman & Co
b. Deposits $145,000
TOTAL OTHER ASSETS $145,000 +
Unknown
TOTAL ASSETS AT BOOK VALUE $1,100,000
- --------
(1) Unless indicated otherwise, all values have been provided by the Debtor and
are consistent with those values presented on the Debtor's Schedule of Assets
and Liabilities which are filed with the Court.
(2) Debtor has moved out of this facility and there is no remaining value to
the Debtor.
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EXHIBIT B - FINANCIAL STATEMENTS
As directed by the Court, the historical financial statements for the
three years preceding the petition date, calendar year 1996, and projected
financial statements for the life of the Plan are attached. This information is
supplied by Renee Becker, the controller of the Debtor, and is based on the
Debtor's books and records, financial statements and projections prepared in
consultation with Messrs. Katz, Zanfordino and the Board of Directors of the
Debtor. The following is a listing of the financial information provided and the
pages where the same are located:
(a) Pages: 38-44 Financial statements for calendar year 1993
(b) Pages: 45-51 Financial statements for calendar year 1994
(c) Pages: 52-58 Financial statements for calendar year 1995
(d) Pages: 59-60 Monthly analysis for calendar year 1996
(e) Pages: 60A-F Cash Flow Forcast for calendar years 1997-2002
(f) Page: 61 Summary of projections for calendar years 1997-2002
(g) Pages: 62-64 Projections for calendar year 1997
(h) Pages: 65-67 Projections for calendar year 1998
(i) Pages: 68-70 Projections for calendar year 1999
(j) Pages: 71-73 Projections for calendar year 2000
(k) Pages: 74-76 Projections for calendar year 2001
(l) Pages: 77-79 Projections for calendar year 2002
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
I. INTRODUCTION...................................................................................................2
A. Purpose of This Document....................................................................................2
B. Deadlines for Voting and Objecting; Date of Plan Confirmation Hearing.......................................3
1. Time and Place of the Confirmation Hearing...............................................................3
2. Deadline For Voting For or Against the Plan..............................................................4
3. Deadline For Objecting to the Confirmation of the Plan...................................................4
4. Identity of Person to Contact for More Information Regarding the Plan....................................4
C. Disclaimer..................................................................................................4
II. BACKGROUND....................................................................................................4
A. Description and History of the Debtor's Business............................................................4
B. Principals/Affiliates of Debtor's Business..................................................................5
C. Management of the Debtor Before and After the Bankruptcy....................................................5
D. Events Leading to Chapter 11 Filing.........................................................................6
E. Significant Events During the Bankruptcy....................................................................7
1. Bankruptcy Proceedings...................................................................................7
2. Other Legal Proceedings.................................................................................11
3. Actual and Projected Recovery of Preferential or Fraudulent Transfers ..................................11
4. Procedures Implemented to Resolve Financial Problems....................................................11
5. Current and Historical Financial Conditions.............................................................11
III. SUMMARY OF THE PLAN OF REORGANIZATION.......................................................................12
A. What Creditors and Interest Holders Will Receive Under The Proposed Plan...................................12
B. Unclassified Claims........................................................................................12
1. Administrative Expenses.................................................................................12
2. Priority Tax Claims.....................................................................................13
C. Classified Claims and Interests............................................................................14
1. Classes of Secured Claims...............................................................................14
</TABLE>
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<TABLE>
<S> <C>
2. Classes of Priority Unsecured Claims....................................................................14
3. Class of General Unsecured Claims.......................................................................15
4. Class of Interest Holder................................................................................19
D. Means of Effectuating the Plan.............................................................................19
1. Funding for the Plan....................................................................................19
2. Post-Confirmation Management............................................................................19
3. Disbursing Agent........................................................................................19
E. Risk Factors...............................................................................................19
F. Other Provisions of the Plan...............................................................................20
1. Executory Contracts and Unexpired Leases................................................................20
2. Changes in Rates Subject To Regulatory Commission Approval..............................................21
3. Retention of Jurisdiction...............................................................................21
G. Tax Consequences of Plan...................................................................................21
IV. CONFIRMATION REQUIREMENTS AND PROCEDURES.....................................................................22
A. Who May Vote or Object.....................................................................................22
1. Who May Object to Confirmation of the Plan..............................................................22
2. Who May Vote to Accept/Reject the Plan..................................................................22
3. Who Is Not Entitled to Vote.............................................................................23
4. Who Can Vote in More Than One Class.....................................................................24
5. Votes Necessary to Confirm the Plan.....................................................................24
6. Votes Necessary for a Class to Accept the Plan..........................................................24
7. Treatment of Nonaccepting Classes.......................................................................24
8. Request for Confirmation Despite Nonacceptance by Impaired Class(es)....................................25
B. Liquidation Analysis.......................................................................................25
C. Feasibility................................................................................................27
V. EFFECT OF CONFIRMATION OF PLAN................................................................................30
A. Discharge..................................................................................................30
B. Revesting of Property in the Debtor........................................................................30
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
C. Modification of Plan.......................................................................................30
D. Post-Confirmation Status Report............................................................................30
E. Post-Confirmation Conversion/Dismissal.....................................................................31
F. Final Decree...............................................................................................31
VI. SUPPORTING DECLARATION.......................................................................................32
</TABLE>
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PROOF OF SERVICE
1013A (3) CCP
STATE OF CALIFORNIA, COUNTY OF ORANGE
I am employed in the aforesaid County. I am over the age of 18 and not
a party to the above-entitled action. My business address is 4695 MacArthur
Court, Suite 1200, Newport Beach, California 92660.
On March 24, 1997, I served the pleading described as DEBTOR'S FIRST
AMENDED DISCLOSURE STATEMENT DESCRIBING DEBTOR'S FIRST AMENDED CHAPTER 11 PLAN
on the interested parties in this action by placing true and correct copies
thereof enclosed in sealed envelopes, with postage prepaid, addressed as
follows:
PLEASE SEE THE ATTACHED SERVICE LIST
______ Via Fax
______ Via Overnight Mail
______ Via Hand Delivery
X Via First Class Mail
- ------
I am "readily familiar" with the firm's practice of the collection and
processing of correspondence for mailing. Under that practice, it would be
deposited with the U. S. postal service on that same day, with postage thereon
fully prepaid at Newport Beach, California in the ordinary course of the firm's
business. I am aware that, on motion of the party served, service is presumed
invalid if the postal cancellation date or postage meter date is more than one
day after the date of deposit for mailing as set forth in this affidavit.
I declare under penalty of perjury that the foregoing is true and
correct.
Executed on March 24, 1997, at Newport Beach, California.
---------------------------------
Susan Duncan
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SERVICE LIST
<TABLE>
<CAPTION>
Debtor United States Trustee Special Notice
- ------ --------------------- --------------
<S> <C> <C>
Self-Powered Lighting, Inc. Attn: Michael J. Hauser, Esq. John A. Beckstead, Esq.
Attn: Jack H. Katz, President 600 W. Santa Ana Boulevard, Ste 501 Callister Nebeker & McCullough
24236 Via Aquara Santa Ana, CA 92701 Gateway Tower East, Suite 900
Laguna Niguel, CA 92677 10 East South Temple
Salt Lake City, Utah 84133
Ms. Renee Becker, Controller Special Notice - Robert Martin Co. Spec Not - Robert Martin Co.
- ---------------------------- ---------------------------------- ----------------------------
Self Powered Lighting, Inc. Kelley Drye & Warren Cuddy, Feder & Worby
169 Western Highway Attn: Rebecca J. Winthrop, Esq. Attn Joshua J. Grauer, Esq.
West Nyack, NY 10994 515 South Flower Street, Suite 1100 90 Maple Avenue
Los Angeles, CA 90071 White Plains, NY 10601-5196
Creditors' Committee Creditors' Committee Creditors' Committee
- -------------------- -------------------- --------------------
Dony Tech Sales, Inc. Cophysics Corp Smith Dorian & Burman, Inc.
Attn Arnold Schuman Attn Theodore E. Rahon Attn: Jerome H. Levinson
190 Golden Bridge Road R D 6, Box 140 W 1100 New Britain Avenue
Katonah, NY 10536 Monroe, NY 10950 West Hartford, CT 06110
</TABLE>
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