<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 19, 1997
JAYHAWK ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 0-26410 75-2486444
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
BRYAN TOWER
2001 BRYAN STREET
SUITE 600
DALLAS, TEXAS 75201
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (214) 754-1000
<PAGE>
ITEM 5. OTHER EVENTS
On August 19, 1997, the Company filed a Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code proposed by the Company and the statutory
committee of its unsecured creditors (the "Plan") and a disclosure statement
that relates to the Plan (the "Disclosure Statement") in the United States
Bankruptcy Court for the Northern District of Texas. A form of the Disclosure
Statement with the Plan attached as an exhibit thereto is filed herewith.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits
99.1 Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code
with Respect to Joint Plan of Reorganization, dated August 19, 1997,
(including a form of the Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code Proposed by the Debtor and the Creditors'
Committee filed as Exhibit A thereto)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JAYHAWK ACCEPTANCE CORPORATION
Date: August 22, 1997 By: /s/ Jack T. Smith
-----------------------------------------
Jack T. Smith
President and Chief Operating Officer
<PAGE>
EXHIBIT INDEX
99.1 Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code
with Respect to Joint Plan of Reorganization, dated August 19, 1997,
(including a form of the Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code Proposed by the Debtor and the Creditors'
Committee filed as Exhibit A thereto)
<PAGE>
EXHIBIT 99.1
Harry A. Perrin Henry W. Simon, Jr.
Rosalie Walker Gray Michael D. Warner
WEIL, GOTSHAL & MANGES LLP David T. Cohen
700 Louisiana, Suite 1600 SIMON, ANISMAN, DOBY &
Houston, Texas 77002-2784 WILSON, P.C.
(713) 546-5000 400 Professional Building
P. O. Box 17047
Stephen A. Youngman Fort Worth, Texas 76102-0047
Kelli M. Walsh (817) 820-3100
WEIL, GOTSHAL & MANGES LLP
100 Crescent Court, Suite 1300 ATTORNEYS FOR THE
Dallas, Texas 75201-6950 CREDITORS' COMMITTEE
(214) 746-7700
ATTORNEYS FOR THE DEBTOR
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
- ------------------------------------
(S)
In re: (S) Case No. 397-31261-SAF-11
(S)
JAYHAWK ACCEPTANCE CORPORATION, (S) Chapter 11
a Texas Corporation, (S)
(S)
Debtor. (S)
(S)
- ------------------------------------
DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE WITH
RESPECT TO JOINT PLAN OF REORGANIZATION
---------------------------------------
Dated: August 19, 1997
Dallas, Texas
<PAGE>
[LETTERHEAD OF JAYHAWK ACCEPTANCE CORPORATION APPEARS HERE]
TO OUR CREDITORS AND SHAREHOLDERS:
Jayhawk Acceptance Corporation (the "Company") is pleased to present
for your consideration the enclosed Joint Plan of Reorganization (the "Joint
Plan"), which has been filed by the Company and the Official Unsecured
Creditors' Committee (the "Official Committee").
The Company filed for protection under chapter 11 of the United States
Bankruptcy Code in February 1997, and shortly thereafter proposed a plan of
reorganization pursuant to which it would pay all its creditors the full amount
due. Subsequently, the Company; the Company's secured lender, Fleet Financial
Corporation; and the Official Committee engaged in extensive discussions and
negotiations regarding that plan and the treatment of various classes of the
Company's creditors. As a result, the Company and the Official Committee reached
agreement on the treatment of creditors, which resulted in their co-proposing
the Joint Plan. The Company's secured lender, Fleet Financial Corporation, also
supports the Joint Plan.
Under the Joint Plan, allowed claims of creditors are paid in full
over time. For your reference, a summary of the proposed distributions under the
Joint Plan is set forth on pages 5 and 6 of the enclosed Disclosure Statement.
The Joint Plan allows the Company to satisfy its obligations that
arose in connection with its automobile finance business, which during the
chapter 11 case it has had to substantially curtail. The company's exit from
chapter 11 under the Joint Plan will allow the Company to focus on the medical
finance business conducted by its subsidiary, Jayhawk Medical Acceptance
Corporation, while winding down its automobile finance business as conducted
prior to the chapter 11 filing, and paying its creditors. While creditors are
being paid their allowed claims in full, the Company's shareholders retain the
full number of shares owned by them. Consequently, shareholders do not vote on
the Joint Plan.
The Company urges all creditors to vote to accept the Joint Plan.
Please note that ballots must be received by the tabulation agent, King &
Associates, Inc., on or before 4:00 p.m. on September 22, 1997 (Central Time). A
ballot and return envelope are enclosed.
Thank you for your support.
Very truly yours,
/s/ JACK T. SMITH
Jack T. Smith
President and
Chief Operating Officer
<PAGE>
[LETTERHEAD OF SIMON ANISMAN DOBY WILSON APPEARS HERE]
August 20, 1997
To All Unsecured Creditors of Jayhawk Acceptance Corporation:
The Official Committee of Unsecured Creditors (the "Committee") appointed by the
United States Bankruptcy Court in the Jayhawk Acceptance Corporation ("Jayhawk")
Chapter 11 Case jointly with Jayhawk propose the Joint Plan of Reorganization
(the "Joint Plan") described in the accompanying Disclosure Statement. THE
---
COMMITTEE URGES EACH UNSECURED CREDITOR TO VOTE TO ACCEPT THE JOINT PLAN AND
- ----------------------------------------------------------------------------
RECOMMENDS THAT EACH CREDITOR IN THE DEALER CATEGORY ELECT THE SETTLEMENT
- -------------------------------------------------------------------------
TREATMENT. A Dealer who does not elect the Settlement Treatment will be required
- ---------
to prove independently the amount of each such Dealer's allowable claim and
Jayhawk will be allowed to assert any defense, offset or counterclaim it may
have against such Dealer.
A. The Formation of the Committee and Its Negotiations with Jayhawk.
---------------------------------------------------------------------
The Jayhawk chapter 11 case commenced on February 7, 1997. The Committee was
formed approximately one month later. There are seven members of the Committee,
which is comprised of Trade Creditors and automobile Dealers. This firm has been
employed by Order of the Court as counsel to the Committee. Price Waterhouse has
been employed by Order of the Court as accountants for the Committee and The
Navarro Group has been employed by Order of the Court as financial advisor to
the Committee.
Immediately after its appointment, the Committee took an active role in the
chapter 11 case to ensure that the interests of all unsecured creditors were
protected to the extent possible. In particular, the Committee commenced
discussions with Jayhawk and its professionals respecting the terms of payment
of creditor claims pursuant to a plan of reorganization. Over the past several
weeks, these negotiations have continued virtually around-the-clock and have
resulted in the Joint Plan that you find enclosed. For the reasons set forth
below, the Committee believes that the Joint Plan is in the best interests of
all unsecured creditors and urges that all unsecured creditors support the Joint
Plan and, where appropriate, vote to accept it. In addition, the Joint Plan
provides for the right of certain automobile Dealers to elect the proposed
"Settlement Treatment." The Committee urges that all eligible Dealers elect to
accept the "Settlement Treatment." Moreover, a substantial number of Dealers
will receive a distribution under the Joint Plan pursuant to the "Settlement
Treatment" that they would otherwise not receive.
B. The Claims Bar Date.
------------------------
The Bankruptcy Court has ordered that all claims filed by Trade Creditors and
Dealers be filed on or before May 15, 1997. A second order was signed by the
Bankruptcy Court setting June 16, 1997, as the last day for certain government
entities and other creditors to file proofs of claim with the Court. Some
unsecured creditors were unsure whether to file their proofs of claim by the May
15/th/ or the June 16/th/ date. The Committee recognized this area of confusion
and in its negotiations with Jayhawk requested that unsecured creditors filing
proofs of claim before June 16, 1997, should be entitled to participate in any
settlement proposed by Jayhawk. By agreement between Jayhawk and the Committee,
unsecured creditors who filed proofs of claim after May 15, 1997, and on or
before June 16,
<PAGE>
Unsecured Creditors of Jayhawk Acceptance Corporation
August 20, 1997
Page 2
1997, will nevertheless be entitled to participate in distributions under the
Joint Plan at the rate of 75% of an allowed claim.
Each unsecured creditor will be entitled to dispute the amount that Jayhawk
contends is the amount of the creditor's allowed claim under the procedures
described below. An unsecured creditor who filed a proof of claim after June 16,
1997, is presumed to have no claim against Jayhawk. If you dispute this
treatment, you must prove to the Bankruptcy Court that you filed your proof of
claim after May 15, 1997, on account of "excusable neglect," as the courts have
interpreted that term.
C. Treatment of Trade Creditors.
---------------------------------
The term "Trade Creditor" is a catch-all phrase and means all unsecured
creditors of Jayhawk other than Dealers and other than Jaymed, a wholly owned
subsidiary of Jayhawk. Jayhawk estimates that the claims of Trade Creditors
total approximately $4.2 Million, including interest.
Trade creditors are grouped in Class 5 of the Joint Plan. Trade creditors will
be paid their allowed claims in full, plus interest from the date the chapter 11
case was commenced. The payments will be made quarterly, on the last day of each
calendar quarter. The first payment will be made on December 26, 1997.
The four payments will be unequal in amount. The first quarterly payment will
not exceed $1.5 Million. The second and third quarterly payments will not exceed
$900,000. The remaining balance due will be paid on the fourth quarterly
payment. All payments will be made pro rata to the Trade Creditors holding the
allowed claims comprising the $4.2 Million estimated to be owing.
Jayhawk may defer all or part of a quarterly payment to Trade Creditors if it
determines in good faith that it has insufficient funds to make the payment or
that the payment would leave it with insufficient working capital. The amount of
the payment so deferred will be paid to Trade Creditors after Fleet has been
paid in full.
D. Treatment of Dealer Claims.
-------------------------------
The bulk of the creditor body in this case consists of Dealers who signed dealer
agreements with Jayhawk. The treatment of these "Dealer Claims" has been the
subject of the most intense negotiations between the Committee and Jayhawk. The
treatment of the Dealer Claims is set forth in Article 6 of the Joint Plan and
is in the form of a "settlement" between the Dealers and Jayhawk.
The principal dispute between the Committee and Jayhawk was the estimate of
Jayhawk's future collections on its portfolio of installment sale contracts. The
higher the future collections, the more each individual Dealer would receive
over time from Jayhawk pursuant to the terms of the dealer agreements with
Jayhawk.
Jayhawk's most recent estimation of future collections is $155.5 Million. The
Committee contended that this estimate is much lower than it should be. The
Committee contended that Jayhawk's performance in collecting on contracts it
purchased from Dealers amounted to a "breach of contract" and that the Dealers
were entitled to damages on account of that breach. Further, the Committee
contended that past failures to properly collect on contracts impacted the
future estimated collections on the contracts. Jayhawk denies these contentions.
<PAGE>
Unsecured Creditors of Jayhawk Acceptance Corporation
August 20, 1997
Page 3
After much discussion and negotiation, the Committee and Jayhawk reached a
settlement which provides for the calculation of Dealer Claims based upon an
assumption of future collections by Jayhawk totaling $185 Million. In other
words, Jayhawk has agreed to calculate Dealer Claims as if it were to collect
$185 Million, not its current estimate of $155.5 Million. The amount of $29.5
Million (the difference between $155.5 Million and $185 Million) is in essence a
settlement of the allegations that Jayhawk breached its agreements with the
Dealers.
The increase in estimated collections affects the settlement in two ways. First,
$185 Million is the figure from which Dealer Claims are estimated and paid
pursuant to the "Settlement Treatment" discussed below. Second, the amount of a
Dealer's allowed Claim is a function of the Dealer's "Advance Balance" shown on
Jayhawk's books. The increase in estimated collections will reduce the Advance
Balance and will move more Dealers "in the money." Dealers "in the money" will
be entitled to an allowed Dealer Claim.
Each Dealer filing a proof of claim before June 16, 1997, will have four
component parts to its claim. Each component part is discussed below.
1. Enrollment Fee Claim.
--------------------
To have an Enrollment Fee Claim, a Dealer must have:
(a) entered into a dealer agreement with Jayhawk after June 7, 1996,
which dealer agreement was not terminated by Jayhawk; and
(b) specifically made a demand for a complete or partial return of the
enrollment fee as part of the Dealer's proof of claim.
The amount of an Enrollment Fee Claim will be calculated as follows: $4,500
minus the amount of $562.50 times the number of months between the
----- -----
effective date of the dealer agreement and the commencement of the chapter
11 case. Dealers filing proofs of claim between May 16, 1997, and June 16,
1997 will be entitled to 75% of the amount calculated by the formula.
Dealers holding an Enrollment Fee Claim will share pro rata in the sum of
$139,468.75, which is designated for the payment of Enrollment Fee Claims.
This amount is the estimated amount for all Dealers entitled to an
Enrollment Fee Claim. Payment of the Enrollment Fee Claims will be
quarterly in equal installments over a period of two years.
It is estimated that 56 Dealers will be entitled an Enrollment Fee Claim.
2. Voucher Claim.
-------------
A Voucher Claim is based on the amount of unused vouchers given by Jayhawk
to a Dealer. $10,000 has been set aside for the payment of the Voucher
Claims of those Dealers who specifically demanded payment of the vouchers
as part of their proof of claim. This is the estimated amount for all
Dealers entitled to a Voucher Claim. The amount of the Voucher Claim will
be based on 5% of the face amount of each such voucher alleged in the proof
of claim. Dealers filing proofs of claim between May 16, 1997, and June 16,
1997, will be entitled to 75% of the amount calculated by the formula.
<PAGE>
Unsecured Creditors of Jayhawk Acceptance Corporation
August 20, 1997
Page 4
Dealers holding a Voucher Claim will share pro rata in the funds set aside.
Payment of the Voucher Claims will be quarterly in equal installments over
a period of two years.
It is estimated that 65 Dealers will be entitled a Voucher Claim.
3. Comprehensive Claim.
-------------------
The Comprehensive Claim is based upon the assumption that Jayhawk will
collect $185 Million from the installment sale contracts in its portfolio.
The Joint Plan then calculates each Dealer's future "back end" distribution
based on such collections. Each Dealer who is then "in the money" based
upon estimated future collections of $185 Million will share pro rata in a
settlement fund of $8,286,803. This settlement fund is the estimate of the
total amount of claims of Dealers who filed proofs of claim and who are "in
the money" under a $185 Million collection assumption. Dealers filing
proofs of claim between May 16, 1997, and June 16, 1997 will be entitled to
75% of the amount calculated by the $185 Million formula.
The payments of the Comprehensive Claim will be made in eight unequal
quarterly installments. The first payment will be made at the end of the
second quarter of 1998. The payments are subject to deferral as are the
payments to Trade Creditors described above.
It is estimated that 630 Dealers will be entitled a Comprehensive Claim.
4. Dealers' Rights in the Trust.
----------------------------
The last possible component of a Dealer Claim is a right to participate in
a Trust to be established by Jayhawk pursuant to the Joint Plan. Jayhawk
shall transfer to the Trust "non-accrual contracts" having a total
remaining principal balance of $80 Million. Transferred along with the
contracts will be all of the title documents belonging to Jayhawk
respecting the contracts transferred.
A "non-accrual contract" is a contract in one of the following five
categories as maintained in Jayhawk's books:
-"insurance": the vehicle has been damaged and Jayhawk is seeking to
recover from the vehicle's insurer.
-"collection": the contract has been assigned to Jayhawk's collection
department.
-"bankruptcy": the vehicle owner has filed a bankruptcy case.
-"repo-posted": the vehicle has been sold at auction by Jayhawk and
Jayhawk is attempting to collect the remaining balance on the
contract.
-"other": miscellaneous category of contracts.
As of June 30, 1997, 1135 Dealers filing proofs of claim on or before June
16, 1997, had contracts in their pools that were categorized as "non-
accrual contracts" by Jayhawk. In total, approximately 20,500 such
contracts existed, having a principal balance as of June 30, 1997, of
approximately $72.6 Million.
It is expected that the number of Dealers, the number of "non-accrual
contracts" and the amount of the principal balance of such contracts will
increase by August 31, 1997, the date used in the Joint Plan for
determining which contracts will be contributed to the Trust. The $80
Million in contracts to be contributed
<PAGE>
Unsecured Creditors of Jayhawk Acceptance Corporation
August 20, 1997
Page 5
to the Trust will come first from the "non-accrual contracts" in pools
contributed by Dealers who filed proofs of claim on or before to June 16,
1997. If additional contracts are needed to reach the $80 Million figure,
such contracts will come from the "non-accrual contracts" of those Dealers
who did not file a proof of claim on or before June 16, 1997. If the "non-
accrual contracts" for those Dealers who did file a proof of claim on or
before June 16, 1997, exceed $80 Million in principal balance, then Jayhawk
and the Committee will structure a pro rata adjustment of the contracts to
be contributed to the Trust.
Each Dealer having "non-accrual contracts" that are contributed to the
Trust will be given an interest in the Trust or alternatively the option to
take possession of a portion of the contracts contributed to the Trust. The
Trust will operate to collect the amounts due on contracts and will
ultimately make distributions to the Dealers having an interest in the
Trust.
After the last payment to Fleet, Jayhawk will contribute an additional $30
Million in "non-accrual contracts" to the Trust. These additional contracts
will be contributed to the Trust and administered by the Trustee of the
Trust in the same fashion as the first $80 Million in contracts.
5. Non-Settlement Treatment.
------------------------
A Dealer filing a proof of claim on or before June 16, 1997, will have the
option to elect not to accept the "Settlement Treatment" detailed in above.
In addition, a Dealer filing a proof of claim after June 16, 1997,
automatically is deemed to have rejected the "Settlement Treatment". A
Dealer electing not to accept the "Settlement Treatment" or who is deemed
not to accept the "Settlement Treatment" will instead be given the "Non-
Settlement Treatment". The "Non-Settlement Treatment" requires each such
Dealer to litigate on its own with Jayhawk and prove that the Dealer has an
allowed claim that is not subject to offset or counterclaim. To prove such
an allowed claim, the Dealer will be required to independently prove its
claim to the Court as part of the presently pending motion for "estimation
of claims" filed by Jayhawk.
The funds that would otherwise be distributed to Dealers under the formulas
above and the "non-accrual contracts" that would otherwise be contributed
to the Trust will not be distributed or contributed. The funds and the
contracts will instead be retained by Jayhawk to be used for payment of
Dealers electing the "Non-Settlement Treatment" should the Court allow the
claims. If a Dealer proves its claim, the claim will be paid in full over a
two year period, with interest. The first payment shall be made at the end
of the second quarter of 1998.
6. Dealer Voting on the Plan and the Election of the Settlement Treatment.
----------------------------------------------------------------------
A ballot is enclosed for all Dealers filing proofs of claim on or before
June 16, 1997. Your Ballot contains specific information regarding your
Claim.
Please review the Ballot and the instructions attached to the Ballot very
carefully. If you are a Dealer and you fail to vote, the Court has ordered
that you will be deemed to have elected the Settlement Treatment.
<PAGE>
Unsecured Creditors of Jayhawk Acceptance Corporation
August 20, 1997
Page 6
E. Conclusion
---------------
This letter accompanies the Disclosure Statement and the Joint Plan. Because the
reorganization of Jayhawk is somewhat complex, the Disclosure Statement and the
Joint Plan are unavoidably also somewhat complex. This letter is an informal
summary of the terms of the Joint Plan and does not alter any of the terms of
the Joint Plan itself. In the event of a conflict between this letter and the
Joint Plan, the Joint Plan will govern. The Committee urges you to review the
Joint Plan and the Disclosure Statement with your professional advisor to fully
understand the terms of both documents.
The Committee believes that the Joint Plan is in the best interests of Trade
Creditors and Dealers and should be supported by all unsecured creditors. The
Committee's professionals have devoted a substantial amount of time over the
past several months to achieve the Joint Plan and believe it to be the best
possible proposal for all unsecured creditors.
Questions regarding the Committee's position or on the Joint Plan in general can
be directed to counsel for the Committee.
Very truly yours,
/s/ MICHAEL D. WARNER
Simon, Anisman, Doby & Wilson, P.C.
Henry W. Simon, Jr.
Michael D. Warner
David T. Cohen
<PAGE>
Harry A. Perrin Henry W. Simon, Jr.
Rosalie Walker Gray Michael D. Warner
WEIL, GOTSHAL & MANGES LLP David T. Cohen
700 Louisiana, Suite 1600 SIMON, ANISMAN, DOBY &
Houston, Texas 77002-2784 WILSON, P.C.
(713) 546-5000 400 Professional Building
P. O. Box 17047
Stephen A. Youngman Fort Worth, Texas 76102-0047
Kelli M. Walsh (817) 820-3100
WEIL, GOTSHAL & MANGES LLP
100 Crescent Court, Suite 1300 ATTORNEYS FOR THE
Dallas, Texas 75201-6950 CREDITORS' COMMITTEE
(214) 746-7700
ATTORNEYS FOR THE DEBTOR
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
- ------------------------------------
(S)
In re: (S) Case No. 397-31261-SAF-11
(S)
JAYHAWK ACCEPTANCE CORPORATION, (S) Chapter 11
a Texas Corporation, (S)
(S)
Debtor. (S)
(S)
- ------------------------------------
DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE WITH
RESPECT TO JOINT PLAN OF REORGANIZATION
---------------------------------------
Dated: August 19, 1997
Dallas, Texas
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
I. INTRODUCTION...................................................................... 1
II. OVERVIEW OF THE PLAN............................................................. 3
III. GENERAL INFORMATION............................................................. 6
A. Description and History of Business...................................... 6
1. Business............................................................ 6
2. Business of Affiliates.............................................. 6
3. Customers and Concentration of Business............................. 7
4. Competition......................................................... 7
5. Regulation.......................................................... 7
6. Major Indebtedness.................................................. 8
7. Equity Ownership.................................................... 9
8. Litigation.......................................................... 9
9. Related Party Transactions.......................................... 10
B. Events Leading to the Commencement of the Chapter 11 Case................ 11
C. Future Business Plan..................................................... 11
IV. EVENTS DURING THE CHAPTER 11 CASE................................................ 11
A. Orders Authorizing the Use of Cash Collateral............................ 12
1. Fleet's Cash Collateral............................................. 12
2. Prudential's Cash Collateral........................................ 13
B. Debtor's Retention of Professionals and Agents........................... 14
C. Motion to Shorten the Claims Bar Date to May 15, 1997.................... 14
D. Appointment of the Statutory Creditors' Committee........................ 14
E. Jaymed Preferred Stock Transaction....................................... 15
F. Estimation of Dealer Claims for All Purposes............................. 17
G. Cost-Saving Measures..................................................... 17
V. THE PLAN OF REORGANIZATION........................................................ 17
A. Essential Elements of the Plan........................................... 17
1. Classification and Treatment of Claims and Equity Interests......... 17
2. Distributions Under the Plan........................................ 17
a. Distributions on the Effective Date............................ 17
b. Distributions to Holders of Allowed Priority Tax Claims........ 18
c. Distributions to Holders of Allowed Claims in Classes 5 and 7.. 18
d. Distributions to Holders of Allowed Claims in Class 6.......... 18
e. Delay or Deferral of Distributions............................. 18
B. Classification and Treatment of Claims and Equity Interests.............. 19
1. Administrative Expense Claims....................................... 19
2. Priority Tax Claims................................................. 21
3. Class 1 - Other Priority Claims..................................... 21
4. Class 2 - Secured Fleet Claim....................................... 21
a. Deemed Allowance............................................... 22
b. Interest....................................................... 22
c. Monthly Principal Amortization................................. 22
d. Limitation on and Deferral of Payment to Other Creditors....... 23
e. Collateral..................................................... 23
f. Right to Adequate Protection Payments.......................... 23
</TABLE>
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<CAPTION>
<S> <C>
g. Debtor Release of Claims...................................... 23
h. Default Rights................................................ 23
i. Payment of Allowed Fleet Expenses............................. 24
5. Class 3 - Secured Prudential Claim................................. 24
6. Class 4 - Other Secured Claims..................................... 24
7. Class 5 - Unsecured Claims......................................... 25
8. Class 6 - Dealer Claims............................................ 26
a. Settlement Treatment......................................... 26
b. Non-Settlement Treatment..................................... 31
9. Class 7 - Jaymed Claim............................................. 32
10. Class 8 - MBIA Claim............................................... 33
11. Class 9 - Section 510(b) Claims.................................... 33
12. Class 10 - Equity Interests........................................ 34
C. Summary of Other Provisions of the Plan.................................. 34
1. Implementation of the Plan......................................... 34
2. Time and Method of Distributions Under the Plan.................... 34
3. Enforcement of Bar Date for Filing Proofs of Claim................. 35
4. Executory Contracts and Unexpired Leases........................... 35
5. The New Fleet Note................................................. 37
6. Retiree Benefits................................................... 37
7. Provisions for Treatment of Disputed Claims........................ 37
8. Governance of Debtor After Effective Date.......................... 37
9. Discharge of the Debtor............................................ 38
10. Amendment of the Plan.............................................. 38
11. Indemnification.................................................... 38
12. Revocation of the Plan............................................. 38
13. Rights of Action and Avoidance Actions............................. 38
14. Termination of Creditors' Committee................................ 39
15. Compromise and Settlement with Richard B. Hoffmann................. 39
16. Compromise and Settlement of Claims Against Fleet.................. 39
17. Compromise and Settlement with Dealers............................. 39
18. Debtor's Limited Release of Directors and Officers................. 40
19. Exculpation........................................................ 40
20. Supplemental Documents............................................. 41
VI. CONFIRMATION AND CONSUMMATION PROCEDURE......................................... 41
A. Solicitation of Votes................................................... 41
B. The Confirmation Hearing................................................ 42
C. Confirmation............................................................ 42
1. Acceptance......................................................... 43
2. Unfair Discrimination and Fair and Equitable Tests................. 43
3. Feasibility........................................................ 43
4. Best Interests Test................................................ 44
D. Consummation............................................................ 45
VII. MANAGEMENT OF THE REORGANIZED DEBTOR............................................ 45
A. Directors and Executive Officers of the Debtor.......................... 45
B. Executive Compensation.................................................. 47
C. Grants of Stock Options and Stock Appreciation Rights................... 48
D. Stock Option Exercises and Holdings..................................... 49
E. Stock Option Plan....................................................... 50
F. Non-Employee Plan....................................................... 51
G. Employee Stock Purchase Plan............................................ 52
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ii
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<CAPTION>
<S> <C>
H. Stay Bonus Program....................................................... 52
I. Compensation of Directors................................................ 52
J. Security Ownership of Certain Beneficial Owners and Management........... 53
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED.......................................... 54
A. Overall Risk to Recovery by Holders of Claims............................ 54
1. Regulation.......................................................... 54
2. Projected Financial Information..................................... 55
3. Business Factors and Competitive Conditions......................... 55
4. Elective Health Care Financing Risks................................ 55
IX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.............................. 56
A. Introduction............................................................. 56
B. Consequences to Jayhawk.................................................. 56
1. Discharge of Indebtedness Income.................................... 56
2. Transfers of Certain Contracts in Respect of Dealer Claims to Trust. 57
3. Preferred Stock Purchase Agreement.................................. 58
4. Net Operating Loss Carryovers....................................... 58
C. Consequences to Certain Creditors........................................ 59
1. Overview............................................................ 59
2. Consideration Allocable to Interest................................. 60
3. Class 2 Claim....................................................... 60
4. Class 5 Claims...................................................... 60
5. Class 6 Claims...................................................... 60
6. Class 7 Claims...................................................... 61
7. Class 9 Claims...................................................... 61
8. Preferred Stock Purchase Agreement.................................. 61
9. Withholding......................................................... 61
X. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN......................... 62
A. Liquidation Under Chapter 7.............................................. 62
B. Alternative Plan of Reorganization....................................... 62
XI. CONCLUSION AND RECOMMENDATION..................................................... 62
</TABLE>
iii
<PAGE>
DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE WITH RESPECT TO
JOINT PLAN OF REORGANIZATION
----------------------------
I. INTRODUCTION
Jayhawk Acceptance Corporation ("Jayhawk" or the "Debtor") and the
Official Committee of Unsecured Creditors (the "Creditors' Committee") submit
this Disclosure Statement pursuant to section 1125 of title 11 of the United
States Code (the "Bankruptcy Code") to holders of Claims and Equity Interests in
the Debtor in connection with (i) the solicitation of acceptances or rejections
of the Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code
Proposed by the Debtor and the Creditors' Committee dated August 19, 1997 (the
"Plan"), filed with the United States Bankruptcy Court for the Northern District
of Texas, Dallas Division (the "Bankruptcy Court") and (ii) the hearing to
consider confirmation of the Plan (the "Confirmation Hearing") scheduled to
commence on September 29, 1997.
UNLESS OTHERWISE DEFINED HEREIN, ALL CAPITALIZED TERMS CONTAINED
HEREIN HAVE THE MEANINGS ASCRIBED TO THEM IN THE PLAN. The term Debtor or
Jayhawk, as used herein, refers to the Debtor or Jayhawk in its capacity as a
prepetition, postpetition or reorganized entity, as the context requires.
Attached as Exhibits to this Disclosure Statement are copies of the
following:
. The Plan (Exhibit A);
. Part II of the Debtor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, containing financial statements and
supplementary date (Exhibit B);
. The Debtor's Quarterly Report on Form 10-Q for the three months
ended June 30, 1997 (Exhibit C); and
. The Projected Cash Flow Statement of the Reorganized Debtor from
February 1997 through September 1998 (Exhibit D).
In addition, a ballot for the acceptance or rejection of the Plan is
enclosed with the Disclosure Statement submitted to those holders of Allowed
Claims that Jayhawk believes may be entitled to vote to accept or reject the
Plan.
On August 19, 1997, after notice and a hearing, the Bankruptcy Court
approved this Disclosure Statement as containing adequate information of a kind
and in sufficient detail to enable hypothetical, reasonable investors typical of
the Debtor's creditors to make an informed judgment whether to accept or reject
the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT BY THE BANKRUPTCY COURT,
HOWEVER, DOES NOT CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE
FAIRNESS OR MERITS OF THE PLAN OR A GUARANTEE OF THE ACCURACY OF OR COMPLETENESS
OF THE INFORMATION CONTAINED HEREIN.
FURTHERMORE, THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, AND THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT PASSED ON THE ACCURACY OR ADEQUACY OF THE STATEMENTS
CONTAINED HEREIN.
Each creditor of the Debtor entitled to vote to accept or reject the
Plan should read this Disclosure Statement and the Plan in their entirety before
voting on the Plan.
1
<PAGE>
No representations or other statements concerning the Debtor
(particularly as to its future business operations or the value of its assets)
are authorized by the Debtor, other than those expressly set forth in this
Disclosure Statement. You should not rely upon any representations or
statements made to secure your acceptance of the Plan other than those set forth
in this Disclosure Statement.
The Debtor believes that the representations and statements contained
in this Disclosure Statement are accurate as of the date of this Disclosure
Statement, unless another date is specified. The facts set forth in this
Disclosure Statement may change after that date. The delivery of this
Disclosure Statement should not be construed as implying that there has been no
change in the facts since the date of this Disclosure Statement.
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired under the terms and provisions of a chapter 11 plan are entitled to
vote to accept or reject the plan. Classes of claims or equity interests in
which the holders of claims or interests will not receive or retain any property
under a chapter 11 plan are deemed to have rejected the plan and are not
entitled to vote to accept or reject the plan. Classes of claims or equity
interests in which the holders of claims or interests are unimpaired under a
chapter 11 plan are deemed to have accepted the plan and are not entitled to
vote to accept or reject the Plan.
With respect to the Debtor's Plan, Classes 2, 5, 6, 7 and 9 of the
Plan are impaired and, to the extent such Claims are Allowed Claims, the holders
of such Claims will receive the distributions provided for such holders under
the Plan. Holders of Allowed Claims in Classes 2, 5, 6 and 7 are entitled to
vote to accept or reject the Plan. In addition, holders of Claims in such
Classes that have been temporarily Allowed for purposes of voting are entitled
to vote to accept or reject the Plan.
Classes 1, 3, 4, 8 and 10 are unimpaired under the Plan. Because the
rights of holders of Allowed Claims and Allowed Equity Interests in those
Classes are not being affected by the Plan, those holders are conclusively
presumed to have accepted the Plan. Consequently, such holders will not be
voting on the Plan.
Therefore, the Debtor has provided ballots to, and hereby solicits
acceptances of the Plan by, holders of Allowed Claims in Classes 2, 5, 6, 7 and
9 of the Plan.
The Bankruptcy Code defines "acceptance" of a plan by a class of
claims as acceptance by creditors in that class that hold at least two-thirds in
dollar amount and more than one-half in number of the claims that cast ballots
for acceptance or rejection of the plan. For a complete description of the
requirements for confirmation of the Plan, see Section VI, "Confirmation and
Consummation Procedure."
If a Class of Claims or Equity Interests rejects the Plan, the Debtor
has the right to amend the Plan or to request confirmation of the Plan pursuant
to section 1129(b) of the Bankruptcy Code. See Section 6.4 of the Plan.
Section 1129(b) permits the confirmation of a plan notwithstanding the
nonacceptance of such plan by one or more impaired classes of claims or equity
interests. Under that section, a plan may be confirmed by a bankruptcy court if
it does not "discriminate unfairly" and is "fair and equitable" with respect to
each nonaccepting class. For a more detailed description of the requirements
for confirmation of a plan that is not accepted or deemed accepted by all
classes, see Section VI.C.2., "Confirmation and Consummation Procedure -- Unfair
Discrimination and Fair and Equitable Tests."
After carefully reviewing this Disclosure Statement, including the
Exhibits, each holder of an Allowed Claim in Classes 2, 5, 6, 7 and 9 should
vote on the Plan.
THE DEBTOR AND THE CREDITOR'S COMMITTEE BELIEVE THAT ACCEPTANCE OF THE
PLAN IS IN THE BEST INTERESTS OF THE DEBTOR'S CHAPTER 11 ESTATE AND ITS
CREDITORS. THEREFORE, THE DEBTOR AND THE CREDITORS' COMMITTEE URGE THAT
CREDITORS VOTE TO ACCEPT THE PLAN.
2
<PAGE>
If you are entitled to vote to accept or reject the Plan, a ballot is
enclosed for the purpose of voting on the Plan. Please vote and return your
ballot(s) to:
Jayhawk Acceptance Corporation
c/o King & Associates, Inc.
10502 NW Ambassador Drive, Suite 220
Kansas City, Missouri 64153
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE
PLAN MUST BE RECEIVED NO LATER THAN 4:00 P.M., CENTRAL TIME, ON SEPTEMBER 22,
--------
1997.
If you are a creditor entitled to vote on the Plan, if you did not
receive a ballot, received a damaged ballot or lost your ballot, or if you have
any questions concerning the Disclosure Statement, the Plan or the procedures
for voting on the Plan, please call Lyle Bartram at (214) 746-7897.
Please note that the claim classification and claim amount information
contained on any ballot is not binding and may not be determinative of any
creditor's ultimate claim rights. An objection may be filed to a claim at any
time before the claim objection deadline set forth in the Plan. If an objection
is filed and granted, the classification of a claim may be changed and the
amount of a claim may be reduced from what is shown on the ballot. Any creditor
whose claim is subject to an objection will receive notice of, and have an
opportunity to oppose, the objection.
Pursuant to section 1128 of the Bankruptcy Code, the Confirmation
Hearing will commence on September 29, 1997 at 9:30 a.m. Central Time before the
Honorable Steven A. Felsenthal, United States Bankruptcy Judge, at the United
States Bankruptcy Court, 1100 Commerce Street, 14th Floor, Dallas, Texas 75242.
The Bankruptcy Court has directed that objections, if any, to confirmation of
the Plan be served and filed so that they are received on or before September
22, 1997 at 4:00 p.m., Central Time, in the manner described below in Section
VI.B., "Confirmation and Consummation Procedure -- The Confirmation Hearing."
The Confirmation Hearing may be adjourned from time to time by the Bankruptcy
Court without further notice except for the announcement of the adjournment date
made at the Confirmation Hearing or at any subsequent adjourned Confirmation
Hearing.
II. OVERVIEW OF THE PLAN
The following is a brief overview of the provisions of the Plan. This
overview is qualified in its entirety by reference to the provisions of the
Plan, a copy of which is annexed hereto as Exhibit A, and the more detailed
financial and other information contained elsewhere in this document and in the
Exhibits hereto. In addition, for a more detailed description of the terms and
provisions of the Plan, see Section V., "The Plan of Reorganization."
The Plan designates 9 Classes of Claims and 1 Class of Equity
Interests. These Classes take into account the differing nature and priority
under the Bankruptcy Code of the various Claims and Equity Interests.
The following table briefly summarizes the classification and
treatment of Claims and Equity Interests under the Plan.
3
<PAGE>
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/1/
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Type of Claim or Estimated
Class Equity Interest Treatment Recovery
- ----- ------------------------- ------------------------------------------------------ -----------
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
-- Administrative Unimpaired; paid in full, in Cash, or in 100%
Expense Claims accordance with the terms and conditions of
transactions or agreements relating to obligations
incurred in the ordinary course of business during
the pendency of the Chapter 11 Case or assumed
by the Debtor
- ----------------------------------------------------------------------------------------------------------
-- Priority Tax Claims Unimpaired; paid in full, in Cash, or equal Cash 100%
payments over a six year period, with a fixed
annual interest rate of 8 1/4%, at the sole option of
the Debtor
- ----------------------------------------------------------------------------------------------------------
1 Other Priority Claims Unimpaired; paid in full, in Cash 100%
- ----------------------------------------------------------------------------------------------------------
2 Secured Claim of Fleet Impaired; Fleet will receive the New Fleet Note 100%
Capital Corporation in the principal amount equal to its Allowed
("Fleet") Secured Fleet Claim and will be treated in
accordance with the New Fleet Documents
- ----------------------------------------------------------------------------------------------------------
3 Secured Claim of Unimpaired; principal and interest already paid; 100%
Prudential Securities attorney's fees and costs still due; remaining
Credit Corporation amount to be paid on later of Effective Date or
("Prudential") date on which remaining amount is determined
and allowed to be paid by Bankruptcy Court
- ----------------------------------------------------------------------------------------------------------
4 Other Secured Claims Unimpaired; at the sole option of the Debtor, 100%
each Allowed Other Secured Claim will receive
(i) unimpaired treatment pursuant to section 1124
of Bankruptcy Code, including cure of defaults,
reinstatement of maturity, compensation for
damages and authorization to enforce legal right;
(ii) payment in full, in Cash; or (iii) such
holder's Collateral in full satisfaction of such
Other Secured Claim
- ----------------------------------------------------------------------------------------------------------
5 Unsecured Claims Impaired; paid in full, in Cash, with interest, 100%
over one year, in quarterly installments
commencing on the initial Quarterly Payment
Date, subject to payment deferral in event of
insufficient cash in any quarter
- ----------------------------------------------------------------------------------------------------------
</TABLE>
____________________
/1/This table is only a summary of the classification and treatment of Claims
and Equity Interests under the Plan. Reference should be made to the entire
Disclosure Statement and the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Type of Claim or Estimated
Class Equity Interest Treatment Recovery
- ----- ------------------------- ------------------------------------------------------ -----------
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
6 Dealer Claims Impaired; under Settlement Treatment, Dealer As
Claims to be separated into Enrollment Fee Described
Claims, Voucher Claims, Comprehensive Claims, in Plan;
and Dealer Settlement Rights, each to be treated May Be Less
as provided in the Plan; any cash distributions to Than 100%
be paid over two years, in quarterly installments Under
commencing on the second Quarterly Payment Settlement
Date, subject to payment deferral in event of Treatment
insufficient cash in any quarter; under Non- Depending
Settlement Treatment, allowability and amount of On Total of
Dealer Claims to be determined by Bankruptcy Allowed
Court pursuant to Omnibus Objection and Claims
Estimation Motion, and the amount of Dealer
Claims to be paid over two years, in quarterly
installments commencing on the second Quarterly
Payment Date, subject to payment deferral in
event of insufficient cash in any quarter
- ----------------------------------------------------------------------------------------------------------
7 Jaymed Claim Impaired; paid in full, in Cash, with interest, 100%
over two years, in quarterly installments
commencing on the initial Quarterly Payment
Date, subject to payment deferral in event of
insufficient cash in any quarter
- ----------------------------------------------------------------------------------------------------------
8 MBIA Claim Unimpaired; treated pursuant to section 1124 of 100%
Bankruptcy Code, including cure of defaults,
reinstatement of maturity, compensation for
damages and authorization to enforce legal rights
- ----------------------------------------------------------------------------------------------------------
9 Section 510(b) Claims Impaired; subordinated; paid in full, in Cash,
over four years, with quarterly payments
commencing after two years or when all other
Claims are paid in full
- ----------------------------------------------------------------------------------------------------------
10 Equity Interests Unimpaired; retain Equity Interests 100%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The initial payments of cash under the Plan will be made to holders of
Allowed Administrative Expense Claims, Allowed Priority Tax Claims, and Allowed
Claims in Class 1 on, or as soon thereafter as is practicable, the later of (i)
the Effective Date or (ii) the date such Claim becomes an Allowed Claim. The
initial payments of cash to holders of Allowed Claims in Class 5 will be made
on, or as soon thereafter as is practicable, the initial Quarterly Payment Date
specified in the Plan. The initial payments of cash to holders of Allowed Claims
in Classes 6 and 7 will be made on, or as soon thereafter as is practicable, the
second Quarterly Payment Date.
The "Effective Date" means the first Business Day that is ten (10)
days after the date on which the Confirmation Order becomes a Final Order, as
such term is defined in the Plan. Essentially, the Confirmation Order will
become a Final Order when the appeal period has expired or if an appeal is taken
when it is finally determined. The "Quarterly Payment Date" means each December
26, March 31, June 30 and September 30 after the Effective Date.
Payments of cash will be made by the Debtor by check drawn on a
domestic bank. For a more detailed explanation of the time and manner of
distributions under the Plan, see Section V.C.2., The Plan of Reorganization --
Time and Method of Distributions Under the Plan."
5
<PAGE>
III. GENERAL INFORMATION
A. DESCRIPTION AND HISTORY OF BUSINESS
-----------------------------------
1. BUSINESS
Jayhawk was founded in June 1993. Its principal executive offices are
located at Bryan Tower, 2001 Bryan Street, Suite 600, Dallas, Texas. Jayhawk is
a specialized financial services company that has principally been engaged in
the business of serving automobile dealers ("Dealers") by providing an indirect
financing source to buyers of used vehicles with limited access to traditional
sources of consumer credit. Jayhawk believes that its program benefits
participating Dealers by increasing their sales of used vehicles, reducing the
financing constraints typically associated with extending credit to buyers with
sub-prime credit histories and eliminating the burdens of receivables management
and collection. Jayhawk believes that its program also benefits the buyers of
the vehicles by increasing their ability to purchase a vehicle and by providing
an opportunity to establish or reestablish their credit standing.
Jayhawk's business involves purchasing installment sales contracts
(the "Contracts") from Dealers, secured by low-priced used vehicles that
typically have been purchased by consumers with sub-standard credit histories.
Upon its purchase of a Contract from a participating Dealer, Jayhawk pays the
Dealer an amount that generally approximates 50 to 55 percent of the principal
amount of the Contract (an "Acquisition Payment"), although the actual amount of
the Acquisition Payment will vary based upon the Debtor's assessment of the
credit quality of the Dealer, the Contract and other factors. The Acquisition
Payment and any other charges to the Dealer's account pursuant to the agreement
between Jayhawk and a Dealer are referred to as the "Advances." The Contract
then becomes part of a pool of Contracts purchased from the Dealer (a "Dealer
Pool"). A Dealer may, after the sale of 100 contracts, cap a Dealer Pool, pay a
$2500 fee, and submit Contracts into a new Dealer Pool. All the Contracts
submitted by a Dealer are referred to as a "Dealer Portfolio."
Jayhawk retains 100 percent of the principal and interest collected on
Contracts included within a Dealer Pool (the "Pool Receipts") until Jayhawk has
recovered the Advances. Prior to January 1997, Jayhawk accomplished this by
retaining an amount equal to 20 percent of the Pool Receipts and retaining the
remaining portion of the Pool Receipts until it had recovered the Advances to
the Dealer for the Contracts included within the Dealer Pool. Thereafter, the
Dealer was entitled to receive an amount equal to 80 percent of the Pool
Receipts (the "Pool Distribution Payment").
In January 1997, Jayhawk changed its procedure for distributing Pool
Receipts. Under the new procedure, Jayhawk retains 100 percent of the interest
collected on Contracts as its finance charge, and retains all of the principal
collected on Contracts included within a Dealer Pool until principal collections
exceed the Advances. Once this threshold has been met, the Dealer is entitled
to receive an amount equal to the principal collected on the Contracts within
that Dealer Pool as a Pool Distribution Payment, while Jayhawk continues to
retain all interest collected on the Contracts.
2. BUSINESS OF AFFILIATES
Jayhawk's affiliates include Jayhawk Medical Acceptance Corporation
("Jaymed"), Jayhawk Services, Inc. ("Jayserv"), and Jayhawk Funding Trust I
("Funding Trust"), none of which have filed for bankruptcy protection.
Jayhawk currently holds 100% of the outstanding shares of common stock
of Jaymed. Jaymed, however, has outstanding a series of preferred stock that,
upon the happening of certain events, including the failure to confirm the Plan,
could be convertible into 95% of the common stock of Jaymed. See Section IV.E.,
"Events During the Chapter 11 Case -- Jaymed Preferred Stock Transaction."
Jaymed is a start-up subsidiary that provides an indirect financing source for
elective health care procedures. As expenditures for elective
6
<PAGE>
surgery in 1994 are estimated to have been in excess of $10 billion with
individual procedures in many cases exceeding $4,000, Jayhawk believes that the
elective health care market provides significant opportunities. During the
course of Jaymed's operations, certain of Jaymed's funds were loaned by Jaymed
to Jayhawk, subject to Jayhawk's obligation to repay such intercompany loans.
Jaymed has a Claim against Jayhawk based upon intercompany loans by Jaymed to
Jayhawk in the amount of $7.1 million, exclusive of interest, as of the
Commencement Date. See Section IV.E. infra.
Jayhawk holds 100% of the outstanding shares of common stock of
Jayserv. Jayserv is a service entity that hires the employees of Jayhawk and
Jaymed and compensates those employees with funds provided directly by Jayhawk
and Jaymed. Jayserv does not make a profit on the services it provides to
Jayhawk or Jaymed.
Jayhawk owns the beneficial interests in Funding Trust, which is a
Delaware business trust. Funding Trust was created for purposes of
participation in asset securitizations of Jayhawk's Contracts. See Section
III.A.6., "General Information --Description and History of Business -- Major
Indebtedness."
3. CUSTOMERS AND CONCENTRATION OF BUSINESS
Jayhawk purchases Contracts from participating Dealers located
throughout the United States. No single state accounted for more than 14% of
the total number of Contracts purchased by Jayhawk between December 31, 1995 and
December 31, 1996 or between December 31, 1996 and March 31, 1997. Similarly,
for the same periods, the top ten states were geographically dispersed and
accounted for less than 60% of the total number of Contracts purchased by
Jayhawk during such periods.
No single Dealer accounted for more than 1% of the total number of
Contracts purchased by Jayhawk between December 31, 1995 and December 31, 1996
or between December 31, 1996 and March 31, 1997, and the groups of 25 Dealers
that sold the greatest number of Contracts to Jayhawk during such periods
accounted for less than 11% of the total number of Contracts purchased by
Jayhawk during such periods.
4. COMPETITION
The sub-prime consumer automobile finance market is highly competitive
and fragmented. Although Jayhawk does not believe that it currently competes
with commercial banks, savings and loans, credit unions and captive automobile
finance companies, it does face competition from a number of companies
providing, or capable of providing, financing programs through Dealers to
individual purchasers that cannot qualify for traditional financing. In part,
this competition takes the form of Dealers operating their own "buy here, pay
here" programs, although these Dealers are also part of Jayhawk's target market.
Jayhawk believes that its primary competitor is Credit Acceptance Corporation,
which Jayhawk believes currently services the greatest number of Contracts
originated by "D credit" customers. Jayhawk also competes with numerous
relatively small, regional consumer finance companies.
5. REGULATION
Jayhawk's operations are subject to federal and state laws and
regulations. Consumer lending laws generally require licensing of the lender
and purchasers of consumer loans (including Contracts) and adequate disclosure
of loan terms and impose limitations on the terms of consumer loans and on
collection policies and creditor remedies. Federal consumer credit statutes
primarily require disclosures of credit terms in consumer finance transactions.
In general, Jayhawk's business is conducted under licenses issued by individual
states and is also subject to the provisions of the federal Consumer Credit
Protection Act and its related regulations. Jayhawk maintains an internal
compliance staff to stay informed of changes in applicable law.
7
<PAGE>
6. MAJOR INDEBTEDNESS
In April 1995, Jayhawk entered into a two-year revolving credit
facility (the "Revolver") with Fleet Capital Corporation (formerly Shawmut
Capital Corporation), pursuant to which Jayhawk was allowed to borrow up to $25
million, based on defined levels of qualified Contracts receivable. The
Revolver was subsequently amended to permit borrowings of up to $65 million and
to extend the expiration date of the facility to June 30, 1998. Borrowings
under the amended credit facility bear interest at the rate of interest
announced from time to time by Fleet National Bank of Connecticut at its base
rate for commercial loans plus 1.5% (10.0% at December 31, 1995) through April
1996 at which time the rate was renegotiated to the base rate for commercial
loans (8.25% at December 31, 1996). This facility is secured by all of
Jayhawk's assets, except those assets contributed to Funding Trust and Jayhawk's
investment in the common stock of Jaymed. Among other things, the amended
credit facility prohibits the payment of cash dividends; restricts the
incurrence of indebtedness; and requires (i) the maintenance of a minimum
adjusted tangible net worth of $11.5 million at December 31, 1995, increasing to
$45 million at March 31, 1996 and increasing thereafter by 50% of positive net
earnings for each subsequent quarter, (ii) a ratio of total debt to net worth of
no more than 7 to 1, and (iii) a ratio of earnings before interest, taxes, and
depreciation to fixed charges of no less than 1 to 1. As of the Commencement
Date, Jayhawk owed $62,970,081.07 in unpaid principal on the Revolver, exclusive
of accrued but unpaid interest, attorney's fees, costs and expenses.
Outstanding amounts owed on the Revolver were approximately $41.1 million as of
August 1, 1997. The Claim representing Jayhawk's obligations on the Revolver
and Fleet's prepetition loan documents in connection therewith is referred to in
the Plan as the Secured Fleet Claim.
In a March 1996 asset securitization, Jayhawk contributed Contracts
having an aggregate principal balance of approximately $65 million and
approximately $5 million in cash to Funding Trust, and Funding Trust sold
approximately $41.8 million principal amount of notes (the "Series 1996A") in a
private placement to institutional investors. The Series 1996A notes bore
interest at 5.925%. The aggregate unpaid note balance of the Series 1996A notes
was $5,403,000 at December 31, 1996. These notes were paid off subsequent to
the Commencement Date. In August 1996, Jayhawk completed a second asset
securitization of its Contracts. Pursuant to this transaction, Jayhawk
contributed Contracts having an aggregate principal balance of $72.7 million to
Funding Trust, and Funding Trust sold two classes of notes ("Series 1996B"), a
senior class ("Class A") and a senior subordinated class ("Class B"), in a
private placement to institutional investors. Approximately $42.9 million Class
A and $5.0 million Class B notes were sold in this transaction. The Class A
notes bear interest at a fixed rate of 6.64% per annum and have a stated
maturity of March 15, 2000. The aggregate unpaid note balance on the Class A
notes was $9,467,521.00 at June 30, 1997. The Class B notes bear interest at a
rate of 11.57% per annum and have a stated maturity of March 15, 2000. No
principal repayments will be made on the Class B notes until the Class A notes
are repaid in full. Thus, the aggregate unpaid note balance on the Class B Notes
was $5.0 million at June 30, 1997. The timing and amount of principal repayments
on the Series 1996B notes is contingent on the collection experience of the
underlying Contracts. Contracts with an aggregate unpaid principal balance of
$29,197,341.00 as of June 30, 1997 are the only assets securing the Series 1996B
notes. The Series 1996A and Series 1996B notes are nonrecourse to Jayhawk.
However, Jayhawk agreed to indemnify MBIA Insurance Corporation, the insurer of
the Series 1996A and Series 1996B notes, in the event MBIA Insurance Corporation
is required to pay any amounts on the notes. The Claim arising from that
indemnification is referred to in the Plan as the MBIA Claim. The proceeds from
both asset securitizations were used to pay down the Revolver obtained from
Fleet in order to make cash available for the purchase of additional Contracts.
The contribution of Contracts to Funding Trust did not affect any Dealer rights
under the Dealer Agreements, and such contributed Contracts continue to be
subject to the terms of the Dealer Agreements.
In December 1996, Jayhawk entered into a loan agreement with
Prudential Securities Credit Corporation which provided for borrowings based
upon a specific percentage of the outstanding principal balances of Contracts
securing certain Series 1996A secured notes payable. The loan bears interest at
LIBOR plus 2.50% (8.0% at December 31, 1996) and is secured by 100% of Jayhawk's
beneficial interest in Funding Trust, a Delaware business trust. The loan was
due and payable on February 28, 1997. As of the date hereof, the loan has been
paid in full with authorization of the Bankruptcy Court, except as to attorney's
fees and costs in the
8
<PAGE>
approximate amount of $80,000 that are subject to separate consideration by the
Bankruptcy Court. The remaining Claim for attorney's fees and costs is referred
to in the Plan as the Secured Prudential Claim.
7. EQUITY OWNERSHIP
The equity interests in Jayhawk consist of common stock, par value
$.01 per share (the "Common Stock"), which is publicly owned and traded on the
Nasdaq National Market. From the time of Jayhawk's initial public offering in
August 1995, at $10 per share, until the Commencement Date, the Common Stock has
quoted under the trading symbol "JACC." Since the Commencement Date, the Common
Stock has been quoted on the Nasdaq National Market under the trading symbol
"JACC(Q)." The following table sets forth, for the periods indicated, the high
and low closing sale prices as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- ------
<S> <C> <C> <C>
Calendar 1995:
Third Quarter (since August 1)........ 15 3/8 12 3/4
Fourth Quarter........................ 14 5/8 8 5/8
Calendar 1996:
First Quarter......................... 12 3/4 8
Second Quarter........................ 15 1/4 11 7/8
Third Quarter......................... 14 1/4 9 5/8
Fourth Quarter........................ 15 3/4 10 1/8
Calendar 1997:
First Quarter......................... 11 15/16 1 1/2
Second Quarter (through June 30, 1997) 2 7/16 15/16
</TABLE>
On June 30, 1997, the closing price for the Common Stock was $1.58 per
share.
As of June 30, 1997, the Common Stock was held by 172 holders of
record. Jayhawk believes that as of June 30, 1997, there were approximately
1,855 holders of Common Stock of record or through nominee or street name
accounts with brokers.
Since inception, Jayhawk has not paid any dividends. Jayhawk has no
present plans to pay any cash dividends on its Common Stock and currently
intends to retain its earnings to finance the growth and development of its
business. In addition, the Revolver referred to above prohibits the payment of
cash dividends without the lender's consent.
8. LITIGATION
In the normal course of its business, Jayhawk is named as a defendant
in legal proceedings. These legal proceedings include claims for alleged truth-
in-lending violations, nondisclosures, misrepresentations and deceptive trade
practices, among other things. The relief requested by plaintiffs varies, but
often includes requests for compensatory, statutory and punitive damages. One
proceeding in which Jayhawk is a defendant has been brought as a putative class
action and is pending in Federal District Court in Illinois. A class has yet to
be certified in this case, and Jayhawk's motion to dismiss is presently pending.
In the opinion of management, resolution of these matters will not have a
material adverse effect on the Jayhawk.
All litigation and claims against Jayhawk existing at the date of the
Chapter 11 filing have been stayed while Jayhawk continues business operations
as a debtor in possession. The Bankruptcy Code prohibits creditors who are
subject to the jurisdiction of the Bankruptcy Court from suing Jayhawk, either
by
9
<PAGE>
commencement or continuation of a lawsuit or otherwise, unless the Bankruptcy
Court terminates or modifies the automatic stay of litigation or otherwise
authorizes payment by Jayhawk.
9. RELATED PARTY TRANSACTIONS
Jayhawk has maintained business relationships and engaged in certain
transactions with affiliated companies and parties as described below. It is
Jayhawk's policy to engage in transactions with related parties on terms no less
favorable to Jayhawk than could be obtained from unrelated parties.
In the normal course of its business, Jayhawk regularly purchased
Contracts originated by Atlanta Toyota, Inc. Carl H. Westcott, Jayhawk's
Chairman of the Board, Chief Executive Officer and principal shareholder, owned
all of the outstanding stock of Atlanta Toyota, Inc. until January 16, 1996,
when he sold his stock interest to United Auto Group, Inc., an unrelated third
party. Since that time, Mr. Westcott has had no continuing interest in the
dealership, although he owns the real property upon which the dealership is
located, and he leases that real property to Atlanta Toyota, Inc. with a lease
guaranty from United Auto Group, Inc. See Section IV.D., "Events During the
Chapter 11 Case --Appointment of the Statutory Creditors' Committee" for
additional information.
From time to time, Jayhawk leases a jet aircraft from a corporation
wholly owned by Mr. Westcott, on terms believed to be no less favorable to
Jayhawk than could be obtained for similar services from unrelated parties.
Jayhawk's primary use of the aircraft has been for travel in connection with its
financing activities.
On November 15, 1995, Jayhawk entered into an agreement with First
Extended Service Corporation, a related company, pursuant to which First
Extended Service Corporation performs certain claims administration services on
behalf of Jayhawk with respect to an extended service agreement program Jayhawk
offers to its Dealers. Under the extended service agreement program, a Dealer
can sell a vehicle service product to a customer whose Contract is purchased by
Jayhawk, which reimburses the customer for certain repairs made to the vehicle
securing the Contract. The amounts payable by Jayhawk to First Extended Service
Corporation under the agreement are directly related to the number of such
vehicle service products sold by Jayhawk's Dealers and are on terms no less
favorable to Jayhawk than could be obtained for similar services from unrelated
parties. Jayhawk paid approximately $614,000 in 1996 to First Extended Service
Corporation pursuant to this agreement. First Extended Service Corporation is a
wholly owned subsidiary of a corporation of which Mr. Westcott is the sole
shareholder. John D. Curtis, a member of Jayhawk's Board of Directors, is an
executive officer of First Extended Service Corporation.
In late 1996, Jayhawk entered into an agreement with Cougar
Advertising, Inc., pursuant to which Cougar Advertising, Inc. agreed to develop
and produce commercials and execute media buys for Jayhawk on terms believed to
be no less favorable to Jayhawk than could be obtained for similar services from
unrelated parties. Mr. Westcott is the sole shareholder of Cougar Advertising,
Inc.
On November 7, 1996, Jayhawk entered into a build-to-suit agreement
with Cougar Real Estate, Ltd., pursuant to which Cougar Real Estate, Ltd. agreed
to construct a 102,400 square foot office building in accordance with
specifications mutually agreed upon by the parties, and subsequently to lease
the office building to Jayhawk pursuant to a triple net lease. As a result of
its Chapter 11 filing, and reductions in the level of its operations, Jayhawk
elected to reject the agreement with Cougar Real Estate, Ltd., and Cougar Real
Estate, Ltd. agreed to assert no claim for damages as a result of such
rejection.
Transactions involving Jaymed and Mr. Westcott are described below in
Section IV.E., "Events During the Chapter 11 Case -- Jaymed Preferred Stock
Transaction."
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B. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASE
---------------------------------------------------------
In the fourth quarter of 1996, the Debtor reevaluated the overall
profitability and credit quality of its existing pools of Contracts purchased
from participating Dealers and determined to terminate its relationship with a
number of its participating Dealers and to change the basis on which it was
willing to purchase Contracts from others. As a result of these actions and
because a continuing business relationship is an important factor in the
Debtor's determination of the recoverability of acquisition payments made to
Dealers, on January 30, 1997, the Debtor announced a special charge in the
fourth quarter of 1996 to increase its allowance for credit losses.
The fourth quarter special charge caused the Debtor to be in
noncompliance with a financial covenant under its primary revolving credit
facility. Additionally, the Debtor's planned additional financings in January
1997 failed to materialize. The Debtor commenced discussions with its revolving
lender, Fleet, regarding the covenant violation and its cash needs in light of
the failure to consummate the additional financings. The Debtor and Fleet were
unable to agree on a method by which cash collections on the Debtor's Contracts
could be used by the Debtor for purposes other than to repay revolving credit
indebtedness. As advances under the facility exceeded the borrowing base on one
of two borrowing base calculations, Fleet did not make requested additional
advances under the facility and informed the Debtor that it intended to deliver
to the Debtor a notice of default and a notice of intention to accelerate under
the credit facility. As a consequence thereof, the Debtor elected to file a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
C. FUTURE BUSINESS PLAN
--------------------
Jayhawk plans to continue as a specialized financial services company.
From its inception until it began providing indirect financing for elective
medical procedures through Jaymed, it solely purchased installment sale
contracts, secured by used motor vehicles, entered into by auto dealers with
borrowers commonly referred to as "D credits."
After confirmation of the Plan, Jayhawk does not intend to continue to
purchase "D credit" vehicle installment sale contracts. Whether, and the extent
to which, it purchases vehicle installment sale contracts will depend upon
competition and other factors existing in the future. Immediately upon emerging
from Chapter 11, Jayhawk intends to focus on increasing Jaymed's elective
medical procedures finance business, which Jayhawk believes currently is less
competitive than vehicle contract purchasing and will generate installment
contracts for purchase from borrowers with substantially better credit than it
has purchased with respect to vehicles. As appropriate, Jayhawk may examine
other specialty finance areas that it believes would generate contracts for
purchase, meeting generally the criteria of the elective medical procedure
contracts Jaymed is currently purchasing.
Jayhawk is seeking new financing sources to be available after the
Effective Date to supplement the cash from collections of its existing vehicle
contracts to fund its continuing business.
IV. EVENTS DURING THE CHAPTER 11 CASE
On February 7, 1997, the Debtor commenced the Chapter 11 Case in the
Bankruptcy Court. The Debtor continues to operate its business and manage its
properties as a debtor in possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code. The following is a brief description of some of the major
events during the Chapter 11 Case.
11
<PAGE>
A. ORDERS AUTHORIZING THE USE OF CASH COLLATERAL
---------------------------------------------
Section 363(c) of the Bankruptcy Code authorizes a debtor in
possession to use property of its estate in the ordinary course of business
without court approval, unless that property is "cash collateral." Cash
collateral generally consists of cash or cash equivalents in which both the
debtor in possession and another entity have an interest, with the interest of
the other entity generally being a lien. A debtor in possession cannot use cash
collateral unless the other entity consents or unless the court approves the
use. In this case, the Debtor sought to use the cash collateral of Fleet and
Prudential.
1. FLEET'S CASH COLLATERAL
On February 10, 1997, the Debtor filed an Emergency Motion to Use Cash
Collateral, seeking authorization to use Fleet's cash collateral, as that term
is defined in the Bankruptcy Code (the "Emergency Motion").
On February 10, 1997, Fleet objected to the Emergency Motion.
Specifically, Fleet did not object to the Debtor's use of Fleet's cash
collateral to the extent necessary to prevent immediate and irreparable harm for
the period from February 11, 1997 through February 28, 1997, provided, inter
-----
alia, (i) the Debtor did not use Fleet's cash collateral to downstream funds to
- ----
the Debtor's subsidiary, Jaymed; (ii) Fleet's cash collateral would only be used
pursuant to a court approved budget; (iii) Fleet would obtain a lien on the
Debtor's interest in the securitized trust, to the extent of cash collateral
used by the Debtor; and (iv) Fleet would obtain various reports from the Debtor,
including reports of the type received by Fleet pre-petition.
On February 11, 1997, the Bankruptcy Court ruled from the bench on the
Debtor's Emergency Motion and Fleet's objection thereto finding the following:
a. The Bankruptcy Court lacked the power to force Fleet to fund
downstream payments to an unfiled subsidiary in which Fleet has no security
interest;
b. Except for funding Jaymed's operations, the Debtor may use
Fleet's cash collateral pursuant to a certain budget attached to the Bankruptcy
Court's Interim Cash Collateral Order, with no single line item expenditure to
exceed 10% of the budget amount;
c. For the limited use of Fleet's cash collateral, the Bankruptcy
Court found that the value of Fleet's collateral was sufficient to adequately
protect Fleet without a lien on other assets of the Debtor;
d. Fleet should have a replacement lien on all contracts funded by
the Debtor with Fleet's cash collateral for the period from the Commencement
Date through February 28, 1997 (the "New Contracts"); and
e. Fleet should receive reports from the Debtor as the Debtor had
furnished to Fleet pre-petition, together with certain other reports relating to
the New Contracts.
On February 14, 1997, the Bankruptcy Court entered its Interim Order
Authorizing the Use of Cash Collateral and Providing for Adequate Protection
(the "Interim Cash Collateral Order"), effective as of the Bankruptcy Court's
bench ruling on February 11, 1997, which governed the period of cash collateral
use through February 28, 1997.
On February 21, 1997, the Debtor filed a Supplement to the Emergency
Motion for Cash Collateral for the period from March 1, 1997 to May 31, 1997.
On February 25, 1997, the Bankruptcy Court held a hearing on the Supplemental
Motion, and on or about March 14, 1997, the Bankruptcy Court entered a certain
Second Interim Order Authorizing the Use of Cash Collateral and Providing for
Adequate Protection, which governed the Debtor's use of Cash Collateral for the
period from March 1, 1997 to March 31, 1997. The
12
<PAGE>
Debtor was required to pay Fleet $4,000,000 as adequate protection for its use
of cash collateral during March, as well as $1,155,000 with respect to the
unwinding of contracts.
On or about March 25, 1997, the Bankruptcy Court entered a Third
Interim Order Authorizing the Use of Cash Collateral and Providing for Adequate
Protection, followed on March 31, 1997 with a Supplement to Third Interim Order
Authorizing the Use of Cash Collateral and Providing for Adequate Protection,
which together govern the Debtor's Use of Cash Collateral for the period from
April 1, 1997 to April 30, 1997. As adequate protection for such use, the
Debtor was ordered to pay Fleet $4,000,000 for the month of April.
On May 23, 1997, the Bankruptcy Court entered a Final Order
Authorizing Use of Cash Collateral and Providing for Adequate Protection, which
governs the Debtor's use of cash collateral for the period from May 1, 1997
through July 31, 1997. As adequate protection for its use of cash collateral,
the Debtor was required to pay to Fleet $4,000,000 plus interest for each of the
months of May, June and July 1997, but $2,000,000 of each monthly amount must be
deposited into a separate, segregated collateral reserve account at Texas
Commerce Bank National Association (the "Collateral Reserve Account"), subject
to Fleet's liens and irrevocably pledged to Fleet as security for all of Fleet's
prepetition Claims. The Collateral Reserve Account was also to hold any cure
payments made by the Debtor in the event certain projected gross collections are
not received by the Debtor. Fleet will be entitled to payment of the amount in
the Collateral Reserve Account on the sooner to occur of the Effective Date of
the Plan or the date of entry of an order of the Bankruptcy Court authorizing
Fleet's application of such amount to its Claim.
On July 29, 1997, the Bankruptcy Court entered a Second Final Order
Authorizing Use of Cash Collateral and Providing for Adequate Protection, which
governs the Debtor's use of cash collateral for the period from August 1, 1997
through September 30, 1997. As adequate protection for its use of cash
collateral, the Debtor was required to pay to Fleet $3,500,000 plus interest for
the month of August 1997, and $3,250,000 for the month of September 1997. In
addition, all amounts accumulated in the Collateral Reserve Account pursuant to
the prior order, estimated to be $6,700,000 as of July 31, 1997, were required
to be paid to Fleet. Finally, Fleet was granted an additional lien on Jayhawk
Funding Trust I in the limited amount of $5,600,000, subordinate to the pre-
existing lien of Prudential, and subject to a carve-out in the amount of
$2,500,000 to pay professional fees and expenses. In exchange for the
foregoing, the Debtor's obligation to make cure payments in the event that the
prior order's projected gross collections test was not satisfied was rescinded.
2. PRUDENTIAL'S CASH COLLATERAL
On March 6, 1997, the Bankruptcy Court entered an Interim Order
Authorizing Debtor's Limited Use of Cash Collateral of Prudential Securities
Credit Corporation, which permitted the Debtor's use of Prudential's cash
collateral on an interim basis for the period from March 1, 1997 through May 31,
1997, pending a final hearing on March 25, 1997. Subsequently, the Bankruptcy
Court entered a Final Order Authorizing Debtor's Limited Use of Cash Collateral
of Prudential Securities Credit Corporation. Under the Final Order, the Debtor
was permitted to use Prudential's cash collateral through May 31, 1997, on the
condition, among others, that the Debtor pay to Prudential make payments to
Prudential in an amount not less than $1,000,000 per month on March 15, April
15, and May 15, 1997.
On May 23, 1997, the Debtor and Prudential filed a Joint Supplemental
Motion for Continued Use of Cash Collateral. Under the Joint Supplemental
Motion, the parties seek entry of a proposed Order Extending Final Order
Authorizing Debtor's Limited Use of Cash Collateral of Prudential Securities
Credit Corporation, which would permit the Debtor to continue to use
Prudential's cash collateral through July 31, 1997, in exchange for payments to
Prudential, from distributions attributable to the Debtor's beneficial interest
in Funding Trust, in the amount of at least $1,300,000 on June 15, 1997, and in
all remaining amounts due to Prudential on or before July 15, 1997, with such
payments to be applied against the Allowed Prudential Secured Claim. The Joint
Supplemental Motion was approved on an interim basis by order of the Bankruptcy
Court entered on May 30, 1997. A final order approving the Joint Supplemental
Motion was entered on July 9, 1997.
13
<PAGE>
B. DEBTOR'S RETENTION OF PROFESSIONALS AND AGENTS
----------------------------------------------
On or about March 25, 1997, the Bankruptcy Court approved the
retention of Weil, Gotshal & Manges LLP as its counsel, Baker & McKenzie as its
special counsel, Ernst & Young LLP as its accountants, and the Altman Group as a
consultant to provide various services, including, but not limited to, plan
solicitation. On May 7, 1997, the Bankruptcy Court authorized the Debtor to
retain King & Associates, Inc. to serve as claims agent. On June 25, 1997, the
Bankruptcy Court authorized the Debtor to retain Godwin & Carlton, P.C. as
special litigation counsel. By order dated August 12, 1997, the Debtor also
obtained authorization to employ Ramsey & Dismuke, P.C. as special consumer
bankruptcy counsel.
C. MOTION TO SHORTEN THE CLAIMS BAR DATE TO MAY 15, 1997
-----------------------------------------------------
On March 7, 1997, the Debtor filed a Motion to Shorten Bar Date to May
15, 1997. A Supplemental Motion for Bar Date Order, to Approve Proposed Bar
Date Notice, and to Approve Proposed Mailing and Publication Procedures was
filed with the Bankruptcy Court on March 17, 1997. On or about March 25, 1997,
the Bankruptcy Court approved the Motion and Supplemental Motion. Pursuant to
the Bankruptcy Court's order, notice of the shortened bar date was published and
mailed to creditors on April 4, 1997.
Subsequently, on May 12, 1997, the Debtor and the Creditors' Committee
filed a Joint Motion of the Debtor and the Committee for Order Pursuant to
Bankruptcy Rule 3003(c)(3) Fixing a Supplemental Bar Date for Filing Certain
Proofs of Claim and Approving the Proposed Supplemental Bar Date Notice and the
Proposed Separate Notice to Governmental Units. The purpose of the Joint Motion
was to set and approve the notice of a supplemental bar date of June 16, 1997
only for those creditors who did not receive notice of the earlier May 15, 1997
bar date. The Joint Motion also sought approval for a notice to governmental
units of the special statutory bar date applicable to them. On May 13, 1997,
the Bankruptcy Court entered an order approving the Joint Motion. The notice of
the June 16, 1997 bar date for creditors not previously notified of a bar date
and the notice of the statutory bar date for governmental units were mailed on
May 14 and 15, 1997.
D. APPOINTMENT OF THE STATUTORY CREDITORS' COMMITTEE
-------------------------------------------------
On March 18, 1997, an official committee of unsecured creditors (the
"Creditors' Committee") was appointed pursuant to section 1102(a)(1) of the
Bankruptcy Code. The Creditors' Committee consists of the following members:
Bob Maloney, President, Maloney Ford-Mercury; Jack Price, Owner, University
Volkswagen Mazda; Philip N. Smith, Jr., Vice President, United Auto Group, Inc.;
Michael Braun, Dependable Used Cars, Inc.; Steve Perdue, 410 Motors; Donald L.
Jones, Cap Gemini America; and John Holland, Johnson & Associates.
As indicated in Section III.A.9., "General Information -- Description
and History of Business -- Related Party Transactions," United Auto Group, Inc.
purchased Mr. Westcott's ownership interest in Atlanta Toyota, Inc. in January
1996. As part of that purchase, UAG Atlanta, Inc., a subsidiary of United Auto
Group, Inc., issued a note to Mr. Westcott in the original principal amount of
$2,100,100, which note is due in full in July 1998. That note is guaranteed by
United Auto Group, Inc. In addition, Atlanta Toyota, Inc., a subsidiary of
United Auto Group, Inc., is indebted to First Extended Service Corporation, a
company owned by Mr. Westcott, pursuant to a promissory note in the original
principal amount of $300,000, of which one-half has been paid and the remaining
one-half is due in January 1998. That note is also guaranteed by United Auto
Group, Inc. Finally, Atlanta Toyota, Inc. has leased from Mr. Westcott, with a
guaranty from United Auto Group, Inc., the real property on which the dealership
of Atlanta Toyota, Inc. is operated. Mr. Westcott holds no lien on the stock of
United Auto Group, Inc., UAG Atlanta, Inc. or Atlanta Toyota, Inc. to secure the
repayment of the various owed to him by such entities. None of the other members
of the Creditors' Committee has any relationships with Mr. Westcott, his family
or any related entities.
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<PAGE>
By order dated May 8, 1997, subject to certain limitations on the
scope of their employment as stated therein, the Bankruptcy Court authorized the
Creditors' Committee to employ attorneys, accountants, and business advisors as
follows:
Simon, Anisman, Doby & Wilson, P.C.
Attorneys for the Creditors Committee
400 Professional Building
303 W. Tenth Street
P.O. Box 17047
Fort Worth, Texas 76102-0047
Telephone: (817) 820-3100
Price Waterhouse LLP
Accountants for the Creditors' Committee
2001 Ross Avenue, Suite 1800
Dallas, Texas 75201-2997
Telephone: (214) 754-7900
Navarro Group
Business Advisors to the Creditors' Committee
900 Jackson Street, Suite 550
Dallas, Texas 75202
Telephone: (214) 748-9324
E. JAYMED PREFERRED STOCK TRANSACTION
----------------------------------
Although Jaymed was not a party to the Debtor's Chapter 11 petition,
the Debtor's filing of the Chapter 11 petition has affected Jaymed. Jaymed had
loaned approximately $7.1 million to the Debtor (the "Jaymed Claim") prior to
the Debtor's filing of the Chapter 11 petition, and the Bankruptcy Court has
prohibited the Debtor from providing Jaymed with any cash to finance its
operations, including any repayment of the Jaymed Claim. Additionally, after
the Debtor filed its Chapter 11 petition, Jaymed's revolving credit lender
refused to make any further advances under Jaymed's revolving credit facility.
To fund Jaymed's operations, between January 30, 1997 and April 11, 1997, Mr.
Westcott, the Debtor's Chairman of the Board, Chief Executive Officer and
principal shareholder, made seven loans to Jaymed in the aggregate principal
amount of $6,950,000 (the "Westcott Loans"). Additionally, at the request of
NationsBank, on February 28, 1997, Mr. Westcott purchased the revolving credit
promissory note evidencing the $13.5 million principal amount of indebtedness
outstanding under the facility (together, with the Westcott Loans, the "Westcott
Indebtedness").
On April 11, 1997, Mr. Westcott and Jaymed entered into a Preferred
Stock Purchase Agreement, pursuant to which Mr. Westcott purchased from Jaymed
20,000 shares of Jaymed's Series A Redeemable, Convertible Preferred Stock (the
"Jaymed Preferred Stock"), for $100 per share through the exchange of $2,000,000
of Westcott Loans for such shares; and subject to certain limitations, committed
to purchase up to an additional 30,000 shares of Jaymed Preferred Stock for $100
per share in cash. As of the date hereof, Mr. Westcott has purchased the
additional 30,000 shares under his commitment. Each outstanding share of Jaymed
Preferred Stock (i) has a liquidation value equal to the sum of $100 plus $1.50
for each calendar month or portion thereof that then as elapsed from and
including April 1997 (the sum of such amounts being referred to as the
"Liquidation Value"), (ii) except as required by law, entitles the holder
thereof to one vote per share voting with the holders of Jaymed's common stock
(which results in Mr. Westcott having voting control of Jaymed as long as he
owns the Jaymed Preferred Stock), (iii) is redeemable at any time prior to
conversion at a redemption price equal to the Liquidation Value, provided that
at the time of such redemption all indebtedness owing by Jaymed to Mr. Westcott
and certain affiliated parties has been paid in full. Each share of Jaymed
Preferred Stock, unless previously redeemed, is convertible at the option of Mr.
Westcott into that number of shares of Jaymed common stock as shall be equal to
the quotient of that number of shares of Jaymed common
15
<PAGE>
stock, which after issuance, would be equal to 95% of all shares of Jaymed
common stock outstanding on the date the first share of Jaymed Preferred Stock
is converted divided by the number of shares of Jaymed Preferred Stock
authorized for issuance at any time after the earlier of (i) April 15, 1998,
(ii) 30 days after any person, entity or group (other than Mr. Westcott or any
of his affiliates) becomes the beneficial owner of 25% or more of the combined
voting power of the Debtor with the intention of changing or influencing control
of the Debtor, (iii) the date of appointment of a trustee or receiver of the
Debtor in the Chapter 11 Proceeding or the conversion of the Chapter 11 Case to
a Chapter 7 proceeding, (iv) the first date following termination or suspension
of the Debtor's right to use cash collateral in the Chapter 11 Case for a period
of more than 15 calendar days, (v) the date that the stay is lifted enabling
Fleet (or another debtor in possession lender that the Debtor owes in excess of
$5.0 million) to foreclose on its respective lien on the Debtor's assets, (vi)
the date that any of the security agreements securing any of the Westcott
Indebtedness shall cease to be legal, valid, binding enforceable agreements or
shall in any way be terminated or become or be declared ineffective or
inoperative or cease to provide the first priority liens intended to be created
thereby or if Jaymed or any of its shareholders or creditors or any other person
shall institute any legal action that, if successful, would have such effect, or
(vii) the date, after confirmation of the Plan, that the Debtor defaults on any
other material indebtedness or the payment or maturity of such indebtedness is
accelerated. No dividends shall accrue on the Jaymed Preferred Stock prior to
April 15, 1998, after which dividends shall be if and when declared by the Board
of Directors of Jaymed.
Pursuant to the Preferred Stock Purchase Agreement, Mr. Westcott also
agreed to support and vote in favor of the Plan if the Plan is confirmed by the
Bankruptcy Court no later than October 2, 1997 and contains the following
provisions (the "Westcott Designated Provisions") (or, in lieu of any of the
Westcott Designated Provisions, such other provisions substantially similar to
the Westcott Designated Provisions as are reasonably acceptable to Mr.
Westcott): (i) payment in full by the Debtor within six months following
confirmation of the plan of reorganization of the Jaymed Claim in accordance
with an amortization schedule reasonably acceptable to Mr. Westcott (which
payments have been assigned to and are to be used to repay a portion of the
Westcott Indebtedness) and (ii) the exchange, as soon as practicable after the
Plan is confirmed, of the Jaymed Preferred Stock for that number of shares of
the Debtor's Common Stock equal to the amount derived by dividing the redemption
price of the Jaymed Preferred Stock at the confirmation date by an amount equal
to 75% of the average of the last reported daily sale price per share of the
Debtor's Common Stock on the Nasdaq National Market during the period commencing
with the 20th trading day preceding the date the plan of reorganization is
confirmed and continuing for a period ending on the 20th trading day following
the date the Plan is confirmed. Jayhawk will exchange shares of its Common
Stock for shares of Jaymed Preferred Stock in accordance with the Preferred
Stock Purchase Agreement. The Debtor is attempting to amend the Preferred Stock
Purchase Agreement to permit payment of the Jaymed Claim on the terms now
contained in the Plan, which provide for pay-out over two years rather than six
months.
F. ESTIMATION OF DEALER CLAIMS FOR ALL PURPOSES
--------------------------------------------
On June 6, 1997, the Debtor filed its First Omnibus Objection to
Certain Auto Dealer Claims and Motion Pursuant to Section 502(c) of the
Bankruptcy Code Estimating Such Claims for All Purposes, Including Voting,
Feasibility and Allowance (the "Dealer Estimation Motion"). In the Dealer
Estimation Motion, the Debtor requests that the Bankruptcy Court determine by
estimation the amount of each Dealer Claim and proposes an amount for each
Dealer Claim that is believed to reflect the actual present value of each Dealer
Claim, based upon a $170 million collection scenario. The Bankruptcy Court
scheduled a series of hearings to consider the Dealer Estimation Motion as it
related to the various components of a Dealer Claim, including voucher and
enrollment fee claims, breach of contract claims, back end distribution claims
and such other individual claim issues. In view of the magnitude of the
litigation that would be required with respect to the Dealer Estimation Motion,
the Debtor and the Creditors' Committee agreed to attempt to negotiate a
settlement whereby Dealers who did not want to incur the expense and delay
associated with such litigation could accept a compromise treatment of their
Dealer Claims. The Settlement Treatment and Non-Settlement Treatment provided
in the Plan represent the results of the negotiations. Only those Dealers who
receive the Non-Settlement Treatment will be required to litigate the
allowability of their Dealer Claims pursuant to the Dealer Estimation Motion.
Such litigation will occur after the Effective Date of the Plan. The Debtor
currently anticipates that it
17
<PAGE>
will amend the Dealer Estimation Motion to, inter alia, estimate each Dealer
Claim based upon a $155.5 million collection scenario rather than a $170 million
collection scenario and to assert any and all counterclaims, defenses and
affirmative defenses of the Debtor against any Dealer Claim. In addition, the
Debtor anticipates filing additional objections and motions to estimate with
respect to Dealers who were not included in the Dealer Estimation Motion.
G. COST-SAVING MEASURES
--------------------
Since the Commencement Date, the Debtor has implemented a number of
cost saving measures. Among other things, the Debtor has (i) tightened the
criteria under which it is willing to purchase Contracts from Dealers, (ii)
changed the focus of its sales and marketing efforts from enrolling new Dealers
into its automobile program to purchase Contracts from existing Dealers whose
Pools are among the better performing Pools owned by the Debtor, (iii) received
significantly fewer Contracts from its participating Dealers for purchase
consideration, (iv) purchased a materially lower volume of Contracts from its
Dealers, and (v) reduced its workforce by approximately 200 employees.
V. THE PLAN OF REORGANIZATION
The Debtor believes that (i) through the Plan, creditors will obtain a
greater recovery from the estate of the Debtor than the recovery which would be
available if the assets of the Debtor were liquidated under chapter 7 of the
Bankruptcy Code and (ii) the Plan will afford Jayhawk the opportunity and
ability to continue in business as a viable going concern and preserve ongoing
employment for Jayhawk's employees.
The Plan is annexed hereto as Exhibit A and forms a part of this
Disclosure Statement. The summary of the Plan set forth below is qualified in
its entirety by reference to the more detailed provisions set forth in the Plan.
A. ESSENTIAL ELEMENTS OF THE PLAN
------------------------------
1. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS
The Plan classifies Claims and Equity Interests separately and
provides different treatment for different Classes of Claims and Equity
Interests in accordance with the Bankruptcy Code. As described more fully below
in Section V.A.1., "The Plan of Reorganization -- Classification and Treatment
of Claims and Equity Interests," the Plan provides, separately for each Class,
that holders of certain Claims will receive various amounts and types of
consideration (e.g., cash, notes or Contracts) thereby giving effect to the
----
different rights of the holders of Claims and Equity Interests of each Class.
2. DISTRIBUTIONS UNDER THE PLAN
Distributions to holders of Claims under the Plan may occur in one or
more distributions.
a. Distributions on the Effective Date
-----------------------------------
On or about the Effective Date of the Plan, the holders of Allowed
Administrative Expense Claims and Allowed Other Priority Claims will be paid in
Cash in full. The holder of the Allowed Secured Fleet Claim will receive the
New Fleet Note and the New Fleet Documents on the Effective Date; the holder of
the Allowed Secured Prudential Claim will be paid in full, in the amount
determined by the Bankruptcy Court, on the Effective Date; and holders of
Allowed Other Secured Claims will either be reinstated, paid in Cash in full, or
receive their collateral in full satisfaction of their Claims. If a Claim
entitled to payment on or about the Effective Date is not an Allowed Claim as of
such date, it will be paid at such time as it becomes an Allowed Claim.
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b. Distributions to Holders of Allowed Priority Tax Claims
-------------------------------------------------------
Allowed Priority Tax Claims may be paid on or about the Effective Date
or, at the election of the Debtor, over a period of six years from the date of
assessment of the Claim on the anniversary date of the assessment. If the
Priority Tax Claim is not Allowed as of any such payment date, payment will be
deferred until the Claim is Allowed.
c. Distributions to Holders of Allowed Claims in Classes 5 and 7
-------------------------------------------------------------
The initial payments of cash to holders of Allowed Claims in Classes 5
and 7 will be made on, or as soon as practicable after, the first Quarterly
Payment Date after the Effective Date, and subsequent payments will be made on
each Quarterly Payment Date thereafter, subject to deferral as provided in the
Plan. If any such Claim is not an Allowed Claim on the first Quarterly Payment
Date but becomes an Allowed Claim before the next following Quarterly Payment
Date, both the initial payment and the second payment will be made on such next
following Quarterly Payment Date. If any such Claim becomes an Allowed Claim
after the last scheduled Quarterly Payment Date, the entire payment amount will
be made within ten Business Days after the date on which the Claim becomes an
Allowed Claim.
d. Distributions to Holders of Allowed Claims in Class 6
-----------------------------------------------------
The payment or distribution date for Dealer Claims will depend upon
whether the Dealer Claim is treated pursuant to the Settlement Treatment or the
Non-Settlement Treatment. Under the Settlement Treatment, holders of Dealer
Claim are entitled to payments of cash or distribution of Contracts. The Plan
provides that all payments of cash made under the Settlement Treatment will
commence on the second Quarterly Payment Date, and will continue on each
Quarterly Payment Date thereafter up to two years after the Effective Date. The
Settlement Treatment also provides for distributions of certain Contracts. Those
Contracts will be distributed on the first Quarterly Payment Date, unless they
are subject to securitizations, in which case they will be distributed on the
Quarterly Payment Date that follows the date on which the Contracts are released
from the securitizations.
Only cash payments will be made under the Non-Settlement Treatment.
The Plan provides that those cash payments will commence on the second Quarterly
Payment Date, and will continue on each Quarterly Payment Date thereafter up to
two years after the Effective Date. With respect to any Dealer Claim that is
not an Allowed Claim on any Quarterly Payment Date, payments will not be made
until the Quarterly Payment Date that follows the date on which the Dealer Claim
becomes an Allowed Claim. If that date is subsequent to the last scheduled
Quarterly Payment Date, the entire payment amount will be made within ten
Business Days after the date on which the Dealer Claim becomes an Allowed Claim.
e. Delay or Deferral of Distributions
----------------------------------
The making of quarterly payments owing under the Plan with respect to
Unsecured Claims in Class 5, Dealer Claims in Class 6 and the Jaymed Claim in
Class 7 are subject to, and will be delayed or deferred as follows:
(i) The Debtor will not make any payments due on the initial Quarterly
Payment Date of December 26, 1997 unless Fleet first receives from the Debtor
principal payments aggregating $8 million with respect to the months of October
through December 1997, and unless there is no accrued but unpaid interest owing
to Fleet on December 26, 1997;
(ii) The Debtor will not make any payment due on a Quarterly Payment
Date until the installment payment (including principal and interest owed, and
if any of the Allowed Fleet Expenses are outstanding, the amortized amount
thereof as provided in Section 4.2(b)(9) of the Plan) due to Fleet on the same
date is paid in full;
18
<PAGE>
(iii) The Debtor will not make payments with respect to Unsecured
Claims collectively exceeding $1.5 million on the initial Quarterly Payment Date
and will not make payments with respect to Unsecured Claims, Dealer Claims
(other than Enrollment Fee Claims and Voucher Claims under the Settlement
Treatment) and the Jaymed Claim collectively exceeding $2.4 million on the
second or any subsequent Quarterly Payment Date;
(iv) The Debtor may defer all or part of any of the payments
otherwise due under the Plan in the event of and to the extent of an
Insufficient Funds Determination. An Insufficient Funds Determination is a good
faith determination by the Debtor that it has insufficient funds with which to
make any such payment or that after any such payment it would have insufficient
working capital. In the event of an Insufficient Funds Determination, the amount
of any deferred quarterly payment will be payable (a) if deferred prior to the
Fleet Payment Date, beginning on the Quarterly Payment Date that follows the
Fleet Payment Date and on each subsequent Quarterly Payment Date as necessary
until such deferred payment amount is paid in full or (b) if deferred after the
Fleet Payment Date, on each Quarterly Payment Date after the date of deferral on
which the Debtor has available funds, as necessary until such deferred payment
amount is paid in full. The Fleet Payment Date is September 30, 1998; or
(v) The Debtor will have no authority to make payments on any date
that a Fleet Payment Default or a Fleet Payment Default Condition exists. A
Fleet Payment Default is a failure by the Debtor to pay any portion of the
Secured Fleet Claim on, or within ten (10) days after, the due date thereof, or
the failure to pay the entire accelerated amount of the Secured Fleet Claim upon
or after the occurrence of any Event of Default. A Fleet Payment Default
Condition is a condition resulting from the failure of the Debtor to pay any
installment of the Secured Fleet Claim as provided in Section 4.2(b) of the
Plan, but before ten (10) days have elapsed such that the failure becomes a
Fleet Payment Default. Any payments delayed as a consequence may not be made
until the failure giving rise to the Fleet Payment Default or the Fleet Payment
Default Condition has been waived in writing by Fleet or cured by the Debtor
(prior to the date on which Fleet has accelerated the maturity and demanded
payment of the Secured Fleet Claim). If, however, a Fleet Payment Default
exists on a Quarterly Payment Date, any payments due on such Quarterly Payment
Date will be deferred until after the Fleet Payment Date, whether or not such
Fleet Payment Default is subsequently waived in writing or cured (prior to the
date on which Fleet has accelerated the maturity of the Secured Fleet Claim).
Also, if a Fleet Payment Default has occurred twice during a quarter preceding a
Quarterly Payment Date, whether or not waived in writing by Fleet or cured by
the Debtor (prior to the date on which Fleet has accelerated the maturity and
demanded payment of the Secured Fleet Claim) any payments due on such Quarterly
Payment Date will be deferred until after the Fleet Payment Date.
In the event of a partial deferral of payments, the deferral will be
allocated among the Classes containing Unsecured Claims, Dealer Claims and the
Jaymed Claim on the basis of a 25% percent reduction in the payment amount
otherwise owing with respect to Unsecured Claims, a 37-1/2% reduction in the
payment amount otherwise owing with respect to Dealer Claims, and a 37-1/2%
reduction in the payment amount otherwise owing with respect to the Jaymed
Claim. If any such deferral results from an Insufficient Funds Determination,
the Debtor will provide on or before the Quarterly Payment Date to which the
deferral relates a written certification to Fleet and the Trustee of the basis
for making the Insufficient Funds Determination.
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS
-----------------------------------------------------------
1. ADMINISTRATIVE EXPENSE CLAIMS
Administrative Expense Claims are claims constituting a cost or
expense of administration of the Chapter 11 Case allowed under section 503(b) of
the Bankruptcy Code. Such claims include any actual and necessary costs and
expenses of preserving the estate of the Debtor, any actual and necessary costs
and expenses of operating the business of the Debtor, any indebtedness or
obligations incurred or assumed by the Debtor in connection with the conduct of
its business or the acquisition or lease of property or the rendition of
services, any allowance of compensation and reimbursement of expenses to the
extent allowed by a Final Order under sections
19
<PAGE>
330 or 503(b) of the Bankruptcy Code and fees or charges assessed against the
Debtor's estate under section 1930 of title 28 of the United States Code.
Pursuant to the Plan, each holder of an Allowed Administrative Expense
Claim will receive Cash in an amount equal to such Allowed Administrative
Expense Claim on the later of the Effective Date and the date such
Administrative Expense Claim becomes an Allowed Administrative Expense Claim, or
as soon thereafter as practicable, except to the extent that any entity entitled
to payment of any Allowed Administrative Expense Claim agrees to a different
treatment. Allowed Administrative Expense Claims representing liabilities
incurred in the ordinary course of business by the Debtor, to the extent
authorized and approved by the Bankruptcy Court if such authorization and
approval was required under the Bankruptcy Code, will be paid in full and
performed by the Debtor in the ordinary course of business in accordance with
the terms and subject to the conditions of any agreements governing, instruments
evidencing or other documents relating to, such transactions.
The Plan establishes a Bar Date by which Administrative Expense Claims
must be asserted. That Bar Date is 45 days after the Effective Date of the
Plan. To assert an Administrative Expense Claim, a holder must file with the
Bankruptcy Court and serve on the Debtor a request for payment. At a minimum, a
request for payment must include the name of the holder of the Claim, the amount
of the Claim, the date on which the Claim arose, and a detailed explanation of
the basis of the Claim, with all pertinent documents attached. In the case of
an entity seeking an award of compensation for services rendered or
reimbursement of expenses incurred under sections 503(b)(2), 503(b)(3),
503(b)(4), 503(b)(5) or 506(b) of the Bankruptcy Code, the request for payment
must take the form of an application and must comply with the applicable
provisions of the Bankruptcy Code and Bankruptcy Rules governing applications
for compensation and reimbursement. Any Administrative Expense Claim that is
not asserted within 45 days after the Effective Date will be forever barred and
discharged.
All entities seeking an award by the Bankruptcy Court of compensation
for services rendered or reimbursement of expenses incurred through and
including the Confirmation Date under sections 503(b)(2), 503(b)(3), 503(b)(4)
or 503(b)(5) of the Bankruptcy Code (a) will file their respective final
applications for allowances of compensation for services rendered and
reimbursement of expenses through the Confirmation Date by the date that is 45
days after the Effective Date or such other date as may be fixed by the
Bankruptcy Court and, if granted such an award by the Bankruptcy Court and (b)
will be paid in full in such amounts as are Allowed by the Bankruptcy Court (i)
on the date such Administrative Expense Claim becomes an Allowed Administrative
Expense Claim or (ii) upon such other terms as may be mutually agreed upon
between such holder of an Administrative Expense Claim and the Debtor.
In addition to the foregoing, section 503(b) of the Bankruptcy Code
provides for payment of compensation to creditors, indenture trustees and other
persons making a "substantial contribution" to a reorganization case, and to
attorneys for and other professional advisors to such persons. The amounts
which may be sought by entities for such compensation are not known by the
Debtor at this time. Requests for compensation must be approved by the
Bankruptcy Court after a hearing on notice at which the Debtor and other parties
in interest may participate and, if appropriate, object to the allowance of any
compensation and reimbursement of expenses.
The Debtor estimates that Administrative Expense Claims as of
September 30, 1997 will be in the approximate amount of $3,250,000.
The fees and costs of professional persons retained by the Debtor and
the Creditors' Committee represent a significant portion of those estimated
Administrative Expense Claims. As of July 31, 1997, fees and costs for the
primary professionals had accrued, subject to allowance by the Bankruptcy Court,
in the following approximate amounts: (a) for the Debtor's Professionals, (i)
Weil, Gotshal & Manges LLP, $900,000, (ii) Baker & McKenzie, $325,000, and (iii)
Ernst & Young LLP, $210,000 and (b) for the Creditors' Committee's
Professionals, (i) Simon, Anisman, Doby & Wilson, P.C., $425,000, (ii) Price
Waterhouse LLP, $200,000, and (iii) Navarro Group, $60,000.
20
<PAGE>
2. PRIORITY TAX CLAIMS
Pursuant to the Plan, except to the extent that a holder of an Allowed
Priority Tax Claim has been paid by the Debtor prior to the Effective Date or
agrees to a different treatment, each holder of a Priority Tax Claim will
receive, at the sole option of the Debtor, (a) Cash in an amount equal to such
Allowed Priority Tax Claim on the later of the Effective Date and the date such
Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter
as practicable, or (b) equal annual Cash payments in an aggregate amount equal
to such Allowed Priority Tax Claim, together with interest at a fixed annual
rate equal to eight and one-quarter percent (8 1/4%), over a period through the
sixth anniversary of the date of assessment of such Allowed Priority Tax Claim,
or upon such other terms determined by the Bankruptcy Court to provide the
holder of such Allowed Priority Tax Claim deferred Cash payments having a value,
as of the Effective Date, equal to such Allowed Priority Tax Claim. The Debtor
estimates that it has no Allowed Priority Tax Claims.
3. CLASS 1 - OTHER PRIORITY CLAIMS
The Other Priority Claims are Claims which are entitled to priority in
accordance with section 507(a) of the Bankruptcy Code (other than Administrative
Expense Claims and Priority Tax Claims). Such Claims include (i) unsecured
claims for accrued employee compensation earned within 90 days prior to
commencement of the Chapter 11 Case to the extent of $4,000 per employee and
(ii) contributions to employee benefit plans arising from services rendered
within 180 days prior to the commencement of the Chapter 11 Case but only for
each such plan to the extent of (x) the number of employees covered by such plan
multiplied by $4,000, less (y) the aggregate amount paid to such employees from
the estate for wages, salaries or commissions.
Pursuant to the Plan, each holder of an Allowed Other Priority Claim
will receive Cash in an amount equal to such Allowed Other Priority Claim on the
later of the Effective Date and the date such Claim becomes an Allowed Other
Priority Claim, or as soon thereafter as is practicable. The Debtor estimates
that Other Priority Claims arising from claims by the Debtor's current and
former employees will be approximately $250,000.
See Section V.C.3., The Plan of Reorganization -- Summary of Other
Provisions of the Plan -- Enforcement of Bar Date for Filing Proofs of Claim for
a discussion of the compromise offered to holders of Other Priority Claims that
are referred to in the Plan as June 16 Filers, meaning that they filed their
proofs of claim after May 15, 1997 but before June 16, 1997. In summary, if any
June 16 Filer is willing to reduce the amount of their otherwise allowable Other
Secured Claim by 25%, the late filing of its proof of claim will be excused with
the necessity of obtaining an order deeming the late proof of claim to be timely
filed.
4. CLASS 2 - SECURED FLEET CLAIM
Class 2 consists of the Allowed Secured Fleet Claim, which arises
under that certain Loan and Security Agreement, entered into by the Debtor and
Shawmut Capital Corporation, predecessor in interest to Fleet, under certain of
the pre-petition loan documents, dated on or about April 4, 1995 (hereinafter,
the term "Fleet" will encompass both Fleet and Shawmut Corporation). The Loan
and Security Agreement, as amended (the "Old Fleet Loan Agreement") was
subsequently amended seven times, most recently on January 9, 1997. The Old
Fleet Loan Agreement, including all amendments thereto, and documents related
thereto were attached as Exhibit "A" to the Addendum to Fleet's Objection to the
Debtor's Emergency Motion For Authorization to Use Cash Collateral, and filed
with the Bankruptcy Court on February 10, 1997 (the "Fleet Objection"). To
secure the prompt payment and performance of any and all obligations,
liabilities, indebtedness of the Debtor to Fleet arising under the Old Fleet
Loan Agreement and the Fleet loan documents in connection thereto (collectively,
the "Old Fleet Loan Documents"), including the "Obligations" as defined in the
Old Fleet Loan Agreement (collectively, the "Fleet Indebtedness"), the Debtor
granted to Fleet pursuant to the Loan Agreement security interests in and liens
upon substantially all of the Debtor's assets, including all accounts,
inventory, equipment, general intangibles, documents, instruments and chattel
paper and all the proceeds thereof (collectively, the "Fleet Collateral").
21
<PAGE>
As of the Commencement Date, the Debtor owed to Fleet $63,079,797.34
in unpaid principal, exclusive of accrued but unpaid interest, attorneys fee's,
costs and expenses. Since the Commencement Date, pursuant to the cash
collateral orders referred to above, the Debtor reduced the amount owed to Fleet
to approximately $41.1 million as of August 1, 1997. The amount owed to Fleet
will have been further reduced by another $6.75 million by September 30, 1997.
Fleet has incurred attorneys fee's, costs and expenses in the
approximate amount of $400,000 through March 31, 1997 in connection with the
Allowed Secured Fleet Claim, and it will incur additional attorney's fees, costs
and expenses through the Effective Date. With approval of the Bankruptcy Court,
such fees, costs and expenses may be paid by the Debtor pursuant to section
506(b) of the Bankruptcy Code. The Debtor has agreed to pay such fees, costs
and expenses up to $300,000 on the later of the Effective Date or the date of
entry of an order from the Bankruptcy Court approving such fees, costs and
expenses. All attorney's fees, costs and expenses incurred by Fleet in excess
of $300,000, to the extent approved by the Bankruptcy Court, will be paid by the
Debtor as described below.
Notwithstanding anything else contained in the Disclosure Statement,
or any amendments thereto, or anything else contained in the Plan, or any
amendments thereto, the holder of the Allowed Secured Fleet Claim will be paid
(i) in accordance with the terms of the New Fleet Documents to be included in
the Plan Supplement, and (ii) as described below. To the extent that the terms
providing for payment of the Allowed Secured Fleet Claim in this Disclosure
Statement or in the Plan conflict with the terms providing for the payment of
the Allowed Secured Fleet Claim in the New Fleet Documents, the terms of the
Plan will control.
Upon the Effective Date and pursuant to the terms of the New Fleet
Documents, Fleet as the holder of the Allowed Secured Fleet Claim will be
treated as follows:
a. Deemed Allowance. Upon the Effective Date, the Allowed Secured
----------------
Fleet Claim will be treated as an allowed, fully secured Claim and from and
after the Effective Date will be paid pursuant to the terms of the Plan and the
New Fleet Documents, without defense, offset or counterclaim.
b. Interest. Interest will continue to accrue and be paid with
--------
respect to the principal amount of the Allowed Secured Fleet Claim (excluding
that portion consisting of Allowed Fleet Expenses, which will be paid as set
forth in Section 4.2(b)(9) of the Plan) monthly, in arrears, on the last day of
the month (except as to the payment for the month of December 1997, which will
be made on December 26, 1997), at a variable rate per annum equal to the Base
Rate in effect from time to time; provided, however, that from and after the
occurrence and during the continuance of an Event of Default, interest will
accrue at the Default Rate. Interest will be calculated as provided in the New
Fleet Documents.
c. Monthly Principal Amortization. The outstanding principal
------------------------------
balance of the Secured Fleet Claim (excluding that portion consisting of Allowed
Fleet Expenses, which will be paid as set forth in Section 4.2(b)(9) of the
Plan) will be due and payable from and after the Effective Date to the holder of
the Allowed Secured Fleet Claim Fleet, on the last day of the month (except as
to the payment for the month of December 1997, which will be made on December
26, 1997), in monthly installments which will be in the amounts specified below:
22
<PAGE>
<TABLE>
<CAPTION>
Per Month
Month Installment Amount
----- ------------------
<S> <C>
October 1997 $2.5 million
November 1997 $2.5 million
December 1997 $3.0 million
January through June 1998 $3.0 million
July through August 1998 $3.5 million
</TABLE>
The remaining unpaid balance on the New Fleet Note will be due and payable on
September 30, 1998.
d. Limitation on and Deferral of Payment to Other Creditors. The
--------------------------------------------------------
Debtor will be permitted to make payments to holders of Unsecured Claims, Dealer
Claims and the Jaymed Claim pending payment in full of the Secured Fleet Claim
subject to the limitations set forth in Section 7.1(f) of the Plan, as described
previously herein. See Section V.A.2.e., The Plan of Reorganization --
Essential Elements of the Plan -- Distributions Under the Plan -- Delay or
Deferral of Distributions.
e. Fleet Collateral. The Secured Fleet Claim will be secured by all
----------------
of the Fleet Collateral. The Plan defines the Fleet Collateral to include (i)
all Collateral that secured payment of the Secured Fleet Claim as of the
Commencement Date; (ii) all property that the Debtor acquired after the
Commencement Date and that became Collateral for the Secured Fleet Claim
pursuant to any of the Cash Collateral Orders; (iii) effective upon the
Effective Date, the legal and beneficial ownership interests of the Debtor in
Funding Trust, subject to the prior lien of Prudential and a carve-out of $2.5
million for professional fees and expenses; and (iv) all proceeds of the
foregoing items, all as more fully set forth in the New Fleet Documents.
Notwithstanding the foregoing, from and after the Effective Date, the Fleet
Collateral will not include the Contributed Non-Accrual Contracts or any
interest in the Non-Accrual Contract Trust.
As to the Contributed Non-Accrual Contracts, Fleet will be deemed to
have released its Liens upon such Contracts as of the Effective Date. The
Debtor will use its best efforts to identify for Fleet in writing, as soon as
practicable prior to the commencement of the Confirmation Hearing, all of the
Contributed Non-Accrual Contracts existing as of August 31, 1997 as to which
Fleet's Lien will be released.
In consideration of the use of funds prior to the Fleet Payment Date
to pay Unsecured Claims, Dealer Claims and Jaymed Claims as provided in Section
4.2(b)(4) of the Plan, and in further consideration of the release of Liens
provided for therein, upon the Effective Date, and as more fully provided under
the New Fleet Documents, Fleet as the holder of the Secured Fleet Claim will be
granted a Lien upon the Debtor's legal and beneficial ownership interest in
Funding Trust. That Lien, however, will be subject to the prior Lien of
Prudential, and will be further subject to a carve-out of up to $2.5 million in
aggregate for Allowed fees and expenses awarded to professional persons retained
by the Creditors' Committee and the Debtor to the extent not satisfied by the
Debtor prior to the Effective Date.
f. Right to Adequate Protection Payments. Upon the Effective Date,
-------------------------------------
Fleet as the holder of the Allowed Secured Fleet Claim will be entitled
indefeasibly to all of the adequate protection payments received under the prior
Cash Collateral Orders, with such payments being credited to the calculation of
the Allowed Secured Fleet Claim.
g. Debtor Release of Claims. Upon the Effective Date, and as more
------------------------
fully provided in the Plan, all Causes of Action, if any, that the Debtor (or
any person by, through, or under the Debtor) may have or assert against Fleet or
its participant, or any affiliate, or officer, director, or agent,
representative, attorney of any of the foregoing parties, will be deemed
irrevocably released.
h. Default Rights. Upon and after the occurrence of an Event of
--------------
Default, Fleet as the holder of the Secured Fleet Claim will be authorized to
(i) accelerate the maturity and demand payment of all of the
23
<PAGE>
Secured Fleet Claim, (ii) enforce its Liens with respect to the Fleet
Collateral, and (iii) take such other action and exercise such other rights and
remedies as are available to such holder under the New Fleet Documents or
applicable law. From and after the occurrence and during the continuance of any
such Event of Default, the principal amount of the Secured Fleet Claim will bear
interest at the Default Rate.
i. Payment of Allowed Fleet Expenses. On the Effective Date, the
---------------------------------
Debtor will pay to Fleet the sum of $300,000 in partial payment of the Allowed
Fleet Expenses. The balance of such Allowed Fleet Expenses will be paid in six
equal, or substantially equal, monthly installments, commencing on October 31,
1997, and continuing on November 30, 1997, December 26, 1997, January 31, 1998,
February 28, 1998 and March 31, 1998, until paid in full, without any interest
except interest at the Default Rate after the occurrence and during the
continuance of an Event of Default.
5. CLASS 3 - SECURED PRUDENTIAL CLAIM
Class 3 consists of the Allowed Secured Prudential Claim, which arises
under that certain Trust Shares Pledge Agreement dated December 23, 1996. As of
the Commencement Date, approximately $4,987,056.00 was outstanding in respect of
the Original Prudential Note. As of the date hereof, pursuant to the cash
collateral orders referred to above, Jayhawk had paid all principal and interest
owed to Prudential. The obligation remaining is attorney's fees and other costs
accruing under the loan agreement since the Commencement Date, the amount and
allowability of which are subject to approval of the Bankruptcy Court.
Pursuant to the Plan, the holder of an Allowed Secured Prudential
Claim will payment in full of the remaining amount due, as determined by the
Bankruptcy Court, either on the Effective Date and the date of entry of a Final
Order of the Bankruptcy Court, or as soon thereafter as is practicable.
Accordingly, the Allowed Secured Prudential Claim is unimpaired.
6. CLASS 4 - OTHER SECURED CLAIMS
Class 4 consists of any Other Secured Claims other than the Secured
Fleet Claim and the Secured Prudential Claim. Although a number of proofs of
claim alleging security held for Claims have been filed, the Debtor believes
that at the conclusion of the claims objection process there will be no Other
Secured Claims.
Each Other Secured Claim is deemed to be separately classified in a
subclass of Class 4 and will have all rights associated with separate
classification under the Bankruptcy Code.
Pursuant to the Plan, except to the extent that the holder of an
Allowed Other Secured Claim agrees to a different treatment, at the sole option
of the Debtor:
a. Each Allowed Other Secured Claim will be treated as an unimpaired
Claim in accordance with section 1124 of the Bankruptcy Code; and
notwithstanding any contractual provision or applicable law that entitles the
holder of an Allowed Other Secured Claim to demand or receive accelerated
payment of such Allowed Claim after the occurrence of a default, the holder of
each such Allowed Claim will receive from the Debtor the amount of such Allowed
Claim through (i) cure of any defaults occurring prior to the Effective Date in
one cash payment, in an amount agreed to by the Debtor and the holder of such
Allowed Claim or in an amount determined by the Bankruptcy Court; on the later
of the Effective Date, the date on which the Debtor and the holder agree on the
cure amount, or the date on which the Bankruptcy Court determines the cure
amount; (ii) reinstatement of the maturity of such Allowed Claim as such
maturity existed prior to any such default; (iii) compensation for any damages
incurred as a result of reasonable reliance by the holder of such Allowed Claim
on such contractual provision or such applicable law that authorizes demand for
or receipt of accelerated payment, in one cash payment, in an amount agreed to
by the Debtor and the holder of such Allowed Claim or in an amount determined by
the Bankruptcy Court; made on the later of the Effective Date, the date on which
the Debtor and the holder agree on the cure amount, or the date on which the
Bankruptcy Court determines the cure amount; and
24
<PAGE>
(vi) authorization to enforce other legal, equitable, or contractual rights to
which the holders of such Allowed Claim may otherwise be entitled;
b. Each holder of an Allowed Other Secured Claim will receive Cash
in an amount equal to such Claim, including any interest on such Claim required
to be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of
the Effective Date and the Date such Claim becomes an Allowed Other Secured
Claim, or as soon thereafter as is practicable; or
--
c. Each holder of an Allowed Other Secured Claim will receive the
Collateral securing its Claim in full and complete satisfaction of such Claim on
the later of the Effective Date, or as soon thereafter as is practicable.
7. CLASS 5 - UNSECURED CLAIMS
Class 5 consists of Unsecured Claims against the Debtor. Such Claims
include, but are not limited to, Claims in respect of the rejection of leases of
non-residential real property and executory contracts, personal injury claims
and claims arising from prepetition litigation involving the Debtor. All Tort
Claims are Disputed Claims. Class 5 Unsecured Claims do not include claims
arising from executory contracts that were assumed by the Debtor pursuant to
section 365 of the Bankruptcy Code. The Debtor estimates that the amount of the
Claims in Class 5, including interest payable under the Plan, will aggregate
approximately $4.138 million.
Pursuant to the Plan, each holder of an Allowed Unsecured Claim will
receive payment in full of such Allowed Unsecured Claim, together with interest
thereon from the Commencement Date at a rate of interest equal to the prime
lending rate prevailing on the date that is seven (7) Business Days prior to
each payment date, as published in The Wall Street Journal.
-----------------------
Such payment will be made over a period of one year following the
Effective Date, in four unequal quarterly payments, with the first quarterly
payment being due on the initial Quarterly Payment Date, and with subsequent
quarterly payments being due on each Quarterly Payment Date thereafter, subject
to deferral as discussed below.
The aggregate amount of each quarterly payment to all holders of
Allowed Unsecured Claims will not exceed $1,500,000 on the initial Quarterly
Payment Date, $900,000 on the second and third Quarterly Payment Date, and the
remaining balance due on the fourth Quarterly Payment Dates. Each holder of an
Allowed Unsecured Claim will receive a pro rata share of such aggregate amount.
The following is a projected payment schedule for Class 5 Unsecured Claims:
<TABLE>
<CAPTION>
Date Amount
------------------------- ----------
<S> <C>
December 26, 1997 1,500,000
March 31, 1998 900,000
June 30, 1998 900,000
September 30, 1998 837,888
</TABLE>
Any quarterly payment due under the Plan may be delayed or deferred in
accordance with Section 7.1(f) of the Plan.
See Section V.C.3., The Plan of Reorganization -- Summary of Other
Provisions of the Plan -- Enforcement of Bar Date for Filing Proofs of Claim for
a discussion of the compromise offered to holders of Unsecured Claims that are
referred to in the Plan as June 16 Filers, meaning that they filed their proofs
of claim after May 15, 1997 but before June 16, 1997. In summary, if any June
16 Filer is willing to reduce the amount
25
<PAGE>
of their otherwise allowable Unsecured Claim by 25%, the late filing of its
proof of claim will be excused with the necessity of obtaining an order deeming
the late proof of claim to be timely filed.
8. CLASS 6 - DEALER CLAIMS
Class 6 consists of Dealer Claims. The Plan defines Dealer Claims as
Claims of any kind or basis held by Dealers, including, without limitation,
Claims based upon enrollment fees paid by such Dealer to the Debtor, unused
vouchers provided to such Dealer by the Debtor, future collections on Contracts
purchased by the Debtor from such Dealer, breach of a Dealer Agreement, or a
Dealer's relationship with the Debtor.
Dealer Claims are impaired under the Plan, and holders of Allowed
Dealer Claims are entitled to vote to accept or reject the Plan. Because the
Debtor has filed an objection to all Dealer Claims as part of the Dealer
Estimation Motion, the Debtor asserts that there are no Allowed Dealer Claims
and that no Dealers would be entitled to vote unless the Bankruptcy Court agreed
to temporarily allow the Dealer Claims for voting purposes only. Pursuant to the
Dealer Estimation Motion, and to avoid disenfranchising the Dealers, the Debtor
requested that the Bankruptcy Court temporarily estimate all Dealer Claims for
voting purposes based upon the $185 million collection scenario. The Bankruptcy
Court granted the Debtor's request pursuant to the Voting Procedures Order. The
Voting Procedures Order provides that only those Dealers whose Dealer Claims are
estimated in amounts exceeding $0.00 are permitted to vote to accept or reject
the Plan. Those Dealers whose Dealer Claims are estimated in the amount of $0.00
are not permitted to vote unless they file a motion with the Bankruptcy Court
requesting that their Dealer Claims be temporarily allowed for voting purposes
in another amount. The deadline for filing and serving any such motion is
September 22, 1997, at 4:00 p.m. Central Time, and the hearing on any such
motion will be held on September 29, 1997, at 9:30 a.m. Central Time. The Dealer
will have the burden of proving that its Dealer Claim should be temporarily
allowed in an amount greater than $0.00.
All Dealers who are May 15 Filers or June 16 Filers will receive a
Ballot and Treatment Election Form. Even though a Dealer with an estimated
Dealer Claim of $0.00 is not permitted to vote without an order of temporary
allowance, such a Dealer is entitled to elect a treatment option as set forth on
the Ballot and Treatment Election Form, and as described below.
The treatment of Dealer Claims under the Plan results from
negotiations between the Debtor and the Creditors' Committee, encouraged by the
Bankruptcy Court, to resolve the issues raised in the Dealer Estimation Motion
as to the allowability and amount of Dealer Claims. The goal of the
negotiations was to provide a compromise for Dealers who were not interested in
spending time and money to litigate their Claims pursuant to the Dealer
Estimation Motion. The negotiations resulted in the terms set forth in Section
4.6 of the Plan, which provide a Settlement Treatment and a Non-Settlement
Treatment.
a. Settlement Treatment. The Settlement Treatment is available to
--------------------
Dealers (i) who are May 15 Filers or June 16 Filers and who elect to receive the
treatment offered in Section 4.6(b) of the Plan, and (ii) who are May 15 Filers
or June 16 Filers but who do not elect either to receive the Settlement
Treatment or the Non-Settlement Treatment. A Late Filer will be deemed to have
elected the Non-Settlement Treatment.
The Settlement Treatment provides for a mutual release of claims
between the Settling Dealers and the Debtor and, accordingly, the Dealer
Estimation Motion will be dismissed as to the Claims of the Settling Dealers and
all other objections of the Debtor to such Claims will be waived and
relinquished.
The Settlement Treatment divides Dealer Claims into four parts, all of
which may not be available to each Dealer, depending on whether the Dealer
satisfies the eligibility requirements for each of parts. The treatment of each
of the parts is different, as described below. The four parts are Enrollment Fee
Claims, Voucher Claims, Comprehensive Claims and Dealer Settlement Rights.
26
<PAGE>
The Ballot and Treatment Election Form that has been provided to you
herewith identifies each of the parts of a Dealer Claim that is applicable to
you, and it sets forth the Claim amount that is attributable to each applicable
part in accordance with the provisions of the Plan.
(1) Enrollment Fee Claim:
An Enrollment Fee Claim is a Claim of a Dealer based upon enrollment
fees paid by such Dealer to the Debtor under or in connection with the Dealer
Agreement between such Dealer and the Debtor. The Debtor's position is that no
Dealer is entitled to an Allowed Enrollment Fee Claim, and the Debtor has sought
to disallow Enrollment Fee Claims under the Dealer Estimation Motion. As a
compromise of the issue, however, and only pursuant to the Settlement Treatment,
the Debtor has agreed to accord some value to Enrollment Fee Claims held by
eligible Dealers. For this purpose, an eligible Dealer is one who (i) entered
into a Dealer Agreement with the Debtor on or after June 7, 1996, which Dealer
Agreement was not terminated by the Debtor in accordance with the terms thereof,
and (ii) filed a proof of claim on or before June 16, 1997 specifically alleging
an Enrollment Fee Claim (a Dealer cannot become eligible by amending its proof
of claim after June 16, 1997 to allege an Enrollment Fee Claim). Your Ballot
and Treatment Election Form will indicate if you are eligible for an Enrollment
Fee Claim.
The amount of an Enrollment Fee Claim of an eligible Dealer will
differ depending on whether the Dealer timely filed its proof of Claim. If a
Dealer is a May 15 Filer (meaning that it filed its proof of claim on or before
the May 15, 1997 bar date), then the Dealer will be granted an Allowed
Enrollment Fee Claim equal to 100% of the amount that is $4,500.00 minus the
total of $562.50 times the number of months (calculated from the seventh day of
each month through the sixth day of the next following month) between the
effective date of its Dealer Agreement and the Commencement Date (with such
$562.50 being prorated by day for any partial month within such period).
Alternatively, if a Dealer if June 16 Filer (meaning that it filed its proof of
claim after the May 15, 1997 bar date but on or before June 16, 1997), the
Dealer will be granted an Allowed Enrollment Fee Claim equal to 75% of the
amount that is $4,500.00 minus the total of $562.50 times the number of months
(calculated from the seventh day of each month through the sixth day of the next
following month) between the date of such holder's Dealer Agreement and the
Commencement Date (with such $562.50 being prorated by day for any partial month
within such period).
Depending on the total amount of Allowed Enrollment Fee Claims,
including Allowed Enrollment Fee Claims of Dealers receiving the Non-Settlement
Treatment, and the amount of the settlement fund established by the Debtor for
Allowed Enrollment Fee Claims, the amount of a Dealer's Allowed Enrollment Fee
Claim may not be paid in full. As set forth in the Plan, the payment amount will
equal the lesser of (i) 100% of the amount of a Dealer's Allowed Enrollment Fee
Claim determined pursuant to the preceding paragraph and (ii) a pro rata share
(based on the amount of such Allowed Claim) of a settlement fund equal to
$139,468.75 minus the amount of all Allowed Enrollment Fee Claims held by
Dealers receiving the Non-Settlement Treatment. The settlement fund amount of
$139,468.75 is the Debtor's estimate of the amount required to pay all Allowed
Enrollment Fee Claims, in the amounts determined by the settlement terms, in
full. If Enrollment Fee Claims that the Debtor is not now aware of are
recognized and allowed, then the amount available to each holder of an
Enrollment Fee Claim will be reduced on a pro rata basis.
The total payment amount will be paid over a period of two years from
the Effective Date in equal quarterly payments, with the first such payment
being due on the second Quarterly Payment Date and subsequent payments being due
on each Quarterly Payment Date thereafter. The following is a projected payment
schedule for Enrollment Fee Claims:
27
<PAGE>
<TABLE>
<CAPTION>
Date Amount
------------------------------ ------
<S> <C>
March 31, 1998 17,434
June 30, 1998 17,434
September 30, 1998 17,434
December 26, 1998 17,434
March 31, 1999 17,434
June 30, 1999 17,434
September 30, 1999 17,434
December 26, 1999 17,434
</TABLE>
Any quarterly payment required under the Plan may be delayed or
deferred in accordance with Section 7.1(f) of the Plan, as previously described.
The amount of any deferred or delayed quarterly payments will bear interest from
the Quarterly Payment Date on which they were originally due until the Quarterly
Payment Date on which they are actually paid at a rate of interest equal to the
prime lending rate prevailing on the date that is seven (7) Business Days prior
to the Quarterly Payment Date on which they are actually paid.
(2) Voucher Claim:
A Voucher Claim is a Claim of a Dealer based upon unused vouchers
provided to such Dealer by the Debtor under or in connection with the Dealer
Agreement between such Dealer and the Debtor. The Debtor's position with
respect to Voucher Claims is similar to its position with respect to Enrollment
Fee Claims, and it has similarly sought to disallow Voucher Claims pursuant to
the Dealer Estimation Motion. The treatment of Voucher Claims under the
Settlement Treatment represents a compromise of the issue on behalf of eligible
Dealers. An eligible Dealer for purposes of a Voucher Claim is one who filed a
proof of claim on or before June 16, 1997 specifically alleging a Voucher Claim
(not including any Dealer who filed an amended proof of claim after June 16,
1997 to allege a Voucher Claim). If you are entitled to a Voucher Claim, your
Ballot and Treatment Election Form will so indicate.
As with Enrollment Fee Claims, the amount of a Voucher Claim of an
eligible Dealer will differ depending on whether the Dealer timely filed its
proof of Claim. If a Dealer is a May 15 Filer, then the Dealer will be granted
an Allowed Voucher Claim equal to 100% of the amount that is 5% of the face
amount of each unused voucher alleged in the proof of claim. If the Dealer is a
June 16 Filer, then the Dealer will be granted an Allowed Voucher Claim equal to
75% of the amount that is 5% of the face amount of each unused voucher alleged
in the proof of claim.
The total payment amount to be received by eligible Dealers with
respect to an Allowed Voucher will depend on the total amount of Allowed Voucher
Claims, including Allowed Voucher Claims of Dealers receiving the Non-Settlement
Treatment, and the amount of the settlement fund established by the Debtor for
Allowed Voucher Claims. The Plan provides that the total payment amount will
equal the lesser of (i) 100% of the amount of a Dealer's Allowed Voucher Claim
determined pursuant to the preceding paragraph and (ii) a pro rata share (based
on the amount of such Allowed Claim) of a settlement fund equal to $10,000 minus
the amount of all Allowed Voucher Claims held by Dealers receiving the Non-
Settlement Treatment. The settlement fund amount of $10,000 is the Debtor's
estimate of the amount required to pay all Allowed Voucher Claims, in the
amounts determined by the settlement terms, in full. If Voucher Claims that the
Debtor is not now aware of are recognized and allowed, then the amount available
to each holder of a Voucher Claim will be reduced on a pro rata basis.
The payment terms for Allowed Voucher Claims are the same as for
Allowed Enrollment Fees. The total payment amount will be paid over a period of
two years from the Effective Date in equal quarterly payments, with the first
such payment being due on the second Quarterly Payment Date and subsequent
payments
28
<PAGE>
being due on each Quarterly Payment Date thereafter. The following is a
projected payment schedule for Voucher Claims:
<TABLE>
<CAPTION>
Date Amount
------------------ ------
<S> <C>
March 31, 1998 1,250
June 30, 1998 1,250
September 30, 1998 1,250
December 26, 1998 1,250
March 31, 1999 1,250
June 30, 1999 1,250
September 30, 1999 1,250
December 26, 1999 1,250
</TABLE>
Any quarterly payment required under the Plan may be delayed or
deferred in accordance with Section 7.1(f) of the Plan, as previously described.
The amount of any deferred or delayed quarterly payments will bear interest
from the Quarterly Payment Date on which they were originally due until the
Quarterly Payment Date on which they are actually paid at a rate of interest
equal to the prime lending rate prevailing on the date that is seven (7)
Business Days prior to the Quarterly Payment Date on which they are actually
paid.
(3) Comprehensive Claim:
A Comprehensive Claim is a Claim consisting of all components of a
Dealer Claim other than an Enrollment Fee Claim, a Voucher Claim or a Dealer
Settlement Right, which components specifically include, without limitation, a
Claim of a Dealer for future collections on Contracts purchased by the Debtor
from such Dealer, a Claim for breach of a Dealer Agreement, or any other Claim
based on or arising from a Dealer Agreement or a Dealer's relationship with the
Debtor.
Pursuant to the Dealer Estimation Motion, the Debtor sought to
estimate the amount of Dealer Claims, consisting primarily of Comprehensive
Claims, based upon a $170 million collection scenario. Since the date of filing
the Dealer Estimation Motion, the Debtor has determined that a $170 million
collection scenario is far too optimistic and that a $155.5 million collection
scenario is more accurate. Accordingly, the Debtor intends to amend the Dealer
Estimation Motion to seek to estimate Dealer Claim based upon a $155.5 million
collection scenario, which will result in much lower amounts for Dealer Claims
receiving the Non-Settlement Treatment. For purposes of the Settlement
Treatment, however, the Debtor has agreed to estimate the amount of
Comprehensive Claims based upon a $185 million collection scenario, applying the
same methodology and assumptions contained in the Dealer Estimation Motion.
This accords in excess of $25 million in additional estimated collections for
distribution among eligible Dealers.
To be eligible for a Comprehensive Claim, a Dealer must be entitled to
some amount of future collections from its pool of Contracts based upon the
Debtor's $185 million collection scenario. If the Dealer is so entitled, and
the Dealer is a May 15 Filer, it will be granted an Allowed Comprehensive Claim
equal to 100% of the estimated amount of such Dealer's future collections based
upon the Debtor's $185 million collection scenario. If, however, the Dealer is
a June 16 Filer, it will be granted an Allowed Comprehensive Claim equal to 75%
of the estimated amount of Dealer's future collections based upon the Debtor's
$185 million collection scenario. Your Ballot and Treatment Election Form will
indicate if you have a Comprehensive Claim.
The total payment amount to be received by eligible Dealers with
respect to their Allowed Comprehensive Claims will depend on the total amount of
Allowed Comprehensive Claims, including Allowed Comprehensive Claims of Dealers
receiving the Non-Settlement Treatment, and the amount of the settlement fund
established by the Debtor for Allowed Comprehensive Claims. The Plan provides
that the total payment amount will equal the lesser of (i) 100% of the amount of
a Dealer's Allowed Comprehensive Claim determined pursuant
29
<PAGE>
to the preceding paragraph and (ii) a pro rata share (based on the amount of
such Allowed Claim) of a settlement fund equal to $8,286,803 minus the amount of
all Comprehensive Claims estimated for Dealers receiving the Non-Settlement
Treatment based upon the $185 million collection scenario. The settlement fund
amount of $8,286,803 is the Debtor's estimate of the amount required to pay all
Allowed Comprehensive Claims, in the amounts determined by the settlement terms,
in full. If Comprehensive Claims that the Debtor is not now aware of are
recognized and allowed, then the amount available to each holder of a
Comprehensive Claim will be reduced on a pro rata basis.
The Plan provides that the total payment amount for Allowed
Comprehensive Claims will be paid out over a period of two years from the
Effective Date in eight unequal quarterly payments, the first of which will be
due on the second Quarterly Payment Date and the next seven of which will be due
on each Quarterly Payment Date thereafter. The amount of payments cannot
exceed, on the second Quarterly Payment Date and each subsequent Quarterly
Payment Date before or on the Fleet Payment Date, a pro rata share (based on the
amount of such Allowed Claim) of the amount that equals $750,000 minus all
amounts paid on Dealer Claims under the Plan pursuant to the Non-Settlement
Treatment, and on the five Quarterly Payment Dates after the Fleet Payment Date,
the amount of payments will equal one-fifth of the remaining balance of the
Allowed Claim. The following is a projected payment schedule for Comprehensive
Claims:
<TABLE>
<CAPTION>
Date Amount
------------------------------ ---------
<S> <C>
March 31, 1998 750,000
June 30, 1998 750,000
September 30, 1998 750,000
December 26, 1998 1,207,361
March 31, 1999 1,207,361
June 30, 1999 1,207,361
September 30, 1999 1,207,361
December 26, 1999 1,207,361
</TABLE>
Any quarterly payment required under the Plan may be delayed or
deferred in accordance with Section 7.1(f) of the Plan, as previously described.
The amount of any deferred or delayed quarterly payments will bear interest from
the Quarterly Payment Date on which they were originally due until the Quarterly
Payment Date on which they are actually paid at a rate of interest equal to the
prime lending rate prevailing on the date that is seven (7) Business Days prior
to the Quarterly Payment Date on which they are actually paid.
(4) Dealer Settlement Right:
A Dealer Settlement Right is a right defined solely to encompass the
entitlement of certain Dealers under the Settlement Treatment to receive an
interest in the Non-Accrual Contract Trust that is to be established pursuant to
the Plan.
The Non-Accrual Contract Trust will be governed by a trust agreement
to be included in the Plan Supplement. The Bankruptcy Court will appoint a
person to serve as Trustee of the Non-Accrual Contract Trust. The primary
assets of the Non-Accrual Contract Trust are certain Contributed Non-Accrual
Contracts, which are identified in Sections 5.3 and 5.4 of the Plan, having an
aggregate remaining principal amount of $110 million. Based upon the
assumptions used with respect to the Debtor's collection matrix, the Contributed
Non-Accrual Contracts will generate future cash collections in the range of one
to two percent of their outstanding principal amount, less expenses of
collection. As of June 30, 1997, the aggregate remaining principal amount of
Non-Accrual Contracts (whether owned by the Debtor or by Funding Trust) was
approximately $160,000,000.00. Of that amount, approximately $62,000,000.00 was
attributable to May 15 Filers and June 16 Filers.
30
<PAGE>
A Non-Accrual Contract is a Contract that is categorized in the
Debtor's collection records, maintained in the ordinary course of business and
in a manner that is consistent with past practices existing as of June 30, 1997,
as "Non-Accrual." Essentially, a Non-Accrual Contract is one with an inactive
collection status. The term Non-Accrual Contract specifically includes any
Contract that is identified in such collection records as "Collection,"
"Insurance," Repo Posted," "Bankruptcy," and "Other." A Contract that is
categorized as "Repo-Auction Not Posted" is specifically excluded from the term.
Only those Non-Accrual Contracts described in Sections 5.3 and 5.4 of the Plan
are Contributed Non-Accrual Contracts for purposes of the Non-Accrual Contract
Trust.
The establishment of the Non-Accrual Contract Trust provides a
mechanism for those Dealers receiving the Settlement Treatment whose Contract
Pool contains Non-Accrual Contracts existing as of August 31, 1997 to receive
additional value under the Plan. Such additional value will come in the form of
an interest in the Non-Accrual Contract Trust entitling them to receive
distributions of their pro rata share of Net Trust Collections. Each Dealer's
pro rata share of Net Trust Collections is determined based upon the outstanding
principal amount of the Dealer's Non-Accrual Contracts as of August 31, 1997 as
compared to the outstanding principal amount of all Non-Accrual Contracts as of
such date. For any June 16 Filers, the amount of a Dealer's interest in the
Trust will be discounted by 25% in settlement of the late proof of claim filing
issue.
Net Trust Collections are defined as the proceeds received by the Non-
Accrual Contract Trust from the Contributed Non-Accrual Contracts, plus any
interest, investment income or other amounts earned thereon, minus the costs
incurred in establishing and administering the Non-Accrual Contract Trust
(including the fees and expenses of the Trustee and any professionals retained
by the Trustee). Distributions from the Non-Accrual Contract Trust will be made
by the Trustee on a periodic basis as provided in the trust agreement.
Alternatively, in lieu of receiving such distributions, the trust
agreement may provide a right for each Dealer to receive a return of the Non-
Accrual Contracts within the Non-Accrual Contract Trust that are part of the
Dealer's Contract Pool. The trust agreement will provide a time period within
which such right must be exercised, and it will require that the Trustee provide
notice to participating Dealers of such right and of the deadline for its
exercise.
Your Ballot and Treatment Election Form will indicate whether any of
the Contracts in your Contract Pool constituted Non-Accrual Contracts as of June
30, 1997. However, because the operative date for determining the Non-Accrual
Contracts to be contributed to the Trust is August 31, 1997, the number of
Contracts and remaining principal amount of Contracts that may be shown on your
Ballot will change, in most cases on an increasing basis. In addition, due to
dollar amount limitations on the Non-Accrual Contracts to be contributed to the
Trust, it is possible that not all of the Non-Accrual Contracts in a particular
Dealer's Contract Pool as of August 31, 1997 will be contributed to the Trust.
The provisions of Article V of the Plan should be consulted for
additional information concerning the Non-Accrual Contract Trust.
b. Non-Settlement Treatment. The Non-Settlement Treatment is
------------------------
provided to Dealers (i) who are May 15 Filers or June 16 Filers and who elect to
receive the treatment offered in Section 4.6(c) of the Plan or (ii) who are Late
Filers.
Holders of Dealer Claims receiving the Non-Settlement Treatment are
required to litigate the allowability and amount of their Dealer Claims pursuant
to the Dealer Estimation Motion. Dealers who are May 15 Filers will have
Allowed Dealer Claims only pursuant to and in accordance with Final Order of the
Bankruptcy Court, following litigation pursuant to the Dealer Estimation Motion.
There will be an additional burden on Dealers who are June 16 Filers or Late
Filers. Such Dealers will be eligible to have Allowed Dealers Claims only if
their proofs of claim are deemed to be timely filed by Final Order of the
Bankruptcy Court issued pursuant to motion of such Dealer filed no later than
thirty (30) days after the Effective Date, after notice and a hearing, upon
proving excusable neglect in accordance with Section 7.6 of the Plan. If they
are successful in
31
<PAGE>
proving excusable neglect, such Dealers will then have Allowed Dealer Claims
only pursuant to and in accordance with Final Order of the Bankruptcy Court,
following litigation pursuant to the Dealer Estimation Motion.
Under the Non-Settlement Treatment, Dealers granted Allowed Dealer
Claims will receive payment in full of the Allowed amount of their Claims, with
interest over a period of two years from the Effective Date, in eight unequal
quarterly payments, the first of which will be due on the second Quarterly
Payment Date and the next seven of which will be due on each Quarterly Payment
Date thereafter. The amount of payments cannot exceed, on the second Quarterly
Payment Date and each subsequent Quarterly Payment Date before or on the Fleet
Payment Date, a pro rata share (based on the amount of such Allowed Claim) of
the amount that equals $750,000 minus all amounts paid on Comprehensive Claims
under the Plan pursuant to the Settlement Treatment, and on the five Quarterly
Payment Dates after the Fleet Payment Date, the amount of payments will equal
one-fifth of the remaining balance of the Allowed Claim.
Any quarterly payment required under the Plan may be delayed or
deferred in accordance with Section 7.1(f) of the Plan, as previously described.
9. CLASS 7 - JAYMED CLAIM
Class 7 consists of the Allowed Jaymed Claim, which is the Claim of
Jaymed against the Debtor in the principal amount of $7,100,000, exclusive of
interest, as of the Commencement Date.
Pursuant to the Plan, the holder of the Allowed Jaymed Claim will
receive payment in full of such Allowed Claim, together with interest thereon
from the Commencement Date at a rate of interest equal to the prime lending rate
prevailing on the date that is seven (7) Business Days prior to each payment
date, as published in The Wall Street Journal; which payment will be made over a
-----------------------
period of two years following the Effective Date, in eight unequal quarterly
payments, the first of which will be due on the second Quarterly Payment Date,
with subsequent quarterly payments being due on each Quarterly Payment Date
thereafter.
The amount of any quarterly payment cannot exceed $750,000 on the
second Quarterly Payment Date and each subsequent Quarterly Payment Date before
or on the Fleet Payment Date. Thereafter, the amount of each quarterly payments
will equal one-fifth of the remaining balance of the Allowed Claim on the five
Quarterly Payment Dates after the Fleet Payment Date. The following is a
projected payment schedule for the Jaymed Claim:
<TABLE>
<CAPTION>
Date Amount
------------------ ---------
<S> <C>
March 31, 1998 750,000
June 30, 1998 750,000
September 30, 1998 750,000
December 26, 1998 1,232,668
March 31, 1999 1,232,668
June 30, 1999 1,232,668
September 30, 1999 1,232,668
December 26, 1999 1,232,668
</TABLE>
Any quarterly payment required under the Plan may be delayed or
deferred in accordance with Section 7.1(f) of the Plan, as previously described.
32
<PAGE>
10. CLASS 8 - MBIA CLAIM
Class 8 consists of the MBIA Claim. The MBIA Claim exists under two
note guaranty insurance policies (Policy Numbers 20632 and 21656) (the
"Insurance Policies") and indemnity agreements (the "Indemnity Agreements") by
and among MBIA Insurance Corporation, Jayhawk Funding Trust I and Norwest Bank,
dated March 15, 1996 and August 7, 1996, respectively. Pursuant to the Plan,
the Allowed MBIA Claim is unimpaired and will be treated as required by section
1124 of the Bankruptcy Code. That means that notwithstanding any contractual
provision or applicable law that entitles the holder of the Allowed MBIA Claim
to demand or receive accelerated payment of such Allowed Claim after the
occurrence of a default, the holder of such Allowed Claim will receive from the
Debtor the amount of such Allowed Claim through: (a) cure of any defaults
occurring prior to the Effective Date in one cash payment, in an amount agreed
to by the Debtor and the holder of such Allowed Claim or in an amount determined
by the Bankruptcy Court; on the later of the Effective Date, the date on which
the Debtor and the holder agree on the cure amount, or the date on which the
Bankruptcy Court determines the cure amount; (b) reinstatement of the maturity
of such Allowed Claim as such maturity existed prior to any such default; (c)
compensation for any damages incurred as a result of reasonable reliance by the
holder of such Allowed Claim on such contractual provision or such applicable
law that authorizes demand for or receipt of accelerated payment, in one cash
payment, in an amount agreed to by the Debtor and the holder of such Allowed
Claim or in an amount determined by the Bankruptcy Court; made on the later of
the Effective Date, the date on which the Debtor and the holder agree on the
cure amount, or the date on which the Bankruptcy Court determines the cure
amount; and (d) authorization to enforce other legal, equitable, or contractual
---
rights to which the holder of such Allowed Claim may otherwise be entitled. The
Insurance Policies and Indemnity Agreements will be deemed assumed under the
Plan in order to fully effect the unimpaired treatment described herein.
As of the date hereof, the Debtor owes no amounts to the holder of the
MBIA Claim and believes that no amounts will be due and owing to such holder on
the Effective Date pursuant to the terms of the Plan or otherwise.
11. CLASS 9 - SECTION 510(B) CLAIMS
A Section 510(b) Claim is a Claim arising from rescission of a
purchase or sale of a security of the Debtor, for damages arising from the
purchase or sale of such a security, or for reimbursement or contribution
allowed under section 502 of the Bankruptcy Code on account of such a Claim.
Although a few proofs of claim alleging damages have been filed, the Debtor
believes that at the conclusion of the claims objection process there will be no
Section 510(b) Claims.
Pursuant to section 510(b) of the Bankruptcy Code, such a Claim is
subordinated to all other Claims. Accordingly, the Plan provides that payments
with respect to Allowed Section 510(b) Claims will not commence until all other
Claims have been paid in full. Thus, the payout period for such Allowed Claims
is four years, but payments do not commence until after the second year, when
all other Claims should be paid in full.
Specifically, the Plan provides that each holder of an Allowed Section
510(b) Claim will receive payment in full of such Allowed Claim, together with
interest thereon at a rate of interest equal to the prime lending rate
prevailing on the date that is seven (7) Business Days prior to each payment
date, as published in The Wall Street Journal, over a period of four years
-----------------------
following the Effective Date, in equal quarterly payments, with the first such
payment being due on the Quarterly Payment Date that next follows the date on
which Unsecured Claims, Dealer Claims and the Jaymed Claim are paid in full and
with subsequent payments being due on each Quarterly Payment Date thereafter.
For any holder of a Section 510(b) Claim that is a June 16 Filer, the
Plan offers such holder the right, subject to agreement of the Debtor, to
compromise the late filed claim issue by agreeing to take 25% less than the full
allowable amount of such Claim. If a June 16 Filer and the Debtor so agree,
then the June 16 Filer need not obtain an order from the Bankruptcy Court
deeming a late filed proof of claim to be deemed timely filed.
33
<PAGE>
12. CLASS 10 - EQUITY INTERESTS
An Equity Interest is any share of common stock or other instrument
evidencing an ownership interest in the Debtor, whether or not transferable, and
any option, warrant or right, contractual or otherwise, to acquire any such
interest.
Pursuant to the Plan, Equity Interests will remain in effect, and each
holder of an Equity Interest will continue to hold such Equity Interests after
the Effective Date.
C. SUMMARY OF OTHER PROVISIONS OF THE PLAN
---------------------------------------
The following paragraphs summarize certain other significant
provisions of the Plan. The Plan should be referred to for the complete text of
these and other provisions of the Plan.
1. IMPLEMENTATION OF THE PLAN
On or before the Effective Date, the Plan will be implemented pursuant
to the following: (i) all actions, documents and agreements necessary to
implement the Plan will be effected or executed; (ii) the Debtor will receive
any authorizations, consents, regulatory approvals, rulings, letters, no-action
letters, opinions or documents that are determined by the Debtor to be necessary
to implement the Plan; (iii) the Debtor will execute and deliver to Fleet all of
the New Fleet Documents; (iv) Mr. Westcott will execute and deliver to Fleet the
Westcott Guaranty and the Westcott Release; and (v) Fleet will accept, execute
and deliver the New Fleet Documents.
2. TIME AND METHOD OF DISTRIBUTIONS UNDER THE PLAN
All distributions under the Plan will be made by the Debtor to the
holder of each Claim at the address of such holder as listed on the Schedules
unless the Debtor has been notified in writing (including, without limitation,
by filing a proof of claim) of a change of address. The Debtor will not be
obligated to recognize a transfer of a Claim occurring after the Confirmation
Date.
Any payment or distribution required to be made under the Plan on a
day other than a Business Day will be made on the next succeeding Business Day.
Any payment or distribution required to be made under the Plan on any specific
day will be considered timely if made no later than ten Business Days after such
date.
Any payment of Cash made by the Debtor pursuant to the Plan will be
made by check drawn on a domestic bank.
No payment of Cash less than $10 will be made by the Debtor to any
holder of a Claim unless a request therefore is made in writing to the Debtor.
Any distributions pursuant to the Plan, including Cash, interest, or
other amounts earned thereon, that are unclaimed for a period of one year after
distribution thereof will be revested in the Debtor, or in the Trustee as to any
distributions made from the Non-Accrual Contract Trust, and any entitlement of
any holder of any Claim to such distributions will be extinguished and forever
barred.
Distributions to holders of Unsecured Claims, Dealer Claims and the
Jaymed Claim may be delayed or deferred as previously described and as set forth
in Section 7.1(f) of the Plan.
34
<PAGE>
3. ENFORCEMENT OF BAR DATE FOR FILING PROOFS OF CLAIM
The Plan is designed to recognize and enforce the Bar Dates
established by the Bankruptcy Court for the filing of proofs of claim.
Generally, proofs of claim filed on or before May 15, 1997 are considered to be
timely filed.
Proofs of claims filed after May 15, 1997 but on or before June 16,
1997 are not considered to be timely, although the Plan offers compromise
treatment to the untimely filers (referred to as "June 16 Filers" in the Plan,
which term excludes governmental units) in lieu of requiring them to obtain an
order of the Bankruptcy Court deeming their proofs of claim to be timely filed.
Under the compromise treatment, the June 16 Filers would agree to reduce the
amounts of their otherwise allowable Claims by 25%, in consideration of the fact
that they would not be required to incur attorney's fees and costs to have their
proofs of claim accepted as timely filed. If the compromise is not accepted,
the June 16 Filers would be required to obtain an order of the Bankruptcy Court
deeming their late proofs of claim to have been timely filed, which would
require the filing of a motion within thirty days after the Effective Date,
noticed to the Debtor and other necessary parties in interest, a hearing, and
proof of excusable neglect in failing to timely file the proof of claim. If a
Dealer is a June 16 Filer, and such Dealer does not accept the compromise, the
Settlement Treatment provided for in Section 4.6(b) of the Plan is not
available, and Claim of such Dealer, if Allowed, will be treated in accordance
with the Non-Settlement Treatment provided in Section 4.6(c) of the Plan.
No compromise treatment is offered for proofs of claims filed after
June 16, 1997. Such proofs of claim are deemed to be disallowed unless such
proofs of claim are deemed to be timely filed by Final Order of the Bankruptcy
Court issued pursuant to motion of the untimely filer (referred to as "Late
Filers" in the Plan, which term excludes governmental units), filed no later
than thirty days after the Effective Date, after notice and a hearing, upon
proving excusable neglect.
To prove excusable neglect, a June 16 Filer or a Late Filer is
required to satisfy the standard set forth in Pioneer Investment Services
---------------------------
Company v. Brunswick Associates Limited Partnership, 507 U.S. 380, 395 (1993).
- ---------------------------------------------------
The standard requires consideration of (i) the danger of prejudice to the
debtor, (ii) the length of the delay and its potential impact on judicial
proceedings, (iii) the reason for the delay, including whether it was within the
reasonable control of the movant, and (iv) whether the movant acted in good
faith. As to the danger of prejudice, the Plan establishes a conclusive
presumption that the Debtor and all creditors will be prejudiced as a
consequence of permitting any late filed proof of claim to be deemed timely
filed, and the Plan provides that the Confirmation Order and/or any relating
findings of fact and conclusions of law will contain a finding of prejudice to
the Debtor and all creditors.
4. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
The Bankruptcy Code gives the Debtor the power, subject to the
approval of the Bankruptcy Court, to assume or reject executory contracts and
unexpired leases. If an executory contract or unexpired lease is rejected, the
other party to the contract or lease may file a claim for damages incurred by
reason of the rejection. In the case of rejection of leases of real property,
such damage claims are subject to certain limitations imposed by the Bankruptcy
Code.
The Plan provides that all executory contracts and unexpired leases
existing between the Debtor and any party will be deemed rejected by the Debtor
as of the Effective Date, except for any executory contract or unexpired lease
that (i) has been assumed or rejected pursuant to an order of the Bankruptcy
Court entered prior to the Effective Date, (ii) has been renegotiated and either
assumed or rejected on renegotiated terms pursuant to an order of the Bankruptcy
Court entered prior to the Effective Date, (iii) is the subject of a motion to
assume that is pending before the Bankruptcy Court on the Effective Date, (iv)
is the subject of a motion to approve renegotiated terms and assumption or
rejection on renegotiated terms that is pending before the Bankruptcy Court on
the Effective Date, or (v) was entered into after the Commencement Date either
in the
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ordinary course of business by the Debtor or pursuant to an order of the
Bankruptcy Court, or (vi) is specifically treated otherwise in the Plan or the
Confirmation Order.
The insurance policies and related agreements of the Debtor will be
treated as executory contracts and assumed pursuant to section 365(a) of the
Bankruptcy Code. Notwithstanding the assumption of the insurance policies and
related agreements, the distributions under the Plan to any holder of a Claim
covered by any of such insurance policies will be made in accordance with the
treatment provided under Section 7.4 of the Plan. In addition, the Debtor does
not waive any claim, right or cause of action it may have against the insurer
under any of the assumed policies of insurance.
Except as may otherwise be agreed to by the parties, within 60 days
after the Effective Date or as soon thereafter as is practicable, the Debtor
will cure any and all undisputed defaults under any executory contract or
unexpired lease assumed pursuant to the Plan in accordance with section
365(b)(1) of the Bankruptcy Code. All disputed defaults that are required to be
cured will be cured either within 30 days of the entry of a Final Order
determining the amount, if any, of the Debtor's liability with respect thereto,
or as may otherwise be agreed to by the parties. The Debtor is not aware of
significant cure amounts that will become payable as a consequence of the
assumption of any executory contract or unexpired lease.
Claims arising out of the rejection of an executory contract or
unexpired lease pursuant to the Plan must be filed with the Bankruptcy Court no
later than thirty days after the date of notice of entry of the Confirmation
Order. Any Claims not filed within such time will be forever barred from
assertion against the Debtor, its estate and its property. Unless otherwise
ordered by the Bankruptcy Court, all Claims arising from the rejection of
executory contracts and unexpired leases will be treated as Unsecured Claims
under the Plan.
For purposes of the Plan, the obligations of the Debtor to indemnify,
reimburse or limit the liability of its present and any former directors,
officers, or employees that were directors, officers, or employees,
respectively, on or after the Commencement Date against any obligations pursuant
to the Debtor's articles of incorporation or bylaws, applicable state law or
specific agreement, or any combination of the foregoing, will survive
confirmation of the Plan, remain unaffected thereby, and not be discharged
irrespective of whether indemnification, reimbursement or limitation is owed in
connection with an event occurring before, on, or after the Commencement Date.
To insure that they are unaffected by the Chapter 11 filing, to the
extent that the Debtor is a party to or sponsor of any employment and severance
practices and policies, and any employee compensation and benefit plans,
policies and programs of the Debtor, if any, applicable to its employees,
officers or directors including, without limitation, savings plans, retirement
plans, health care plans, severance benefit plans, incentive plans and life,
disability and other insurance plans, the Plan provides that such practices,
policies, plans and programs will be deemed to be, and will be treated as,
executory contracts, and that such practices, policies, plans and programs will
be assumed under the Plan. The Debtor's obligations under such agreements,
plans, policies and programs will be assumed pursuant to section 365(a) of the
Bankruptcy Code, survive confirmation of the Plan, remain unaffected thereby and
not be discharged in accordance with section 1141 of the Bankruptcy Code. To
the extent, however, that Jayserv is the party to or sponsor of such practices,
policies, plans and programs, Jayserv will continue the same in accordance with
their terms, and the Chapter 11 filing will have no affect on such practices,
policies, plans and programs.
It is the Debtor's position that Dealer Agreements are not executory
contracts, and that they will not be subject to assumption or rejection or
otherwise treated as executory contracts under the Plan.
Contracts entered into by the Debtor for the purpose of obtaining
automobile repossession services are not executory contracts and will not be
subject to assumption or rejection or otherwise treated as executory contracts
under the Plan. Such contracts will continue in effect in accordance with their
terms; except that any amounts outstanding under such contracts on the Effective
Date will be treated as Unsecured Claims under Section 4.5 of this Plan.
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5. THE NEW FLEET NOTE
The New Fleet Note will provide as follows: (1) The Debtor and Fleet
agree and stipulate that Fleet is owed $63,079,797.34 as of the Commencement
Date, together with interest and other fees, costs and expenses provided in the
New Fleet Loan Documents; and (2) the outstanding principal balance of the New
Fleet Note together with interest thereon will be due and payable in monthly
installments as set forth in the Amortization Schedule in the New Fleet Note,
with a maturity date of September 30, 1998. The New Fleet Note is supplemented
by the New Fleet Documents.
6. RETIREE BENEFITS
To the extent that the Debtor has maintained or established in whole
or part prior to the Commencement Date, any plan, fund or program (through the
purchase of insurance or otherwise) providing or reimbursing payments for
retired employees and their spouses and dependents for medical, surgical or
hospital care or benefits in the event of sickness, accident, disability, or
death, the Plan provides that, pursuant to section 1114(a) of the Bankruptcy
Code, the Debtor will provide, for the duration of the period for which it is
obligated, payments or reimbursements due to any person under such a plan, fund
or program.
7. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS
Unless otherwise ordered by the Bankruptcy Court, the Debtor will have
the exclusive right, except with respect to applications for the allowance of
compensation and reimbursement of expenses under sections 330 and 503 of the
Bankruptcy Code, to object to the allowance of Claims filed with the Bankruptcy
Court subsequent to the Confirmation Date.
All objections to Claims will be served and filed within 90 days after
the Effective Date or such later date as may be approved by the Bankruptcy
Court.
Notice of any proceedings with respect to an objection, including a
settlement or withdrawal, will be sufficient if served by the Debtor on the
holder of the Claim subject to the objection and the United States Trustee. All
objections will be litigated to Final Order; except that the Debtor will have
the authority to compromise, settle, otherwise resolve or withdraw any
objections, without approval of the Bankruptcy Court.
8. GOVERNANCE OF DEBTOR AFTER EFFECTIVE DATE
The articles of incorporation and bylaws of the Debtor will be amended
and restated effective on the Effective Date to the extent necessary (i) to
effectuate the provisions of the Plan without further action by the Debtor, the
shareholders or directors of the Debtor, and (ii) to prohibit the issuance of
nonvoting equity securities in accordance with Section 1123(a)(6) of the
Bankruptcy Code.
On the Effective Date, the management, control and operation of the
Debtor will become the general responsibility of the Board of Directors of the
Debtor as reorganized hereunder, who will thereafter have the responsibility for
the management, control and operation of the Debtor.
In accordance with the Amended Articles and the Amended Bylaws, as the
same may be amended from time to time, the first annual meeting of the
stockholders of the Debtor will be held on a date in 1998 selected by the Board
of Directors of the Debtor, and subsequent meetings of the stockholders of the
Debtor will be held at least once annually each year thereafter.
It is contemplated that the initial Board of Directors of the Debtor
as of the Effective Date will consist of those individuals currently serving as
members of the Board of Directors or, if any of such members cease to serve
prior to the Effective Date, any successors to such members as may be appointed
consistent with the Debtor's articles of incorporation and bylaws. Each of the
members of such initial Board of Directors will
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<PAGE>
serve until the first annual meeting of stockholders of the Debtor or their
earlier resignation or removal in accordance with the Amended Articles or the
Amended Bylaws.
The officers of the Debtor immediately prior to the Effective Date
will serve as initial officers of the Debtor on and after the Effective Date.
Such officers will serve in accordance with any employment agreement with the
Debtor and applicable nonbankruptcy law.
The issuance of the New Fleet Note will be authorized under the Plan
without further act or action under applicable law, regulation, order or rule.
9. DISCHARGE OF THE DEBTOR
The rights afforded in the Plan and the treatment of the Claims and
Equity Interests therein will be in exchange for and in complete satisfaction,
discharge and release of all Claims and Equity Interests of any nature
whatsoever, including any interest accrued thereon from and after the
Commencement Date, against the Debtor, or its estate, properties or interests in
property. Except as otherwise provided in the Plan, upon the Effective Date,
all such Claims against and Equity Interests in the Debtor will be deemed
satisfied, discharged and released in full. Pursuant to the Confirmation Order,
all parties will be precluded from asserting against the Debtor, its successors,
or its assets or properties, any other or further Claims or Equity Interests
based upon any act or omission, transaction or other activity of any kind or
nature that occurred prior to the Confirmation Date.
10. AMENDMENT OF THE PLAN
The Debtor may alter, amend or modify the treatment of Claims or
Equity Interests provided for in the Plan in accordance with section 1127 of the
Bankruptcy Code and Bankruptcy Rule 3019, as set forth in Section 14.9 of the
Plan.
11. INDEMNIFICATION
The Plan provides that the obligations of the Debtor to indemnify,
reimburse or limit the liability of certain officers, directors and employees of
the Debtor will remain unaffected by the Plan and will not be discharged.
Specifically, the indemnification, reimbursement and limitation of liability
obligations of the Debtor will continue as to any present or former officer,
director or employee who was an officer, director or employee of the Debtor on
the Commencement Date or who became an officer, director or employee of the
Debtor after the Commencement Date. The continuation of such obligations as to
such persons applies to any event occurring before, on or after the Commencement
Date.
12. REVOCATION OF THE PLAN
The Debtor may revoke or withdraw the Plan at any time prior to the
Confirmation Date. If the Debtor revokes or withdraws the Plan prior to the
Confirmation Date, then it will be deemed null and void.
13. RIGHTS OF ACTION AND AVOIDANCE ACTIONS
Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, as of the
Effective Date any Causes of Action accruing to the Debtor, including, without
limitation, avoidance and recovery actions under sections 544, 547, 548, 549,
550, 551 and 553 of the Bankruptcy Code, that are not compromised, settled and
satisfied prior to the Confirmation Date, will become assets of the Debtor, and
the Debtor will have the authority to prosecute such Causes of Action for the
benefit of the Debtor's estate.
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14. TERMINATION OF CREDITORS' COMMITTEE
The appointment of the Creditors' Committee, and the retention of the
professionals serving the Creditors' Committee, will terminate at such time as
all payments and other distributions required to be made on the initial
Quarterly Payment Date are made. From and after the Effective Date, however,
the professionals representing the Creditors' Committee will not be entitled to
incur fees and expenses unless authorized by order of the Bankruptcy Court, upon
separate motion of the Creditors' Committee and after notice and hearing.
15. COMPROMISE AND SETTLEMENT WITH RICHARD B. HOFFMANN
In January 1996, the Debtor entered into an employment contract with
Richard B. Hoffmann ("Hoffmann"), which contract, among other things, provided
that in the event Hoffmann's employment terminated for any reason other than
cause (as defined in the contract), Hoffmann would receive $250,000 (the
"Severance Payment"). As of the Commencement Date, the Debtor and Hoffmann
agreed that Hoffmann's employment would terminate and Hoffmann agreed to
withdraw his demand for the Severance Payment. In exchange therefor, the Debtor
paid Hoffmann two months' salary, extended medical benefits to Hoffmann through
July 31, 1997 and agreed to make voice mail available to Hoffmann until the
earlier of August 31, 1997 or the date Hoffmann secures alternative employment.
The Plan constitutes a motion to the Bankruptcy Court seeking approval of the
Debtor's compromise with Hoffmann, and the Confirmation Order will constitute an
order of the Bankruptcy Court approving the compromise as fair and equitable and
within the bounds of reasonableness.
16. COMPROMISE AND SETTLEMENT OF CLAIMS AGAINST FLEET
The Debtor and Fleet will execute and deliver the New Fleet Note and
the New Fleet Documents that will, among the things, compromise and settle any
Causes of Action that the Debtor could have asserted against Fleet, Fleet's loan
participant, Texas Commerce Bank, N.A., and any director, officer or agent of
any of them (the "Fleet Released Parties") relating to any loans made by the
Fleet Released Parties to the Debtor occurring prior to the Effective Date. In
exchange for the release and such other treatment afforded Fleet under the New
Fleet Documents, Fleet has agreed to the treatment of the Secured Fleet Claim
under the Plan. Nothing in the Plan will release the Fleet Released Parties
from their obligations under the New Fleet Note and the New Fleet Documents.
The treatment of the Secured Fleet Claim pursuant to the terms of the New Fleet
Documents constitutes a reasonable settlement of any Causes of Action held by,
through or under the Debtor or the Debtor's estate, and approval of that
settlement is in the best interest of the Debtor's estate. In fact, the Debtor
is not aware of any meritorious Causes of Action that it may hold against Fleet.
Upon the Effective Date, the Plan and New Fleet Documents will control
the rights and obligations of Fleet, and thereafter neither the Secured Fleet
Claim nor the liens with respect thereto will be subject to challenge by the
Debtor, the Creditors' Committee or any other party in interest in this case.
17. COMPROMISE AND SETTLEMENT WITH DEALERS
The Plan constitutes a motion to the Bankruptcy Court seeking approval
of the Settlement Treatment offered to holders of Dealer Claims pursuant to
Section 4.6(b) of the Plan, as a compromise of the issues raised in the Dealer
Estimation Motion relating to the allowability and amount of Dealer Claims and
of all possible claims and causes of action of the Debtor against the Settling
Dealers and of the Settling Dealers against the Debtor. The Confirmation Order
will constitute an order of the Bankruptcy Court approving the Settlement
Treatment as fair and equitable and within the bounds of reasonableness and
granting the Debtor and the Settling Dealers a full release of all possible
claims and causes of action held against each other.
The Settlement Treatment was negotiated by and between the Debtor and
the Creditors' Committee. In negotiating the Settlement Treatment, the Debtor
asserted that the allowable amount of Dealer Claims was no greater than the back
end distributions that would be due to Dealers based upon the Debtor's
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estimated future collections from its portfolio of Contracts. In the Debtor's
view, its portfolio of Contracts would yield a gross collection amount (from the
Commencement Date) of approximately $155.5 million. This estimated amount was
reduced from the Debtor's original estimate of $170 million. In contrast, the
Creditors' Committee asserted that (i) historically the Debtor had not collected
its portfolio of Contracts in a reasonable manner, thus resulting in less gross
collections than should have been received, and resulting in damages to the
Dealers (a breach of contract assertion) and (ii) the Debtor's estimate of
future gross collections of $170 million was understated and would be more if
the Debtor were to implement various collection procedures. The contention of
the Creditors' Committee was that the Debtor should collect at least $185
million in the future.
By the Settlement Treatment, the Debtor has agreed to assume that it
will collect $185 million, which is effectively the equivalent of a ruling in
favor of the Dealers based upon the position of the Creditors' Committee, in the
amount of $29.5 million ($185 million less $155.5 million). This results in an
aggregate increase in estimated distributions to holders of Allowed Dealer
Claims in the approximate amount of $3.5 million.
In addition to the Debtor's agreement to calculate Dealer Claims based
upon an assumption of gross collections of $185 million, the Debtor agreed to
contribute $110 million in outstanding principal amount of Non-Accrual Contracts
to a trust to be created for the benefit of certain Dealers. While the
Creditors' Committee and the Debtor may not agree as to the valuation of these
Non-Accrual Contracts, it is the Debtor's estimate that they will generate
future cash collections in the range of one to two percent of their outstanding
principal amount, less expenses of collection.
Finally, the Settlement Treatment provides for the allowance of
certain Claims held by certain Dealers based upon assertions of Claims for
enrollment fees paid to the Debtor and/or unused vouchers held by the Dealer.
Under the Settlement Treatment, these Claims will be paid pursuant to certain
formulas agreed to by the Debtor and the Creditors' Committee.
It is the belief of the Debtor and the Creditors' Committee that the
Settlement Treatment is a reasonable resolution of the disputes between the
Debtor and the Dealers. In that regard, each of the Debtor and the Committee
has considered the probability of success in the litigation; the complexity of
the litigation, including the extensive documentary and witness discovery that
would entail; the litigation's attendant expense, both from the perspectives of
the Debtor and the individual Dealers; and the resulting inconvenience and
delay, including the possibility that without the settlement confirmation of a
plan of reorganization could be substantially delayed.
18. DEBTOR'S LIMITED RELEASE OF DIRECTORS AND OFFICERS
As the Debtor is unaware of any such claims, and its present officers
and directors have rendered valuable services to the Debtor during the Chapter
11 Case, as of the Effective Date, the Debtor will be deemed to have waived and
released its present directors and officers who were directors and officers,
respectively, during the Chapter 11 Case and on or before the Commencement Date
from any and all claims of the Debtor, including without limitation, claims
which the Debtor otherwise has legal power to assert, compromise or settle in
connection with the Chapter 11 Case: provided, however, that Section 14.4 of
-------- -------
the Plan will not operate as a waiver or release of any claim (i) in respect of
any loan, advance or similar payment by the Debtor to any such person, and (ii)
in respect of any contractual obligation owed by such person to the Debtor.
19. EXCULPATION
In accordance with the Plan and subject to Section 14.4 of the Plan
("Debtor's Limited Release of Directors and Officers"), neither the Debtor nor
any of their respective members, officers, directors, employees, advisors,
agents, attorneys or other professionals, and neither the Creditors' Committee
nor its members, attorneys or other professionals, will have or incur any
liability to any holder of a Claim or Equity Interest for any act or omission in
connection with, or arising out of, the pursuit of confirmation of the Plan, the
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consummation of the Plan or the administration of the Plan or the property to be
distributed under the Plan except for willful misconduct or gross negligence,
and, in all respects, the Debtor, the Creditors' Committee and each of their
respective members, officers, directors, employees, advisors, agents, members,
attorneys and other professionals will be entitled to rely upon the advice of
counsel with respect to their duties and responsibilities under the Plan. The
Plan provides that the foregoing will not exculpate, satisfy, discharge or
release any claims against officers, directors or employees of the Debtor in
their individual capacities.
20. SUPPLEMENTAL DOCUMENTS
A Plan Supplement will be filed with the Clerk of the Bankruptcy Court
on or before the tenth day preceding the commencement of the Confirmation. The
Plan Supplement will contain the New Fleet Documents, the Westcott Guaranty, the
Westcott Release and the trust agreement for the Non-Accrual Contract Trust.
Parties in interest may inspect the Plan Supplement in the office of the Clerk
of the Bankruptcy Court during normal court hours after the date of its filing.
Alternatively, a copy of the Plan Supplement may be obtained upon written
request to the Debtor in accordance with Section 12.14 of the Plan.
VI. CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be taken to
confirm the Plan:
A. SOLICITATION OF VOTES
---------------------
In accordance with sections 1126 and 1129 of the Bankruptcy Code, the
Claims in Classes 2, 5, 6 7 and 9 are impaired, and the holders of Allowed
Claims in such impaired Classes are entitled to vote to accept or reject the
Plan. Claims in Classes 1, 3, 4 and 8 and Equity Interests in Class 10 are
unimpaired, and the holders of Allowed Claims and Equity Interests in each of
such unimpaired Classes are conclusively presumed to have accepted the Plan and
the solicitation of acceptances with respect to such Classes is not required
under section 1126(f) of the Bankruptcy Code.
As to classes of claims entitled to vote on a plan, the Bankruptcy
Code defines acceptance of a plan by a class of creditors as acceptance by
holders of at least two-thirds in dollar amount and more than one-half in number
of the claims of that class that have timely voted to accept or reject a plan.
A vote may be disregarded if the Bankruptcy Court determines, after notice and a
hearing, that such acceptance or rejection was not in good faith or was not
solicited or procured in good faith or in accordance with the provisions of the
Bankruptcy Code.
Pursuant to the Voting Procedures Order, holders of Claims in impaired
Classes 2, 5, 6 7 and 9 are entitled to vote to accept or reject the Plan if, as
of the Record Holder Date, the Claims of such holders either (a) were listed in
the Debtor's schedules of liabilities, as amended (the "Schedules") as not
---
contingent, unliquidated, or disputed (excluding scheduled claims that have been
superseded by filed claims); or (b) were asserted in timely filed proofs of
claim which were not disallowed, disqualified or suspended prior to computation
of the vote on the Plan (the "Filed Claims"). An assignee of the holder of any
such scheduled or filed claim will be entitled to vote only if a transfer and
assignment document for such assignee has been noted on the Court's docket as of
the close of business on the Record Holder Date, or in the case of a delay in
docketing, if the filing thereof has been evidenced by file stamped copies or a
declaration of filing provided by the assignee to the Balloting Agent prior to
the close of business on the Record Holder Date. As to Dealers with Claims in
impaired Class 6, pursuant to the Voting Procedures Order, and as a consequence
of the Dealer Estimation Motion, such Dealers will be entitled to vote only if
the Debtor's $185 million collection scenario produces an estimated claim
amount, or if the Bankruptcy Court enters an order temporarily allowing their
Claims in an amount greater than $0.00.
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The claim classification and claim amount information contained on any
ballot is not binding and may not be determinative of any creditor's ultimate
claim rights. An objection may be filed to a claim at any time before the claim
objection deadline set forth in the Plan. If an objection is filed and granted,
the classification of a claim may be changed and the amount of a claim may be
reduced from what is shown on the ballot. Any creditor whose claim is subject
to an objection will receive notice of, and have an opportunity to oppose, the
objection.
B. THE CONFIRMATION HEARING
------------------------
The Bankruptcy Code requires the Bankruptcy Court, after notice, to
hold a confirmation hearing. The Confirmation Hearing in respect of the Plan
has been scheduled to commence on September 29, 1997 at 9:30 a.m. Central Time
before the Honorable Steven A. Felsenthal, United States Bankruptcy Judge, at
the United States Bankruptcy Court, 1100 Commerce Street, 14th Floor, Dallas,
Texas 75242. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing. Any objection to confirmation
must be made in writing and specify in detail the name and address of the
objector, all grounds for the objection and the amount of the Claim or number of
shares of stock of the Debtor held by the objector. Any such objection must be
filed with the Bankruptcy Court and served so that it is received by the
Bankruptcy Court, the Chambers of Judge Felsenthal and the following parties on
or before September 22, 1997 at 4:00 p.m., Central Time:
Weil, Gotshal & Manges LLP
Attorneys for the Debtor
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attn: Harry A. Perrin, Esq.
Stephen A. Youngman, Esq.
Simon, Anisman, Doby & Wilson, P.C.
Attorneys for the Creditors' Committee
400 Professional Building
303 W. Tenth Street
P.O. Box 17047
Fort Worth, Texas 76102-0047
Attn: Michael D. Warner, Esq.
Office of the United States Trustee
1100 Commerce Street, Room 9C60
Dallas, Texas 75242
Attn: George F. McElreath, Esq.
Assistant U.S. Trustee
Hughes & Luce, L.L.P.
Attorneys for Fleet Capital Corporation
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: David Weitman, Esq.
Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014.
C. CONFIRMATION
------------
At the Confirmation Hearing, the Bankruptcy Court will confirm the
Plan only if all of the requirements of section 1129 of the Bankruptcy Code are
met. Among the requirements for confirmation of a
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plan are that the plan is (i) accepted by all impaired classes of claims and
equity interests or, if rejected by an impaired class, that the plan "does not
discriminate unfairly" and is "fair and equitable" as to such class, (ii)
feasible and (iii) in the "best interests" of creditors and stockholders which
are impaired under the plan.
1. ACCEPTANCE
Classes 2, 5, 6, 7 and 9 of the Plan are impaired under the Plan and
are entitled to vote to accept or reject the Plan. The Debtor reserves the
right to seek nonconsensual confirmation of the Plan with respect to any
impaired Class of Claims that is entitled to vote to accept or reject the Plan
if such Class rejects the Plan.
2. UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS
To obtain nonconsensual confirmation of the Plan, it must be
demonstrated to the Bankruptcy Court that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each impaired,
nonaccepting Class. The Bankruptcy Code
provides a non-exclusive definition of the phrase "fair and equitable." The
Bankruptcy Code establishes "cram down" tests for secured creditors, unsecured
creditors and equity holders, as follows:
(a) Secured Creditors. Either (i) each impaired secured creditor
-----------------
retains its liens securing its secured claim and receives on account of its
secured claim deferred cash payments having a present value equal to the
amount of its allowed secured claim, (ii) each impaired secured creditor
realizes the "indubitable equivalent" of its allowed secured claim or (iii)
the property securing the claim is sold free and clear of liens with such
liens to attach to the proceeds of the sale and the treatment of such liens
on proceeds is provided in clause (i) or (ii) of this subparagraph. Under
the Plan, the foregoing test applies to the Secured Fleet Claim in Class 2,
the Secured Prudential Claim in Class 3 and Other Secured Claims in Class
4.
(b) Unsecured Creditors. Either (i) each impaired unsecured creditor
-------------------
receives or retains under the Plan property of a value equal to the amount
of its allowed claim or (ii) the holders of claims and interests that are
junior to the claims of the dissenting class will not receive any property
under the Plan. The foregoing test applies to Unsecured Claims in Class 5,
Dealer Claims in Class 6, the Jaymed Claim in Class 7 and the Section
510(b) Claims in Class 9.
(c) Equity Interests. Either (i) each holder of an equity interest
----------------
will receive or retain under the Plan property of a value equal to the
greatest of the fixed liquidation preference to which such holder is
entitled, the fixed redemption price to which such holder is entitled or
the value of the interest or (ii) the holder of an interest that is junior
to the nonaccepting class will not receive or retain any property under the
Plan. The foregoing test applies to Equity Interests in Class 10 of the
Plan.
The Debtor believes that the Plan and the treatment of all impaired
Classes of Claims and Equity Interests under the Plan satisfy the foregoing
requirements for nonconsensual confirmation of the Plan.
3. FEASIBILITY
The Bankruptcy Code requires that confirmation of a plan is not likely
to be followed by liquidation or the need for further financial reorganization.
For purposes of determining whether the Plan meets this requirement, Jayhawk has
analyzed its ability to meet its obligations under the Plan. As part of this
analysis, Jayhawk has prepared Projected Cash Flow Statement of the Reorganized
Debtor (the "Projected Cash Flow Statement") from February 1997 through
September 1998 (the "Projection Period"). The Projected Cash Flow Statement is
annexed hereto as Exhibit D. Based upon such projections, the Debtor believes
that it will be able to make all payments required pursuant to the Plan and,
therefore, that confirmation of the Plan is not likely to be followed by
liquidation or the need for further reorganization.
43
<PAGE>
The Projected Cash Flow Statement is based on the assumption that the
Plan will be confirmed by the Bankruptcy Court and, for projection purposes,
that the Effective Date under the Plan and the initial distributions thereunder
take place in October 1997. Although the projections and information are based
upon an October 1997 Effective Date, Jayhawk believes that an actual Effective
Date later in the fourth quarter of 1997 would not have any material effect on
the projections. The Projected Cash Flow Statement also assumes a "wind-down
scenario," in which no new Contracts are purchased by the Debtor.
Jayhawk has prepared the Projected Cash Flow Statement based upon
certain assumptions which it believes to be reasonable under the circumstances.
Those assumptions that are considered to be significant are described in the
Projected Cash Flow Statement. The Projected Cash Flow Statement has not been
examined or compiled by independent accountants. Jayhawk makes no
representation as to the accuracy of the projections or its ability to achieve
the projected results. Many of the assumptions on which the projections are
based are subject to significant uncertainties. Inevitably, some assumptions
will not materialize and unanticipated events and circumstances may affect the
actual financial results. Therefore, the actual results achieved throughout the
Projection Period may vary from the projected results and the variations may be
material. In evaluating the Plan, all holders of Claims that are entitled to
vote to accept or reject the Plan are urged to examine carefully all of the
assumptions on which the Projected Cash Flow Statement is based.
4. BEST INTERESTS TEST
With respect to each impaired Class of Claims and Equity Interests,
confirmation of the Plan requires that each holder of a Claim or Equity Interest
either (i) accept the Plan or (ii) receive or retain under the Plan property of
a value, as of the Effective Date, that is not less than the value such holder
would receive or retain if the Debtor was liquidated under chapter 7 of the
Bankruptcy Code.
To determine what holders of Claims and Equity Interests of each
impaired Class would receive if the Debtor was liquidated under chapter 7, the
Bankruptcy Court must determine the dollar amount that would be generated from
the liquidation of the Debtor's assets and properties in the context of a
chapter 7 liquidation case. The cash amount which would be available for
satisfaction of Unsecured Claims, Dealer Claims, the Jaymed Claim, Section
510(b) Claims and Equity Interests would consist of the proceeds resulting from
the disposition of the unencumbered assets of the Debtor, augmented by the
unencumbered cash held by the Debtor at the time of the commencement of the
liquidation case. Such cash amount would be reduced by the amount of the costs
and expenses of the liquidation and by such additional administrative and
priority claims that may result from the termination of the Debtor's business
and the use of chapter 7 for the purposes of liquidation.
The Debtor's costs of liquidation under chapter 7 would include the
fees payable to a trustee in bankruptcy, as well as those which might be payable
to attorneys and other professionals that such a trustee may engage. In
addition, claims would arise by reason of the breach or rejection of obligations
incurred and leases and executory contracts assumed or entered into by the
Debtor during the pendency of the Chapter 11 Case. The foregoing types of
claims and other claims which may arise in a liquidation case or result from the
pending Chapter 11 Case, including any unpaid expenses incurred by the Debtor
during the Chapter 11 Case, such as compensation for attorneys, financial
advisors and accountants, would be paid in full from the liquidation proceeds
before the balance of those proceeds would be made available to pay prepetition
Unsecured Claims, Dealer Claims, the Jaymed Claim or Section 510(b) Claims.
To determine if the Plan is in the best interests of each impaired
Class, the present value of the distributions from the proceeds of the
liquidation of the Debtor's unencumbered assets and properties, after
subtracting the amounts attributable to the foregoing Claims, are then compared
with the value of the property offered to such Classes of Claims and Equity
Interests under the Plan.
After considering the effects that a chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in a Chapter 11
Case, including (i) the increased costs and expenses of a liquidation under
chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisors to such
44
<PAGE>
trustee, (ii) the erosion in value of assets in a chapter 7 case in the context
of the expeditious liquidation required under chapter 7 and the "forced sale"
atmosphere that would prevail and (iii) the substantial increases in claims
which would be satisfied on a priority basis or on parity with creditors in the
Chapter 11 Case, the Debtor has determined that confirmation of the Plan will
provide each holder of an Allowed Claim or Equity Interest with a recovery that
is not less than such holder would receive pursuant to liquidation of the Debtor
under chapter 7 liquidation.
The Debtor has not provided a formal liquidation analysis because it
believes that the Plan clearly satisfies the best interests test, based upon the
fact that it proposes to pay 100% of the Allowed amounts of Claims, with the
possible exception of Dealer Claims receiving the Settlement Treatment, who may
receive less than the settled amounts of their Claims if additional Dealer
Claims are recognized and allowed, and the additional fact that a sale of the
Debtor's portfolio of Contracts in a liquidation would produce proceeds
significantly less than the Debtor's $155.5 million estimate of gross
collections.
D. CONSUMMATION
------------
The Plan will be consummated on the Effective Date. The Effective
Date of the Plan is the first Business Day that is ten (10) days after the date
on which the Confirmation Order becomes a Final Order. The Plan is to be
implemented pursuant to the provisions of the Bankruptcy Code.
VII. MANAGEMENT OF THE REORGANIZED DEBTOR
As of the Effective Date, the management, control and operation of the
Debtor will become the general responsibility of its Board of Directors.
A. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEBTOR
----------------------------------------------
The following sets forth certain information regarding the Debtor's
Board of Directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- -----------------------------------------------
<S> <C> <C>
Carl H. Westcott..... 57 Chairman of the Board, Chief Executive Officer
and Director
Jack T. Smith........ 44 President, Chief Operating Officer and Director
Philip E. Falcosky 45 Controller and Chief Accounting Officer
Dan W. Cook III...... 62 Director (resigned effective July 9, 1997)
John D. Curtis....... 56 Director
C. Gregory Earls..... 52 Director
Regina T. Montoya.... 43 Director
Joe J. Pollard, III.. 57 Director
John C. Tolleson..... 48 Director (resigned effective August 1, 1997)
</TABLE>
Carl H. Westcott has served as the Chairman of the Board and Chief
Executive Officer of Jayhawk since February 1997 and as a director of Jayhawk
since its inception in June 1993. He provided a
45
<PAGE>
substantial portion of the initial capital to Jayhawk and is the principal
shareholder of Jayhawk. Mr. Westcott has extensive experience with corporations
in the automobile sales and automobile dealership support industries and, until
its sale in January 1996, was the sole director and shareholder of Atlanta
Toyota, Inc. Atlanta Toyota, Inc. is one of the largest Toyota dealerships in
the United States. From 1986 until its acquisition by K-III Communications
Corporation in June 1996, Mr. Westcott was Chairman of the Board, Chief
Executive Officer and a director of Westcott Communications, Inc. Westcott
Communications, Inc. is a Dallas-based communications company producing
information programming for subscribers in the automotive and other industries
and was affiliated with Mr. Westcott until its acquisition by K-III
Communications Corporation. Since May 1994, Mr. Westcott has also served as a
member of the Board of Directors of First USA, Inc.
Jack T. Smith has served as President and Chief Operating Officer of
Jayhawk since March 1997 and as a director of Jayhawk since its inception. From
September 1996 to March 1997, Mr. Smith served as a consultant to Jayhawk. From
June 1996 until March 1997, he was employed by Westcott LLC, a consulting and
private investment company. From 1989 until its acquisition by K-III
Communications Corporation in June 1996, Mr. Smith was President and Chief
Operating Officer of Westcott Communications, Inc.
Philip E. Falcosky was named Controller and Chief Accounting Officer
effective June 1, 1997. Mr. Falcosky joined Jayhawk in October 1995 as Director
of Internal Audit, and in January 1996 was named Manager of Dealer Underwriting
and Collateral Control. Prior to joining Jayhawk, Mr. Falcosky served from 1990
to 1994 as Vice President and Manager of Audit-Division with BankAmerica Corp.;
from 1983 to 1990 as Senior Vice President/Director of Internal Audit with
MeraBank, F.S.B.; and from 1974 to 1983 as an accountant with Peat, Marwick
Mitchell & Co. and Arthur Young & Company.
Dan W. Cook III served on the Board of Directors of Jayhawk from
October 1995 to July 1997. Mr. Cook is a limited partner with the investment
banking firm of Goldman, Sachs & Co., where he was employed for more than 30
years, and serves on the Board of Directors of Centex Corporation. In addition
to Mr. Cook's business activities, he has served in various professional and
charitable organizations including: Vice-Chairman of the Executive Board: The
Edwin L. Cox School of Business, Southern Methodist University, Trustee of SMU
and Vice Chairman of SMU's Investment Committee and Director and Member of
Investment Committee, University of Nebraska Foundation. Mr. Cook tendered his
resignation as a member of the Board of Directors, effective as of July 9, 1997.
John D. Curtis has served as a consultant to Jayhawk since September
1996 and as a director of Jayhawk since October 1995. Mr. Curtis has also
served as President of First Extended Service Corporation since November 1995
and a director of Farah Incorporated since June 1996. From November 1992 until
joining First Extended Service Corporation, Mr. Curtis was a partner in the law
firm of Baker & McKenzie. Prior to November 1992, he was a partner in the law
firm of Johnson & Gibbs, P.C.
C. Gregory Earls has served on the Board of Directors of Jayhawk since
its inception. Mr. Earls is President and a director of Equitable Production
Funding of Canada, Inc., a film licensing company; U.S. Viewing Corporation, a
management company; and National Networks, Inc., a private investment company.
Mr. Earls has held these positions since June 1981, March 1985 and January 1993,
respectively. Mr. Earls was President and a director of Health and Sciences
Television Network, a subsidiary of Westcott Communications, Inc., from November
1991 until its acquisition by K-III Communications Corporation in June 1996.
Regina T. Montoya has served on the Board of Directors of Jayhawk
since February 1994. Ms. Montoya has also served as a member of the Board of
Directors of Integrated Communications Network, Inc. since June 1995, as a
member of the Board of Directors of the Student Loan Marketing Association
(Sallie Mae) since March 1994 and as a member of the Board of Directors of
Trammell Crow Company since December 1993. Since August 1995, Ms. Montoya has
served as a political analyst for KDFW-TV in Dallas, Texas, and since September
1995 she has also served as a Visiting Professor at the University of Texas in
Dallas, Texas, and as a consultant. Between January 1994 and August 1995, Ms.
Montoya served as a Vice President of Westcott
46
<PAGE>
Communications, Inc. From September 1993 to December 1993, Ms. Montoya was self-
employed as a consultant. Ms. Montoya served as an Assistant to President
Clinton and Director of the Office of Intergovernmental Affairs from January to
August of 1993. Ms. Montoya is an attorney who previously was in the private
practice of law with the law firms Godwin & Carlton from September 1990 to
January 1993 and Akin, Gump, Strauss, Hauer & Feld from September 1980 to
September 1990.
Joe J. Pollard, III has served on the Board of Directors of Jayhawk
since September 1994 and since March 1997 has served as Jayhawk's Director of
Vehicle Remarketing. From September 1994 until his resignation in January 1996,
Mr. Pollard served as President and Chief Operating Officer of Jayhawk. Between
January 1996 and March 1997, Mr. Pollard was self-employed as a private
investor. From August 1993 to September 1994, Mr. Pollard served as President
and General Manager of Atlanta Toyota, Inc., an Atlanta-based automobile
dealership formerly owned by Mr. Westcott. Atlanta Toyota, Inc. is one of the
ten largest Toyota dealerships in the U.S. From April 1990 to July 1993, Mr.
Pollard was self-employed as a private investor. Mr. Pollard has 30 years of
experience in the automotive industry, 22 of which were spent at the Eagle
Companies, one of the largest dealership groups in the country, where he rose to
the position of Executive Vice President.
John C. Tolleson served on the Board of Directors of Jayhawk from its
inception until August 1997. He has served as Chairman of the Board and Chief
Executive Officer of First USA, Inc. and a director of First USA Bank since
August 1989. Additionally, Mr. Tolleson has served as a director of Capstead
Mortgage Corp. since July 1994 and as a director of First USA Paymentech, Inc.
since January 1996. First USA, Inc. and its related companies are financial
services companies, which are major issuers of credit cards and providers of
merchant processing services. By letter dated June 25, 1997, Mr. Tolleson
tendered his resignation as a member of the Board of Directors, effective as of
August 1, 1997.
B. EXECUTIVE COMPENSATION
----------------------
The Summary Compensation Table below provides certain summary
information concerning compensation paid or accrued by Jayhawk to or on behalf
of Jayhawk's Chief Executive Officer during 1996 and each of the other persons
serving as executive officers of Jayhawk during 1996 whose compensation in 1996
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- -------------
NAME AND FISCAL OTHER ANNUAL AWARDS
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS
- ----------------------------------------- ------ --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Michael I. Smartt,....................... 1996 $259,422 --- --- 50,000 (1)
Former Chairman of the Board, Chief 1995 178,464 --- --- 100,000 (2)
Executive Officer and Director (3)..... 1994 137,215 --- --- 150,000 (4)
Richard B. Hoffmann,..................... 1996 232,051 $200,000 (5) $53,681 (6) 150,000 (7)
Former President and Chief 1995 --- --- --- ---
Operating Officer (8).................. 1994 --- --- --- ---
C. Fred Jackson,......................... 1996 52,500 50,000 (9) 3,013 (10) 80,000 (11)
Former Senior Vice President and Chief 1995 --- --- --- ---
Financial Officer (12)................. 1994 --- --- --- ---
Oney A. Hervey,.......................... 1996 150,000 --- --- 5,000 (13)
Senior Vice President - Operations (14).. 1995 75,448 15,000 --- 75,000 (15)
......................................... 1994 --- --- --- ---
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- -------------
NAME AND FISCAL OTHER ANNUAL AWARDS
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS
- ----------------------------------------- ------ --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Jerry W. Bayless (16).................... 1996 144,308 --- --- ---
......................................... 1995 127,964 --- --- 35,000 (17)
......................................... 1994 127,841 --- --- ---
John A. Blessing III (18)................ 1996 135,124 15,000 --- ---
......................................... 1995 102,680 10,000 17,943 (19) 25,000 (20)
......................................... 1994 --- --- --- ---
</TABLE>
- -----------------------------------------
(1) Options granted September 27, 1996, as part of a total grant of 378,000
options to certain officers and key employees pursuant to Jayhawk's 1994
Stock Option Plan (as hereinafter defined).
(2) Options granted July 10, 1995, as part of a total grant of 157,500 options
to certain officers and key employees pursuant to Jayhawk's 1994 Stock
Option Plan.
(3) Mr. Smartt served as Jayhawk's Chairman of the Board and Chief Executive
Office until February 1997. Mr. Westcott has succeeded Mr. Smartt as
Chairman of the Board and Chief Executive Office of Jayhawk. Mr. Westcott
serves in such capacities without compensation.
(4) Options granted August 24, 1994 as part of a total grant of 265,000 options
to certain officers and key employees pursuant to Jayhawk's 1994 Stock
Option Plan.
(5) Bonus paid for fiscal year 1996 pursuant to the terms of Mr. Hoffmann's
employment agreement.
(6) Reimbursement for moving expenses incurred in connection with Mr.
Hoffmann's relocation to Dallas, Texas.
(7) Options granted January 25, 1996 and September 27, 1996, as part of a total
grant of 406,500 options to certain officers and key employees pursuant to
Jayhawk's 1994 Stock Option Plan.
(8) Mr. Hoffmann became President and Chief Operating Officer of Jayhawk in
January 1996. He served in such capacities until February 1997. Mr. Smith
has succeeded Mr. Hoffmann as President and Chief Operating Officer of
Jayhawk. Mr. Smith is paid $10,000 per month for his services.
(9) Bonus paid for fiscal year 1996 pursuant to the terms of Mr. Jackson's
employment agreement.
(10) Reimbursement for moving expenses incurred in connection with Mr. Jackson's
relocation to Dallas, Texas.
(11) Options granted August 19, 1996 and September 27, 1996, as part of a grants
totaling 428,000 options to certain officers and key employees pursuant to
Jayhawk's 1994 Stock Option Plan.
(12) Mr. Jackson served as Senior Vice President and Chief Financial Officer of
Jayhawk from August 1996 to June 1997.
(13) Options granted September 27, 1996 as part of a total grant of 378,000
options to certain officers and key employees pursuant to Jayhawk's Stock
Option Plan.
(14) Mr. Hervey served as Senior Vice President-Operations until February 1997.
(15) Options granted July 10, 1995, August 14, 1995 and October 24, 1995 as part
of grants totaling 336,000 options to certain officers and key employees
pursuant to Jayhawk's 1994 Stock Option Plan.
(16) Mr. Bayless served as an executive officer of Jayhawk until August 1996.
The table shows compensation paid to Mr. Bayless, who would have been one
of the four most highly compensated executive officers of Jayhawk other
than the Chief Executive Officer except for the fact that he was not
serving as an executive officer at December 31, 1996.
(17) Options granted August 14, 1995 as part of a total grant of 130,500 options
to certain officers and key employees pursuant to Jayhawk's 1994 Stock
Option Plan.
(18) Mr. Blessing served as an executive officer of Jayhawk until December 1996.
The table shows compensation paid to Mr. Blessing, who would have been one
of the four most highly compensated executive officers of Jayhawk other
than the Chief Executive Officer except for the fact that he was not
serving as an executive officer at December 31, 1996.
(19) Reimbursement for moving expenses incurred in connection with Mr.
Blessing's relocation to Dallas, Texas.
(20) Options granted February 28, 1995 and August 14, 1995 as part of grants
totaling 187,000 options to certain officers and key employees pursuant to
Jayhawk's 1994 Stock Option Plan.
C. GRANTS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
-----------------------------------------------------
The following table provides information with respect to the executive
officers of Jayhawk listed in the Summary Compensation Table above concerning
the grant of options to acquire Common Stock in 1996. No SARs were granted in
1996.
48
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE PRESENT VALUE
- ------------------------- -------------- ----------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Michael I. Smartt........ 50,000 7.10% $14.1250 9/27/03 $335,395
Richard B. Hoffmann (1).. 100,000 14.19% 10.3750 1/25/03 559,480
50,000 7.10% 14.1250 9/27/03 335,395
C. Fred Jackson.......... 50,000 7.10% 10.1375 8/19/03 251,395
30,000 4.26% 14.1250 9/27/03 201,237
Oney A. Hervey (1)....... 5,000 0.71% 14.1250 9/27/03 33,540
Jerry W. Bayless......... --- --- --- --- ---
John A. Blessing......... --- --- --- --- ---
</TABLE>
- ---------------------------
(1) Mr. Hoffmann and Mr. Hervey resigned from all their positions with Jayhawk
in February 1997. At such time all unvested options terminated, and all
vested options terminated 60 days after their respective resignations
unless exercised. Since the Commencement Date, the exercise price of these
options has been greater than the market price of the Common Stock.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1995 and 1996, respectively: risk-free interest rates ranging
from 5.38% to 7.59% and 5.32% to 6.91%; dividend yields of 0% and 0%; volatility
factors of the expected market price of Jayhawk's Common Stock of .43; and a
weighted-average expected life of the option of 5.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Jayhawk's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of the stock options on their respective grant
dates.
D. STOCK OPTION EXERCISES AND HOLDINGS
-----------------------------------
The following table provides information with respect to the executive
officers of Jayhawk listed in the Summary Compensation Table above concerning
the value of unexercised options to acquire Common Stock held as of December 31,
1996. No SARs have been granted under any incentive plan.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES VALUE OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT FISCAL
ACQUIRED ON REALIZED YEAR END (#) YEAR END ($)
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ------------------------- ------------ ---------- ------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael I. Smartt........ --- --- 85,000 / 215,000 $449,275 / $725,475
Richard B. Hoffmann (2).. --- --- 20,000 / 130,000 20,000 / 80,000
C. Fred Jackson.......... --- --- 20,000 / 60,000 18,750 / 28,125
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES VALUE OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT FISCAL
ACQUIRED ON REALIZED YEAR END (#) YEAR END ($)
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ------------------------- ------------ ---------- ------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oney A. Hervey........... --- --- 18,750 / 61,250 3,437 / 10,312
Jerry W. Bayless......... 8,750 16,344 --- / --- --- / ---
John A. Blessing......... 6,250 27,500 --- / --- --- / ---
</TABLE>
__________________
(1) The options were valued using the Common Stock closing price on December
31, 1996, which was $11.25. On April 10, 1997, the closing price of the
Common Stock was $2.00.
(2) Mr. Hoffmann and Mr. Hervey resigned from all their positions with Jayhawk
in February 1997. At such time all unvested options terminated, and all
vested options terminated 60 days after their respective resignations
unless exercised. Since the Commencement Date, the exercise price of these
options has been greater than the market price of the Common Stock.
E. STOCK OPTION PLAN
-----------------
Jayhawk adopted its 1994 Stock Option and Restricted Stock Plan in
February 1994, which was amended and restated in its entirety in July 1995 and
again amended in May 1996 (as so amended and restated, the "1994 Stock Option
Plan"). An aggregate of 1,500,000 shares of Common Stock are reserved for
issuance under the 1994 Stock Option Plan.
The 1994 Stock Option Plan is administered by a committee (the
"Committee") of non-employee directors of Jayhawk. The Committee may delegate
to one or more officers or managers of Jayhawk the authority to administer the
1994 Stock Option Plan with respect to participants who are not officers or
directors for purposes of Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Participants in the 1994 Stock Option Plan are those key
employees of, or consultants to, Jayhawk as the Committee may select from time
to time. Jayhawk may grant options to purchase shares of Common Stock and
awards of shares of Common Stock containing certain restrictions ("restricted
stock") under the 1994 Stock Option Plan. As of March 21, 1997, options to
purchase 25,700 shares, 267,000 shares, 12,000 shares, 140,000 shares, 15,250
shares, 100,000 shares, 15,000 shares, 16,000 shares, 26,500 shares, 29,000
shares, 50,000 shares, and 347,500 shares of Common Stock at respective exercise
prices per share of $2.36, $4.46, $5.00, $10.00, $10.125, $10.375, $11.00,
$12.625, $12.75, $10.625, $10.4375 and $14.125 were outstanding under the 1994
Stock Option Plan. No shares of restricted stock have been issued under the
1994 Stock Option Plan.
Options granted under the 1994 Stock Option Plan may be incentive
stock options ("ISOs") meeting the requirements of Section 422 of the Internal
Revenue Code (the "Code") or may be nonstatutory options. The exercise price of
an option will be such price as is determined by the Committee in its sole
discretion; provided, however, that in the case of an ISO, the exercise price
will not be less than 100% of the fair market value of the shares subject to
such option on the date of grant (or 110% in the case of an option granted to a
participant who is a ten percent shareholder on the date of grant). The
aggregate fair market value of the Common Stock on the date of grant for which
any participant may be granted ISOs first exercisable in any year may not exceed
$100,000. The exercise price is required to be paid in full at the time of
exercise in cash or, upon approval of the Committee, in shares of Common Stock.
The term of each option granted under the 1994 Stock Option Plan is ten years
from the date of grant or such shorter term as may be determined by the
Committee; provided, however, in the case of an ISO granted to a ten percent
shareholder, the term of such ISO will be five years from the date of grant, or
such shorter time as may be determined by the Committee, and, unless otherwise
provided in the stock option agreement relating to a particular option, will
terminate upon the participant ceasing to be an employee or consultant to the
extent not then exercisable. Options that have become exercisable on or prior to
the date the participant ceases to be an employee or consultant terminate at the
earlier of: (i) the expiration date of the option; (ii) unless extended by the
Committee, (y) in the case of an ISO, 90 days after the date the participant
ceases to be an employee or consultant and (z) in the case of a nonstatutory
option, six months after the date the participant ceases to be an employee or
consultant (or in each case, such shorter
50
<PAGE>
period as may be provided in the stock option agreement evidencing the option);
or (iii) where such termination occurs as a result of death or disability, one
year after the participant ceases to be an employee or consultant. Options
granted under the 1994 Stock Option Plan are not transferable by the grantee
other than by will and the laws of descent and distribution.
Under the 1994 Stock Option Plan, restricted stock may be granted by
the Committee separately or in combination with options as provided for by the
Committee; provided, however, each grant of restricted stock will require the
participant to remain an employee of (or otherwise provide services to) Jayhawk
for at least six months from the date of grant. Restricted stock will be
granted to participants for services rendered to Jayhawk, and at no additional
cost to the participant. The terms, conditions and restrictions of the
restricted stock are determined by the Committee on the date of grant. The
restricted stock may not be sold, assigned, transferred, redeemed, pledged or
otherwise encumbered during the period in which the terms, conditions and
restrictions apply. More than one grant of restricted stock may be outstanding
at any one time, and the restricted periods may be of different lengths. At the
time of each grant of restricted stock, the Committee in its sole discretion may
establish certain criteria to determine the times at which restrictions placed
on restricted stock will lapse. The restricted stock criteria may vary among
grants of restricted stock. On the date the restriction period terminates, the
restricted stock will vest in the participant, who may then require Jayhawk to
issue certificates evidencing the restricted stock. Generally, if a participant
ceases to be an employee or otherwise ceases to provide services to Jayhawk for
any reason, all grants of restricted stock are forfeited; provided, however, if
a participant ceases to be an employee of or otherwise provide services to
Jayhawk, or dies or suffers from permanent disability, the vesting or forfeiture
of any grant will be determined by the Committee in its sole discretion. The
Committee may provide from time to time that amounts equivalent to dividends
paid with respect to Common Stock be payable with respect to the restricted
stock. Such amounts will be credited to the participant's restricted stock
account but will be payable to the participant only when the restrictions lapse.
F. NON-EMPLOYEE PLAN
-----------------
Jayhawk adopted its Non-Employee Stock Option Plan in February 1994,
and it was amended and restated in its entirety in July 1995 (as so amended and
restated, the "Non-Employee Plan"). A total of 450,000 shares of Common Stock
are reserved for issuance upon exercise of options granted under the Non-
Employee Plan. The Non-Employee Plan provides for the grant of options to
directors of Jayhawk and its subsidiaries and other persons rendering critical
services to Jayhawk or its subsidiaries who are not full-time employees of
Jayhawk or any of its subsidiaries and on the date of grant do not own more than
ten percent of the outstanding Common Stock ("Eligible Individuals"). As of
December 31, 1996, options to purchase 30,000, 40,000, 20,000 and 60,000 shares
of Common Stock at exercise prices of $.01 per share, $4.46 per share, $12.625
and $12.8125 per share, respectively, were outstanding under the Non-Employee
Plan.
The Non-Employee Plan provides that immediately following the initial
election or appointment of an Eligible Individual to Jayhawk's Board of
Directors, such individual will automatically receive an option to purchase
10,000 shares of Common Stock at a price per share equal to the fair market
value of such stock on the date of such election. Thereafter, upon the
reelection of any Eligible Individual to the Board of Directors, such individual
will automatically be granted an option to purchase an additional 10,000 shares
of Common Stock at a price per share equal to the fair market value of such
stock on the date of such reelection; provided that no Eligible Individual will
receive an option upon reelection if such option, together with all unexercised
options previously granted under the Non-Employee Plan to such director, exceed
options to purchase 50,000 shares of Common Stock. Twenty-five percent of any
such option will vest on each of the six month, one year, two year, and three
year anniversaries of the date of grant and no such option will be exercisable
after the date which is ten years from the date of grant.
The Non-Employee Plan is administered by the Committee and permits the
grant of options to such Eligible Individuals as the Committee may determine
from time to time, which options will be subject to such terms and conditions as
the Committee may determine. In addition, the Committee may grant cash awards
payable in connection with the exercise of an option. The exercise price of any
such option will be such price as
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is determined by the Committee; provided that the exercise price will not be
less than 85% of the fair market value of the shares subject to such option on
the date of grant. Except as otherwise provided in the agreement evidencing the
option, if a holder of an option ceases to be a director of, or otherwise render
the service for which the option was granted to, Jayhawk or its subsidiaries,
the unexercised portion of such option will terminate, if a holder of any option
ceases by reason of disability to be a director of Jayhawk or any of its
subsidiaries or to otherwise render the service for which the option was
granted, the unexercised portion of such option will terminate 90 days
thereafter, and if a holder of an option dies, the unexercised portion of such
option will terminate one year thereafter.
G. EMPLOYEE STOCK PURCHASE PLAN
----------------------------
Jayhawk adopted its Employee Stock Purchase Plan (the "Stock Purchase
Plan") in April 1995 and it became effective on January 1, 1996. A total of
150,000 shares of Common Stock are reserved for issuance under the Stock
Purchase Plan. As of December 31, 1996, 12,300 shares of Common Stock have been
issued pursuant to the Stock Purchase Plan. The Stock Purchase Plan is intended
to qualify under Section 423 of the Internal Revenue Code of 1986, as amended.
The term of the Stock Purchase Plan is ten years commencing on its effective
date. The Stock Purchase Plan will be interpreted and administered by the
Compensation Committee. All full-time employees, except directors, five percent
shareholders and key executives which the Compensation Committee determines to
be ineligible, will be eligible to participate in the Stock Purchase Plan if
they have been continuously employed by Jayhawk for 180 days. On each
Investment Date (as defined in the Stock Purchase Plan), eligible employees will
be permitted to purchase Common Stock with amounts accumulated through payroll
deductions, which are limited to a maximum of ten percent of an employee's
monthly salary, at 85% of the fair market value of the Common Stock on the
applicable Investment Date. The Investment Dates will be the third Friday of
each March, June, September and December during the term of the Stock Purchase
Plan. An employee may end his participation in the Plan at any time by
withdrawing all funds accumulated in his payroll deduction account, and
participation ends automatically on termination of full-time employment with
Jayhawk.
H. STAY BONUS PROGRAM
------------------
Jayhawk desired to provide an incentive program for those of its employees
who remained with it through the pendency of the Chapter 11 case. Therefore,
Jayhawk filed a motion with the Bankruptcy Court seeking approval of such a
program. As described in the motion, the program provides that certain
designated employees will receive a bonus equal to one-third of their annualized
salary if they remain with Jayhawk through the earlier of September 30, 1997 or
30 days after the Effective Date of the Plan, while other designated employees
will receive a bonus in the amount of $5,000 or $3,000, as determined by the
Debtor, if they remain with Jayhawk through the same time period. The motion
was granted by order of the Bankruptcy Court dated June 25, 1997.
I. COMPENSATION OF DIRECTORS
-------------------------
Jayhawk pays non-employee directors an annual retainer of $4,000 and a
fee of $1,000 for each Board of Directors or committee meeting attended.
Jayhawk also reimburses out-of-pocket expenses related to the director's
attendance at such meetings.
On September 5, 1996, Jayhawk entered into a consulting agreement with
Jack T. Smith, a member of Jayhawk's Board of Directors pursuant to which Mr.
Smith agreed to provide business, financial and management consulting services
to Jayhawk. In accordance with the consulting agreement, Jayhawk granted Mr.
Smith an option to purchase 100,000 shares of Common Stock at an exercise price
of $14.125 per share exercisable in increments of 25,000 shares, with the first
25,000 shares becoming immediately exercisable on the date of grant and each
subsequent increment becoming exercisable on each of the next three
anniversaries of the date of grant. Unvested options automatically terminate
upon termination of the consulting agreement, which can be terminated by either
party on 30 days' notice. In February 1997, Mr. Smith was appointed President
and
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Chief Operating Officer of Jayhawk. Such agreement was terminated upon Mr. Smith
being appointed President and Chief Operating Officer of Jayhawk.
On September 27, 1996, Jayhawk also entered into a consulting
agreement with John D. Curtis, a member of Jayhawk's Board of Directors,
pursuant to which Mr. Curtis agreed to provide legal and business consulting
services to Jayhawk. In accordance with the consulting agreement, Jayhawk
granted Mr. Curtis an option to purchase 20,000 shares of Common Stock at an
exercise price of $14.125 per share exercisable in increments of 5,000 shares,
with the first 5,000 shares becoming immediately exercisable on the date of
grant and each subsequent increment becoming exercisable on each of the next
three anniversaries of the date of grant. Unvested options automatically
terminate upon termination of the consulting agreement, which can be terminated
by either party on 30 days' notice.
J. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 12, 1997 by: (i) each
person known by Jayhawk to own beneficially five percent or more of the
outstanding Common Stock; (ii) each of Jayhawk's directors; (iii) each of the
persons named in the Summary Compensation Table; and (iv) all directors and
executive officers of Jayhawk as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED (1) SHARES
----------------- --------------
<S> <C> <C>
Michael I. Smartt (2).............................................. 337,025 1.5%
Richard B. Hoffmann (3)............................................ 40,000 *
C. Fred Jackson (4)................................................ 20,000 *
Oney A. Hervey (5)................................................. --- *
Dan W. Cook III (6)................................................ 128,333 *
John D. Curtis (7)................................................. 2,352,743 9.8%
C. Gregory Earls (8)............................................... 676,714 2.8%
Regina T. Montoya (9).............................................. 31,787 *
Joe J. Pollard, III (10)........................................... 233,025 1.1%
Jack T. Smith (11)................................................. 103,633 *
John C. Tolleson (12).............................................. 530,805 2.2%
Carl H. Westcott (13).............................................. 8,272,713 34.6%
Jerry W. Bayless (14).............................................. 283,984 1.2%
John A. Blessing (15).............................................. --- *
All directors and executive officers as a group (14 persons) (16).. 12,632,903 52.8%
</TABLE>
- --------------------------------------
* Represents less than 1.0% of the outstanding Common Stock.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to the shares
of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
(2) Includes 85,000 shares of Common Stock issuable upon exercise of options
granted under the 1994 Stock Option Plan and exercisable within 60 days.
Mr. Smartt is no longer an executive officer of Jayhawk.
(3) Consists of shares of Common Stock issuable upon exercise of options
granted under the 1994 Stock Option Plan. These options would have
terminated on April 22, 1997 unless exercised. The number of shares
reported as beneficially owned by him is based on his last Form 4 which was
filed for the month of September 1996. Mr. Hoffmann is no longer employed
by Jayhawk.
(4) Includes 20,000 shares of Common Stock issuable upon exercise of options
granted under the 1994 Stock Option Plan and exercisable within 60 days.
(5) The number of shares reported as beneficially owned by him is based on his
last Form 4 which was filed for the month of February 1997. Mr. Hervey is
no longer employed by Jayhawk.
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(6) Includes 10,000 shares issuable upon exercise of options granted under the
Non-Employee Plan and exercisable within 60 days. Includes 80,434 shares
of Common Stock held by Mr. Cook as Custodian for his children under the
Uniform Gift To Minors Act, as to which Mr. Cook disclaims beneficial
ownership.
(7) Includes 10,500 shares issuable upon exercise of options granted under the
Non-Employee Plan and exercisable within 60 days. Includes 1,149,000 and
1,149,000 shares of Common Stock held by Mr. Curtis as trustee of the Court
Hilton Westcott 1987 Trust and Chart Hampton Westcott 1987 Trust,
respectively, as to which Mr. Curtis disclaims beneficial ownership.
(8) Includes 665,064 and 1,050 shares of Common Stock held by Mr. Earls as
trustee under the Earls' Children Irrevocable Educational Trust Agreement
and by members of his family, respectively, as to which Mr. Earls disclaims
beneficial ownership, and 10,000 shares of Common Stock issuable upon
exercise of options granted under the Non-Employee Plan and exercisable
within 60 days.
(9) Includes 22,500 shares of Common Stock issuable upon the exercise of
options granted under the Non-Employee Plan and exercisable within 60 days.
(10) Includes 100,000 shares of Common Stock issuable upon exercise of options
granted under the 1994 Stock Option Plan and exercisable within 60 days.
(11) Includes 20,000 shares of Common Stock issuable upon exercise of options
granted under the Non-Employee Plan and exercisable within 60 days.
(12) Includes 45,000 shares of Common Stock held by Mr. Tolleson as trustee of
the Tolleson 1994 Descendants Trust, as to which Mr. Tolleson disclaims
beneficial ownership, and 22,500 shares of Common Stock issuable upon
exercise of options granted under the Non-Employee Plan and exercisable
within 60 days.
(13) The principal business address of Mr. Westcott is 2001 Bryan Street, Suite
600, Dallas, Texas 75201.
(14) Mr. Bayless is no longer with the Debtor. The information regarding his
ownership of Common Stock is based on his last Form 4 filed for the month
of August 1995.
(15) Mr. Blessing is no longer employed by Jayhawk. The number of shares
reported as beneficially owned by him is based on his last Form 4 which was
filed for the month of November 1996.
(16) Includes 112,500 shares of Common Stock issuable upon exercise of options
granted under the Non-Employee Plan and exercisable within 60 days and
120,000 shares of Common Stock issuable upon exercise of options granted
under the 1994 Stock Option Plan and exercisable within 60 days.
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER
HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT
THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING
THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.
A. OVERALL RISK TO RECOVERY BY HOLDERS OF CLAIMS
---------------------------------------------
The ultimate recoveries under the Plan to holders of Claims (other
than those holders who are paid in Cash on the Effective Date under the Plan)
depend upon various assumptions. The factors specified below assume that the
Plan is approved by the Bankruptcy Court and that the Effective Date occurs on
or about September 30, 1997. Prior to voting on the Plan, each holder of a
Claim should carefully consider the risk factors specified or referred to below,
including the Exhibits annexed hereto, as well as all of the information
contained in the Plan.
1. REGULATION
Due to the consumer-oriented nature of the industry in which Jayhawk
operates and uncertainties with respect to the application of various laws and
regulations in certain circumstances, industry participants are named from time
to time as defendants in litigation, including class action suits, involving
alleged violations of federal and state consumer lending or other similar laws
and regulations. A significant judgment against Jayhawk in connection with any
litigation could have a material adverse affect on Jayhawk's financial condition
and results
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<PAGE>
of operations. In addition, if it were determined that a material number of
Contracts purchased by Jayhawk involved violations of applicable lending laws by
the Dealers, Jayhawk's financial condition and results of operations could be
materially adversely affected.
2. PROJECTED FINANCIAL INFORMATION
The Projected Cash Flow Statement included in this Disclosure
Statement reflects numerous assumptions, including confirmation and consummation
of the Plan in accordance with its terms, the anticipated future performance of
Jayhawk, the market for Jayhawk's specialized financial services and competition
from other financial service providers, certain assumptions with respect to
competitors of Jayhawk, general business and economic conditions and other
matters, many of which are beyond the control of Jayhawk. In addition,
unanticipated events and circumstances occurring subsequent to the preparation
of the projections may affect the actual financial results of Jayhawk. Although
Jayhawk believes that the projections are reasonably attainable, some or all of
the estimates will vary, and variations between the actual financial results and
those projected may be material.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS ("AICPA") OR THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB").
FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY JAYHAWK'S
INDEPENDENT ACCOUNTANTS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE
PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH,
ALTHOUGH DEVELOPED AND CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED
AND ARE SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES
AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE DEBTOR AND ITS
MANAGEMENT. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION OR WARRANTY BY JAYHAWK, OR ANY OTHER PERSON, AS TO THE ACCURACY
OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY
VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
3. BUSINESS FACTORS AND COMPETITIVE CONDITIONS
Many of the Debtor's competitors or potential competitors have
significantly greater resources that Jayhawk and have pre-existing relationships
with established Dealer networks. To the extent that any of such competitors
significantly expand their activities in this market, Jayhawk could be
materially adversely affected. Jayhawk believes that it competes primarily on
the basis of the price paid for Contracts and service to its participating
Dealers.
4. ELECTIVE HEALTH CARE FINANCING RISKS
As indicated previously, Jayhawk intends to focus on increasing its
business in the elective health care financing market. Although Jayhawk does
not believe that direct competition currently exists with commercial banks,
savings and loans, and credit unions, there is competition from a number of
companies capable of providing financing to individuals for elective health care
procedures. To the extent that any of such lenders significantly expand their
activities in this market, Jayhawk could be materially adversely affected.
Additionally, because the business model to be employed by Jayhawk is based on
its automotive finance business, its elective health care financing business
would be subject to the same risks, including the risk that collections on loans
purchased by Jayhawk will not be sufficient to recover the amounts paid for such
loans.
55
<PAGE>
IX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A. INTRODUCTION
------------
THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN OF THE SIGNIFICANT
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO JAYHAWK AND TO HOLDERS OF CLAIMS
AND IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "TAX CODE"),
TREASURY REGULATIONS PROMULGATED AND PROPOSED THEREUNDER, JUDICIAL DECISIONS AND
PUBLISHED ADMINISTRATIVE RULES AND PRONOUNCEMENTS OF THE IRS AS IN EFFECT ON THE
DATE HEREOF. CHANGES IN SUCH RULES OR NEW INTERPRETATIONS THEREOF COULD
SIGNIFICANTLY AFFECT THE TAX CONSEQUENCES DESCRIBED BELOW. NO RULINGS HAVE BEEN
REQUESTED FROM THE IRS. MOREOVER, NO LEGAL OPINIONS HAVE BEEN REQUESTED FROM
COUNSEL WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN.
THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE PLAN TO
THE HOLDERS OF CLAIMS MAY VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH
HOLDER. IN ADDITION, THIS DISCUSSION DOES NOT COVER ALL ASPECTS OF FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO JAYHAWK OR HOLDERS OF CLAIMS, NOR DOES
THE DISCUSSION DEAL WITH TAX ISSUES PECULIAR TO CERTAIN TYPES OF TAXPAYERS (SUCH
AS DEALERS IN SECURITIES, S CORPORATIONS, LIFE INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS). NO ASPECT OF
FOREIGN, STATE, OR ESTATE AND GIFT TAXATION IS ADDRESSED.
THE FOLLOWING SUMMARY IS, THEREFORE, NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF A
CLAIM. HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES PECULIAR TO THEM UNDER THE
PLAN.
B. CONSEQUENCES TO JAYHAWK
-----------------------
1. DISCHARGE OF INDEBTEDNESS INCOME
A taxpayer generally has gross income upon the discharge of
indebtedness to the extent that the adjusted issue price of indebtedness
discharged exceeds any consideration given for such discharge ("DOD Income").
The general income recognition rule for DOD Income is subject to two exceptions
or exclusions applicable to the treatment of Claims under the Plan. First,
section 108(e)(2) of the Internal Revenue Code of 1986, as amended (the "Tax
Code") provides an exception to the general rule to the extent that the payment
of a Claim would have given rise to a deduction (the "Deductible Expense
Exception"). Thus, to the extent that the Deductible Expense Exception applies,
the Debtors have no DOD Income. Second, section 108(a)(1)(A) of the Tax Code
provides that DOD Income which would otherwise be included in a taxpayer's
income will be excluded if the discharge is pursuant to a federal bankruptcy
proceeding (the "Bankruptcy Exclusion"). However, under section 108(b) of the
Tax Code, the taxpayer must reduce certain tax attributes (including net
operating loss carryovers) to the extent of income excluded under the Bankruptcy
Exclusion. Such reduction in tax attributes occurs after the determination of
the tax due for the taxable year in which the DOD Income is recognized.
Because the Plan generally contemplates the payment of all undisputed
Claims in full, Jayhawk does not expect to recognize any material gross income
from the discharge of indebtedness, and any such gross income which may arise
should be excludible from DOD Income under the exceptions and exclusions
described above.
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<PAGE>
2. TRANSFERS OF CERTAIN CONTRACTS IN RESPECT OF DEALER CLAIMS TO TRUST
Jayhawk intends to take the position that the Non-Accrual Contract
Trust is a "qualified settlement fund" pursuant to the Treasury Regulations
promulgated under Section 468B of the Tax Code (a "QSF"), because the Dealer
Claims are in essence claims for breach of contract. A QSF is a fund, account
or trust which:
a. is established pursuant to an order of, or is approved by, the
United States, any state, or political subdivision thereof, or any agency or
instrumentality (including a court of law) thereof, and is subject to the
continuing jurisdiction of that governmental authority;
b. is established to resolve or satisfy one or more contested or
uncontested claims that arise out of a tort, breach of contract, or violation of
law (and certain environmental liabilities), other than obligations of the
transferor to make payments to its general trade creditors or debtholders that
related to a bankruptcy case under title 11; and
c. is a trust under applicable state law, or its assets are
otherwise segregated from other assets of the transferor.
A trust which includes permitted claims described in (ii) above is
treated as a QSF, even if other claims are also included, as long as such other
claims arise from the same event or related series of events.
The following federal income tax consequences are applicable to the
transfer of Contracts to a QSF:
a. the Non-Accrual Contract Trust will be treated as a separate
taxpayer subject to taxation on its "modified gross income" at the maximum rate
specified in Section 1(e) of the Tax Code, and hence will be taxable on interest
income, will recognize gain or loss with respect to the sale, exchange or other
taxable disposition of the Contracts, and will generally be allowed a deduction
for administrative expenses;
b. the Non-Accrual Contract Trust will not recognize income upon the
receipt of the Contracts, but will have a tax basis in such Contracts equal to
their fair market values as of the date of contribution to the QSF;
c. Jayhawk will be deemed to have sold the Contracts for their fair
market value and will recognize gain or loss on such disposition;
d. Jayhawk should be entitled to deduct the fair market value of the
Contracts, to the extent that the transfer of the Contracts to the Non-Accrual
Contract Trust is in respect of claims for breach of contract;
e. the Non-Accrual Contract Trust will not be entitled to a
deduction upon the distribution of cash or other property to the holders of
Dealer Claims who have an interest in the QSF;
f. holders of Dealer Claims who have an interest in the Non-Accrual
Contract Trust should not recognize income in respect of Contracts transferred
to the QSF until distributions are made to such holders by the QSF, at which
time such holders will be treated as receiving a payment in respect of their
Dealer Claims; and
g. to the extent that Contracts are transferred to the QSF in
respect of Dealer Claims which are not for "breach of contract," Jayhawk will
not be entitled to claim a deduction for such amounts until such amounts are
distributed to the holders of Dealer Claims.
There can be no assurance that the Internal Revenue Service will not
disagree with characterizing the Non-Accrual Contract Trust as a QSF. In such
case, the probable classification of the Non-Accrual Contract
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<PAGE>
Trust for federal income tax purposes is as a "grantor" trust subject to the
income tax provisions of Subchapter J, Subpart E of the Tax Code, as to which
the holders of Dealer Claims are treated as the grantors and hence as the owners
of the income and assets of the Non-Accrual Contract Trust. Hence, the holders
of Dealer Claims owning an interest in the Non-Accrual Contract Trust would be
subject to taxation on their respective shares of the taxable income of the
Contracts to the Non-Accrual Contract Trust. Upon the transfer of the Contracts
to the Non-Accrual Contract Trust, such Contracts would be treated as being
transferred to the holders of Dealer Claims owning an interest in the Non-
Accrual Contract Trust and as being contributed by such holders to the Non-
Accrual Contract Trust. Hence, holders of Dealer Claims having an interest in
the Non-Accrual Contract Trust would be treated as receiving a payment in
respect of such Dealer Claims equal to the fair market value of their respective
shares of the Contracts transferred to the Non-Accrual Contract Trust.
In the event that the Internal Revenue Service disagrees with the
classification of the Non-Accrual Contract Trust as a QSF or as a "trust" for
federal income tax purposes, in the absence of an affirmative election for the
Non-Accrual Contract Trust to be taxed as a corporation, the Non-Accrual
Contract Trust is likely to be taxed as a partnership for federal income tax
purposes. A partnership is a pass-through entity and hence similar federal
income tax consequences should apply to the holders of Dealer Claims owning an
interest in the Non-Accrual Contract Trust if it is classified as a partnership
as in the case of classification as a grantor trust.
3. PREFERRED STOCK PURCHASE AGREEMENT.
Upon the issuance of the Jaymed Preferred Stock pursuant to the
Preferred Stock Purchase Agreement, Jaymed ceased to be affiliated with Jayhawk
for purposes of filing consolidated federal income tax returns with the
affiliated group of which Jayhawk is the common parent (the "Jayhawk Group").
Except as discussed below with respect to any net operating loss carryovers
allocable to Jaymed, Jayhawk does not believe that any material adverse federal
income tax consequences result from such departure of Jaymed from the Jayhawk
Group. As a consequence of the exchange of Common Stock for Jaymed Preferred
Stock pursuant to the Preferred Stock Purchase Agreement, Jayhawk will become
the sole owner of the outstanding capital stock of Jaymed, and hence Jaymed
potentially will rejoin the Jayhawk Group. Subject to waiver by the Internal
Revenue Service, Jaymed generally is prohibited from rejoining the Jayhawk Group
for five taxable years after the year in which Jaymed departed from the Jayhawk
Group. The Internal Revenue Service has published a revenue procedure pursuant
to which, if certain information is provided and certain representations are
made, the five year prohibition on rejoining a consolidated group is
automatically waived. Jayhawk believes that it will be able to qualify Jaymed
for automatic waiver of the five year prohibition on Jaymed rejoining the
Jayhawk Group through compliance with such revenue procedure, and hence Jayhawk
believes that Jaymed will be includible in the Jayhawk Group commencing the day
after exchange of Jayhawk Common Stock for Jayhawk Preferred Stock pursuant to
the Preferred Stock Purchase Agreement.
4. NET OPERATING LOSS CARRYOVERS
Section 382 of the Code provides rules limiting the utilization of a
corporation's net operating loss carryovers following a more than 50% change in
ownership of a corporation's equity (an "ownership change"). While no change in
the ownership of the stock of Jayhawk is occurring pursuant to the Plan,
additional Common Stock of Jayhawk is being issued to the holder of Jaymed
Preferred Stock pursuant to the Preferred Stock Purchase Agreement.
Under the general rule of section 382, the amount of post-ownership
change annual taxable income of a corporation that can be offset by the pre-
ownership change net operating loss carryovers of a corporation generally cannot
exceed an amount equal to the product of (i) the fair market value of the stock
of the corporation immediately prior to the ownership change (subject to various
adjustments) multiplied by (ii) the federal long-term tax-exempt rate in effect
on the date of the ownership change (the "Annual Limitation"). Such federal
long-term tax-exempt rate in effect for ownership changes occurring in the month
of August 1997 is 5.64%.
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<PAGE>
Jayhawk does not currently anticipate that the issuance of Jayhawk
Common Stock to the holder of Jaymed Preferred Stock pursuant to the Preferred
Stock Purchase Agreement will result, in and of itself, in either the occurrence
of an ownership change with respect to the Jayhawk Group or the application of
an Annual Limitation to the net operating loss carryovers of the Jayhawk Group
(other than the net operating loss carryovers allocable to Jaymed). However, it
should be noted that an ownership change could result with respect to the
Jayhawk Group as a consequence of other changes in the direct or indirect
ownership of the Common Stock of Jayhawk (either alone or in conjunction with
the exchange of Jayhawk Common Stock for Jaymed Preferred Stock) which are
beyond the control of Jayhawk. Jayhawk anticipates that the net operating loss
carryovers attributable to Jaymed and allocable to taxable periods through the
Effective Date may be subject to one or more Annual Limitations as a consequence
of the issuance of the Jaymed Preferred Stock and the exchange of the Jaymed
Preferred Stock for the Jayhawk Common Stock pursuant to the Preferred Stock
Purchase Agreement.
C. CONSEQUENCES TO CERTAIN CREDITORS
---------------------------------
1. OVERVIEW
The federal income tax consequences of the implementation of the Plan
to a holder of a Claim will depend, among other things, on the origin of the
holder's Claim, when the holder's Claim becomes an Allowed Claim, when the
holder receives payment in respect of his Claim, whether the holder reports
income using the accrual or cash method of accounting, whether the holder has
taken a bad debt deduction or worthless security deduction with respect to his
Claim, and whether the holder's Claim constitutes a "security" for federal
income tax purposes.
Generally, a holder of an Allowed Claim will realize gain or loss on
the exchange under the Plan of its Allowed Claim for property (such as cash,
debt obligations and an interest in the Non-Accrual Contract Trust), in an
amount equal to the difference between (i) the sum of the amount of any cash,
the issue price of any debt obligation, and the fair market value on the date of
the exchange of any other property received by the holder (other than any
consideration allocable to a claim for accrued but unpaid interest) and (ii) the
adjusted basis of the Allowed Claim exchanged therefor (other than basis
attributable to accrued by unpaid interest previously included in the holder's
taxable income). In general and subject to certain potential exceptions, the
obligations of the Debtor under the Plan may be considered to be a debt
obligation for purposes of such gain or loss computation.
Such gain or loss will be recognized for federal income tax purposes,
unless such exchange qualifies as a recapitalization under the Tax Code, which
will depend upon whether the Claim is classified as a "security" which is
exchanged for a "security" for federal income tax purposes. If the Claim is a
capital asset in the hands of the holder, such gain or loss will be capital gain
or loss, eligible for a reduced rate of taxation depending on the holder's
holding period with respect to the Claim.
The term "security" is not defined in the Tax Code or in the
regulations thereunder. One of the most significant factors considered in
determining whether a particular debt instrument is a security is the original
term thereof. In general, the longer the term of an instrument, the greater the
likelihood that it will be considered a security. As a general rule, a debt
instrument having an original term of ten years or more will be classified as a
security, and a debt instrument having an original term of fewer than five years
will not. Debt instruments having a term of at least five years but less than
ten years are likely to be treated as securities, but may not be, depending upon
their resemblance to ordinary promissory notes, whether they are publicly
traded, whether the instruments are secured, the financial consideration of the
debtor at the time the debt instruments are issued and other factors. Each
holder of an Allowed Claim should consult his or her own tax advisor to
determine whether his or her Allowed Claim constitutes a security for federal
income tax purposes.
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2. CONSIDERATION ALLOCABLE TO INTEREST
To the extent any amount received by a holder of a Claim is received
in discharge of a Claim for interest accrued during its holding period (or is
accrued or received as interest), such amount will be taxable to the holder as
interest income (if not previously included in the holder's gross income). A
holder will recognize a deductible loss to the extent any accrued interest
claimed was previously included in its gross income and is not paid in full.
The proper allocation between principal and interest of amounts received in
exchange for the discharge of a Claim at a discount is unclear. In this regard,
holders of Claims should consult their own tax advisors.
3. CLASS 2 CLAIM
The Plan provides that Fleet will receive the New Fleet Documents in
exchange for the Old Fleet Loan Documents. In the event that the New Fleet
Documents received by Fleet do not significantly modify (for federal income tax
purposes) the Old Fleet Loan documents, then no taxable event will occur upon
the Effective Date of the Plan with respect to the Old Fleet Loan Documents.
In the event that the New Fleet Documents received by Fleet do
significantly modify (for federal income tax purposes) the Old Fleet Loan
Documents and assuming that the New Fleet Documents or the Old Fleet Loan
Documents do not constitute "securities" for federal income tax purposes, then
Fleet will recognize gain or loss, if any, on the exchange of Old Fleet Loan
Documents for the New Fleet Documents. Fleet's gain or loss on the exchange
will be determined based upon the difference between Fleet's adjusted basis in
the Old Fleet Loan Documents and the issue price of the New Fleet Documents.
The issue price of the New Fleet Documents generally should equal the stated
principal amount of the New Fleet Documents, as long as the stated interest rate
thereon exceeds the applicable federal rate in effect for the month of the
Effective Date. In such case, Fleet's tax basis in the New Fleet Documents will
equal the issue price thereof, and its holding period in the New Fleet Documents
will begin the day after the exchange. In general, such gain or loss, if any,
will be capital gain or loss if the Fleet Indebtedness is a capital asset,
subject to applicable holding period requirements.
In the event that the Old Fleet Loan Documents are "significantly"
modified and both the Old Fleet Loan Documents and the New Fleet Loan Documents
constitute securities, then no gain or loss will be recognized by Fleet, as long
as the principal amount of the indebtedness under the New Fleet Loan Documents
does not exceed the principal amount of the indebtedness under the Old Fleet
Loan Documents.
4. CLASS 5 CLAIMS
Holders of Allowed Unsecured Claims in Class 5 will receive payment in
full of their Allowed Claims, plus interest, in four installments. See the
discussion above under "Overview" and "Consideration Allocable to Interest" for
a general discussion of tax consequences of the Plan to holders of Allowed
Claims. Because the tax consequences of the Plan to holders of Allowed
Unsecured Claims in Class 5 are dependent upon the particular circumstances of
each such holder, holders of Allowed Secured Claims in Class 5 are urged to
consult their own tax advisors as to the tax consequences to such holder of
receipt of the obligations of Jayhawk under the Plan and the payment thereof.
5. CLASS 6 CLAIMS
Holders of Allowed Dealer Claims in Class 6 generally will receive a
series of payments in respect of various components of their Allowed Claims and
may receive an interest in the Non-Accrual Contract Trust. See the discussion
above under "Overview" and "Consideration Allocable to Interest" for a general
discussion of tax consequences of the Plan to holders of Allowed Claims and see
the discussion above under "Consequences to Jayhawk--Transfers of Certain
Contracts in Respect of Dealer Claims to Trust" in respect of the tax
consequences of the receipt and ownership of an interest in the Non-Accrual
Contract Trust. In general, holders of Allowed Dealer Claims should recognize
gain or loss equal to the difference between (i) the sum of the
60
<PAGE>
amount of cash received, the "issue price" of Jayhawk's debt obligations under
the Plan and the fair market value of any other property received, and (ii) such
holder's tax basis in the Allowed Dealer Claim. If the Non-Accrual Contract
Trust is classified as a QSF, then holders of Dealer Claims should not recognize
gain with respect to Contracts transferred to the Non-Accrual Contract Trust
until payments are distributed to such holders by the Non-Accrual Contract
Trust, but such holders may be limited in their ability to deduct a loss with
respect to their Dealer Claims until all distributions have been made with
respect to the Non-Accrual Contract Trust. If the Non-Accrual Contract Trust is
a "grantor trust," then the fair market value of the Contracts transferred to
the Non-Accrual Contract Trust should be included in the amount realized as
described in (i) above. Holders of Allowed Dealer Claims are urged to consult
their own tax advisors as to the tax consequences to such holders of receipt of
the obligations of Jayhawk under the Plan and of an interest in the Non-Accrual
Contract Trust, and of any payment with respect thereto.
6. CLASS 7 CLAIMS
The holder of the Allowed Jaymed Claim will be paid the full amount of
the Allowed Jaymed Claim, plus interest, in eight installments. In the event
that the Plan significantly modifies the Allowed Jaymed Claim for federal income
tax purposes and such Claim is not a security (which appears likely), the holder
of the Allowed Jaymed Claim will generally recognize gain or loss, if any, to
the extent of the difference between the amount realized in such exchange (which
should equal the "issue price" of Jayhawk's debt obligations under the Plan) and
the holder's adjusted basis in the Jaymed Claim. Such realized gain or loss, if
any, will be capital gain or loss if the Jaymed Claim is a capital asset,
subject to applicable holding period requirements.
7. CLASS 9 CLAIMS
Holders of Class 9 Claims generally will receive a series of payments
in respect of their Allowed Claims. See the discussion above under "Overview"
and "Consideration Allocable to Interest" for a general discussion of tax
consequences of the Plan to holders of Allowed Claims. Because the tax
treatment of the obligations of Jayhawk under the Plan and of any payment with
respect to Class 9 Claims will depend on facts peculiar to each holder, holders
should consult their own tax advisors as to the tax consequences to such holder
of receipt of the obligations of Jayhawk under the Plan and the payment thereof.
8. PREFERRED STOCK PURCHASE AGREEMENT
The federal income tax consequences to the holder of the exchange of
Jaymed Preferred Stock for Jaymed common stock pursuant to the Preferred Stock
Purchase Agreement are not discussed herein. The holder of Jaymed Preferred
Stock is urged to consult its own tax advisor regarding the tax consequences to
such holder of the ownership of the Jaymed Preferred Stock and the exchange
thereof for Jayhawk Common Stock pursuant to the Preferred Stock Purchase
Agreement.
9. WITHHOLDING
All distributions to holders of Claims under the Plan are subject to
any applicable withholding (including employment withholding). Under federal
income tax law, interest, dividends and other reportable payments may, under
certain circumstances, be subject to "backup withholding" at a 31.0% rate.
Backup withholding generally applies if (i) the holder fails to furnish a social
security number of other taxpayer identification number ("TIN") to the payor,
(ii) the Internal Revenue Service notifies the payor that the TIN furnished by
the holder is incorrect, (iii) the holder fails properly to report interest and
dividends and the Internal Revenue Service has notified the payor that
withholding is required, or (iv) in certain circumstances, there has been a
failure of a payee to certify under the penalty of perjury that the payee is not
subject to withholding under section 3406 of the Code. A "reportable payment"
includes, among other things, interest, original issue discount and dividends.
Backup withholding will not apply, however, with respect to certain payments
made to certain exempt recipients. Any amount withheld as backup withholding
with respect to a payee will be creditable against the payee's income tax
liability.
61
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THE FOREGOING IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN FEDERAL
INCOME TAX ASPECTS OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF A CLAIM.
X. ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the Debtor's
alternatives include (i) liquidation of the Debtor under chapter 7 of the
Bankruptcy Code and (ii) the preparation and presentation of an alternative plan
or plans of reorganization.
A. LIQUIDATION UNDER CHAPTER 7
---------------------------
If no chapter 11 plan can be confirmed, the Chapter 11 Case may be
converted to a case under chapter 7 of the Bankruptcy Code, and a trustee would
be elected or appointed to liquidate the assets of the Debtor. A discussion of
the effect that a chapter 7 liquidation would have on the recovery of holders of
Claims and Equity Interests is set forth in Section VI.C.4., "Confirmation and
Consummation Procedure -- Best Interests Test." The Debtor believes that
liquidation under chapter 7 would result in (i) smaller distributions being made
to creditors than those provided for in the Plan because of the additional
administrative expenses involved in the appointment of a trustee and attorneys
and other professionals to assist such trustee, (ii) additional expenses and
claims, some of which would be entitled to priority, which would be generated
during the liquidation and from the rejection of leases and other executory
contracts in connection with a cessation of the Debtor's operations and (iii)
the failure to realize the greater, going concern value of the Debtor's assets.
B. ALTERNATIVE PLAN OF REORGANIZATION
----------------------------------
If the Plan is not confirmed, the Debtor or any other party in
interest could attempt to formulate a different plan of reorganization. Such a
plan might involve either a reorganization and continuation of the Debtor's
business or an orderly liquidation of its assets.
The Debtor believes that the Plan enables the Debtor to successfully
and expeditiously emerge from chapter 11, preserves its business and allows
creditors to realize the highest recoveries under the circumstances. In a
liquidation under chapter 11 of the Bankruptcy Code, the assets of the Debtor
would be sold in an orderly fashion over a more extended period of time than in
a liquidation under chapter 7 and a trustee need not be appointed. Accordingly,
creditors would receive greater recoveries than in a chapter 7 liquidation.
Although a chapter 11 liquidation is preferable to a chapter 7 liquidation, the
Debtor believes that a liquidation under chapter 11 is a much less attractive
alternative to creditors because a greater return is provided to creditors in
the Plan.
XI. CONCLUSION AND RECOMMENDATION
The Debtor and the Creditors' Committee believe that confirmation and
implementation of the Plan is preferable to any of the alternatives described
above because it will provide the greatest recoveries to holders of Claims. In
addition, other alternatives would involve significant delay, uncertainty and
substantial additional administrative costs. The Debtor and the Creditors'
Committee urge holders of impaired Claims entitled to vote on the Plan to vote
to accept the Plan and to evidence such acceptance by returning their ballots so
that they will be received not later than 4:00 p.m., Central Time, on September
22, 1997.
62
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Dated: August 19, 1997
Dallas, Texas
JAYHAWK ACCEPTANCE CORPORATION,
By: /s/ JACK T. SMITH
-----------------------------------------------
Jack T. Smith
President and Chief Operating Officer
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS
By: /s/ DONALD L. JONES
-----------------------------------------------
Donald L. Jones
(Vice President, Cap Gemini America)
Chairman
OF COUNSEL:
WEIL, GOTSHAL & MANGES LLP
By: /s/ HARRY A. PERRIN
---------------------------
Harry A. Perrin
State Bar No. 15796800
700 Louisiana, Suite 1600
Houston, Texas 77002-2784
(713) 546-5000
-and-
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
(214) 746-7700
ATTORNEYS FOR THE DEBTOR
SIMON, ANISMAN, DOBY & WILSON, P.C.
By: /s/ MICHAEL D. WARNER
---------------------------
Michael D. Warner
State Bar No. 00792304
400 Professional Building
303 West Tenth Street
P.O. Box 17047
Fort Worth, Texas 76102-0047
(817) 820-3100
COUNSEL FOR CREDITORS' COMMITTEE
63
<PAGE>
EXHIBIT A
DEBTOR'S PLAN OF REORGANIZATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE
<PAGE>
Harry A. Perrin Henry W. Simon, Jr.
Rosalie Walker Gray Michael D. Warner
WEIL, GOTSHAL & MANGES LLP David T. Cohen
700 Louisiana, Suite 1600 SIMON, ANISMAN, DOBY &
Houston, Texas 77002-2784 WILSON, P.C.
(713) 546-5000 400 Professional Building
P. O. Box 17047
Stephen A. Youngman Fort Worth, Texas 76102-0047
Kelli M. Walsh (817) 820-3100
WEIL, GOTSHAL & MANGES LLP
100 Crescent Court, Suite 1300 ATTORNEYS FOR THE
Dallas, Texas 75201-6950 CREDITORS' COMMITTEE
(214) 746-7700
ATTORNEYS FOR THE DEBTOR
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
____________________________________
(S)
In re: (S) Case No. 397-31261-SAF-11
(S)
JAYHAWK ACCEPTANCE CORPORATION, (S) Chapter 11
a Texas Corporation, (S)
(S)
Debtor. (S)
____________________________________
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
PROPOSED BY THE DEBTOR AND THE CREDITORS' COMMITTEE
---------------------------------------------------
Dated: August 19, 1997
Dallas, Texas
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. DEFINITIONS AND CONSTRUCTION OF TERMS........................ 1
(a) Administrative Expense Claim....................... 1
(b) Allowed............................................ 1
(c) Allowed Fleet Expenses............................. 2
(d) Amended ByLaws..................................... 2
(e) Amended Articles of Incorporation.................. 2
(f) Ballot............................................. 2
(g) Bankruptcy Code.................................... 2
(h) Bankruptcy Court................................... 2
(i) Bankruptcy Rules................................... 2
(j) Bar Date........................................... 2
(k) Base Rate.......................................... 2
(l) Business Day....................................... 2
(m) Cash Collateral Orders............................. 3
(n) Cash............................................... 3
(o) Causes of Action................................... 3
(p) Chapter 11 Case.................................... 3
(q) Claim.............................................. 3
(r) Class.............................................. 3
(s) Collateral......................................... 3
(t) Commencement Date.................................. 3
(u) Comprehensive Claim................................ 3
(v) Confirmation Date.................................. 4
(w) Confirmation Hearing............................... 4
(x) Confirmation Order................................. 4
(y) Contract........................................... 4
(z) Contract Pool...................................... 4
(aa) Contributed Non-Accrual Contracts.................. 4
(ab) Creditors' Committee............................... 4
(ac) Dealer............................................. 4
(ad) Dealer Agreement................................... 4
(ae) Dealer Claim....................................... 4
(af) Dealer Estimation Motion........................... 4
(ag) Dealer Settlement Right............................ 5
(ah) Debtor............................................. 5
(ai) Default Rate....................................... 5
(aj) Disclosure Statement............................... 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(ak) Disputed........................................... 5
(al) Effective Date..................................... 5
(am) Enrollment Fee Claim............................... 5
(an) Equity Interest.................................... 6
(ao) Event of Default................................... 6
(ap) Final Order........................................ 6
(aq) Fleet.............................................. 6
(ar) Fleet Collateral................................... 6
(as) Fleet Payment Date................................. 7
(at) Fleet Payment Default.............................. 7
(au) Fleet Payment Default Condition.................... 7
(av) Funding Trust...................................... 7
(aw) Insured Claim...................................... 7
(ax) Insufficient Funds Determination................... 7
(ay) Jayhawk............................................ 7
(az) Jaymed............................................. 7
(ba) Jaymed Claim....................................... 7
(bb) Jaymed Preferred Stock............................. 8
(bc) June 16 Filer...................................... 8
(bd) Late Filer......................................... 8
(be) Lien............................................... 8
(bf) May 15 Filer....................................... 8
(bg) MBIA Claim......................................... 8
(bh) Net Trust Collections.............................. 8
(bi) New Fleet Documents................................ 8
(bj) New Fleet Note..................................... 8
(bk) Non-Accrual Contract............................... 9
(bl) Non-Accrual Contract Trust......................... 9
(bm) Non-Settlement Treatment........................... 9
(bn) Non-Settling Dealers............................... 9
(bo) Other Priority Claim............................... 9
(bp) Other Secured Claim................................ 9
(bq) Plan............................................... 9
(br) Plan Supplement.................................... 9
(bs) Priority Tax Claim................................. 9
(bt) Prudential......................................... 10
(bu) Quarterly Payment Date............................. 10
(bv) Schedules.......................................... 10
(bw) Section 510(b) Claim............................... 10
(bx) Secured Claim...................................... 10
(by) Secured Fleet Claim................................ 10
(bz) Secured Prudential Claim........................... 10
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(ca) Settlement Treatment............................... 10
(cb) Settling Dealers................................... 11
(cc) Tort Claim......................................... 11
(cd) Trustee............................................ 11
(ce) Unsecured Claim.................................... 11
(cf) Voting Procedures Order............................ 11
(cg) Voucher Claim...................................... 11
(ch) Westcott........................................... 11
(ci) Westcott Guaranty.................................. 11
(cj) Westcott Release................................... 11
ARTICLE II. TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND
PRIORITY TAX CLAIMS.......................................... 12
2.1. Administrative Expense Claims................................ 12
2.2. Bar Date for Filing Administrative Expenses Claims........... 12
2.3. Priority Tax Claims.......................................... 13
ARTICLE III. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS................ 13
3.1. Unclassified Claims.......................................... 13
3.2. Classified Claims and Interests.............................. 13
3.3. Elimination of Classes....................................... 14
ARTICLE IV. TREATMENT OF CLAIMS AND EQUITY INTERESTS..................... 14
4.1. CLASS 1 -- OTHER PRIORITY CLAIMS............................. 14
(a) Impairment an Voting.............................. 14
(b) Distributions..................................... 14
(c) Late-Filed Proofs of Claim........................ 14
4.2. CLASS 2 -- SECURED FLEET CLAIM............................... 15
(a) Impairment and Voting............................. 15
(b) Distribution...................................... 15
4.3. CLASS 3 -- SECURED PRUDENTIAL CLAIM.......................... 18
(a) Impairment and Voting............................. 18
(b) Distribution...................................... 18
4.4. CLASS 4 -- OTHER SECURED CLAIMS.............................. 19
(a) Impairment and Voting............................. 19
(b) Treatment of Claims............................... 19
(c) Subclassification................................. 20
4.5. CLASS 5 -- UNSECURED CLAIMS.................................. 20
(a) Impairment and Voting............................. 20
(b) Distributions..................................... 20
(c) Late-Filed Proofs of Clai......................... 20
4.6. CLASS 6 -- DEALER CLAIMS..................................... 20
</TABLE>
iii
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<TABLE>
<S> <C> <C>
(a) Impairment and Voting............................. 20
(b) Settlement Treatment.............................. 21
(c) Non-Settlement Treatment.......................... 24
4.7. CLASS 7 -- JAYMED CLAIM...................................... 24
(a)Impairment and Voting..................................... 25
(b)Distributions............................................. 25
4.8. CLASS 8 -- MBIA CLAIM........................................ 25
(a) Impairment and Voting............................. 25
(b) Treatment of Claims............................... 25
4.9. CLASS 9 -- SECTION 510(B) CLAIMS............................. 26
(a) Impairment and Voting............................. 26
(b) Distributions..................................... 26
(c) Late-Filed Proofs of Claim....................... 26
4.10. CLASS 10 -- EQUITY INTERESTS................................. 27
(a) Impairment and Voting............................. 27
(b) Retention of Equity Interests..................... 27
ARTICLE V. PROVISIONS GOVERNING NON-ACCRUAL CONTRACT TRUST.............. 27
5.1. Governing Document........................................... 27
5.2. Duties of Trustee............................................ 27
5.3. Initial Contribution of Non-Accrual Contracts................ 27
5.4. Final Contribution of Non-Accrual Contracts.................. 28
5.5. Contents of Trust Provided by the Debtor..................... 28
(a) Section 5.3 Contributed Non-Accrual Contracts...... 28
(b) Section 5.4 Contributed Non-Accrual Contracts...... 29
5.6. Additional Contents of Trust................................. 29
5.7. Assignment and Transfer of Contracts As Is................... 29
5.8. Transfer of Contract Documentation........................... 29
5.9. Distributions from Trust..................................... 29
5.10. Costs and Expenses of Trust.................................. 30
5.11. No Liability of Debtor for Trust Activities.................. 30
5.12. Mutual Indemnification....................................... 30
5.13. Purpose of Trust............................................. 30
ARTICLE VI. ACCEPTANCE OR REJECTION OF THE PLAN; EFFECT OF
REJECTION BY ONE OR MORE CLASSES OF
IMPAIRED CLAIMS.............................................. 31
6.1. Classes Entitled to Vote..................................... 31
6.2. Deemed Acceptance Without Vote............................... 31
6.3. Claim Class Acceptance Requirement........................... 31
6.4. Nonconsensual Confirmation................................... 31
</TABLE>
iv
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<TABLE>
<S> <C> <C>
ARTICLE VII. PROVISIONS REGARDING DISTRIBUTIONS UNDER THE
PLAN AND TREATMENT OF DISPUTED, CONTINGENT
AND UNLIQUIDATED CLAIMS...................................... 31
7.1. Method of Distributions Under the Plan....................... 31
(a) In General......................................... 31
(b) Distributions of Cash.............................. 32
(c) Timing of Distributions............................ 32
(d) Minimum Distributions.............................. 32
(e) Unclaimed Distributions............................ 32
(f) Delayed or Deferred Distributions.................. 32
(g) Prepayment......................................... 33
7.2. Disputed Claims.............................................. 34
(a) Distributions Upon Allowance of Disputed Claims
Entitled to Payment in Full in One Payment......... 34
(b) Distributions Upon Allowance of Disputed Claims
Entitled to Payment in Full in Installment
Payments........................................... 34
(c) Tort Claims........................................ 34
7.3. Objections to and Resolution of Disputed
Administrative Expense Claims and Disputed Claims............ 34
7.4. Distributions Relating to Allowed Insured Claims............. 35
7.5. Cancellation and Surrender of Existing Securities and
Agreements................................................... 35
7.6. Procedure for Allowance of Late Filed Proofs of Claim........ 36
7.7. Inapplicability of Provisions to Secured Fleet Claim......... 36
ARTICLE VIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES..................... 36
8.1. Assumption or Rejection of Executory Contracts and
Unexpired Leases............................................. 36
8.2. Approval of Assumption or Rejection.......................... 36
8.3. Bar Date for Filing Proofs of Claim for Rejection Damages.... 37
8.4. Cure of Defaults............................................. 37
8.5. Insurance Policies........................................... 37
8.6. Indemnification Obligations.................................. 37
8.7. Compensation and Benefit Programs............................ 37
8.8. Retiree Benefits............................................. 38
8.9. Dealer Agreements............................................ 38
8.10. Repossession Contracts....................................... 38
ARTICLE IX. COMPROMISE OF DISPUTES....................................... 38
9.1. Compromise and Settlement of Claims Against Fleet............ 38
9.2. Compromise and Settlement with Dealers....................... 39
9.3. Compromise and Settlement with Richard B. Hoffmann........... 39
</TABLE>
v
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<TABLE>
<S> <C> <CAPTION>
ARTICLE X. PROVISIONS REGARDING CORPORATE GOVERNANCE OF THE
REORGANIZED DEBTOR........................................... 40
10.1. General...................................................... 40
10.2. Meetings of Reorganized Debtor Stockholders.................. 40
10.3. Directors and Officers and Reorganized Debtor................ 40
(a) Board of Directors................................. 40
(b) Officers........................................... 40
10.4. Amended Bylaws and Amended Articles of Incorporation......... 40
10.5. Issuance of New Promissory Note and Conversion of Jaymed
Preferred Stock.............................................. 40
ARTICLE XI. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN............ 41
11.1. Implementing Actions......................................... 41
11.2. Enforcement of Confirmation Order............................ 41
11.3. Revesting of Assets.......................................... 41
11.4. Causes of Action............................................. 42
11.5. Discharge of Debtor.......................................... 42
11.6. Injunction................................................... 42
ARTICLE XII. RETENTION OF JURISDICTION.................................... 43
12.1. Exclusive Jurisdiction....................................... 43
ARTICLE XIII. MISCELLANEOUS PROVISIONS..................................... 44
13.1. Effectuating Documents and Further Transactions.............. 44
13.2. Corporate Action............................................. 44
13.3. Exemption from Transfer Taxes................................ 44
13.4. Debtor's Limited Release of Directors and Officers........... 45
13.5. Exculpation.................................................. 45
13.6. Termination of Creditors' Committee.......................... 45
13.7. Post-Effective Date Fees and Expenses........................ 45
13.8. Payment of Statutory Fees.................................... 46
13.9. Amendment or Modification of the Plan........................ 46
13.10. Severability................................................. 46
13.11. Revocation or Withdrawal of the Plan......................... 46
13.12. Binding Effect............................................... 46
13.13. Notices...................................................... 46
13.14. Governing Law................................................ 47
13.15. Withholding and Reporting Requirements....................... 47
13.16. Plan Supplement.............................................. 47
13.17. Headings..................................................... 47
13.18. Exhibits..................................................... 48
</TABLE>
vi
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<TABLE>
<S> <C>
13.19. Filing of Additional Documents............................... 48
</TABLE>
vii
<PAGE>
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
PROPOSED BY THE DEBTOR AND THE CREDITORS' COMMITTEE
---------------------------------------------------
Jayhawk Acceptance Corporation and the Official Committee of Unsecured
Creditors propose the following joint plan of reorganization under section
1121(a) of title 11 of the United States Code.
ARTICLE I.
DEFINITIONS AND CONSTRUCTION OF TERMS
--------------------------------------
1.1. Definitions. As used herein, the following terms have the respective
-----------
meanings specified below, unless the context otherwise requires:
(a) Administrative Expense Claim means any right to payment
----------------------------
constituting a cost or expense of administration of the Chapter 11 Case under
sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without
limitation, (a) any actual and necessary costs and expenses of preserving the
estate of the Debtor, (b) any actual and necessary costs and expenses of
operating the business of the Debtor, (c) any indebtedness or obligations
incurred or assumed by the Debtor in connection with the conduct of its
business, including, without limitation, for the acquisition or lease of
property or an interest in property or the rendition of services, (d) all
compensation and reimbursement of expenses to the extent Allowed by the
Bankruptcy Court under section 330 or 503 of the Bankruptcy Code, and (e) any
fees or charges assessed against the estate of the Debtor under section 1930 of
chapter 123 of title 28 of the United States Code.
(b) Allowed means any Claim against the Debtor (a) which has been
-------
listed by the Debtor in its Schedules as liquidated in amount and not disputed
or contingent, and for which no contrary proof of claim has been filed, (b)
which is allowed hereunder, (c) which is not Disputed or (d) if Disputed, (i)
which has been allowed by Final Order or (ii) as to which, pursuant to the Plan
or a Final Order of the Bankruptcy Court, the liability of the Debtor and the
amount thereof are determined by final order of a court of competent
jurisdiction other than the Bankruptcy Court; provided, however, that any Claims
-------- -------
allowed solely for the purpose of voting to accept or reject the Plan pursuant
to an order of the Bankruptcy Court shall not be considered "Allowed Claims"
hereunder. Unless otherwise specified herein or by order of the Bankruptcy
Court, "Allowed Administrative Expense Claim," or "Allowed Claim" shall not, for
purposes of computation of distributions under the Plan, include interest on
such Administrative Expense Claim or Claim from and after the Commencement Date.
1
<PAGE>
(c) Allowed Fleet Expenses means all legal fees and other expenses
----------------------
incurred by Fleet during the pendency of the Chapter 11 Case, to the extent they
are allowed by the Bankruptcy Court.
(d) Amended ByLaws means the amended and restated ByLaws of the
--------------
Debtor.
(e) Amended Articles of Incorporation means the amended and restated
---------------------------------
Articles of Incorporation of the Debtor.
(f) Ballot means the form distributed to each holder of an impaired
------
Claim on which is to be indicated acceptance or rejection of the Plan.
(g) Bankruptcy Code means title 11 of the United States Code, as
---------------
amended from time to time, as applicable to the Chapter 11 Case.
(h) Bankruptcy Court means the United States District Court for the
----------------
Northern District of Texas, Dallas Division having jurisdiction over the Chapter
11 Case and, to the extent of any reference under section 157 of title 28 of the
United States Code, the unit of such District Court under section 151 of title
28 of the United States Code.
(i) Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure
----------------
as promulgated by the United States Supreme Court under section 2075 of title 28
of the United States Code, and any Local Rules of the Bankruptcy Court.
(j) Bar Date means (a) the deadline established by the Bankruptcy
--------
Court for the filing of proofs of claim, which deadline is either (i) May 15,
1997 for all Claims other than those described in (ii) or (iii) hereof, (ii)
June 16, 1997 for those Claims held by creditors who were not mailed notice of
the May 15, 1997 deadline but were mailed notice of the June 16, 1997 deadline,
other than those described in (iii) hereof, or (iii) August 6, 1997 for those
--
Claims held by governmental units; and/or (b) the deadline established by
Section 2.2 of this Plan for the filing of requests for payment or applications
for compensation and reimbursement with respect to Administrative Expense
Claims.
(k) Base Rate means the rate of interest generally announced or quoted
---------
by Fleet from time to time as its base rate for commercial loans, whether or not
such rate is the lowest rate charged by Fleet to its most preferred borrowers;
and if such base rate for commercial loans is discontinued by Fleet as a
standard, a comparable reference rate designated by Fleet as a substitute
therefor shall be the base rate.
2
<PAGE>
(l) Business Day means any day other than a Saturday, Sunday or any
------------
other day on which commercial banks in Dallas, Texas are required or authorized
to close by law or executive order.
(m) Cash Collateral Orders mean the orders of the Bankruptcy Court
----------------------
governing the use of Fleet's cash collateral, including the Interim Order
Authorizing the Use of Cash Collateral and Providing for Adequate Protection,
the Second Interim Order Authorizing the Use of Cash Collateral and Providing
for Adequate Protection, the Third Interim Order Authorizing the Use of Cash
Collateral and Providing for Adequate Protection (and the Supplement thereto),
the Final Order Authorizing the Use of Cash Collateral and Providing for
Adequate Protection entered on May 23, 1997, the Second Final Order Authorizing
the Use of Cash Collateral and Providing for Adequate Protection entered on July
29, 1997, and any subsequent orders governing the use of Fleet's cash collateral
entered prior to the Effective Date.
(n) Cash means legal tender of the United States of America and
----
equivalents thereof.
(o) Causes of Action means, without limitation, any and all claims,
----------------
actions, causes of action (including causes of action arising under any section
of the Bankruptcy Code), liabilities, obligations, rights, suits, debts, sums of
money, damages, judgments and demands whatsoever, whether known or unknown,
disputed or undisputed, legal or equitable, absolute or contingent.
(p) Chapter 11 Case means the case under chapter 11 of the Bankruptcy
---------------
Code commenced by the Debtor, styled In re Jayhawk Acceptance Corporation,
Chapter 11 Case No. 397-31261-SAF-11, currently pending in the Bankruptcy Court.
(q) Claim has the meaning set forth in section 101(5) of the
-----
Bankruptcy Code.
(r) Class means a category of holders of Claims or Equity Interests as
-----
set forth in Article III of the Plan.
(s) Collateral means any property or interest in property of the
----------
estate of the Debtor subject to a Lien to secure the payment or performance of a
Claim, which Lien is not subject to avoidance under the Bankruptcy Code or
otherwise invalid under the Bankruptcy Code or applicable state law.
(t) Commencement Date means February 7, 1997, the date on which the
-----------------
Debtor commenced the Chapter 11 Case.
3
<PAGE>
(u) Comprehensive Claim means all components of a Dealer Claim other
-------------------
than an Enrollment Fee Claim, a Voucher Claim or a Dealer Settlement Right,
which components specifically include, without limitation, a Claim of a Dealer
for future collections on Contracts purchased by the Debtor from such Dealer, a
Claim for breach of a Dealer Agreement, or any other Claim based on or arising
from a Dealer Agreement or a Dealer's relationship with the Debtor.
(v) Confirmation Date means the date on which the Clerk of the
-----------------
Bankruptcy Court enters the Confirmation Order on the docket.
(w) Confirmation Hearing means the hearing held by the Bankruptcy
--------------------
Court to consider confirmation of the Plan pursuant to section 1129 of the
Bankruptcy Code, as such hearing may be adjourned or continued from time to
time.
(x) Confirmation Order means the order of the Bankruptcy Court
------------------
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
(y) Contract means a written agreement pursuant to which a Person
--------
agrees to purchase from a Dealer a new or used automobile and to pay for same on
an installment basis, with interest, over a period of months.
(z) Contract Pool means all of the Contracts sold by a Dealer to the
-------------
Debtor pursuant to a Dealer Agreement and owned either by the Debtor or by
Funding Trust.
(aa) Contributed Non-Accrual Contracts means those Non-Accrual
---------------------------------
Contracts that are assigned and transferred by the Debtor to the Non-Accrual
Contract Trust, as described in Sections 5.3 and 5.4 of the Plan.
(ab) Creditors' Committee means the statutory committee of unsecured
--------------------
creditors appointed in the Chapter 11 Case pursuant to section 1102 of the
Bankruptcy Code.
(ac) Dealer means a Person engaged in the business of selling new or
------
used automobiles pursuant to Contracts or any assignee of such a Person.
(ad) Dealer Agreement means an agreement governing the relationship
----------------
between the Debtor and each Dealer from which the Debtor purchases Contracts.
(ae) Dealer Claim means a Claim of any kind or basis held by a Dealer,
------------
including, without limitation, a Claim based upon enrollment fees paid by such
Dealer to the Debtor, unused vouchers provided to such Dealer by the Debtor,
future collections on Contracts purchased by the Debtor from such Dealer, breach
of a Dealer Agreement, or a Dealer's relationship with the Debtor.
4
<PAGE>
(af) Dealer Estimation Motion means (i) the Debtor's First Omnibus
------------------------
Objection to Certain Auto Dealer Claims and Motion Pursuant to Section 502(c) of
the Bankruptcy Code Estimating Such Claims for All Purposes, Including Voting,
Feasibility and Allowance, dated June 6, 1997, as the same shall be amended,
inter alia, to estimate each Dealer Claim based upon a $155.5 million collection
scenario and to assert any and all counterclaims, defenses and affirmative
defenses of the Debtor against any Dealer Claim; and (ii) any subsequent
objections or motions to estimate filed by the Debtor relating to any Dealer
Claim.
(ag) Dealer Settlement Right means a right defined solely to encompass
-----------------------
the entitlement of certain Dealers under the Settlement Treatment to receive an
interest in the Non-Accrual Contract Trust.
(ah) Debtor means Jayhawk Acceptance Corporation, a Texas corporation,
------
in its capacity as a prepetition, postpetition and/or reorganized debtor,
depending upon the context in which such word is used in the Plan.
(ai) Default Rate means a variable rate per annum payable that is two
------------
percent (2%) plus the Base Rate in effect from time to time and that shall be
payable with respect to the Secured Fleet Claim after the occurrence and during
the continuance of an Event of Default.
(aj) Disclosure Statement means the disclosure statement relating to
--------------------
the Plan, including, without limitation, all exhibits and schedules thereto, as
approved by the Bankruptcy Court pursuant to section 1125 of the Bankruptcy
Code.
(ak) Disputed means (a) any Claim proof of which, or a request for
--------
payment (which term includes an application for compensation or reimbursement)
with respect to which, was properly filed and filed by the applicable Bar Date
and (i) which has been or hereafter is listed on the Schedules as unliquidated,
disputed or contingent, or (ii) as to which the Debtor has interposed a timely
objection and/or request for estimation in accordance with section 502(c) of the
Bankruptcy Code and Bankruptcy Rule 3018, which objection and/or request for
estimation has not been withdrawn or determined by a Final Order; (b) any Claim
proof of which, or a request for payment with respect to which, was or is
properly filed and filed by the applicable Bar Date, but as to which the
deadline established in Section 7.3 of the Plan for filing and serving
objections has not yet passed; or (c) any Claim proof of which was required to
be filed by order of the Bankruptcy Court but as to which a proof of claim was
not properly filed or filed by the applicable Bar Date.
(al) Effective Date means the first Business Day that is ten (10) days
--------------
after the date on which the Confirmation Order becomes a Final Order.
5
<PAGE>
(am) Enrollment Fee Claim means a Claim of a Dealer based upon
--------------------
enrollment fees paid by such Dealer to the Debtor under or in connection with
the Dealer Agreement between such Dealer and the Debtor.
(an) Equity Interest means any share of common stock or other
---------------
instrument evidencing an ownership interest in the Debtor, whether or not
transferable, and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
(ao) Event of Default means the occurrence or existence of any one or
----------------
more of the following events or conditions: (i) a Fleet Payment Default shall
occur; (ii) the Debtor shall dissolve, merge, liquidate (other than as
contemplated by the Plan), suffer the appointment of a receiver or other
custodian for any of the Fleet Collateral or any other material part of the
Debtor's assets; (iii) the Chapter 11 Case shall be converted to a case under
Chapter 7 of the Bankruptcy Code; (iv) the Debtor shall grant or permit to exist
any Lien with respect to any of the Fleet Collateral other than Liens in favor
of Fleet, Liens in existence on the Commencement Date to secure Claims that
existed on that date, statutory Liens that arise in the ordinary course of
business of the Debtor so long as they secure Claims that are not past due or
payable and (except for property tax Liens having priority as a matter of
applicable law) are junior in priority to Fleet's Liens with respect to the
Fleet Collateral, the prior Lien of Prudential in Funding Trust, the carve-out
from the Lien in Funding Trust of up to $2.5 million in aggregate for Allowed
fees and expenses of professional persons retained by the Creditors' Committee
and the Debtor, and such other Liens as may be permitted in the New Fleet
Documents; or (v) the Debtor shall default in the observance or performance of
any covenant or condition contained in any of the New Fleet Documents and such
default is not cured within thirty (30) days after the sooner to occur of the
Debtor's receipt of notice of such default or the Debtor otherwise acquires
actual knowledge of such default.
(ap) Final Order means an order of the Bankruptcy Court as to which
-----------
the time to appeal, petition for certiorari, or move for reargument or rehearing
----------
has expired and as to which no appeal, petition for certiorari, or other
----------
proceedings for reargument or rehearing shall then be pending or as to which any
right to appeal, petition for certiorari, reargue, or rehear shall have been
----------
waived in writing in form and substance satisfactory to the Debtor, or, in the
event that an appeal, writ of certiorari, or reargument or rehearing thereof has
----------
been sought, such order of the Bankruptcy Court shall have been determined by
the highest court to which such order was appealed, or certiorari, reargument or
----------
rehearing shall have been denied and the time to take any further appeal,
petition for certiorari or move for reargument or rehearing shall have expired;
----------
provided, however, that the possibility that a motion under Rule 59 or Rule 60
- -------- -------
of the Federal Rules of Civil Procedure, or any analogous rule under the
Bankruptcy Rules, may be filed with respect to such order shall not cause such
order not to be a Final Order.
(aq) Fleet means Fleet Capital Corporation, a Rhode Island
-----
corporation, and its successors or assigns.
6
<PAGE>
(ar) Fleet Collateral means and includes (i) all Collateral that
----------------
secured payment of the Secured Fleet Claim as of the Commencement Date; (ii) all
property that the Debtor acquired after the Commencement Date and that became
Collateral for the Secured Fleet Claim pursuant to any of the Cash Collateral
Orders; (iii) effective upon the Effective Date, the legal and beneficial
ownership interests of the Debtor in Funding Trust, subject to the prior lien of
Prudential and a carve-out of $2.5 million for professional fees and expenses;
and (iv) all proceeds of the foregoing items, all as more fully set forth in the
New Fleet Documents. Notwithstanding the foregoing, from and after the Effective
Date, the Fleet Collateral shall not include the Contributed Non-Accrual
Contracts or any interest in the Non-Accrual Contract Trust.
(as) Fleet Payment Date means the date on which the Secured Fleet
------------------
Claim is required by the terms of the Plan to be paid in full, which date is
September 30, 1998.
(at) Fleet Payment Default means a failure by the Debtor to pay any
---------------------
portion of the Secured Fleet Claim on, or within ten (10) days after, the due
date thereof, or the failure to pay the entire accelerated amount of the Secured
Fleet Claim upon or after the occurrence of any Event of Default.
(au) Fleet Payment Default Condition means a condition resulting from
-------------------------------
the failure of the Debtor to pay any installment of the Secured Fleet Claim as
provided in Section 4.2(b) of the Plan, but before ten (10) days have elapsed
such that the failure becomes a Fleet Payment Default.
(av) Funding Trust means Jayhawk Funding Trust I, a Delaware business
-------------
trust.
(aw) Insured Claim means any Claim arising from an incident or
-------------
occurrence that is covered under the Debtor's insurance policies.
(ax) Insufficient Funds Determination means a good faith determination
--------------------------------
by the Debtor, with respect to any quarterly payment that may be due under the
Plan with respect to Unsecured Claims in Class 5, Dealer Claims in Class 6 and
the Jaymed Claim in Class 7, that it has insufficient funds with which to make
any such payment or that after any such payment it would have insufficient
working capital.
(ay) Jayhawk means Jayhawk Acceptance Corporation, a Texas
-------
corporation.
(az) Jaymed means Jayhawk Medical Acceptance Corporation, a wholly-
------
owned subsidiary of Jayhawk.
7
<PAGE>
(ba) Jaymed Claim means the Claim of Jaymed against the Debtor in the
------------
principal amount of $7.1 million, exclusive of interest, as of the Commencement
Date.
(bb) Jaymed Preferred Stock means the Series A Redeemable,
----------------------
Convertible Preferred Stock, par value $.01 per share of Jaymed.
(bc) June 16 Filer means the holder of a Claim, other than a
-------------
governmental unit, that filed a proof of claim after the May 15, 1997 bar date
but on or before June 16, 1997.
(bd) Late Filer means the holder of a Claim, other than a
----------
governmental unit, that filed a proof of claim against the Debtor after June 16,
1997.
(be) Lien has the meaning set forth in section 101(37) of the
----
Bankruptcy Code.
(bf) May 15 Filer means the holder of a Claim, other than a
------------
governmental unit, that filed a proof of claim against the Debtor on or before
the May 15, 1997 bar date established by the Bankruptcy Court.
(bg) MBIA Claim means the Claim of MBIA Insurance Corporation arising
----------
under or in connection with two note guaranty insurance policies (policy numbers
20632 and 21656) and indemnity agreements by among MBIA Insurance Corporation,
the Debtor, Funding Trust and Norwest Bank, dated March 15, 1996 and August 7,
1996, relating to the Jayhawk Funding Trust I Automobile Loan-Backed Notes,
Series 1996A and the Jayhawk Funding Trust I Automobile Loan-Backed Notes,
Series 1996B.
(bh) Net Trust Collections means the proceeds received by the Non-
---------------------
Accrual Contract Trust from the Contributed Non-Accrual Contracts, plus any
interest, investment income or other amounts earned thereon, minus the costs
incurred in establishing and administering the Non-Accrual Contract Trust
(including the fees and expenses of the Trustee and any professionals retained
by the Trustee).
(bi) New Fleet Documents means the New Fleet Note, the Loan and
-------------------
Security Agreement between the Debtor and Fleet which shall be in the form
contained in the Plan Supplement, the Pledge and Security Agreement (Beneficial
Interests), which shall be in the form contained in the Plan Supplement, and all
other instruments and agreements referred to in any of the foregoing or to be
executed by the Debtor pursuant thereto, or as may be modified in writing by
Fleet and the Debtor.
(bj) New Fleet Note means the Secured Promissory Note to be issued
--------------
pursuant to the Plan to Fleet, which shall be in the form contained in the Plan
Supplement or as
8
<PAGE>
may be modified in writing by Fleet and the Debtor, and shall be in an amount
equal to the unpaid principal amount and accrued but unpaid interest of the
Secured Fleet Claim as of the Commencement Date less payments received and
----
applied to principal during the Chapter 11 Case, plus accrued but unpaid
----
interest as of the Effective Date, calculated at the Base Rate.
(bk) Non-Accrual Contract means a Contract that is categorized in the
--------------------
Debtor's collection records, maintained in the ordinary course of business and
in a manner that is consistent with past practices existing as of June 30, 1997,
as "Non-Accrual," specifically including any Contract that is identified in such
collection records as "Collection," "Insurance," Repo Posted," "Bankruptcy," and
"Other," but excluding any Contract that is categorized as "Repo-Auction Not
Posted."
(bl) Non-Accrual Contract Trust means the trust established pursuant
--------------------------
to the trust agreement described in Section 5.1 of the Plan for the purpose of
governing the distribution of Net Trust Collections to holders of Dealer Claims
entitled thereto pursuant such Section 4.6(b)(4).
(bm) Non-Settlement Treatment means the treatment offered in Section
------------------------
4.6(c) of the Plan to those holders of Dealer Claims (i) who are May 15 Filers
or June 16 Filers and who elect to receive the treatment offered in Section
4.6(c) of the Plan or (ii) who are Late Filers. Holders of Dealer Claims
receiving the Non-Settlement Treatment shall be required to litigate the
allowability and amount of their Dealer Claims pursuant to the Dealer Estimation
Motion.
(bn) Non-Settling Dealers means the holders of Dealer Claims who
--------------------
receive the Non-Settlement Treatment.
(bo) Other Priority Claim means any Claim, other than an
--------------------
Administrative Expense Claim or a Priority Tax Claim, entitled to priority in
right of payment under section 507(a) of the Bankruptcy Code.
(bp) Other Secured Claim means any Secured Claim, other than the
-------------------
Secured Fleet Claim and the Secured Prudential Claim.
(bq) Plan means this chapter 11 plan of reorganization, including,
----
without limitation, the Plan Supplement and all exhibits, supplements,
appendices and schedules hereto, either in its present form or as same may be
altered, amended or modified from time to time.
(br) Plan Supplement means the collection of forms of documents
---------------
specified in Section 13.16 of the Plan.
9
<PAGE>
(bs) Priority Tax Claim means any Claim of a governmental unit of
------------------
the kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
(bt) Prudential means Prudential Securities Capital Corporation.
----------
(bu) Quarterly Payment Date means each December 26, March 31, June
----------------------
30 and September 30 after the Effective Date.
(bv) Schedules means the schedules of assets and liabilities, the
---------
list of holders of Equity Interests, and the statements of financial affairs
filed by the Debtor under section 521 of the Bankruptcy Code and Bankruptcy Rule
1007, and all amendments and modifications thereto through the Confirmation
Date.
(bw) Section 510(b) Claim means a Claim, as described in section
--------------------
510(b) of the Bankruptcy Code, arising from rescission of a purchase or sale of
a security of the Debtor, for damages arising from the purchase or sale of such
a security, or for reimbursement or contribution allowed under section 502 of
the Bankruptcy Code on account of such a Claim.
(bx) Secured Claim means any Claim, to the extent reflected in the
-------------
Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such Collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
(by) Secured Fleet Claim means and includes (i) all Claims against
-------------------
the Debtor that arise under or relate to loans and other extensions of credit
made by Fleet (or its predecessor-in-interest, Shawmut Capital Corporation) to
the Debtor under that certain Loan and Security Agreement dated as of April 4,
1995, between the Debtor and Fleet (as successor to Shawmut Capital
Corporation); (ii) all Allowed Fleet Expenses; and (iii) all Liens at any time
granted or conveyed as security for any such Claims and other obligations,
including, without limitation, Liens granted pursuant to any of the Cash
Collateral Orders, the Plan or any of the New Fleet Documents.
(bz) Secured Prudential Claim means all Claims and Liens arising
------------------------
under or related to that certain Trust Shares Pledge Agreement dated December
23, 1996 between Prudential and the Debtor, or any instrument or agreement
referred to therein or executed by the Debtor pursuant thereto.
(ca) Settlement Treatment means the treatment offered in Section
--------------------
4.6(b) of the Plan to those holders of Dealer Claims (i) who are May 15 Filers
or June 16 Filers and who elect to receive the treatment offered in Section
4.6(b) of the Plan or (ii) who are May 15
10
<PAGE>
Filers or June 16 Filers and who do not elect either to receive the Settlement
Treatment or the Non-Settlement Treatment. The Settlement Treatment is offered
in compromise of the issues raised in the Dealer Estimation Motion and in
further compromise of any other objections that the Debtor may have to a Dealer
Claim treated thereunder, and holders of Dealer Claims receiving the Settlement
Treatment shall not litigate the allowability and amount of their Dealer Claims
pursuant to the Dealer Estimation Motion.
(cb) Settling Dealers means the holders of Dealer Claims who receive
----------------
the Settlement Treatment.
(cc) Tort Claim means any Claim relating to personal injury,
----------
property damage or products liability or other similar Claim asserted against
the Debtor that has not previously been compromised or settled or otherwise
resolved.
(cd) Trustee means the person approved by the Bankruptcy Court in
-------
the Confirmation Order, or any successor appointed pursuant to the terms of the
trust agreement applicable to the Non-Accrual Contract Trust, to serve as the
trustee of the Non-Accrual Contract Trust subject to Section 4.6(b)(4) of the
Plan.
(ce) Unsecured Claim means any Claim that is not a Secured Claim,
---------------
Administrative Expense Claim, Priority Tax Claim, Other Priority Claim, Dealer
Claim, Jaymed Claim, MBIA Claim or Section 510(b) Claim.
(cf) Voting Procedures Order means the Order (a) Approving the
-----------------------
Disclosure Statement, (b) Approving the Proposed Voting Procedures, and (c)
Scheduling the Hearing to Consider Confirmation of the Debtor's Plan of
Reorganization, dated August 19, 1997.
(cg) Voucher Claim means a Claim of a Dealer based upon unused
-------------
vouchers provided to such Dealer by the Debtor under or in connection with the
Dealer Agreement between such Dealer and the Debtor.
(ch) Westcott means Carl H. Westcott.
--------
(ci) Westcott Guaranty means the Guaranty of Westcott to Fleet
-----------------
pursuant to which Westcott will guarantee certain obligations of the Debtor to
Fleet, which shall be in the form contained in the Plan Supplement.
(cj) Westcott Release means the release to be executed and delivered
----------------
by Westcott to Fleet dated as of the Effective Date, which shall be in the form
contained in the Plan Supplement.
11
<PAGE>
1.2. Interpretation; Application of Definitions and Rules of Construction.
--------------------------------------------------------------------
Wherever from the context it appears appropriate, each term stated in either the
singular or the plural shall include both the singular and the plural and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter. Unless otherwise specified, all section,
article, schedule or exhibit references in the Plan are to the respective
Section in, Article of, Schedule to, or Exhibit to, the Plan. The words
"herein," "hereof," "hereto," "hereunder" and other words of similar import
refer to the Plan as a whole and not to any particular section, subsection or
clause contained in the Plan. The word "including" shall mean "including,
without limitation." The rules of construction contained in section 102 of the
Bankruptcy Code shall apply to the construction of the Plan. A term used herein
that is not defined herein, but that is used in the Bankruptcy Code, shall have
the meaning ascribed to that term in the Bankruptcy Code. The headings in the
Plan are for convenience of reference only and shall not limit or otherwise
affect the provisions of the Plan.
ARTICLE II.
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
--------------------------------------
2.1. Administrative Expense Claims. Except to the extent that any entity
-----------------------------
entitled to payment of any Allowed Administrative Expense Claim agrees to a
different treatment, each holder of an Allowed Administrative Expense Claim
shall receive Cash in an amount equal to such Allowed Administrative Expense
Claim on the later of the Effective Date and the date such Administrative
Expense Claim becomes an Allowed Administrative Expense Claim, or as soon
thereafter as is practicable; provided, however, that Allowed Administrative
-------- -------
Expense Claims representing liabilities incurred in the ordinary course of
business by the Debtor or liabilities arising under loans or advances to or
other obligations incurred by the Debtor, to the extent authorized and approved
by the Bankruptcy Court if such authorization and approval was required under
the Bankruptcy Code, shall be paid in full and performed by the Debtor in the
ordinary course of business in accordance with the terms and subject to the
conditions of any agreements governing, instruments evidencing or other
documents relating to, such transactions.
2.2. Bar Date for Filing Administrative Expenses Claims. The holder of an
--------------------------------------------------
Administrative Expense Claim shall file with the Bankruptcy Court and serve on
the Debtor a request for payment of such Claim no later than forty-five (45)
days after the Effective Date. Such request for payment shall include, at a
minimum, the name of the holder of the Claim, the amount of the Claim, the date
on which the Claim arose, and a detailed explanation of the basis of the Claim,
with all pertinent documents attached; provided, however, that a request for
payment made by an entity seeking an award of compensation for services rendered
or reimbursement of expenses incurred under sections 503(b)(2), 503(b)(3),
503(b)(4), 503(b)(5)
12
<PAGE>
or 506(b) of the Bankruptcy Code shall be in the form of an application and
shall comply with the applicable provisions of the Bankruptcy Code and
Bankruptcy Rules governing applications for compensation and reimbursement. An
Administrative Expense Claim that is not evidenced by a request for payment that
is properly and timely filed and served shall be forever barred and discharged.
2.3. Priority Tax Claims. Except to the extent that a holder of an Allowed
-------------------
Priority Tax Claim has been paid by the Debtor prior to the Effective Date or
agrees to a different treatment, each holder of an Allowed Priority Tax Claim
shall receive, at the sole option of the Debtor, (a) Cash in an amount equal to
such Allowed Priority Tax Claim on the later of the Effective Date and the date
such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon
thereafter as is practicable, or (b) equal annual Cash payments in an aggregate
amount equal to such Allowed Priority Tax Claim, together with interest at a
fixed annual rate equal to eight and one-quarter percent (8 1/4%), over a period
through the sixth anniversary of the date of assessment of such Allowed Priority
Tax Claim, or upon such other terms determined by the Bankruptcy Court to
provide the holder of such Allowed Priority Tax Claim deferred Cash payments
having a value, as of the Effective Date, equal to such Allowed Priority Tax
Claim.
ARTICLE III.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
---------------------------------------------
3.1. Unclassified Claims. As provided in Section 1123(a)(1) of the
-------------------
Bankruptcy Code, Administrative Expense Claims and Priority Tax Claims shall not
be classified for purposes of voting or receiving distributions under the Plan.
Rather, all such Claims shall be treated as unclassified claims on the terms set
forth in Article V of the Plan.
3.2. Classified Claims and Interests. For purposes of organization,
-------------------------------
voting, and all confirmation matters, except as otherwise provided herein, all
Claims (except for Administrative Expense Claims and Priority Tax Claims) and
all Interests shall be classified as follows:
Class Status
----- ------
Class 1 -- Other Priority Claims................................Unimpaired
Class 2 -- Secured Fleet Claim....................................Impaired
Class 3 -- Secured Prudential Claim.............................Unimpaired
13
<PAGE>
Class 4 -- Other Secured Claims.................................Unimpaired
Class 5 -- Unsecured Claims.......................................Impaired
Class 6 -- Dealer Claims..........................................Impaired
Class 7 -- Jaymed Claim...........................................Impaired
Class 8 -- MBIA Claim...........................................Unimpaired
Class 9 -- Section 510(b) Claims..................................Impaired
Class 10 -- Equity Interests....................................Unimpaired
3.3. Elimination of Classes. Any impaired class that is not occupied as of
----------------------
the date of the hearing on confirmation of the Plan by an Allowed Claim or
Allowed Equity Interest or by a Claim or Equity Interest temporarily allowed
pursuant to Bankruptcy Rule 3018 shall be deemed deleted from the Plan for
purposes of voting on acceptance or rejection of the Plan and determining
whether the Plan has been accepted by such class pursuant to Section 1129 of the
Bankruptcy Code.
ARTICLE IV.
TREATMENT OF CLAIMS AND EQUITY INTERESTS
----------------------------------------
4.1. CLASS 1 -- OTHER PRIORITY CLAIMS.
--------------------------------
(a) Impairment and Voting. Class 1 is unimpaired by the Plan. Each
---------------------
holder of an Allowed Other Priority Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Other Priority Claim
-------------
shall receive Cash in an amount equal to such Allowed Other Priority Claim on
the later of the Effective Date and the date such Allowed Other Priority Claim
becomes an Allowed Other Priority Claim, or as soon thereafter as is
practicable.
(c) Late-Filed Proofs of Claim. Any proof of claim filed by the
--------------------------
holder of an Other Priority Claim that is a June 16 Filer or a Late Filer shall
be deemed disallowed unless such proof of claim is deemed to be timely filed by
Final Order of the Bankruptcy Court issued pursuant to motion of such holder
filed no later than thirty (30) days after the Effective Date, after notice and
a hearing, upon proving excusable neglect in accordance with Section 7.6 of
14
<PAGE>
the Plan; provided, however, that the Debtor and the holder of an Other Priority
Claim that is a June 16 Filer (but in no event a Late Filer) may compromise the
late filing issue by agreeing to treat such holder's proof of claim as timely
filed if such holder will reduce the amount of its Other Priority Claim by 25%
of the otherwise allowable amount of such Claim.
4.2. CLASS 2 -- SECURED FLEET CLAIM.
------------------------------
(a) Impairment and Voting. Class 2 is impaired by the Plan. Fleet as
---------------------
the holder of the Allowed Secured Fleet Claim is entitled to vote to accept or
reject the Plan.
(b) Distribution. Upon the Effective Date and pursuant to the terms
------------
of the New Fleet Documents, Fleet as the holder of the Allowed Secured Fleet
Claim shall be treated as follows:
(1) Deemed Allowance. Upon the Effective Date, the Allowed
----------------
Secured Fleet Claim shall be treated as an allowed, fully secured Claim and
from and after the Effective Date shall be paid pursuant to the terms
hereof and the New Fleet Documents, without defense, offset or
counterclaim.
(2) Interest. Interest shall continue to accrue and be paid with
--------
respect to the principal amount of the Allowed Secured Fleet Claim
(excluding that portion consisting of Allowed Fleet Expenses, which shall
be paid as set forth in Section 4.2(b)(9) of the Plan) monthly, in arrears,
on the last day of the month (except as to the payment for the month of
December 1997, which shall be made on December 26, 1997), at a variable
rate per annum equal to the Base Rate in effect from time to time;
provided, however, that from and after the occurrence and during the
continuance of an Event of Default, interest shall accrue at the Default
Rate. Interest shall be calculated as provided in the New Fleet Documents.
(3) Monthly Principal Amortization. The outstanding principal
------------------------------
balance of the Secured Fleet Claim (excluding that portion consisting of
Allowed Fleet Expenses, which shall be paid as set forth in Section
4.2(b)(9) of the Plan) shall be due and payable from and after the
Effective Date to the holder of the Allowed Secured Fleet Claim Fleet, on
the last day of the month (except as to the payment for the month of
December 1997, which shall be made on December 26, 1997), in monthly
installments which shall be in the amounts specified below:
15
<PAGE>
Per Month
Month Installment Amount
----- ------------------
October 1997 $2.5 million
November 1997 $2.5 million
December 1997 $3.0 million
January through June 1998 $3.0 million
July through August 1998 $3.5 million
The remaining unpaid balance on the New Fleet Note shall be due and payable
on September 30, 1998.
(4) Limitation on and Deferral of Payment to Other Creditors.
--------------------------------------------------------
The Debtor shall be permitted to make payments to holders of Unsecured
Claims, Dealer Claims and the Jaymed Claim pending the Fleet Payment Date,
subject to the following limitations:
a. the Debtor shall not make any payments due on the initial
Quarterly Payment Date of December 26, 1997 unless Fleet shall have
first received from the Debtor principal payments aggregating $8
million with respect to the months of October through December 1997,
and there shall be no accrued but unpaid interest owing to Fleet on
December 26, 1997;
b. the Debtor shall not make any payment due on a Quarterly
Payment Date until the installment payment (including principal and
interest owed, and if any of the Allowed Fleet Expenses are
outstanding, the amortized amount thereof as provided in Section
4.2(b)(9) hereof) due to Fleet on the same date is paid in full;
c. the Debtor shall not make payments with respect to Unsecured
Claims collectively exceeding $1.5 million on the initial Quarterly
Payment Date and shall not make payments with respect to Unsecured
Claims, Dealer Claims (other than Enrollment Fee Claims and Voucher
Claims under the Settlement Treatment) and the Jaymed Claim
collectively exceeding $2.4 million on the second or any subsequent
Quarterly Payment Date;
d. the Debtor may defer all or part of any of the payments
otherwise due under the Plan with respect to Unsecured Claims, Dealer
Claims and the Jaymed Claim in the event and to the extent of an
Insufficient Funds Determination; and any payments deferred in
accordance with the foregoing may not be made to the holders of
Unsecured Claims, Dealer Claims or the Jaymed Claim until after the
Fleet Payment Date; or
16
<PAGE>
e. the Debtor shall have no authority to pay, and holders of
Unsecured Claims, Dealer Claims and the Jaymed Claim shall not be
entitled to receive, any future distributions under the Plan on any
date that a Fleet Payment Default or a Fleet Payment Default Condition
shall exist; and any payments delayed in accordance with the foregoing
may not be made to the holders of Unsecured Claims, Dealers Claims or
the Jaymed Claim until the failure giving rise to the Fleet Payment
Default or the Fleet Payment Default Condition has been waived in
writing by Fleet or cured by the Debtor (prior to the date on which
Fleet has accelerated the maturity of the Secured Fleet Claim);
provided, however, that if a Fleet Payment Default exists on a
Quarterly Payment Date, any payments due on such Quarterly Payment
Date shall be deferred until after the Fleet Payment Date, whether or
not such Fleet Payment Default is subsequently waived in writing or
cured (prior to the date on which Fleet has accelerated the maturity
of the Secured Fleet Claim); and provided further, however, that if a
Fleet Payment Default has occurred twice during a quarter preceding a
Quarterly Payment Date, whether or not waived in writing by Fleet or
cured by the Debtor (prior to the date on which Fleet has accelerated
the maturity of the Secured Fleet Claim), any payments due on such
Quarterly Payment Date shall be deferred until after the Fleet Payment
Date.
(5) Right to Adequate Protection Payments. Upon the Effective
-------------------------------------
Date, the holder of the Allowed Secured Fleet Claim will be entitled
indefeasibly to all of the adequate protection payments received under the
prior Cash Collateral Orders, with such payments being credited to the
calculation of the Allowed Secured Fleet Claim as set forth in the Cash
Collateral Orders.
(6) Debtor Release of Claims. Upon the Effective Date, and as
------------------------
more fully provided in this Plan, all Causes of Action, if any, that the
Debtor (or any person by, through, or under the Debtor) may have or assert
against Fleet or its participant, or any affiliate, or officer, director,
or agent, representative, attorney of any of the foregoing parties, will be
deemed irrevocably released and discharged.
(7) Fleet Collateral. The Secured Fleet Claim shall be secured
----------------
by all of the Fleet Collateral. Without limiting the generality of the
foregoing, Fleet shall retain all of its Liens with respect to the portion
of the Fleet Collateral in existence immediately prior to the Effective
Date, except that effective upon the Effective Date, Fleet shall be deemed
to have released its Liens upon any Contributed Non-Accrual Contracts. The
Debtor shall use its best efforts to identify for Fleet in writing, as soon
as practicable prior to the commencement of the Confirmation Hearing, all
of the Contributed Non-Accrual Contracts existing as of August 31, 1997 as
to which Fleet's Lien shall be released. In consideration of the use of
funds prior to the Fleet Payment Date to pay Unsecured Claims, Dealer
Claims and Jaymed Claims as provided in
17
<PAGE>
Section 4.2(b)(4) of the Plan, and in further consideration of the release
of Liens provided for herein, upon the Effective Date, and as more fully
provided under the New Fleet Documents, Fleet as the holder of the Secured
Fleet Claim shall be granted a Lien upon the Debtor's legal and beneficial
ownership interest in Funding Trust, subject to the prior Lien of
Prudential, and further subject to a carve-out of up to $2.5 million in
aggregate for Allowed fees and expenses awarded to professional persons
retained by the Creditors' Committee and the Debtor; provided, however,
that to the extent that any such Allowed fees and expenses have been
satisfied by the Debtor prior to the Effective Date, such carve-out shall
be correspondingly reduced.
(8) Default Rights. Upon and after the occurrence of an Event of
--------------
Default, Fleet as the holder of the Secured Fleet Claim shall be authorized
to (i) accelerate the maturity and demand payment of all of the Secured
Fleet Claim, (ii) enforce its Liens with respect to the Fleet Collateral,
and (iii) take such other action and exercise such other rights and
remedies as are available to such holder under the New Fleet Documents or
applicable law. From and after the occurrence and during the continuance of
any such Event of Default, the principal amount of the Secured Fleet Claim
shall bear interest at the Default Rate.
(9) Payment of Allowed Fleet Expenses. On the Effective Date,
---------------------------------
the Debtor shall pay to Fleet the sum of $300,000 in partial payment of the
Allowed Fleet Expenses. The balance of such Allowed Fleet Expenses shall be
paid in six (6) equal, or substantially equal, monthly installments,
commencing on October 31, 1997, and continuing on November 30, 1997,
December 26, 1997, January 31, 1998, February 28, 1998 and March 31, 1998,
until paid in full, without any interest except interest at the Default
Rate after the occurrence and during the continuance of an Event of
Default.
(10) New Fleet Documents. The Debtor shall execute and deliver to
-------------------
Fleet the New Fleet Documents on or before the Effective Date. To the
extent that the terms providing for payment of the Allowed Secured Fleet
Claim in this Plan conflict with the terms providing for payment of the
Allowed Secured Fleet Claim in the New Fleet Documents, the terms of this
Plan shall control.
4.3. CLASS 3 -- SECURED PRUDENTIAL CLAIM.
-----------------------------------
(a) Impairment and Voting. Class 3 is unimpaired by the Plan. The
---------------------
holder of an Allowed Secured Prudential Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
18
<PAGE>
(b) Distribution. The holder of an Allowed Secured Prudential Claim
------------
shall receive payment in full of the Allowed amount of such Claim on the later
of the Effective Date and the date such Claim becomes an Allowed Claim, or as
soon thereafter as is practicable.
4.4. CLASS 4 -- OTHER SECURED CLAIMS.
-------------------------------
(a) Impairment and Voting. Class 4 is unimpaired by the Plan. Each
---------------------
holder of an Allowed Other Secured Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Treatment of Claims. Except to the extent that a holder of an
-------------------
Allowed Other Secured Claim agrees to a different treatment, at the sole option
of the Debtor, each Allowed Other Secured Claim shall be treated in accordance
with one of the following alternatives:
(1) Reinstatement. The Allowed Other Secured Claim shall be
-------------
treated as an unimpaired Claim in accordance with section 1124 of the
Bankruptcy Code; and notwithstanding any contractual provision or
applicable law that entitles the holder of an Allowed Other Secured Claim
to demand or receive accelerated payment of such Allowed Claim after the
occurrence of a default, the holder of each such Allowed Claim shall
receive from the Debtor the amount of such Allowed Claim through: (a) cure
of any defaults occurring prior to the Effective Date in one cash payment,
in an amount agreed to by the Debtor and the holder of such Allowed Claim
or in an amount determined by the Bankruptcy Court; on the later of the
Effective Date, the date on which the Debtor and the holder agree on the
cure amount, or the date on which the Bankruptcy Court determines the cure
amount; (b) reinstatement of the maturity of such Allowed Claim as such
maturity existed prior to any such default; (c) compensation for any
damages incurred as a result of reasonable reliance by the holder of such
Allowed Claim on such contractual provision or such applicable law that
authorizes demand for or receipt of accelerated payment, in one cash
payment, in an amount agreed to by the Debtor and the holder of such
Allowed Claim or in an amount determined by the Bankruptcy Court; made on
the later of the Effective Date, the date on which the Debtor and the
holder agree on the cure amount, or the date on which the Bankruptcy Court
determines the cure amount; and (d) authorization to enforce other legal,
---
equitable, or contractual rights to which the holder of such Allowed Claim
may otherwise be entitled; or
--
(2) Payment in Full. The holder of an Allowed Other Secured
---------------
Claim shall receive Cash in an amount equal to such Claim, including any
interest on such Claim required to be paid pursuant to section 506(b) of
the Bankruptcy Code, on the later of the Effective Date and the date such
Claim becomes an Allowed Other Secured Claim, or as soon thereafter as is
practicable; or
--
19
<PAGE>
(3) Return of Collateral. The holder of an Allowed Other Secured
--------------------
Claim shall receive the Collateral securing its Claim in full and complete
satisfaction of such Claim on the later of the Effective Date and the date
such Claim becomes an Allowed Other Secured Claim, or as soon thereafter as
is practicable.
(c) Subclassification. Each Other Secured Claim shall be deemed to be
-----------------
separately classified in a subclass of Class 4 and shall have all rights
associated with separate classification under the Bankruptcy Code.
4.5. CLASS 5 -- UNSECURED CLAIMS.
---------------------------
(a) Impairment and Voting. Class 5 is impaired by the Plan. Each
---------------------
holder of an Allowed Unsecured Claim is entitled to vote to accept or reject the
Plan in accordance with the Voting Procedures Order.
(b) Distributions. Each holder of an Allowed Unsecured Claim shall
-------------
receive payment in full of such Allowed Unsecured Claim, together with interest
thereon from the Commencement Date at a rate of interest equal to the prime
lending rate prevailing on the date that is seven (7) Business Days prior to
each payment date, as published in The Wall Street Journal, over a period of one
-----------------------
(1) year following the Effective Date, in four unequal quarterly payments, the
first of which shall be due on the initial Quarterly Payment Date and the next
three of which shall be due on each Quarterly Payment Date thereafter; and the
amount of which payments shall not exceed each such holder's pro rata share
(based on the amount of such Allowed Claim) of $1.5 million on the first
Quarterly Payment Date, $900,000 on the second and third Quarterly Payment
Dates, and the remaining balance of all Allowed Unsecured Claims plus any
accrued but unpaid interest on the fourth Quarterly Payment Date; provided,
however, that the making of the quarterly payments required herein shall be
subject to, and shall be delayed or deferred in accordance with, the terms of
Section 7.1(f) of the Plan.
(c) Late-Filed Proofs of Claim. Any proof of claim filed by the
--------------------------
holder of an Unsecured Claim that is a June 16 Filer or a Late Filer shall be
deemed disallowed unless such proof of claim is deemed to be timely filed by
Final Order of the Bankruptcy Court issued pursuant to motion of such holder
filed no later than thirty (30) days after the Effective Date, after notice and
a hearing, upon proving excusable neglect in accordance with Section 7.6 of the
Plan; provided, however, that the Debtor and the holder of an Unsecured Claim
that is a June 16 Filer (but in no event a Late Filer) may compromise the late
filing issue by agreeing to treat such holder's proof of claim as timely filed
if such holder will reduce the amount of its Unsecured Claim by 25% of the
otherwise allowable amount of such Claim.
20
<PAGE>
4.6. CLASS 6 -- DEALER CLAIMS.
------------------------
(a) Impairment and Voting. Class 6 is impaired by the Plan. Each
---------------------
holder of an Allowed Dealer Claim is entitled to vote to accept or reject the
Plan in accordance with the Voting Procedures Order.
(b) Settlement Treatment. Each holder of a Dealer Claim that is a May
--------------------
15 Filer or a June 16 Filer and that elects to receive the Settlement Treatment,
and each holder of a Dealer Claim that is a May 15 Filer or a June 16 Filer that
does not elect either to receive the Settlement Treatment or the Non-Settlement
Treatment shall receive, in full satisfaction, release and discharge of such
holder's Dealer Claim, (i) a dismissal of the Dealer Estimation Motion as to
each such holder's Dealer Claim and a release of any and all other objections of
the Debtor to such Dealer Claim and (ii) the following, to the extent applicable
to each such holder:
(1) Enrollment Fee Claim. If the holder of Dealer Claim entered
--------------------
into a Dealer Agreement with the Debtor on or after June 7, 1996, which
Dealer Agreement was not terminated by the Debtor in accordance with the
terms thereof, and if such holder filed a proof of claim on or before June
16, 1997 specifically alleging an Enrollment Fee Claim (not including
proofs of claim amended after June 16, 1997 to allege an Enrollment Fee
Claim), then
a. if such holder is a May 15 Filer, such holder shall be
granted an Allowed Enrollment Fee Claim in an amount equal to 100% of
the amount that is $4,500.00 minus the total of $562.50 times the
number of months (calculated from the seventh (7th) day of each month
through the sixth (6th) day of the next following month) between the
effective date of such holder's Dealer Agreement and the Commencement
Date (with such $562.50 being prorated by day for any partial month
within such period); or
b. if such holder is a June 16 Filer, such holder shall be
granted an Allowed Enrollment Fee Claim in an amount equal to 75% of
the amount that is $4,500.00 minus the total of $562.50 times the
number of months (calculated from the seventh (7th) day of each month
through the sixth (6th) day of the next following month) between the
effective date of such holder's Dealer Agreement and the Commencement
Date (with such $562.50 being prorated by day for any partial month
within such period);
and such holder shall receive with respect to such Allowed amount aggregate
distributions equal to the lesser of (i) 100% of such amount or (ii) a pro
rata share (based on such Allowed amount) of a settlement fund equal to
$139,468.75 minus the amount of all Allowed Enrollment Fee Claims held by
Non-Settling Dealers; which
21
<PAGE>
distributions shall be made over a period of two (2) years from the
Effective Date in equal quarterly payments, with the first such payment
being due on the second Quarterly Payment Date and subsequent payments
being due on each Quarterly Payment Date thereafter; provided, however,
that the making of the quarterly payments required herein shall be subject
to, and shall be delayed or deferred in accordance with, the terms of
Section 7.1(f) of the Plan; and provided further, however, that the amount
of any delayed or deferred quarterly payments shall bear interest from the
date on which they were originally due until the date on which they are
actually paid at a rate of interest equal to the prime lending rate
prevailing on the date that is seven (7) Business Days prior to the date on
which they are actually paid; and/or
(2) Voucher Claim. If the holder of Dealer Claim filed a proof
-------------
of claim on or before June 16, 1997 specifically alleging a Voucher Claim
(not including proofs of claim amended after June 16, 1997 to allege a
Voucher Claim), then
a. if such holder is a May 15 Filer, such holder shall be
granted an Allowed Voucher Claim in an amount equal to 100% of the
amount that is 5% of the face amount of each unused voucher alleged in
the proof of claim; or
b. if such holder is a June 16 Filer, such holder shall be
granted an Allowed Voucher Claim in an amount equal to 75% of the
amount that is 5% of the face amount of each unused voucher alleged in
the proof of claim;
and such holder shall receive with respect to such Allowed amount aggregate
distributions equal to the lesser of (i) 100% of such amount or (ii) a pro
rata share (based on such Allowed amount) of a settlement fund equal to
$10,000 minus the amount of all Allowed Enrollment Fee Claims held by Non-
Settling Dealers; which distributions shall be made over a period of two
(2) years from the Effective Date in equal quarterly payments, with the
first such payment being due on the second Quarterly Payment Date and
subsequent payments being due on each Quarterly Payment Date thereafter;
provided, however, that the making of the quarterly payments required
herein shall be subject to, and shall be delayed or deferred in accordance
with, the terms of Section 7.1(f) of the Plan; and provided further,
however, that the amount of any delayed or deferred quarterly payments
shall bear interest from the date on which they were originally due until
the date on which they are actually paid at a rate of interest equal to the
prime lending rate prevailing on the date that is seven (7) Business Days
prior to the date on which they are actually paid; and/or
(3) Comprehensive Claim. If such holder is entitled to future
-------------------
collections from such holder's Contract Pool based upon the Debtor's $185
million collection scenario (which scenario is used for this purpose only
as part of the compromise of the Dealer Claims embodied in the Settlement
Treatment, the Debtor
22
<PAGE>
believing that a $155.5 million collection scenario is a more realistic
estimate of collections), then
a. if such holder is a May 15 Filer, such holder shall be
granted an Allowed Comprehensive Claim in an amount equal to 100% of
the estimated amount of future collections from such holder's
Contracts based upon the Debtor's $185 million collection scenario; or
b. if such holder is a June 16 Filer, such holder shall be
granted an Allowed Comprehensive Claim in an amount equal to 75% of
the estimated amount of future collections from such holder's
Contracts based upon the Debtor's $185 million collection scenario;
and such holder shall receive with respect to such Allowed amount aggregate
distributions equal to the lesser of (i) 100% of such amount or (ii) a pro
rata share (based on such Allowed amount) of a settlement fund equal to
$8,286,803 minus the amount of all Comprehensive Claims held by Non-
Settling Dealers as estimated based upon the Debtor's $185 million
collection scenario; which distributions shall be made over a period of two
(2) years from the Effective Date in eight unequal quarterly payments, the
first of which shall be due on the second Quarterly Payment Date and the
next seven of which shall be due on each Quarterly Payment Date thereafter;
and the amount of which payments shall not exceed, on the second Quarterly
Payment Date and each subsequent Quarterly Payment Date before or on the
Fleet Payment Date, a pro rata share (based on the amount of such Allowed
Claim) of the amount that equals $750,000 minus all amounts paid on Dealer
Claims under the Plan pursuant to the Non-Settlement Treatment, and the
amount of which payments on the five Quarterly Payment Dates after the
Fleet Payment Date shall equal one-fifth of the remaining balance of the
Allowed Claim; provided, however, that the making of the quarterly payments
required herein shall be subject to, and shall be delayed or deferred in
accordance with, the terms of Section 7.1(f) of the Plan; and provided
further, however, that the amount of any delayed or deferred quarterly
payments shall bear interest from the date on which they were originally
due until the date on which they are actually paid at a rate of interest
equal to the prime lending rate prevailing on the date that is seven (7)
Business Days prior to the date on which they are actually paid; and/or
(4) Dealer Settlement Right. If such holder's Contract Pool
-----------------------
contains any Non-Accrual Contracts as of August 31, 1997, then
a. if such holder is a May 15 Filer, such holder shall be
entitled to a Dealer Settlement Right in an amount equal to 100% of
the outstanding principal balance of such holder's Non-Accrual
Contracts; or
23
<PAGE>
b. if such holder is a June 16 Filer, such holder shall be
entitled to a Dealer Settlement Right in an amount equal to 75% of the
outstanding principal balance of such holder's Non-Accrual Contracts;
and such holder shall receive an interest in the Non-Accrual Contract Trust
equal to the quotient obtained by dividing its Dealer Settlement Right by
the aggregate amount of all Dealer Settlement Rights, with respect to which
interest the Dealer shall receive distributions of Net Trust Collections in
accordance with the provisions of Article V of the Plan.
(c) Non-Settlement Treatment. Each holder of a Dealer Claim that is a
------------------------
May 15 Filer or a June 16 Filer and that elects to receive the Non-Settlement
Treatment, and each holder of a Dealer Claim that is a Late Filer shall receive
the following, in full satisfaction, release and discharge of such holder's
Dealer Claim:
(1) If such holder is a May 15 Filer, and if such holder is
granted an Allowed Dealer Claim by Final Order of the Bankruptcy Court,
following litigation pursuant to the Dealer Estimation Motion, or
(2) If such holder is a June 16 Filer or a Late Filer, and if
the proof of claim of such holder is deemed to be timely filed by Final
Order of the Bankruptcy Court issued pursuant to motion of such holder
filed no later than thirty (30) days after the Effective Date, after notice
and a hearing, upon proving excusable neglect in accordance with Section
7.6 of the Plan, and if such holder thereafter is granted an Allowed Dealer
Claim by Final Order of the Bankruptcy Court, following litigation pursuant
to the Dealer Estimation Motion,
then such holder shall receive with respect to the Allowed amount of such Claim
aggregate distributions equal to 100% of such amount, together with interest
thereon from the Commencement Date at a rate of interest equal to the prime
lending rate prevailing on the date that is seven (7) Business Days prior to
each payment date, as published in The Wall Street Journal; which distributions
-----------------------
shall be made over a period of two (2) years from the Effective Date in eight
unequal quarterly payments, the first of which shall be due on the second
Quarterly Payment Date and the next seven of which shall be due on each
Quarterly Payment Date thereafter; and the amount of which payments shall not
exceed, on the second Quarterly Payment Date and each subsequent Quarterly
Payment Date before or on the Fleet Payment Date, a pro rata share (based on the
amount of such Allowed Claim) of the amount that equals $750,000 minus all
amounts paid on Comprehensive Claims under the Plan pursuant to the Settlement
Treatment, and the amount of which payments on the five Quarterly Payment Dates
after the Fleet Payment Date shall equal one-fifth of the remaining balance of
the Allowed Claim; provided, however, that the making of the quarterly payments
required herein shall be
24
<PAGE>
subject to, and shall be delayed or deferred in accordance with, the terms of
Section 7.1(f) of the Plan.
4.7. CLASS 7 -- JAYMED CLAIM.
-----------------------
(a) Impairment and Voting. Class 7 is impaired by the Plan. The
---------------------
holder of an Allowed Jaymed Claim is entitled to vote to accept or reject the
Plan.
(b) Distributions. The holder of the Allowed Jaymed Claim shall
-------------
receive payment in full of such Allowed Claim, together with interest thereon
from the Commencement Date at a rate of interest equal to the prime lending rate
prevailing on the date that is seven (7) Business Days prior to each payment
date, as published in The Wall Street Journal; which payment shall be made over
-----------------------
a period of two (2) years following the Effective Date, in eight unequal
quarterly payments, the first of which shall be due on the second Quarterly
Payment Date and the next seven of which shall be due on each Quarterly Payment
Date thereafter; and the amount of which payments shall not exceed $750,000 on
the second Quarterly Payment Date and each subsequent Quarterly Payment Date
before or on the Fleet Payment Date, and the amount of which payments shall
equal one-fifth of the remaining balance of the Allowed Claim on the five
Quarterly Payment Dates after the Fleet Payment Date; provided, however, that
the making of the quarterly payments required herein shall be subject to, and
shall be delayed or deferred in accordance with, the terms of Section 7.1(f) of
the Plan.
4.8. CLASS 8 -- MBIA CLAIM.
---------------------
(a) Impairment and Voting. Class 8 is unimpaired by the Plan. The
---------------------
holder of the Allowed MBIA Claim is conclusively presumed to have accepted the
Plan and is not entitled to vote to accept or reject the Plan.
(b) Treatment of Claims. The Allowed MBIA Claim shall be treated as
-------------------
an unimpaired Claim in accordance with section 1124 of the Bankruptcy Code; and
notwithstanding any contractual provision or applicable law that entitles the
holder of an Allowed MBIA Claim to demand or receive accelerated payment of such
Allowed Claim after the occurrence of a default, the holder of such Allowed
Claim shall receive from the Debtor the amount of such Allowed Claim through:
(1) Cure of Defaults. Cure of any defaults occurring prior to
----------------
the Effective Date in one cash payment, in an amount agreed to by the
Debtor and the holder of such Allowed Claim or in an amount determined by
the Bankruptcy Court; on the later of the Effective Date, the date on which
the Debtor and the holder agree on the cure amount, or the date on which
the Bankruptcy Court determines the cure amount;
25
<PAGE>
(2) De-Acceleration. Reinstatement of the maturity of such
---------------
Allowed Claim as such maturity existed prior to any such default;
(3) Compensation for Damages. Compensation for any damages
------------------------
incurred as a result of reasonable reliance by the holder of such Allowed
Claim on such contractual provision or such applicable law that authorizes
demand for or receipt of accelerated payment, in one cash payment, in an
amount agreed to by the Debtor and the holder of such Allowed Claim or in
an amount determined by the Bankruptcy Court; made on the later of the
Effective Date, the date on which the Debtor and the holder agree on the
cure amount, or the date on which the Bankruptcy Court determines the cure
amount; and
---
(4) Enforcement Rights. Authorization to enforce other legal,
------------------
equitable, or contractual rights to which the holder of such Allowed Claim
may otherwise be entitled.
To effect the unimpaired treatment provided herein, the two note guaranty
insurance policies (policy numbers 20632 and 21656) and indemnity agreements by
among MBIA Insurance Corporation, the Debtor, Funding Trust and Norwest Bank,
dated March 15, 1996 and August 7, 1996, respectively, which give rise to the
MBIA Claim, shall be deemed to have been assumed pursuant to section 365(a) of
the Bankruptcy Code by the Confirmation Order.
4.9. CLASS 9 -- SECTION 510(b) CLAIMS.
--------------------------------
(a) Impairment and Voting. Class 9 is impaired by the Plan. Each
---------------------
holder of an Allowed Section 510(b) Claim is entitled to vote to accept or
reject the Plan in accordance with the Voting Procedures Order.
(b) Distributions. Each holder of an Allowed Section 510(b) Claim
-------------
shall receive payment in full of such Allowed Claim, together with interest
thereon at a rate of interest equal to the prime lending rate prevailing on the
date that is seven (7) Business Days prior to each payment date, as published in
The Wall Street Journal, over a period of four (4) years following the Effective
- -----------------------
Date, in equal quarterly payments, with the first such payment being due on the
Quarterly Payment Date that next follows the date on which Unsecured Claims,
Dealer Claims and the Jaymed Claim are paid in full and with subsequent payments
being due on each Quarterly Payment Date thereafter.
(c) Late-Filed Proofs of Claim. Any proof of claim filed by the
--------------------------
holder of a Section 510(b) Claim that is a June 16 Filer or a Late Filer shall
be deemed disallowed unless such proof of claim is deemed to be timely filed by
Final Order of the Bankruptcy Court issued pursuant to motion of such holder
filed no later than thirty (30) days after the Effective Date, after notice and
a hearing, upon proving excusable neglect in accordance with Section 7.6 of
26
<PAGE>
the Plan; provided, however, that the Debtor and the holder of an Unsecured
Claim that is a June 16 Filer (but in no event a Late Filer) may compromise the
late filing issue by agreeing to treat such holder's proof of claim as timely
filed if such holder will reduce the amount of its Section 510(b) Claim by 25%
of the otherwise allowable amount of such Claim.
4.10. CLASS 10 -- EQUITY INTERESTS.
----------------------------
(a) Impairment and Voting. Class 10 is unimpaired by the Plan.
---------------------
Each holder of an Equity Interest is conclusively presumed to have accepted the
Plan as a holder of an Equity Interest, and is not entitled to vote to accept or
reject the Plan .
(b) Retention of Equity Interests. Each holder of an Equity
-----------------------------
Interest shall continue to hold such Equity Interests on the Effective Date.
ARTICLE V.
PROVISIONS GOVERNING NON-ACCRUAL CONTRACT TRUST
-----------------------------------------------
5.1. Governing Document. The Non-Accrual Contract Trust shall be
------------------
governed by the trust agreement to be entitled "Non-Accrual Contract Trust of
Holders of Dealer Claims Against Jayhawk Acceptance Corporation," which shall be
substantially in the form contained in the Plan Supplement.
5.2. Duties of Trustee. The Non-Accrual Contract Trust shall be
-----------------
administered by the Trustee in accordance with the trust agreement; and in
addition to the rights and obligations of the Trustee under the trust agreement,
the Trustee shall have standing to monitor and seek to enforce the Debtor's
performance of its obligations under the Plan to holders of Dealer Claim and
Unsecured Claims and its performance of other provisions of the Plan that have
an affect upon the treatment of Dealer Claims and Unsecured Claims.
5.3. Initial Contribution of Non-Accrual Contracts. The Debtor shall
---------------------------------------------
identify all Non-Accrual Contracts existing as of August 31, 1997 that are in
the Contract Pools of Dealers who are May 15 Filers and June 16 Filers. Of such
identified Non-Accrual Contracts, the Debtor shall assign and transfer to the
Non-Accrual Trust, as provided in Section 5.5(a) of the Plan, those Contracts
having an aggregate outstanding principal balance in an amount equal to $80
million less the aggregate outstanding principal amount of any such identified
Non-Accrual Contracts in the Contract Pools of Non-Settling Dealers (the
"Initial Required Contract Amount"). To implement the foregoing Initial
Required Contract Amount limitation, the Debtor shall first select for
assignment and transfer any of such identified Non-Accrual Contracts in the
Contract Pools of Settling Dealers with aggregate outstanding principals amounts
up to but not exceeding the Initial Required Contract Amount; and the Debtor
shall
27
<PAGE>
then select for assignment and transfer any other Non-Accrual Contracts, whether
or not in the Contract Pools of Dealers who are May 15 or June 16 Filers, with
aggregate outstanding principal amounts up to but not exceeding, together with
the identified Non-Accrual Contracts of the Settling Dealers and the Non-
Settling Dealers, the Initial Required Contract Amount. If, however, the
aggregate outstanding principal amount of all identified Non-Accrual Contracts
in the Contract Pools of Settling Dealers by itself exceeds the Initial Required
Contract Amount, the Debtor and the Creditors' Committee shall agree on a pro
rata mechanism for limiting the aggregate outstanding principal amount of such
identified Non-Accrual Contracts to the Initial Required Contract Amount.
5.4. Final Contribution of Non-Accrual Contracts. The Debtor shall
-------------------------------------------
identify all Non-Accrual Contracts existing as of the Fleet Payment Date that
are in the Contract Pools of Dealers who are May 15 Filers and June 16 Filers.
Of such identified Non-Accrual Contracts, the Debtor shall assign and transfer
to the Non-Accrual Contract Trust, as provided in Section 5.5(b) of the Plan,
those Contracts having an aggregate outstanding principal balance in an amount
equal to $30 million less the aggregate outstanding principal amount of any such
identified Non-Accrual Contracts in the Contract Pools of Non-Settling Debtors
(the "Final Required Contract Amount"). To implement the foregoing Final
Required Contract Amount limitation, the Debtor shall first select for
assignment and transfer any of such identified Non-Accrual Contracts in the
Contract Pools of Settling Dealers with aggregate outstanding principal amounts
up to but not exceeding the Final Required Contract Amount; and the Debtor shall
then select for assignment and transfer any other Non-Accrual Contracts, whether
or not in the Contract Pools of Dealers who are May 15 for June 16 Filers, with
aggregate outstanding principal amounts up to but not exceeding, together with
the identified Non-Accrual Contracts of the Settling Dealers and the Non-
Settling Dealers, the Final Required Contract Amount. If, however, the
aggregate outstanding principal amount of all identified Non-Accrual Contracts
in the Contract Pool of Settling Dealers by itself exceeds the Final Required
Contract Amount, the Debtor and the Trustee shall agree on a pro rata mechanism
for limiting the aggregate outstanding principal amount of such identified Non-
Accrual Contracts to the Final Required Contract Amount. The Debtor shall not
enter into any bulk sale of Contracts until after the Final Required Contract
Amount has been transferred to the Non-Accrual Contract Trust.
5.5. Contents of Trust Provided by the Debtor. The Non-Accrual
----------------------------------------
Contract Trust shall contain the following, which shall be assigned and
transferred by the Debtor as set forth below:
(a) Section 5.3 Contributed Non-Accrual Contracts. Those of the
---------------------------------------------
Contributed Non-Accrual Contracts identified for assignment and transfer in
Section 5.3 of the Plan that are not owned by Funding Trust shall be delivered
by the Debtor to the Trustee on the Effective Date; and those of such
Contributed Non-Accrual Contracts that are owned by Funding Trust shall be
delivered by the Debtor to the Trustee on the first Business Day that is
28
<PAGE>
thirty (30) days after the date on which the Jayhawk Funding Trust I Automobile
Loan-Backed Notes, Series 1996B are paid in full. Any payments received by the
Debtor after August 31, 1997 from the obligors under any such Contributed Non-
Accrual Contracts (other than those Contracts that are owned by Funding Trust,
as to which any such payments shall be replaced by the Debtor with additional
Non-Accrual Contracts having an aggregate outstanding principal amount equal to
such payments) shall be distributed by the Debtor to the Trustee on the
Effective Date if received by the Debtor prior to the Effective Date or shall be
distributed to the Trustee on the first Business Day that is thirty (30) days
after the date of payment if received by the Debtor after the Effective Date;
provided, however, that the aggregate amount of such payments shall not exceed
$15,000 without the consent of Fleet, and in the absence of such consent the
Debtor shall defer making distribution to the Trustee of the amount exceeding
$15,000 until the first Quarterly Payment Date after the Fleet Payment Date. Any
automobile titles remaining with respect to any such Contributed Non-Accrual
Contracts shall be delivered by the Debtor to the Trustee on the Effective Date
as to those titles with respect to Contracts that were not contributed to
Funding Trust and on the first Business Day that is thirty (30) days after the
date on which the Jayhawk Funding Trust I Automobile Loan-Backed Notes, Series
1996B are paid in full as to those titles with respect to Contracts that were
contributed to Funding Trust; and
(b) Section 5.4 Contributed Non-Accrual Contracts. The
---------------------------------------------
Contributed Non-Accrual Contracts identified for assignment and transfer in
Section 5.4 of the Plan shall be delivered by the Debtor to the Trustee on the
first Business Day that is thirty (30) days after the Fleet Payment Date. Any
payments received by the Debtor after the Fleet Payment Date from the obligors
under any such Contributed Non-Accrual Contracts shall be distributed by the
Debtor to the Trustee on the first Business Day that is thirty (30) days after
the date of payment. Any automobile titles remaining with respect to any such
Contributed Non-Accrual Contracts shall be delivered by the Debtor to the
Trustee on the first Business Day that is thirty (30) days after the Fleet
Payment Date.
5.6. Additional Contents of Trust. During its term, the Non-Accrual
----------------------------
Contract Trust shall include any and all proceeds received by the Trustee from
the Contributed Non-Accrual Contracts and any interest and other amounts earned
on any collections and other cash contents.
5.7. Assignment and Transfer of Contracts As Is. The Contributed Non-
------------------------------------------
Accrual Contracts shall be assigned and transferred to the Non-Accrual Contract
Trust in such condition as may exist on the date of assignment and transfer,
without representations or warranties of any kind from the Debtor, and without
recourse to the Debtor.
5.8. Transfer of Contract Documentation. The Debtor shall deliver to
----------------------------------
the Trustee contemporaneously with the delivery of the Contributed Non-Accrual
Contracts as provided in section 5.5 of the Plan all files, computer disks or
tapes and other documentation or materials
29
<PAGE>
with respect to the Contributed Non-Accrual Contracts, and the Debtor shall
cooperate with the Trustee in providing any additional existing information as
may be reasonably requested by the Trustee.
5.9. Distributions from Trust. The trust agreement shall provide for
------------------------
periodic distributions to each Settling Dealer entitled thereto pursuant to
Section 4.6(b)(4) of the Plan either of its interest in Net Trust Collections or
its Non-Accrual Contracts that were contributed to the Non-Accrual Contract
Trust, based upon the election of such Settling Dealer made in accordance with
the provisions of the trust agreement. The trust agreement shall provide a time
period within which such election must be made, and the Trustee shall provide
notice to eligible Settling Dealers of such election right and of the deadline
applicable thereto.
5.10. Costs and Expenses of Trust. The Non-Accrual Contract Trust shall
---------------------------
bear the costs and expenses incurred by the Trustee and any professionals,
agents or employees retained by the Trustee, with respect to the Non-Accrual
Contract Trust; including without limitation the costs and expenses of
establishing, maintaining and administering the Non-Accrual Contract Trust, the
costs and expenses of collecting the Non-Accrual Contracts, the costs and
expenses of distributing Net Trust Collections to the holders of Dealer Claims
entitled thereto, and the costs and expenses of complying with tax return, tax
information return and other reporting requirements.
5.11. No Liability of Debtor for Trust Activities. The Debtor shall
--------------------------------------------
have no duty or obligation whatsoever with respect to the Non-Accrual Contract
Trust; and it shall have no liability or responsibility for the establishment,
maintenance or administration of the Non-Accrual Contract Trust, for the
collection of Non-Accrual Contracts, or for the amount or distribution of Net
Trust Collections. Neither the Debtor nor the Debtor's assets shall be liable to
or subject to surcharge by the Trust, the Trustee, the professionals retained by
the Trustee or any beneficiaries of the Trust.
5.12. Mutual Indemnification. The Debtor shall indemnify and hold
----------------------
harmless the Trustee and the Non-Accrual Contract Trust from any and all claims
and causes of action arising with respect to a Non-Accrual Contract prior to the
date on which it is assigned to the Non-Accrual Contract Trust; and the Trustee
and the Non-Accrual Contract Trust shall indemnify and hold harmless the Debtor
from any and all claims and causes of action arising with respect to a Non-
Accrual Contract after the date on which it is assigned to the Non-Accrual
Contract Trust.
5.13. Purpose of Trust. The Non-Accrual Contract Trust is created
----------------
pursuant to the Plan for the primary purpose of liquidating the assets
transferred to it with no objective to continue or engage in the conduct of a
trade or business, except to the extent reasonably necessary to, and consistent
with, the liquidating purpose of the Non-Accrual Contract Trust. The Non-
Accrual Contract Trust is intended to be classified as a "qualified settlement
fund"
30
<PAGE>
for federal income tax purposes under Treasury Regulation Section 1.468B-1-5.
The Debtor and the Trustee shall agree to the valuations of the Contributed Non-
Accrual Contracts on the dates of assignment and transfer of such Contracts to
Non-Accrual Contract Trust, and such agreed valuations shall be used by the
Debtor and the Trustee for all federal income tax reporting purposes.
ARTICLE VI.
ACCEPTANCE OR REJECTION OF THE PLAN; EFFECT OF REJECTION
BY ONE OR MORE CLASSES OF IMPAIRED CLAIMS
6.1. Classes Entitled to Vote. Except as provided in Section 6.2 of
------------------------
the Plan, each impaired Class of Claims under the Plan shall be entitled to vote
separately to accept or reject the Plan as provided in the order entered by the
Bankruptcy Court governing the voting and balloting procedures applicable to the
Plan.
6.2. Deemed Acceptance Without Vote. Any unimpaired Class of Claims or
------------------------------
Equity Interests shall be deemed to have accepted the Plan and shall not be
entitled to vote to accept or reject the Plan.
6.3. Claim Class Acceptance Requirement. An impaired Class of Claims
----------------------------------
shall have accepted the Plan if it is accepted by at least two-thirds in amount
and more than one-half in number of the Allowed Claims in such Class that have
voted on the Plan.
6.4. Nonconsensual Confirmation. If any impaired Class of Claims
--------------------------
entitled to vote shall not accept the Plan by the requisite statutory majorities
as set forth in Section 6.3 of the Plan, the Debtor reserves the right to amend
the Plan in accordance with Section 13.9 hereof or undertake to have the
Bankruptcy Court confirm the Plan under section 1129(b) of the Bankruptcy Code
or both.
ARTICLE VII.
PROVISIONS REGARDING DISTRIBUTIONS UNDER THE PLAN
AND TREATMENT OF DISPUTED, CONTINGENT AND UNLIQUIDATED CLAIMS
-------------------------------------------------------------
7.1. Method of Distributions Under the Plan.
--------------------------------------
(a) In General. Subject to Bankruptcy Rule 9010, all
----------
distributions under the Plan shall be made by the Debtor or the Trustee, as
appropriate, to the holder as of the Confirmation Date of each Allowed Claim at
the address of such holder as listed on the
31
<PAGE>
Schedules, unless the Debtor has been notified in writing of a change of
address, including, without limitation, by the filing of a proof of claim by
such holder that provides an address for such holder different from the address
reflected on the Schedules for such holder. Neither the Debtor nor the Trustee
shall have any obligation to recognize any transfer of a Claim occurring after
the Confirmation Date and each shall be entitled instead to recognize and deal
for all purposes herein with only those holders listed on the Schedules or on
the register of proofs of claim maintained by the Clerk of the Bankruptcy Court
or the agent of the Clerk of the Bankruptcy Court appointed for such purpose in
the Chapter 11 Case as of the close of business on the Confirmation Date.
(b) Distributions of Cash. Any payment of Cash made by the Debtor
---------------------
or the Trustee, as appropriate, pursuant to the Plan shall be made by check
drawn on a domestic bank.
(c) Timing of Distributions. Any payment or distribution required
-----------------------
to be made under the Plan on a day other than a Business Day shall be made on
the next succeeding Business Day. Any payment or distribution required to be
made under the Plan on any specific day shall be deemed timely if made no later
than ten (10) Business Days after such date.
(d) Minimum Distributions. No payment of Cash less than $10 shall
---------------------
be made by the Debtor or the Trustee, as appropriate, to any holder of a Claim
unless a request therefor is made in writing to the Debtor.
(e) Unclaimed Distributions. Any distributions pursuant to the
-----------------------
Plan, including cash, interest or other amounts earned thereon, that are
unclaimed for a period of one (1) year after distribution thereof shall be
revested in the Debtor, or in the Trust in the case of distributions from the
Non-Accrual Contract Trust, and any entitlement of any holder of any Claim to
such distributions shall be extinguished and forever barred.
(f) Delayed or Deferred Distributions. The making of quarterly
---------------------------------
payments owing under the Plan with respect to Unsecured Claims in Class 5,
Dealer Claims in Class 6 and the Jaymed Claim in Class 7 are subject to, and
shall be delayed or deferred as follows:
(1) The Debtor shall not make any payments due on the initial
Quarterly Payment Date of December 26, 1997 unless Fleet shall have first
received from the Debtor principal payments aggregating $8 million with
respect to the months of October through December 1997, and there shall be
no accrued but unpaid interest owing to Fleet on December 26, 1997;
(2) The Debtor shall not make any payment due on a Quarterly
Payment Date until the installment payment (including principal and
interest owed, and
32
<PAGE>
if any of the Allowed Fleet Expenses are outstanding, the amortized amount
thereof as provided in Section 4.2(b)(9) hereof) due to Fleet on the same
date is paid in full;
(3) The Debtor may defer all or part of any of the payments
otherwise due under the Plan with respect to Unsecured Claims, Dealer
Claims and the Jaymed Claim in the event of and to the extent of an
Insufficient Funds Determination, in which event the amount of any deferred
quarterly payment shall be payable (a) if deferred prior to the Fleet
Payment Date, beginning on the Quarterly Payment Date that follows the
Fleet Payment Date and on each subsequent Quarterly Payment Date as
necessary until such deferred payment amount is paid in full or (b) if
deferred after the Fleet Payment Date, on each Quarterly Payment Date after
the date of deferral on which the Debtor has available funds, as necessary
until such deferred payment amount is paid in full; or
(4) The Debtor shall have no authority to pay, and holders of
Unsecured Claims, Dealer Claims and the Jaymed Claim shall not be entitled
to receive, any future distributions under the Plan on any date that a
Fleet Payment Default or a Fleet Payment Default Condition shall exist; and
any payments delayed in accordance with the foregoing may not be made to
the holders of Unsecured Claims, Dealers Claims or the Jaymed Claim until
the failure giving rise to the Fleet Payment Default or the Fleet Payment
Default Condition has been waived in writing by Fleet or cured by the
Debtor (prior to the date on which Fleet has accelerated the maturity and
demanded payment of the Secured Fleet Claim); provided, however, that if a
Fleet Payment Default exists on a Quarterly Payment Date, any payments due
on such Quarterly Payment Date shall be deferred until after the Fleet
Payment Date, whether or not such Fleet Payment Default is subsequently
waived in writing or cured (prior to the date on which Fleet has
accelerated the maturity of the Secured Fleet Claim); and provided further,
however, that if a Fleet Payment Default has occurred twice during a
quarter preceding a Quarterly Payment Date, whether or not waived in
writing by Fleet or cured by the Debtor (prior to the date on which Fleet
has accelerated the maturity and demanded payment of the Secured Fleet
Claim), any payments due on such Quarterly Payment Date shall be deferred
until after the Fleet Payment Date.
In the event of a partial deferral of payments, the deferral shall be allocated
among the Classes containing Unsecured Claims, Dealer Claims and the Jaymed
Claim on the basis of a 25% percent reduction in the payment amount otherwise
owing with respect to Unsecured Claims, a 37-1/2% reduction in the payment
amount otherwise owing with respect to Dealer Claims, and a 37-1/2% reduction in
the payment amount otherwise owing with respect to the Jaymed Claim. If any
such deferral results from an Insufficient Funds Determination, the Debtor shall
provide on or before the Quarterly Payment Date to which the deferral relates a
written certification to Fleet and the Trustee of the basis for making the
Insufficient Funds Determination.
33
<PAGE>
(g) Prepayment. After the Fleet Payment Date, the Debtor shall
----------
have the right to prepay, without penalty, all or any portion of an Allowed
Claim at any time; provided, however, that any such prepayment shall be divided
pro rata among Unsecured Claims in Class 5, Dealer Claims in Class 6 and the
Jaymed Claim in Class 7 based upon the outstanding principal balance of Allowed
Claims in such Classes.
7.2. Disputed Claims.
---------------
(a) Distributions Upon Allowance of Disputed Claims Entitled to
-----------------------------------------------------------
Payment in Full in One Payment. The holder of a Claim entitled to payment in
- ------------------------------
full on one specific payment date, which Claim is a Disputed Claim on such
payment date, but which Claim subsequently becomes an Allowed Claim, shall
receive payment of its Allowed Claim within ten (10) Business Days following the
date on which such Claim becomes a Allowed Claim pursuant to a Final Order.
(b) Distributions Upon Allowance of Disputed Claims Entitled to
-----------------------------------------------------------
Payment in Full in Installment Payments. The holder of a Claim entitled to
- ---------------------------------------
payment in full in installments on more than Quarterly Payment Date, which Claim
is a Disputed Claim on the initial or any later Quarterly Payment Date, but
which Claim subsequently becomes an Allowed Claim, shall receive the amount of
any missed installments on the Quarterly Payment Date following the date on
which such Claim becomes an Allowed Claim by Final Order. If such Claim does
not become an Allowed Claim until after the last Quarterly Payment Date, the
holder thereof shall receive payment of its Allowed Claim within ten (10)
Business Days following the date on which such Claim becomes a Allowed Claim
pursuant to a Final Order.
(c) Tort Claims. All Tort Claims are Disputed Claims. Any Tort
-----------
Claim as to which a proof of claim was properly filed and filed by the
applicable Bar Date in the Chapter 11 Case shall be determined and liquidated
(i) in the Bankruptcy Court or, in the case of personal injury tort, in the
District Court or, if the District Court so orders, in the United States
District Court for the judicial district in which the Claim arose, or (ii) if
the District Court or the Bankruptcy Court abstains from exercising jurisdiction
over the Claim, in the administrative or judicial tribunal(s) in which it is
pending on the Effective Date or, if no action was pending on the Effective
Date, in any administrative or judicial tribunal of appropriate jurisdiction, or
(iii) in accordance with any alternative dispute resolution or similar
proceeding as same may be approved by order of the Bankruptcy Court. Any Tort
Claim determined and liquidated (x) pursuant to a judgment obtained in
accordance with this Section 7.2(c) and applicable nonbankruptcy law which is no
longer appealable or subject to review, or (y) in any alternative dispute
resolution proceeding or similar proceeding as same may be approved by order of
the Bankruptcy Court, shall be deemed an Allowed Unsecured Claim in such
liquidated amount and satisfied in accordance with the Plan. Nothing contained
in this Section 7.2(c) shall constitute or be deemed a waiver of any Cause of
Action that the Debtor
34
<PAGE>
may hold against any entity, including, without limitation, in connection with
or arising out of any Tort Claim.
7.3. Objections to and Resolution of Disputed Administrative Expense
---------------------------------------------------------------
Claims and Disputed Claims. Subsequent to the Confirmation Date, except as to
- --------------------------
applications for allowances of compensation and reimbursement of expenses under
sections 330 an d 503 of the Bankruptcy Code, subsequent to the Confirmation
Date, the Debtor shall have the exclusive right to make and file objections to
Administrative Expense Claims and objections to Claims. All objections shall be
litigated to Final Order; provided, however, that the Debtor shall have the
-------- -------
authority to compromise, settle, otherwise resolve or withdraw any objections,
without approval of the Bankruptcy Court. Unless otherwise ordered by the
Bankruptcy Court, the Debtor shall file all objections to Administrative Expense
Claims (other than to applications for allowances of compensation and
reimbursement of expenses) and objections to Claims and serve such objections
upon the holder of the Administrative Expense Claim or Claim as to which the
objection is made as soon as is practicable, but in no event later than (a)
ninety (90) days after the later of the Effective Date or the date on which a
proof of claim or request for payment is filed with the Bankruptcy Court or (b)
such later date as may be approved by the Bankruptcy Court.
7.4. Distributions Relating to Allowed Insured Claims. Distributions
------------------------------------------------
under the Plan to each holder of an Allowed Insured Claim shall be in accordance
with the treatment provided under the Plan for the Class in which such Allowed
Insured Claim is classified, but solely to the extent that such Allowed Insured
Claim is not satisfied from proceeds payable to the holder thereof under any
pertinent insurance policies and applicable law. Nothing contained in this
Section 7.4 shall constitute or be deemed a waiver of any Cause of Action that
the Debtor or any entity may hold against any other entity, including, without
limitation, insurers under any policies of insurance.
7.5. Cancellation and Surrender of Existing Securities and Agreements.
----------------------------------------------------------------
(a) On the Effective Date, the promissory notes and other
instruments evidencing any Claim shall be deemed canceled without further act or
action under any applicable agreement, law, regulation, order or rule, and the
obligations of the Debtor the agreements and indentures governing such Claim
shall be discharged.
(b) Each holder of a promissory note or other instrument
evidencing a Claim shall surrender such promissory note or instrument to the
Debtor. No distribution of property hereunder shall be made to or on behalf of
any such holders unless and until such promissory note or instrument is received
by the Debtor or the unavailability of such promissory note or instrument is
established to the reasonable satisfaction of the Debtor. The Debtor may require
any holder that is unable to surrender or cause to be surrendered any such
promissory notes or instruments to deliver an affidavit of loss and indemnity
and/or furnish a bond in form and
35
<PAGE>
substance (including, without limitation, with respect to amount) reasonably
satisfactory to the Debtor. Any holder that fails within the later of one (1)
year after the Confirmation Date and the date its Claim is Allowed (i) to
surrender or cause to be surrendered such promissory note or instrument, (ii) if
requested, to execute and deliver an affidavit of loss and indemnity reasonably
satisfactory to the Debtor, and (iii) if requested, to furnish a bond reasonably
satisfactory to the Debtor, shall be deemed to have forfeited all rights, claims
and Causes of Action against the Debtor and shall not participate in any
distribution hereunder.
7.6. Procedure for Allowance of Late Filed Proofs of Claim. Except as
-----------------------------------------------------
otherwise provided in the Plan, any proof of claim filed by the holder of a
Claim that is a June 16 Filer or a Late Filer shall be deemed disallowed unless
such proof of claim is deemed to be timely filed by Final Order of the
Bankruptcy Court issued pursuant to motion of such holder filed no later than
thirty (30) days after the Effective Date, after notice and a hearing, upon
proving excusable neglect. In proving excusable neglect, a June 16 Filer or a
Late Filer shall be required to satisfy the standard set forth in Pioneer
-------
Investment Services Company v. Brunswick Associates Limited Partnership, 507
- -----------------------------------------------------------------------
U.S. 380, 395 (1993); provided, however, that as to the prejudice element of
such standard, there shall be a conclusive presumption that the Debtor and all
creditors will be prejudiced as a consequence of permitting any late filed proof
of claim to be deemed timely filed, and the Confirmation Order and/or any
relating findings of fact and conclusions of law shall contain such a finding of
prejudice.
7.7. Inapplicability of Provisions to Secured Fleet Claim. The
----------------------------------------------------
provisions of this Article VII (including specifically Section 7.1(c) of the
Plan) shall not apply to the treatment and distribution rights of the Secured
Fleet Claim, which are separately governed by the Plan and the New Fleet
Documents.
ARTICLE VIII.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------
8.1. Assumption or Rejection of Executory Contracts and Unexpired
-------------------------------------------------------------
Leases. Pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, all
- ------
executory contracts and unexpired leases that exist between the Debtor and any
person shall be deemed rejected by the Debtor as of the Effective Date except
for any executory contract or unexpired lease that (a) has been assumed or
rejected pursuant to an order of the Bankruptcy Court entered prior to the
Effective Date, (b) has been renegotiated and either assumed or rejected on
renegotiated terms pursuant to an order of the Bankruptcy Court entered prior to
the Effective Date, (c) is the subject of a motion to assume that is pending
before the Bankruptcy Court on the Effective Date, (d) is the subject of a
motion to approve renegotiated terms and assumption or rejection on renegotiated
terms that is pending before the Bankruptcy Court on the Effective Date, (e) was
entered into after the Commencement Date either in the ordinary course of
business by the
36
<PAGE>
Debtor or pursuant to an order of the Bankruptcy Court, or (f) is specifically
treated otherwise in the Plan or the Confirmation Order.
8.2. Approval of Assumption or Rejection. Entry of the Confirmation
-----------------------------------
Order shall constitute (a) the approval, pursuant to sections 365(a) and
1123(b)(2) of the Bankruptcy Code, of the rejection of the executory contracts
and unexpired leases rejected pursuant to Section 8.1 of the Plan, and (b) the
extension of time, pursuant to section 365(d)(4) of the Bankruptcy Code, within
which the Debtor may assume or reject unexpired leases of real property through
the date of entry of an order approving the assumption or rejection of such
unexpired leases.
8.3. Bar Date for Filing Proofs of Claim for Rejection Damages. Claims
---------------------------------------------------------
arising out of the rejection of an executory contract or unexpired lease
pursuant to Section 8.1 of the Plan shall be filed with the Bankruptcy Court no
later than thirty (30) days after the date of notice of entry of the
Confirmation Order. Any Claims not filed within such time will be forever barred
from assertion against the Debtor, its estate and its property. Unless otherwise
ordered by the Bankruptcy Court, all Claims arising from the rejection of
executory contracts and unexpired leases shall be treated as Unsecured Claims
under the Plan.
8.4. Cure of Defaults. Except as may otherwise be agreed to by the
----------------
parties, within sixty (60) days after the Effective Date or as soon thereafter
as is practicable, the Debtor shall cure any and all undisputed defaults under
any executory contract or unexpired lease assumed pursuant to the Plan in
accordance with section 365(b)(1) of the Bankruptcy Code. All disputed defaults
that are required to be cured shall be cured either within thirty (30) days of
the entry of a Final Order determining the amount, if any, of the Debtor's
liability with respect thereto, or as may otherwise be agreed to by the parties.
8.5. Insurance Policies. The Debtor's insurance policies and any
------------------
agreements, documents or instruments relating thereto, including, without
limitation, any retrospective premium rating plans relating to such policies,
are deemed to be and shall be treated as executory contracts that are assumed
under the Plan pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy
Code, and the Confirmation Order shall so provide. Notwithstanding the
foregoing, distributions under the Plan to any holder of a Claim covered by any
of such insurance policies and related agreements, documents or instruments that
are assumed hereunder, shall be in accordance with the treatment provided under
Article IV and Section 7.4 of the Plan. Nothing contained in this Section 8.5
shall constitute or be deemed a waiver of any Cause of Action that the Debtor
may hold against any entity, including, without limitation, the insurer under
any of the Debtor's policies of insurance.
8.6. Indemnification Obligations. For purposes of the Plan, the
---------------------------
obligations of the Debtor to indemnify, reimburse or limit the liability of its
present and any former directors, officers or employees that were directors,
officers or employees, respectively, on or after the Commencement Date against
any obligations pursuant to the Debtor's certificates of
37
<PAGE>
incorporation or bylaws, applicable state law or specific agreement, or any
combination of the foregoing, shall survive confirmation of the Plan, remain
unaffected thereby, and not be discharged irrespective of whether
indemnification, reimbursement or limitation is owed in connection with an event
occurring before, on, or after the Commencement Date.
8.7. Compensation and Benefit Programs. Unless otherwise provided in a
---------------------------------
separate order of the Bankruptcy Court, all employment and severance practices
and policies, and all compensation and benefit plans, policies, and programs of
the Debtor, if any, applicable to its directors, officers or employees,
including, without limitation, all savings plans, retirement plans, health care
plans, severance benefit plans, incentive plans, workers' compensation programs
and life, disability and other insurance plans are deemed to be and shall be
treated as executory contracts that are assumed under the Plan pursuant to
sections 365(a) and 1123(b)(2) of the Bankruptcy Code, and the Confirmation
Order shall so provide.
8.8. Retiree Benefits. Payments, if any, due by the Debtor to any
----------------
person for the purpose of providing or reimbursing payments for retired
employees and their spouses and dependents for medical, surgical, or hospital
care benefits, or benefits in the event of sickness, accident, disability, or
death under any plan, fund, or program (through the purchase of insurance or
otherwise) maintained or established in whole or in part by the Debtor prior to
the Commencement Date shall be continued for the duration of the period the
Debtor has obligated itself to provide such benefits.
8.9. Dealer Agreements. Dealer Agreements are not executory contracts
-----------------
and shall not be subject to assumption or rejection or otherwise treated as
executory contracts under the Plan.
8.10. Repossession Contracts. Contracts entered into by the Debtor for
----------------------
the purpose of obtaining automobile repossession services are not executory
contracts and shall not be subject to assumption or rejection or otherwise
treated as executory contracts under the Plan. Such contracts shall continue in
effect in accordance with their terms; provided, however, that any amounts
outstanding under such contracts on the Effective Date shall be treated as
Unsecured Claims under Section 4.5 of this Plan.
ARTICLE IX.
COMPROMISE OF DISPUTES
----------------------
9.1. Compromise and Settlement of Claims Against Fleet. The
-------------------------------------------------
Secured Fleet Claim shall be deemed an Allowed Secured Fleet Claim in the amount
stated in the New Fleet Note. The Debtor shall execute and deliver the New Fleet
Documents to Fleet, which documents, among other things, shall on the Effective
Date operate to compromise and settle
38
<PAGE>
any Causes of Action that the Debtor (or any person by, through or under the
Debtor) could have asserted against Fleet, Fleet's loan participant, Texas
Commerce Bank, National Association and any director, officer or agent of either
of them (the "Fleet Released Parties"), including Causes of Action arising out
of or relating to any transaction or occurrence, act, activity or event, failure
to act, or otherwise relating to any loans made by the Fleet Released Parties to
the Debtor occurring before the Effective Date. In consideration of the release
provided for in this Section of the Plan and other treatment afforded Fleet
under the New Fleet Documents, Fleet has agreed to the treatment of the Secured
Fleet Claim under Section 4.2 of the Plan which treatment shall be deemed a
compromise and settlement as of the Effective Date pursuant to section 1123 of
the Bankruptcy Code and Bankruptcy Rule 9019 of any Causes of Action that the
Debtor has or may have had against the Fleet Released Parties. As of the
Effective Date, the Fleet Released Parties shall be and hereby are released from
any and all claims and Causes of Action that the Debtor may at any time have or
be able to assert against any of the Fleet Released Parties and that arise out
of or relate to any transaction or occurrence, act, activity or event, failure
to act, or otherwise relate to any loan made by any of the Fleet Released
Parties to the Debtor, before the Effective Date. Nothing in this Section 9.1
shall release the Fleet Released Parties from any of their obligations under, or
otherwise affect any party's rights pursuant to the Plan or the New Fleet
Documents.
9.2. Compromise and Settlement with Dealers. The Settlement Treatment
--------------------------------------
offered to holders of Dealer Claims pursuant to Section 4.6(b) of the Plan
represents a compromise of the issues raised in the Dealer Estimation Motion
relating to the allowability and amount of Dealer Claims and of all possible
claims and causes of action of the Debtor against the Settling Dealers and of
the Settling Dealers against the Debtor. This Plan shall constitute a motion to
the Bankruptcy Court seeking approval of the Settlement Treatment pursuant to
section 1123 of the Bankruptcy Code and Bankruptcy Rule 9019, and the
Confirmation Order shall constitute an order of the Bankruptcy Court approving
the Settlement Treatment as fair and equitable and within the bounds of
reasonableness and granting the Debtor and the Settling Dealers a full release
of all possible claims and causes of action held against each other.
9.3. Compromise and Settlement with Richard B. Hoffmann. In January
--------------------------------------------------
1996, the Debtor entered into an employment contract with Richard B. Hoffmann
("Hoffmann"), which contract, among other things, provided that in the event
Hoffmann's employment terminated for any reason other than cause (as defined in
the contract), Hoffmann would receive $250,000 (the "Severance Payment"). As of
the Commencement Date, the Debtor and Hoffmann agreed that Hoffmann's employment
would terminate and Hoffmann agreed to withdraw his demand for the Severance
Payment. In exchange therefor, the Debtor paid Hoffmann two (2) months' salary,
extended medical benefits to Hoffmann through July 31, 1997 and agreed to make
voice-mail available to Hoffmann until the earlier of August 31, 1997 or the
date Hoffmann secures alternative employment. This Plan shall constitute a
motion to the Bankruptcy Court seeking approval of the Debtor's compromise with
Hoffmann pursuant to section 1123 of the Bankruptcy Code and Bankruptcy Rule
9019, and the Confirmation Order shall constitute an
39
<PAGE>
order of the Bankruptcy Court approving the compromise as fair and equitable and
within the bounds of reasonableness.
ARTICLE X.
PROVISIONS REGARDING CORPORATE
GOVERNANCE OF THE REORGANIZED DEBTOR
------------------------------------
10.1. General. On the Effective Date, the management, control and
-------
operation of the Debtor shall become the general responsibility of the Board of
Directors of the Debtor, who shall, thereafter, have the responsibility for the
management, control and operation of the Debtor as reorganized hereunder.
10.2. Meetings of Reorganized Debtor Stockholders. In accordance with the
-------------------------------------------
Amended Articles of Incorporation and the Amended Bylaws, as the same may be
amended from time to time, the first annual meeting of the stockholders of the
Debtor shall be held on a date in 1998 selected by the Board of Directors of the
Debtor, and subsequent meetings of the stockholders of the Debtor shall be held
at least once annually each year thereafter.
10.3. Directors and Officers of Reorganized Debtor.
--------------------------------------------
(a) Board of Directors. As of the Effective Date, the initial
------------------
Board of Directors of the Debtor shall consist of those individuals currently
serving as members of the Debtor's Board of Directors or, if any of such
individuals cease to serve prior to the Effective Date, any successors to such
members as may be appointed consistent with the then existing articles of
incorporation and bylaws of the Debtor. Each of the members of such initial
Board of Directors shall serve until the first annual meeting of stockholders of
the Debtor or their earlier resignation or removal in accordance with the
Amended Articles of Incorporation or Amended Bylaws, as the same may be amended
from time to time.
(b) Officers. The officers of the Debtor immediately prior to the
--------
Effective Date shall serve as the initial officers of the Debtor on and after
the Effective Date. Such officers shall serve in accordance with any employment
agreement with the Debtor and applicable nonbankruptcy law.
10.4. Amended Bylaws and Amended Articles of Incorporation. The Amended
----------------------------------------------------
Bylaws and Amended Articles of Incorporation shall be amended and restated as of
the Effective Date to the extent necessary (a) to prohibit the issuance of
nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy
Code, subject to further amendment of such articles of incorporation and bylaws
as permitted by applicable law, and (b) to effectuate
40
<PAGE>
the provisions of the Plan, in each case without any further action by the
stockholders or directors of the Debtor.
10.5. Issuance of New Promissory Note and Conversion of Jaymed Preferred
------------------------------------------------------------------
Stock. The issuance of the New Fleet Note by the Debtor is authorized without
- -----
further act or action under applicable law, regulation, order or rule. The
Debtor shall exchange shares of its common stock for shares of Jaymed Preferred
Stock in accordance with that certain Preferred Stock Purchase Agreement dated
April 14, 1997 between Westcott and Jaymed.
ARTICLE XI.
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN
-------------------------------------------------
11.1. Implementing Actions. On or before the Effective Date, the
--------------------
following shall occur in implementation of the Plan:
(a) all actions, documents and agreements necessary to implement
the Plan shall have been effected or executed;
(b) the Debtor shall have received all authorizations, consents,
regulatory approvals, rulings, letters, no-action letters, opinions or documents
that are determined by the Debtor to be necessary to implement the Plan;
(c) the Debtor shall have executed and delivered to Fleet all of
the New Fleet Documents;
(d) Westcott shall have executed and delivered to Fleet the
Westcott Guaranty and the Westcott Release; and
(e) Fleet shall have accepted, executed and delivered the New Fleet
Documents, and all conditions precedent thereunder shall have been satisfied or
waived by Fleet, in writing.
11.2. Enforcement of Confirmation Order. Any party in interest shall have
---------------------------------
standing to seek any such order from the Bankruptcy Court as shall be necessary
to implement the Plan and enforce the terms and provisions of the Confirmation
Order.
11.3. Revesting of Assets.
-------------------
41
<PAGE>
(a) The property of the Debtor's estate shall revest in the Debtor
as reorganized hereunder on the Effective Date, subject to all liens and
security interests provided for in this Plan.
(b) From and after the Effective Date, the Debtor may operate its
business, and may use, acquire and dispose of property free of any restrictions
imposed under the Bankruptcy Code.
(c) As of the Effective Date, all property of the Debtor shall be
free and clear of all liens, claims and interests of holders of Claims and
Equity Interests, except as provided in this Plan.
11.4. Causes of Action. Pursuant to section 1123(b)(3)(B) of the
----------------
Bankruptcy Code, as of the Effective Date any Causes of Action accruing to the
Debtor, including, without limitation, avoidance or recovery actions under
sections 544, 545, 547, 548, 549, 550, 551 and 553 of the Bankruptcy Code, that
are not compromised, settled or satisfied prior thereto or in this Plan, shall
become assets of the Debtor, and the Debtor shall have the authority to
prosecute such Causes of Action for the benefit of the Debtor's estate. The
Debtor shall have the authority to compromise and settle, otherwise resolve,
discontinue, abandon or dismiss all such Causes of Action without approval of
the Bankruptcy Court.
11.5. Discharge of Debtor. The rights afforded herein and the treatment
-------------------
of all Claims and Equity Interests herein shall be in exchange for and in
complete satisfaction, discharge, and release of Claims of any nature
whatsoever, including any interest accrued on such Claims from and after the
Commencement Date, against the Debtor, or any of their assets or properties.
Except as otherwise provided herein, (a) on the Effective Date, all such Claims
against the Debtor shall be satisfied, discharged, and released in full, and (b)
all persons shall be precluded from asserting against the Debtor, its
successors, or its assets or properties any other or further Claims based upon
any act or omission, transaction or other activity of any kind or nature that
occurred prior to the Confirmation Date.
11.6. Injunction. Except as otherwise expressly provided in the Plan or
----------
the Confirmation Order, all entities who have held, hold or may hold Claims
against the Debtor are permanently enjoined, on and after the Effective Date,
from (a) commencing or continuing in any manner any action or other proceeding
of any kind with respect to any such Claim, (b) the enforcement, attachment,
collection or recovery by any manner or means of any judgment, award, decree or
order against the Debtor on account of any such Claim, (c) creating, perfecting
or enforcing any encumbrance of any kind against the Debtor or against the
property or interests in property of the Debtor on account of any such Claim or
Equity Interest, and (d) asserting any right of setoff, subrogation or
recoupment of any kind against any obligation due from the Debtor or against the
property or interests in property of the Debtor on account of any such Claim.
Such injunction shall extend to successors of the Debtor (including, without
42
<PAGE>
limitation, the Debtor as reorganized hereunder) and their respective properties
and interests in property.
ARTICLE XII.
RETENTION OF JURISDICTION
-------------------------
12.1. Exclusive Jurisdiction. The Bankruptcy Court shall have exclusive
----------------------
jurisdiction of all matters arising out of, and related to, the Chapter 11 Case
and the Plan pursuant to, and for the purposes of, sections 105(a) and 1142 of
the Bankruptcy Code and for, among other things, the following purposes:
(a) To hear and determine pending applications for the assumption
or rejection of executory contracts or unexpired leases, if any are pending, and
the allowance of Claims resulting therefrom;
(b) To determine any and all adversary proceedings, applications
and contested matters;
(c) To hear and determine any objection to Administrative Expense
Claims or Claims;
(d) To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked, modified or
vacated;
(e) To issue such orders in aid of execution and consummation of
the Plan, to the extent authorized by section 1142 of the Bankruptcy Code;
(f) To consider any amendments to or modifications of the Plan, to
cure any defect or omission, or reconcile any inconsistency in any order of the
Bankruptcy Court, including, without limitation, the Confirmation Order;
(g) To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331 and 503(b) of
the Bankruptcy Code and the Plan;
(h) To hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan;
(i) To recover all assets of the Debtor and property of the estate
of the Debtor, wherever located;
43
<PAGE>
(j) To hear and determine matters concerning state, local and
federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy
Code;
(k) To hear and determine all issues arising with respect to the
Non-Accrual Contract Trust, the Contributed Non-Accrual Contracts, the Net Trust
Collections or the Trustee, including any issues relating to the valuations of
the Contributed Non-Accrual Contracts pursuant to Section 5.13 of the Plan, and
including any issues relating to the Trustee's duties and rights;
(l) To hear and determine all matters concerning state, local and
federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy
Code;
(m) To hear any other matter not inconsistent with the Bankruptcy
Code; and
(n) To enter a final decree closing the Chapter 11 Case.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
------------------------
13.1. Effectuating Documents and Further Transactions. The Debtor,
-----------------------------------------------
through its Chief Executive Officer, President, or its Chief Financial Officer,
is authorized to execute, deliver, file or record such contracts, instruments,
releases, indentures and other agreements or documents and take such actions as
may be necessary or appropriate to effectuate and further evidence the terms and
conditions of the Plan and any notes issued pursuant to the Plan.
13.2. Corporate Action. On the Effective Date, all matters provided for
----------------
under the Plan that would otherwise require approval of the stockholders or
directors of the Debtor, including, without limitation, the effectiveness of the
Amended Articles of Incorporation, the Amended Bylaws, the election or
appointment, as the case may be, of directors and officers of the Debtor
pursuant to the Plan, and the authorization and approval of employment
agreements or amended employment agreements, shall be deemed to have occurred
and shall be in effect from and after the Effective Date pursuant to the
applicable general corporation laws of the State of Texas without any
requirement of further action by the stockholders or directors of the Debtor. On
the Effective Date or as soon thereafter as is practicable, the Debtor shall, if
required, file the Amended Articles of Incorporation with the Secretary of State
of Texas, in accordance with the applicable general corporation law of the State
of Texas.
13.3. Exemption from Transfer Taxes. Pursuant to section 1146(c) of the
-----------------------------
Bankruptcy Code, the issuance, transfer or exchange of notes under the Plan, the
creation of any mortgage, deed of trust or other security interest, the making
or assignment of any lease or sublease, or
44
<PAGE>
the making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan, including, without limitation,
any merger agreements or agreements of consolidation, deeds, bills of sale or
assignments executed in connection with any of the transactions contemplated
under the Plan shall not be subject to any stamp, real estate transfer, mortgage
recording or other similar tax.
13.4. Debtor's Limited Release of Directors and Officers. As of the
---------------------------------------------------
Effective Date, the Debtor shall be deemed to have waived and released its
present directors and officers who were directors and officers, respectively,
during the Chapter 11 Case and on or before the Commencement Date from any and
all claims of the Debtor, including, without limitation, claims which the Debtor
otherwise has legal power to assert, compromise or settle in connection with the
Chapter 11 Case; provided, however, that this Section 13.4 shall not operate as
-------- -------
a waiver or release of any claim (i) in respect of any loan, advance or similar
payment by the Debtor to any such person, and (ii) in respect of any contractual
obligation owed by such person to the Debtor.
13.5. Exculpation. Subject to Section 13.4 of the Plan, neither the
-----------
Debtor nor any of its officers, directors, employees, advisors, agents,
attorneys and other professionals, and neither the Creditors' Committee nor any
of its members, attorneys or other professionals, shall have or incur any
liability to any holder of a Claim or Equity Interest for any act or omission in
connection with, or arising out of, the filing of the Chapter 11 Case, the
pursuit of confirmation of the Plan, the consummation of the Plan or the
administration of the Chapter 11 Case or the Plan or the property to be
distributed under the Plan, except for willful misconduct or gross negligence,
and, in all respects, the Debtor and each of its officers, directors, employees,
advisors, agents, attorneys and other professionals, and the Creditors'
Committee and each of its members, attorneys and other professionals shall be
entitled to rely upon the advice of counsel with respect to their duties and
responsibilities under the Plan.
13.6. Termination of Creditors' Committee. The appointment of the
-----------------------------------
Creditors' Committee, and the retention of the professionals employed to
represent the Creditors' Committee, shall terminate at such time as all payments
and other distributions required to be made on the initial Quarterly Payment
Date are made; provided, however, that from and after the Effective Date, the
professionals representing the Creditors' Committee shall not be entitled to
incur fees and expenses unless authorized by order of the Bankruptcy Court, upon
separate motion of the Creditors' Committee and after notice and hearing.
13.7. Post-Effective Date Fees and Expenses. From and after the Effective
-------------------------------------
Date, the Debtor shall, in the ordinary course of business and without the
necessity for any approval by the Bankruptcy Court, pay the reasonable fees and
expenses of professional persons thereafter incurred by the Debtor, including,
without limitation, those fees and expenses incurred in connection with the
implementation and consummation of the Plan and the prosecution of objections to
Claims.
45
<PAGE>
13.8. Payment of Statutory Fees. All fees payable pursuant to section
-------------------------
1930 of the title 28 of the United States Code, as determined by the Bankruptcy
Court at the Confirmation Hearing, shall be paid on the Effective Date.
13.9. Amendment or Modification of the Plan. Alterations, amendments or
-------------------------------------
modifications of the Plan may be proposed in writing by the Debtor at any time
prior to the Confirmation Date, provided that the Plan, as altered, amended or
modified, satisfies the conditions of sections 1122 and 1123 of the Bankruptcy
Code, and the Debtor shall have complied with section 1125 of the Bankruptcy
Code. The Plan may be altered, amended or modified at any time after the
Confirmation Date and before substantial consummation, provided that the Plan,
as altered, amended or modified, satisfies the requirements of sections 1122 and
1123 of the Bankruptcy Code and the Bankruptcy Court, after notice and a
hearing, confirms the Plan, as altered, amended or modified, under section 1129
of the Bankruptcy Code and the circumstances warrant such alterations,
amendments or modifications. A holder of a Claim that has accepted the Plan
shall be deemed to have accepted the Plan, as altered, amended or modified, if
the proposed alteration, amendment or modification does not materially and
adversely change the treatment of the Claim of such holder. Otherwise, the
Debtor may alter, amend or modify the treatment of Claims and Equity Interests
provided for under the Plan if the holders of Claims or Equity Interests
affected thereby agree or consent to any such alteration, amendment or
modification.
13.10. Severability. In the event that the Bankruptcy Court determines,
------------
prior to the Confirmation Date, that any provision in the Plan is invalid, void
or unenforceable, such provision shall be invalid, void or unenforceable with
respect to the holder or holders of such Claims or Equity Interests as to which
the provision is determined to be invalid, void or unenforceable. The
invalidity, voidness or unenforceability of any such provision shall in no way
limit or affect the enforceability and operative effect of any other provision
of the Plan.
13.11. Revocation or Withdrawal of the Plan. The Debtor reserves the right
------------------------------------
to revoke or withdraw the Plan prior to the Confirmation Date. If the Debtor
revokes or withdraws the Plan prior to the Confirmation Date, then the Plan
shall be deemed null and void. In such event, nothing contained herein shall
constitute or be deemed a waiver or release of any claims by or against the
Debtor or any person or to prejudice in any manner the rights of the Debtor or
any person in any further proceedings involving the Debtor.
13.12. Binding Effect. The Plan shall be binding upon and inure to the
--------------
benefit of the Debtor, the holders of Claims and Equity Interests, and their
successors and assigns, including, without limitation, the Debtor as reorganized
hereunder.
13.13. Notices. All notices, requests and demands to or upon the Debtor to
-------
be effective shall be in writing (including by facsimile transmission) and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when actually
46
<PAGE>
delivered or, in the case of notice by facsimile transmission, when received and
telephonically confirmed, addressed as follows:
Jayhawk Acceptance Corporation
2001 Bryan Tower, Suite 600
Dallas, Texas 75201
Attn: Jack T. Smith
Telephone: (214) 754-1000
Facsimile: (800) 307-4295
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002-2784
Attn: Harry A. Perrin
Telephone: (713) 546-5000
Facsimile: (713) 224-9511
13.14. Governing Law. Except to the extent the Bankruptcy Code, Bankruptcy
-------------
Rules or other federal law is applicable, or to the extent an Exhibit to the
Plan or a document contained in the Plan Supplement provides otherwise, the
rights and obligations arising under this Plan shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas,
without giving effect to the principles of conflicts of law of such
jurisdiction.
13.15. Withholding and Reporting Requirements. In connection with the
--------------------------------------
consummation of the Plan, the Debtor, as the case may be, shall comply with all
withholding and reporting requirements imposed by any federal, state, local or
foreign taxing authority and all distributions hereunder shall be subject to any
such withholding and reporting requirements.
13.16. Plan Supplement. Forms of the documents relating to the New Fleet
---------------
Documents, the Westcott Guaranty, the Westcott Release and the trust agreement
for the Non-Accrual Contract Trust shall be contained in the Plan Supplement,
which has been filed separately with the Clerk of the Bankruptcy Court, no later
than ten (10) days before the commencement of the Confirmation Hearing. The Plan
Supplement may be inspected in the office of the Clerk of the Bankruptcy Court
during normal court hours after the date of its filing. Holders of Claims or
Equity Interests may obtain a copy of the Plan Supplement upon written request
to the Debtor in accordance with Section 13.13 of the Plan.
13.17. Headings. Headings are used in the Plan for convenience and
--------
reference only, and shall not constitute a part of the Plan for any other
purpose.
47
<PAGE>
13.18. Exhibits. All Exhibits to the Plan, including the Plan Supplement,
--------
are incorporated into and are a part of the Plan as if set forth in full herein.
13.19. Filing of Additional Documents. On or before substantial
------------------------------
consummation of the Plan, the Debtor shall file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan.
Dated: August 19, 1997
Dallas, Texas
JAYHAWK ACCEPTANCE CORPORATION,
a Texas corporation
By: /s/ JACK T. SMITH
_________________________________________
Jack T. Smith
President and Chief Operating Officer
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
By: /s/ DONALD L. JONES
_________________________________________
Donald L. Jones
(Vice President of Cap Gemini America)
Chairman
48
<PAGE>
OF COUNSEL:
WEIL, GOTSHAL & MANGES LLP
By: /s/ HARRY A. PERRIN
__________________________________
Harry A. Perrin
State Bar No. 15796800
700 Louisiana, Suite 1600
Houston, Texas 77002-2784
(713) 546-5000
-and-
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
(214) 746-7700
ATTORNEYS FOR THE DEBTOR
SIMON, ANISMAN, DOBY & WILSON, P.C.
By: /s/ MICHAEL D. WARNER
__________________________________
Michael D. Warner
State Bar No. 00792304
400 Professional Building
303 West Tenth Street
P.O. Box 17047
Fort Worth, Texas 76102-0047
(817) 820-3100
COUNSEL FOR CREDITORS' COMMITTEE
49
