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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: July 31, 1997
Unitech Industries, Inc.
Delaware 86-0844112
15035 North 75th Street, Scottsdale, Arizona 85260
Registrant's telephone number, including area code: 602-991-7626
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 23, 1996, the Company (as debtor-in-possession) sold to Ryan
Construction Company of Minnesota, Inc. certain property in Scottsdale Airpark
North, reserving a fractional interest in certain mineral rights. The purchase
price was $1,972,538.80. The transaction had been approved by the bankruptcy
court on May 7, 1996.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
On December 13, 1996 the United States District Court for the District
of Arizona entered an order confirming an Amended Joint Plan of Reorganization
for the Company and Unitech Acquisition Corp. A copy of the Plan is attached
hereto as Exhibit 7.1. That Exhibit also contains information as to the assets
and liabilities of the Company as of a date as close as practicable to the date
when the order confirming the Plan was entered, in the form in which such
information was furnished to the court.
Attached hereto as Exhibit 7.2 is a summarization of the material
features of the Plan.
Attached hereto as Exhibit 7.3 is information as to the number of
shares of the Company issued and outstanding as of May 2, 1997, the number
reserved at that date for future issuance in respect of claims and interests
filed and allowed under the plan of reorganization, and the aggregate total of
such numbers.
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
By written consent dated March 24, 1997 the Company's Board of
Directors resolved to retain Toback CPA's to audit the Company's balance sheet
for its fiscal year ended October 31, 1995 and its financial statements for its
fiscal year ended October 31, 1996. Because the Company was in bankruptcy
proceedings throughout 1996, it had not previously had an independent
certifying accountant for those fiscal years. It is anticipated that Toback
CPA's will also be retained to audit the Company's financial statements for its
fiscal year ending October 31, 1997.
ITEM 5. OTHER EVENTS.
(a) IBJ SCHRODER BORROWINGS
The Company has a revolving credit facility with IBJ Schroder Bank &
Trust Co. The facility commenced on December 31, 1996 and will terminate, if
not renewed, on December 30, 1999. The Company may borrow and reborrow under
the facility up to the lesser of (i) the "Maximum Revolving Amount" less
outstanding letters of credit, or (ii) the "Formula Amount."
The Maximum Revolving Amount is initially $5 million, and will increase
to $7 million upon the submission to the bank of an audited consolidated
balance sheet at October 31, 1995, audited consolidated financial statements for
the fiscal year ended October 31, 1996, and reviewed quarterly financial
information for each fiscal quarter during the fiscal year ended October 31,
1996. Toback CPA's has been retained by the Company to audit and certify or
review such financial statements and information.
The Formula Amount is the sum of (i) 85% of the eligible accounts
receivable balances of Unitech Industries, Inc., plus (ii) 75% of eligible
accounts receivable balances of Unitech Acquisition Corp., plus (iii) 50% of
the eligible inventory balances of Unitech Industries, Inc., plus (iv) 30% of
the eligible inventory balances of Unitech Acquisition Corp., minus (v)
outstanding letters of credit, and minus (vi) a redemption reserve for the
redemption of the Company's preferred stock.
Borrowings under the facility bear interest at a formula rate, and are
secured by substantially all the assets of Unitech Industries, Inc. and Unitech
Acquisition Corp. There are a number of affirmative and negative covenants in
the loan agreements.
The initial borrowing under the facility was disbursed to Merrill Lynch
($1,700,000), Imperial Bank ($1,100,000) and IBJ Schroder Bank & Trust Co. (fees
of $90,000). The outstanding
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loan balance on April 30, 1997 was approximately $2,665,000. The applicable
interest rate on April 30, 1997 was 10.25%.
(b) MERRILL LYNCH AND IMPERIAL BANK SETTLEMENTS.
Under the Amended Joint Plan of Reorganization dated as of November 11,
1996, confirmed December 13, 1996, Merrill Lynch held an allowed first priority
secured claim for approximately $4,600,000. Pursuant to the Plan, Merrill Lynch
was to receive $2 million in cash, a $2 million secured promissory note, a
$500,000 secured promissory note, and additional payments in cash sufficient to
pay all of the claim.
In lieu of this arrangement and in full satisfaction of the Merrill
Lynch claim, the Company paid Merrill Lynch $4 million in cash and issued to
Merrill Lynch 430,000 shares of the Company's Series A Preferred Stock. On July
31, 1997, the Company redeemed 78,457 shares of Preferred Stock.
Imperial Bank held an allowed claim of approximately $3,700,000.
Pursuant to the Plan, Imperial Bank was to be paid $1 million cash and was to
receive a $1,500,000 secured promissory note and 800,000 shares of Series A
Preferred Stock.
In lieu of this arrangement, Imperial Bank accepted $2,500,000 in cash in full
satisfaction of its claim.
(c) In accordance with the terms of the plan of reorganization attached hereto
as Exhibit 7.1, the Company redeemed 333,334 shares of Series A Preferred Stock
on July 31, 1997. Shares were redeemed at the mandatory redemption price of
$1.50 per share, resulting in a total redemption of $500,000.
(d) CHANGE IN STATE OF INCORPORATION.
On December 16, 1997 the Company's state of incorporation was changed
from California to Delaware. This was done by merging Unitech Industries, Inc.,
a California corporation, into the newly-formed Unitech Industries, Inc., a
Delaware corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Attached hereto as Exhibit 7.1 is a copy of the plan of reorganization
of the Company referred to above in Item 3, as confirmed by the court. Exhibit
7.1 also contains information as to the assets and liabilities of the Company
as of a date as close as practicable to the date when the order confirming the
plan of reorganization was entered, in the form in which such information was
furnished to the court.
Attached hereto as Exhibit 7.2 is a summarization of the material
features of the plan of reorganization.
Attached hereto as Exhibit 7.3 is information as to the number of
shares of the Company issued and outstanding as of May 2, 1997, the number
reserved at that date for future issuance in respect of claims and interests
filed and allowed
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under the plan of reorganization, and the aggregate total of such numbers.
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.
UNITECH INDUSTRIES, INC.
By /s/ Tammy M. Heppard
-------------------------------
Chief Financial Officer
August 7, 1997
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Exhibit 7.1
G. Christopher Meyer, Esq. (Ohio Bar #0016268)
Mark A. Nadeau, Esq. (#011280)
Rawle Andrews, Esq. (D.C. Bar #436283)
Squire, Sanders & Dempsey, L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004-4440
(602) 528-4000
Attorneys for Debtors
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
) Case No. 96-818-PHX-RGM
UNITECH INDUSTRIES, INC., and ) (Joint Administration Only)
related proceedings, )
)
Debtors. ) DEBTORS' AMENDED JOINT PLAN
) OF REORGANIZATION
)
APPLICABLE DEBTOR(S) )
(Check) )
)
UNITECH ACQUISITION CORP. /X/ )
(Case No. 96-819-PHX-RGM) )
)
)
UNITECH INDUSTRIES, INC. /X/ )
(Case No. 96-818-PHX-RGM) )
)
)
DATED: November 11, 1996
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TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in the Plan.......................................... 1
1.2 Terms Defined Outside the Plan..................................... 1
ARTICLE 2
TREATMENT OF ADMINISTRATIVE EXPENSES, TAX CLAIMS
AND CERTAIN UNCLASSIFIED CLAIMS
2.1 Treatment of Administrative Expenses............................... 1
2.2 Treatment of Retained Professionals................................ 1
2.3 Treatment of Tax Liabilities....................................... 1
2.4 Treatment of Other Priority Claims................................. 2
ARTICLE 3
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 Secured Claims..................................................... 2
3.2 Unsecured Claims................................................... 2
3.3 Interests.......................................................... 2
ARTICLE 4
TREATMENT OF CLASSES OF CLAIMS AND INTERESTS
4.1 Merrill Lynch Claims............................................... 3
4.2 Imperial Bank Claims............................................... 3
4.3 Other Secured Claims............................................... 3
4.4 Convenience Claims................................................. 3
4.5 Intercompany Claims................................................ 3
4.6 General Unsecured Claims........................................... 3
4.7 Common Stock Interests............................................. 4
4.8 Options and Warrants............................................... 4
4.9 Securities Claims.................................................. 4
4.10 Effect of Distributions............................................ 4
4.11 Withholding Taxes.................................................. 4
4.12 Set Offs........................................................... 4
4.13 Cram-Down.......................................................... 4
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ARTICLE 5
MEANS FOR EXECUTION OF THE PLAN
5.1 Merger with New Unitech............................................ 5
5.2 Operations of Reorganized Debtors.................................. 5
5.3 Fractional Shares.................................................. 5
5.4 Causes of Actions.................................................. 5
5.5 Continuation of Stays.............................................. 6
ARTICLE 6
SUBSEQUENT PLAN DISTRIBUTIONS
6.1 Plan Reserves...................................................... 6
6.2 Subsequently Allowed Claims or Interests........................... 6
6.3 Disallowed Claims.................................................. 6
6.4 Investment of Reserve Fund......................................... 7
6.5 Interest Earnings.................................................. 7
ARTICLE 7
CLAIMS OR INTERESTS BASED UPON INSTRUMENTS OR SECURITIES
7.1 Class 3A Interests................................................. 7
7.2 Surrender of Instruments or Securities............................. 7
7.3 Lost Instruments or Securities..................................... 7
ARTICLE 8
ISSUANCE OF ADDITIONAL COMMON SHARES;
SUBSCRIPTION RIGHTS; EMPLOYEE BENEFIT PLANS
8.1 Stock Purchase Agreement........................................... 8
8.2 Subscription Rights................................................ 8
ARTICLE 9
CONDITIONS TO EFFECTIVENESS OF THE PLAN
9.1 Conditions......................................................... 8
ARTICLE 10
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
10.1 Assumption of Executory Contracts.................................. 9
10.2 Approval of Assumption or Rejection................................ 9
10.3 Cure of Defaults................................................... 9
10.4 Post-Petition Date Contracts and Leases............................ 9
10.5 Bar Date........................................................... 9
10.6 Indemnification..................................................... 9
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ARTICLE 11
CERTIFICATE OF INCORPORATION
11.1 Amended Certificates............................................... 10
ARTICLE 12
DISCHARGE
12.1 Scope of Discharge................................................. 10
ARTICLE 13
INDEMNIFICATION
13.1 Survival of Indemnification Obligations............................ 10
ARTICLE 14
RETENTION OF JURISDICTION
14.1 Scope of Retention................................................. 10
ARTICLE 15
MISCELLANEOUS
15.1 Board of Directors................................................. 11
15.2 Headings........................................................... 11
15.3 Severability....................................................... 11
15.4 Governing Law...................................................... 12
15.5 Successors and Assigns............................................. 12
15.6 Revocation......................................................... 12
15.7 Effectuating Documents; Further Transactions; Timing............... 12
15.8 Exemption from Transfer Taxes...................................... 12
15.9 Exculpation........................................................ 12
15.10 Binding Effect..................................................... 12
15.11 Modification of Payment Terms...................................... 12
15.12 Notices............................................................ 13
15.13 Dissolution of Official Committees................................. 13
15.14 Post-Confirmation Fees and Reports..................................13
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The undersigned debtors and debtors in possession hereby propose the
following joint plan of reorganization, which shall supersede any plan
previously filed by the undersigned in these proceedings:
ARTICLE 1
DEFINITIONS
1.1 TERMS DEFINED IN THE PLAN. Capitalized terms used in the
Plan shall have the respective meanings specified in Exhibit A to the Plan.
1.2 TERMS DEFINED OUTSIDE THE PLAN. Capitalized terms used in
the Plan which are not defined in Exhibit A to the Plan but which are defined in
the Bankruptcy Code shall have the respective meanings specified in the
Bankruptcy Code.
ARTICLE 2
TREATMENT OF ADMINISTRATIVE EXPENSES, TAX CLAIMS
AND CERTAIN UNCLASSIFIED CLAIMS
2.1 TREATMENT OF ADMINISTRATIVE EXPENSES. Except as otherwise
provided in this Article 2 of the Plan and except for Classes of Claims
designated in Article 3 of the Plan, administrative expenses of the kind
specified in Section 507(a)(1) of the Bankruptcy Code, including obligations for
goods and services arising after the Petition Date in the ordinary course of the
Debtors' business, shall be paid by the Debtors in the ordinary course of
business: (i) in Cash, on the Distribution Date; or (ii) in accordance with the
commercial credit terms extended by the creditor of such obligations or (iii)
otherwise as required by law.
2.2 TREATMENT OF RETAINED PROFESSIONALS. Professionals
employed at the expense of the estate of the Debtors and other persons or
entities that may be entitled to an allowance of fees and expenses from the
estate of the Debtors pursuant to Sections 503(b)(2) through 503(b)(6) of the
Bankruptcy Code shall be paid by the Debtors, in Cash, as soon as practicable
after the order approving such allowance of compensation or reimbursement of
expenses becomes a Final Order.
2.3 TREATMENT OF TAX LIABILITIES. Allowed Unsecured Claims of
governmental units of the kinds specified in Section 507(a)(7) of the Bankruptcy
Code shall be paid by the Debtors, in Cash, over a period not exceeding six
years after the respective dates of assessment of such Claims, in aggregate
amounts equal to one hundred percent (100%) of such respective Allowed Claims
plus interest thereon from the Distribution Date, at a rate determined by the
Bankruptcy Court to be in compliance with Section 1129(a)(9)(C) of the
Bankruptcy Code.
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2.4 TREATMENT OF OTHER PRIORITY CLAIMS. Allowed Unsecured
Claims of the kinds specified in Sections 507(a)(2), 507(a)(3), 507(a)(4),
507(a)(5) and 507(a)(6), other than Claims within the Classes designated in
Article 3 of the Plan, shall be paid by the Debtors, in Cash, on the
Distribution Date.
ARTICLE 3
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 SECURED CLAIMS. Secured Claims shall comprise the
following Classes:
(a) Class 1A shall consist of the Claims of Merrill Lynch
under the Merrill Loan Agreement.
(b) Class 1B shall consist of the Claims of Imperial Bank
under the Imperial Loan Agreement.
(c) Class 1C shall consist of other Secured Claims, if
any.
3.2 UNSECURED CLAIMS. Unsecured Claims shall comprise the
following Classes:
(a) Class 2A shall consist of Unsecured Claims (excluding
Claims in Class 2B) which are for $1,000 or less and
of Unsecured Claims which would otherwise be Class 2C
Claims but which have been reduced to $1,000 prior to
the Confirmation Date by election of such reduction
on the ballot by which the holders of such Claims
vote with respect to the Plan or by such other
written election in form and substance satisfactory
to the Debtors.
(b) Class 2B shall consist of Unsecured Claims of persons
which are direct or indirect subsidiaries of either
of the Debtors or of which either of the Debtors is a
direct or indirect subsidiary.
(c) Class 2C shall consist of Unsecured Claims, excluding
those Claims in Classes 1A, 1B, 2A and 2B.
3.3 INTERESTS. Interests shall comprise the following
Classes:
(a) Class 3A shall consist of the Interests of existing
holders of Common Stock.
(b) Class 3B shall consist of the Interests of holders of
options, warrants or similar rights to purchase
shares of Common Stock.
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(c) Class 3C shall consist of claims of current or former
holders of Common Stock for rescission or damages
arising in connection with the purchase, ownership or
sale of Common Stock.
ARTICLE 4
TREATMENT OF CLASSES OF CLAIMS AND INTERESTS
4.1 MERRILL LYNCH CLAIMS. Class 1A Claims are Impaired. The
Debtors shall, on the Effective Date, distribute to the holder of Class 1A
Allowed Claims:
(a) Cash, in the amount of Two Million Dollars
($2,000,000); and
(b) The Merrill Secured Notes, in the principal amounts
and on the remaining terms and conditions, as set
forth in Exhibit B to the Plan.
4.2 IMPERIAL BANK CLAIMS. Class 1B Claims are Impaired. The
Debtors shall, on the Effective Date, distribute to the holder of Class 1B
Allowed Claims:
(a) Cash, in the amount of One Million Dollars
($1,000,000);
(b) Eight Hundred Thousand (800,000) shares of New
Preferred Stock; and
(c) The Imperial Secured Note, in a principal amount and
on the remaining terms and conditions, as set forth
in Exhibit C to the Plan.
4.3 OTHER SECURED CLAIMS. Class 1C Claims are not Impaired.
The legal, equitable and contractual rights of the holders of Class 1C Claims
shall remain unaltered by the Plan.
4.4 CONVENIENCE CLAIMS. Class 2A Claims are Impaired. The
Debtors shall, on the Distribution Date, distribute to the holders of Class 2A
Allowed Claims, Cash in the amount of Seventy-five percent (75%) of their
respective Class 2A Allowed Claims.
4.5 INTERCOMPANY CLAIMS. Class 2B Claims are not Impaired. The
legal, equitable and contractual rights of the holders of Class 2B Claims shall
remain unaltered by the Plan.
4.6 GENERAL UNSECURED CLAIMS. Class 2C Claims are Impaired.
The Debtors shall, on the Distribution Date, distribute to the holders of Class
2C Allowed Claims:
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(a) Cash in the amount of Twenty percent (20%) of their
respective Class 2C Allowed Claims, up to an aggregate
maximum of one million dollars ($1,000,000.00); and
(b) one share of New Preferred Stock for each One Dollar and
Fifty Cents ($1.50) of the remaining balance of their
respective Class 2C Allowed Claims.
4.7 COMMON STOCK INTERESTS. Class 3A Interests are Impaired.
On the Effective Date, (i) each outstanding share of Common Stock shall be
converted into four-tenths (.4) of a share of New Common Stock; and (i) holders
of Class 3A Allowed Interests shall be entitled to subscribe for shares of New
Common Stock in accordance with Article 8 of the Plan.
4.8 OPTIONS AND WARRANTS. Class 3B Interests are Impaired.
Class 3B Interests may be exercised in accordance with their terms at any time
prior to the Confirmation Date and shall, upon such exercise, become Class 3A
Interests. Any Class 3B Interests remaining outstanding on or after the
Confirmation Date shall be canceled without distribution under the Plan.
4.9 SECURITIES CLAIMS. Class 3C Interests are Impaired. On the
Effective Date, Debtors' rights, if any, in and to any proceeds of any policy of
insurance covering liability arising as a result of purchase, sale or ownership
of common shares of Unitech Industries prior to the Petition Date shall be
deemed assigned for the collective benefit of the holders of Class 3C Interests,
as their respective interests may appear.
4.10 EFFECT OF DISTRIBUTIONS. The treatment of, and
consideration to be received by, holders of Allowed Claims and Allowed Interests
pursuant to the Plan shall be in full satisfaction, release and discharge of
their respective Claims against or Interests in the Debtors.
4.11 WITHHOLDING TAXES. The Debtors may deduct any applicable
federal or state withholding taxes from any distributions made pursuant to the
Plan.
4.12 SET OFFS. The Debtors may, but shall not be required to,
set off or recoup against any Claim and the payments or other distributions to
be made pursuant to the Plan in respect of such Claim or other claims of any
nature whatsoever which the Debtors may have against the holder of such claim to
the extent such Claims may be set off or recouped under applicable law, but
neither the failure to do so nor the allowance of any claim hereunder shall
constitute a waiver or release by the Debtors, of any such claim or counterclaim
that they may have against such holder.
4.13 CRAM-DOWN. If any Impaired Class fails to accept the Plan
by the requisite statutory majorities, the Debtors reserve the right to confirm
the Plan by a "cram-down" of such non-accepting Class pursuant to Section
1129(b) of the Bankruptcy Code. In the event the
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Bankruptcy Court declines to impose a "cram-down" on a non-accepting Class
unless certain modifications are made to the terms and conditions of such Class'
treatment under the Plan, the Debtors reserve the right, without re-solicitation
to the extent permitted by the Bankruptcy Code, to propose any such
modifications and to confirm the Plan as modified by the required modification.
ARTICLE 5
MEANS FOR EXECUTION OF THE PLAN
5.1 MERGER WITH NEW UNITECH.
(a) The Debtors shall implement the Plan through the merger
of Unitech Industries with and into New Unitech in a
transaction pursuant to Section 368(a)(1)(G) of the
Internal Revenue Code and pursuant to an Agreement of
Merger attached as Exhibit D to the Plan.
(b) The effect of the merger shall be to accomplish the
reincorporation of Unitech Industries as a Delaware
corporation. Upon the consummation of the merger, New
Unitech shall be responsible for all obligations of
Unitech Industries under the Plan. New Unitech shall
thereafter be treated for all purposes under the Plan as
one of the Debtors.
(c) Except as provided in the Plan, on the Effective Date
all assets of the Debtors' bankruptcy estates shall vest
in the Debtors (and thereafter in New Unitech) free and
clear of all liens and other encumbrances, and free and
clear of all claims and interests except as specifically
provided in the Plan.
5.2 OPERATIONS OF REORGANIZED DEBTORS. On and after the
Effective Date, the reorganized Debtors will continue to operate their
businesses and will implement the terms of the Plan. The reorganized Debtors may
operate such businesses and may buy, use, acquire and dispose of their assets,
free of any restrictions contained in the Bankruptcy Code but subject to the
provisions of the Plan.
5.3 FRACTIONAL SHARES. Fractional shares of New Common Stock
and New Preferred Stock shall not be issued. On the Distribution Date, each
holder of an Allowed Claim or Allowed Interest shall receive the total number of
whole shares to which it is entitled. Any remaining entitlement to fractions of
a share shall be treated by distributing unallocated shares to the holders of
Claims or Interests having the greatest fractional entitlements until all
unallocated shares have been distributed.
5.4 CAUSES OF ACTIONS. Debtors shall be the only parties
authorized to pursue actions to recover preferences, fraudulent conveyances, and
other causes of action recoverable
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under Section 550 of the Bankruptcy Code. Unless Debtors consent, or unless
otherwise ordered by the Bankruptcy Court, no other party shall have the right
or obligation to pursue any such actions. Notwithstanding confirmation of the
Plan, all such actions and any other claims, rights or causes of action in favor
of the Debtors shall be preserved and maintained for the benefit of the
reorganized Debtors.
5.5 CONTINUATION OF STAYS. Unless otherwise provided in the
Plan or the Confirmation Order, all injunctions or stays in effect pursuant to
Sections 105 or 362 of the Bankruptcy Code or otherwise and in effect on the
Confirmation Date shall remain in full force and effect until the Effective
Date.
ARTICLE 6
SUBSEQUENT PLAN DISTRIBUTIONS
6.1 PLAN RESERVES. On the Distribution Date, after calculating
distributions to holders of Claims and Interests under the Plan, the Debtors
shall retain such number of shares of New Common Stock and such New Preferred
Stock and shall retain and set aside in the Reserve Fund an amount in Cash, such
that the aggregate of such retained New Securities and the aggregate balance of
the Reserve Fund (exclusive of any interest earned thereon) shall be sufficient
to make all payments and distributions which may be subsequently required by
Section 6.2 of the Plan, or such lesser number and amount as may be approved by
the Bankruptcy Court from time to time. Cash held by the Debtors in the Reserve
Fund shall be invested in accordance with the requirements contained in Section
6.4 of the Plan.
6.2 SUBSEQUENTLY ALLOWED CLAIMS OR INTERESTS. Subsequent to
the Distribution Date when a Claim or Interest shall become an Allowed Claim or
Allowed Interest, the Debtors shall, as soon as practicable:
(a) Pay to the holder of such Allowed Claim, from the
Reserve Fund, Cash in an amount equal to the Cash
distributions which would have previously been made to
such holder by the Debtors, if such Allowed Claim had
been an Allowed Claim eligible for distribution on the
Distribution Date; and
(b) Distribute to the holder of such Allowed Claim or
Allowed Interest: (i) such amount of New Securities as
would have been previously distributed to such holder if
such Allowed Claim or Allowed Interest had been an
Allowed Claim or Allowed Interest eligible for
distribution on the initial Distribution Date; and (ii)
any dividends or other payments thereafter accrued in
respect of such New Securities.
6.3 DISALLOWED CLAIMS. Subsequent to the Distribution Date,
when a Claim or portion of a Claim shall become disallowed by a Final Order, the
Debtors shall transfer from the
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Reserve Fund to their general funds an amount of Cash equal to the amount which
would have been required to be distributed pursuant to Section 6.2 of the Plan
had such disallowed Claim or portion of a Claim been an Allowed Claim.
6.4 INVESTMENT OF RESERVE FUND. Amounts held in the Reserve
Fund shall be invested by the Debtors in: (i) direct obligations of, or
obligations secured by, the United States of America; (ii) obligations of any
agency or corporation which is or may hereafter be created by or pursuant to an
act of the Congress of the United States as an agency or instrumentality
thereof; and (iii) certificates of deposit or other demand deposits at any bank
or trust company which has, at the time such investment is made, a capital stock
and surplus aggregating at least Twenty Five Million Dollars ($25,000,000).
6.5 INTEREST EARNINGS. On the last day of each calendar month
after the Distribution Date, the Debtors shall transfer to their general funds
all interest earned on the Reserve Fund since the last day of the preceding
calendar month.
ARTICLE 7
CLAIMS OR INTERESTS BASED UPON INSTRUMENTS OR SECURITIES
7.1 CLASS 3A INTERESTS. All holders of Class 3A Interests
based on ownership of Common Stock shall surrender their share certificates to
the Debtors in accordance with the written instructions of the Debtors given to
such holders as soon as practicable after the Effective Date. Thereafter, upon
confirmation by the Debtors that no objection has been or is filed with respect
thereto, such Class 3A Interests shall become Class 3A Allowed Interests and:
(i) as soon as practicable, but not earlier than the Distribution Date, the
Debtors shall distribute to the holders of such Class 3A Allowed Interests their
Pro Rata share of New Securities determined in accordance with Sections 4.7 of
the Plan, or with subsection 6.2(b) of the Plan, whichever is applicable; and
(ii) the holders of such Class 3A Allowed Interests will be entitled to
participate in all subsequent distributions made in accordance with the Plan.
Prior to such surrender of share certificates by holders of Class 3A Interests,
each such share certificate shall be deemed for all purposes to represent the
number of shares into which such certificate has been converted pursuant to
Section 4.7 of the Plan, provided that the holder shall not be entitled, prior
to such surrender, to receive any dividend or distribution payable with respect
to such shares.
7.2 SURRENDER OF INSTRUMENTS OR SECURITIES. No distribution
shall be made to holders of Claims or Interests based on ownership of
instruments or securities until such time as such holders shall have surrendered
or be deemed to have surrendered their instruments or securities in accordance
with this Article 7.
7.3 LOST INSTRUMENTS OR SECURITIES. Any holder of a Claim or
Interest based on instruments or securities for which the instruments or
securities have been lost, stolen, mutilated or destroyed shall, in lieu of
surrendering such instruments or securities as provided in this Article
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VII, deliver to the Debtors: (i) evidence reasonably satisfactory to the
Debtors, of the loss, theft, mutilation or destruction of such instruments or
securities; and (ii) such security or indemnity as may be reasonably required by
the Debtors, to save each of them harmless with respect thereto. Upon compliance
with this section by a holder of a Claim or Interest based on instruments or
securities, such holder shall, for all purposes under the Plan, be deemed to
have surrendered such instruments or securities.
ARTICLE 8
ISSUANCE OF ADDITIONAL COMMON SHARES;
SUBSCRIPTION RIGHTS; EMPLOYEE BENEFIT PLANS
8.1 STOCK PURCHASE AGREEMENT. On the Effective Date, in
addition to the shares of New Common Stock and New Preferred Stock to be issued
to holders of Allowed Claims and Allowed Interests, the Debtors shall issue, to
the Investors, as parties to the Stock Purchase Agreement attached as Exhibit E
to the Plan, an aggregate of One Million (1,000,000) shares of New Common Stock,
for an aggregate consideration of One Million Five Hundred Thousand Dollars
($1,500,000). In addition, the Investors shall receive One Hundred Thousand
(100,000) shares of New Common Stock for guaranteeing the subscription rights
offering described in Section 8.2 of the Plan.
8.2 SUBSCRIPTION RIGHTS. Holders of Common Stock as of the
Effective Date shall have the right, at their election by written notice to the
Debtors, to subscribe for shares of the New Common Stock, in an amount equal to
two-tenths (.2) of a share of New Common Stock for each share of Common Stock
owned by the respective holder as of the Effective Date and for a subscription
price of One Dollar and Fifty Cents ($1.50) per share of New Common Stock. To
the extent any eligible holder fails to elect to purchase its proportionate
amount of such New Common Stock, such unsubscribed shares shall be purchased by
the Investors pursuant to the Stock Purchase Agreement.
ARTICLE 9
CONDITIONS TO EFFECTIVENESS OF THE PLAN
9.1 CONDITIONS. The effectiveness of the Plan shall be subject
to, and conditioned upon (i) the satisfaction of the requirements set forth
under Articles 5 and 8 of the Plan, (ii) closing of the new loan transactions
with Merrill Lynch and Imperial Bank as described in Exhibits B and C of the
Plan, and (iii) the Debtors' determination that the aggregate of Class 2C Claims
and Class 2C Allowed Claims are less than Five Million Five Hundred Thousand
Dollars ($5,500,000). Notwithstanding the entry of the Confirmation Order, if,
on or before December 31, 1996, the conditions set forth in this Section have
not been satisfied or waived by the Debtors, the Plan shall be void and of no
effect.
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<PAGE> 13
ARTICLE 10
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
10.1 ASSUMPTION OF EXECUTORY CONTRACTS. Any and all unexpired
leases and executory contracts of the Debtors not expressly rejected by the
Debtors pursuant to order of the Bankruptcy Court entered on or before the
Confirmation Date shall be deemed assumed upon the entry of the Confirmation
Order.
10.2 APPROVAL OF ASSUMPTION OR REJECTION. Entry of the
Confirmation Order shall constitute: (i) approval, pursuant to Section 365(a) of
the Bankruptcy Code, of the assumption of the executory contracts and unexpired
leases assumed pursuant to Section 10.1 of this Plan; and (ii) approval pursuant
to Section 365(a) of the Bankruptcy Code, the rejection of executory contracts
and unexpired leases rejected in accordance with Section 10.1 of this Plan.
Notwithstanding anything contained herein to the contrary, the Debtors hereby
retain the right to add or delete any executory contract or unexpired lease that
is designated for assumption at any time prior to the Confirmation Date.
10.3 CURE OF DEFAULTS. On the Distribution Date or as soon
thereafter as is practicable, the Debtors shall cure any defaults under any
executory contract or unexpired lease assumed pursuant to this Plan under
Section 365(b) of the Bankruptcy Code.
10.4 POST-PETITION DATE CONTRACTS AND LEASES. Executory
contracts and unexpired leases entered into and other obligations incurred after
the Petition Date by the Debtors shall be performed by the Debtors in the
ordinary course of business.
10.5 BAR DATE. All proofs of claim with respect to claims
arising from the rejection of any contract or unexpired lease shall be filed
with the Bankruptcy Court and served on counsel for the Debtors no later than
thirty (30) days after the Confirmation Date. Any claim not filed within such
date shall be forever barred from assertion against the Debtors and their
respective estates.
10.6 INDEMNIFICATION. Except as otherwise provided in Section
13.1 of the Plan, any pre-petition executory contract or agreement of the
Debtors to indemnify, reimburse or limit the liability of their directors,
officers and employees that existed as of the confirmation Date shall be
rejected, canceled and discharged pursuant to this Plan as of the Effective
Date.
- 9 -
<PAGE> 14
ARTICLE 11
CERTIFICATES OF INCORPORATION
11.1 AMENDED CERTIFICATES. The Certificates of Incorporation
of the reorganized Debtors shall be deemed amended as of the Confirmation Date
to read as set forth in Exhibit F to the Plan.
ARTICLE 12
DISCHARGE
12.1 SCOPE OF DISCHARGE. Confirmation of the Plan shall
discharge the Debtors from any debt that arose before the Confirmation Date, and
any debt of a kind specified in Sections 502(g), 502(h) or 502(i) of the
Bankruptcy Code, whether or not:
(a) a proof of claim based upon such debt is filed or
deemed filed under Section 501 of the Bankruptcy
Code;
(b) a Claim based upon such debt is allowed under Section
502 of the Bankruptcy Code; or
(c) the holder of a Claim based upon such debt has
accepted the Plan.
ARTICLE 13
INDEMNIFICATION
13.1 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. The
indemnification obligations of the Debtors, pursuant to their respective
certificates of incorporation and bylaws and applicable statutes, in respect of
all present and future actions, suits and proceedings based upon any act or
omission related to service with or for or on behalf of the Debtors and during
the period from and after the Petition Date, shall not be discharged or impaired
by confirmation or consummation of the Plan but shall survive unaffected by the
reorganization contemplated by the Plan and shall be performed and honored by
the reorganized Debtors regardless of such confirmation, consummation and
reorganization.
ARTICLE 14
RETENTION OF JURISDICTION
14.1 SCOPE OF RETENTION. The Bankruptcy Court shall retain
exclusive jurisdiction of these proceedings for the following purposes, inter
alia:
- 10 -
<PAGE> 15
(a) to determine any and all pending applications,
adversary proceedings and contested matters;
(b) to determine any and all objections to the allowance
of Claims and Interests;
(c) to determine any and all applications for allowance
of compensation and reimbursement of expenses;
(d) to determine any and all controversies and disputes
arising under or in connection with the Plan and such
other matters as may be provided for in the
Confirmation Order;
(e) to effectuate payments under and performance of the
provisions of the Plan;
(f) to enter such orders as may be appropriate in the
event the Confirmation Order is for any reason
stayed, reversed, revoked, modified or vacated;
(g) to determine the Debtors' motion, if any, to modify
the Plan in accordance with Section 1127 of the
Bankruptcy Code; and
(h) to determine any other matter not inconsistent with
Chapter 11 of the Bankruptcy Code.
ARTICLE 15
MISCELLANEOUS
15.1 BOARDS OF DIRECTORS. The boards of directors of the
reorganized Debtors upon the Effective Date shall consist of those individuals
referred to in the Disclosure Statement with respect to the Plan. Until December
31, 1998, a majority of the directors of the reorganized Debtors shall consist
of individuals who were not, as of the Petition Date, insiders of the Debtors or
of any person which owned, directly or indirectly on such date, more than five
percent (5%) of the outstanding common stock of the Debtors.
15.2 HEADINGS. The headings used in the Plan are inserted for
convenience only and neither constitute a portion of this Plan nor in any manner
affect the construction of the provisions of this Plan.
15.3 SEVERABILITY. Should any provision in the Plan be
determined to be unenforceable following the Effective Date, such determination
shall in no way limit or affect the enforceability and operative effect of any
and all other provisions of the Plan.
- 11 -
<PAGE> 16
15.4 GOVERNING LAW. Except to the extent that the Bankruptcy
Code or other federal law is applicable, the rights, duties and obligations
arising under the Plan shall be governed by, and construed and enforced in
accordance with, the laws of the State of Arizona.
15.5 SUCCESSORS AND ASSIGNS. The rights, duties and
obligations of any person named or referred to in the Plan shall be binding
upon, and shall inure to the benefit of, the successors and assigns of such
person.
15.6 REVOCATION. The Debtors reserve the right to revoke and
withdraw the Plan prior to the Confirmation Date. If the Debtors revoke or
withdraw the Plan, then the Plan shall be deemed null and void and nothing
contained herein shall be deemed to constitute a waiver or release of any claims
by or against the Debtors or any other person or to prejudice in any manner the
rights of the Debtors or any person in any further proceedings involving the
Debtors.
15.7 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; TIMING.
Each of the officers of the Debtors is authorized under the resolutions of the
Debtors' Board of Directors to execute, deliver, file or record such contracts,
instruments, releases and other agreements or documents, and to take such
action(s) as may be necessary or appropriate to effectuate and further evidence
the terms and conditions of the Plan and any securities issued pursuant to the
Plan. All transactions that are required to occur on the Effective Date under
the terms of the Plan shall be deemed to have occurred simultaneously.
15.8 EXEMPTION FROM TRANSFER TAXES. Pursuant to Section
1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of equity
securities, or other estate property under the Plan shall not be subject to any
stamp, real estate, transfer, mortgage, recording or other similar tax.
15.9 EXCULPATION. Neither the Debtors nor any of their
directors, officers, employees, advisors, affiliates or agents shall have or
incur any liability to any holder of a Claim or Interest for any act or omission
in connection with or arising out of, confirmation or consummation of the Plan
or the administration of the Plan or property to be distributed under the Plan,
except for wilful misconduct or gross negligence, and in all respects, shall be
entitled to rely upon the advice of counsel with respect to their duties and
responsibilities under the Plan.
15.10 BINDING EFFECT. The Plan shall be binding upon, and
shall inure to the benefit of the Debtors, the holders of all claims and
interests and their respective successors and assigns.
15.11 MODIFICATION OF PAYMENT TERMS. The Debtors reserve the
right to modify the treatment of any allowed claim in any manner adverse only to
the holder of such claim at any time after the Effective Date upon the prior
written consent of the holder whose allowed claim treatment is being adversely
affected.
- 12 -
<PAGE> 17
15.12 NOTICES. Any notice required or permitted to be provided
under the Plan shall be in writing and served by: (a) certified mail, return
receipt requested, postage prepaid; (b) hand delivery; or (c) reputable
overnight carrier service, freight prepaid, to be addressed as follows:
UNITECH INDUSTRIES, INC.
10535 North 75th Street
Scottsdale, Arizona 85260
(602) 991-7626
Attn: Virland A. Johnson, Secretary and
Chief Financial Officer
with a copy to:
SQUIRE, SANDERS & DEMPSEY
40 North Central Avenue
Suite 2700
Phoenix, Arizona 85004
(602) 528-4000
Attn: Rawle Andrews, Jr., Esq.
15.13 DISSOLUTION OF OFFICIAL COMMITTEES. Except as otherwise
provided in any order of the Bankruptcy Court, on the Effective Date, any
official committees of the holders of Claims or Interests shall be dissolved and
the members of any such committees shall thereupon be released and discharged of
and from all further authority, duties, responsibilities and obligations related
to and arising from and in connection with the Cases, except for the preparation
and filing of applications for payment of professionals.
15.14 POST-CONFIRMATION FEES AND REPORTS. Unless otherwise
ordered by the Bankruptcy Court, the Debtors shall be responsible for the timely
payment of all fees incurred pursuant to Section 1930 of Title 28 to the United
States Code. Unless otherwise ordered by the Bankruptcy Court, the Debtors also
shall file with the Court, and serve on the U.S. Trustee, a quarterly financial
report for each quarter (or portion thereof) that the case remains open, in a
format prescribed by the U.S. Trustee in accordance with the Guidelines of the
Office of the U.S. Trustee.
- 13 -
<PAGE> 18
UNITECH INDUSTRIES, INC.
By /s/ Gerald C. Bellis
-----------------------------
Gerald C. Bellis
Its Pres & C.E.O.
-----------------------------
UNITECH ACQUISITION CORP.
By /s/ Gerald C. Bellis
-----------------------------
Gerald C. Bellis
Its Pres & C.E.O.
-----------------------------
<PAGE> 19
SUMMARY OF EXHIBITS
Plan
Exhibit Document Reference(s)
- ------- -------- ------------
A Definitions 1.1
B Terms of Merrill Secured
Notes 4.1
C Terms of Imperial Secured
Notes 4.2
D Agreement of Merger 5.1
E Stock Purchase Agreement 8.1
F Amended Certificates 11.1
of Incorporation
- 15 -
<PAGE> 20
EXHIBIT A
DEFINITIONS
"Allowed Claim" shall mean any Claim, proof of which was filed on or before the
date designated by the Bankruptcy Court as the last date for filing proofs of
claim with respect to such Claim, or which has been or hereafter is scheduled by
the Debtor as liquidated in amount and not disputed or contingent and, in either
case, a Claim as to which no objections to the allowance thereof has been filed
within the applicable period of limitation fixed by the Bankruptcy Code,
Bankruptcy Rules or an order of the Bankruptcy Court, or as to which any
objection has been determined by a Final Order of the Bankruptcy Court allowing
such Claim in whole or in part.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as amended,
Title 11, United States Code.
"Bankruptcy Court" shall mean the court in the District of Arizona conferred
with authority over the Debtors' Chapter 11 cases or the court so authorized
with respect to any proceedings in connection therewith for the purpose of such
proceedings.
"Bankruptcy Rules" shall mean the Bankruptcy Rules effective as of the
Confirmation Date, together with local rules adopted by the Bankruptcy Court, or
such similar rules as may be in effect from time to time in the Bankruptcy
Court.
"Cash" shall mean cash, cash equivalents, and other readily marketable
securities or instruments.
"Cash Election Pool" shall mean the Five Hundred Thousand Dollar ($500,000)
segregated fund created by the Debtors pursuant to subsection 4.6(b) of the
Plan to provide distributions to the holders of Electing Class 2C Claims.
"Claim" shall mean any claim against the Debtors as defined in the Bankruptcy
Code which has not been disallowed by an order of the Bankruptcy Court or for
which an order of disallowance of the Bankruptcy Court has been reversed on
appeal by a Final Order of an appellate court.
"Class" shall mean any group of holders of Claims or Interests as specified in
Article 3 of the Plan.
"Confirmation Date" shall mean the date on which the Confirmation Order is
entered.
"Confirmation Order" shall mean the order entered by the Bankruptcy Court
confirming the Plan in accordance with the provisions of Chapter 11 of the
Bankruptcy Code.
"Creditors' Committee" shall mean the official committee of unsecured creditors
appointed pursuant to Section 1102 of the Bankruptcy Code in the Debtors'
bankruptcy cases.
<PAGE> 21
"Debtors" shall mean, collectively, Unitech Industries, Inc. and Unitech
Acquisition Corp. and, from and after the Effective Date, shall include New
Unitech and any other successor to Debtors under the Plan.
"Distribution Date" shall mean the latter of: (i) the twentieth business day
after the Effective Date; or (ii) the first business day after satisfaction of
all terms and conditions under Articles 7, 8 and 9 under the Plan; or any
date(s) specified or otherwise contemplated by the Plan.
"Electing Class 2C Claims" shall mean the Class 2C Claims or portions of Class
2C Claims which receive distributions from the Cash Election Pool after
election of such treatment pursuant to subsection 4.6(b) of the Plan.
"Effective Date" shall mean the first business day after the latter of: (i)
the date the Confirmation Order becomes a Final Order or (ii) the date on
which the condition(s) in Section 9.1 of the Plan have been satisfied or been
waived in accordance with that Section.
"Final Order" shall mean an order as to which (i) any appeal that has been taken
has been finally determined or dismissed, or (ii) the time for filing a notice
of appeal or petition for certiorari has expired and no notice of appeal or
petition for certiorari has been timely filed.
"Impaired" shall mean, with respect to any Claim, Interest or Class, the
condition or effects described in Section 1124 of the Bankruptcy Code.
"Imperial Bank" shall mean Imperial Bank, the holder of the Class 1B Claim.
"Imperial Loan Agreement" shall mean, collectively, the following agreements and
instruments between Imperial Bank and the Debtors (i) General Security Agreement
(Tangible and Intangible Personal Property) dated March 30, 1995, (ii)
Continuing Guarantee dated March 30, 1995, (iii) Subordination Agreement dated
March 30, 1995, (iv) Security and Loan Agreement (Accounts Receivable) dated
July 31, 1995, (v) Applications and related Security Agreements executed in
connection with Commercial Letters of Credit, (vi) Financing Statements on
Form UCC-1, filed with the Arizona Secretary of State and the Maricopa County
Recorder.
"Imperial Secured Note" shall mean the note issued to Imperial Bank pursuant to
subsection 4.2(c) of the Plan and having terms and conditions as set forth in
Exhibit C to the Plan.
"Interest" shall mean any rights of holders of issued and outstanding shares of
common stock or other equity securities of Unitech in respect thereof.
"Investors" shall mean the parties purchasing New Common Stock pursuant to the
Stock Purchase Agreement.
"Merrill Loan Agreement" shall mean, collectively, the following agreements and
instruments between Merrill Lynch and the Debtors: (i) WCMA and Term Loan and
Security No. 9404550201, as amended and including the Letter of Credit
Supplement thereto, (ii) Financing
<PAGE> 22
Statements on Form UCC-1 filed with the Arizona Secretary of State and the
Maricopa County Recorder.
"Merrill Lynch" shall mean Merrill Lynch Business Financial Services, Inc. a
Delaware corporation and the holder of the Class 1A Claim.
"Merrill Secured Notes" shall mean the notes issued to Merrill Lynch pursuant to
subsection 4.1(b) of the Plan and having terms and conditions as set forth in
Exhibit B to the Plan.
"New Common Stock" shall mean the common stock of New Unitech issued pursuant to
the Plan and having terms substantially as set forth in Exhibit E to the Plan.
"New Preferred Stock" shall mean the convertible redeemable preferred stock of
New Unitech issued pursuant to the Plan and having terms substantially as set
forth in Exhibit E to the Plan.
"New Securities" shall mean the New Common Stock and the New Preferred Stock,
collectively.
"New Unitech" shall mean [ ], a Delaware
corporation formed to accomplish the incorporation of reorganized Unitech
Industries in Delaware by virtue of the [merger] described in Section 5.1 of
the Plan, a participant and successor to Unitech Industries under the Plan and
the issuer of the New Securities.
"Petition Date" shall mean January 25, 1996, the date on which Debtors filed
voluntary petitions commencing their bankruptcy cases.
"Plan" shall mean the Joint Plan of Reorganization, dated September 24, 1996,
filed by the Debtors, and the exhibits thereto, either in their present form or
as altered, amended or modified from time to time.
"Pro Rata" shall mean with respect to an amount of cash or shares of stock to be
distributed to the holder of an Allowed Claim of a particular Class on a
particular date, the same proportion that such Allowed Claim bears to the
aggregate of all Claims of that particular Class on that particular date.
"Reserve Fund" shall mean the fund established pursuant to Section 6.1 of the
Plan.
"Secured Claim" shall mean a Claim secured by a valid and unavoidable lien on or
security interest in property of the Debtors, to the extent of the value of such
lien or security interest.
"Solidex" shall mean Unitech Acquisition Corp, a Delaware corporation and the
debtor in case number 96-819-PHX-RGM pending in the Bankruptcy Court.
"Unitech Industries" shall mean Unitech Industries, Inc., a California
corporation and the debtor in case number 96-818-PHX-RGM pending in the
Bankruptcy Court.
<PAGE> 23
"Unsecured Claim" shall mean a Claim to the extent of the amount of such Claim
which (i) is not secured by any valid and unavoidable lien on or security
interest in property of the Debtors, or (ii) is greater than the value of any
valid and unavoidable lien on or security interest in property of the Debtors
which secures such Claim.
<PAGE> 24
MERRILL LYNCH EXIT FINANCING TERM SHEET
This Exit Financing Term Sheet (the "Merrill Term Sheet") outlines the potential
terms of and conditions of a proposed restructured loan (the "Restated Merrill
Loan") by and between Merrill Lynch Financial Business Services, Inc. ("Merrill
Lynch" or "Lender") and the reorganized Unitech Industries, Inc. ("Unitech" or
"Borrower"), in connection with the consummation of that certain proposed Plan
of Reorganization and Disclosure Statement dated August 15, 1996, together with
any amendments thereto (the "Plan"). The following is not a legally binding
commitment on the part of Merrill Lynch, but simply is a preliminary summary of
the potential terms and conditions for proposed exit financing. These potential
terms and conditions are all subject to change. No rights, obligations or
liabilities of any kind or nature whatsoever shall arise on the part of Merrill
Lynch or any other person as a result of the provisions of this Term Sheet. The
proposed terms and conditions of the Restated Merrill Loan would be as follows:
1. BORROWER: The Reorganized Unitech Industries, Inc., a Delaware
corporation.
2. LENDER: Merrill Lynch Financial Business Services, Inc., a
Delaware corporation, or its assignee or successor
in interest.
3. FACILITY: Term Loan - The Restated Merrill Loan will be a term
loan and be modified, restated and affirmed as
required by Lender.
4. LOAN MATURITY: As to Promissory Note #2, October 31, 1998 or two
years after the Closing Date. As to Promissory Note
#1, October 31, 1999, or three years from the
Closing Date as defined in the Plan. Closing Date
and closing to occur no later than December 31,
1996.
5. RESTATED LOAN AMOUNT: The total amount of the Restated Merrill Loan will
be divided into two promissory notes.
Promissory Note #1 - $2,000,000.00 ($4,000,000.00
less $2,000,000.00 Initial Payment of cash on the
Closing Date)
Promissory Note #2 - In an amount not to exceed
$500,000.00. Approximately $503,412.00 of principal
and accrued interest plus continuing interest, fees
and expenses on the pre-confirmation debt is owed
less any
<PAGE> 25
adequate protection payments made in November and
December 1996. At Closing, Unitech will pay to
Merrill Lynch an amount sufficient to reduce such
debt to $500,000.00 (the "Additional Closing Payment
Amount").
6. INITIAL PAYMENT: $2,000,000.00 in Cash on the Closing Date (the
"Initial Payment"), plus the Additional Closing
Payment Amount referenced in paragraph 5 above.
7. PAYMENTS: Promissory Note #1 - Except as provided in the
paragraph 8 below, interest only for first year
payable monthly, thereafter interest and principal
payable monthly with monthly principal amortized
over two years. All due and payable October 31, 1999
or three years from the Closing Date. Promissory
Note #2 - Principal and interest payable monthly.
Principal fully amortized over two years. All due
and payable October 31, 1998, or two years from the
Closing Date.
8. ADDITIONAL
PRINCIPAL PAYDOWNS: In addition to the principal payments indicated in
the above paragraph, additional principal paydowns
will be required in the first year on Promissory
Note #1 based upon the occurrence of operating cash
flow benchmarks to be determined mutually by Unitech
and Merrill Lynch and included in the final
documentation. This paydown will be in addition to
the required monthly principal payments and will be
applied to principal only.
9. INTEREST RATE: Ten percent (10.0%) per annum. Interest paid
monthly in arrears and calculated on the outstanding
principal amount each month.
10. PREPAYMENT: The Restated Loan may be prepaid, in whole, at any
time during the Loan Term, without penalty or
premium.
11. COLLATERAL: The Restated Loan (evidenced by the two Promissory
Notes) shall be secured by a first priority lien on
all of the assets of Reorganized Unitech Industries
("Collateral"), including
2
<PAGE> 26
but not limited to all collateral securing the pre-
and post-petition Merrill Lynch claim under the
certain WCMA and Term Loan and Security Agreement,
together with any related agreements and instruments
and the Cash Collateral Orders (collectively and as
amended, the "Merrill Loan Agreement"). Cash and
bank accounts are included in the Collateral. In the
event that Unitech obtains partial exit financing
from IBJ Schroeder and pays all the amounts due to
Merrill Lynch at Closing (including the Initial
Payment and the Additional Closing Payment Amount)
plus the amounts due under Promissory Note #1, then
the remaining debt to be evidenced by Promissory
Note #2 (in an amount not to exceed $500,000.00)
shall constitute Merrill Lynch's Restated Loan. In
that limited circumstance, Promissory Note #2 shall
be secured by a second priority lien, subject only
to IBJ Schroeder's first priority lien, on all of
the Collateral.
12. LOAN DOCUMENTS: All documents executed in connection with the
Restated Loan (the "New Merrill Loan Documents")
shall be jointly prepared by counsel for Borrower
and Lender and shall be on such forms and contain
such terms and provisions as shall be required by
the parties hereto. The New Merrill Loan Documents
shall include, but not be limited to, the following:
(i) a Restated Loan Agreement; (ii) Promissory
Notes; (iii) a Security Agreement encumbering the
Collateral; (iv) Uniform Commercial Code financing
statement(s); (v) cash collateral agreements and
account document; (vi) opinions of counsel, in such
form and content as Merrill may require; (vii)
corporate resolutions, articles of incorporation and
such other evidence transacting authority as Lender
may require; (viii) escrow agreement(s) as
applicable; and (ix) any other loan document which
Lender may require in its discretion.
3
<PAGE> 27
13. CROSS DEFAULT/CROSS
COLLATERALIZATION: The Restated Loan Agreement is one loan but
evidenced by two promissory notes. The notes will be
cross-defaulted and will be secured by all of the
same collateral.
14. ADDITIONAL FINANCING: During the Restated Loan Term, Borrower shall be
permitted to enter into or incur unsecured trade
credit, which shall at all times be junior to the
Restated Merrill Loan, and shall be permitted to
enter into or incur Purchase Money Security debt,
not to exceed $100,000 in the aggregate. In the
event Unitech pays all the amounts due to Merrill
Lynch at Closing hereunder (including the Initial
Payment and the Additional Closing Payment Amount)
and the amounts due under Promissory Note #1 at
Closing, but continues to finance Promissory Note #2
hereunder, Merrill Lynch will waive this
restriction.
15. INSURANCE: At Lender's request, Borrower shall provide, at
Borrower's expense, policies of insurance or
insurance binders evidencing liability and property
damage insurance, and any other insurance, required
under the Loan Documents.
16. LOAN-TO-VALUE: At Closing and at all times thereafter, the Restated
Loan Amount (which includes Promissory Note #1 and
Promissory Note #2 amounts outstanding) shall not
exceed the aggregate of 50% of the Inventory (as
shown on Unitech's regular books and records less
obsolete and unsalable inventory) and 80% of the
Eligible Accounts (as shown on Unitech's regular
books and records less accounts over 90 days old and
accounts directly or indirectly due from any
subsidiary or affiliate or any shareholder, officer
or employee of Unitech or any subsidiary or
affiliate). At any point in time that the
loan-to-value ratio is not met, the Restated Loan
shall be in default and Unitech, within five days of
receiving notice, shall be required to make
additional principal reductions
4
<PAGE> 28
to the Restated Loan in an amount sufficient to
satisfy the loan-to-value ratio and bring the
Restated Loan into compliance.
17. ADDITIONAL: Additional terms, restrictive covenants, financial
covenants and events of default may be added at
Lender's discretion and are subject to further
discussion. The reporting requirements and the
Lender's access to books and records will need to
be further defined and expanded. Except for the
contemplated issuance of stock under the Plan of
Reorganization at Closing, there shall be no
change in ownership as long as the Lender's
Restated Loan is outstanding. Any change would be
an event of default. In addition, there shall be
no payment or transfer of a distribution,
dividend or redemption in cash, property,
securities, or otherwise of the Series A
Preferred Stock or Common Stock as long as the
Lender's Restated Loan is outstanding. Any such
payment or transfer would be an event of default.
The bankruptcy exit financing listed herein is
contingent upon (i) confirmation of the proposed
Plan of Reorganization in final substance
acceptable to Lender and (ii) entry of a
Confirmation Order acceptable to Lender. The
confirmation of the Plan and closing of the
Restated Loan shall occur no later than December
31, 1996.
<PAGE> 29
EXHIBIT C
IMPERIAL TERM SHEET
This Term Sheet (the "IMPERIAL TERM SHEET") outlines the terms of and
conditions of a proposed restructured loan (the "RESTATED IMPERIAL LOAN") by
and between Imperial Bank, N.A. ("Imperial Bank" or "Lender"), a [ ]
corporation, and the reorganized Unitech Industries, Inc. ("Unitech" or
"Borrower"), a Delaware corporation, in connection with the consummation of
that certain proposed Plan of Reorganization and Disclosure Statement dated
August 15, 1996, together with any amendments thereto (the "Plan"). The terms
and conditions of the Restated Imperial Loan would be as follows:
1. BORROWER: The Reorganized Unitech Industries, Inc., a
Delaware corporation.
2. LENDER: Imperial Bank, N.A., a [ ] corporation, or
its assignee or successor in interest.
3. RESTATED LOAN AMOUNT: Restated principal balance of $1,518,282.00
($3,718,282.00 less $1,000,000.00 cash payment on
the Effective Date and $1,200,000.00 of New
Unitech Preferred Stock), or such lesser amount as
may exist by virtue of pre-closing principal
reduction payments by Unitech in the form of Cash
or the issuance of equity securities.
4. LOAN MATURITY: December 31, 1999, or 3 years from the Effective
Date as defined in the Plan.
5. INITIAL PAYMENT: $1,000,000.00 in Cash on the Effective Date as
defined in the Plan.
6. REPAYMENT: Quarterly interest payments from the Effective
Date with the principal due at maturity.
7. INTEREST RATE: Twelve percent (12.0%) per annum.
8. PREPAYMENT: The Restated Loan may be prepaid, in whole, at any
time during the Loan Term, without penalty or
premium.
9. SECURITY: The Restated Loan shall be secured to the extent
of the value of the Collateral securing the
Allowed Imperial claim under the certain General
Security Agreement, and the
<PAGE> 30
Security and Loan Agreement, together with any
related agreements and instruments (collectively
and as amended, the "Imperial Loan Agreement")
10. LOAN DOCUMENTS: All documents executed in connection with the
Restated Loan (the "NEW IMPERIAL LOAN
DOCUMENTS") shall be jointly prepared by counsel
for Borrower and Lender and shall be on such
forms and contain such terms and provisions as
shall be required by the parties hereto. The New
Imperial Loan Documents shall include, but not
be limited to, the following: (i) a Restated
Loan Agreement; (ii) a Promissory Note; (iii) a
Security Agreement encumbering the Collateral;
(iv) Uniform Commercial Code financing
statement(s); (v) opinions of counsel, in such
form and content as the parties may require;
(vi) corporate resolutions, articles of
incorporation and such other evidence of
transacting authority as Lender may require; and
(vii) escrow agreement(s) as applicable.
11. ADDITIONAL FINANCING: During the Restated Loan Term, Borrower shall be
permitted to enter into or incur secured or
unsecured financing other than the Restated
Imperial Loan.
12. INSURANCE: At Lender's request, Borrower shall provide, at
Borrower's expense, policies of insurance or
insurance binders evidencing liability and
property damage insurance, and any other
insurance, required under the Loan Documents.
This Loan Term Sheet merely outlines certain of the terms and
conditions of the Restated Loan Agreement by and between Imperial Bank and the
reorganized Unitech. THE FULL AND COMPLETE TERMS AND CONDITIONS OF THE RESTATED
IMPERIAL LOAN WILL BE SET FORTH IN THE NEW IMPERIAL LOAN DOCUMENTS. TO THE
EXTENT ANY CONFLICT ARISES BETWEEN THIS LOAN TERM SHEET AND THE NEW IMPERIAL
LOAN DOCUMENTS, THE NEW IMPERIAL LOAN DOCUMENTS SHALL PREVAIL.
If Borrower or its affiliate(s) executes this Loan Term Sheet and
places or causes funds of not less than $1,000,000.00 to be
<PAGE> 31
placed in escrow to cover such amounts as are required to be paid to in Cash to
Imperial on the Effective Date (as defined in the Plan), Lender shall authorize
the preparation of the New Imperial Loan Documents and take such other actions
as Lender may determine, in its sole discretion, is necessary in connection
with this transaction. The Restated Imperial Loan shall be made in solely
accordance with the provisions of this Loan Term Sheet and the New Imperial
Loan Documents, including, without limitation, the execution by Borrower of the
New Imperial Loan Documents.
Except as expressly provided in the Plan, this Loan Term Sheet is not
assignable by Borrower and supersedes any prior understandings or agreements
with respect to the Restated Imperial Loan. Lender will use reasonable efforts
to allow a closing of the Restated Imperial Loan to occur on or before
_________, 1996, provided, of course, that all such terms and conditions have
been satisfied. Notwithstanding the preceding sentence, however, this Loan Term
Sheet shall automatically expire and be of no further force and effect as of
5:00 p.m. (MST) on ________, 1996, unless Lender expressly agrees in writing to
extend such expiration date and time.
<PAGE> 32
AGREEMENT OF MERGER
This Agreement of Merger is entered into between [NEW UNITECH
INDUSTRIES, INC.], a Delaware corporation ("Surviving Corporation") and UNITECH
INDUSTRIES, INC., a California corporation ("Merging Corporation").
RECITALS:
A. Merging Corporation filed for reorganization under Chapter 11 of the
Bankruptcy Code on January 25, 1996 and, since such filing, has operated as a
debtor in possession subject to the jurisdiction of the United States
Bankruptcy Court for the District of Arizona (the "Bankruptcy Court").
B. Merging Corporation has, together with its wholly owned subsidiary
Unitech Acquisition Corp., filed their Amended Joint Plan of Reorganization
dated _____________, 1996 (such plan, as hereafter amended, the "Plan").
C. Pursuant to the terms of the Plan, Merging Corporation will change
the state of its incorporation to Delaware in a transaction under Section
368(a)(1)(G) of the Internal Revenue Code.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto hereby agree as follows:
1. Merging Corporation shall be merged into Surviving Corporation.
2. The outstanding shares of Merging Corporation shall be cancelled and
no shares of Surviving Corporation shall be issued in exchange
therefor.
3. The outstanding shares of Surviving Corporation shall remain
outstanding and are not affected by the merger.
4. Following the merger effected by this Agreement of Merger, Surviving
Corporation shall perform all of the obligations of Merging
Corporation pursuant to the Plan. Without limiting the generality of
the foregoing, Surviving Corporation shall (a) issue its preferred
and common shares, (b) issue its secured notes and (c) make the
payment of cash, all as required by the terms of the Plan.
5. Following the merger effected by this Agreement of Merger, Surviving
Corporation shall be subject to the jurisdiction of the Bankruptcy
Court as fully as the Bankruptcy Court would have jurisdiction with
respect to the Merging Corporation had the merger effected by this
Agreement of Merger not taken place.
<PAGE> 33
6. Merging Corporation shall from time to time, as and when requested
by Surviving Corporation, execute and deliver all such documents and
instruments and take all such action necessary or desirable to
evidence or carry out this merger.
7. The effect of the merger and the effective date of the merger are as
prescribed by law. If the Effective Date, as defined in the Plan,
shall not have occurred by December 31, 1996, this Agreement of
Merger shall be void and of no force or effect.
IN WITNESS WHEREOF the parties have caused this Agreement to be duly
executed as of this __ day of _____, 1996.
[NEW UNITECH INDUSTRIES, INC.]
By____________________________
________________, President
By ___________________________
_______________, Secretary
UNITECH INDUSTRIES, INC.
By ___________________________
Gerald C. Bellis, President
By ___________________________
Virland A. Johnson, Secretary
-2-
<PAGE> 34
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
____________________ and ________________________ certify that:
1. They are the president and the secretary, respectively, of (here
set forth the name of the corporation EXACTLY as of record in the
office of the Secretary of State), a California corporation.
2. The Agreement of Merger in the form attached was duly approved by
the board of directors and shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the
outstanding shares of the corporation.
4. There is only one class of shares and the number of shares
outstanding is ________________________.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: _____________________________
(Signature of President)
--------------------------------------
(Typed Name of President), President
(Signature of Secretary)
--------------------------------------
(Typed Name of Secretary), Secretary
AGREEMENT OF MERGER-COMMON OWNERSHIP
THIS MODEL IS FOR USE WHERE THERE IS ONLY ONE CLASS OF SHARES AND 100%
SHAREHOLDER APPROVAL IS RECEIVED. FOR OTHER SITUATIONS, REFER TO SECTION 1103 OF
THE CORPORATIONS CODE OR A TEXTBOOK.
A CERTIFICATE OF APPROVAL FOR EACH CORPORATION MUST ACCOMPANY THE
AGREEMENT OF MERGER.
<PAGE> 35
STOCK PURCHASE AGREEMENT
between
UNITECH INDUSTRIES, INC.
AND
UNITECH HOLDINGS, LLC
Dated October 1, 1996
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions...................................................................... 1
2. Sale and Purchase of Shares...................................................... 3
2.1 The Shares.............................................................. 3
2.2 Transaction Price and Payment for Shares................................ 4
2.3 Delivery of Shares...................................................... 4
2.4 Purchase for Investment................................................. 4
2.5 No Registration; Resale Restricted...................................... 4
3. Closing; Closing Date............................................................ 5
4. Representations and Warranties of the Company.................................... 5
4.1 Organization; Standing and Authority.................................... 5
4.2 Execution and Delivery.................................................. 5
4.3 Governmental Consents and Approvals..................................... 5
4.4 No Breach............................................................... 6
4.5 Capital Stock; Title.................................................... 6
4.6 Options or Other Rights................................................. 6
4.7 Charter Documents and By-laws........................................... 6
5. Representations and Warranties of Purchaser...................................... 7
5.1 Organization, Standing and Authority.................................... 7
5.2 Execution and Delivery.................................................. 7
5.3 Governmental Consents and Approvals..................................... 7
5.4 No Breach............................................................... 7
5.5 Financing............................................................... 8
5.6 Purchase not for Distribution........................................... 8
5.7 Brokers................................................................. 8
5.8 Disclosure.............................................................. 8
5.9 Accredited Investor..................................................... 8
6. Covenants and Agreements......................................................... 8
6.1 Conduct of Business..................................................... 8
6.2 Approvals............................................................... 9
6.3 Further Assurances...................................................... 9
7. Conditions Precedent to the Obligation of Purchaser.............................. 9
7.1 Representations and Warranties; Covenants and Agreements................ 9
7.2 Governmental Permits and Approvals...................................... 9
7.3 Third Party Consents.................................................... 10
7.4 Opinion of Counsel to Company........................................... 10
8. Conditions Precedent to the Obligations of the Company........................... 10
8.1 Representations and Warranties; Covenants and Agreements................ 10
8.2 Governmental Permits and Approvals...................................... 10
</TABLE>
(i)
<PAGE> 37
<TABLE>
<CAPTION>
Page
<S> <C> <C>
8.3 Third Party Consents........................................................................... 11
8.4 Opinion of Counsel to Purchaser................................................................ 11
9. Survival of Representations and Warranties.............................................................. 11
10. Termination............................................................................................. 11
10.1 Termination and Abandonment.................................................................... 11
10.2 Expenses....................................................................................... 11
11. Miscellaneous........................................................................................... 11
11.1 Transfer Taxes................................................................................. 11
11.2 Notices........................................................................................ 11
11.3 Entire Agreement............................................................................... 13
11.4 Waivers and Amendments; Noncontractual Remedies; Preservation of
Remedies....................................................................................... 13
11.5 Governing Law.................................................................................. 13
11.6 Binding Effect; Assignment Limited............................................................. 13
11.7 No Third-Party Beneficiaries................................................................... 13
11.8 Counterparts................................................................................... 14
11.9 Exhibits and Schedules......................................................................... 14
11.10 Headings....................................................................................... 14
11.11 Remedies....................................................................................... 14
11.12 Invalidity of Provision........................................................................ 14
11.13 Grammatical Construction....................................................................... 14
</TABLE>
SCHEDULES
Seller Disclosure Schedule
Purchaser Disclosure Schedule
EXHIBITS
Exhibit A - Form of Opinion of Counsel to Company
Exhibit B - Form of Opinion of Counsel to Purchaser
(ii)
<PAGE> 38
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated October 1, 1996, by and between
UNITECH INDUSTRIES, INC. and UNITECH HOLDINGS, LLC.
RECITALS:
WHEREAS, the Company and its wholly-owned subsidiary Unitech
Acquisition Corp. are presently debtors-in-possession in reorganization cases
under Chapter 11 of the Bankruptcy Code pending in the United States Bankruptcy
Court for the District of Arizona (the "Bankruptcy Court").
WHEREAS, the Company is a proponent of a Joint Plan of
Reorganization dated August 15, 1996, as amended (the "Plan").
WHEREAS, pursuant to the Plan, the Company will be merged into a
newly-formed Delaware corporation which will succeed to all of the Company's
rights and obligations and which will be the issuer of the common and preferred
stock distributed under the Plan.
WHEREAS, the Company has approached purchaser to provide certain
funds to facilitate payments to creditors and holders of equity securities in
conjunction with the Plan.
WHEREAS, as of the Effective Date, the Company will have (i)
30,000,000 authorized shares of common stock, $.001 par value per share ("Common
Stock") (ii) approximately 2,080,000 shares of Common Stock to be issued to
holders of Class 3A Interest pursuant to the Plan, (iii) approximately 1,040,000
shares of Common Stock available for subscription by holders of Class 3A
Interests pursuant to the Plan (iv) 10,000,000 authorized shares of Convertible
Redeemable Preferred Stock ("Preferred Stock"), and (v) approximately 3,500,000
shares of Preferred Stock to be issued to holders of Claims pursuant to the
Plan;
WHEREAS, the Company desires to issue 1,000,000 shares of Common
Stock (the "Issued Shares") to the Purchaser and the Purchaser desires to
purchase such Shares, subject to the terms and conditions and for the
consideration set forth in this Agreement; and
WHEREAS, the Purchaser has also agreed to purchase any of the
1,040,000 shares of Common Stock described above (the "Subscription Shares" and
together with the Issued Shares, collectively the "Purchased Shares") which are
not subscribed by holders of Class 3A Interests pursuant to the Plan;
WHEREAS, in addition to the Purchased Shares, the Company will
issue 100,000 shares of Common Stock (the "Standby Shares" and, together with
the Purchased Shares, collectively the "Shares") in consideration of the
Purchaser's standby commitment as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and in reliance upon the representations and
warranties contained herein, the Company and the Purchaser agree as follows:
-1-
<PAGE> 39
1. Definitions. Except as the context shall otherwise require, the
following terms when used in this Agreement shall have the following meanings,
the definitions to be applicable to both the singular and plural forms of each
term defined to the extent that such forms of such terms are used in this
Agreement:
"affiliate" means, with respect to any person, at the time in
question, any other person controlling, controlled by or under common control
with such person.
"Agreement" means this Stock Purchase Agreement, including the
exhibits and schedules attached hereto.
"Business Day" means any day which is neither a Saturday nor a
Sunday, nor a day on which banking institutions in the City of Phoenix, Arizona,
shall be permitted or required by law or executive order to be closed.
"Closing" means the closing of the sale and purchase of the
Purchased Shares contemplated by this Agreement.
"Closing Date" means the date of the Closing pursuant to Section 3
hereof.
"Company" means Unitech Industries, Inc. a California corporation
and, following the merger described in the Plan, shall include the Delaware
corporation which is the survivor of such merger and the issuer of the Common
and Preferred Stock.
"Company Disclosure Schedule" means the Disclosure Schedule
delivered by the Company to the Purchaser in connection with the execution and
delivery hereof.
"contracts and other agreements" means all contracts, agreements,
undertakings, indentures, notes, bonds, loans, instruments, leases, mortgages,
commitments or other binding agreements.
"Dividend" means any distribution on or in respect of the capital
stock of any person and any amount paid by any such person in respect of the
purchase, redemption, retirement or other acquisition of any share of its
capital stock.
"Executive Officers" means, with respect to any corporation, the
chairman of the Board of Directors, the president, and any executive or senior
vice president of such corporation (and other individuals, if any, performing
comparable functions), and with respect to any partnership, the individuals
performing comparable functions on behalf of such partnership.
"Federal" means of or pertaining to the government of the United
States of America.
"governmental or regulatory body" means any government or
political subdivision thereof, whether Federal, state, local or foreign, or any
agency or instrumentality of any such government or political subdivision.
"IRS" means the Internal Revenue Service of the United States of
America.
-2-
<PAGE> 40
"knowledge" means, with respect to any entity, the actual
knowledge of any of the Executive Officers of such entity.
"lien or other encumbrance" means any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any shareholder or similar
agreement or encumbrance.
"Litigation" means any claim, action, suit, proceeding,
arbitration or investigation.
"Material Adverse Effect" means an effect which is either (i)
materially adverse to the Permits, business, condition (financial or otherwise),
assets, liabilities or results of operations of the Company and its
subsidiaries, taken as a whole, or (ii) adverse to the ability of the Company to
consummate the transactions contemplated by this Agreement, provided that
general economic conditions or conditions affecting other companies in the home
health care business generally are not Material Adverse Effects.
"Permits" means all licenses, permits, orders, approvals,
registrations, authorizations and qualifications with and under all Federal,
state, local or foreign laws and governmental or regulatory bodies and all
industry or other nongovernmental self-regulatory organizations that are
necessary for the conduct of the applicable person's business and the ownership
of its properties.
"Plan" means the Company's Joint Plan of Reorganization dated
August 15, 1996, as amended from time to time.
"property" means real, personal or mixed property, tangible or
intangible.
"Purchaser" means "Unitech Holdings, LLC", a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware.
"Purchaser Disclosure Schedule" means the disclosure schedule
delivered by Purchaser to the Company in connection with the execution and
delivery hereof.
"Securities Acts" means, collectively, the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended.
"Shares" has the meaning set forth in the recitals hereof.
"subsidiary" of any person means a person 50% or more of the
outstanding voting stock, general partnership interests or other ownership
interests of which are owned, directly or indirectly, by such person or one or
more other subsidiaries of such person. For the purposes of this definition,
"voting stock" means stock that ordinarily has voting power for the election of
directors, whether at all times or only so far as no senior class of stock has
such voting power by reason of any contingency.
"Taxes" means all taxes, charges, fees, levies, or other similar
assessments, including without limitation (i) income, gross receipts, ad
valorem, premium, excise, real property, personal property, windfall profit,
sales, use, transfer, licensing, withholding, employment, payroll, estimated and
franchise taxes imposed by the United States of America, any state, local, or
foreign government, or any subdivision, agency, or other similar person
-3-
<PAGE> 41
of the United States, or any such government; and (ii) any interest, fines,
penalties, assessments, or additions to tax resulting from, attributable to, or
incurred in connection with any Tax or any contest, dispute, or refund thereof.
"Tax Returns" means any report, return, statement, or other
information required to be supplied to a taxing authority in connection with
Taxes.
2. Sale and Issuance of the Shares.
2.1 The Purchased Shares.
(a) At the Closing, the Company shall issue the Purchased Shares
to Purchaser, and Purchaser shall purchase the Purchased Shares from the
Company, upon the terms and subject to the conditions set forth herein.
(b) The purchase price for the Purchased Shares shall be an amount
equal to $1.50 per share for all Purchased Shares (the "Transaction Price"). At
the Closing, Purchaser shall pay the Transaction Price to the Company, in
immediately available funds by wire transfer to such account or accounts as the
Company shall have designated to Purchaser, in the manner specified herein for
the delivery of Notice, not less than one Business Day prior to the Closing
Date.
2.2 Issuance of the Standby Shares. At the Closing, upon
Purchaser's payment of the Transaction Price, the Company shall issue the
Standby Shares to Purchaser, without further payment or consideration.
2.3 Delivery of Shares. At the Closing, the Company shall
deliver to Purchaser certificates representing the Shares acquired by Purchaser
hereunder, and such other instruments as shall reasonably be required by
Purchaser to vest in Purchaser all right, title and interest in and to such
Shares, free and clear of any lien or other encumbrance. All such certificates
and instruments shall be in form and content reasonably satisfactory to
Purchaser and its counsel.
2.4 Purchase for Investment. Purchaser is acquiring the
Shares solely for its own account, as principal, for investment, and not with a
view to the distribution or resale of, nor with any present intention of selling
or otherwise transferring, the Shares or any interest in the Shares. No other
person has a direct or indirect beneficial interest in the Shares. To evidence
Purchaser's agreement to hold the Shares being issued to Purchaser consistent
with such investment intention, Purchaser agrees to the following legend being
placed on any certificate or other instrument evidencing the Shares:
THE SHARES OF PREFERRED REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACTS OF ANY STATE. SUCH
SHARES HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR ITS
OWN ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH
SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER
APPLICABLE STATE SECURITIES LAWS OR THE
-4-
<PAGE> 42
RECEIPT BY THE COMPANY OF AN OPINION OF THE REGISTERED HOLDER'S
COUNSEL (REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL),
OR AN OPINION OF THE COMPANY'S COUNSEL, THAT SUCH SALE, OFFER,
TRANSFER OR DISPOSITION IS EXEMPT FROM THE REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS.
The legend above shall be removed from a certificate and the Company shall issue
a certificate without such legend if such Shares are registered and sold under
the Securities Act of 1933, as amended, and applicable state securities laws, or
if the registered holder thereof provides the Company with an opinion of counsel
(reasonably satisfactory to the Company and its counsel), or an opinion of the
Company's counsel, to the effect that such sale, offer, transfer or other
disposition of such Shares may be made without registration.
2.5 No Registration; Resale Restricted. Purchaser
understands and agrees that the Shares are being offered and issued by the
Company in reliance upon the exemption provided by Section 4(2) of the
Securities Act and provided by applicable state securities acts, on the grounds
that no public offering is involved. Purchaser may have to hold the Shares and
bear the economic risk of investment in the Shares for an indefinite period of
time and may be unable to liquidate Purchaser's investment in case of an
emergency, since the Shares have not been registered under the Securities Act or
under any state securities acts and are instead being offered to Purchaser
pursuant to an exemption from the registration provisions thereof.
3. Closing; Closing Date. The Closing shall take place at the
offices of Squire, Sanders & Dempsey, Two Renaissance Square, 40 North Central
Ave., Suite 2700, Phoenix, AZ 85004-4441 beginning at 10:00 a.m., Phoenix Time,
on the Effective Date, as defined in the Plan (the "Closing Date").
4. Representations and Warranties of the Company. The Company
represents and warrants to Purchaser as set forth below in this Section 4.
4.1 Organization; Standing and Authority.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Company's subsidiaries is a corporation duly
organized under the laws of the jurisdiction of its incorporation, as shown in
Section 4.1 of the Company Disclosure Schedule.
(b) Each of the Company and its subsidiaries has all requisite
corporate power and authority to own, lease and operate its assets, properties
and business and to carry on its business as now being conducted by it. Except
as set forth in Section 4.1 of the Company Disclosure Schedule, each of the
Company and its subsidiaries is duly qualified or otherwise authorized or
admitted to transact business and is in good standing in each jurisdiction set
forth in Section 4.1 of the Company Disclosure Schedule, which are the only
jurisdictions in which such qualification, authorization or admission is
required by law, except for any jurisdictions in which the failure to be so
qualified, authorized or admitted could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
-5-
<PAGE> 43
4.2 Execution and Delivery. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
4.3 Governmental Consents and Approvals. The execution and
delivery of this Agreement by the Company, the performance by the Company of its
obligations hereunder and the consummation by the Company of the transactions
contemplated hereby do not and will not require any of the Company or any
subsidiary of the Company to obtain any consent, approval or action of, or make
any filing with or give any notice to, any governmental or regulatory body or
judicial authority, except (i) as set forth in Section 4.3 of the Company
Disclosure Schedule and (ii) such consents, approvals, actions, filing or
notices which, if not obtained, made or given, could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect or have a
material adverse effect on Purchaser's ability to own, possess or exercise the
rights of an owner with respect to the Shares.
4.4 No Breach. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby in accordance with the terms and conditions
hereof will not, except as set forth in Section 4.4 of the Company Disclosure
Schedule: (i) violate any provision of the articles or certificate of
incorporation or by-laws or other charter or organizational documents of the
Company or any subsidiary of the Company, (ii) violate, conflict with or result
in the breach of any of the provisions of, any contract or other agreement
(including any indenture) to which the Company or any subsidiary of the Company
is a party or by or to which the Company or any subsidiary of the Company or any
of their respective assets or properties may be bound or subject, (iii) upon
receipt of the approvals referred to in Section 4.3 of the Company Disclosure
Schedule, violate any existing term or provision of any law, regulation, order,
writ, judgment, injunction or decree applicable to the Company or any subsidiary
of the Company or any of their respective assets or properties, or (iv) upon
receipt of the approvals referred to in Section 4.3 of the Company Disclosure
Schedule, result in the breach of any of the terms or conditions of, constitute
(with or without notice or lapse of time or both) a default under, or otherwise
cause an impairment of, any Permit, except, in each case for such violations,
conflicts, breaches, modifications, rights, defaults and impairments that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.5 Capital Stock; Title. Section 4.5 of the Company
Disclosure Schedule accurately sets forth the authorized capital stock of each
of the Company and its subsidiaries and the number of shares of each class of
capital stock of the Company and each of such subsidiaries that are issued and
outstanding as of the date hereof. The Shares and all of the issued and
outstanding shares of capital stock of the subsidiaries of the Company are duly
authorized, validly issued, fully paid and non-assessable and are owned
beneficially and of record as set forth in Section 4.5 of the Company Disclosure
Schedule, free and clear of any lien or other encumbrance.
4.6 Options or Other Rights. Except as set forth in
Section 4.6 of the Company Disclosure Schedule (i) there is no outstanding
right, subscription, warrant, call, unsatisfied preemptive right, option or
other agreement of any kind to purchase or otherwise
-6-
<PAGE> 44
to receive from the Company or any subsidiary of the Company, any of the
outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other equity security of the Company or any subsidiary of
the Company (or any interest therein), (ii) there is no outstanding security of
any kind convertible into or exchangeable for the capital stock of the Company
or any subsidiary of the Company (or any interest therein), (iii) there is no
outstanding contract or other agreement of or binding upon the Company to
purchase, redeem or otherwise acquire any outstanding shares of the capital
stock of the Company, (iv) there is no agreement of any kind that gives any
person any right to participate in the equity, value or income of the Company or
any of its subsidiaries, or to vote in the election of directors or officers of,
or otherwise with respect to the affairs of, the Company or any of its
subsidiaries.
4.7 Charter Documents and By-laws. The minute books of
each of the Company and each subsidiary of the Company accurately reflect in all
material respects all formal actions taken at all meetings and consents in lieu
of meetings of stockholders of such persons since its incorporation and all
formal actions taken at all meetings and all consents in lieu of meetings of the
Board of Directors of each of such persons and all committees thereof. All of
such minute books, together with copies of the Company's Articles of
Incorporation and By-Laws, shall be made available for inspection by Purchaser
within ten (days) of the execution of this Agreement.
4.8 Ownership of Subsidiaries and Affiliates . The Company
holds record ownership of the issued and outstanding stock of Unitech
Acquisition Corporation and, as described in the Company Disclosure Schedule,
owns, directly or indirectly the voting stock of its other subsidiaries.
5. Representations and Warranties of Purchaser. Purchaser
represents and warrants to the Company as set forth below in this Section 5.
5.1 Organization, Standing and Authority. Purchaser is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
5.2 Execution and Delivery. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of Purchaser. This Agreement has been duly executed and
delivered by Purchaser and constitutes the valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms.
5.3 Governmental Consents and Approvals. The execution and
delivery of this Agreement by Purchaser, the performance by Purchaser of its
obligations hereunder and the consummation of the transactions contemplated
hereby do not and will not require Purchaser to obtain any consent, approval or
action of, or make any filing with or give any notice to, any person,
governmental or regulatory body or judicial authority except (i) as set forth in
Section 5.3 of the Purchaser Disclosure Schedule and (ii) those which, if not
obtained, could not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the transactions contemplated by this
Agreement.
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<PAGE> 45
5.4 No Breach. The execution, delivery and performance by
Purchaser of this Agreement and the consummation of the transactions
contemplated hereby in accordance with the terms and conditions hereof will not:
(i) violate any provision of the Articles of Organization or Operating Agreement
of Purchaser, (ii) violate, conflict with or result in the breach of any of the
provisions of any contract or other agreement to which Purchaser is a party or
by or to which it or any of its assets or properties may be bound or subject or
(iii) upon receipt of the approvals referred to in Section 5.3 of the Purchaser
Disclosure Schedule, violate any existing term or provision of any law,
regulation, order, writ, judgment, injunction or decree applicable to Purchaser,
except, in each case for such violations, conflicts, breaches, modifications,
rights and defaults that could not, individually or in the aggregate, reasonably
be expected to have a material adverse effect on the transactions contemplated
by this Agreement.
5.5 Financing. The Purchaser has sufficient funds to
purchase the Purchased Shares in accordance with the terms of this Agreement and
to pay all related fees and expenses it will be required to pay.
5.6 Purchase not for Distribution. The Shares to be
acquired under the terms of this Agreement will be acquired by Purchaser for its
own account and not with a view to distribution. Purchaser will not resell,
transfer, assign or distribute the Shares, except in compliance with the
registration requirements of the Securities Act of 1933, as amended, pursuant to
available exemption therefrom.
5.7 Brokers. No broker or finder has acted directly or
indirectly for Purchaser, nor has Purchaser incurred any obligation to pay any
brokerage, finder's fee or other commission in connection with the transactions
contemplated by this Agreement.
5.8 Disclosure. Neither this Agreement, nor the Company
Disclosure Schedule or any other schedule or exhibit hereto contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which such statements were made, not misleading.
5.9 Accredited Investor. Purchaser acknowledges that
Purchaser is an "Accredited Investor" as that term is defined in Regulation D,
Rule 501(a)(6), although the Company is relying on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
and not Regulation D promulgated thereunder. Upon request from the Company,
Purchaser shall provide the Company with such information as the Company may
request to verify that Purchaser is an Accredited Investor.
6. Covenants and Agreements. The parties covenant and agree as set
forth below in this Section 6.
6.1 Conduct of Business. From the date hereof through the
Closing Date, except as may otherwise be expressly required or permitted by this
Agreement, the Company covenants that:
(a) The Company will, and will cause each of its subsidiaries to,
(i) conduct the business of the Company and its subsidiaries only in the
ordinary course of business, and (ii) use all commercially reasonable efforts to
preserve intact in all material respects the present business organization,
reputation, and customer relations of each of the Company and its subsidiaries.
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<PAGE> 46
(b) The Company will, and will cause each of its subsidiaries to,
use commercially reasonable efforts to (i) maintain all material Permits
(including licenses, qualifications, and authorizations) of each of the Company
and its subsidiaries to do business in each jurisdiction in which it is
licensed, qualified, or authorized and (ii) continue in all material respects
and consistent with practice on the date hereof all marketing and selling
activities relating to the business, operations, and affairs of each of the
Company and its subsidiaries.
(c) Except as contemplated by the Plan, the Company and its
subsidiaries shall not issue, sell, pledge, hypothecate or otherwise encumber
any shares of Common Stock or capital stock of any class, or options, warrants,
convertible securities, subscription rights or rights to acquire any such shares
(other than issuances of Common Stock upon the exercise of options, warrants or
rights outstanding on the date hereof).
6.2 Approvals.
(a) The Company and Purchaser shall (i) take all reasonable steps
necessary or appropriate, and use all commercially reasonable efforts, to obtain
as promptly as practicable all necessary approvals, authorizations and consents
of governmental and regulatory bodies required to be obtained to consummate the
transactions contemplated by this Agreement and (ii) cooperate with one another
in seeking to obtain all such approvals, authorizations and consents. The
Company and Purchaser shall use their reasonable best efforts to provide such
information to governmental and regulatory bodies as such bodies may reasonably
request.
(b) Each of the parties shall provide to the other party copies of
all applications in advance of filing or submission of such applications to
governmental or regulatory bodies in connection with this Agreement.
6.3 Further Assurances. Each of the parties shall execute
such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions of this Agreement
and the transactions contemplated hereby. Each such party shall use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
to the Closing as promptly as practicable.
6.4 Delivery of the Disclosure Schedules. Within ten (10)
business days from the date of the execution of this Agreement, the Company and
the Purchaser shall deliver to each other, respectively, the Company Disclosure
Schedule and the Purchaser Disclosure Schedule. Each party shall have the right
to terminate this Agreement within five (5) business days from receipt of their
respective Schedule based on their disapproval of the matters set forth in such
Schedule. Following expiration of such five (5) days review period without any
such termination, the respective Disclosure Schedules shall be deemed approved
and shall become a part of this Agreement.
7. Conditions Precedent to the Obligation of Purchaser. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver by Purchaser of the
conditions set forth below in this Section 7.
7.1 Representations and Warranties; Covenants and
Agreements.
(a) The representations and warranties of the Company contained in
this Agreement and in any certificate or document executed and delivered by the
Company
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<PAGE> 47
pursuant to this Agreement shall be true, accurate and complete in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (except that any such representations and
warranties that are given as of a specified date and relate solely to a
specified date or period shall be true, accurate and complete in all respects as
of such date or period). The Company shall have delivered to Purchaser a
certificate, dated the Closing Date and signed on its behalf by one of its
Executive Officers, to the foregoing effect.
(b) The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date. The Company
shall have delivered to Purchaser a certificate, dated the Closing Date and
signed on its behalf by one of its Executive Officers, to the foregoing effect.
7.2 Governmental Permits and Approvals. All approvals,
authorizations, consents, Permits and licenses from governmental and regulatory
bodies set forth in Section 4.3 of the Company Disclosure Schedule and Section
5.3 of the Purchaser Disclosure Schedule required for the transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect and shall no longer be subject to any conditions or limitations
other than the occurrence of the Closing (and other than customary conditions
uniformly imposed by regulatory authorities in connection with similar
acquisitions), and Purchaser shall have been furnished with appropriate
evidence, reasonably satisfactory to it and its counsel, of the granting of such
approvals, authorizations, consents, Permits and licenses.
7.3 Third Party Consents. There shall have been obtained
all consents and approvals from parties to contracts or other agreements with
the Company and its subsidiaries that are required in connection with the
performance by the Company and its subsidiaries of their obligations under this
Agreement, except for such consents and approvals the failure of which so to
have obtained could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
7.4 Opinion of Counsel to Company. Purchaser shall have
received the opinion of Squire, Sanders & Dempsey, Counsel to the Company, dated
the Closing Date, addressed to Purchaser, substantially in the form of Exhibit A
hereto.
8. Conditions Precedent to the Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or, where permissible, waiver by
the Company of the conditions set forth below in this Section 8.
8.1 Representations and Warranties; Covenants and
Agreements.
(a) The representations and warranties of Purchaser contained in
this Agreement and in any certificate or document executed and delivered by it
pursuant to this Agreement shall be true, accurate and complete in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (except that any such representations and
warranties that are given as of a specified date and relate solely to a
specified date or period shall be true, accurate and complete in all material
respects as of such date or period). Purchaser shall have delivered to the
Company a
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<PAGE> 48
certificate, dated the Closing Date and signed on its behalf by one of its
Executive Officers to the foregoing effect.
(b) Purchaser shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, except for
failures to perform and comply which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Purchaser
shall have delivered to the Company a certificate, dated the Closing Date and
signed by one of its Executive Officers, to the foregoing effect.
8.2 Governmental Permits and Approvals.
(a) All approvals, authorizations, consents, Permits and licenses
from governmental and regulatory bodies set forth in Section 4.3 of the Company
Disclosure Schedule and Section 5.3 of the Purchaser Disclosure Schedule
required for the transactions contemplated by this Agreement shall have been
obtained and be in full force and effect and shall no longer be subject to any
conditions or limitations other than the occurrence of the Closing (and other
than customary conditions uniformly imposed by regulatory authorities in
connection with similar acquisitions), and the Company shall have been furnished
with appropriate evidence, reasonably satisfactory to it and its counsel, of the
granting of such approvals, authorizations, consents, Permits and licenses.
8.3 Third Party Consents. There shall have been obtained
all consents and approvals from parties to contracts or other agreements with
Purchaser that are required in connection with the performance by Purchaser of
its obligations under this Agreement, except for such consents and approvals the
failure of which so to have obtained could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
8.4 Opinion of Counsel to Purchaser. The Company shall
have received the opinion of Keck, Mahin & Cate, Counsel to Purchaser, dated the
Closing Date, addressed to the Company, substantially in the form of Exhibit B.
9. Survival of Representations and Warranties.
9.1 Non-Survival. The representatives and warranties of
the parties shall not survive the Closing.
10. Termination.
10.1 Termination and Abandonment. This Agreement may be
terminated and the transactions contemplated by this Agreement may be abandoned
at any time prior to the Closing:
(i) by mutual written consent of Purchaser and the
Company; or
(ii) by Purchaser or the Company if the Closing shall not
have occurred on or before December 31, 1996; provided, however,
that the right to terminate this Agreement under this Section
11.1(ii) shall not be available to any party whose failure to
fulfill or diligently pursue the fulfillment of any obligation
under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
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<PAGE> 49
(iii) by Purchaser or the Company if any court of
competent jurisdiction shall have issued an order, decree or
ruling or taken any other action enjoining or otherwise
prohibiting the transactions contemplated under this Agreement and
such order, decree, ruling or other action shall have become final
and nonappealable.
10.2 Expenses.
(a) Except as otherwise specifically provided herein, the parties
shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of agents, representatives,
counsel, actuaries and accountants.
11. Miscellaneous.
11.1 Transfer Taxes. All transfer Taxes imposed as a
result of the sale of Shares hereunder shall be paid by Purchaser regardless of
whether such transfer Taxes are imposed on the Company or Purchaser.
11.2 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered,
personally or sent by facsimile transmission or, if mailed, two days after the
date of deposit in the United States mails as follows:
if to Company, to:
Gerald Bellis, President and
Chief Executive Officer
Unitech Industries, Inc.
15035 North 75th Street
Scottsdale, Arizona 85260
Telecopy: (602) 991-3653
with a copy to:
G. Christopher Meyer, Esq.
Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114
Telecopy: (216) 479-8776
and to:
Rawle Andrews, Jr., Esq.
Squire, Sanders & Dempsey
Two Renaissance Square
40 North Central Ave., Suite 2700
Phoenix, Arizona 85004-4441
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<PAGE> 50
Telecopy: (602) 253-8129
if to Purchaser, to:
Unitech Holdings, LLC
Patriot Advisors, Inc., Manager
43 Deshon Avenue
Bronxville, New York 10708
Attn: Frank Kristan, President
Telecopy: (914) 779-8995
with a copy to:
Stanley S. Jutkowitz, Esq.
Keck, Mahin & Cate
555 Twelfth Street, N.W.
Suite 600
Washington, D.C. 20004-1200
Telecopy: (202) 347-0140
Any party may by notice given in accordance with this
Section to the other parties designate another address or person for receipt of
notices hereunder.
11.3 Entire Agreement. This Agreement (including the
Exhibits and Schedules) contains the entire agreement among the parties with
respect to the transactions contemplated hereby, and supersede all prior
agreements and understandings, written or oral, with respect thereto.
11.4 Waivers and Amendments; Noncontractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof. No waiver on the
part of any party of any such right, power or privilege, and no single or
partial exercise of any such right, power or privilege, shall preclude any
further exercise thereof or the exercise of any other such right, power or
privilege.
11.5 Governing Law. This Agreement and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Arizona, without giving
effect to the conflicts of laws principles thereof.
11.6 Binding Effect; Assignment Limited.
(a) This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns and legal representatives.
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<PAGE> 51
(b) Neither this Agreement, nor any right hereunder, may be
assigned by any party without the written consent of the other parties hereto,
except that Purchaser may assign its entire interest in this Agreement to any
direct or indirect wholly-owned subsidiary of Purchaser pursuant to an
assignment under which such assignee assumes and agrees to perform all of the
obligations of Purchaser hereunder; provided, that, notwithstanding any such
assignment, Purchaser shall remain liable to perform all obligations hereunder.
11.7 No Third-Party Beneficiaries. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
11.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and which together shall constitute
one and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
11.9 Exhibits and Schedules. The Exhibits and Schedules
are a part of this Agreement as if fully set forth herein.
11.10 Headings. The article, section and paragraph
headings in this Agreement are for convenience only, and shall not control or
affect the meaning or construction of any provision of this Agreement.
11.11 Remedies. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that,
in addition to all other remedies available to them, each of them shall be
entitled to an injunction restraining such breach, violation or default or
threatened breach, violation or default and to any other equitable relief,
including without limitation specific performance, without bond or other
security being required.
11.12 Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction. If any restriction or provision of
this Agreement is held unreasonable, unlawful or unenforceable in any respect,
such restriction or provision shall be interpreted, revised or applied in a
manner that renders it lawful and enforceable to the fullest extent possible
under law.
11.13 Grammatical Construction. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa.
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<PAGE> 52
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
UNITECH INDUSTRIES, INC.
By: /s/ Gerald C. Bellis
-----------------------------------
Name: Gerald C. Bellis
Title: President and Chief Executive Officer
UNITECH HOLDINGS, LLC
By: /s/ Frank Kristan
-----------------------------------
Name: Patriot Advisor, Inc.
Title: Corporate Member-Manager
PATRIOT ADVISORS, INC
By: /s/ Frank Kristan
-----------------------------------
Name: Frank Kristan
Title: President
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<PAGE> 53
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
UNITECH INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
UNITECH HOLDINGS, LLC
By: /s/ Frank Kristan
-----------------------------------
Name: Patriot Advisor, Inc.
Title: Corporate Member-Manager
PATRIOT ADVISORS, INC
By: /s/ Frank Kristan
-----------------------------------
Name: Frank Kristan
Title: President
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<PAGE> 54
CERTIFICATE OF INCORPORATION
OF
[UNITECH INDUSTRIES, INC.]
The undersigned, desiring to form a corporation for profit under and
pursuant to the provisions of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the corporation is [UNITECH INDUSTRIES, INC.]
SECOND: The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The
Registered Agent at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: A. The total number of shares which the corporation is
authorized to issue is Forty Million (40,000,000), and they shall be classified
as follows: (i) Thirty Million (30,000,000) of such shares shall be designated
as "Common Stock", with a par value of $.001 per share; and (ii) Ten Million
(10,000,000) of such shares shall be "Preferred Stock" with a par value of $1.50
per share. The Corporation shall not issue any non-voting equity securities.
B. The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of Preferred Stock in one or
more series, with such voting powers, full or limited (including, without
limitation, more than one vote, less than one
<PAGE> 55
vote or one vote per share and the ability to vote separately as a class or
together with all or some of the other classes or series of capital stock on all
or certain of the matters to be voted on by the stockholders of the
Corporation), and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issuance thereof adopted by the Board of
Directors, including, but not limited to, the following:
(a) the designation and number of shares constituting
such services;
(b) the dividend rate or rates of such series, if any, or
the manner of determining such rate or rates, if any,
the conditions and dates upon which such dividends
shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on
any other class or classes or of any other series of
capital stock and whether such dividends shall be
cumulative or non-cumulative, and if cumulative, from
which date or dates;
(c) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject
to such redemption, the times, prices and other terms
and conditions of such redemption;
(d) the terms and amount of any sinking fund provided for
the purchase or redemption of the shares of the
series;
<PAGE> 56
(e) whether the shares of such series shall be
convertible into or exchangeable for shares of any
other class or classes or of any other series of any
class or classes of capital stock of the Corporation,
and, if provision be made for conversion or exchange,
the time, prices, rates, adjustments and other terms
and conditions of such conversion or exchange;
(f) the extent, if any, to which the holders of the
shares of such series shall be entitled to vote as a
class or otherwise, and if so entitled, the number of
votes to which such holder is entitled, with respect
to the election of directors or otherwise;
(g) the restrictions, if any, on the issue or reissue of
any additional series of Preferred Stock; and
(h) the rights, if any, of the holders of the shares of
such series in the event of voluntary or involuntary
liquidation, dissolution or winding up.
C. Subject to any limitations or restrictions stated
in the resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting a series, the Board of Directors may by resolution
or resolutions likewise adopted increase or decrease (but not below the number
of shares of the series then outstanding) the number or shares of the series
subsequent to the issue of that series, and in case the number of shares of any
series shall be so
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<PAGE> 57
decreased the shares constituting the decrease shall resume that status which
they had Prior to the adoption of the resolution originally fixing the number of
shares.
D. The express terms of the Preferred Shares shall be
as follows:
EXPRESS TERMS OF SERIES A PREFERRED SHARES
1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock", par value $1.50 per share
(hereinafter referred to as the "Series A Preferred"), and the number
of shares constituting such series shall be 4,500,000.
2. Voting Rights. The holders of Series A Preferred shall have
the following voting rights:
2.1 One Class Voting. Except as otherwise provided
herein or required by law, the holders of shares of Series A
Preferred, and of Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of
the Corporation.
2.2 Separate Class Voting. The Corporation shall not,
without first obtaining the affirmative vote or written
consent of the holders of not less than a
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<PAGE> 58
majority of the outstanding shares of the Series A Preferred
voting as a separate class:
(a) alter or change any rights, privileges or
preferences of the Series A Preferred;
(b) increase or decrease the authorized number
of shares of Series A Preferred;
(c) authorize, issue or create (by
reclassification or otherwise) shares of any
class or series of stock equal in priority
to or having any preference over the Series
A Preferred with respect to dividends or
liquidation payments;
(d) amend or waive any provision of the Amended
Certificate or Bylaws of the Corporation
relative to the Series A Preferred;
(e) authorize or approve any liquidation or
dissolution of the Corporation;
(f) authorize or approve any merger or
consolidation of the Corporation; or
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<PAGE> 59
(g) authorize or approve any sale or transfer of
all or substantially all of the assets of
the Corporation.
2.3 Election of Directors. In any election of
directors held on or before December 31, 1997, the holders of
the outstanding shares of Series A Preferred, voting as a
separate class, shall be entitled to elect one member of the
Board of Directors of the corporation.
2.4 Number of Votes. Each share of Series A Preferred
issued and outstanding shall have that number of votes equal
to the number of shares of Common Stock into which each share
of Series A Preferred is convertible which shall be calculated
in accordance with the formula set forth in Section 5 hereof,
as of the record date set by the Board of Directors for the
determination of any holders of any class of securities
entitled to vote on such matter. Fractional shares shall not,
be permitted, however, and any fractional voting rights
resulting from this formula (after aggregating all shares of
Common Stock into which shares of Series A Preferred held by
each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
3. Cash Dividends. Except as otherwise specifically provided
herein, the holders of shares of Series A Preferred shall not be
entitled to any cash dividend. Notwithstanding the foregoing, in the
event that the corporation declares a cash dividend
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<PAGE> 60
with respect to the Common Shares, the holders of shares of Series A
Preferred shall be entitled to a dividend in equal amount and payable
on the same terms and conditions as the dividend declared on Common
Shares.
4. Reacquired Shares. Any shares of Series A Preferred
purchased or otherwise acquired by a the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become
authorized but unissued shares of the Corporation's Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth herein.
5. Conversion
5.1 Right to Convert. From and at any time after
December 31, 1998, the holders of the Series A Preferred shall
have the right, at their option, to convert any number of
shares of Series A Preferred into shares of Common Stock, in
accordance with the procedures and subject to the terms and
conditions, as set forth in this Section 5.
5.2 Conversion Ratio. Each share of Series A
Preferred to be converted shall be convertible at the office
of the transfer agent of the Corporation, as
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<PAGE> 61
designated from time to time by the Corporation (the "Transfer
Agent"), and at such other office or offices, if any, as the
Board of Directors of the Corporation may designate, into an
equal number of fully paid and nonassessable shares of Common
Stock (the "Conversion Ratio").
5.3 Conversion Notice. In order to convert shares of
the Series A Preferred, the holder thereof shall deliver to
the Corporation's Transfer Agent a notice of intention to
convert such shares and dividends together with the
certificate or certificates for the Series A Preferred to be
converted, duly endorsed to the Corporation or in blank, or
with stock power(s) attached. Shares of the Series A Preferred
shall be deemed to have been converted on the day on which
notice of intention to convert (including all required
accompanying materials as set forth above) was delivered to
the Transfer Agent (the "Conversion Date") and the person or
persons entitled to receive the Common Stock at such time. As
promptly as practicable on or after the Conversion Date, the
Corporation's Transfer Agent shall issue and deliver to the
record holder or holders of such Series A Preferred a
certificate or certificates for the number of shares of Common
Stock issuable upon such conversion, together with cash in
lieu of any fraction of share, as hereinafter provided, to the
person or persons entitled to receive the same.
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<PAGE> 62
5.4 Adjustments to Conversion Ratio. The Conversion
Ration shall be subject to adjustment from time to time as
follows:
(a) In the event the outstanding shares of
Common Stock shall be subdivided by stock
split, stock dividends or otherwise, into a
greater number of shares of Common Stock,
the Conversion Ratio then in effect shall,
concurrently with the effectiveness of such
subdivision, be proportionately decreased.
In the event the outstanding shares of
Common Stock shall be combined or
consolidated, by reclassification or
otherwise, into a lesser number of shares of
Common Stock, the Conversion Ratio then in
effect shall, concurrently with the
effectiveness of such combination or
consolidation, be proportionately increased.
(b) In the event that the Corporation from time
to time makes or fixes a record date for the
determination of holders of Common Stock
entitled to receive any distribution
(excluding any repurchases of securities by
the Corporation not made on a pro rata basis
from all holders of any class of the
Corporation's securities) payable in
property or in securities of the Corporation
other than shares of Common Stock, and other
than as otherwise adjusted in this Section 5
or as provided in Section 3, then and in
each such event
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the holders of Series A Preferred shall
receive at the time of such distribution,
the amount of property or the number of
securities of the Corporation that they
would have received had their Series A
Preferred been converted into Common Stock
on the date of such event.
(c) Except as provided in this Section 5, upon
any liquidation, dissolution or winding up
of the Corporation, if the Common Stock
issuable upon conversion of the Series A
Preferred shall be changed into the same or
a different number of shares of any other
class or classes of stock, whether by
capital reorganization, reclassification or
otherwise (other than a subdivision or
combination of shares provided for above),
each share of Series A Preferred shall
thereafter be convertible into the number of
shares of stock or other securities or
property to which a holder of the number of
shares of Common Stock deliverable upon such
conversion shall have been entitled upon
such reorganization or reclassification. In
any such event, effective provision shall be
made, in the certificate or articles of
incorporation of the resulting or surviving
corporation or otherwise, so that the
provisions set forth herein for the
protection of the conversion rights of the
Series A Preferred shall thereafter be
applicable to any such other shares of
stock, other securities, cash or property
deliverable upon conversion of the shares of
the Series A Preferred remaining outstanding
or other convertible stock or securities
received by the holders in place thereof,
and any such resulting or surviving
corporation shall expressly assume the
obligation to deliver, upon the exercise of
the conversion privilege, such shares, other
securities,
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cash or property as the holders of the
Series A Preferred remaining outstanding, or
other convertible stock or securities
received by the holders in place thereof,
shall be entitled to receive pursuant to the
provisions hereof, and to make provision for
the protection of the conversion right as
above provided.
(d) The Corporation will not, by amendment of
this Certificate of Incorporation or through
any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or
sale of securities or any other voluntary
action, avoid or seek to avoid the
observance or performance of any of the
terms to be observed or performed hereunder
by the Corporation but will at all times in
good faith assist in the carrying out of all
the provisions of this Section 5 and in the
taking of all such action as may be
necessary or appropriate in order to protect
the conversion rights of the holders of the
Series A Preferred against impairment.
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(e) No adjustment in the number of shares of
Common Stock into which the shares of Series
A Preferred are convertible shall be
required unless such adjustment would
require an increase or decrease of at least
1/10th of a share; provided, however, that
any adjustment which by reason hereof is not
required to be made shall be carried forward
and taken into account in any subsequent
adjustment.
5.5 Notice of Adjustment. Whenever any adjustment is
required to be made as provided in Section 5.4, the
Corporation shall promptly notify each record holder of Series
A Preferred thereof, describing in reasonable detail the
adjustment and method of calculation used.
5.6 Reservation of Shares. The Corporation shall at
all times reserve and keep available free from preemptive
rights, out of its authorized but unissued Common Stock, for
the purpose of effecting the conversion of the Series A
Preferred, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series A
Preferred then outstanding.
5.7 Fractional Shares. In the sole discretion of the
Corporation, instead of any fraction of a share which would
otherwise be issuable upon conversion of shares of the Series
A Preferred or accrued dividends, or interest thereon, the
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Corporation may pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the market
value per share of Common Stock at the close of business on
the date of conversion.
6. Liquidation, Dissolution or Winding Up. Subject to the
superior rights of the holders of any class or series of Preferred
Stock ranking superior to the Series A Preferred with respect to any
liquidation, dissolution or winding up of the Corporation:
6.1 Liquidation Preference. Upon any voluntary
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock
ranking junior (either as to payment of dividends or with
respect to distributions upon liquidation, dissolution or
winding up) to the Series A Preferred unless, prior thereto,
the holders of Series A Preferred shall have received an
amount equal to One and 50/100 Dollars ($1.50) for each share
of Series A Preferred (the "Series A Preferred Liquidation
Preference"). Following the payment of the full amount of the
Series A Preferred Liquidation Preference, no additional
distributions shall be made to the holders of Series A
Preferred.
6.2 Partial Distribution. In the event, however, that
there are not sufficient assets available to permit payment in
full of the Series A Preferred Liquidation Preference and the
liquidation preferences of any other classes and/or series of
Preferred Stock, if any, which rank on a parity with the
Series A
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Preferred, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to
their respective liquidation preferences.
7. Consolidation, Merger, and Sale of Assets. In the event of
any consolidation or merger of the Corporation with or into another
corporation, or of any sale or conveyance to another corporation of all
or substantially all the property of the Corporation, in any of which
transactions the holders of Common Stock receive shares of stock, other
securities, cash or property receivable upon such consolidation,
merger, sale or conveyance other than Common Stock, each holder of
Series A Preferred then outstanding and thereafter remaining
outstanding shall have the right to convert each share of Series A
Preferred held by him into the kind and amount of shares of stock,
other securities, cash or property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of
Common Stock into which such share of Series A Preferred could have
been converted immediately prior to the record date applicable to such
consolidation, merger, sale or conveyance, and shall have no other
conversion rights. In any such event, effective provision shall be
made, in the certificate of incorporation of the resulting or surviving
corporation or otherwise, so that the provisions set forth herein for
the protection of the conversion rights of the holders of the Series A
Preferred shall thereafter be applicable to any such other shares of
stock, other securities, cash or property deliverable upon conversion
of the shares of the Series A Preferred remaining outstanding or other
convertible stock or securities received by the holders in place
thereof, and any such resulting or surviving corporation shall
expressly
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assume the obligation to deliver, upon the exercise of the conversion
privilege, such shares, other securities, cash or property as the
holders of the Series A Preferred remaining outstanding, or other
convertible stock or securities received by the holders in place
thereof, shall be entitled to receive pursuant to the provisions
hereof, and to make provision for the protection of the conversion
rights as above provided.
8. Optional Redemption.
8.1 Optional Redemption Right. Unless previously
converted, prior to December 31, 1997, all or any portion of
the Series A Preferred may be redeemed on a pro rata basis by
the Corporation at its election from the holders of such
Series A Preferred at any time and from time to time.
8.2 Optional Redemption Notice. Before redeeming the
Series A Preferred as provided in Section 8.1, the Corporation
shall mail by certified or registered mail to each record
holder thereof at least thirty (30) days prior to the Optional
Redemption Date (as defined below), at the address shown on
the Corporation's records, a written notice (an "Optional
Redemption Notice") stating:
(a) the number of shares of Series A Preferred
held by such holder which the Corporation
proposes to redeem;
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(b) the price at which such shares may be
redeemed, which shall be an amount equal to
Two and 50/100 Dollars ($2.50) for each
share of Series A (the "Optional Redemption
Price");
(c) the date on which the Corporation will pay
the Optional Redemption Price (the "Optional
Redemption Date"); and
(d) the place at which the shares of Series A
Preferred to be redeemed must be surrendered
in exchange for the Optional Redemption
Price.
8.3 Tender of Shares. Each holder of shares of the
Series A Preferred to whom an Optional Redemption Notice is
mailed shall be entitled to receive in cash on the Optional
Redemption Date the full Optional Redemption Price for each
share of Series A Preferred to be redeemed upon surrender by
such holder at the place designated in such Optional
Redemption Notice of the certificate representing such Series
A Preferred duly endorsed in blank or accompanied by an
appropriate form of assignment duly endorsed in blank with
signature guaranteed. In case less than the total number of
securities represented by any certificate are redeemed on the
Optional Redemption Rate, a new certificate representing the
number of unredeemed securities will be issued to the holder
thereof without cost to the holder. If the Corporation fails
to pay the Optional
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Redemption Price on the Optional Redemption Date for any
reason other than the failure of a holder to surrender his
Series A Preferred certificate as required, then the Optional
Redemption Date shall be the date on which the Corporation
actually pays the Optional Redemption Price. All rights
arising hereunder, other than the right to receive the
Optional Redemption Price, shall terminate on the Optional
Redemption Date.
8.4 Partial Redemption. If the Corporation shall pay
less than the aggregate redemption price due on such date for
all shares of all series of Preferred Stock being redeemed
having the same priority on liquidation as the Series A
Preferred, then shares shall be redeemed from, and payment
shall be distributed among, the holders of the shares of all
such series on the same pro rata basis that such holders would
share in payments of the aggregate redemption price due on
such date for all shares of Preferred Stock being redeemed.
9. Mandatory Redemption.
9.1 Mandatory Redemption Right. Unless previously
converted, the Series A Preferred shall be redeemed by the
Corporation from the holders of such Series A Preferred in
amounts as follows: up to Three Hundred Thirty-Three Thousand
Three Hundred Thirty-Four (333,334) shares on each of (i) June
30, 1997, (ii) December 31, 1997, (iii) June 30, 1998, and
(iii) December 31, 1998.
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If less than 333,334 shares are tendered for redemption on any
mandatory redemption date, the corporation's redemption
obligation lapses with respect to the difference between
333,334 and the number of shares actually tendered for
redemption.
9.2 Mandatory Redemption Notice. Before redeeming the
Series A Preferred as provided in Section 9.1, the Corporation
shall mail by certified or registered mail to each record
holder thereof at least thirty (30) days prior to the
Mandatory Redemption Date (as defined below), at the address
shown on the Corporation's records, a written notice (an
"Mandatory Redemption Notice") stating:
(a) the aggregate number of Series A Preferred
Shares which the Corporation proposes to
redeem, which shall be the applicable amount
set forth in Section 9.1;
(b) the price at which such shares may be
redeemed, which shall be an amount equal to
One and 50/100 Dollars ($1.50) for each
Series A Preferred Share redeemed (the
"Mandatory Redemption Price");
(c) the date on which the Corporation will pay
the Mandatory Redemption Price (the
"Mandatory Redemption Date"); and
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(d) the place at which the shares of Series A
Preferred to be redeemed must be surrendered
in exchange for the Mandatory Redemption
Price.
9.3 Tender of Shares. Each holder of shares of the
Series A Preferred to whom a Mandatory Redemption Notice is
mailed shall be entitled to receive in cash on the Mandatory
Redemption Date the full Mandatory Redemption Price for each
share of Series A Preferred to be redeemed upon (i) surrender
by such holder at the place designated in such Mandatory
Redemption Notice of the certificate(s) representing the
Series A Preferred Shares which such holder proposes to have
redeemed duly endorsed in blank or accompanied by an
appropriate form of assignment duly endorsed in blank with
signature guaranteed, and delivery of an accompanying notice
to the Corporation advising the Corporation of the maximum
number of Series A Preferred Shares which such holder proposes
to redeem. In the event that holders elect on any Mandatory
Redemption Date to redeem more than an aggregate of Three
Hundred Thirty-Three Thousand Three Hundred Thirty-Four
(333,334) shares, the shares submitted for redemption shall be
redeemed by the Corporation on a pro rata basis. In case less
than the total number of securities represented by any
certificate are redeemed on any Mandatory Redemption Rate, a
new certificate representing the number of unredeemed
securities will be issued to the holder thereof without cost
to the holder.
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9.4 Failure to Redeem. If the Corporation fails to
pay the Mandatory Redemption Price on the Mandatory Redemption
Date for any reason other than the failure of a holder to
surrender his Series A Preferred certificate as required,
then, until such time as the Corporation pays the Mandatory
Redemption Price, each holder of Series A Preferred Shares may
elect, by notice to the Corporation in the manner specified in
Section 5.3, to (i) demand immediate redemption of the entire
balance of Series A Preferred Shares held by such holder, or
(ii) convert any of such holder's Series A Preferred Shares
into shares of Common Stock, in the manner prescribed in
Section 5 and notwithstanding the date otherwise provided in
Section 5.1. If the Corporation pays the Mandatory Redemption
Price prior to its receipt of such a redemption or conversion
notice, the notice shall have no force and effect and the
Mandatory Redemption Date shall be the date on which the
Corporation actually pays the Mandatory Redemption Price. All
rights arising hereunder, other than the right to receive the
Mandatory Redemption Price, shall terminate on the Mandatory
Redemption Date.
9.5 Partial Redemption. If the Corporation shall pay
less than the aggregate Mandatory Redemption Price due on such
date for all shares of all series of Preferred Stock being
redeemed having the same priority on liquidation as the Series
A Preferred, then shares shall be redeemed from, and payment
shall be distributed among, the holders of the shares of all
such series on the same pro rata basis that such holders would
share in payments of the aggregate Mandatory
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Redemption Price due on such date for all shares of Preferred
Stock being redeemed.
10. Other Notices. If at any time:
(a) The Corporation shall declare any dividend
on the Common Stock payable in shares of
capital stock of the Corporation, cash or
other property; or
(b) The Corporation shall authorize the issue of
any options, warrants or rights pro rata to
all holders of Common Stock entitling them
to subscribe for or purchase any shares of
stock of the Corporation or to receive any
other rights; or
(c) The Corporation shall authorize the
distribution pro rata to all holders of
Common Stock of a cash dividend payable
otherwise than out of earnings of surplus
legally available therefor under the laws of
the State of Delaware, shares of its capital
stock (other than Common Stock), stock or
other securities of other persons, evidences
of indebtedness issued by the Corporation or
other persons, assets (excluding cash
dividends) or options or rights (excluding
options to purchase and rights to subscribe
for Common
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Stock or other securities of the
Corporation convertible into or exchangeable
for Common Stock); or
(d) There shall occur any reclassification of
the Common Stock, or any consolidation or
merger of the Corporation with or into
another Corporation or a sale, conveyance or
other disposition to another entity of all
or substantially all of the properties of
the Corporation; or
(e) There shall occur the voluntary or
involuntary liquidation, dissolution or
winding up of the affairs of the
Corporation;
then, and in each of such cases, the Corporation shall deliver to each
holder of Series A Preferred at its last address appearing on the books
of the Corporation as promptly as practicable but in any event at least
twenty (20) days prior to the applicable record date (or determination
date) mentioned below, a notice stating, to the extent such information
is available, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or, if a record is
not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights are to
be determined, or (ii) the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or
winding up is expected to become effective and the date as of which it
is expected that holders of Common Stock of record shall be entitled
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to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up."
FIFTH: A. Until January 31, 1999, (a) any attempted sale, transfer,
assignment, conveyance, grant, pledge, gift or other disposition of any share or
shares of stock of the Corporation, within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended (the "Tax Code"), or any option or
right to purchase such stock, as defined in the Treasury Regulations under
Section 382 of the Tax Code, to any person or entity (or group of persons or
entities acting in concert) who either directly or indirectly owns or would be
treated as owning, or whose shares are or would be attributed to any person or
entity who directly or indirectly owns or would be treated as owning, in either
case prior to the purported transfer and after giving effect to the applicable
attribution rules of the Tax Code and applicable Treasury Regulations, five
percent (5%) or more of the value of the outstanding stock of the Corporation or
otherwise treated as a 5 percent (5%) shareholder (within the meaning of Section
382 of the Tax Code), regardless of the percent or the value of the stock owned,
shall be void ab initio insofar as it purports to transfer ownership or rights
in respect of such stock to the purported transferee and (b) any attempted sale,
transfer, assignment, conveyance, grant, gift, pledge or other disposition of
any share of stock of the Corporation (within the meaning of Section 382 of the
Tax Code) or any option or right to purchase such stock, as defined in the
Treasury Regulations under Section 382 of the Tax Code, to any person or entity
(or group of persons or entities acting in concert) not described in clause (a)
who directly would own, or whose shares
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would be attributed to any person or entity who directly or indirectly would
own, in each case as a result of the purported transfer and after giving effect
to the applicable attribution rules of the Tax Code and applicable Treasury
Regulations, 5 percent (5%) or more of the value of any of the stock of the
Corporation (or otherwise treated as a 5 percent (5%) shareholder within the
meaning of Section 382 of the Tax Code), shall, as to that number of shares
causing such person or entity to be a 5 percent (5%) shareholder, be void ab
initio insofar as it purports to transfer ownership or rights in respect of such
stock to the purported transferee; provided, however, if the Corporation either
does not qualify under Section 382(1)(5) of the Tax Code or chooses to make an
election under Section 382(1)(5)(H) of the Tax Code (or the applicable provision
then in effect) not to have the provisions of Section 382(1)(5) of the Tax Code
apply, the transfer restrictions described above in clauses (a) and (b) shall be
deemed to lapse and shall have no further force or effect as of the earlier of
the date the Corporation is aware that it does not qualify under Section
382(1)(5) of the Tax Code and the date of such election; provided further,
however, that neither of the transfer restrictions described above in the
foregoing clauses (a) or (b) shall prevent a valid transfer if (i) the
transferor obtains the written approval of the Board of Directors of the
Corporation and provides the Corporation with an opinion of counsel satisfactory
to the Corporation that, assuming, as of the date of such opinion, the full
exercise of all warrants issued by, and any options granted pursuant to any
stock option plan of, the Corporation, the transfer shall not result in the
application of any tax law limitation on the use of the Corporation's loss
carryforwards or other tax attributes or (ii) a tender offer, within the meaning
of the Securities Exchange Act of 1934, as amended, and pursuant to the rules
and regulations thereof, is made by a bona fide third party purchaser to
purchase at least sixty-six and two thirds
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percent (66 2/3%) of the issued and outstanding common stock of the Corporation
and the offeror (A) agrees to effect, within ninety (90) days of the
consummation of the tender offer, a back-end merger in which all non-tendering
shareholders would receive the same consideration as paid in the tender offer,
and (B) has received the tender of sufficient shares to effect such merger.
Without limiting or restricting in any manner the effectiveness of the foregoing
provisions, the Corporation may rely and shall be protected in relying on its
shareholder list and stock transfer records for all purposes relating to such
notices, voting, payment of dividend or other communication or distributions to
its shareholders.
B. In the absence of special approval by the Board of
Directors, a purported transfer of shares in excess of the shares that can be
transferred pursuant to this Article Fifth (the "Prohibited Shares") to the
purported acquiror (the "Purported Acquiror") is not effective to transfer
ownership of such Prohibited Shares. On demand by the Corporation, which demand
must be made within thirty (30) days of the time the Corporation learns of the
transfer of the Prohibited Shares, a Purported Acquiror must transfer any
certificate or other evidence of ownership of the Prohibited Shares within the
Purported Acquiror's possession or control, together with any dividends or other
distributions ("Distributions") that were received by the Purported Acquiror
from the Corporation with respect to the Prohibited Shares, to an agent
designated by the Corporation (the "Agent"). The Agent will sell the Prohibited
Shares (or the fair market value of the Prohibited Shares at the time of any
attempted transfer to the Purported Acquiror by gift, inheritance, or a similar
transfer). If the Purported Acquiror has resold the Prohibited Shares prior to
receiving the Corporation's demand to surrender the Prohibited Shares
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to the Agent, the Purported Acquiror shall be deemed to have sold the Prohibited
Shares as an Agent for the initial transferor, and shall be required to transfer
to the Agent any proceeds of such sale and any Distributions.
C. If the initial transferor can be identified, the
Agent will pay to it any sales proceeds in excess of those due to the Purported
Acquiror, together with any distributions received by the Agent. If the initial
transferor cannot be identified within ninety (90) days of receipt of such sales
proceeds, if any, the Agent may pay any such amounts to a charity of its
choosing. In no event shall amounts paid to the Agent inure to the benefit of
the Corporation of the Agent, but such amounts may be used to cover expenses of
the Agent in attempting to identify the initial transferor. If the Purported
Acquiror fails to surrender the Prohibited Shares within the next thirty (30)
business days from the demand by the Corporation, then the Corporation may
institute legal proceedings to compel the surrender. The Corporation shall be
entitled to damages, including reasonable attorneys' fees and costs, from the
Purported Acquiror, on account of such purported transfer.
D. Until January 31, 1999, all certificates
evidencing ownership of shares of Common Stock under the Plan shall bear a
conspicuous legend on the face thereof as follows:
"THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO
RESTRICTIONS PURSUANT TO ARTICLE FIFTH OF THE
CERTIFICATE OF INCORPORATION OF THE CORPORATION WHICH
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THE ARTICLE IS REPRINTED IN ITS ENTIRETY ON THE BACK OF
THIS CERTIFICATE."
SIXTH: In furtherance and not in limitation of the powers conferred by
the Delaware Corporation Law, the Board of Directors of the Corporation is
expressly authorized to make by-laws not inconsistent with the Constitution or
laws of the United States or of the State of Delaware, and not inconsistent with
other provisions of this certificate of incorporation, for fixing and altering
the number of its directors, for the management of its property, for the
regulation and government of its affairs and for the certification and transfer
of its stock, and to alter, amend or repeal the same from time to time.
SEVENTH: The name and mailing address of the incorporator is as
follows:
Name: G. Christopher Meyer Address: Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
I, G. CHRISTOPHER MEYER, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this day of December, 1996.
--
-------------------------------------------
G. Christopher Meyer
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[LEWIS AND ROCA LLP LAWYERS LETTERHEAD]
November 15, 1996
Unitech Unsecured Creditors
Dear Creditors:
This firm represents the Official Unsecured Creditors' Committee in the
Unitech bankruptcy cases. The Committee recommends that you cast a ballot
accepting the Debtors' Amended Joint Plan of Reorganization dated November 11,
1996. The purpose of this letter is to provide the Committee's analysis of what
the Plan provides and explain the reasoning behind the Committee's
recommendation.
The Committee has been active since its formation in February of this
year, and its membership is identified on page 14 of the Disclosure Statement.
The Committee employed the law firm of Lewis and Roca as its bankruptcy counsel
and two Arizona State University finance professors to provide financial
analysis and advice. The Committee's recommendation is based on its own
evaluation of the Debtors' Plan, advice and recommendation from the Committee's
lawyers and accountants, negotiations with the Debtors and an Investor who is
contributing new funds to fund the Plan, discussions with two potential
arms-length purchasers, and consideration of filing the Committee's own plan.
The Debtors' Plan should yield an approximate 60% return to unsecured
creditors in cash payments over the course of two years, plus stock ownership
that could provide a return of some or all of the remaining 40% of your claims.
Although the Committee does not believe it likely that this will result in full
payment of your claims, the Committee believes this projected return is
acceptable under the circumstances and better than any alternative presently
available.
The first cash payment will be an aggregate of $1 million to all
unsecured creditors on the Distribution Date (which should be in February,
1997). The Debtors estimate that there are approximately $5,333,675 in general
unsecured claims (see Disclosure Statement page 23), so this initial payment
should yield an approximate 20% of the amount of your allowed claim.
On the Distribution Date you will also receive one share of New
Preferred Stock for each $1.50 of the remaining balance of your claims. You
will have the option of holding on to this Preferred Stock, requiring up to
approximately half of it to be redeemed by the Debtors for cash over the two
years
<PAGE> 82
[LEWIS AND ROCA LLP LAWYERS LOGO] Unitech Unsecured Creditors
November 15, 1996 Page 2
after confirmation, and/or converting it to New Common Stock after December 31,
1998. These features, and other important rights of preferred stockholders, are
described on pages 35-36 of the Disclosure Statement. Because the cash
redemption feature is probably of greatest interest to you, it will be
described in greater detail here.
If the preferred stockholders so elect, the reorganized Debtors will be
required to redeem up to $500,000 of Preferred Stock, at the rate of $1.50 per
share, on each of four dates: June 30, 1997, December 31, 1997, June 30, 1998
and December 31, 1998. These redemptions total $2 million over the course of
those two years, and assuming that the balance of unsecured claims will be
approximately $4 million after the initial $1 million cash payment, this means
that approximately 50% of the remaining balance of your claim can be repaid in
cash through these stock redemptions. Such redemptions plus the initial cash
payment therefore should provide an approximate 60% return on your claims. This
percentage will be less to the extent the total unsecured claims exceed $5
million, but the Plan may not become effective at all if the unsecured claims
exceed $5.5 million.
At the end of the two year period if all redemption rights have been
exercised you would still hold Preferred Stock representing approximately 40%
of your claim, at the nominal value of $1.50 per share. The Preferred Stock may
then be converted into Common Stock after December 31, 1998. There is no
assurance that there will be any market for either the Preferred Stock or the
Common Stock, although the Investors who are financing this Plan with a $3
million cash infusion will have an incentive to make the stock tradable.
The Debtors estimate that the Preferred Stock will have a value of $1.61
per share when issued. See pages 59-60 of the Disclosure Statement. This is
based on their projected future earnings. Neither the Debtors' accountants nor
the Committee or its accountants have opined that those projections are
reasonable or accurate. Even if they are accurate, however, the Committee does
not agree with the Debtors' projected value for the Preferred Stock when issued.
The Committee's financial advisors believe that the Debtors' projected $1.61
value for Preferred Stock at issuance must be discounted approximately 35% due
to its lack of liquidity (i.e., the lack of a ready market in which the stock
can be sold for cash), and perhaps an additional significant percentage because
the Preferred Stock as a whole would represent only a minority ownership of the
company even when converted to Common Stock. Consequently the Committee and its
financial advisors believe the Preferred Stock will probably have a value of
less than $1.05 per share when issued. If that estimate is accurate, it means
that the Plan provides for an approximate 85% return on your claims, not
counting the loss of
<PAGE> 83
[LEWIS AND ROCA LLP LAWYERS LOGO]
Unitech Unsecured Creditors
November 15, 1996 Page 3
the time value of that return over the two years it will take to be realized in
cash. Of course if the Debtors are successful in operating the reorganized
companies and exceed their earnings projections, the Preferred Stock also could
have a value exceeding $1.50 per share in two years, in which case you could
receive a 100% return on your claims, or possibly even more.
There are also risks that the reorganized Debtors will not be able to
pay for the mandatory Preferred Stock redemptions when due. If there is a
default on any mandatory redemption, the only remedies are to require
redemption of all remaining shares of Preferred Stock or convert it to Common
Stock. See Disclosure Statement page 36, line 26. The requirement that the
Debtors redeem all of the remaining Preferred Stock will be treated as a debt
of the reorganized Debtors, which could be enforced by suit, but it will not
have any priority higher than that of the companies' other unsecured debts.
Moreover, in the event of a subsequent bankruptcy, that claim might even be
deemed subordinate to general unsecured claims, although in all events the
Preferred Stock and the claims to which it might give rise will have priority
over the rights of common stockholders.
Although there are substantial risks and the Plan is not likely to
provide a greater return on your claims than approximately 85% over the course
of two years, it does guarantee at least an immediate approximate 20% cash
payment and a significant likelihood of up to 60% in cash. Based on the fact
that the Committee cannot identify any alternative to the Plan that is likely
to provide a greater return or have a higher likelihood of success, the
Committee and its legal and financial advisors recommend that you vote in favor
of the Plan.
The Plan contains some other provisions added at the Committee's
request. The holders of the New Preferred Stock will be entitled to elect one
director to the reorganized Debtors' five-member board of directors, and
another two of the directors will be independent of both prior ownership and
the Investor group. See Disclosure Statement page 53, lines 12-15.
Consequently although the Investor group may have majority stock ownership of
the reorganized Debtors (see Disclosure Statement page 51, lines 4-11), they
will not have majority control of the board of directors. The company is
currently in the process of searching for a new president because the current
turnaround president, Jerry Bellis, will be leaving by the end of this month
except to assist with confirmation and transition issues. See Disclosure
Statement page 51.
Although the Preferred Stock is not entitled to any dividends, it must
receive a dividend at least equivalent to any paid on the Common Stock.
<PAGE> 84
LEWIS Unitech Unsecured Creditors
AND November 15, 1996 Page 4
ROCA
LLP
-------
LAWYERS [Logo]
Disclosure Statement page 37, line 6. The Preferred Stock will also have equal
voting rights with the Common Stock. Disclosure Statement page 36, lines 1-16.
The reorganized Debtors will retain under this Plan any claims or
causes of action against prior management or their professionals, and the
Debtors have engaged the services of a contingent-fee plaintiffs' securities
law firm to investigate and advise as to the feasibility of litigating any such
claims. Disclosure Statement pages 28-30.
These are only a few of the salient features of the Plan that the
Committee considers significant, so you are encouraged to read the Disclosure
Statement in its entirety for a more complete understanding of the Debtors'
financial condition and the terms of the Plan.
Your ballot for or against the Plan must be mailed for receipt no later
than December 4, 1996, and the confirmation hearing has been set for December
11, 1996, at 1:30. Acceptance of the Plan by the class of unsecured creditors
would require an affirmative vote of more than 50% of the number of creditors
actually voting and more than two-thirds in dollar amount of the claims
actually voted. Claims that are not voted do not count either for or against
confirmation of the Plan.
In the event the Plan is not accepted by the class of unsecured
creditors it may nevertheless be confirmed if the Court finds that the value of
the cash and stock to be distributed is equal to the amount of the claims. See
Disclosure Statement page 33, lines 12-18. In other words, the Court would have
to conclude that the Preferred Stock has a value of $1.50 per share when
issued. If the class of unsecured creditors does not accept the Plan, then
counsel for the Committee will object to confirmation and present evidence that
the Preferred Stock will not have that necessary value. In that event, it is
counsel's opinion that confirmation of this Plan is not likely. There is little
reason to believe, however, that a liquidation of the Debtors would produce for
unsecured creditors even as much cash as the Plan provides to be distributed
immediately upon confirmation.
For these reasons, the Committee recommends that you file a ballot
accepting the Plan.
Sincerely,
/s/ Brent Maidman for
Randolph J. Haines
<PAGE> 85
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
UNITECH INDUSTRIES, INC., and related ) Case No. 96-818-PHX-RGM
proceedings ) (Joint Administration Only)
)
Debtors. )
________________________________________)
APPLICABLE DEBTOR(S) (Check) )
____________________ )
)
UNITECH ACQUISITION CORP. [ ] )
(Case No. 96-819-PHX-RGM) )
)
UNITECH ACQUISITION CORP. [ ] )
(Case No. 96-818-PHX-RGM) )
________________________________________)
BALLOT FOR ACCEPTING OR REJECTING DEBTORS'
JOINT PLAN OF REORGANIZATION
This Ballot is submitted to you to solicit your vote to accept or
reject the accompanying Joint Plan of Reorganization of Unitech Industries,
Inc. and Unitech Acquisition Corp. (the "Debtors") dated November 11, 1996,
together with any amendments or modifications thereto (the "Plan"). The Plan
can be confirmed by the Bankruptcy Court and thereby made binding on you if
votes to accept the Plan are cast by the holders of at least two-thirds in
amount and more than one-half in number of the claims in each class that are
voted on the Plan and if votes to accept the Plan are cast by the holders of at
least two-thirds in amount of the equity security interests in each class that
are voted on the Plan. In the event the requisite acceptances are not obtained,
the Bankruptcy Court may nevertheless confirm the Plan if the Court finds that
the Plan accords fair and equitable treatment to the class rejecting it and
otherwise satisfies the requirements of Section 1129 of the Bankruptcy Code. TO
HAVE YOUR VOTE COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT.
_______________________________________________________________________________
BALLOT FOR HOLDERS OF CLAIMS ON BEHALF OF
EXPEDITERS INTERNATIONAL OF WASHINGTON, INC.,
AS DEFINED IN THE PLAN (CLASS 1C)
_______________________________________________________________________________
The undersigned, a creditor of the Debtors in the unpaid principal
amount of $_______________:
[ ] ACCEPTS
[CHECK ONE BOX]
[ ] REJECTS
the Joint Plan of Reorganization of the Debtors:
<PAGE> 86
PLEASE FULLY COMPLETE THIS BALLOT BY CHECKING THE "ACCEPTS" OR
"REJECTS" BOX. IF NEITHER THE "ACCEPTS" NOR "REJECTS" BOX IS CHECKED,
THE BALLOT WILL NOT BE VALID OR COUNTED AS HAVING BEEN CAST.
Date: _______________, 1996 _______________________________________
Print or Type Name
By ____________________________________
As ____________________________________
Address _______________________________
RETURN THIS BALLOT ON OR BEFORE DECEMBER 4, 1996 TO:
Unitech Industries, Inc.
15035 N. 75th Street
Scottsdale, Arizona 85260
Attention: Virland Johnson, Secretary
<PAGE> 87
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
IN RE: ) IN PROCEEDINGS UNDER CHAPTER 11
)
UNITECH INDUSTRIES, INC., AND RELATED ) CASE NO. 96-818-PHX-RGM
PROCEEDINGS, ) (JOINT ADMINISTRATION ONLY)
)
DEBTORS. )
)
- ----------------------------------------- )
APPLICABLE DEBTOR(S) (CHECK) )
)
UNITECH ACQUISITION CORP. [ ] )
(CASE NO. 96-819-PHX-RGM) )
)
UNITECH INDUSTRIES, INC. [ ] )
(CASE NO. 96-818-PHX-RGM) )
)
- ----------------------------------------- )
BALLOT FOR ACCEPTING OR REJECTING DEBTORS'
JOINT PLAN OF REORGANIZATION
This Ballot is submitted to you to solicit your vote to accept or reject
the accompanying Joint Plan of Reorganization of Unitech Industries, Inc. and
Unitech Acquisition Corp. (the "Debtors") dated November 11, 1996, together with
any amendments or modifications thereto (the "Plan"). The Plan can be confirmed
by the Bankruptcy Court and thereby made binding on you if votes to accept the
Plan are cast by the holders of at least two-thirds in amount and more than
one-half in number of the claims in each class that are voted on the Plan and if
votes to accept the Plan are cast by the holders of at least two-thirds in
amount of the equity security interests in each class that are voted on the
Plan. In the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if the Court finds that the Plan accords
fair and equitable treatment to the class rejecting it and otherwise satisfies
the requirements of Section 1129 of the Bankruptcy Code. TO HAVE YOUR VOTE
COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT.
- -------------------------------------------------------------------------------
BALLOT FOR HOLDERS OF CONVENIENCE CLAIMS (CLASS 2A)
- -------------------------------------------------------------------------------
The undersigned, a creditor of the Debtors in the unpaid principal amount
of $__________:
[ ] ACCEPTS
[CHECK ONE BOX]
[ ] REJECTS
the Joint Plan of Reorganization of the Debtors:
<PAGE> 88
PLEASE FULLY COMPLETE THIS BALLOT BY CHECKING THE "ACCEPTS" OR "REJECTS"
BOX. IF NEITHER THE "ACCEPTS" NOR "REJECTS" BOX IS CHECKED, THE BALLOT
WILL NOT BE VALID OR COUNTED AS HAVING BEEN CAST.
Date:__________________, 1996
---------------------------------------------
Print or Type Name
By
-------------------------------------------
As
-------------------------------------------
Address
--------------------------------------
RETURN THIS BALLOT ON OR BEFORE DECEMBER 4, 1996 TO:
Unitech Industries, Inc.
15035 N. 75th Street
Scottsdale, Arizona 85260
Attention: Virland Johnson, Secretary
<PAGE> 89
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
IN RE: ) IN PROCEEDINGS UNDER CHAPTER 11
)
UNITECH INDUSTRIES, INC., AND RELATED ) CASE NO. 96-818-PHX-RGM
PROCEEDINGS, ) (JOINT ADMINISTRATION ONLY)
)
DEBTORS. )
)
- ---------------------------------------)
APPLICABLE DEBTOR(S) (CHECK) )
)
UNITECH ACQUISITION CORP. [ ] )
(CASE NO. 96-819-PHX-RGM) )
)
UNITECH INDUSTRIES, INC. [ ] )
(CASE NO. 96-818-PHX-RGM) )
)
- ---------------------------------------)
BALLOT FOR ACCEPTING OR REJECTING DEBTORS'
JOINT PLAN OF REORGANIZATION
This Ballot is submitted to you to solicit your vote to accept or
reject the accompanying Joint Plan of Reorganization of Unitech Industries, Inc.
and Unitech Acquisition Corp. (the "Debtors") dated November 11, 1996, together
with any amendments or modifications thereto (the "Plan"). The Plan can be
confirmed by the Bankruptcy Court and thereby made binding on you if votes to
accept the Plan are cast by the holders of at least two-thirds in amount and
more than one-half in number of the claims in each class that are voted on the
Plan and if votes to accept the Plan are cast by the holders of at least
two-thirds in amount of the equity security interests in each class that are
voted on the Plan. In the event the requisite acceptances are not obtained, the
Bankruptcy Court may nevertheless confirm the Plan if the Court finds that the
Plan accords fair and equitable treatment to the class rejecting it and
otherwise satisfies the requirements of Section 1129 of the Bankruptcy Code. TO
HAVE YOUR VOTE COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT.
- -------------------------------------------------------------------------------
BALLOT FOR HOLDERS OF GENERAL UNSECURED CLAIMS (CLASS 2C),
INCLUDING HOLDERS ELECTING CLASS 2A TREATMENT
- -------------------------------------------------------------------------------
The undersigned, a creditor of the Debtors in the unpaid principal
amount of $__________:
[ ] ACCEPTS
[CHECK ONE BOX]
[ ] REJECTS
the Joint Plan of Reorganization of the Debtors.
ELECTION FOR TREATMENT IN A CONVENIENCE CLAIM
By checking the "ELECT TREATMENT AS CLASS 2A CONVENIENCE CLAIM" box
below, the undersigned elects to voluntarily reduce the undersigned's Allowed
Claim against the Debtors to the amount of One Thousand Dollars ($1,000) and to
receive a cash distribution pursuant to the Plan equal to 75% of such Allowed
Claim. By so electing, the
<PAGE> 90
undersigned understands and acknowledges that the undersigned will be treated as
a holder of a Class 2A Allowed Claim under the Plan and that the aforesaid cash
distribution will represent the totality of the undersigned's entitlement on
account of the undersigned's general unsecured Claim against the Debtors.
[ ] ELECT TREATMENT AS CLASS 2A CONVENIENCE CLAIM
PLEASE FULLY COMPLETE THIS BALLOT BY CHECKING THE "ACCEPTS" OR
"REJECTS" BOX. IF NEITHER THE "ACCEPTS" NOR "REJECTS" BOX IS CHECKED,
THE BALLOT WILL NOT BE VALID OR COUNTED AS HAVING BEEN CAST. IF THE BOX
IS CHECKED TO ELECT CLASS 2A CONVENIENCE CLAIM TREATMENT, SUCH CLASS 2A
TREATMENT WILL BE AFFORDED AND THE BALLOT WILL BE COUNTED AS A CLASS 2A
VOTE. IF SUCH ELECTION BOX IS NOT CHECKED, CLASS 2C TREATMENT WILL BE
AFFORDED AND THE BALLOT WILL BE COUNTED AS A CLASS 2C VOTE.
Date:__________________, 1996
---------------------------------------------
Print or Type Name
By
-------------------------------------------
As
-------------------------------------------
Address
--------------------------------------
RETURN THIS BALLOT ON OR BEFORE DECEMBER 4, 1996 TO:
Unitech Industries, Inc.
15035 N. 75th Street
Scottsdale, Arizona 85260
Attention: Virland Johnson, Secretary
<PAGE> 91
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
IN RE: ) IN PROCEEDINGS UNDER CHAPTER 11
)
UNITECH INDUSTRIES, INC., AND RELATED ) CASE NO. 96-818-PHX-RGM
PROCEEDINGS, ) (JOINT ADMINISTRATION ONLY)
)
DEBTORS. )
)
- ---------------------------------------)
APPLICABLE DEBTOR(S) (CHECK) )
)
UNITECH ACQUISITION CORP. [ ] )
(CASE NO. 96-819-PHX-RGM) )
)
UNITECH INDUSTRIES, INC. [ ] )
(CASE NO. 96-818-PHX-RGM) )
)
- ---------------------------------------)
BALLOT FOR ACCEPTING OR REJECTING DEBTORS'
JOINT PLAN OF REORGANIZATION
This Ballot is submitted to you to solicit your vote to accept or
reject the accompanying Joint Plan of Reorganization of Unitech Industries, Inc.
and Unitech Acquisition Corp. (the "Debtors") dated November 11, 1996, together
with any amendments or modifications thereto (the "Plan"). The Plan can be
confirmed by the Bankruptcy Court and thereby made binding on you if votes to
accept the Plan are cast by the holders of at least two-thirds in amount and
more than one-half in number of the claims in each class that are voted on the
Plan and if votes to accept the Plan are cast by the holders of at least
two-thirds in amount of the equity security interests in each class that are
voted on the Plan. In the event the requisite acceptances are not obtained, the
Bankruptcy Court may nevertheless confirm the Plan if the Court finds that the
Plan accords fair and equitable treatment to the class rejecting it and
otherwise satisfies the requirements of Section 1129 of the Bankruptcy Code. TO
HAVE YOUR VOTE COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT.
- -------------------------------------------------------------------------------
BALLOT FOR HOLDERS OF CLAIMS UNDER THE
MERRILL LYNCH AND IMPERIAL BANK LOAN AGREEMENTS,
AS DEFINED IN THE PLAN (CLASSES 1A AND 1B)
- -------------------------------------------------------------------------------
The undersigned, a creditor of the Debtors in the unpaid principal
amount of $__________:
[ ] ACCEPTS
[CHECK ONE BOX]
[ ] REJECTS
the Joint Plan of Reorganization of the Debtors:
<PAGE> 92
PLEASE FULLY COMPLETE THIS BALLOT BY CHECKING THE "ACCEPTS" OR
"REJECTS" BOX. IF NEITHER THE "ACCEPTS" NOR "REJECTS" BOX IS CHECKED,
THE BALLOT WILL NOT BE VALID OR COUNTED AS HAVING BEEN CAST.
Date:__________________, 1996
----------------------------------------------
Print or Type Name
By
--------------------------------------------
As
--------------------------------------------
Address
---------------------------------------
RETURN THIS BALLOT ON OR BEFORE DECEMBER 4, 1996 TO:
Unitech Industries, Inc.
15035 N. 75th Street
Scottsdale, Arizona 85260
Attention: Virland Johnson, Secretary
<PAGE> 93
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
IN RE: ) IN PROCEEDINGS UNDER CHAPTER 11
)
UNITECH INDUSTRIES, INC., AND RELATED ) CASE NO. 96-818-PHX-RGM
PROCEEDINGS, ) (JOINT ADMINISTRATION ONLY)
)
DEBTORS. )
- ---------------------------------------)
)
APPLICABLE DEBTOR(S) (CHECK) )
)
UNITECH ACQUISITION CORP. [ ] )
(CASE NO. 96-819-PHX-RGM) )
)
UNITECH INDUSTRIES, INC. [X] )
(CASE NO. 96-818-PHX-RGM) )
)
- ---------------------------------------)
BALLOT FOR ACCEPTING OR REJECTING DEBTORS'
JOINT PLAN OF REORGANIZATION
This Ballot is submitted to you to solicit your vote to accept or
reject the accompanying Joint Plan of Reorganization of Unitech Industries, Inc.
and Unitech Acquisition Corp. (the "Debtors") dated November 11, 1996, together
with any amendments or modifications thereto (the "Plan"). The Plan can be
confirmed by the Bankruptcy Court and thereby made binding on you if votes to
accept the Plan are cast by the holders of at least two-thirds in amount and
more than one-half in number of the claims in each class that are voted on the
Plan and if votes to accept the Plan are cast by the holders of at least
two-thirds in amount of the equity security interests in each class that are
voted on the Plan. In the event the requisite acceptances are not obtained, the
Bankruptcy Court may nevertheless confirm the Plan if the Court finds that the
Plan accords fair and equitable treatment to the class rejecting it and
otherwise satisfies the requirements of Section 1129 of the Bankruptcy Code. TO
HAVE YOUR VOTE COUNT, YOU MUST COMPLETE AND RETURN THIS BALLOT.
- -------------------------------------------------------------------------------
BALLOT FOR CURRENT OR FORMER HOLDERS OF UNITECH INDUSTRIES, INC.
COMMON STOCK (CLASSES 3A AND 3C)
- -------------------------------------------------------------------------------
The undersigned holder of Unitech Industries, Inc. Common Stock,
with respect to __________ shares [ ] ACCEPTS
held by the undersigned, [CHECK ONE BOX]
[ ] REJECTS
the Joint Plan of Reorganization of the Debtor:
<PAGE> 94
FOR THOSE WHO ARE RECORD OWNERS OF SECURITIES
1. If the undersigned is the record holder for a beneficial owner, by
signing this Ballot, the undersigned certifies that (i) such beneficial owner
was provided with a copy of the Disclosure Statement, (ii) such beneficial owner
transmitted written instructions to the undersigned concerning the completion of
this Ballot, (iii) such beneficial owner furnished written confirmation to the
undersigned that it owns no Common Stock, either directly or through another
record holder, other than the Common Stock owned through the undersigned, or if
Common Stock is owned by such beneficial owner other than through the
undersigned, such beneficial owner furnished written advice as to the number of
shares of Common Stock so owned, the record holder, if other than such
beneficial owner, and whether the Ballot(s) regarding such other Common Stock
are being voted to accept or reject the Plan, all of which information is set
forth with respect to such beneficial owner on the attached listing, (iv) such
beneficial owner is not voting the shares of Common Stock voted hereby pursuant
to any other ballot, and (v) the undersigned has and will retain in its file all
written instructions and advice received by it from beneficial owners.
2. If the undersigned is the record holder for more than one beneficial
owner and by this Ballot is casting votes for more than one beneficial owner, by
signing this Ballot, the undersigned certifies that the attached listing
accurately sets forth the number of shares and an identifying number
attributable to each such beneficial owner, together with the vote of each such
beneficial owner to accept or reject the Plan. If the written instructions from
beneficial owners result in the undersigned voting both to accept and to reject
the Plan on behalf of respective beneficial owners, then the undersigned shall
complete a separate Ballot for those beneficial owners voting to accept the Plan
and a separate Ballot for those beneficial owners voting to reject the Plan.
3. By signing this Ballot, the undersigned certifies that it is the
registered or record owner of the Common Stock voted on this Ballot and/or has
full power and authority to vote to accept or reject the Plan. The undersigned
also acknowledges the terms and conditions set forth in the Disclosure
Statement.
ELECTION FOR PARTICIPATION IN RIGHTS OFFERING
By checking the "ELECTION FOR PARTICIPATION IN RIGHTS OFFERING" box
below, the undersigned elects to participate in the right to purchase for a Cash
price of $1.50 per share, two-tenths (.2) of a share of New Common Stock. By so
electing to participate, the undersigned understands and acknowledges that under
the Plan, the holders of Class 3A Interests will receive assignment of the
Debtors' interest, if any, in any policies of insurance applicable to
pre-petition claims arising from the purchase, sale or ownership of Common
Stock, as the respective interests of holders of Class 3A Interests may appear.
In addition, holders of Class 3A Interests that are existing owners of Common
Stock will receive, for each share of Common Stock owned: (i) four-tenths (.4)
of a share of New Common Stock; and (ii) the right to purchase for a Cash price
of $1.50 per share, two-tenths (.2) of a share of New Common Stock.
ELECT PARTICIPATION IN RIGHTS OFFERING (Check one box):
[ ] Yes
[CHECK ONE BOX]
[ ] No
<PAGE> 95
PLEASE FULLY COMPLETE THIS BALLOT BY CHECKING THE "ACCEPTS" OR
"REJECTS" BOX. IF NEITHER THE "ACCEPTS" NOR "REJECTS" BOX IS CHECKED,
THE BALLOT WILL NOT BE VALID OR COUNTED AS HAVING BEEN CAST. HOLDERS OF
SMALL SHARE ENTITLEMENTS WILL RECEIVE CASH PROCEEDS FROM THE SALE OF
SUCH SMALL SHARE ENTITLEMENTS UNLESS THE "ELECT TO RECEIVE DISTRIBUTION
OF SHARES" BOX IS CHECKED.
Date:__________________, 1996
-----------------------------------------------
Print or Type Name
-----------------------------------------------
Signature
[If appropriate] By
---------------------------------------------
As
---------------------------------------------
Address
----------------------------------------
[ ] Current Holder of Unitech Stock
[CHECK ONE BOX]
[ ] Former Holder of Unitech Stock
RETURN THIS BALLOT ON OR BEFORE DECEMBER 4, 1996 TO:
Unitech Industries, Inc.
15035 N. 75th Street
Scottsdale, Arizona 85260
Attention: Virland Johnson, Secretary
<PAGE> 96
ATTACHMENT TO BALLOT
FOR RECORD OWNERS OF SECURITIES FOR
HOLDERS OF COMMON STOCK
REGARDING
JOINT PLAN OF REORGANIZATION
OF
UNITECH INDUSTRIES, INC.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
---------------------------------------------------------------------
IDENTIFYING NUMBER
FOR BENEFICIAL OWNER ACCEPT REJECT
--------------------- -------- --------
<S> <C> <C>
1.
--------------------------------------------- ------------------------------- -------------------------------
2.
--------------------------------------------- ------------------------------- -------------------------------
3.
--------------------------------------------- ------------------------------- -------------------------------
4.
--------------------------------------------- ------------------------------- -------------------------------
5.
--------------------------------------------- ------------------------------- -------------------------------
6.
--------------------------------------------- ------------------------------- -------------------------------
7.
--------------------------------------------- ------------------------------- -------------------------------
8.
--------------------------------------------- ------------------------------- -------------------------------
9.
--------------------------------------------- ------------------------------- -------------------------------
10.
--------------------------------------------- ------------------------------- -------------------------------
</TABLE>
If a beneficial owner owns shares of Common Stock otherwise than
through the undersigned, the following information relates to such other
holdings being separately voted:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
-----------------------------------------
IDENTIFYING NUMBER
FOR BENEFICIAL OWNER NAME OF RECORD HOLDER ACCEPT REJECT
-------------------- --------------------- ------ ------
<S> <C> <C> <C>
1.
-------------------------------- ---------------------------------- --------------------- -----------------------
2.
-------------------------------- ---------------------------------- --------------------- -----------------------
3.
-------------------------------- ---------------------------------- --------------------- -----------------------
4.
-------------------------------- ---------------------------------- --------------------- -----------------------
5.
-------------------------------- ---------------------------------- --------------------- -----------------------
6.
-------------------------------- ---------------------------------- --------------------- -----------------------
7.
-------------------------------- ---------------------------------- --------------------- -----------------------
8.
-------------------------------- ---------------------------------- --------------------- -----------------------
9.
-------------------------------- ---------------------------------- --------------------- -----------------------
10.
-------------------------------- ---------------------------------- --------------------- -----------------------
</TABLE>
<PAGE> 97
[UNITECH INDUSTRIES LETTERHEAD]
November 15, 1996
TO ALL CREDITORS, EQUITY SHAREHOLDERS AND PARTIES IN INTEREST:
UNITECH INDUSTRIES, INC. and UNITECH ACQUISITION CORP.,
debtors and debtors-in-possession ("Debtors") in the pending and jointly
administered Chapter 11 proceedings before the United States Bankruptcy Court
for the District of Arizona ("Bankruptcy Court"), filed their Amended Joint Plan
of Reorganization ("Second Amended Joint Plan") dated November 11, 1996. The
Amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code
("Amended Disclosure Statement") describing the terms of the Amended Joint Plan
came before the Court on November 12, 1996. Accordingly, the Debtors are seeking
the votes of all parties entitled to vote on the Amended Joint Plan.
Before voting on the Amended Joint Plan, you should review
each of the following documents enclosed herewith:
1. Amended Disclosure Statement (with exhibits,
including the Amended Joint Plan);
2. Order approving Amended Disclosure Statement and
Notice of Hearing on Amended Joint Plan of
Reorganization;
3. November 14, 1996 letter from Randolph J. Haines,
Esq., Chief Attorney for the Official Unsecured
Creditors' Committee supporting the Debtors' Amended
Plan; and
4. One or more Ballots, if applicable.
The Debtors believe that the Amended Joint Plan is in the best
interests of all parties entitled to vote thereon, and that you should vote to
accept the Amended Joint Plan. For your Ballot(s) to count, the Ballot(s) must
be received by the Debtors at the address set forth in the Ballot, not later
than December 4, 1996.
<PAGE> 98
[UNITECH INDUSTRIES LETTERHEAD]
November 15, 1996
Page Two
If the requisite number of acceptances to the Amended Joint
Plan are obtained, the Bankruptcy Court will consider confirmation of the
Amended Joint Plan at a hearing to be held on December [ ], 1996 at [ ]
a.m./p.m. ("Confirmation Hearing"). If the Amended Joint Plan is confirmed at
the Confirmation Hearing, the parties will receive distributions in accordance
with the terms of the Amended Joint Plan.
The Debtors urge you to accept the Amended Joint Plan and to
complete and return your Ballot(s) indicating your acceptance of the Amended
Joint Plan in a timely manner.
Sincerely,
UNITECH INDUSTRIES, INC.
Debtor-in-Possession
UNITECH ACQUISITION CORP.
Debtor-in-Possession
<PAGE> 99
FILED
Nov. 12, 1996
KEVIN E. O'BRIEN, CLERK
UNITED STATES
BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
UNITECH INDUSTRIES, INC., and related ) Case No. 96-818-PHX-RGM
proceedings, ) (Joint Administration Only)
)
Debtors. ) ORDER APPROVING DEBTORS'
) AMENDED DISCLOSURE
APPLICABLE DEBTOR(S) (Check) ) STATEMENT DATED NOVEMBER 12,
) 1996 AND SETTING HEARING TO
UNITECH ACQUISITION CORP. /X/ ) CONSIDER CONFIRMATION OF
(Case No. 96-819-PHX-RGM) ) PLAN OF REORGANIZATION AND
) PRESCRIBING NOTICE
UNITECH INDUSTRIES, INC. /X/ ) PROCEDURES WITH RESPECT
(Case No. 96-818-PHX-RGM) ) THERETO
)
- ----------------------------------------
This matter came to be heard on the Amended Disclosure Statement dated
November 11, 1996 (the "Amended Disclosure Statement") by Unitech Industries,
Inc. and Unitech Acquisition Corp., Debtors and Debtors-in Possession herein
("Debtors"), pertaining to Debtors' Joint Amended Plan of Reorganization of the
same date (the "Amended Plan").
A Hearing was scheduled before this Court on August 29, 1996 pursuant to
this Court's Order Setting Hearing to Consider Approval of Disclosure Statement
and Prescribing Notice Procedures With Respect Thereto entered August 19, 1996
(the "Notice and Hearing
<PAGE> 100
Order"). By orders of this Court, the August 29, 1996 hearing and subsequent
hearings were adjourned to November 12, 1996 (the "Hearing"). At the Hearing,
the Court considered the Debtors' request for an Order approving the Amended
Disclosure Statement.
Upon consideration of: (i) the Certificates of Service filed
reflecting substantial compliance with the notice requirements of the Notice
and Hearing Order; (ii) the Amended Plan (the "Plan"); (iii) the Amended
Disclosure Statement; (iv) the Submission of Proposed Solicitation Materials
filed by Debtors on August 15, 1996 (the "Solicitation Materials"); (v) any
Objections thereto; and (vi) the record taken before me at the Hearing; and
after due deliberation and sufficient cause appearing therefor,
THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACT AND CONCLUSIONS
OF LAW:
A. Proper, timely, and sufficient notice of the Hearing has been
provided in accordance with the Notice and Hearing Order, and no other
or further notice of the Hearing or the entry of this Order is necessary.
B. The Disclosure Statement, the cover letter and ballots as set forth
in the Solicitation Materials (all of the foregoing being collectively referred
to as the "Disclosure Materials") that Debtors propose to disseminate to the
holders of claims against, and interests in, the Debtors, as part of its
solicitation of acceptances of the Plan (the "Solicitation"), contain "adequate
information" as such term in defined in Section 1125(a)(1) of the Bankruptcy
Code.
<PAGE> 101
ACCORDINGLY, IT IS HEREBY ORDERED AS FOLLOWS:
1. The Disclosure Materials are hereby approved in all respects.
2. Debtors are hereby authorized pursuant to Section 1125(b) of the
Bankruptcy Code to solicit acceptances to the Plan from those holders of claims
against, and interests in, Debtor which are impaired under the Plan and
entitled to vote on the Plan.
3. Each objection in the Objections which has not been withdrawn or
treated through modifications reflected in the Disclosure Statement is hereby
overruled.
4. Pursuant to Rule 3017(c) of the Federal Rules of Bankruptcy
Procedure (the "Bankruptcy Rules"), December 4, 1996 at 5:00 p.m. Mountain
Standard Time is hereby fixed as the deadline by which acceptances or
rejections of the Plan must be received in order for them to be counted in the
determination of whether the Plan has been accepted in accordance with the
provisions of Section 1126 of the Bankruptcy Code.
5. Pursuant to Section 1128 of the Bankruptcy Code and Bankruptcy Rules
2002(b)(2) and 3020(b)(1), the hearing to consider confirmation of the Plan,
objections or modifications thereto, if any, and any other matter that may
properly come before the Bankruptcy Court, will be held before the Honorable
Robert G. Mooreman, United States Bankruptcy Judge, 2929 North Central Avenue,
Eleventh Floor, Phoenix, Arizona 85607-4151, on December 11, 1996 at 1:30 p.m.
Mountain Time, or as soon thereafter as counsel may be heard (the "Confirmation
Hearing"). The Confirmation Hearing may be adjourned from time to time without
further notice other than an announcement in open court at the Confirmation
Hearing of the adjourned date or dates for the adjourned Confirmation Hearing.
3
<PAGE> 102
6. The Plan may be modified at or prior to the Confirmation Hearing to
accommodate objections thereto by interested parties, and at the Confirmation
Hearing, the Court may enter such orders as it deems appropriate under
applicable law and as required by the circumstances and equities of the
Debtors' Chapter 11 cases.
7. Objections, if any, to confirmation of the Plan: (a) shall be in
writing, (b) shall comply with the Bankruptcy Rules and the Local Bankruptcy
Rules of this Court, (c) shall set forth the name of the objecting party, the
nature and amount of any claim or interest asserted by the objecting party
against the estate or property of the Debtor, (d) shall state with
particularity the legal and factual basis for such objection, and (e) shall be
filed with this Court, together with proof of service thereof, and served upon
the following, by hand delivery, facsimile, overnight mail or similar means so
as to be received no later than 5:00 p.m. Mountain Time on December 4, 1996, by
the following:
UNITECH INDUSTRIES, INC. SQUIRE, SANDERS & DEMPSEY, L.L.P.
15035 N. 75th Street Two Renaissance Square
Scottsdale, AZ 85260 40 North Central Avenue, Suite 2700
Attn: Virland Johnson Phoenix, AZ 85004-4441
Representative for Debtors Attn: Rawle Andrews, Jr., Esquire
In Possession Counsel for the Debtors
LEWIS AND ROCA, L.L.P. KECH, MAHIN & CATE
40 North Central Avenue 555 Twelfth Street, N.W.,
Phoenix, AZ 85004-4429 Suite 600
Attn: Randolph J. Haines, Esquire Attn: Stanley Jutkowitz, Esquire
Counsel for the Official Creditors Counsel for Investors
Committee
OFFICE OF THE UNITED STATES
TRUSTEE
2929 North Central Avenue, Suite 700
P.O. Box 36170
Phoenix AZ 85067-6170
Attn: Christopher J. Pattock, Esquire
4
<PAGE> 103
ANY PARTY FAILING TO FILE AND SERVE OBJECTIONS IN ACCORDANCE WITH THE PROVISIONS
OF THIS ORDER SHALL BE BARRED FROM RAISING SUCH OBJECTIONS AT THE CONFIRMATION
HEARING.
8. Debtors' filing of a Certificate of Mailing indicating service of
the Disclosure Materials via first class mail within five (5) days of
Confirmation Hearing, upon the following:
i. OFFICE OF THE UNITED STATES TRUSTEE
2929 North Central Avenue, Suite 700
Phoenix, Arizona 85012
Attention: Christopher J. Pattock, Esquire
ii. SECURITIES AND EXCHANGE COMMISSION
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Attention: Sarah Moyed, Esquire
iii. UNSECURED CREDITORS COMMITTEE
c/o Randolph J. Haines, Esquire
Lewis & Roca L.L.P.
40 North Central Avenue
Phoenix, Arizona 85004-4429
iv. All parties having requested notices in these cases,
v. All known creditors of the Debtors, and
vi. All record equity security holders of Unitech as set forth in the
Debtor's Schedules
shall constitute compliance with Bankruptcy Rule 3017(d), and shall be deemed
good and sufficient notice of the Confirmation Hearing, this Order, and of all
proceedings to be held with respect thereto.
///
///
///
5
<PAGE> 104
9. Copies of the Amended Plan and the Amended Disclosure Statement are
on file with the Clerk of the Bankruptcy Court, 2929 North Central, 9th Floor,
P. O. Box 34151, Phoenix, Arizona 85067-4151, and may be reviewed Monday through
Friday, 9:00 a.m. to 4:30 p.m. (MST). Copies also may be obtained by contacting:
NightRider, Attention Keith Goljan, Account Manager, 3800 North Central Avenue,
Suite 600, Phoenix, Arizona 85012, Telephone: (602) 266-5949, Facsimile: (602)
266-5949.
10. Debtors are hereby authorized to execute such documents and take
such action as may be necessary to implement this Order.
11. Debtors also are hereby authorized to make typographical,
grammatical and other non-substantive conforming changes to the Disclosure
Materials or the Plan prior to mailing to creditors, without further order of
this Court.
Dated:
11-12 , 1996 /s/ Robert G. Mooreman
- ------- ------------------------------
Honorable Robert G. Mooreman
United States Bankruptcy Judge
6
<PAGE> 105
EXHIBIT 2
UNITECH INDUSTRIES, INC.
CONSOLIDATING SUMMARY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR TO DATE -- NOVEMBER 1, 1995 TO JULY 31, 1996
--------------------------------------------------------------
UNITECH UNITECH
INDUSTRIES ACQUISITION
INC. CORPORATION ELIMINATION CONDENSED
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Sales and Operating Revenues
(Net of Returns and Allowances)........ $ 9,298,259 $ 6,631,762 $ -- $ 15,930,021
Cost of Goods Sold....................... 8,162,489 4,832,072 -- 12,994,561
Selling Expenses......................... 522,479 -- -- 522,479
General and Administrative Expenses...... 1,780,934 2,045,123 -- 3,826,057
-- -- -- --
------------ ----------- ---------- ------------
Income (Loss) from Operations............ (1,167,643) (245,433) -- (1,413,076)
------------ ----------- ---------- ------------
Non-operating Income and Expenses
(Including interest income)............ (812,497) 37,992 214,941 (559,564)
Bankruptcy Expenses...................... (358,750) (7,500) -- (366,250)
------------ ----------- ---------- ------------
Income (Loss) Before Taxes............... (2,338,890) (214,941) 214,941 (2,338,890)
------------ ----------- ---------- ------------
Provision for Domestic Income Taxes...... -- -- -- --
------------ ----------- ---------- ------------
Income (Loss) After Income Taxes......... $ (2,338,890) $ (214,941) $ 214,941 $ (2,338,890)
============ =========== ========== ============
BALANCE SHEET (As of July 31, 1996)
ASSETS
Cash and Demand Deposits in the U.S. .... $ 1,760,099 $ 431,265 $ -- $ 2,191,364
Trade Accounts and Trade Notes
Receivable (Less Allowances)........... 2,100,614 1,467,994 -- 3,568,608
Inventories (at Lower of Cost
or Market)............................. 1,837,757 1,293,120 -- 3,130,877
All Other Current Assets................. 696,705 24,902 -- 721,607
-- -- -- --
Plant and Equipment, Including
Construction in Progress............... 1,017,875 86,353 -- 1,104,228
Land and Improvements.................. 19,871 -- -- 19,871
Accumulated Depreciation............... 286,955 20,726 -- 307,581
------------ ----------- ---------- ------------
Net Plant Property & Equipment......... 750,791 65,627 -- 816,418
------------ ----------- ---------- ------------
All Other Non-current Assets............. (1,637,384) (957,354) 3,093,076 498,338
------------ ----------- ---------- ------------
TOTAL ASSETS............................. $ 5,508,582 $ 2,325,554 $3,093,076 $ 10,927,212
============ =========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term Loans from Banks.............. $ 4,896,889 $ 4,204,223 $ -- $ 9,101,112
Trade Accounts and Trade Notes Payable .. 4,320,521 1,086,837 -- 5,407,358
Domestic Income Tax Accrued.............. -- -- -- --
Current Portion from Capitalized
Lease Obligations...................... 69,754 2,982 -- 72,736
All Other Current Liabilities............ 469,825 119,992 -- 589,817
Long-term Portion of Capital Lease
Obligations............................ 6,763 4,596 -- 11,359
All Other Long-term Liabilities
Including Deferred Income Taxes........ 75,000 -- -- 75,000
Common Stock............................. 23,365,582 30 (30) 23,365,582
Retained Earnings at End of Period .... (27,665,751) (3,093,106) 3,093,106 (27,695,751)
------------ ----------- ---------- ------------
Stockholders' Equity................... (4,330,170) (3,093,076) 3,093,076 (4,330,170)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $ 5,508,582 $ 2,325,554 $3,093,076 $ 10,927,212
============ =========== ========== ============
</TABLE>
- -----------
Note (1): Consolidating Financial Statements does not include the Assets,
Liabilities, Capital, or results of Operations of Hericson Industries
Limited or its Subsidiaries.
Note (2): Information is unaudited.
<PAGE> 106
UNITECH INDUSTRIES, INC.
CONSOLIDATING SUMMARY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
3rd QUARTER - May 1, 1996 to July 31, 1996
----------------------------------------------------------
Unitech Unitech
Industries Acquisition
Inc. Corporation Elimination Condensed
----------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Sales and Operating Revenues (Net of Returns and Allowances) ..... $3,415,760 $1,498,759 $4,914,519
Cost of Goods Sold ............................................... 2,516,221 777,251 3,293,472
Selling Expenses ................................................. 222,398 -- 222,398
General and Administrative Expenses .............................. 267,874 492,736 760,610
---------- ---------- -----------
Income (Less) from Operations .................................... 409,267 228,772 -- 638,039
---------- ---------- ---------- -----------
Non-operating Income and Expenses (including interest income) .... 175,715 6,194 (231,216) (49,307)
Bankruptcy Expenses .............................................. (355,000) (3,750) (358,750)
---------- ---------- ---------- -----------
Income (Loss) Before Taxes ....................................... 229,982 231,216 (231,216) 229,982
---------- ---------- ---------- -----------
Provision for Domestic Income Taxes .............................. -- -- -- --
---------- ---------- ---------- -----------
Income (Loss) After Income Taxes ................................. $ 229,982 $ 231,216 $ (231,216) $ 229,982
========== ========== ========== ===========
BALANCE SHEET (As of July 31, 1996)
ASSETS
Cash and Demand Deposits in the U.S. ............................ $ 1,760,099 $ 431,265 $2,191,364
Trade Accounts and Trade Notes Receivable (Less Allowance) ...... 2,100,614 1,467,994 3,568,608
Inventories (at Lower of Cost or Market) ........................ 1,837,757 1,293,120 3,130,877
All Other Current Assets ........................................ 696,705 24,902 721,607
Plant and Equipment, Including Construction in Progress ......... 1,017,875 86,353 1,104,228
Land and Improvements ................................... 19,671 -- 19,871
Accumulated Depreciation ................................ 286,955 20,726 307,681
----------- ---------- ---------- -----------
Net Plant Property & Equipment .......................... 750,791 65,627 -- 816,418
----------- ---------- ---------- -----------
All Other Non-current Assets .................................... (1,637,384) (957,354) 3,093,076 498,338
----------- ---------- ---------- -----------
TOTAL ASSETS $ 5,508,582 $2,325,554 $3,093,076 $10,927,212
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term Loans from Banks ..................................... $ 4,896,889 $4,204,223 $ 9,101,112
Trade Accounts and Trade Notes Payable ......................... 4,320,521 1,086,837 5,407,358
Domestic Income Tax Accrued ..................................... -- -- --
Current Portion from Capitalized Lease Obligations .............. 69,754 2,982 72,736
All Other Current Liabilities ................................... 469,825 119,992 589,817
Long-term Portion of Capital Lease Obligations .................. 6,763 4,596 11,359
All Other Long-term Liabilities including Deferred Income
Taxes .......................................................... 75,000 -- 75,000
Common Stock .................................................... 23,365,582 30 (30) 23,365,582
Retained Earnings at End of Period ............................. (27,695,751) $3,093,106) 3,093,106 (27,695,751)
----------- ---------- ---------- ----------
Stockholders' Equity ........................................... (4,330,170) (3,093,076) 3,093,076 (4,330,170)
----------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $ 5,508,582 $2,325,554 $3,093,076 $10,927,212
=========== ========== ========== ===========
</TABLE>
Note (1): Consolidating Financial Statements does not include the Assets,
Liabilities, Capital, or results of Operations of Hericson
Industries Limited or its Subsidiaries.
Note (2): Information is unaudited.
<PAGE> 107
UNITECH INDUSTRIES, INC.
CONSOLIDATING SUMMARY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
2nd QUARTER - February 1, 1996 to April 30, 1996
------------------------------------------------------
Unitech Unitech
Industries Acquisition
Inc. Corporation Elimination Condensed
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Sales and Operating Revenues
(Net of Returns and Allowances)...... $ 2,763,626 $ 1,526,980 $ -- $ 4,290,606
Cost of Goods Sold.................... 2,274,294 832,405 -- 3,106,699
Selling Expenses...................... 141,118 -- -- 141,118
General and Administrative Expenses... 254,478 640,417 894,895
------------ ------------ ------------ ------------
Income (Loss) from Operations......... 93,736 54,158 -- 147,894
------------ ------------ ------------ ------------
Non-operating Income and Expenses
(including interest income).......... (61,631) 26,842 (77,250) (112,039)
Bankruptcy Expenses................... (3,750) (3,750) (7,500)
------------ ------------ ------------ ------------
Income (Loss) Before Taxes............ 28,355 77,250 (77,250) 28,355
------------ ------------ ------------ ------------
Provision for Domestic Income Taxes...
------------ ------------ ------------ ------------
Income (Loss) After Income Taxes...... $ 28,355 $ 77,250 $ (77,250) $ 28,355
============ ============ ============ ============
BALANCE SHEET (As of April 30, 1996)
ASSETS
Cash and Demand Deposits
in the U.S. ......................... $ 418,272 $ 752,733 $ 1,171,005
Trade Accounts and Trade Notes
Receivable (Less Allowance).......... 1,905,053 1,094,340 2,999,393
Inventories (at Lower of Cost
or Market)........................... 2,114,701 1,450,847 3,565,548
All Other Current Assets.............. 660,267 5,888 666,155
Plant and Equipment, including
Construction in Progress............. 1,531,779 87,572 1,619,351
Land and Improvements......... 1,608,141 -- 1,608,141
Accumulated Depreciation...... 241,520 16,672 258,192
------------ ------------ ------------ ------------
Net Plant Property
& Equipment.................. 2,898,400 70,900 -- 2,969,300
------------ ------------ ------------ ------------
All Other Non-current Assets.......... (2,168,545) (958,409) 3,324,292 197,338
------------ ------------ ------------ ------------
TOTAL ASSETS.......................... $ 5,828,148 $ 2,416,299 $ 3,324,292 $ 11,568,739
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term Loans from Banks........... $ 5,688,363 $ 4,304,223 $ 9,992,586
Trade Accounts and Trade
Notes Payable........................ 4,055,927 1,116,559 5,172,486
Domestic Income Tax Accrued........... --
Current Portion from Capitalized Lease
Obligations.......................... 39,263 2,830 42,093
All Other Current Liabilities......... 472,851 311,517 784,368
Long-term Portion of Capital Lease
Obligations.......................... 56,896 5,462 62,358
All Other Long-term Liabilities
including Deferred Income Taxes...... 75,000 75,000
Common Stock.......................... 23,365,581 30 (30) 23,365,581
Retained Earnings at End of Period.. (27,925,733) (3,324,322) 3,324,322 (27,925,733)
------------ ------------ ------------ ------------
Stockholders' Equity................ (4,560,152) (3,324,292) 3,324,292 (4,560,152)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY................. $ 5,828,148 $ 2,416,299 $ 3,324,292 $ 11,568,739
============ ============ ============ ============
</TABLE>
Note (1): Consolidating Financial Statements does not include the Assets,
Liabilities, Capital, or results of Operations at Hericson Industries
Limited or its Subsidiaries.
Note (2): Information is unaudited.
<PAGE> 108
UNITECH INDUSTRIES, INC.
CONSOLIDATING SUMMARY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
-------------------------------------------------------------
1st QUARTER-November 1, 1995 to January 31, 1996
-------------------------------------------------------------
Unitech Unitech
Industries Acquisition
Inc. Corporation Elimination Condensed
------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME
Sales and Operating Revenues (Net of Returns and Allowances)........ $3,118,873 $ 3,606,023 $ 6,724,896
Cost of Goods Sold.................................................. 3,371,974 3,222,416 6,594,390
Selling Expenses.................................................... 158,963 -- 158,963
General and Administrative Expenses................................. 1,258,582 911,970 2,170,552
------------------------------------------------------------
Income (Loss) from Operations....................................... (1,670,646) (528,363) -- (2,199,009)
------------------------------------------------------------
Non-operating Income and Expenses (including interest income)....... (926,581) 4,956 523,407 (398,218)
Bankruptcy Expenses.................................................
------------------------------------------------------------
Income (Loss) Before Taxes.......................................... (2,597,227) (523,407) 523,407 (2,597,227)
------------------------------------------------------------
Provision for Domestic Income Taxes.................................
------------------------------------------------------------
Income (Loss) After Income Taxes.................................... $ (2,597,227) $ (523,407) $ 523,407 $(2,597,227)
============================================================
BALANCE SHEET (As of January 31, 1996)
ASSETS
Cash and Demand Deposits in the U.S. ............................... $ 414,688 $ 434,376 $ 849,064
Trade Accounts and Trade Notes Receivable (Less Allowance).......... 1,619,196 2,303,752 3,922,948
Inventories (at Lower of Cost or Market) ........................... 2,541,943 1,627,226 4,169,169
All Other Current Assets ........................................... 925,406 -- 925,406
Plant and Equipment, Including Construction in Progress ............ 998,501 87,571 1,086,072
Land and Improvements .............................. 1,588,270 -- 1,588,270
Accumulated Depreciation ........................... 178,102 12,274 190,376
------------------------------------------------------------
Net Plant Property & Equipment ..................... 2,408,669 75,297 2,483,966
------------------------------------------------------------
All Other Non-current Assets ....................................... (1,535,805) (1,915,283) 3,401,542 (49,546)
------------------------------------------------------------
TOTAL ASSETS ....................................................... $ 6,374,097 $ 2,525,368 $3,401,542 $12,301,007
============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term Loans from Banks ........................................ $ 5,174,203 $ 4,408,351 $ 9,582,554
Trade Accounts and Trade Notes Payable ............................. 5,048,830 1,000,058 6,048,888
Domestic Income Tax Accrued ........................................ 75,000 -- 75,000
Current Portion from Capitalized Lease Obligations ................. 57,899 2,880 60,779
All Other Current Liabilities ...................................... 549,777 509,508 1,059,285
Long-term Portion of Capital Lease Obligations ..................... 56,896 6,113 63,009
All Other Long-term Liabilities including Deferred Income Taxes .... --
Common Stock ....................................................... 23,365,582 30 (30) 23,365,582
Retained Earnings at End of Period ............................... (27,954,090) (3,401,572) 3,401,572 (27,954,090)
------------------------------------------------------------
Stockholders' Equity ............................................. (4,588,508) (3,401,542) 3,401,542 (4,588,508)
------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $ 6,374,097 $ 2,525,368 $ 3,401,542 $ 12,301,007
============================================================
</TABLE>
Note (1): Consolidating Financial Statements does not include the Assets,
Liabilities, Capital, or results of Operations of Hericson Industries
Limited or its Subsidiaries.
Note (2): Information is unaudited.
<PAGE> 109
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
PROJECTED OPENING CONSOLIDATED BALANCE SHEET
AS OF JANUARY 1, 1997
NOTES AND ASSUMPTIONS
(UNAUDITED)
INTRODUCTION
Unitech Industries, Inc. ("Unitech", or the "Company") and Subsidiaries have
prepared financial projections covering the period from January 1, 1997 through
October 31, 1999 (the "Projection Period").
The projection represents, to the best of management's knowledge and belief
(assuming the Company will implement a plan of reorganization and emerge from
bankruptcy during the first quarter of the fiscal year ending October 31,
1997), the expected financial position, results of operations, and cash flows
of the Company for the period January 1, 1997 through October 31, 1999
(including the proposed impact of settlement of claims subject to compromise as
part of the Chapter 11 reorganization). Additionally, this projection reflects
management's judgment as of September 1996, of expected future operating
conditions affecting Unitech and management's expected course of action. The
assumptions disclosed herein are those that management believes are significant
to the projection. There will normally be differences between the projected and
actual results because events and circumstances frequently do not occur as
expected. Those differences may be material and adverse.
The projection is based on a number of estimates and assumptions that, though
considered reasonable by management, are inherently subject to significant
economic and competitive uncertainties and contingencies beyond the control of
Unitech and management, and upon assumptions with respect to future business
decisions which are subject to change. Accordingly, there can be no assurance
that the projected results will be realized, and actual results may vary
materially from those projected. If actual results are lower than those shown,
or if the assumptions used in formulating the projection are not realized,
Unitech's cash flows could be adversely affected.
The reader is encouraged to refer to the Plan and Disclosure Statement for a
more detailed discussion of the financial terms of the Plan.
The pre-reorganization business was determined by considering the actual
operating results through August 31, 1996 and the forecasted results for the
period September 1, 1996 through December 31, 1996 to reflect estimated
consolidated balance sheet amounts as of December 31, 1996. The projected
opening consolidated balance sheet and reorganization adjustments reflect all
debt and equity restructuring and cash distributions resulting from the Plan.
Cash distributions under the Plan are assumed to occur on January 1, 1997 (the
"Effective Date") for purposes of these projections. Fresh Start Accounting as
defined by the American Institute of Certified Public Accountants, Statement of
Position 90-7, is likely not applicable to Unitech and has not been applied for
the purposes of this projected opening consolidated balance sheet.
<PAGE> 110
NOTES AND ASSUMPTIONS
CASH
Purchase of Stock
The increase in cash of $3,060,000 reflects the proceeds from the common stock
rights offering of 2,040,000 shares at $1.50 per share.
Exchange of Debt
The cash payments of $5,035,089 anticipated to be made on the First
Distribution Date are as follows:
<TABLE>
<S> <C>
Class 1A - Merrill Lynch Debt $2,143,089
Class 1B - Imperial Bank Debt 1,000,000
Class 2A - Unsecured Claims < $1,000 42,000
Class 2C - Unsecured Claims > $1,000 1,000,000
Administrative Expenses 850,000
----------
$5,035,089
==========
</TABLE>
OTHER ACCRUED LIABILITIES
The decrease in other accrued liabilities of $850,000 reflects the payment for
administrative expenses (professional fees) estimated to be $1,000,000, less a
professional fee retainer paid by the Company prior to the petition date of
$150,000.
NOTES PAYABLE -- NEW
The Plan provides for Class 1A (Merrill Lynch) and Class 1B (Imperial Bank) to
receive cash, preferred stock (Imperial Bank only) and new notes payable of
$4,018,282 in exchange for their claims. The following summarizes the terms of
the post-reorganized notes payable:
Merrill Lynch -- Promissory Note #1
- $2,000,000 principal
- 10% interest rate
- Maturity of December 31, 1999 or 3 years from the Closing Date
- Monthly Interest Payments for Year 1
- Monthly Principal and Interest Payments for Years 2 and 3
Merrill Lynch -- Promissory Note #2
- $500,000 principal
- 10% interest rate
- Maturity December 31, 1998 or 2 years from the Closing Date
- Monthly principal and interest for 2 years
Imperial Bank Debt
- $1,518,282 principal
- 12% interest rate
- Maturity of December 31, 1999 or 3 years from the Closing Date
- Quarterly Interest Payments
- Principal due at maturity
For purposes of the projection, it is assumed that the notes payable will be
paid-off or refinanced at maturity.
<PAGE> 111
NEW PREFERRED STOCK
The proposed new preferred stock has a Par Value of $1.50 per share. The
preferred stock adjustment of $5,533,675 reflects the anticipated debt for
preferred stock exchange of $1,200,000 (Class 1B - Imperial Bank debt) and
$4,333,675 (Class 2C - unsecured claims > $1,000) for 800,000 and 2,889,117
shares of preferred stock respectively.
COMMON STOCK
The common stock (no Par Value) adjustment reflects the rights offering of
2,040,000 shares at $1.50 per share. In addition, the Plan provides for (i) the
holders of common stock to receive two shares of common stock in the
reorganized company for every five shares held prior to the Confirmation Date
of the Plan; (ii) the Investor Group to receive 100,000 shares of common stock
for guaranteeing the common stock rights offering; and (iii) 500,000 shares of
common stock to be provided to management through a stock option plan(s).
RETAINED EARNINGS
The change in retained earnings reflects: (i) debt cancellation income of
$14,000 related to cash payment of 75 percent for the Class 2A claims; and (ii)
interest and fees of $500,000 related to the Merrill Lynch Promissory Note #2.
<PAGE> 112
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
PROJECTED OPENING CONSOLIDATED BALANCE SHEET
AS OF JANUARY 1, 1997
<TABLE>
<CAPTION>
Reorganization Adjustments
Projected -------------------------- Projected
Pre-Reorganized Purchase Exchange Reorganized
1/1/97 Of Stock Of Debt 1/1/97
--------------- ------------------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash................................ $ 906,915 $ 906,915
Cash - Investment................... 1,279,500 3,060,000 (5,035,089) (695,589)
Amounts Receivable - Trade, net..... 3,381,400 3,381,400
Amounts Receivable - Other.......... 378,111 378,111
Inventory........................... 2,896,040 2,896,040
Prepaids............................ 431,894 431,894
Deferred Income Taxes............... 41,500 41,500
Other Current Assets................ 139,002 139,002
----------- ---------- ----------- ------------
9,454,362 3,060,000 (5,035,089) 7,479,273
Fixed Assets
Land................................ -- --
FF&E................................ 1,397,453 1,397,453
Accumulated Depreciation - FF&E..... (413,491) (413,491)
----------- ---------- ----------- ------------
983,962 -- -- 983,962
Other Assets.......................... 194,957 -- -- 194,957
----------- ---------- ----------- ------------
$10,633,281 $3,060,000 $(5,035,089) $ 8,658,192
=========== ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable.................... $ 206,860 $ 206,860
Warranty Accrued.................... 163,818 163,818
Other Accrued Liabilities........... 994,854 (850,000) 144,854
Accrued Property Taxes.............. 38,700 38,700
Deferred Taxes...................... 75,000 75,000
Leases Payable - Current Portion.... 47,119 47,119
----------- ---------- ----------- ------------
1,526,351 -- (850,000) 676,351
Long Term Liabilities
Notes Payable - New................. -- 4,018,282 4,018,282
Liabilities Subject to Compromise... 13,251,046 (13,251,046) --
Leases Payable - Long Term Portion.. 3,326 3,326
----------- ---------- ----------- -------------
13,254,372 -- (9,232,764) 4,021,608
Total Liabilities..................... 14,780,723 -- (10,082,764) 4,697,959
Stockholders' Equity
Preferred Stock, $1.50 Par Value.... -- 5,533,675 5,533,675
Common Stock........................ 23,365,582 3,060,000 26,425,582
Retained Earnings................... (27,513,024) (486,000) (27,999,024)
----------- ---------- ----------- -------------
(4,147,442) $3,060,000 5,047,675 3,960,233
----------- ---------- ----------- -------------
$10,633,281 $3,060,000 (5,035,089) $ 8,658,192
=========== ========== =========== ==============
</TABLE>
See Accompanying Notes and Assumptions to Projected Opening
Consolidated Balance Sheet.
This Schedule and the Accompanying Notes and Assumptions
have not been subject to audit or review.
<PAGE> 113
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
PROJECTED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1997 THROUGH OCTOBER 31, 1999
NOTES AND ASSUMPTIONS
(Unaudited)
GENERAL ASSUMPTIONS AND DEFINITIONS
Responsibility for and purpose of the Financial Projection
Unitech Industries, Inc. ("Unitech", or the "Company") and Subsidiaries have
prepared financial projections covering the period from January 1, 1997 through
October 31, 1999 (the "Projection Period").
The projection represents, to the best of management's knowledge and belief
(assuming the Company will implement a plan of reorganization and emerge from
bankruptcy during the first quarter of the fiscal year ending October 31,
1997), the expected financial position, results of operations, and cash flows
of the Company for the period January 1, 1997 through October 31, 1999
(including the proposed impact of settlement of claims subject to compromise as
part of the Chapter 11 reorganization). Additionally, this projection reflects
management's judgment as of September 1996, of expected future operating
conditions affecting Unitech and management's expected course of action. The
assumptions disclosed herein are those that management believes are significant
to the projection. There will normally be differences between the projected and
actual results because events and circumstances frequently do not occur as
expected. Those differences may be material and adverse.
The projection is based on a number of estimates and assumptions, that though
considered reasonable by management are inherently subject to significant
economic and competitive uncertainties and contingencies beyond the control of
Unitech and management, and upon assumptions with respect to future business
decisions which are subject to change. Accordingly, there can be no assurance
that the projected results will be realized, and actual results may vary
materially from those projected. If actual results are lower than those shown,
or if the assumptions used in formulating the projection are not realized,
Unitech's cash flows could be adversely affected.
The reader is encouraged to refer to the Plan and Disclosure Statement for a
more detailed discussion of the financial terms of the Plan.
Assumptions Relating to Unitech's Reorganization
This financial projection considers the ongoing operations of Unitech and its
assumptions for managing its business, and are based on the settlement of the
liabilities subject to compromise as presented in the Plan.
Management has made certain assumptions regarding the form and effects of such
a plan of reorganization. Although management is currently unable to predict
how a final plan of reorganization might ultimately be structured -- and how
that projection might affect the Company's financial statements and tax
position (see Income Taxes below) -- Unitech's projected financial position
will be impacted by the decisions made relative to a plan of reorganization,
and the impact may be significant.
Hericson
The financial projections do not include the financial impact of the Company's
investment in its wholly-owned subsidiary Hericson Industries, Ltd.
<PAGE> 114
INCOME TAXES
Management has estimated that the Company will have significant Net Operating
Loss Carryforwards ("NOLs") at October 31, 1996. For purposes of these
projections, it is assumed that any income generated by the cancellation of
debt under the Plan can be off-set against the NOLs. It is further assumed that
the Company will not have the benefits of the NOLs in future years due to the
uncertainty regarding the changes in ownership which may occur under the Plan
or as a result of any changes to the Plan. However, users of the projection
should be aware that Unitech may be able to off-set future taxes through the
use of the NOLs which could significantly impact projected results of
operations and cash flows. In addition management has not currently determined
the effect the plan of reorganization will have on the Company's deferred tax
asset and liability accounts.
SUMMARY OF TERMS OF POST-REORGANIZED DEBT
Merril Lynch - Promissory Note #1
- $2,000,000 principal
- 10% interest rate
- Maturity of December 31, 1999 or 3 years from the Closing Date
- Monthly Interest Payments for Year 1
- Monthly Principal and Interest Payments for Years 2 and 3
Merrill Lynch - Promissory Note #2
- $500,000 principal
- 10% interest rate
- Maturity December 31, 1998 or 2 years from the Closing Date
- Monthly principal and interest for 2 years
Imperial Bank Debt
- $1,518,282 principal
- 12% interest rate
- Maturity of December 31, 1999 or 3 years from the Closing Date
- Quarterly Interest Payments
- Principal due at maturity
OPERATING ASSUMPTIONS
SALES
The Company's sales plan was developed taking into consideration the following
key elements
- Macroeconomic trends
- Industry trends and competition
- Marketing, merchandising and pricing strategies
- Advertising and promotional strategies
- Improved operational efficiencies
The Company continues to recover from the negative impact caused by its
bankruptcy filing and the change in management. Analysis was performed on the
product sales and sales recovery trends which resulted in sales plans developed
on a product by product basis. The sales projections were prepared giving
consideration to historical trends and recent performance with an overlay of
management's assessment and strategies relating to the above described key
elements.
GROSS PROFIT
Variable margins in the years 1997 through 1999 are based on 1996 year-to-date
results and were adjusted for process improvements and changes in product mix
and product pricing strategies.
<PAGE> 115
SALES & MARKETING
Sales and marketing expenses for 1997 are based on 1996 year-to-date results
and anticipated department expenditures. Sales and marketing expense for 1998
and 1999 are based on 1997 levels, adjusted for inflation.
ENGINEERING AND GENERAL AND ADMINISTRATION
Engineering and general and administration expenses for 1997 are based on 1996
year-to-date results and anticipated department expenditures. Engineering and
general and administration expenses for 1998 and 1999 are based on 1997 levels,
adjusted for inflation.
BALANCE SHEET ASSUMPTIONS
WORKING CAPITAL ACCOUNTS
Evaluation of the major balance sheet accounts, in connection with their
contribution to working capital changes for the statement of cash flows, were
performed to reflect the appropriate impact on the financial results of the
Company.
In general, historical information was reviewed to identify casual
relationships between balance sheet accounts and certain operating statistics,
including revenues and total operating expenses. Historical relationships were
modified to reflect the impact of current management strategies.
Due to the bankruptcy proceeding, several of the Company's creditors have
discontinued extending credit to Unitech. As Unitech emerges from Chapter 11,
it is assumed that creditor confidence will be restored and accounts payable
will return to a days outstanding level comparable to the Company's
pre-bankruptcy experience. The projection reflects accounts payable of five
days for the months of January through April 1997 and 10 days for the remainder
of the fiscal year. Accounts payable are then further increased to normal terms
beginning November 1, 1997.
FIXED ASSETS
The increase in the furniture, fixtures and equipment account reflects capital
expenditures expected to be made over the projection period.
STOCKHOLDERS' EQUITY
Preferred Stock
Preferred stock has a Par Value of $1.50 per share and reflects the anticipated
exchange of $1,200,000 of Imperial Bank debt and $4,333,675 of unsecured claims
for 800,000 and 2,889,117 shares of preferred stock, respectively.
Common Stock
Common stock (no Par Value) is adjusted to reflect the rights offering of
2,040,000 shares at $1.50 per share. In addition, the Plan provides for:
(i) the holders of common stock will receive two shares of common stock in the
reorganized company for every five shares held prior to the Confirmation Date
of the Plan; (ii) the Investor Group to receive 100,000 shares of common stock
for guaranteeing the common stock rights offering; and (iii) 500,000 shares of
common stock to be provided to management through a stock option plan(s).
<PAGE> 116
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
PROJECTED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR TEN MONTHS ENDING OCTOBER 31, 1997
AND THE YEARS ENDING OCTOBER 31, 1998 AND 1999
(Unaudited)
Years ending October 31,
------------------------------------------
(10 Months)
FY 1997 FY 1998 FY 1999
----------- ----------- -----------
NET SALES $19,997,530 $26,218,551 $30,232,349
COST OF SALES 13,766,717 18,170,252 20,733,857
----------- ----------- -----------
GROSS PROFIT 6,230,813 8,048,299 9,498,492
SALES & MARKETING 432,061 548,831 597,882
ENGINEERING 488,764 618,322 653,502
GENERAL & ADMINISTRATION 2,159,806 2,794,824 2,989,317
DEPRECIATION 242,769 329,391 386,691
----------- ----------- -----------
INCOME FROM OPERATIONS 2,907,413 3,756,931 4,871,100
----------- ----------- -----------
OTHER INCOME & EXPENSE 5,000 6,000 6,000
INTEREST EXPENSE 356,453 373,943 259,607
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,545,960 3,376,988 4,605,493
INCOME TAX PROVISION 1,018,384 1,350,795 1,842,197
----------- ----------- -----------
NET INCOME $ 1,527,576 $ 2,026,193 $ 2,763,296
=========== =========== ===========
SEE ACCOMPANYING NOTES AND ASSUMPTIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS.
THESE FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES AND ASSUMPTIONS
HAVE NOT BEEN SUBJECT TO AUDIT OR REVIEW.
<PAGE> 117
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
PROJECTED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 THROUGH 1999
(Unaudited)
<TABLE>
<CAPTION>
10/31/97 10/31/98 10/31/99
-------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $1,136,055 $ 1,077,480 $ 1,242,420
Cash -- Investment (795,214) 577,062 843,850
Accounts Receivable -- Trade, net 4,187,975 3,950,760 4,555,540
Accounts Receivable -- Other -- -- --
Inventory 3,564,330 3,484,740 3,976,350
Prepaids 431,894 431,894 431,894
Deferred Income Taxes 41,500 41,500 41,500
Other Current Assets 139,002 139,002 139,002
-------------------------------------------
8,705,542 9,702,438 11,230,556
FIXED ASSETS
FF&E 1,502,453 1,791,453 2,075,453
Accumulated Depreciation -- FF&E (656,260) (985,651) (1,372,342)
-------------------------------------------
846,193 805,802 703,111
-------------------------------------------
OTHER ASSETS 194,957 194,957 194,957
-------------------------------------------
$9,746,692 $10,703,197 $12,128,624
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 509,190 $ 1,493,460 $ 1,704,150
Warranty Accrual 204,016 196,639 226,743
Other Accrued Liabilities 144,854 144,854 144,854
Accrued Property Taxes -- -- --
Deferred Taxes 75,000 75,000 75,000
Leases Payable -- Current Portion 3,232 616 --
-------------------------------------------
936,292 1,910,569 2,150,747
LONG TERM LIABILITIES
Notes Payable -- New 3,821,974 2,778,626 1,700,580
Leases Payable -- Long Term Portion 616 0 0
-------------------------------------------
3,822,591 2,778,626 1,700,580
TOTAL LIABILITIES 4,758,883 4,689,196 3,851,327
STOCKHOLDERS' EQUITY
Preferred Stock, $1.50 Par Value 5,033,675 4,033,675 3,533,675
Common Stock 26,425,582 26,425,582 26,425,582
Retained Earnings (Deficit) (26,471,448) (24,445,255) (21,681,959)
-------------------------------------------
4,987,809 6,014,002 8,277,298
-------------------------------------------
$9,746,692 $10,703,197 $12,128,624
===========================================
</TABLE>
See Accompanying Notes and Assumptions to the Consolidated Financial Statements.
These Financial Statements and the Accompanying Notes and Assumptions
have not been subject to audit or review.
<PAGE> 118
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDING OCTOBER 31, 1997 AND THE YEARS ENDING
OCTOBER 31, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Year ending October 31,
-------------------------------------------
(10 Months)
FY 1997 FY 1998 FY 1999
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,527,576 $2,026,193 $2,763,296
Depreciation 242,769 329,391 386,691
Provision (Benefit) For Deferred Taxes -- -- --
(Increase) Decrease in Accounts Receivables - Trade (806,575) 237,215 (604,780)
(Increase) Decrease in Accounts Receivables - Other 378,111 -- --
(Increase) Decrease in Inventory (668,290) 79,590 (491,610)
(Increase) Decrease in Prepaids and Other Assets -- -- --
Increase (Decrease) in Accounts Payable 302,330 984,270 210,690
Increase (Decrease) in Other Current Liabilities 1,498 (7,377) 30,104
-------------------------------------------
Net Cash Provided (Used) By Operations 977,419 3,649,282 2,294,391
CASH FLOWS FOR INVESTING ACTIVITIES
Capital Expenditures (105,000) (289,000) (284,000)
-------------------------------------------
Net Cash Provided (Used) By Investing Activities (105,000) (289,000) (284,000)
CASH FLOWS FOR FINANCING ACTIVITIES
Payments On Capital Leases (46,597) (3,232) (616)
Payments On Notes Payable - New (196,308) (1,043,348) (1,078,047)
Redemption of New Preferred Stock (500,000) (1,000,000) (500,000)
-------------------------------------------
Net Cash Provided (Used) By Financing Activities (742,904) (2,046,580) (1,578,663)
NET INCREASE IN CASH 129,515 1,313,702 431,728
CASH BEGINNING OF PERIOD/YEAR 211,326 340,841 1,654,542
-------------------------------------------
CASH END OF YEAR $340,841 $1,654,542 $2,086,270
===========================================
</TABLE>
SEE ACCOMPANYING NOTES AND ASSUMPTIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS.
THESE FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES AND ASSUMPTIONS
HAVE NOT BEEN SUBJECT TO AUDIT OR REVIEW.
<PAGE> 119
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDATION ANALYSIS AS OF JUNE 30, 1996
NOTES AND ASSUMPTIONS
(Unaudited)
INTRODUCTION
In conjunction with developing the Plan of Reorganization included in the
Disclosure Statement to which this is an exhibit, management has prepared a
Liquidation Analysis (the "Analysis") which may be helpful to holders of claims
and interests in reaching their determination of whether to accept or reject the
Plan. The Analysis is based on the assumptions discussed below.
The Analysis reflects the management's estimates of the proceeds that would
be realized if Unitech were to liquidate in accordance with Chapter 7 of the
Bankruptcy Code. The Analysis is based on the Debtors' assets as of June 30,
1996. Underlying the Analysis are a number of estimates and assumptions that,
although developed and considered reasonable by management, are inherently
subject to significant economic and competitive uncertainties and contingencies
beyond the control of Unitech and its management and upon assumptions with
respect to liquidation decisions which could be subject to change. Therefore,
the results of an actual liquidation of the Debtors could vary from the
projected amounts and these variations could be material. Accordingly, there can
be no assurance that the values reflected in the Analysis would be realized if
the Unitech Debtors were, in fact, to undergo such a liquidation.
The issue of potential recoveries resulting from potential preference
claims, fraudulent conveyance litigation and reclamation claims have not been
addressed in the Analysis.
No amounts have been deducted from the proceeds available for distribution
to creditors for the payment of potential taxes related to the receipt of
settlement proceeds or asset sales. Please read the Disclosure Statement for a
discussion of the tax risks associated with the Plan.
All of the claims included in this Analysis are subject to Bankruptcy Court
Approval. The Unitech Debtors may object to certain of these claims at a later
date and do not represent that these claims are valid.
The following notes describe the significant assumptions, developed by
management, that are reflected in the Analysis.
NOTES AND ASSUMPTIONS
CASH
The Analysis assumes that subsequent operations during the liquidation
period will not effect cash available for distribution except as reflected by
the net proceeds generated by liquidating non-cash assets.
ACCOUNTS RECEIVABLE
Accounts Receivable consists entirely of third party receivables. The
recovery on the accounts receivable is based on management's estimate of
collection, given such factors as the aging of the receivables, the time and
effort necessary to inquire, research and rebill disputed items and the
disruption in Unitech personnel available to actively investigate and resolve
the accounts.
<PAGE> 120
EXHIBIT 3
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDATION ANALYSIS
AS OF JUNE 30, 1996
($000'S OMITTED)
(UNAUDITED)
STATEMENT OF ASSETS
<TABLE>
<CAPTION>
ESTIMATED
BOOK RECOVERY LIQUIDATION
VALUE % VALUE
------- -------- -----------
<S> <C> <C> <C>
Current assets
Cash $ 2,544 100% $2,544
Accounts receivable, net 3,204 73% 2,339
Inventory, net 3,416 53% 1,805
------- -------- -----------
Total Current Assets $ 9,164 73% $6,688
Fixed assets
Furniture and fixtures, net $ 159 26% $ 41
Equipment, net 660 42% 280
Leasehold improvements, net 10 0% -
------- -----------
Total Fixed Assets $ 829 39% $ 321
Other Assets $ 786 13% $ 103
Total Assets $10,779 66% $7,112
Total Available for Payments $7,112
Costs Associated with Liquidation
Chapter 7 Trustee fees ($213)
Professional fees (150)
-----------
Total Costs Associated with Liquidation $ (363)
-----------
Net Estimated Liquidation Proceeds $6,749
===========
</TABLE>
See accompanying Notes and Assumptions to the Liquidation Analysis.
This Liquidation Analysis and the accompanying Notes and Assumptions
have not been subject to audit or review.
<PAGE> 121
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDATION ANALYSIS
AS OF JUNE 30, 1996
($000'S OMITTED)
(UNAUDITED)
Allocation of Net Estimated
Liquidation Proceeds
<TABLE>
<CAPTION>
Amount Amount
Claim of Claim Available Recovery
Amount Recovered for Payments %
------- --------- ------------ --------
<S> <C> <C> <C> <C>
Net Estimated Liquidation Proceeds.... $6,749
Secured Claims(A)..................... $ 5,220 $5,220 $6,749 100%
Administrative Expenses............... 1,462 1,462 1,528 100%
Priority Unsecured Claims............. 39 39 66 100%
Other Unsecured Claims................ 8,978 27 27 0%
------- ------
$15,699 $6,749
======= ======
</TABLE>
Notes:
(A) The table below presents the total claim, secured claim and unsecured
claim amounts for the Merrill Lynch, Imperial Bank, and capital lease
claims:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Secured Unsecured Portion
Total Claim Claim of Claim*
----------- ------- -----------------
<S> <C> <C> <C>
Merrill Lynch Claim....... $4,679 $2,984 $1,695
Imperial Bank Claim....... 4,124 2,153 1,971
Capital Losses............ 83 83 0
------ ------ ------
$8,886 $5,220 $3,666
</TABLE>
- ----------------
* Unsecured portions of claims are included in the "Other Unsecured Claims"
amount.
- --------------------------------------------------------------------------------
See accompanying Notes and Assumptions to the Liquidation Analysis.
This Liquidation Analysis and the accompanying Notes and Assumptions have not
been subject to audit or review.
<PAGE> 122
INVENTORIES
Inventories consist mainly of raw materials and finished goods. The recovery on
Unitech's inventories is based on management's estimates of the amounts that
could be realized through the sale of finished goods inventory to mass
merchandisers and the sale of raw materials inventory to distributors and
suppliers of Unitech's major customers. Accordingly, Unitech's management
believes that significant price reductions would be required in order to sell
the inventory currently on hand.
FIXED ASSETS
Net fixed assets include the Debtors' fixtures, equipment, and molds.
Management's estimates of the liquidation values are based on an in-house
review and are based on factors such as the type and age of the asset.
OTHER ASSETS
Other assets include prepaids, deferred taxes, a disputed asset, and
intercompany investments. Estimates by management are based on a review of
refundable deposits and prepaids.
ALLOCATION OF NET LIQUIDATION PROCEEDS TO SECURED CLAIMS AND PRIORITY CLAIMS
The allocation of the net liquidation proceeds has been made in accordance with
the priorities set forth in the Bankruptcy Code. The Estimated Allowable Claims
are based on the Unitech Debtors' projected liabilities as of June 30, 1996.
The Secured Claims consist of balances outstanding on Merrill Lynch, Imperial
Bank Loans, and certain capital leases which are secured by certain cash
balances, inventories and accounts receivable. The other claims that are
entitled to priority treatment consist of Administrative Expenses and Priority
Unsecured Claims. These claims include tax claims and Chapter 11 administrative
claims consisting of current liabilities, professional fees and damage claims
resulting from the rejection of certain post-petition real property leases and
employment contracts.
ALLOCATION OF NET LIQUIDATION PROCEEDS TO UNSECURED CLAIMS
It is assumed that the allocation of net liquidation proceeds, if any, would be
made in accordance with the priorities set forth in the Bankruptcy Code. The
Estimated Allowable Claims are based on the Unitech Debtors' projected
liabilities as of June 30, 1996. Other Unsecured Claims include prepetition
accounts payable, the under-secured portion of the balances owing on notes
payable and estimates for the additional claims that would arise upon a
conversion to a chapter 7 liquidation, such as damages related to the rejection
of certain prepetition executory contracts.
<PAGE> 123
EXHIBIT 4
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
COMPARISON OF ESTIMATED DISTRIBUTIONS
(UNAUDITED)
The table below sets forth a comparison of the estimated distributions under
the Plan with the estimated recoveries in a hypothetical Chapter 7 liquidation
of the Debtors. Creditors should be aware that the estimated recoveries in a
Chapter 7 liquidation are presented on a theoretical basis, relying on assumed
results as to the values of both assets and liabilities. No assurance can be
given that the hypothetical scenario reflect the amounts that will actually be
realized in a liquidation of the Debtors' assets.
Plan
Claim Treatment Liquidation
- ---------------------------------------------------------------------
Secured Claims
Class 1A - Merrill Lynch 100% 64%
Class 1B - Imperial Bank 100% 52%
Class 1C - Other Secured Claims 100% 100%
- ---------------------------------------------------------------------
Unsecured Claims
Class 2A 75% 0%
Class 2B 100% 0%
Class 2C 100% 0%
- ---------------------------------------------------------------------
Equity Interests
Class 3A See Footnotes 0%
Class 3B 0% 0%
Class 3C See Footnotes 0%
- ---------------------------------------------------------------------
See Accompanying Notes to the Comparison of Estimated Distributions.
This Schedule and Accompanying Notes and Assumptions have not been subject to
audit or review.
<PAGE> 124
UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
COMPARISON OF ESTIMATED DISTRIBUTIONS
NOTES AND ASSUMPTIONS
(UNAUDITED)
GENERAL ASSUMPTIONS
The recoveries in a hypothetical liquidation assume the asset recoveries,
expense assumptions and claim amounts which are set forth in the Liquidation
Analysis, Exhibit 3 to the Disclosure Statement.
The reader is encouraged to refer to the Plan and Disclosure Statement for
a more detailed discussion of the financial terms of the Plan.
NOTES AND ASSUMPTIONS
CLASS 3A
Under the terms of the Plan, current owners of common stock are to receive two
shares of new common stock for every five shares of common stock which they
currently hold. Therefore, assuming that current owners receive 2,080,000 shares
of new common stock and a per share price of $1.50, equity interest will receive
$3,120,000.
CLASS 3C
Class 3C is comprised of claims held by current and former owners of common
stock for damages or rescission relating to claims arising in connection with
such holders purchase, ownership or sale of such common stock. Class 3C claims
will receive rights to certain litigation proceeds, estimated by the Debtors to
be approximately $950,000, as defined in the Plan.
<PAGE> 1
Exhibit 7.2
G. Christopher Meyer, Esq. (Ohio Bar #0016268)
Mark A. Nadeau, Esq. (#011280)
Rawle Andrews, Jr., Esq. (D.C. Bar #436283)
Squire, Sanders & Dempsey L.L.P.
40 North Central, Suite 2700
Phoenix, Arizona 85004
(602) 528-4000
Attorneys for Debtors
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
UNITECH INDUSTRIES, INC., and related ) Case No. 96-818-PHX-RGM
proceedings, ) (Joint Administration Only)
)
Debtors. ) AMENDED DISCLOSURE
) STATEMENT IN CONNECTION WITH
APPLICABLE DEBTOR(S) (Check) ) SOLICITATION OF BALLOTS FOR
) DEBTORS' AMENDED JOINT PLAN
UNITECH ACQUISITION CORP. /X/ ) OF REORGANIZATION UNDER
(Case No. 96-819-PHX-RGM) ) CHAPTER 11 OF THE BANKRUPTCY
) CODE
UNITECH INDUSTRIES, INC. /X/ )
(Case No. 96-818-PHX-RGM) )
)
DATED: November 11, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
A. INTRODUCTION............................................................ 1
1. Purpose of Disclosure Statement.............................. 1
2. Ballots and Financial Information............................ 1
B. SUMMARY OF DISCLOSURE STATEMENT AND PLAN................................ 2
1. Background and Purpose of the Plan........................... 2
2. Overview of the Plan......................................... 3
a. Classification of Creditors and Interests............. 3
b. Voting Procedures and Requirements.................... 4
c. Elements of the Plan.................................. 5
d. Treatment Under the Plan.............................. 6
3. Creditor Recoveries Under Alternatives to the Plan........... 7
4. Risks Regarding Confirmation................................. 7
C. VOTING PROCEDURES AND REQUIREMENTS...................................... 8
1. Eligibility to Vote.......................................... 8
2. Voting Instructions.......................................... 8
D. BACKGROUND REGARDING THE DEBTORS........................................ 9
1. General Background Information............................... 9
2. Current Operating Locations.................................. 11
3. Adverse Financial Disclosures................................ 11
4. Securities Class Actions..................................... 12
5. Initial Steps by New Management.............................. 13
E. SIGNIFICANT EVENTS DURING THE REORGANIZATION CASE....................... 13
1. Official Unsecured Creditors' Committee...................... 14
2. Authorization to Use Cash Collateral......................... 14
3. Debtors' Post-Petition Operations............................ 15
4. Sale of Proposed Headquarters Facility....................... 15
5. The Investor Proposal........................................ 16
F. THE PLAN................................................................ 18
1. Overview of Chapter 11 Reorganization........................ 18
2. Treatment of Administrative Expenses and Unsecured Tax Claims 19
a. Administrative Expenses............................... 19
b. Unsecured Tax Claims.................................. 19
3. Classification and Treatment of Classes Under the Plan....... 19
a. Class 1A -- Merrill Lynch Claims...................... 21
b. Class 1B -- Imperial Bank Claims...................... 21
c. Class 1C -- Other Secured Claims...................... 21
i
<PAGE> 3
d. Class 2A -- Convenience Claims........................ 22
e. Class 2B -- Intercompany Claims....................... 23
f. Class 2C -- General Unsecured Claims.................. 23
g. Class 3A -- Common Stock Interests.................... 24
h. Class 3B -- Options and Warrants...................... 24
i. Class 3C -- Securities Claims......................... 25
4. Allowance of Claims and Interests............................ 25
a. Scheduled Claims...................................... 25
b. Proofs of Claim....................................... 25
c. Objections to Claims.................................. 26
d. Issuance of New Common Stock.......................... 26
e. Estimated Professional Fees........................... 26
5. Other Plan Provisions........................................ 27
a. Amendments to Certificate of Incorporation............ 27
b. Retention of Jurisdiction by the Bankruptcy Court..... 28
c. Executory Contracts and Unexpired Leases.............. 28
d. Reserved Causes of Action............................. 28
e. Means for Execution of the Plan....................... 30
f. Subsequent Plan Distributions to Holders of
Unsecured Claims.................................... 30
g. Discharge............................................. 30
h. Binding Effect of the Plan............................ 30
i. Modification of the Plan.............................. 31
j. Implementation of the Plan............................ 31
k. Exit Financing Alternatives........................... 31
G. CONFIRMATION OF THE PLAN................................................ 31
1. Requirements for Plan Confirmation........................... 31
2. Confirmation of the Plan Without Acceptance by All
Voting Classes............................................. 32
H. ALTERNATIVES TO THE PLAN................................................ 34
1. Liquidation under Chapter 7.................................. 34
2. Alternative Plans............................................ 34
I. DESCRIPTION OF NEW COMMON STOCK......................................... 35
J. DESCRIPTION OF NEW PREFERRED STOCK...................................... 35
K. CERTAIN FEDERAL TAX CONSEQUENCES........................................ 38
1. Creation of and Transfer to New Unitech...................... 38
2. Consequences To Holders of Certain Claims.................... 39
a. Importance of Whether Certain Debt Instruments
Constitute "Securities".................................. 39
b. Holders of Class 1A - Merrill Lynch Claims............... 39
c. Holders of Class 1B - Imperial Bank Claims............... 40
d. Holders of Class 2A - Convenience Claims................. 43
e. Holders of Class 2C - Unsecured Claims................... 43
ii
<PAGE> 4
f. Holders of Class 3A - Common Stock....................... 45
g. Reserve Fund for Subsequently Allowed Claims or
Interests................................................ 45
h. Character of Gain, Basis, and Holding Period............. 45
i. Treatment of Accrued But Unpaid Interest................. 46
j. Original Issue Discount.................................. 46
k. Backup Withholding....................................... 46
3. Consequences to the Debtors.................................. 47
a. Reductions of the Debtors' Indebtedness.................. 47
b. Limitation on Use of NOLs................................ 48
L. CERTAIN SECURITIES LAW MATTERS.......................................... 49
M. FEES AND EXPENSES RELATING TO THE PLAN.................................. 50
N. STOCK PURCHASE AGREEMENT................................................ 50
O. MANAGEMENT OF REORGANIZED DEBTOR........................................ 51
P. CURRENT AND PROJECTED FINANCIAL INFORMATION............................. 53
Q. CONCLUSION.............................................................. 61
iii
<PAGE> 5
LIST OF EXHIBITS
EXHIBIT 1 - PLAN OF REORGANIZATION
EXHIBIT A TO PLAN - DEFINITIONS
EXHIBIT B TO PLAN - TERMS OF MERRILL SECURED NOTES
EXHIBIT C TO PLAN - TERMS OF IMPERIAL SECURED NOTES
EXHIBIT D TO PLAN - STOCK PURCHASE AGREEMENT
EXHIBIT E TO PLAN - AMENDED CERTIFICATES OF INCORPORATION
EXHIBIT 2 - CURRENT AND PROJECTED FINANCIAL INFORMATION
EXHIBIT 3 - LIQUIDATION ANALYSIS
EXHIBIT 4 - COMPARISON OF ESTIMATED DISTRIBUTIONS
iv
<PAGE> 6
A. INTRODUCTION
1. PURPOSE OF DISCLOSURE STATEMENT
Unitech Industries, Inc. ("Unitech") and Unitech Acquisition
Corp., ("Solidex" and, collectively with Unitech, the "Debtors") have prepared
this Amended Disclosure Statement (the "Disclosure Statement") in connection
with the solicitation of acceptances of their proposed Amended Joint Plan of
Reorganization which is attached as Exhibit 1 to this Disclosure Statement (the
"Plan"). The purpose of this Disclosure Statement is to give holders of Claims
and Interests sufficient information to permit them to cast an informed vote to
accept or reject the Plan. Capitalized terms used and not defined in this
Disclosure Statement have the meanings specified in the Plan.
On [ ], 1996, the Bankruptcy Court approved this Disclosure
Statement for use by Debtors in connection with their solicitation of
acceptances of the Plan. No statements or information from any source concerning
the Debtors or the Plan are authorized, other than as set forth in this
Disclosure Statement.
2. BALLOTS AND FINANCIAL INFORMATION
A FORM OF BALLOT (THE "BALLOT") APPROPRIATE TO THE CLAIM HELD,
CONTAINING DETAILED INSTRUCTIONS REGARDING VOTING PROCEDURES, IS PROVIDED WITH
THIS DISCLOSURE STATEMENT. SUCH BALLOT AND ACCOMPANYING INSTRUCTIONS SHOULD BE
REVIEWED CAREFULLY.
If Claims are held in more than one class and votes will be
cast in more than one class, separate Ballots must be submitted for each class
of Claims. Ballots must be received by 5:00 p.m., Mountain Time, on [ ], 1996.
For detailed voting instructions, as well as the name(s) and address(es) of the
person(s) who may be contacted with questions regarding voting procedures, see
Section C. "Voting Procedures and Requirements."
DEBTORS BELIEVE THAT ACCEPTANCE OF THE PLAN IS IN THE BEST
INTEREST OF CREDITORS AND SHAREHOLDERS AND THE DEBTORS THEREFORE RECOMMEND THAT
CREDITORS AND SHAREHOLDERS VOTE TO ACCEPT THE PLAN.
THE DEBTORS HAVE SOUGHT TO ASSURE THAT INFORMATION CONTAINED
IN THIS DISCLOSURE STATEMENT IS COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS.
HOWEVER, NEITHER THE FINANCIAL INFORMATION CONCERNING THE DEBTORS CONTAINED
HEREIN NOR THE PROJECTIONS CONCERNING FUTURE OPERATIONS OF THE REORGANIZED
DEBTOR HAS BEEN SUBJECT TO AN AUDIT. YOU ARE URGED TO CAREFULLY READ THIS
DISCLOSURE STATEMENT AND ALL ACCOMPANYING EXHIBITS IN ORDER TO FORMULATE AN
INFORMED OPINION AS TO THE MANNER IN
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<PAGE> 7
WHICH THE PLAN AFFECTS ALL CLAIMS AGAINST, OR INTEREST IN, THE DEBTORS AND TO
DETERMINE WHETHER TO ACCEPT THE PLAN.
B. SUMMARY OF DISCLOSURE STATEMENT AND PLAN
The following is a summary of certain information contained
elsewhere in this Disclosure Statement. This summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Disclosure Statement, which should be
read fully and carefully. Capitalized terms used in the following summary and
not defined have the meanings specified elsewhere in this Disclosure Statement.
1. BACKGROUND AND PURPOSE OF THE PLAN
Since the commencement of these Chapter 11 cases on January
25, 1996, (the "Petition Date") the Debtors have operated as debtors in
possession under Chapter 11 of the Bankruptcy Code. Such operations have
included the continuation of the Debtors' pre-petition ordinary course
activities. Other transactions and activities have been conducted by the Debtors
only with the prior approval of the Bankruptcy Court, as required by the
Bankruptcy Code.
At the time the Debtors commenced their Chapter 11 cases,
substantial uncertainty existed with respect to the Debtors' assets and
liabilities, as well as with respect to the financial results of the Debtors'
pre-petition operations. The lack of adequate financial controls and systems had
resulted in material inaccuracies in the Debtors' financial books and records.
For further detail, See Section D.3., "Adverse Financial Disclosures."
During December 1995, following the discovery of the
inaccuracies in the Debtors' books and records, Mr. Gerald C. Bellis was
employed as the President and Chief Executive Officer by the Debtors to seek to
remedy the Debtors' operational and financial reporting problems. Such issues
had to be addressed in order to permit a knowledgeable decision to be made
regarding the Debtors' prospects for a successful reorganization. During May
1996, Debtors hired Virland A. Johnson as Chief Financial Officer and Secretary
to the Debtors for purposes of, among other things, bringing order to the
Debtors' financial records and management information systems.
Following Management's efforts during the spring of 1996 to:
examine and evaluate the Debtors' assets and liabilities, reduce overhead
expenditures and implement appropriate financial controls, the Debtors concluded
that their businesses could be successfully reorganized and operated.
Accordingly, the Debtors turned their attention toward the development of a plan
of reorganization to provide for distributions to the various groups of claims
and interests and for the recapitalization of the Debtors on a basis appropriate
to their post-bankruptcy operations.
The Debtors have considered several possible business
transactions as a potential basis for a plan of reorganization. These have
included transactions in which third parties would
2
<PAGE> 8
acquire, for cash, the assets of various portions of the Debtors' existing
businesses. The most concrete of such proposals was a preliminary proposal by
Cable Systems International Inc. to acquire substantially all of the Debtors'
assets for a cash payment of approximately $6 million. In addition, the Debtors
have reviewed and discussed the transaction proposed by Patriot Advisers, Inc.
which is proposed to form the basis for the plan of reorganization to which this
Disclosure Statement pertains. For further discussion, See Section E.5., "The
Investor Proposal" and Section N., "Stock Purchase Agreement."
In deciding to pursue the proposed Patriot transaction, the
Debtors' principal objective has been to maximize the values for the benefit of
the creditors and equity security holders. In the Debtors' view, the principal
deficiency in the asset purchase transactions proposed to date is that they
failed to provide recovery for the going concern value of the Debtors'
businesses. Following a disposition of the Debtors' assets, any going concern
value would result in increased realization by the purchaser rather than by the
Debtors' creditors and equity security holders. Only the proposed Patriot
transaction permits existing constituencies to participate in a future
appreciation in value.
As described above, the Debtors have considered various
reorganization approaches, including but not limited to the possibility of a
so-called "bootstrap" plan to reorganize without outside capital, the potential
sale of all or part of the Debtors' business assets, and a plan incorporating
new capital provided by a third party or group of third parties. The Debtors
believe that implementation of the Plan as structured by the Debtors is the
alternative which best accomplishes the Debtors' above-stated goals. The purpose
of this Plan is to effect a financial restructuring of the Debtors by obtaining
new capital, reducing and restructuring outstanding indebtedness and converting
certain debt to equity so that the Debtors' restructured indebtedness can be
serviced through funds generated from the Debtors' businesses.
2. OVERVIEW OF THE PLAN
a. CLASSIFICATION OF CREDITORS AND INTERESTS
The Bankruptcy Code requires claims of creditors and equity
interests to be classified into classes containing Claims and Interests that are
substantially similar. The Plan provides for the following classes of Claims and
Interests:
Class 1A - Secured and Unsecured Claims of Merrill Lynch
Business Financial Services, Inc. ("Merrill Lynch")
under the WCMA and Term Loan and Security Agreement
and related agreements, instruments and orders, all
as more fully described in the Plan (collectively and
as amended from time to time, the "Merrill Loan
Agreement") between Merrill Lynch and the Debtors.
Class 1B - Secured and Unsecured Claims of Imperial Bank
("Imperial Bank") under the General Security
Agreement, the Security and Loan Agreement and
related agreements, instruments and orders, all as
more fully described in the Plan (collectively and as
amended from
3
<PAGE> 9
time to time, the "Imperial Loan Agreement") between
Imperial Bank and the Debtors.
Class 1C - Secured Claims, if any, other than the Merrill Lynch
Claims and the Imperial Bank Claims.
Class 2A - Unsecured Claims (excluding Claims in Class 2B) which
are for $1,000 or less and of Unsecured Claims which
would otherwise be Class 2C Claims but which have
been reduced to $1,000 prior to the Confirmation Date
by satisfactory election of the Claim holder.
Class 2B - Unsecured Claims of the direct or indirect
subsidiaries of either of the Debtors or of entities
of which either of the Debtors are a direct or
indirect subsidiary.
Class 2C - Unsecured Claims, excluding those Claims in Classes
1A, 1B, 2A and 2B.
Class 3A - Interests of existing holders of common stock of
Unitech.
Class 3B - Interests of holders of options, warrants or similar
rights to purchase shares of common stock of Unitech.
Class 3C - Claim of current or former holders of common stock of
Unitech for rescission or damages arising in
connection with the purchase, ownership or sale of
Unitech common stock.
See Section F.3. "Classification and Treatment of Classes under the Plan."
b. VOTING PROCEDURES AND REQUIREMENTS
The solicitation period for ballots with respect to the Plan
will expire at 5:00 p.m., Mountain Time, on [ ], 1996, unless the Debtors extend
the period during which ballots will be accepted. Except to the extent allowed
by the Bankruptcy Court, ballots received after the expiration of the
solicitation period will not be accepted or used by the Debtors in connection
with the confirmation of the Plan or any modification of the Plan. See Section
C. "Voting Procedures and Requirements."
Only classes that are Impaired under the Plan are entitled to
vote to accept or reject the Plan. As a general matter, a class of Claims or
Interests is considered to be Impaired unless: (i) the plan of reorganization
does not alter the legal, equitable and contractual rights of the holders of
such Claims or Interests; or (ii) the plan provides for full cash satisfaction
of such Claims or Interests. The Debtors have determined that Class 1A (Merrill
Lynch Claims), Class 1B (Imperial Bank Claims), Class 2A (Convenience Claims),
Class 2C (General Unsecured Claims), Class 3A (Common Stock Interests) and
Class 3C (Securities Claims) are Impaired under the Plan and entitled to vote on
the Plan.
4
<PAGE> 10
Class 1C (Other Secured Claims) and Class 2B (Intercompany
Claims) are not Impaired since the rights of holders of Class 1C and Class 2B
Claims will not be altered by the Plan. Under the Bankruptcy Code, holders of
Claims in an unimpaired class are conclusively presumed to have accepted the
Plan, and thus holders of Claims in Class 1C and Class 2B are not entitled to
vote upon the Plan.
The Plan provides for no distributions to holders of Interests
in Class 3B (Options and Warrants). Such holders are presumed to have voted
against the Plan and will not be solicited.
An Impaired class of Claims or Interests will be determined to
have accepted the Plan if holders of at least two-thirds in dollar amount and
more than one-half in number of holders of Claims in that class voting on the
Plan vote in favor of the Plan. See Section F.3. "Classification and Treatment
of Classes under the Plan" and Section C. "Voting Procedures and Requirements."
c. ELEMENTS OF THE PLAN
The Plan is designed to implement the financial restructuring
of the Debtors, in part, through the acquisition of an ownership interest in
reorganized Unitech by a group of investors that are affiliated with certain
present and former shareholders of Unitech (the "Investors"). Such acquisition
would be made pursuant to the Stock Purchase Agreement which is attached as
Exhibit D to the Plan (the "Stock Purchase Agreement"). The proceeds from such
acquisition, together with cash presently held by the Debtors or generated from
future operations, will be utilized to satisfy creditor claims in these
bankruptcy cases, as more fully set forth in the Plan. For further details
regarding the Investors and the Stock Purchase Agreement, See Section E.5., "The
Investor Proposal" and Section N., "Stock Purchase Agreement".
The Plan provides for the reorganized Debtors to receive
approximately $3,000,000 of new capital through the issuance of approximately
2,040,000 shares of New Common Stock. Such shares would be issued: (i) to the
Investors, under the Stock Purchase Agreement; (ii) to the existing Unitech
common shareholders exercising their rights under the rights offering contained
in the Plan; and (iii) to the Investors, to the extent that existing
shareholders do not elect to exercise their subscription rights. Following
closing under the Stock Purchase Agreement and consummation of the Plan, and
depending on the number of existing shareholders which elect to exercise their
subscription rights, the Investors will own from approximately 26% to 51% of the
outstanding New Common Stock of reorganized Unitech. See Section F.4.d.,
"Allowance of Claims and Interests -- Issuance of New Common Stock" and Section
N., "Stock Purchase Agreement".
d. TREATMENT UNDER THE PLAN
The following summarizes the treatment under the Plan of each
class of Claims and Interests.
5
<PAGE> 11
<TABLE>
<CAPTION>
CLASS TREATMENT
DESCRIPTION UNDER THE PLAN
<S> <C>
Class 1A -- Merrill Lynch Claims Distribution, on the Effective Date, of: (i)
$2,000,000 in Cash, and (ii) the Merrill Secured
Notes, with a projected face amount of
approximately $2,500,000 and on terms and
conditions as set forth in Exhibit B to the
Plan.
Class 1B -- Imperial Bank Claims Distribution, on the Effective Date, of: (i)
$1,000,000 in Cash, (ii) 800,000 shares of New
Preferred Stock, and (iii) the Imperial Secured
Note, with a projected face amount of
approximately $1,518,282 and on terms and
conditions as set forth in Exhibit C to the Plan.
Class 1C -- Other Secured Claims The rights of holders of Other Secured Claims, if
any, will not be altered by the Plan.
Class 2A -- Convenience Claims Distribution, on the Distribution Date, of 75% of
Allowed Claims, in Cash.
Class 2B -- Intercompany Claims The rights of holders of Intercompany Claims will
not be altered by the Plan.
Class 2C -- General Unsecured Claims Distribution, on the Distribution Date, of: (i)
20% of Allowed Claims, in Cash up to an
aggregate maximum amount of One Million
Dollars ($1,000,000), and (ii) one share of New
Preferred Stock for each $1.50 of the remaining
balance of such Allowed Claims.
Class 3A -- Common Stock Interests Existing owners of Common Stock shall receive
(for each outstanding share of Common Stock
held, but subject to specific limitations on
fractional shares): (i) .4 of a share of New
Common Stock, on or after the Distribution Date;
and (ii) the right to subscribe for up to .2 of a
share of New Common Stock on the Effective
Date, for a price of $1.50 per share in Cash.
Class 3B -- Options and Warrants No distribution will be made under the Plan.
Unexercised options and warrants will be
canceled.
</TABLE>
6
<PAGE> 12
Class 3C -- Securities Claims The Debtors' interest in applicable
liability insurance policies will be
assigned to the holders of such claims, as
their interest may appear.
For a more detailed discussion of the classification and treatment of allowed
claims and interests, see Section F.3., "Classification and Treatment of Classes
under the Plan."
3. CREDITOR RECOVERIES UNDER ALTERNATIVES TO THE PLAN
The Disclosure Statement contains information which compares
creditor recoveries under the Plan to recoveries under a hypothetical Chapter 7
liquidation of the Debtors. For a comparison between treatment under the Plan
and treatment in a hypothetical liquidation of the Debtors, See "Exhibit 3 --
Liquidation Analysis", and "Exhibit 4 -- Comparison of Estimated Distributions".
The Disclosure Statement also contains information regarding the comparison
between the treatment provided under the Plan and the treatment projected by the
Debtors under the asset purchase proposals considered by the Debtors as an
alternative to the Plan. See Section E.5., "The Investor Proposal" and Section
N., "Stock Purchase Agreement."
4. RISKS REGARDING CONFIRMATION
In general, in order to have the Plan confirmed, each class of
Impaired Claims and Interests will be given the opportunity to vote on the Plan.
In the event any Impaired class of Claims or Interests fails to accept the Plan,
the Debtors may request confirmation pursuant to the "cram-down" provisions of
the Bankruptcy Code, which would allow confirmation of the Plan even though some
Impaired classes of Claims or Interests have not accepted the Plan. There can be
no assurance that any class of creditors or interest holders will accept the
Plan or that, in the absence of such acceptance, the Debtors would be able to
use the cram-down provisions of the Bankruptcy Code to confirm the Plan. See
Section G.2., "Confirmation of the Plan without Acceptance by All Voting
Classes."
The Bankruptcy Code requires that a Plan must provide the same
treatment for each claim or interest in a particular class, unless a holder
agrees to a less favorable treatment of its particular claim or interest. The
Debtors believe that they have complied with the requirements of the Bankruptcy
Code by their classification and treatment of various creditors under the Plan.
However, if a member of a class objects to its treatment, or if the Bankruptcy
Court finds that the Plan does not comply with the requirements of the
Bankruptcy Code, confirmation of the Plan could be delayed or prevented. See
Section F.3., "Classification and Treatment of Classes under the Plan."
7
<PAGE> 13
C. VOTING PROCEDURES AND REQUIREMENTS
1. ELIGIBILITY TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only
classes of Claims or equity Interests which are "Impaired" are entitled to vote
to accept or reject the Plan. For a complete description of the requirements for
acceptance of the Plan, See Section G., "Confirmation of the Plan." Class 1A
(Merrill Lynch Claims), Class 1B (Imperial Bank Claims), Class 2A (Convenience
Claims), Class 2C (General Unsecured Claims) , Class 3A (Common Stock Interests)
and Class 3C (Securities Claims) are Impaired, and the Debtors are seeking
acceptance of the Plan by the claimants in each of such Classes. Class 1C (Other
Secured Claims) and Class 2B (Intercompany Claims) are unimpaired and holders of
Claims in these classes are conclusively presumed, pursuant to Section 1126(f)
of the Bankruptcy Code, to have accepted the Plan. Class 3B (Option and
Warrants) is deemed to have voted against the Plan and its acceptance is not
solicited.
2. VOTING INSTRUCTIONS
After carefully reviewing this Disclosure Statement and the
Plan, each claimant holding a claim in an Impaired class should vote and return
the appropriate ballot ("Ballot") in the envelope provided. Ballots should be
returned in accordance with the instructions for delivery set forth in such
Ballots.
TO BE COUNTED, YOUR BALLOTS MUST BE RECEIVED BY 5:00 P.M.
MOUNTAIN TIME ON [ ], 1996, UNLESS THIS SOLICITATION IS EXTENDED BY THE DEBTORS.
ANY BALLOTS RECEIVED WHICH DO NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF
THE PLAN SHALL BE DEEMED NOT TO CONSTITUTE A VALID BALLOT.
If (a) you have questions concerning the procedure for voting;
(b) you did not receive the appropriate Ballot or Ballots or received a damaged
Ballot; (c) you have lost your Ballots; or (d) you have other questions
concerning the Disclosure Statement or the Plan, please contact one of the
following:
Rawle Andrews Jr., Esquire
Squire, Sanders & Dempsey
Two Renaissance Square
40 North Central Avenue
Suite 2700
Phoenix, Arizona 85004-4441
(602) 528-4063
8
<PAGE> 14
or
G. Christopher Meyer, Esquire
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
(216) 479-8692
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST RECOVERIES
FOR CREDITORS AND SHAREHOLDERS WHICH ARE REALISTICALLY AVAILABLE IN THE
IMMEDIATE FUTURE. THE DEBTORS, THEREFORE, BELIEVE THAT ACCEPTANCE OF THE PLAN IS
IN THE BEST INTERESTS OF EACH AND EVERY CLASS OF CREDITORS AND SHAREHOLDERS AND
THE DEBTORS THEREFORE RECOMMEND THAT YOU VOTE TO ACCEPT THE PLAN.
D. BACKGROUND REGARDING THE DEBTORS
1. GENERAL BACKGROUND INFORMATION
On November 25, 1985, Watric, Inc. ("Watric"), was formed as a
California corporation. On April 9, 1987, Watric amended its Articles of
Incorporation to change its corporate name, thus becoming "Unitech Industries,
Inc". Since its formation, Unitech has designed, developed, manufactured, and
marketed worldwide a line of wireless, cellular phone accessories and computer
accessories, including battery packs, power management systems, battery
chargers, power suppliers, and hands-free speaker phone kits.
Unitech designs and manufactures these accessories for use
with high-tech consumer goods, including products manufactured by AT&T,
DiamondTel, Fujitsu, JRCI, Motorola, Nokia, Panasonic, Sony, Toshiba, Uniden,
and many others. Unitech markets its products as follows: (i) under private
label agreements with firms that market cellular phone products under their own
trade names; and (ii) under agreements with cellular phone manufacturers
desirous of expanding their cellular product lines to include accessory products
under their own trade names. Unitech's primary center of operation is in
Maricopa County, Arizona, and its executive offices are located at 15035 North
75th Street, Scottsdale, Arizona 85260.
In November 1994, Unitech raised approximately $12 million in
an offering of its common shares to the public. The proceeds of the offering
were used by Unitech to repay certain outstanding indebtedness and to provide
funds for expansion of its business through corporate acquisitions.
9
<PAGE> 15
In December 1994, Unitech was approached about the possible
acquisition of Solidex, Inc. and Hericson International Ltd. ("Hericson"), two
affiliated companies. Solidex was a California-based distribution company and
Hericson was a Hong Kong-based engineering and manufacturing company of video,
cellular and computer accessories. The potential acquisition was one of a number
of unsolicited contacts made to Unitech following its public offering. The
Debtors believe that such companies did not have prior connections with Unitech
or its management. Unitech was advised that such companies were available as a
result of the death of one of the primary owners and the need to liquidate his
estate for tax purposes.
Initial negotiations on purchase price were based on the
reported sales and earnings of the two companies. Unitech also believed that
other parties were pursuing acquisition of Solidex, Inc. and Hericson for amount
generally in the range being negotiated. Unitech employed the firm of Coopers &
Lybrand to perform diligence investigations in connection with the proposed
acquisition and Unitech received the advice of Coopers & Lybrand in connection
with its decision to proceed with such acquisitions.
On March 27, 1995, Unitech acquired Solidex, Inc. for
$3,400,000 in cash. During 1995, Unitech moved the Solidex operations to the
State of Arizona. Solidex's primary business is the warehouse and distribution
of video, wireless communication and computer accessories. Solidex provides
Unitech with a recognized brand name in the computer and video accessory market.
Solidex also provides Unitech with greater access to major mass retailers and
other channels of distribution.
On April 12, 1995, Unitech acquired Hericson for approximately
$3,500,000 in cash plus 250,000 shares of common stock. The Hericson acquisition
also includes two manufacturing facilities in Dongguan, China. Such facilities
are owned by Hericson subsidiaries Dongguan Summitt Electronics Co. Limited
("Summitt") and Dongguan Rida Electronics Plastic Co. Ltd. ("Rida"). Although an
initial failure to accomplish certain required filings in China may have raised
issues regarding ownership and operation of such facilities, the Debtors believe
that required filings have now been made and that any related issues have been
resolved. Summitt and Rida are entities organized under the laws of the People's
Republic of China.
Present management of the Debtors believes that the prices
paid in connection with the Solidex and/or Hericson acquisitions exceeded
amounts which the assets and subsequent operations of these acquired businesses
have supported as reasonable value. Current management has not reached any
conclusions regarding the reasons for these apparent overpayments. However,
these transactions are among the issues which have been submitted for review by
counsel in connection with possible pursuit of claims by the reorganized
Debtors. If Debtors conclude that overpayments were the result of wrongful
conduct, the Debtors will explore initiation of claims against responsible
parties. For further discussion of potential claims and causes of action See
Section F.5.d, "Other Plan Provisions - - Reserved Causes of Action".
10
<PAGE> 16
2. CURRENT OPERATING LOCATIONS
Unitech commenced business operations with fewer than fifteen
(15) employees working in a single location. As a result of the acquisitions
described above, Unitech has become the ultimate parent corporation in a
multi-tiered corporate structure. Unitech is the sole shareholder of Solidex
which, in turn, owns substantially all the shares of Hericson. Hericson owns the
shares of both Summitt and Rida. Considering these affiliates as a whole,
Unitech is now a multi-national corporation with over 300 employees, located in
the state of Arizona, Hong Kong and the People's Republic of China.
The Debtors' principal operating facilities are located in
Phoenix Arizona and in Dongguan, China. Debtors' Phoenix facilities include
leased space in Scottsdale, Arizona which serves as the Debtors' headquarters
and domestic manufacturing facility, as well as leased warehouse locations also
in the Phoenix area. The Debtors' facilities in the People's Republic of China
consist of manufacturing facilities located in Dongguan. These facilities are
utilized by the Debtors to obtain the benefit from dramatically reduced labor
cost available in the Peoples Republic of China. As an example, since the
Petition Date, Debtors have reduced the cost of purchasing circuit boards by
over $800,000 on an annualized basis as a result of using Chinese manufacturer,
rather than domestic manufacturer or third-party suppliers.
3. ADVERSE FINANCIAL DISCLOSURES
Debtors' Chapter 11 filings occurred under less than favorable
circumstances. An interruption of Debtors' cash flow occurred as a result of
public disclosures made by Debtors during late December 1995 concerning their
financial difficulties (including projections of substantial losses for the
fiscal year ended October 31, 1995). The circumstances surrounding these
disclosures led to the termination or resignation of substantially all of
Debtors' pre-petition management team, including the Debtors' former Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer. Such
disclosures also led to the commencement of litigation by, among others,
Debtors' two primary secured creditors, (Merrill Lynch and Imperial Bank),
certain shareholders and various trade creditors. Such litigation impaired
Debtors ability to manage and oversee their business and financial affairs
because the Courts involved entered or contemplated entering certain provisional
remedies which would have forced Debtors to cease business operations as a going
concern. Consequently, to stay the litigation and protect their assets, the
Debtors commenced voluntary petitions under Chapter 11 of the Bankruptcy Code on
January 25, 1996.
4. SECURITIES CLASS ACTIONS
A second result of the Debtors' disclosure of material
financial deterioration was the commencement of several securities law class
actions. These actions are summarized below.
On or about December 21, 1995, Unitech and certain of its
present and former officers and directors were named in a multi-count securities
lawsuit before the United States District Court for the District of Arizona,
styled Daniel B. Zonies et al. v. John F. Londelius, et al., No. CIV
95-2892-PHX-PGR (D. Ariz) ("Zonies Action"). The plaintiffs in the Zonies
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Action purport to represent a class of plaintiffs that purchased Unitech common
stock from February 13, 1995, through December 20, 1995. The putative Zonies
class alleges that the defendants caused or permitted Unitech to issue a series
of materially false and misleading public statements about Unitech's financial
condition, operations, and prospects which artificially inflated the market
price of Unitech's common stock, thereby causing injury to the named plaintiffs
and the class. The Zonies plaintiffs allege violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Section
20(a) of the Securities Exchange Act of 1934, A.R.S. section 44-1991, A.R.S.
section 44-1522, and negligent misrepresentation.
On or about January 9, 1996, a separate group of Unitech
shareholders filed a multi-count federal securities action against certain of
the same defendants in a case captioned James Barge et al. v. Unitech
Industries, Inc., et al. , No. CIV 96-009-PHX-SMM ("Barge Action"). The
plaintiffs in the Barge Action purport to represent a class of plaintiffs that
purchased Unitech common stock from March 16, 1995, through December 20, 1995.
According to the Barge plaintiffs, the defendants allowed Unitech to publish
public statements regarding Unitech's financial condition which were false and
misleading and materially influenced the market price of Unitech common stock.
The Barge plaintiffs further allege that all defendants violated Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder,
and that defendants Londelius and Lind violated Section 20(a) and Section
20(A)(a) of the Securities Exchange Act of 1934.
On or about January 16, 1996, a third group of Unitech
shareholders filed a similar federal securities action, styled Norman Weiss et
al. v. John Londelius et al., No. CIV 96-0132-PHX-RCB ("Weiss Action"). The
Weiss Action complaint is virtually identical to the complaint filed in the
Barge Action. The plaintiffs in the Weiss Action purport to represent a class of
plaintiffs that purchased Unitech common stock from March 16, 1995, through
December 20, 1995. According to these plaintiffs, the defendants allowed Unitech
to publish public statements regarding Unitech's financial condition which were
false and misleading and materially influenced the market price of Unitech
common stock. The plaintiffs allege that all defendants violated Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder,
and that defendants Londelius and Lind violated Section 20(a) and Section
20(A)(a) of the Securities Exchange Act of 1934.
By virtue of the automatic stay set forth pursuant to 11
U.S.C. Section 362 of the Bankruptcy Rule, no efforts have been made to pursue
any direct recoveries against Unitech to date, No defendant has filed an answer
or motion to dismiss in any of the securities fraud actions. Although the same
events underlie all three actions, they have not yet been consolidated and no
class certification hearings have been held or scheduled. However, on March 7,
1996, the plaintiffs in the Zonies Action filed a motion to consolidate all
related actions. That motion is still pending. Debtors are informed and believe
that settlement discussions are on-going between the parties.
In addition to the foregoing, the Debtors are advised that the
U.S. Securities and Exchange Commission ("SEC") and the Arizona Corporation
Commission ("ACC") have commenced inquiries into the facts and circumstances
surrounding Unitech's pre-petition business
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and financial difficulties. To date, the Debtors have responded to such
inquiries by producing certain business records to the SEC and the ACC.
5. INITIAL STEPS BY NEW MANAGEMENT
Because of the financial confusion which preceded the
bankruptcy filings, Debtors focused their initial energy and efforts into
stabilizing their business operations, including but not limited to: (i)
analyzing of all product lines and related pricing structures; (ii) obtaining
necessary "first day orders" (such as wage and benefit orders, etc.); (iii)
implementing the required systems to enable Debtors to more accurately track,
analyze and report operational and financial results for the benefit of
management and the appropriate creditor constituencies; (iv) negotiating of cash
collateral and other arrangements with the Debtors' secured creditors; and (v)
the implementing a comprehensive cash management system.
Debtors and their professionals also focused their attention
on other equally urgent tasks, such as: creating and implementing a turnaround
plan for the Debtors; engaging in an intensive search for a new CFO with
sufficient crisis management and MIS experience to supplement and enhance the
talents and expertise of the existing management team; and analyzing potential
reorganization exit strategies.
E. SIGNIFICANT EVENTS DURING THE REORGANIZATION CASE
Since January 25, 1996, the Debtors have conducted their
business as debtors in possession under the Bankruptcy Code. Unless otherwise
restricted by the Court, a debtor in possession is generally permitted to
operate its business in the ordinary course, subject only to specified
supervisory powers of the Court. These powers generally include consideration of
transactions by the debtor in possession which are outside the ordinary course
of business, approval of retention of attorneys, accountants and various other
professionals, review of matters involving claims against the Debtors, and
consideration of objections raised by parties in interest to operations or
proposed actions by the debtor in possession.
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1. OFFICIAL UNSECURED CREDITORS' COMMITTEE
On or about February 28, 1996, the Court appointed a Joint
Official Unsecured Creditors' Committee (the "Creditors' Committee")
representing the Unsecured Creditors of the Debtors. The members of such
committee are listed below:
Century Forms, Inc.
Attn: Jeanie Sullivan, Controller
P.O. Box 14130
Palm Desert, CA 92255
(619) 346-1179
Elite Express, Inc.
Attn: Kenneth R. Wenzel, Pres.
P.O. Box 60788
Phoenix, AZ 85082
(602) 232-0082
First Electronics
Attn: Chong Cho, Owner/ Pres.
1750 S. Los Feliz, Suite 105
Tempe, AZ 85281
(602) 966-5540
GP Batteries (USA)
Attn: Rex B. Beatty, CFO
11235 W. Bernardo Court
San Diego, CA 92127-1638
(619) 674-5620
Group West International
Attn: Kenneth C. Kennedy, Sales
1166 Redfern Court
Concord, CA 94521
(510) 672-2188
NW Transport Service, Inc.
Attn: Jim Hoge, Account Mgr.
2515 N. 31st Avenue
Phoenix, AZ 85009
(602) 278-1551
TCC Industries, Inc.
Attn: Donald Sandler, Marketing
Mgr.
14047 E. 183rd Street
Cerritos, CA 90703
(714) 994-2882
On or about March 27, 1996, the Bankruptcy Court approved the Creditors
Committee's retention of Lewis & Roca, L.L.P. as counsel. Thereafter, on May 16,
1996, the Bankruptcy Court approved the Creditors Committee's retention of
Robert Wyndelts, CPA as accountant.
2. AUTHORIZATION TO USE CASH COLLATERAL
Under the Bankruptcy Code, Debtors are automatically permitted
to utilize most types of assets which are collateral for the claims of secured
creditors. If a secured creditor wishes to limit or condition such use, it must
seek relief from the Bankruptcy Court. An exception to this initial automatic
authorization pertains to cash and cash equivalents which are collateral. For
these assets, known as "cash collateral", the debtor must affirmatively seek
authorization from the Bankruptcy Court before using such cash collateral in
post-petition operations.
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<PAGE> 20
Simultaneously with the commencement of their Chapter 11
cases, the Debtors sought Bankruptcy Court approval to use available cash and
collections from accounts receivable which were proceeds collateral for Merrill
Lynch and Imperial Bank. The Debtors reached agreements with both Merrill Lynch
and Imperial Bank as to approved terms and conditions for the Debtors' use of
such cash collateral. Such consensual arrangements have been renewed and
extended several times since entry of the initial order often times containing
cash payments to these secured lenders. The Debtors continue to use cash
collateral of Merrill Lynch and Imperial Bank pursuant to such extended
agreements.
3. DEBTORS' POST-PETITION OPERATIONS.
Since the Petition Date, the Debtors have implemented a
short-term, turnaround plan designed to stabilize their operations. In
implementing the short-term plan, the Debtors have: (i) performed a
comprehensive review of their existing sales data, accounts payable ledgers and
inventory log (finished and unfinished goods); (ii) embarked on an active
program of reducing inventory; (iii) shifted certain of its manufacturing
operations from the state of Arizona to China in an effort to further reduce
costs; and (iv) reduced payroll by approximately $3,500,000, on an annualized
basis, by eliminating approximately 150 full-time employees.
The turnaround plans implemented by the Debtors were designed to
respond to the deficiencies of the financial and accounting systems which
Debtors' new management identified in the course of their business review. Such
deficiencies included (i) listing as sales transactions in which the customers
retained a right to return purchased items, (ii) reflecting transactions as
sales prior to the time when customers were committed to such purchases, (iii)
failure to adjust sales and accounts receivable for products returned by
customers, (iv) failure to properly process and reflect in the financial records
products returned by customers, and (v) an inability to calculate the specific
production costs of various items manufactured by Debtors. These deficiencies
were among the problems which gave rise to the inaccuracies in the Debtors'
financial records and resulting inaccuracies in reported financial results. The
Debtors believe that the systems and procedures installed over the past nine
months will prevent a recurrence of these deficiencies.
4. SALE OF PROPOSED HEADQUARTERS FACILITY
As of the Petition Date, the Debtors were engaged in the
construction of a proposed new headquarters facility in Scottsdale, Arizona.
Such construction was in its early stages. Construction financing was provided
by Bank of America and the general contractor was Ryan Construction Company of
Minnesota, Inc. ("Ryan"). Construction on the proposed headquarters was
interrupted by disclosures of the Debtors' financial difficulties and by the
Debtors' subsequent Chapter 11 filings.
Following the disclosure of the deteriorating financial
condition of the Debtors' business and the evaluation of the Debtors'
operations, Mr. Bellis and the Debtors' management determined that it was not
practical to continue construction of the proposed facility. Accordingly, the
Debtors began to explore alternatives for the sale of the proposed headquarters
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property. During March, 1996, the Debtors reached agreement to sell the property
to Ryan for a cash purchase price of approximately $1,900,000, plus the waiver
or assumption of more than $500,000 in claims held by, or asserted through, Ryan
and assumption of certain construction-related liabilities. The proposed
contract was noticed and advertised in an effort to ascertain whether any higher
or better bids could be obtained. There were no higher or better bids obtained
and the proposed sale was approved by Order of the Bankruptcy Court entered May
7, 1996. Following expiration of the period for appeal of the Bankruptcy Court's
Order, the Debtors consummated the sale of the headquarters property on May 23,
1996.
As of the date of this Disclosure Statement, approximately
$650,000 of the $1,900,000 in cash proceeds, has been used to repay the
principal and accrued interest on a construction loan held by Bank of America,
as well as to reduce the Debtors' indebtedness to Merrill Lynch and Imperial
Bank. Except for certain sums specifically authorized to be utilized in the
Debtors' operations, the remainder of the sale proceeds have been set aside and
segregated by the Debtors pending the resolution of competing lien claims
asserted against the land sale proceeds.
5. THE INVESTOR PROPOSAL.
During the pendency of their Chapter 11 cases, the Debtors
have considered a variety of alternatives to facilitate the development of a
plan of reorganization. These have included the possibility of a so-called
"bootstrap" plan to reorganize without outside capital, the potential sale of
all or part of the Debtors' business assets, and a plan incorporating new
capital provided by a third party or group of third parties.
With respect to the so-called "bootstrap" alternative, the
Debtors concluded that such alternative would be comparatively less attractive
than a transaction which included either sale proceeds or additional capital
investment. Accordingly, the Debtors focused on transactions which would provide
additional cash for distribution in connection with a plan of reorganization.
The Debtors have considered two possible transactions for cash
acquisition of the Debtors' business assets. The more attractive of such
proposals was a preliminary offer made by Cable Systems International Inc.
("CSI"). The CSI proposal would have provided for a cash payment of
approximately $6 million for the Debtors' business assets. These proceeds and
any additional cash in the Debtors' estate would then have been used for
creditor distributions. In the Debtors' view, the principal shortcoming of such
a cash acquisition proposal is that it does not include consideration for the
going concern value of the business enterprise. Based on the Debtors'
projections of anticipated operations, the Debtors believe that there is a
material going concern value to the Debtors' businesses. If a cash sale of
assets were selected as the basis for a plan, any going concern value would be
received by the acquiring entity rather than by the Debtors' creditors and
equity security holders.
Also among the proposals considered by the Debtors is the
proposal from the Investors which forms the core of the Plan to which this
Disclosure Statement pertains ("Investor Proposal"). This proposal was developed
through discussions and negotiations among the Investors, the Debtors and
various creditors or creditor groups. The terms of the Investor
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<PAGE> 22
Proposal are set forth in the Plan and the Stock Purchase Agreement. The
Investor Proposal provides for issuance of equity securities to creditors and
shareholders of the Debtor, thus allowing such constituencies to share in the
future value of the Debtors' businesses. The Debtors believe that the
development of the Investor Proposal represents a significant milestone in the
process toward the Debtors' successful reorganization of the bankruptcy estates.
The Investor Proposal is being led by a newly formed Delaware
limited liability company known as Unitech Holdings, L.L.C. ("Holdings"). The
sole member of Holdings is Templar Corporation. The manager of Holdings is
Patriot Advisors, Inc. ("Patriot Advisors"). Patriot Advisors was incorporated
during November 1995, and is wholly owned and managed by Mr. Frank Kristan.
Among others, Patriot Advisors serve as an advisor to Marafund, Ltd. and Templar
Corporation, in addition to a number of individual clients. Templar has
represented to the Debtors that it has no direct relationship with Unitech,
although, as described below, an affiliate of Templar is currently a Unitech
director and shareholder. For further details concerning the Stock Purchase
Agreement, see Section N. "Stock Purchase Agreement".
Marafund, Ltd. ("Marafund"), a New York corporation, was
incorporated during November 1994. It is owned 20% by Patriot Advisors and 80%
by the Maratech Corporation, an entity with approximately 300 accredited
investors. As a holding company, Marafund's primary investments are in the
telecommunications industry with secondary interests in the health care and
financial services industries. During November 1994, Marafund participated in
the initial public offering of Unitech common stock. In early January 1995,
Marafund also loaned $1,800,000 pursuant to a Convertible Note that was
subsequently converted into 200,000 shares of Unitech common stock. Marafund
also holds 200,000 warrants to acquire additional shares of Unitech common
stock. Marafund representatives have advised the Debtors, that (i) during July
1995, Marafund sold all its Unitech shares, and (ii) that such sales were made
in order to provide Marafund with liquidity for other investments. Although
Marafund has retained the warrants described above, Marafund representatives
have advised the Debtors that such warrants will be surrendered in connection
with confirmation of the Plan.
Templar Corporation ("Templar"), a Delaware corporation, was
incorporated during August, 1995. Templar is owned and controlled by Paul
Janssens-Lens. Mr. Janssens-Lens is a member of the Unitech Board of Directors,
as well as an individual shareholder of Unitech. Mr. Janssens-Lens also controls
Appletree Capital Management, an entity which serves as the general partner of
the Patriot Growth Fund. Patriot Growth Fund was among the subscribers of the
public offering of Unitech shares in the November 1994. Based on the information
available to it, Debtors understand that Patriot Growth Fund currently owns
approximately 2,400,000 common shares of the Company, comprising 33% of the
total shares outstanding. Based on the representations of the Investors, Debtors
believe that Patriot Growth Fund and Patriot Advisors, Inc. have no common
ownership.
The subscription of one million (1,000,000) shares and the guarantee of
the rights offering of the New Common Stock will be completed by Holdings and/or
its designees. The funding for the contemplated subscription by Holdings will be
derived from subscriptions from Templar and/or individual investors. Such
individual investors have not presently been
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identified. However, Holdings has agreed to provide Unitech with a final list of
such investors prior to the Confirmation Date.
F. THE PLAN
1. OVERVIEW OF CHAPTER 11 REORGANIZATION
Chapter 11 is the principal reorganization chapter of the
Bankruptcy Code. Upon the filing of a Chapter 11 petition, a debtor is
authorized to operate and reorganize its business for the benefit of its
creditors and equity holders. The "automatic stay" provisions of the Bankruptcy
Code, unless modified by court order, will generally prohibit attempts by
creditors to collect any Claims against the Debtors that arose prior to the
commencement of the Chapter 11 case.
Formulation and confirmation of a plan of reorganization is
the principal purpose of a Chapter 11 reorganization case. The plan of
reorganization is the vehicle for satisfying the holders of creditor Claims
against, and equity Interests in, the Debtors. Unless the Bankruptcy Court
orders otherwise, the Debtors will have the exclusive right to file a plan of
reorganization during the first 120 days after the commencement of its Chapter
11 case. Thereafter, unless such period of exclusivity is extended, any party in
interest will also be able to submit a proposed plan. By Order of the Bankruptcy
Court the Debtors' period of exclusivity was extended until August 23, 1996, at
which date it expired. The expiration of Debtors' exclusivity means that other
parties may file proposed plans of reorganization in Debtors' bankruptcy cases.
The purpose of the Plan is to provide for specified
distributions to the various classes of holders of Claims against, and Interests
in, the Debtors. The Debtors believe that the Plan provides consideration to all
classes of creditors which reflects an appropriate resolution of their Claims
against the Debtors. The Debtors also believe that the Plan will provide each
class with consideration which is at least equal in value to that which they
would receive upon the liquidation of the Debtors assets under Chapter 7 of the
Bankruptcy Code.
The Bankruptcy Code provides that, under appropriate
circumstances, the assets and liabilities of two or more Debtors may be
"substantively consolidated." In such instances, the separate existence of the
consolidated entities is disregarded. Although the Plan does not include a
substantive consolidation of the Unitech and Solidex estates as a legal matter,
the economic impact of the Plan is similar to consolidation. Creditors of both
Unitech and Solidex are each given comparable distributions, despite inevitable
variations in the relative assets and liabilities of each corporation. Since the
Plan is structured to provide distributions to all creditors of a value equal to
the full amount of their respective Claims, the Debtors do not believe that any
creditor is adversely effected by the joint nature of the Plan.
THE FOLLOWING IS A SUMMARY OF THE PLAN, A COPY OF WHICH
ACCOMPANIES THIS DISCLOSURE STATEMENT AS EXHIBIT 1 AND TO WHICH REFERENCE SHOULD
BE MADE FOR A FULL STATEMENT OF ITS TERMS. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN.
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2. TREATMENT OF ADMINISTRATIVE EXPENSES AND UNSECURED TAX CLAIMS
a. ADMINISTRATIVE EXPENSES
Except as described below, the Plan provides that
administrative expenses of the kinds specified in Section 507(a)(1) of the
Bankruptcy Code will be paid in full in the ordinary course of business in
accordance with customary credit terms or otherwise as required by law. Such
amounts would encompass trade payables, post-petition taxes and other
liabilities arising after the commencement of the Chapter 11 case. Although the
aggregate amount of administrative claims will be subject to constant change as
new expenses were incurred and expenses are paid in the ordinary course of
business, the Debtors estimate that, at any given point in time, the aggregate
administrative claims is approximately $200,000. Additionally, professional fees
will be paid as and when ordered by the Bankruptcy Court. See F.4.e., "Allowance
of Claims and Interests--Estimated Professional Fees."
b. UNSECURED TAX CLAIMS
Allowed unsecured Claims of governmental units entitled to
priority payment under Section 507(a)(7) of the Bankruptcy Code will be paid in
full by the reorganized Debtor in payments of cash over a period not exceeding
six years after the date of assessment of such Claims, as provided in Section
1129(a)(9)(C) of the Bankruptcy Code. Interest will be paid on deferred portions
of such Claims at a rate determined by the Bankruptcy Court to be appropriate
under the Bankruptcy Code.
According to the Debtors' financial records, taxes which may
be eligible for priority treatment aggregate approximately $45,000. Such amounts
are subject to review and objection. If the amount ultimately allowed is small
enough, Debtors may elect to treat such claims through full cash payment on the
Distribution Date rather than a series of payments with interest over subsequent
periods.
3. CLASSIFICATION AND TREATMENT OF CLASSES UNDER THE PLAN
The Bankruptcy Code requires that a plan of reorganization
classify the Claims of a debtor's creditors and the Interests of its equity
holders. The Bankruptcy Code also provides that, except for certain Claims
classified for administrative convenience, a plan of reorganization may place a
claim or interest of creditors or interest holders in a particular class, only
if, such claim or interest is substantially similar to the other claims or
interests of such class. Although the Debtors believe that they have
appropriately classified all Claims or Interests, it is possible that the
Bankruptcy Court may find that a different classification is required in order
for the Plan to be confirmed. In such event, it is the present intent of the
Debtors to modify the Plan to provide for whatever reasonable classification
might be required for confirmation and to use the acceptances received by the
Debtors from any creditor pursuant to this solicitation for the purpose of
obtaining the approval of the class or classes of which such creditor ultimately
is deemed to be a member. Any such reclassification of creditors could adversely
affect the class in which such creditor was initially a member, or any other
class under
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the Plan, by changing the composition of such class and the required vote
thereof for approval of the Plan.
The Bankruptcy Code also requires that a plan of
reorganization provide the same treatment for each claim of a particular class,
unless the holder of a particular claim agrees to a less favorable treatment of
its claim. Although the Debtors believe that they have complied with these
equality of treatment provisions, it is possible that the Bankruptcy Court could
find that the Plan does not satisfy such a standard of equal treatment. In such
event, and if the creditors affected do not consent to the treatment afforded
them under the Plan, the Bankruptcy Court could deny confirmation of the Plan.
TO THE EXTENT PERMITTED BY THE BANKRUPTCY COURT, ACCEPTANCE BY
ANY CREDITOR OF THE PLAN PURSUANT TO THIS SOLICITATION WILL BE DEEMED TO BE A
CONSENT TO THE PLAN'S TREATMENT OF SUCH CREDITOR REGARDLESS OF THE CLASS AS TO
WHICH SUCH CREDITOR IS ULTIMATELY DEEMED TO BE A MEMBER.
Only classes that are Impaired under the Plan are entitled to
vote to accept or reject the Plan. As a general matter, a class of Claims or
Interests is considered to be unimpaired under a plan of reorganization if: (i)
the plan does not alter the legal, equitable and contractual rights of the
holders of such Claims or Interests or; (ii) the plan provides for full cash
satisfaction of such Claims or Interests. The Debtors have determined that Class
1A (Merrill Lynch Claims), Class 1B (Imperial Bank Claims), Class 2A
(Convenience Claims), Class 2C (General Unsecured Claims), Class 3A (Common
Stock Interests) and Class 3C (Securities Claims) are Impaired and entitled to
vote under the Plan.
Class 1C (Other Secured Claims) and Class 2B (Intercompany
Claims) are not Impaired under the Plan. Under the Bankruptcy Code, holders of
Claims in an unimpaired class are conclusively presumed to have accepted the
Plan, and thus, holders of Class 2B Claims are not entitled to vote to accept or
reject the Plan.
The Plan provides for no distributions to holders of Interests
in Class 3B (Options and Warrants). Such holders are presumed to have voted
against the Plan and will not be solicited.
An Impaired class of Claims will be determined to have
accepted the Plan if holders of Claims in that class voting in favor of the
Plan: (i) hold at least two-thirds of the dollar amount of Claims of holders in
such class voting on the Plan; and (ii) comprise more than one-half in number of
holders of Claims in such class voting on the Plan.
The Plan divides Claims into six classes. Interests in the
Debtors are treated in three additional classes. Distributions will be made to
the bona fide holders of Allowed Claims and Interests of various classes as
described below.
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a. CLASS 1A -- MERRILL LYNCH CLAIMS
Class 1A consists of the Claims of Merrill Lynch. The
estimated amount of the Merrill Lynch claims, including principal, accrued
interest, attorney fees and expenses, is approximately $4,550,000 as of date of
this Disclosure Statement and is forecast to be approximately $4,500,000 by
December 15, 1996, the Debtors' projected Confirmation Date. Such claims are
secured to the extent of the value of the collateral securing the claim under
the Merrill Lynch Loan Agreement. However, Class 1A includes both the Secured
and the Unsecured portions of the Merrill Lynch Claims. The Plan provides that
Merrill Lynch, as the holder of the Class 1A Claim, will receive, on the
Effective Date and subject to allowance of its Claims: (i) $2,000,000 in Cash;
and (ii) the Merrill Secured Notes in a principal amount equal to the amount of
Merrill Lynch's Class 1A Allowed Claim as of the Effective Date, less the
$2,000,000 Cash payment. The principal amount of the Merrill Secured Notes is
presently projected to be approximately $2,500,000.
Summaries of the key provisions of the Merrill Secured Notes
are set forth in the Notes of Exhibit 2 to this Disclosure Statement and Exhibit
B to the Plan.
Class 1A Claims are Impaired. The holder of Class 1A Claims is
entitled to vote on the Plan.
b. CLASS 1B -- IMPERIAL BANK CLAIMS
Class 1B consists of the Claims of Imperial Bank. The
estimated amount of the Imperial Bank claims is approximately $3,808,282 as of
October 31, 1996 and is forecast to be approximately $3,718,282 by December 15,
1996, the Debtors' projected Confirmation Date. Such claim is secured to the
extent of the value of the collateral securing the claim under the Imperial Loan
Agreement. However, Class 1B includes both the Secured and the Unsecured
portions of the Imperial Bank Claims. The Plan provides that Imperial Bank, as
the holder of the Class 1B Claim, will receive, on the Effective Date and
subject to allowance of its Claim: (i) $1,000,000 in Cash; (ii) 800,000 shares
of New Preferred Stock, and (iii) the Imperial Secured Note in a principal
amount equal to the balance of Imperial's Class 1B Allowed Claim as of the
Effective Date. Valuing the shares of New Preferred Stock at $1.50 per share,
the principal amount of the Imperial Secured Note is presently projected to be
approximately $1,518,282.
Summaries of the key provisions of the Imperial Secured Note
are set forth in the Notes of Exhibit 2 to this Disclosure Statement and Exhibit
C to the Plan.
Class 1B Claims are Impaired. The holder of Class 1B Claims is
entitled to vote on the Plan.
c. CLASS 1C -- OTHER SECURED CLAIMS
Class 1C consists of Secured Claims other than those of
Merrill Lynch and Imperial Bank. The Debtors are unaware of any claims which
they believe are necessarily
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included in that category. However, secured claims have been asserted by various
creditors including an alleged secured claim of approximately $330,000 asserted
by Expediters International of Washington, Inc. The secured character of such
claim has been disputed by the Debtors and by other creditors in an action
currently pending before the Bankruptcy Court. Should the claim be determined to
be secured as alleged by the holder, such claim will be treated as a Class 1C
Allowed Claim. Debtors have reserved in escrow an amount of cash representing
proceeds from assets in Expediters' possession at the date of the commencement
of Debtors' bankruptcy cases. Debtors believe this amount is sufficient to
satisfy Expediters' claims if they are determined eligible for treatment as
Class 1C Allowed Claims. If the Expediters' claims are determined to be
unsecured claims, they will be treated as Class 2C (General Unsecured Claims).
In addition to the Expeditor's claim, claims in the amount of
approximately $103,458 have been filed by Colorado National Leasing based on an
equipment lease executed by Unitech and Colorado Leasing during 1995. It is the
Debtors' intention to assume and perform such lease in accordance with the Plan.
However, if the terms of such lease require that it be characterized as a
security interest rather than a lease, the Debtors would include such
transaction in Class 1C and would continue to perform the Debtors obligations
thereunder in accordance with their terms. Thus, the economic effect on the
Debtors and on Colorado Leasing would not differ depending on whether the
transaction was characterized as a lease or security agreement.
The rights of holders of Class 1C Claims (Other Secured
Claims), if any, will not be altered by the Plan.
d. CLASS 2A -- CONVENIENCE CLAIMS
Class 2A consists of Unsecured Claims (other than Claims in
Class 2B) which are for $1,000 or less and of Unsecured Claims which would
otherwise be Class 2C Claims, but which, have been reduced to $1,000 prior to
the Confirmation Date by election of such reduction by the holders of such
Claims by written election in form and substance satisfactory to the Debtors.
The Plan provides that holders of Class 2A Allowed Claims will receive, on the
Distribution Date, Cash in the amount of seventy-five percent (75%) of their
respective Class 2A Allowed Claims.
Based on a review of its books and records, Debtors estimate
that a total of approximately 147 claims for approximately $56,000 will be
mandatorily included within Class 2A (Convenience Claims). The Debtors are
unable to estimate the number of claims greater than $1,000 which may elect to
be treated as Class 2A Claims.
Class 2A Claims are Impaired. The holders of Class 2A Claims
are entitled to vote on the Plan.
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e. CLASS 2B -- INTERCOMPANY CLAIMS
Class 2B consists of Unsecured Claims held by corporate
affiliates of the Debtors. Such affiliates could include direct or indirect
parent or subsidiary corporations of either of the Debtors. The legal, equitable
and contractual rights of the holders of Class 2B Claims will not be altered by
the Plan.
According to the Debtors' books and records, the claims
included in Class 2B (Intercompany Claims) include a $1,277,404 claim by Unitech
against Solidex and a claim of approximately $1,500,000 by Hericson against
Unitech. In addition to such claims, Solidex has a claim of approximately
$250,000 against Hericson.
The Debtors own 100% of the stock of their respective direct
or indirect subsidiaries, except for certain director's qualifying shares of
Hericson and required to be owned by directors pursuant to Hong Kong law. The
non-Debtor subsidiaries are currently performing their obligations as they
become due and, to the best of Debtors' knowledge, they do not have outstanding
liabilities which exceed their assets. Accordingly, the Debtors believe that
payments made between Unitech and Solidex or by one of the Debtors to other
affiliates would have no economic effect on the Debtors' overall enterprise or
on the value of the securities issued to other classes of creditors under the
Plan. It is for this reason that the Debtors have elected to leave such
intercompany claims outstanding rather than providing for their treatment and
discharge in connection with the Plan.
Class 2B Claims are NOT Impaired. The holders of Class 2B
Claims are deemed to vote in favor of the Plan and are not entitled to vote on
the Plan.
f. CLASS 2C -- GENERAL UNSECURED CLAIMS
Class 2C consists of Claims of all general unsecured creditors
which are not included in another Claim category. Such claims will include,
without limitation, tax or employee Claims not eligible for priority treatment,
trade payable Claims, Claims by parties to rejected leases or executory
contracts, Claims which have been asserted in litigation against the Debtors and
a variety of other Claim varieties.
Based on a review of the Debtors' schedules and the claims
register, Debtors believe that unsecured, non-priority proofs of claim which are
filed or deemed filed against the Debtors total approximately $5,333,675.
However, Debtors believe that this total includes duplicate claims and claims
which may be disallowed following objection. Conversely, the total of general
unsecured claims could be increased by claims filed by parties as a result of
rejection of executory contracts, unexpired leases or avoided transfers. For
further discussion of rejection of executory contracts and expired leases, See
Section F.5.c., "Executory Contracts and Unexpired Leases." For more detailed
discussion of avoidable transfers, see Section F.5.d., "Reserved Causes of
Action." Based on all of such information, Debtors believe that $5,333,675 is a
reasonable working estimate of the total of Class 2C Claims which are likely to
become Class 2C Allowed Claims.
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The Plan provides that holders of Class 2C Allowed Claims will
receive, on the Distribution Date and subject to allowance of their respective
Claims, (i) Cash in the amount of Twenty percent (20%) of their respective Class
2C Allowed Claims up to an aggregate maximum amount of One Million Dollars
($1,000,000), and (ii) one share of New Preferred Stock for each $1.50 of the
remaining balance. For further discussions regarding the terms of the New
Preferred Stock including redemption, convertability and similar features, See
Section J., "Description of New Preferred Stock."
Class 2C Claims are Impaired. Holders of Class 2C Claims are
entitled to vote on the Plan.
g. CLASS 3A -- COMMON STOCK INTERESTS
Class 3A is comprised of the Interests of existing holders of
Common Stock. According to the Debtors' records, an aggregate of approximately
6,418,152 shares of Common Stock are currently issued and outstanding. Under the
Plan, holders of Class 3A Interests will receive, for each share of Common Stock
owned: (i) four-tenths (.4) of a share of New Common Stock; and (ii) the right
to purchase for a Cash price of $1.50 per share, two-tenths (.2) of a share of
New Common Stock.
Class 3A Interests are Impaired. Holders of Class 3A Interests
are entitled to vote on the Plan.
h. CLASS 3B -- OPTIONS AND WARRANTS
Class 3B is comprised of the claims or interests of holders of
unexercised options or warrants for purchase of Common Stock. To the extent that
such holders exercise their options or warrants prior to the Confirmation Date,
they will be eligible to be treated as holders of Class 3A Interests. Any Class
3B Interest remaining unexercised will be canceled without further distribution.
The Debtors believe that the majority of outstanding options
or warrants are at exercise prices significantly in excess of the current
trading price of the Unitech's Common Stock. Accordingly, the Debtors do not
anticipate significant exercise of such options or warrants by the holders
thereof. An exception to this general rule extends to certain warrants held by
Marafund. Such warrants were issued based on a formula which floats with
changing prices for Unitech Common Stock and at a level below market price.
Marafund representatives have advised the Debtors that such warrants will be
surrendered in connection with confirmation of the Plan. For further discussion
regarding Marafund, See Section E.5., "The Investor Proposal."
No distribution will be made under the Plan to holders of
Class 3B Claims. For this reason such holders are deemed to vote against the
Plan and their vote will not be solicited.
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i. CLASS 3C -- SECURITIES CLAIMS
Class 3C is comprised of the claims held by current or former
owners of Common Stock for damages or rescission relating to claims arising in
connection with such holders purchase, ownership or sale of such Common Stock.
Debtors believe that such claims are subject to subordination under Section
510(b) of the Bankruptcy Code. Accordingly, the Plan classifies such claims
separately from other unsecured claims against the Debtors. Such Class 3C Claims
would include any claims against the Debtors by those persons involved in the
pending class actions commenced with respect to Debtors' pre-petition
operations. See Section D.4., "Securities Class Actions".
Under the Plan, the holders of Class 3C Claims will receive
assignment of the Debtors' interest, if any, in any policies of insurance
applicable to pre-petition claims arising from the purchase, sale or ownership
of Common Stock, as the respective interests of holders of Class 3C Claims may
appear. The Debtors estimate that the aggregate amount available under such
applicable insurance is approximately $950,000. The receipt and distribution of
such funds may require further legal proceedings involving, among others, the
issuer of such applicable insurance policies.
Class 3C Claims are Impaired. Holders of Class 3C Claims are
entitled to vote on the Plan.
4. ALLOWANCE OF CLAIMS AND INTERESTS
a. SCHEDULED CLAIMS
The Plan provides for distributions to be made only to those
creditors holding Allowed Claims in the various classes. In general, there are
two means by which Claims may become Allowed Claims entitled to distributions
under the Plan. First, schedules are filed with the Bankruptcy Court setting
forth all Claims against the Debtors as reflected in the financial records of
the Debtors. Unless such schedules have denominated a particular claim as
"contingent," "unliquidated" or "disputed," scheduled Claims are deemed allowed
unless objection thereto is interposed by the Debtors or any other interested
party. If an objection is made, the validity and amount of the claim will be
determined by the Bankruptcy Court following hearing thereon.
b. PROOFS OF CLAIM
The second method through which a Claim may become an Allowed
Claim is through the filing of a proof of claim. Such a filing is required in
order to assert any Claim not reflected in the schedules described above or any
Claim shown on such schedules as "contingent," "unliquidated" or "disputed."
Such a filing also is required by any person seeking to assert an amount larger
than the amount scheduled by the Debtors or asserting a classification different
than that shown in the schedules. Upon filing, a proof of claim supersedes the
information contained in the schedules. As with scheduled Claims, a Claim
asserted by means of a proof of claim will become an Allowed Claim unless
objection is made thereto. Upon any
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objection, the validity and amount of the Claim will be determined by the
Bankruptcy Court. The deadline for filing proofs of claim was July 17, 1996.
With respect to procedures for filing Claims resulting from rejection of
executory contracts and unexpired leases, see Section F.5.c., "Other Plan
Provisions --Executory Contracts and Unexpired Leases."
c. OBJECTIONS TO CLAIMS
The Debtors have begun to review information on scheduled
claims and filed proofs of claim in order to determine those claims to which the
Debtors may file objections. As a practical matter, Debtors must file objections
to any disputed Claims prior to the date fixed for the initial distribution
under the Plan. Among the claims to which the Debtors expect to object are
duplicate claims, claims of former insiders for amounts on which the Debtors may
have counterclaims and certain other claims which are overstated, meritless or
untimely filed.
d. ISSUANCE OF NEW COMMON STOCK
The Plan provides for approximately $3,060,000 in additional
funds to be raised through the issuance of shares of New Common Stock. Such
funds will be received through a combination of: (i) the Investors' purchase of
1,000,000 shares pursuant to the Stock Purchase Agreement; and (ii) the rights
offering made to existing holders of Class 3A Interests (and backed by the
commitment of the Investors to purchase any unsubscribed shares).
The Investors have agreed to purchase, either directly or
through affiliated entities, 1,000,000 shares of New Common Stock. The Investors
also have agreed to purchase any shares of New Common Stock which are not
subscribed by existing shareholders as part of the subscription offer contained
in the Plan. In consideration for their standby commitment, the Investors will
receive 100,000 additional shares of New Common Stock. Dependent on the number
of existing holders of Class 3A Interests which elect to participate in the
subscription offer, the Investors will own from between 26% and 51% of the
outstanding New Common Stock after the Effective Date. Funds received by
reorganized Unitech from the issuance of such shares, together with cash already
held by the reorganized Debtors, and cash generated from future operating
activities, will be used for Plan distributions or for other corporate purposes
of the reorganized Debtors. Following confirmation of the Plan, the Investors
may loan or invest additional funds in the reorganized Debtors, to the extent
they determine that additional amounts are required to satisfy obligations of
the reorganized Debtors or for working capital purposes.
e. ESTIMATED PROFESSIONAL FEES
The Plan provides for payment in full in cash of
administrative claims allowed by the Bankruptcy Court. These administrative
claims include the costs and expenses incurred on behalf of the Debtors and the
committee of unsecured creditors appointed pursuant to the Bankruptcy Code by
order of the Bankruptcy Court in connection with the Debtors' reorganization
proceedings, such as fees to attorneys, accountants and advisors.
Retained professionals are expected to file fee applications
requesting approval of such amounts as they believe is justified under the
circumstances for services rendered during
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these Chapter 11 cases. Based on inquiries made by the Debtors, fees and
expenses incurred by the Debtors' and the Creditors' Committee's professionals
(i.e., attorneys, accountants and financial advisors) are projected to be
approximately $1,000,000 as of the Confirmation Date.
Notwithstanding the foregoing, the Debtors cannot predict with
any assurance the amounts which may be requested as compensation or which may be
approved by the Bankruptcy Court. Any amounts which are approved by the
Bankruptcy Court in connection with such applications will be payable by the
reorganized Debtors in Cash as an administrative expense.
5. OTHER PLAN PROVISIONS
a. AMENDMENTS TO CERTIFICATE OF INCORPORATION
The Bankruptcy Code requires that upon the confirmation of the
Plan, the reorganized Debtors' Certificates of Incorporation must contain
certain provisions, including a provision prohibiting the issuance of non-voting
equity securities. To comply with this requirement and to effect certain other
changes which the Debtors believe are in their best interests, the Plan provides
that upon the Confirmation Date the Certificate of Incorporation of Solidex
shall be amended. The terms of the Restated Certificate of Incorporation are set
forth as Exhibit F to the Plan.
Although Solidex is currently a corporation organized and
existing under the laws of the Sate of Delaware, Unitech is organized under the
laws of the State of California. In connection with the confirmation of the
Plan, it is the Debtors' desire to accomplish a reincorporation of the
reorganized Unitech as a Delaware corporation. This will be accomplished by the
merger of Unitech into a newly-formed Delaware corporation ("New Unitech").
Following such merger, New Unitech will be vested with all of the assets of
Unitech and will assume all of the liabilities of Unitech pursuant to the Plan.
The Certificate of Incorporation of New Unitech will contain the provisions
regarding a prohibition on non-voting securities similar to those contained in
the Solidex Certificate of Incorporation. The new Common Stock and New Preferred
Stock distributed to creditors and equity security holders under the Plan will
be issued by the New Unitech under its Certificate of Incorporation.
For further description regarding the transaction for
reincorporation of Unitech Industries as a Delaware corporation and regarding
the terms of the new securities to be issued by New Unitech, see Section F.5.e.,
"Other Plan Revisions -- Means for Execution of the Plan".
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b. RETENTION OF JURISDICTION BY THE BANKRUPTCY COURT
Under the terms of the Plan, the Bankruptcy Court will retain
exclusive jurisdiction over the reorganization proceedings relating to the
Debtors for the purposes of making determinations as to: (a) all pending
applications, adversary proceedings and contested matters; (b) all objections to
the allowance of Claims and Interests; (c) all applications for allowance of
compensation and reimbursement of expenses; (d) all controversies arising in
connection with the Plan and other matters provided for in the order confirming
the Plan; (e) payments due under the Plan and performance of the provisions
thereof; (f) such orders as may be appropriate in the event the Bankruptcy Court
order confirming the Plan is stayed, revised, revoked, modified or vacated; (g)
all requests for modification of the Plan; and (h) all other matters not
inconsistent with the Bankruptcy Code. Following the merger of Unitech
Industries with New Unitech, New Unitech, as a reorganized Debtor will become
fully subject to the retained jurisdiction of the Bankruptcy Court as fully as
though it had been a Debtor in the Debtors' bankruptcy cases.
c. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under the Bankruptcy Code, the Debtors may assume or reject
executory contracts and unexpired leases. The Debtors have recently begun to
review their executory contracts and unexpired leases. However, the Debtors
cannot yet make an informed judgment about those which it views as beneficial to
the reorganized Debtor's operations. Consequently, at present, the Debtors do
not intend to reject any executory contract or unexpired lease. All such
executory contracts and unexpired leases are expected to be rejected by Debtors
by the appropriate time under the provisions of the Bankruptcy Code and prior
Order of the Bankruptcy Court. If the Debtors should conclude that it is
advisable to reject specifically any executory contract or unexpired lease, the
Debtors will do so in accordance with the applicable procedures under the
Bankruptcy Code. However, pursuant to the Plan, any executory contracts not
expressly rejected under an order of the Bankruptcy Court prior to the
confirmation of the Plan will be deemed assumed upon confirmation of the Plan.
Parties to rejected executory contracts may have Claims for damages. Bankruptcy
Court orders in connection with confirmation of the Plan will specify the time
limit for the filing of such Claims.
d. RESERVED CAUSES OF ACTION
Pursuant to the Plan, the reorganized Debtors retain and may
initiate, prosecute, enforce, settle or otherwise dispose of any and all claims
and causes of action of the Debtors and/or their respective estates. In
addition, under the Bankruptcy Code, a debtor is given the ability to avoid, for
the benefit of its bankruptcy estate, certain transactions occurring prior to
the commencement of its bankruptcy case. Such potentially voidable transactions
include fraudulent transfers or conveyances, preferential payments to creditors
and certain set-offs. The Plan reserves to the reorganized Debtors the sole and
exclusive right to assert such potential causes of action. The recoveries made
on any cause of action and the outcome of any such avoidance actions will not
affect the distribution paid to other Allowed Claims pursuant to the Plan.
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Presently, the Debtors are plaintiffs in an adversary
proceeding before the Bankruptcy Court seeking the recovery of money damages in
excess of $5,000,000 against Expeditors International of Washington, Inc. in an
action styled, Unitech Industries, Inc., et al. v. Expeditors International of
Washington, Inc. (In re Unitech Industries, Inc.), Case No. 96-00818-PHX-RGM,
Adv. Proc. No. 96-0693 (the "Expeditors Litigation"). The Expeditors Litigation
arises out the Debtors' claims for recovery of monetary losses sustained as a
result Expeditors' alleged breach of contract and other unlawful acts and
omissions as a so-called "customs broker" for the Debtors. The Debtors cannot
predict with any reasonable certainty how the Bankruptcy Court may rule on their
claims, or for that matter, what prospects exist for collection of any
prospective judgment against defendant Expeditors to the extent the Debtors
prevail on the merits of their claims.
With the exception of the Expeditors Litigation, the Debtors
have neither commenced nor are they currently prosecuting any affirmative claims
or causes of action against any person or entity. However, based on the Debtors'
review and analysis of the events surrounding their commencement of these
bankruptcy cases, the Debtors believe that there may be valid claims against
certain former officers of the Debtors and certain professional firms employed
by the Debtors prior to the Petition Date. Claims may also exist against persons
who served and continue to serve as directors of the Debtors.
Such causes of action may include claims for breach of
contract, breach of fiduciary duty, unjust enrichment, negligence and/or fraud
against certain former executive officers of the Debtors arising out of alleged
mismanagement of the Debtors' pre-prepetition business and financial affairs,
including issues arising out of the use of funds generated by the November 1994
Initial Public Offering for Unitech to acquire Solidex and Hericson during March
and April 1995. Management for the Debtors also is informed and believes that
actionable claims for breach of contract, negligence, and unjust enrichment may
exist against certain professional firms that assisted and advised the Debtors
on, among other things, the Solidex and Hericson transaction(s), as well as
certain reporting requirements to the SEC, NASDAQ, other regulatory authorities
and the shareholders of Unitech. Additionally, fraudulent conveyance claims and
related causes of action may exist against the persons and entities responsible
for selling the assets of Solidex and Hericson to Unitech during 1995. If such
causes are meritorious, the Debtors believe that the damages potentially
recoverable could range up to amounts in the millions of dollars.
In an effort to fully analyze the nature and scope of such
claims and causes of action, Debtors have employed the law firm of Grant,
Williams, Lake & Dangerfield, P.C. to investigate and, if economically feasible,
to pursue such causes of action on behalf of the Debtors. The ultimate decision
whether to pursue such causes of action will be dependent on the evaluation made
as to the strength of the Debtors' legal position as well as the likelihood of
collection of any judgment ultimately obtained against a particular defendant.
In some instances, the Debtors may elect not to pursue a given individual
defendant because of a belief that any resulting judgment could be wholly or
largely uncollectible. Decisions concerning whether to pursue persons who have
continued as Debtor directors may also be affected by consideration such as the
relative culpability of such individuals compared to other individual
defendants, the assistance such individuals may be able to provide in pursuing
other of the Debtors' causes of
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action, the possible valid claims of such individuals for indemnification by the
Debtor, the contributions such individuals have made subsequent to the
commencement of the Debtors' bankruptcy cases and the possible involvement of
such individuals in capital infusions made in connection with the Plan of
Reorganization.
e. MEANS FOR EXECUTION OF THE PLAN
Except as otherwise provided in the Plan, on the Effective
Date, all assets comprising the Debtors' bankruptcy estates will revest in the
reorganized Debtors, free and clear of liens and other encumbrances other than
those specified in the Plan. The Plan expressly preserves the collateral rights
of Merrill Lynch arising from its Class 1A Allowed Claim and the collateral
rights of Imperial Bank arising from its Class 1B Allowed Claim. After the
Effective Date, the reorganized Debtors will operate their businesses and will
implement the Plan. Such operations will be substantially free of further
supervision and limitation by the Bankruptcy Court, but subject to the
provisions of the Plan.
The Effective Date will occur on the initial business day
after the later of the date on which the Order confirming the Plan becomes a
final Order; or the date on which any conditions to effectiveness of the Plan
have been fully satisfied.
f. SUBSEQUENT PLAN DISTRIBUTIONS TO HOLDERS OF UNSECURED CLAIMS
In addition to the initial cash payments made on the first
Distribution Date to holders of Class 2A (Convenience Claims) and Class 2C
(General Unsecured Claims) Allowed Claims, subsequent distributions also may be
made under the Plan. The Plan provides that distributions will be made only to
holders of Allowed Claims. If a particular Claim is the subject of a pending
objection, the distribution of Cash and New Common Stock otherwise payable with
respect to such Claim will be held by the reorganized Debtor pending resolution
of all objections. When objections have been resolved and the Claim has become
an Allowed Claim, the reorganized Debtor will complete the distributions
appropriate with respect to the Allowed Claim.
g. DISCHARGE
The Plan provides for the discharge of the reorganized Debtor
from any debt arising prior to confirmation of the Plan (whether or not a Proof
of Claim based upon such debt is filed or deemed filed, whether such debt
becomes an allowed Claim or whether the holder of such debt has accepted the
Plan). The effect of discharging a debt is to release the reorganized Debtor
from any obligations to make payments with respect to such debt, other than
those specifically provided by the Plan, and to prohibit any collection efforts
by the holder of the debt.
h. BINDING EFFECT OF THE PLAN
The provisions of the Plan will: (i) bind all creditors and
interest holders regardless of whether they accept the Plan; and (ii) discharge
the Debtors from all debts that arose before the Petition Date. The
distributions provided for in the Plan will be in exchange
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for and in complete satisfaction, discharge and release of all Claims against
and Interests in the Debtors or any of its assets or properties, including any
claim or interest accruing after the Petition Date and prior to the Effective
Date. On the Effective Date, all holders of Impaired Claims and Interests will
be precluded from asserting any claim against the reorganized Debtor or its
assets or properties or other interests in the Debtors based on any transaction
or other activity of any kind that occurred prior to the Petition Date.
i. MODIFICATION OF THE PLAN
Amendments to the Plan's classification or treatment of one or
more classes of Claims or Interests under the Plan that do not materially and
adversely change the treatment of the other classes of Claims or Interests may
be approved by the Bankruptcy Court at the confirmation hearing without
resolicitation of creditors and interest holders who are not further Impaired.
In addition, the Debtors may make any other amendments or modifications to the
Plan before or after confirmation in accordance with the provisions of Section
1127 of the Bankruptcy Code.
j. IMPLEMENTATION OF THE PLAN
The Plan provides that the property of the Debtors will revest
in the reorganized Debtors on the Effective Date. After the Effective Date, the
reorganized Debtors may operate its business and acquire and dispose of its
property free of any restrictions contained in the Bankruptcy Code, but subject
to the provisions of the Plan. As of the Effective Date, all property of the
Debtors will be free and clear of all Claims and Interests of creditors and
equity security holders, except those obligations that may have been expressly
imposed on such assets under the Plan.
k. EXIT FINANCING ALTERNATIVES
The reorganized Debtors may, in the alternative, enter into
one or more loan facilities from a third party, arms-length lender in order to
obtain working capital and cash necessary to pay the Merrill Lynch claims and
Imperial Bank claims, and make other payments required to be made under the
Plan. In such event, the treatment of the Merrill Lynch claims shall be as
provided in Exhibit B and Merrill Lynch may continue to have a secured note in
the amount of $500,000 which will be in a second lien position behind the new
loan facility.
G. CONFIRMATION OF THE PLAN
1. REQUIREMENTS FOR PLAN CONFIRMATION
The Bankruptcy Code requires that a Plan be proposed in good
faith and disclose certain relevant information regarding payments due, and the
nature of compensation to insiders. The Debtors believe that they have satisfied
these requirements and will seek a ruling to that effect from the Bankruptcy
Court in connection with hearings on confirmation of the Plan.
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Additionally, Section 1129(a)(7) of the Bankruptcy Code
provides that the Bankruptcy Court must determine that the Plan satisfies the
so-called "best interests" requirement. The "best interests" test requires that
Impaired holders of Claims and Interests must receive consideration under the
Plan at least equal to what they would have received in a liquidation of the
Debtors under Chapter 7 of the Bankruptcy Code. Specifically, the Debtors
believe that the members of each allowed class will receive more under the Plan
than they would in a hypothetical Chapter 7 liquidation. The Debtors believe
that the Plan meets this test and will seek appropriate findings from the
Bankruptcy Court in connection with the confirmation hearings on the Plan. As a
partial basis for this conclusion, the Debtors have prepared a pro forma
Liquidation Analysis of the Debtors which is attached hereto as Exhibit 3.
Debtors' comparison of estimated distributions under the Plan with the estimated
recoveries in a hypothetical Chapter 7 liquidation is attached as Exhibit 4 to
this Disclosure Statement and parties should refer to such analysis for
additional details.
Under Section 1129(a)(11) of the Bankruptcy Code, Debtors also
must demonstrate that the Plan is feasible and is not likely to be followed by
the need for further reorganization. The Debtors have established appropriate
reserves to pay all amounts due and owing under the Plan on the distribution
dates set forth in the Plan. The Debtors believe that they will have the
financial capability to satisfy their obligations to make the distributions
required under the Plan and described in this Disclosure Statement. See Section
P., "Current and Projected Financial Information."
Finally, the Bankruptcy Code requires, subject to certain
exceptions, that a Plan be accepted by all Impaired classes of holders of Claims
and Interests. For further details regarding confirmation despite non-acceptance
by an Impaired class, see Section G.2., "Confirmation of the Plan Without
Acceptance by All Voting Classes."
2. CONFIRMATION OF THE PLAN WITHOUT ACCEPTANCE BY ALL VOTING CLASSES
The requirements for acceptance of a Plan by Impaired classes
are described in Section F. "The Plan." The Bankruptcy Code also provides a
procedure by which a plan may be confirmed despite the non-acceptance of one or
more Impaired classes. This procedure is known as a "cram-down." A plan may be
"crammed-down" over non-acceptance of an Impaired class if: (a) the other
confirmation requirements are met; (b) the plan does not unfairly discriminate
with respect to such class; and (c) the Plan is "fair and equitable" with
respect to such class. With respect to a class of unsecured Claims, a Plan is
"fair and equitable" if: (i) the members of the non-accepting class receive full
payment of their Allowed Claims or allowed Interests; or (ii) if the holders of
Claims or Interests in such class are to receive less than full payment, no
class junior to the non-accepting class receives a distribution under the Plan.
With respect to a class of secured claims, the Plan is "fair and equitable" if,
among other alternatives, the creditor retains its liens in the amount of its
secured claim and receives payments of a value equal to the value of such
creditor's secured claim.
For the purposes of "cram-down" of the Plan, Class 3A (Common
Stock) , 3B (Options and Warrants) and 3C (Securities Claims) are junior to all
other classes. Because the holders of Class 3B interests (Options and Warrants)
are deemed to reject the Plan, the Debtors
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will ask the Bankruptcy Court to determine that the Plan does not unfairly
discriminate against Class 3B, and that the Plan is fair and equitable with
respect to Class 3B. In such event, application of the "cram-down" provisions of
the Bankruptcy Code to Class 3B would permit the confirmation of the Plan in its
present form. Since Class 3B is the most junior class of Claims or Interests
treated in the Plan, there would not, by definition, be any distribution to any
junior class or interest.
In the event that the holders of Class 3A Interest (Common
Stock) or Class 3C Claims (Securities Claims) reject the Plan, the Debtors would
ask the Bankruptcy Court to make the same findings described in the previous
paragraph. Because the Plan does not provide for a distribution to Class 3B, the
only Class potentially junior to Class 3A and Class 3C, the first element of the
"cram-down" test would be satisfied. The Debtors also would ask the Bankruptcy
Court to determine that the distributions made to Class 3A (Common Stock) and
Class 3C (Securities Claims) do not unfairly discriminate against either Class
3B (Options and Warrants) or each other. If the Bankruptcy Court concluded that
it could not make such findings, the Plan could not be confirmed by a
"cram-down" of Class 3A or Class 3C, while retaining its other terms and
provisions.
In the event that the holders of Class 2C claims (General
Unsecured Claims) reject the Plan, the Debtors would ask the Bankruptcy Court to
make the same findings described above. Because of distributions proposed to be
made to Class 3A (Common Stock), the Debtors would be required to show that Plan
distributions are of a value which will satisfy Class 2C Claims in full.
Otherwise, the best interests test would not be satisfied. Upon a finding that
Plan distributions provide full satisfaction of Class 2C Allowed Claims, the
first element of the "cram-down" test would be satisfied. The Debtors would then
ask the Bankruptcy Court to determine that the cash distributions made to Class
2A (Convenience Claims) did not unfairly discriminate against Class 2C. If the
Bankruptcy Court concluded that it could not make such findings, the Plan could
not be confirmed by a "cram-down" of Class 2C.
In the event that the holders of Class 2A claims (Convenience
Claims) reject the Plan, the Plan could not be confirmed in its present form
because of the distributions proposed to be made to Class 3A (Common Stock). If
the Plan were amended to eliminate the current distribution to Class 3A or to
increase the amount of the Class 2A distribution to 100%, the Debtors could seek
to apply the "cram-down" provisions to Class 2A (Convenience Claims). Such a
result would require findings that Plan treatment of Class 2C (General Unsecured
Claims) did not unfairly discriminate against Class 2A. Without such findings,
the Plan could not be confirmed through "cram-down" of Class 2A.
In the event that the holders of Class 1A claims (Merrill
Lynch Claims) or Class 1B claims (Imperial Bank Claims) reject the Plan, the
Debtors would ask the Bankruptcy Court to make findings permitting the Plan to
be confirmed through "cram-down" of such classes. Such a result would require
the Bankruptcy Court to conclude that the distributions made to the holders of
the Claims in such Classes was of a value equal to the allowed amount of such
holders of Secured Claims and that, to the extent that such Classes include the
Unsecured portion of the Merrill Lynch and Imperial Bank Claims, that the Plan
provides full satisfaction of such
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claims. If the Bankruptcy Court was not able to reach such a conclusion, the
Plan could not be confirmed over the non-acceptance of Class 1A or Class 1B.
Since Class 1C (Other Secured Claims) and Class 2B
(Intercompany Claims) are not "Impaired" under the Plan, the votes of holders of
Class 1C and Class 2B Claims are not required and provisions for "cram-down" in
the event of non-acceptance are not applicable.
The use of the "cram-down" provisions by the Debtors could
result in lengthy and complicated litigation which could substantially delay or
prevent the confirmation of the Plan. The Debtors will weigh such factors in
determining whether to seek a "cram-down" of a non-accepting Impaired class of
creditors or shareholders.
H. ALTERNATIVES TO THE PLAN
The Debtors believe the Plan affords creditors the potential
for the greatest recovery realistically available in the immediate future, and,
thus, is in the best interests of creditors. If the Plan is not confirmed, the
alternatives may include an alternative plan of reorganization or a liquidation
of the Debtors' assets under Chapter 7 of the Bankruptcy Code.
1. LIQUIDATION UNDER CHAPTER 7.
The Debtors' Chapter 11 reorganization cases could be
converted to liquidation cases under Chapter 7 of the Bankruptcy Code either at
the Debtors' election or as a result of a motion for such conversion by a
creditor or other interested party. In the event of such a Chapter 7
liquidation, a trustee would be elected by creditors or designated by the United
States Trustee to liquidate all of the Debtors' assets and ultimately to
distribute the proceeds in accordance with priority rules of distribution
contained in the Bankruptcy Code.
Even before the priority rules would be applied with respect
to distributions in a liquidation proceeding, it is possible that litigation
would be commenced in connection with preference, reclamation, and equitable
subordination or other issues, in which case the treatment of certain claims or
groups of claims would be uncertain. Additional administration expenses and
delays in making distributions in the liquidation proceeding would probably also
result. Moreover, the consideration paid by the Investors under the Plan for the
New Common Stock would be unavailable in a liquidation. For such reasons, the
Debtors believe that the amount ultimately distributed by a Chapter 7 trustee on
account of each allowed claim would be considerably less than that expected
under the Plan. See Exhibit 3 and 4.
2. ALTERNATIVE PLANS.
If the Plan is not confirmed, the Debtors or any other party
in interest also could attempt to formulate a different plan. Such a plan might
involve either a reorganization and continuation of the Debtors' businesses or
an orderly liquidation of their assets. In view of the expiration of the
Debtors' period of exclusivity, such alternative plans could be filed by other
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parties in interest if they so elect. The Debtors cannot predict what return
might be available to creditors or shareholders under an alternative plan(s).
I. DESCRIPTION OF NEW COMMON STOCK
The New Common Stock will be the Common Stock of New Unitech
as of the Effective Date. As of the Effective Date, there will be Thirty Million
(30,000,000) authorized shares of New Common Stock, of which approximately
4,600,000 shares are expected to be issued and outstanding. Holders of New
Common Stock will be entitled to vote for the election of directors and on all
matters submitted to a vote of stockholders of New Unitech, with each share of
New Common Stock being entitled to one vote with respect to such matters.
Holders of the New Common Stock will not have a right to cumulate votes
in the election of directors, which means that the holders of a majority of the
voting power of New Unitech voting in the election of directors could elect 100%
of the directors if they chose to do so, and, in such event, the other holders
would not be able to elect any person or persons to the Board of Directors. The
terms of the Board of Directors of New Unitech are not classified. For a
discussion of the separate voting rights of holders of New Preferred Stock, see
Section J., "Description of New Preferred Stock."
All shares of New Common Stock will be entitled to share
equally in dividends from sources legally available for the payment of
dividends, when, as, and if declared by the Board of Directors, and upon
liquidation or dissolution of the Debtors, whether voluntary or involuntary, to
share equally in its assets available for distribution to stockholders.
The Certificate of Incorporation of New Unitech contains
provisions which may limit the transferability of the shares of New Common Stock
for specified periods after confirmation of the Plan. These provisions are
designed to prevent a so-called "change of control" as provided under the tax
laws. If such a change of control occurred, it would result in the loss of
certain favorable tax attributes which the Debtors have sought to preserve. For
further discussion of various tax elements of the Plan, see Section K., "Certain
Federal Tax Consequences".
For further details regarding limitations on transfer and
other specific terms of the New Common Stock, parties should refer to the
Certificate of Incorporation of New Unitech, attached as Exhibit F to the Plan.
J. DESCRIPTION OF NEW PREFERRED STOCK
The New Preferred Stock will be preferred stock of New Unitech
as of the Effective Date. As of the Effective Date there will be Ten million
(10,000,000) authorized shares of new preferred stock, of which approximately
Three Million Five Hundred Thousand
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(3,689,117) are expected to be issued and outstanding. Holders of New Preferred
Stock will be entitled to vote for the election of directors and in all matters
submitted to a vote of stockholders of New Unitech, with each share of New
Preferred Stock being entitled to one vote with respect to such matters. Except
for particular voting rights described below, the shares of New Preferred Stock
will have the same relative voting power as shares of New Common Stock.
Holders of the New Preferred Stock will not have a right to
cumulate votes in the election of directors, which means that the holders of a
majority of the voting power of New Unitech voting in the election of directors
could elect 100% of the directors if they chose to do so, and, in such event,
the other holders would not be able to elect any person or persons to the Board
of Directors. The terms of the Board of Directors of New Unitech are not
classified. Pursuant to the Certificate of Incorporation of New Unitech, holders
of New Preferred Stock will be entitled, until December 31, 1998, to separately
elect one Director of New Unitech.
In addition to matters on which holders of New Preferred Stock
vote together with holders of New Common Stock, the holders of New Preferred
Stock will vote separately on certain matters. Without the advance consent of
the holders of a majority of the New Preferred Stock outstanding, New Unitech
may not: (i) alter or change any rights, privileges or preferences of the New
Preferred Stock; (ii) increase or decrease the authorized number of shares of
New Preferred Stock; (iii) authorize, issue or create (by reclassification or
otherwise) shares of any class or series of stock equal in priority or having
any preference over the New Preferred Stock with respect to liquidation
payments; (iv) amend or waive any provision of the Certificate or Bylaws of New
Unitech relative to the New Preferred Stock; (v) authorize or approve any
liquidation or dissolution of New Unitech; (vi) authorize or approve any merger,
consolidation of New Unitech; or (vii) authorize or approve any sale or transfer
of all or substantially all of the assets of New Unitech.
The New Preferred Stock ranks senior in liquidation preference
to the New Common Stock. Upon any liquidation, dissolution or winding up, New
Unitech may not make any distribution to the holders of New Common Stock unless
prior thereto, the holders of New Preferred Stock shall have received an amount
equal to $1.50 per share.
Unless previously converted, all or any portion of the New
Preferred Stock may be redeemed on a pro rata basis by New Unitech at its
election from the holders of the New Preferred Stock at any time prior to
December 31, 1997. The price at which the New Preferred Stock may be redeemed on
such optional basis is $2.50 per share.
The terms of the New Preferred Stock also provide for
mandatory redemptions by New Unitech. New Unitech must redeem up to 333,334
shares of New Preferred Stock on each of June 30, 1997, December 31, 1997, June
30, 1998 and December 31, 1998. The price at which the New Preferred Stock will
be redeemed on such mandatory basis is $1.50 per share. In the event that more
than 333,334 shares are tendered for redemption on any such date, the shares
tendered will be redeemed on a pro rata basis. If New Unitech fails to make a
mandatory redemption payment, the holders of New Preferred Shares tendered for
redemption will have the option, while such payment remains unpaid, to (x)
demand accelerated redemption of any or all of their shares of New Preferred
Stock, or (y) convert any or all of their shares of New
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Preferred Stock to New Common Stock notwithstanding the December 31, 1998 limit
otherwise applicable as described below.
At any time after December 31, 1998, the holders of New
Preferred Stock shall have the right, at their option, to convert each share of
New Preferred Stock into one share of common stock. The conversion ratio of the
New Preferred Stock may be subject to adjustment for certain stock splits, stock
dividends, combinations, reclassifications and similar events.
Shares of New Preferred Stock are not entitled to fixed
dividends. However, in the event that cash dividends are declared with respect
to the New Common Stock, shares of New Preferred Stock will receive an
equivalent cash dividend.
The Certificate of Incorporation of New Unitech contains
provisions which may limit the transferability of the shares of New Preferred
Stock for specified periods after confirmation of the Plan. These provisions are
designed to prevent a so-called "change of control" as provided under the tax
laws. If such a change of control occurred, it would result in the loss of
certain favorable tax attributes which the Debtors has sought to preserve. For
further discussion of various tax elements of the Plan, see Section K., "Certain
Federal Tax Consequences".
For further details regarding limitations on transfer and
other specific terms of the New Preferred Stock, parties should refer to the
Certificate of Incorporation of New Unitech, attached as Exhibit F to the Plan.
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K. CERTAIN FEDERAL TAX CONSEQUENCES
The following discussion sets forth the material federal income tax
consequences of the Plan to the Debtors and holders of certain Claims. This
discussion is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Tax Code"), final, temporary, and proposed Treasury regulations
thereunder, and administrative and judicial interpretations thereof, all as in
effect as of the date hereof. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service or opinion of counsel has been or will be sought as to the
federal income tax consequences of the Plan.
The description that follows does not include all matters that may be
relevant to any particular holder and could be affected by the specific facts
and circumstances pertaining to such holder. Certain holders, including
financial institutions, broker-dealers, tax-exempt entities, insurance
companies, and foreign persons may be subject to special rules not discussed
below.
ALL HOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS AS TO
THEIR PARTICULAR TAX CONSEQUENCES ASSOCIATED WITH THE PLAN, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, OR ANY
PROPOSED LEGISLATION. FURTHER, THERE CAN BE NO ASSURANCE THAT THE TAX
CONSEQUENCES TO THE DEBTORS WILL BE AS DISCUSSED, SINCE SUCH TAX CONSEQUENCES
WILL BE SUBJECT TO FUTURE EVENTS THAT CANNOT BE PREDICTED WITH CERTAINTY.
1. CREATION OF AND TRANSFER TO NEW UNITECH
The Plan will be implemented through the transfer of all of the assets
of Unitech to New Unitech and the assumption by New Unitech of all of Unitech's
liabilities and obligations under the Plan. This transfer will be pursuant to
the terms and conditions of the Plan. Under the Plan, New Unitech will
distribute its stock and debt to the holders of Unitech claims and interests as
prescribed in the Plan. If, as the Debtors expect, the provisions of the Plan
comply with the provisions of Section 368(a)(1)(G) of the Tax Code, the
reorganization contemplated by the Plan will qualify as a "G reorganization" for
federal income tax purposes, in which case Unitech will not recognize either
gain or loss for federal income tax purposes upon the transfer of its assets to
New Unitech.
Generally, Section 368(a)(1)(G) of the Tax Code requires that, in order
to qualify as a G reorganization, the transaction must meet the following
conditions: (i) Unitech must transfer substantially all of its assets to New
Unitech; (ii) all property received by Unitech in exchange for the transfer of
its assets and all additional property that may remain in Unitech after such
transfer must be distributed pursuant to a plan of reorganization; (iii) at
least one former shareholder or "security" holder of Unitech must receive shares
or "securities" of New Unitech (see "Importance of Whether Certain Debt
Instruments Constitute 'Securities'" below); (iv) shareholders and creditors of
Unitech must receive, as a result of holding Claims or Interests, a substantial
continuing stock interest in New Unitech; and (v) New Unitech must continue a
significant line of business theretofore conducted by Unitech or must use a
significant amount
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of Unitech's historic business assets in some line of business. The Debtors
believe that the terms of the Plan relating to New Unitech satisfy the
requirements of a G reorganization.
In such a G reorganization, New Unitech will acquire many of the
federal income tax attributes of Unitech, including its net operating loss
("NOLs") carryovers as a result of the transfer of assets to New Unitech as
described above. However, as discussed below, New Unitech's ability to utilize
those NOLs against its future income will be subject to several special
limitations under the Tax Code. See "Limitation on Use of NOLs" below. For
purposes of this discussion, references to "Debtor" or "Debtors" will include
New Unitech as the context requires.
2. CONSEQUENCES TO HOLDERS OF CERTAIN CLAIMS
a. IMPORTANCE OF WHETHER CERTAIN DEBT INSTRUMENTS CONSTITUTE
"SECURITIES"
As discussed below with respect to the various Classes of Claims, the
federal income tax consequences to the Claim holders of the exchanges provided
for by the Plan will depend, in part, on whether certain debt instruments
constitute "securities" for federal income tax purposes ("Securities" or
"Security"). The term "security" is not defined in the Tax Code or in the
regulations, and has not been clearly defined in court decisions. Although there
are a number of factors that may affect the determination of whether a debt
instrument is a Security, one of the most important factors is the original term
of the instrument, i.e., the length of time between the issuance of the
instrument and its maturity. In general, instruments with an original term of
more than ten years are likely to be treated as Securities and instruments with
a term of less than five years are likely not to be treated as Securities. The
Debtors are not rendering federal income tax advice as to whether any of the
debt instruments discussed below are, or are not, Securities. ACCORDINGLY, THE
DEBTORS RECOMMEND THAT THE CLAIMS HOLDERS CONSULT WITH THEIR TAX ADVISERS AS TO
THE PROPER TREATMENT OF THE RESPECTIVE DEBT INSTRUMENTS.
b. HOLDERS OF CLASS 1A - MERRILL LYNCH CLAIMS
Under the Plan, Merrill Lynch will exchange the Merrill Lynch Claims
for (i) cash, and (ii) the Merrill Secured Notes (the "Merrill Lynch Exchange").
If the Merrill Lynch Claims and the Merrill Secured Notes constitute Securities,
the Merrill Lynch Exchange will likely constitute a partially tax-free
reorganization exchange under Sections 354(a) and 356(a) of the Tax Code.
If the sum of (i) the principal amount of the Merrill Secured Notes
(or, if Merrill Lynch is a cash basis taxpayer, the fair market value of the
Merrill Secured Notes) (other than any such Notes allocable to accrued
interest), and (ii) the cash (other than any such cash allocable to accrued
interest) exceeds Merrill Lynch's adjusted tax basis in the Merrill Lynch Claims
(other than any portion of the basis in such Claims allocable to accrued
interest), Merrill Lynch will realize gain on the Merrill Lynch Exchange in the
amount of such excess. If Merrill Lynch's adjusted tax basis in the Merrill
Lynch Claims (other than any portion of the basis in such Claims allocable to
accrued interest) exceeds the sum of (i) the principal amount of the Merrill
Secured Notes (or, if Merrill Lynch is a cash basis taxpayer, the fair market
value of the Merrill
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Secured Notes) (other than any such Notes allocable to accrued interest), and
(ii) the cash (other than any such cash allocable to accrued interest) received,
Merrill Lynch will realize a loss on the Merrill Lynch Exchange equal to such
excess. See the discussion below under the heading "Treatment of Accrued But
Unpaid Interest." The amount of gain or loss recognized, if any, for federal
income tax purposes on the Merrill Lynch Exchange depends (in part), however, on
whether the Merrill Lynch Claims and/or the Merrill Secured Notes constitute
Securities.
If the Merrill Secured Notes and the Merrill Lynch Claims
Constitute Securities
If the Merrill Secured Notes and the Merrill Lynch Claims constitute
Securities, Merrill Lynch will recognize gain (if any), but not loss, on the
Merrill Lynch Exchange equal to the lesser of (i) the amount of gain realized on
the Merrill Lynch Exchange, or (ii) the sum of (A) the cash (other than any such
cash allocable to accrued interest) received, and (B) the fair market value of
the excess, if any, of the principal amount of the Merrill Secured Notes (other
than any such Notes allocable to accrued interest) over the principal amount of
the Merrill Lynch Claims (other than any such Claims allocable to accrued
interest).
If Either the Merrill Secured Notes or the Merrill Lynch
Claims Are Not Securities
If either the Merrill Secured Notes or the Merrill Lynch Claims are
not Securities, Merrill Lynch will recognize gain or loss on the Merrill Lynch
Exchange measured by the difference between (i) the sum of (A) the cash (other
than any such cash allocable to accrued interest), received and (B) the
principal amount of the Merrill Secured Notes (or, if Merrill Lynch is a cash
basis taxpayer, the fair market value of the Merrill Secured Notes) (other than
any such amount allocable to accrued interest), and (ii) Merrill Lynch's
adjusted tax basis in the Merrill Lynch Claims (other than any portion of such
basis allocable to accrued interest).
If Some Portion, But Not All, of the Merrill Lynch Claims
Constitutes Securities
If some portion, but not all, of the Merrill Lynch Claims constitutes
Securities, the exchange of the Merrill Lynch Claims will be treated as two
separate exchanges, one involving the portion of such Claims that constitutes a
Security and the other involving such portion that does not constitute a
Security. Each resulting exchange will then be treated as described in the above
applicable discussion.
c. HOLDERS OF CLASS 1B - IMPERIAL BANK CLAIMS
Under the Plan, Imperial Bank will exchange the Imperial Bank Claims
for (i) cash, (ii) the Imperial Secured Notes, and (iii) 800,000 shares of New
Preferred Stock (the "Imperial Bank Exchange"). If the Imperial Bank Claims
constitute Securities, the Imperial Bank Exchange will likely constitute a
partially tax-free reorganization exchange under Sections 354(a) and 356(a) of
the Tax Code.
If the sum of (i) the fair market value of the New Preferred Stock,
(ii) the principal amount of the Imperial Secured Notes (or, if Imperial Bank is
a cash basis taxpayer, the fair
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market value of the Imperial Secured Notes) (other than any portion of such
Notes allocable to accrued interest), and (iii) the cash (other than any portion
of such cash allocable to accrued interest) received exceeds Imperial Bank's
adjusted tax basis in the Imperial Bank Claims (other than any portion of the
basis in such Claims allocable to accrued interest), Imperial Bank will realize
gain on the Imperial Bank Exchange in the amount of such excess. If Imperial
Bank's adjusted tax basis in the Imperial Bank Claims (other than any portion of
the basis in such Claims allocable to accrued interest) exceeds the sum of (i)
the fair market value of the New Preferred Stock (other than any such Stock
allocable to accrued interest), (ii) the principal amount of the Imperial
Secured Notes (or, if Imperial Bank is a cash basis taxpayer, the fair market
value of the Imperial Secured Notes) (other than any portion such Notes
allocable to accrued interest), and (iii) the cash (other than any portion of
such cash allocable to accrued interest) received, Imperial Bank will realize a
loss on the Imperial Bank Exchange equal to such excess. See the discussion
below under the heading "Treatment of Accrued But Unpaid Interest." The amount
of gain or loss recognized, if any, for federal income tax purposes on the
Imperial Bank Exchange depends (in part), however, on whether the Imperial Bank
Claims and/or the Imperial Secured Notes constitute Securities.
If the Imperial Bank Claims and the Imperial Secured Notes
Constitute Securities
If the Imperial Bank Claims and the Imperial Secured Notes constitute
Securities, Imperial Bank will recognize gain (if any), but not loss, on the
Imperial Bank Exchange equal to the lesser of (i) the amount of gain realized on
the Imperial Bank Exchange, or (ii) the sum of (A) the cash (other than any such
cash allocable to accrued interest) received, and (B) the fair market value of
the excess, if any, of the principal amount of the Imperial Secured Notes (other
than any such Notes allocable to accrued interest) over the principal amount of
the Imperial Bank Claims (other than any such Claims allocable to accrued
interest).
If the Imperial Bank Claims Are, But the Imperial Secured
Notes Are Not, Securities
If the Imperial Bank Claims are, but the Imperial Secured Notes are
not, Securities, then Imperial Bank will recognize gain (if any), but not loss,
equal to the lesser of (i) the amount of gain realized on the Imperial Bank
Exchange, or (ii) the sum of the cash (other than cash allocable to accrued
interest) received and the fair market value of the Imperial Secured Notes
(other than any such Notes received allocable to accrued interest).
If the Imperial Bank Claims Are Not Securities
If the Imperial Bank Claims are not Securities, Imperial Bank will
recognize gain or loss on the Imperial Bank Exchange measured by the difference
between (i) the sum of (A) the fair market value of New Preferred Stock received
(other than any such Stock allocable to accrued interest), (B) the principal
amount of the Imperial Secured Notes (or, if Imperial Bank is a cash basis
taxpayer, the fair market value of the Imperial Secured Notes) (other than any
such Notes allocable to accrued interest), and (C) the cash (other than any
portion of such cash allocable to accrued interest) received, and (ii) Imperial
Bank's adjusted tax basis in such Claims (other than any such Claims for accrued
interest).
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If the Imperial Secured Notes and Some Portion, But Not All,
of the Imperial Bank Claims Constitutes Securities
If the Imperial Secured Notes and some portion, but not all, of the
Imperial Bank Claims constitutes Securities, the exchange of the Imperial Bank
Claims will be treated as two separate exchanges, one involving the portion of
such Claims that constitutes a Security and the other involving such portion
that does not constitute a Security. Each resulting exchange will then be
treated as described in the above applicable discussion.
Future Sale of New Preferred Stock
In general, any gain or loss recognized on a subsequent sale or
exchange of the New Preferred Stock will be capital gain or loss if the Stock is
held as a capital asset. However, gain on the disposition of New Preferred Stock
acquired in exchange for Imperial Bank Claims generally will be treated as
ordinary income (i) to the extent that deductions for worthlessness or partial
worthlessness of such Claims have been allowed to Imperial Bank, and (ii) to the
extent of any ordinary loss allowed to Imperial Bank on the exchange minus any
gain recognized or income realized on the exchange. Dividends, if any, paid with
respect to the New Preferred Stock will be classified as ordinary income, return
of capital, or capital gain, depending on the extent of the New Unitech's
current or accumulated earnings and profits for tax purposes.
Potential Accelerated, Ordinary Income Treatment for the
Preferred Stock Redemption Premium
The New Preferred Stock is subject to both a mandatory redemption and
an optional redemption at the discretion of New Unitech. Both redemption
possibilities may give rise to ordinary dividend income to the holders of the
New Preferred Stock. With respect to the mandatory redemption, the Tax Code will
require the holders of New Preferred Stock to treat a portion of the difference
between the redemption price and the issue price of the New Preferred Stock
(unless such difference does not exceed a prescribed de minimis amount) as a
distribution by New Unitech with respect to its stock (and thus an ordinary
income dividend to the extent of earnings and profits) during each year that
such stock is outstanding, under economic accrual principles similar to those
applicable to original issue discount. The redemption price in the event of a
mandatory redemption is $1.50 per share; because it is arguable that the value
of each share of New Preferred Stock is less than $1.50 at the date of its
issuance, it is also arguable that the issue price of the New Preferred Stock is
less than $1.50, which could then lead to the accrual of dividend income to the
holders of such stock as described above.
With respect to the optional redemption, in which the redemption price
is $2.50 per share, it is possible that a portion of the difference between the
redemption price and the issue price of the New Preferred Stock will be treated
as a distribution with respect to stock (and thus an ordinary income dividend to
the extent of earnings and profits), unless holders of the New Preferred Stock
can establish, as of the issue date, that it is more likely than not that such
stock will not be redeemed. As is the case with the mandatory redemption, the
portion of the
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redemption premium treated as a distribution in each year will be determined
under economic accrual principles similar to those applicable to original
discount.
d. HOLDERS OF CLASS 2A - CONVENIENCE CLAIMS
Holders of Class 2A Convenience Claims will exchange their Claims on
the Distribution Date for cash. The exchange of a Class 2A Convenience Claim for
cash will be a taxable transaction. As a consequence, holders of Class 2A Claims
will recognize gain or loss on the transaction measured by the difference
between (1) the amount of cash received (other than any cash allocable to
accrued interest), and (ii) such holder's adjusted tax basis in such Claim
(other than any portion of such basis allocable to accrued interest). See
"Treatment of Accrued But Unpaid Interest" below.
e. HOLDERS OF CLASS 2C - UNSECURED CLAIMS
Holders of Class 2C Unsecured Claims will exchange their Claims on the
Distribution Date for (i) cash in the amount of Twenty percent (20%) of their
respective Class 2C Allowed Claims [up to an aggregate maximum of One Million
Dollars ($1,000,000)], and (ii) one share of New Preferred Stock for each $1.50
of the remaining approximately Eighty percent (80%) of such Class 2C Allowed
Claim.
If the Class 2C Claims Are Not Securities
If the Class 2C Unsecured Claims are not Securities, the Holders will
recognize gain or loss on the exchange measured by the difference between (i)
the sum of (A) the fair market value of the New Preferred Stock received in the
exchange (other than any such Stock allocable to accrued interest), (B) the cash
(other than any portion of such cash allocable to accrued interest) received,
and (ii) the Holders' adjusted tax basis in such Claims (other than any such
Claims for accrued interest).
If the Class 2C Claims Constitute Securities
If the Class 2C Claims constitute Securities, the Holders will
recognize gain (if any), but not loss, on the exchange equal to the lesser of
(i) the amount of gain that would be recognized if such claims were not
Securities (see "If the Class 2C Claims Are Not Securities" above) or (ii) the
amount of the cash (other than any such cash allocable to accrued interest)
received.
If Some Portion, But Not All, of the Class 2C Claims
Constitutes Securities
If some portion, but not all, of the Class 2C Claims constitutes
Securities, the exchange of the Class 2C Claims will be treated as two separate
exchanges, one involving the portion of such Claims that constitutes a Security
and the other involving such portion that does not constitute a Security. Each
resulting exchange will then be treated as described in the above applicable
discussion.
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Future Sale of New Preferred Stock
In general, any gain or loss recognized on a subsequent sale or
exchange of the New Preferred Stock will be capital gain or loss if the Stock is
held as a capital asset. However, gain on the disposition of New Preferred Stock
acquired in exchange for Class 2C Claims generally will be treated as ordinary
income (i) to the extent that deductions for worthlessness or partial
worthlessness of such Claims have been allowed to Holders, and (ii) to the
extent of any ordinary loss allowed to Holders on the exchange minus any gain
recognized or income realized on the exchange. Dividends, if any, paid with
respect to the New Preferred Stock will be classified as ordinary income, return
of capital, or capital gain, depending on the extent of the New Unitech's
current or accumulated earnings and profits for tax purposes.
Potential Accelerated, Ordinary Income Treatment for the
Preferred Stock Redemption Premium
The New Preferred Stock is subject to both a mandatory redemption and
an optional redemption at the discretion of New Unitech. Both redemption
possibilities may give rise to ordinary dividend income to the holders of the
New Preferred Stock. With respect to the mandatory redemption, the Tax Code will
require the holders of New Preferred Stock to treat a portion of the difference
between the redemption price and the issue price of the New Preferred Stock
(unless such difference does not exceed a prescribed de minimis amount) as a
distribution by New Unitech with respect to its stock (and thus an ordinary
income dividend to the extent of earnings and profits) during each year that
such stock is outstanding, under economic accrual principles similar to those
applicable to original issue discount. The redemption price in the event of a
mandatory redemption is $1.50 per share; because it is arguable that the value
of each share of New Preferred Stock is less than $1.50 at the date of its
issuance, it is also arguable that the issue price of the New Preferred Stock is
less than $1.50, which could then lead to the accrual of dividend income to the
holders of such stock as described above.
With respect to the optional redemption, in which the redemption price
is $2.50 per share, it is possible that a portion of the difference between the
redemption price and the issue price of the New Preferred Stock will be treated
as a distribution with respect to stock (and thus an ordinary income dividend to
the extent of earnings and profits), unless holders of the New Preferred Stock
can establish, as of the issue date, that it is more likely than not that such
stock will not be redeemed. As is the case with the mandatory redemption, the
portion of the redemption premium treated as a distribution in each year will be
determined under economic accrual principles similar to those applicable to
original discount.
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f. HOLDERS OF CLASS 3A - COMMON STOCK
The holders of Class 3A Common Stock that are current holders of such
Stock will receive, for each share of Common Stock owned, (i) four-tenths (.4)
of a share of New Common Stock, and (ii) the right to purchase, as of the
Distribution Date, for a Cash price of $1.50 per share, two-tenths (.2) of a
share of New Common Stock. The exchange of Class 3A Common Stock for New Common
Stock may constitute a reorganization exchange under Section 354(a) of the Tax
Code, a Section 351 Transaction, or a tax-free exchange of common stock for
common stock under Section 1036 of the Tax Code, with the likely consequence
that the holders of the Class 3A Common Stock will not recognize any gain or
loss on the exchange. However, see the discussion below under the heading
"Treatment of Accrued But Unpaid Interest."
The exchange of Class 3A Common Stock for the right to purchase (the
"Purchase Right"), as of the Distribution Date, for a Cash price of $1.50 per
share, two-tenths (.2) of a share New Common Stock for each share of Common
Stock held will likely not be a taxable exchange. To the extent that the New
Common Stock is worth $1.50 per share or less at the Distribution Date, the
receipt of the New Common Stock will not represent an amount realized by the
shareholders in exchange for the Class 3A Common Stock. To the extent that the
New Common Stock is worth more than the $1.50 per share, the additional New
Common Stock received over the purchase price paid will likely be treated as
received in exchange for the Class 3A Common Stock and should be treated in the
manner described in the preceding paragraph. As a consequence, it is likely that
holders of Class 3A Common Stock will not recognize gain or loss on the exchange
of Class 3A Common Stock for the Purchase Right.
g. RESERVE FUND FOR SUBSEQUENTLY ALLOWED CLAIMS OR INTERESTS
On the Distribution Date, the Debtors will set aside and retain in the
Reserve Fund Cash to make payments in respect of subsequently allowed Claims or
Interests. The Debtors will likely be subject to federal income tax on the
income or gain earned by the Reserve Fund.
h. CHARACTER OF GAIN, BASIS, AND HOLDING PERIOD
The character of the various potential gains, losses, and income
described above as long-term or short-term capital gain or loss or as ordinary
income or loss will be determined by a number of factors. These factors include
whether the particular Claim constitutes a capital asset in the hands of the
Claim holder, whether the Claim has been held for more than one year, whether
the Claim was purchased at a discount, and whether and to what extent the Claim
holder has previously claimed a bad debt deduction with respect to such Claim.
In the case of any exchange described above that constitutes a
reorganization exchange, the Claim holder's basis in the Security received will
equal the Claim holder's adjusted tax basis in the Security surrendered,
decreased by the amount of cash and the value of any additional property or
rights received, and increased by any gain recognized in respect of the Claim.
The Claim holder's holding period for the Security received will include the
Claim holder's holding period for the Security surrendered, provided such
Security was held as a capital asset. The Claim holder's basis in any
non-Security property or rights received in the exchange will be
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<PAGE> 51
equal to the fair market value of such property or rights, and the holding
period of such property or rights will begin on the day after receipt thereof.
In the case of any exchange described above that does not constitute a
reorganization exchange, the Claim holder's basis in all property and rights
received will be equal to the fair market value of such property or rights. The
Claim holder's holding period of such property or rights will begin on the day
after receipt thereof.
i. TREATMENT OF ACCRUED BUT UNPAID INTEREST
Holders of Claims that have not previously included in their taxable
income accrued but unpaid interest on a Claim may be treated as receiving
taxable interest to the extent any consideration they receive under the Plan is
allocable to such accrued but unpaid interest. Holders of Claims that have
previously included in their taxable income accrued but unpaid interest on a
Claim may be entitled to recognize a deductible loss to the extent such accrued
but unpaid interest is not satisfied under the Plan.
j. ORIGINAL ISSUE DISCOUNT
The Merrill Secured Notes and the Imperial Secured Notes are not
expected to have original issue discount because they are not expected to have
"issue prices" less than their "stated redemption prices at maturity." (Original
issue discount must be recognized as income over the term of the debt instrument
pursuant to Sections 1271 through 1275 of the Tax Code.) Where a debt instrument
(such as the Merrill Secured Notes and the Imperial Secured Notes) is issued in
exchange for another debt instrument (such as the Merrill Lynch Claims and the
Imperial Bank Claims), and neither the newly issued debt instrument nor the
prior debt instrument is traded on an established securities market, the issue
price of the new debt instrument is its stated principal amount if the
instrument bears "adequate stated interest."
The Merrill Lynch Claims and the Imperial Bank Claims have not been,
and it is expected that the Merrill Secured Notes and the Imperial Secured Notes
will not be, traded on an established securities market. It is further expected
that the Merrill Secured Notes, which bear interest at a fixed rate equal to 10%
per annum, and the Imperial Secured Notes, which bear interest at a fixed rate
equal to 12% per annum, will have adequate stated interest. Accordingly, the
issue price and the stated redemption price at maturity of the Merrill Secured
Notes and the Imperial Secured Notes should both be equal to the principal
amounts thereof, and thus the Merrill Secured Notes and the Imperial Secured
Notes should have no original issue discount.
k. BACKUP WITHHOLDING
All distributions under the Plan are subject to applicable withholding.
Under the Tax Code, interest, dividends and other reportable payments may, under
certain circumstances, be subject to backup withholding at a 31% rate. Backup
withholding generally applies if the holder (a) fails to furnish its social
security number or other taxpayer identification number ("TIN"), (b) furnishes
an incorrect TIN, (c) fails properly to report interest or dividends, or (d)
under
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certain circumstances, fails to provide a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that it is
not subject to backup withholding. Backup withholding is not an additional tax
but merely an advance payment, which may be refunded to the extent it results in
an overpayment of tax. Certain persons are exempt from backup withholding,
including corporations and financial institutions.
3. CONSEQUENCES TO THE DEBTORS
a. REDUCTIONS OF THE DEBTORS' INDEBTEDNESS
The principal amount of the Debtors' aggregate outstanding indebtedness
will be substantially reduced under the Plan. Generally, the cancellation or
other discharge of indebtedness triggers ordinary income to a debtor equal to
the excess of the principal amount (as determined for federal income tax
purposes) of the indebtedness discharged over the aggregate value of cash and
other property (including stock of the Debtors) transferred in satisfaction of
the debt. If debt is discharged in a case under the Bankruptcy Code, however, no
ordinary income to the debtor generally results. Instead, certain tax attributes
otherwise available to the debtor are reduced, in most cases by the amount that
would otherwise be included as ordinary income.
Tax attributes are subject to reduction generally in the following
order: (i) net operating losses and NOL carryovers; (ii) general business credit
carryovers; (iii) minimum tax credits; (iv) capital losses and capital loss
carryovers; (v) the tax basis of the debtor's depreciable and non-depreciable
assets, including inventory; (vi) passive activity loss and credit carryovers;
and (vii) foreign tax credit carryovers. Attribute reduction is calculated only
after the tax for the year of discharge has been determined, and asset basis
reduction applies to property held by the debtor at the beginning of the taxable
year following the taxable year in which the discharge occurs. Asset basis
reduction is generally not required in an amount greater than the excess of the
aggregate tax bases of the property held by the debtor immediately after the
discharge over the aggregate of the debtor's liabilities immediately after the
discharge. In very general terms, the basis of property other than inventory and
notes and accounts receivable is reduced before the basis of inventory and notes
and accounts receivable.
Because the Debtors believe that the sum of the cash, the principal
amount of the debt, and the fair market value of the stock of New Unitech to be
distributed to creditors under the Plan will generally approximate the amount of
debt satisfied thereby, it is not expected that New Unitech will be required to
reduce its tax attributes by a substantial amount as a result of the Plan.
However, it is expected that New Unitech will be required to reduce its NOLs to
a limited extent. Because the amount of the Debtors' cancellation of
indebtedness income is not expected to exceed the amount of the NOLs, it is not
expected that New Unitech will be required to reduce tax attributes other than
NOLs, unless New Unitech elects to reduce its basis in depreciable assets before
it reduces its other tax attributes. If New Unitech elects to first reduce its
basis in depreciable assets, NOLs (and other tax attributes) would be reduced
only to the extent, if any, that the Debtors' cancellation of indebtedness
income exceeds the Debtors' adjusted tax bases in their depreciable assets.
These tax attribute reductions will likely have the
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effect of subjecting New Unitech to greater federal income tax liabilities than
would occur absent the attribute reduction for its taxable years following
implementation of the Plan.
b. LIMITATION ON USE OF NOLS
The Debtors, which are a part of a consolidated group (the
"Consolidated Group"), will very likely experience an "ownership change" for
purposes of Section 382 of the Tax Code upon consummation of the Plan. In
general, a group of corporations filing consolidated federal income tax returns
experiences an ownership change if the percentage of stock of the parent
corporation of such group owned by one or more stockholders that each own at
least five percent of the stock of such corporation (or certain specified groups
of stockholders) increases by more than 50 percentage points within a prescribed
time period. In general, after a consolidated group of corporations experiences
an ownership change, the amount of NOLs (and "built-in losses," if any, as
defined for this purpose) arising before the ownership change that the group is
permitted to use each year after the ownership change may not exceed a specified
amount, referred to as the "Section 382 Limitation" and described below.
Assuming that the Consolidated Group experiences an ownership change,
it may qualify for the so-called "Bankruptcy Exception" from the Section 382
Limitation under Tax Code Section 382(l)(5); however, the effect on the NOLs
required under the Bankruptcy Exception may impose a greater tax burden on the
Consolidated Group than the alternative of being subject to the Section 382
Limitation. This might be the case, for example, if, within two years after the
ownership change resulting from consummation of the Plan, New Unitech
experiences another ownership change (which, for example, could result at least
in part from the mandatory or optional redemption of New Preferred Stock). If
the Bankruptcy Exception is utilized and another ownership change occurs
(whether from the redemption of New Preferred Stock or otherwise) within the
two-year period referred to above, then New Unitech's Section 382 Limitation for
any year thereafter would be zero and New Unitech would not be permitted to
reduce otherwise taxable income by any NOL carryovers attributable to
pre-ownership change years.
If the Consolidated Group determines that the Bankruptcy Exception
would impose a tax burden on it greater than that resulting from application of
the Section 382 Limitation, the Consolidated Group will likely elect not to have
the Bankruptcy Exception apply. The Consolidated Group would then be subject to
the Section 382 Limitation, which would be calculated by multiplying the
"long-term tax-exempt rate" (which is a rate announced monthly by the Service
and is 5.80 percent for the month of October 1996 and 5.64 percent for the month
of November 1996) by the sum of (i) the value of the outstanding stock of the
members of the Consolidated Group (other than such stock owned by a Consolidated
Group member) immediately before consummation of the Plan plus (ii) the increase
in the value of the Debtors resulting from the discharge of creditor claims
pursuant to the Plan.
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L. CERTAIN SECURITIES LAW MATTERS
The Debtors believe that the issuance of debt instruments
and/or preferred stock to Merrill Lynch, Imperial, or holders of Allowed Class
2C Claims under the Plan, to the extent the issuance of debt instruments and/or
preferred stock may be deemed to constitute an offer of securities, is being
made in compliance with Sections 1126(b)(2) and 1145 of the Bankruptcy Code.
Section 1145 of the Bankruptcy Code generally provides, subject to certain
exceptions, that the securities registration and qualification requirements of
federal and state securities laws do not apply to the offer or sale of
securities by Debtors if the offer or sale occurs under a plan of reorganization
and the securities are transferred in exchange (or principally in exchange) for
a claim against or interest in Debtors.
Similarly, the Debtors believe that the New Common Stock being
offered to the holders of Class 3A Allowed Interests in exchange (or principally
in exchange) for their existing share ownership is, likewise, being made in
compliance with Sections 1126(b)(2) and 1145 of the Bankruptcy Code. Although
holders of Class 3A Allowed Interests will also receive the right to purchase
shares of New Common Stock for cash, the amounts issued in exchange for such
holders' existing share ownership will exceed the amounts subject to
subscription.
Generally, securities issued in accordance with Section 1145
of the Bankruptcy Code may be subsequently resold without specific securities
law limitations. However, any holder of such securities who is deemed to be and
"underwriter" under Section 1145(b) will be unable to resell such securities
absent registration under applicable securities laws or the availability of an
exemption from such registration. An "underwriter" for this purpose would
include any person who directly or indirectly controls the Debtors. The question
of control would, in turn, be determined by a variety of factual considerations
pertaining to the persons connections with the Debtors. GIVEN THE FACTUAL AND
SUBJECTIVE NATURE OF SUCH ISSUES, THE DEBTORS MAKE NO REPRESENTATION CONCERNING
THE ABILITY OF ANY PARTICULAR PERSON TO RESELL THE SECURITIES ISSUED UNDER THE
PLAN. HOLDERS OF CLAIMS AND INTERESTS ARE URGED TO CONSULT THEIR OWN LEGAL
COUNSEL CONCERNING THEIR RIGHTS AND LIMITATIONS REGARDING TRANSFER OF SUCH
SECURITIES.
To the extent that shares of New Common Stock are being
purchased for cash by the Investors, the Debtors believe that such purchase is
not exempt under Section 1145 from the registration and qualification
requirements of applicable federal and state securities laws. However, based on
information supplied to the Debtors by the Investors, the Debtors believe that
the Investors constitute Accredited Investors for purposes of applicable federal
securities laws. Accordingly, the Debtors believe that the issuance to the
Investors of the New Common Stock may be made in reliance on exemptions for
transactions which do not involve a public offering and which are made
exclusively to Accredited Investors who acquire the securities for their own
account and not with a view toward resale of distribution. Such shares of New
Common Stock may not be resold by the Investors unless they are subsequently
registered under the securities laws or unless an exemption from registration is
available in such resale.
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HOLDERS OF CLAIMS AGAINST THE DEBTORS THAT ARE EVALUATING
WHETHER TO ACCEPT OR REJECT THE PLAN SHOULD CONSULT THEIR OWN LEGAL OR OTHER
COUNSEL CONCERNING THE FACTS AND CIRCUMSTANCES WITH RESPECT TO THE ISSUANCE AND
TRANSFER OF DEBT INSTRUMENTS AND EQUITY SECURITIES PURSUANT TO THE PLAN. THE
DEBTORS CANNOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE WHICH IS ALLEGED TO OCCUR
AS A RESULT OF RELIANCE UPON THIS DISCUSSION OF "CERTAIN SECURITIES LAWS
MATTERS," WHICH IS INTENDED SOLELY AS AN AID TO CREDITORS IN UNDERSTANDING THE
PLAN AND MERELY REPRESENTS THE DEBTORS' INTERPRETATION OF THE PROVISIONS
DISCUSSED.
THE VIEWS OF THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION ON THIS MATTER HAVE NOT BEEN SOUGHT BY THE DEBTORS
AND THEREFORE, THE DEBTORS CAN GIVE NO ASSURANCE REGARDING THE POSITION OF SUCH
AUTHORITIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THE PLAN OF
REORGANIZATION.
NEITHER THE INSTRUMENTS OFFERED HEREBY NOR THE PLAN HAS BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
DISCLOSURE STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
M. FEES AND EXPENSES RELATING TO THE PLAN
Under the Bankruptcy Code, payments made by a plan proponent,
by a debtor, or by a person issuing securities or acquiring property under a
plan, for services or for costs and expenses in connection with the bankruptcy
case or the plan, are subject to the approval of the Bankruptcy Court as
reasonable.
N. STOCK PURCHASE AGREEMENT
Attached as Exhibit E to the Plan is a form of Stock Purchase
Agreement entered into between Unitech and the Investors (the "Stock Purchase
Agreement"). In general, the Stock Purchase Agreement sets forth the terms and
conditions for the Investors' agreement to purchase New Common Stock issued by
the reorganized Debtor. The Agreement also sets forth the terms and conditions
under which the Investors agreed to purchase shares of New Common Stock which
are not subscribed by existing shareholders under the provisions of the Plan.
The Stock Purchase Agreement also contains a relatively
limited set of representations and warranties made by the Debtors regarding
certain aspects of their business.
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In addition, the Agreement sets forth the process and procedures for completion
of the proposed acquisition by the Investors of the New Common Stock of the
reorganized Debtors. References should be made to the agreement itself for
further details regarding the terms and conditions of the purchase of New Common
Stock.
Based on the assumption that all holders of Class 3A Interests
exercise their right to subscribe for shares of New Common Stock, consummation
of the transactions under the Plan and the Stock Purchase Agreement would result
in ownership by the investors of 26% of the outstanding shares of New Common
Stock. In addition, affiliates of the investors would, by virtue of their
existing ownership of Common Stock, have received under the Plan or through
subscription an additional 20% of the outstanding New Common Stock.
On the assumption that no holder of Class 3A Interests other
than affiliates of the investors exercise their right to subscribe for shares of
New Common Stock, consummation of the Plan and the Stock Purchase Agreement
would result in ownership by the Investors of 51% of the outstanding shares of
New Common Stock. In addition, affiliates of the Investors would, as a result of
shares issued under the Plan or purchased upon subscription, own an additional
20% of the outstanding shares of New Common Stock.
O. MANAGEMENT OF REORGANIZED DEBTORS
At the time of the preparation of the Disclosure Statement,
the Debtors anticipate that the following individuals will hold key management
positions within the reorganized Debtors.
Gerald C. Bellis, President and Chief Executive Officer
Mr. Bellis is the President and Chief Executive Officer of the
Debtors. He is responsible for overseeing the overall operations of the Debtors
and their subsidiaries and for the negotiation of all of the Debtors' principal
supply arrangements. Mr. Bellis is projected to conclude his employment with the
Debtors during November 1996. Such departure will require the Debtors to
identify and employ a successor to fill Mr. Bellis' current position. Mr. Bellis
has begun to make inquiries through management recruiting organizations in an
effort to identify possible candidates for replacement. As of the date of this
Disclosure Statement, no such candidates have been identified.
P. Blake Willison, Vice President - Sales and Marketing
Mr. Willison is the Vice President of Sales and Marketing of
the Debtors. Prior to joining Unitech, from 1986 until 1993, Mr. Willison held
various sales and marketing management positions for NovAtel Carcom, a cellular
product manufacturing company. From 1993 until he joined Unitech as its Vice
President - Sales and Marketing during May 1994, Mr. Willison was Vice President
of the Accessory Division for CellStar Corporation, then a
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$500,000,000 wireless communications distribution company. In that capacity,
Mr. Willison serviced both the OEM and aftermarket international account base.
Virland A. Johnson - Chief Financial Officer and Secretary
Mr. Johnson, a Certified Public Accountant, has been Chief
Financial Officer and Secretary of Unitech since May 1996. Prior to joining
Unitech, Mr. Johnson served as the Vice-President of Finance and Controller of
Ironstone Group, Inc., a publicly held tax consulting firm (formerly Belt Perry
Associates, Inc.) from 1992 until 1996; President and Principal of Advantage
Information Systems, Inc., a software engineering firm, from 1991 until 1992;
Chief Financial Officer, Treasurer, and Director of The Younger Brothers Group,
Inc., an integrated home building construction company 1984-1991. Mr. Johnson
received his Bachelor of Science degree in Accounting from Arizona State
University in 1982.
Mark Chasey - Director of Engineering
Mr. Chasey joined Unitech during 1995 as the Director of
Engineering. He brought to Unitech an extensive background in consumer and
commercial products, product planning, design, development, technical
management, and manufacturing. Additionally, Mr. Chasey spent eleven years
focusing on offshore program management and product development and contract
negotiations in South Korea, Taiwan, Hong Kong and China. Prior to joining
Unitech, Mr. Chasey worked for Motif Inc. as their Marketing Program Manager,
served as Director of Research and Development for Code-A-Phone Corporation and
as Senior Project Manager for Diablo Research Corporation. Mr. Chasey holds a MS
in Engineering Management and a BS in Electrical Engineering.
Frederick Gilbert - Director of Manufacturing
Mr. Gilbert joined Unitech during 1995 as the Director of
Manufacturing. His expertise is in the area of manufacturing management with
extensive experience in high technology industries. Mr. Gilbert's previous
positions include Vice President of Operations with Tensolite Co., a
manufacturer of specialty wire and cable; Director of Manufacturing for
Marquardt Switches, a manufacturer of commercial switches. Mr. Gilbert has also
served in various capacities with General Electric Co. and Martin Marietta
Missile Systems Division. Mr. Gilbert earned a BS in Metallurgical Engineering
in 1980 from the University of Arizona.
Anthony J. Gargiulo - Director
Mr. Gargiulo became a director of Unitech in February, 1994
and was appointed Chairman of the Board of Directors in April, 1994. Mr.
Gargiulo has engaged in the private practice of law since 1956 and has engaged
in development of commercial and residential real estate since 1970. Mr.
Gargiulo graduated from the University of Boston Law School in 1956 with an
L.L.B. degree.
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Paul Janssens-Lens - Director
Mr. Janssens-Lens became a director of Unitech in April, 1994.
From 1983 until the present, he has been a co-founder, Vice President and later
President of Soft Art, Inc., a privately-held company engaged in multilingual
language applications and computational linguistics, including publication of
thesaurus and translation dictionaries. Mr. Janssens-Lens is also the President
of Appletree Capital Management Corporation, which acts as the General Partner
of Patriot Growth Fund, L.P., a significant owner of Unitech Common Shares. Mr.
Janssens-Lens graduated from the University of Louvain (Belgium) with a Master's
Degree in Germanics Philosophy.
John E. Epert - Director
Mr. Epert became a director of Unitech in April, 1994. Mr.
Epert was the founder and president of Food for Health, Inc., a health food
distributor, from 1971 until his retirement in 1991. He remains a director of
Food For Health, Inc. and is a director of First Community Financial Corp., an
asset based lender.
The Debtors expect to have a five (5) member board of
directors. In addition to the foregoing directors, two of the remaining
directors will be identified by the Debtors in information to be supplied at or
before the Confirmation Hearing and will be independent of present or former
Unitech affiliates. One additional director will be identified by creditor
representatives at or before the Confirmation Hearing and will likewise be
independent of present or former Unitech affiliates.
P. CURRENT AND PROJECTED FINANCIAL INFORMATION
As indicated elsewhere in this Disclosure Statement, among the
primary contributing causes to the Debtors' commencement of their bankruptcy
cases were material inaccuracies in the Debtors' financial information regarding
its assets and results of operation. For this reason, the Debtors have elected
not to include extensive historical financial information in this Disclosure
Statement. It is believed that the benefit to creditors and shareholders of such
historical information would likely be outweighed by risks of material
inaccuracy in the information provided.
Subsequent to their commencement of these bankruptcy cases,
the Debtors have sought to review, evaluate and correct the information set
forth in their financial records. Included as part of Exhibit 2 to this
Disclosure Statement are interim and unaudited financial information of the
Debtor for the periods from November 1, 1995 through July 31, 1996. Such
financial information has not been subject to audit but is believed by the
Debtors to fairly present the Debtors financial condition at such dates and the
results of their operations for the periods included.
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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, the Debtors' and their professionals have analyzed Unitech's
ability to meet its obligations under the Plan. As part of this analysis, the
Debtors have prepared projections of Unitech's financial performance for the
three fiscal years in the period January 1, 1997 through October 31, 1999 (the
"Projection Period"). These projections, and the assumptions on which they are
based, are included in Unitech Industries, Inc. and Subsidiaries Projected
Financial Information annexed hereto as Exhibit 2. Based upon such projections,
the Debtors believe that Unitech 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. The
Debtors further believe that Unitech will be able to repay or refinance any and
all of the then-outstanding secured indebtedness under the Plan at or prior to
the maturity of such indebtedness.
The Projected Financial Information appended to this
Disclosure Statement as Exhibit 2 includes the following:
1. Pro Forma Consolidated Balance Sheet of reorganized
Debtor as of January 1, 1997;
2. Projected Consolidated Balance Sheet of reorganized
Debtor as of October 31, 1997, 1998 and 1999;
3. Projected Consolidated Income Statements of
reorganized Debtor for the ten months ending October
31, 1997 and each of the two fiscal years ending
October 31, 1999;
4. Projected Consolidated Statements of Cash Flows of
reorganized Debtor for the ten months ending October
31, 1997 and each of the two fiscal years ending
October 31, 1999.
The pro forma financial information and the projections are based on
the assumption that the Plan will be confirmed by the Bankruptcy Court and, for
projection purposes, that the Effective Date of the Plan and the initial
distributions thereunder take place as of January 1, 1997.
Unitech's management have prepared these financial projections based
upon certain assumptions which they believe to be reasonable under the
circumstances. Those assumptions considered to be significant are described in
the Projected Financial Information, annexed hereto as Exhibit 2. The Projected
Financial Information has not been examined or compiled by independent
accountants. The Debtors make no representation as to the accuracy of the
projections or Unitech's 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 through the Projection Period may vary
from the projected results and the variations may be material.
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VALUATION ANALYSIS OF ARTHUR ANDERSEN
As part of the restructuring, the Debtors have requested that Arthur
Andersen, LLP ("AA") prepare a preliminary going concern valuation of the
reorganized Debtors' debt-free business enterprise. In preparing its preliminary
analysis, AA, among other matters: (i) analyzed the available historical
financial statements of Unitech; (ii) analyzed certain financial projections
prepared by Debtors' management, including those financial projections set forth
as Exhibit 2 to the Plan; (iii) prepared discounted cash flow analyses for the
proforma company on a going-concern basis, based on the projections of cash flow
to be available to the proforma reorganized Debtors, using various discount
rates and the financial projections referred to above; (iv) considered the
market values of publicly-traded companies that AA believes are in businesses
reasonably comparable to the operating business of the reorganized Debtors; (v)
considered certain economic and industry information relevant to the operating
business of the company; (vi) discussed the current operations and prospects of
the operating business with Debtors' management; and (vii) made such other
analyses as AA deemed necessary or appropriate.
AA assumed, without independent verification, the accuracy and
completeness of all of the relevant financial and other information that was
available to it from public sources and that was provided to AA by the Debtors
or their representatives. With respect to the financial projections supplied to
AA, AA assumed that the projections were prepared on a basis reflecting the best
currently-available estimates and judgment of the Debtors' management as to the
operating and financial performance of the reorganized Debtors. AA did not make
any independent evaluations of the reorganized Debtors' assets, nor did AA
independently verify any of the information it reviewed.
As a result of such analyses, discussions, consideration, and
assumptions, AA estimates that the going concern value of the reorganized
Debtors debt-free business enterprise to be $16,000,000. AA's estimate is
necessarily based on economic, market, financial, and other conditions as they
existed on October 1, 1996, and on the information made available to it as of
that date. It should be understood that, although subsequent developments may
affect AA's conclusions, it does not have any obligation to update, revise, or
reaffirm its estimate.
AA's Discounted Cash Flow Analysis supporting the debt free, enterprise
value of the reorganized Debtors is as follows:
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UNITECH INDUSTRIES, INC. AND SUBSIDIARIES
DISCOUNTED CASH FLOW ANALYSIS
(Unaudited)
<TABLE>
<CAPTION>
(10 Months) Residual
FY 1997 % FY 1998 % FY 1999 % FY 2000 % FY 2001 %
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 19,997,530 100% 26,218,561 100% 30,232,349 100% 33,750,602 100% 38,530,643 100%
Cost Of Sales 13,766,717 69% 18,170,252 69% 20,733,857 69% 22,856,414 68% 25,469,926 66%
---------- ---------- ---------- ---------- ----------
Gross Profit 6,230,813 31% 8,048,299 31% 9,498,492 31% 10,894,188 32% 13,060,717 34%
Sales and Marketing Expenses 432,061 2% 548,831 2% 597,882 2% 647,864 2% 708,989 2%
Engineering Expense 488,764 2% 618,322 2% 853,502 2% 690,736 2% 730,148 2%
General & Administrative Expense 2,159,806 11% 2,794,824 11% 2,989,317 10% 3,146,667 9% 3,328,789 9%
Depreciation 242,769 1% 329,391 1% 386,691 1% 393,583 1% 415,867 1%
------- ------- ------- ------- -------
Income From Operations 2,907,413 15% 3,756,931 14% 4,871,100 16% 6,015,338 16% 7,876,924 20%
Other Income & Expense 5,000 0% 6,000 0% 6,000 0% 6,000 0% 6,000 0%
Interest Expense 356,453 2% 373,943 1% 259,607 1% 186,306 1% 182,194 0%
------- ------- ------- ------- -------
Income Before Income Taxes 2,545,960 13% 3,376,988 13% 4,605,493 15% 5,823,032 17% 7,688,730 20%
Income Tax Provision 1,018,384 5% 1,350,795 5% 1,842,197 6% 2,329,213 7% 3,075,492 8%
--------- --------- --------- --------- ---------
Net Income 1,527,576 8% 2,026,193 8% 2,763,296 9% 3,493,819 10% 4,613,238 12%
Interest Expense 356,453 2% 373,943 1% 259,607 1% 186,306 1% 182,194 0%
Net Debt Free Income 1,884,029 9% 2,400,136 9% 3,022,903 10% 3,680,125 11% 4,795,432 12%
Incremental (Increase) Decrease in (792,926) 1,293,698 (855,596) (736,358)
Working Capital 242,769 329,391 386,681 393,583
Depreciation (105,000) (289,000) (284,000) (229,000)
-------- -------- -------- --------
Capital Expenditures (655,157) 1,334,089 (752,905) (571,775)
Net Debt Free Cash Flow 1,228,872 3,734,225 2,269,998 3,108,350
Residual Value (5X Net Operating 39,384,620
Income)
Discount Rate 40% 0.8692 0.6365 0.4561 0.3258 0.2753
Present Value Factor 1,068,120 2,384,312 1,035,265 1,012,597 10,843,493
Present Value of Net Debt Free
Cash Flow
Net Present Value of Net Debt 5,500,314
Free Cash Flows 10,843,493
----------
Net Present Value of Residual 16,343,807
==========
Net Present Value of Debt Free
Cash Flows
</TABLE>
56
<PAGE> 62
The foregoing does not purport to be a complete description of the
analysis performed by AA. The preparation of an estimate involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods in the particular circumstances
and, therefore, such an estimate is not readily susceptible to summary
description. In performing its analysis, AA and Debtors' management made
numerous assumptions with respect to industry performance, business and economic
conditions, and other matters. The analyses performed by AA are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. AA's valuation also assumes
that operating results projected by the reorganized Debtors will be achieved in
all material respects, including significant growth in sales, gross profit and
net income.
DEBTORS' SUPPLEMENTAL VALUATION ANALYSIS
As described above, Debtors have requested that AA prepare a
preliminary going concern valuation of the reorganized Debtors debt-free
business enterprise that includes Unitech Industries, Inc. and Unitech
Acquisition Corporation. In addition to the $16,000,000 enterprise valuation set
forth by AA, management for the Debtors also believes there are significant
positive attributes from Unitech Acquisition Corporation's foreign subsidiary
Hericson Industries, Limited, a Hong Kong company and Hericson subsidiaries
Dongguan Rida Plastic Co., Limited ("Rida") and Dongguan Summit Electronics Co.,
Limited ("Summit") (collectively "Hericson") both companies organized under and
doing business in the Peoples Republic of China, as well as the value of any
potential recoveries from claims ("Claims") the Debtors may have against:
(a) Coopers & Lybrand, L.L.P., and its accountants, partners or
employees who performed services for the Debtors or affiliates;
(b) Semple and Cooper, and its accountants, partners or employees who
performed services for the Debtors or affiliates;
(c) Other entities providing pre-petition professional services to the
Debtors; and
(d) Former officers, directors, or employees of the Debtors with
respect to pre-petition service to the Debtors.
Such Claims are currently being reviewed. Given the nature of such
Claims, however, no current estimate of the amounts that could be realized from
such Claims exists, and the Debtors express no opinion as to their impact on
enterprise value.
AA has not valued any of the Debtors' Net Operating Losses that may be
available to it to offset prior and future income tax liabilities due the
uncertainty of possible utilization. The financial projections prepared by
Debtors' management assumed a 40% combined Federal and
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<PAGE> 63
State income tax provision for all Debtor financial projection periods without
giving any benefit of Debtors' Net Operating Losses that may be available.
Debtors' management is of the opinion that additional value can be
realized from the use of Debtors' available Net Operating Losses to offset prior
and future Federal and State income tax liabilities. For fiscal year ending
October 31, 1995, Debtors had approximately $11,000,000 of available Net
Operating Losses that could be used to offset prior and future taxable income
subject to very complex income tax laws and regulations. Additional Net
Operating Losses are expected for Fiscal Year ending October 31, 1994 after the
company files its amended income tax returns for that year, and the current
Fiscal Year ending October 31, 1996. Depending upon future changes in ownership,
some or all of these Net Operating Losses could be lost and unavailable for use
against prior and future taxable income.
As a result of their analysis, Debtors' management estimates that
additional going concern business enterprise value can be attributed to
Hericson, Rida, and Summit of approximately $1,000,000 to $1,500,000 based upon
information available as of November 8, 1996, including:
1. Cash-on-hand of approximately $300,000;
2. Accounts Receivables of approximately $350,000;
3. Accounts Payable of approximately $380,000;
4. The ability to use lower cost labor from the Far East to
support the Debtors' operations as opposed to sub-contracting;
5. No secured debt;
6. Hericson's approximate current position has improved from
cash-on-hand of $1,000,000, no receivables, and accounts
payable of $1,000,000 as of the Debtors' January 25, 1995
Petition Date;
7. The existence of $2.5 and $3.0 million outside sales at 30%
gross margins;
8. Arthur Andersen's valuation did not count any profits left at
Hericson as a result of transfer pricing;
9. Direct sourcing ability in the Far East; and
10. Plant equipment, office equipment, inventory sufficient to do
$7,000,000 to $8,500,000 in revenue.
The above-described data is based solely on internal reviews of
Hericson's operations by management for the Debtors. However, financial audits
of Hericson for 1995 and 1996 are in
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<PAGE> 64
progress. Debtors' management anticipates that valuations for the inventory and
equipment of Hericson will be reflected in the 1995 and 1996 audit reports.
In response to comments from various members of the Core Constituencies
in these Chapter 11 cases, management for the Debtors also have prepared an
analysis of the approximate per share value of the stock to be issued to
creditors by the reorganized Debtors in accordance with the Plan. The analysis
is as follows:
COMMON SHARES
<TABLE>
<S> <C>
Existing number of common shares outstanding 6,486,152
Reverse Stock Split (1 for .4) .4
-----------
No. of existing common shares outstanding post reverse 2,594,460
stock split (1 for .4)
New common stock issued and purchased for cash 2,040,000
from new or existing shareholders for ($3,000,000 or
$1.47/share)
-----------
Approximate number of common shares issued and (B) 4,634,460
outstanding at confirmation - Note (1) ===========
PREFERRED SHARES
Unsecured non-priority claims filed or deemed filed against
debtors of approximately $5,333.675
Less: Cash paid Of 20% up to an aggregate maximum amount
of $1,000,000 (1,000,000)
-----------
SubTotal $4,333,675
Divide by $1.50/preferred share $1.50/preferred share
Approximate number of preferred shares 2,889,117
shares issued to unsecured creditors
Number of preferred shares issued to Imperial Bank 800,000
-------
Approximate number of preferred shares issued to
unsecured creditors and Imperial Bank (A) 3,689,117
Approximate number of preferred shares issued and
outstanding (A) at confirmation 3,689,117
</TABLE>
59
<PAGE> 65
<TABLE>
<S> <C>
Approximate number of common shares issued and 4,634,460
outstanding (B) at confirmation ---------
Total approximate preferred and common shares issued 8,323,577
=========
VALUE
Arthur Andersen valuation of Unitech Industries & Unitech
Acquisition Corp. (excluding Hericson/Summit/Rida)
("Base Value") $16,000,000
Management's estimate of additional value:
Hericson/Rida/Summit $1,500,000
Potential litigation claims Unknown
Net operating loss carryovers of $11,000,000 +
PROJECTED RECONCILIATION OF SHARES ISSUED AND OUTSTANDING AND VALUE
AS OF CONFIRMATION DATE
Base Value ($16,000,000/8,323,577)
Debt-free per common and common equivalent share $1.92
Less: Interest bearing debt at confirmation (estimate)
(Notes Payable and Capital Leases)
$4,068,727/8,323,577 (0.49)
-----------
Sub-Total 1.43
Management's estimate of Hericson/Rida/Summit
($1,500,000/8,323,577) .18
-----------
Total estimate of share value per common and common
equivalent $1.61
===========
</TABLE>
Plus:
- - value of net operating less carryovers
- - value of potential litigation claims
Note (1): does not include any additional common shares subscribed to from the
exercise of pre-petition options and warrants or the rights offering to
existing common shareholders (.2 of a common share for $1.50 per share in cash).
60
<PAGE> 66
DEBTORS MAKE NO REPRESENTATION AS TO THE ACCURACY OF THE PROJECTIONS OR
THEIR ABILITY TO ACHIEVE PROJECTED RESULTS ALTHOUGH SUCH PROJECTIONS WERE
PREPARED ON THE BASIS OF ASSUMPTIONS AND OTHER MATTERS BELIEVED TO BE REASONABLE
AT THE TIME MADE. THE ACTUAL RESULTS ACHIEVED WILL VARY FROM THE PROJECTED
RESULTS AND THE VARIATIONS MAY BE MATERIAL. IT IS URGED THAT ALL OF THE
ASSUMPTIONS AND OTHER CAVEATS REGARDING THE PROJECTIONS SET FORTH HEREIN BE
EXAMINED CAREFULLY IN EVALUATING THE PLAN.
THE PROJECTIONS WERE PREPARED WITH A VIEW TOWARDS DISTRIBUTION TO
VOTING CREDITORS ONLY AND NOT WITH A VIEW TOWARDS PUBLIC DISCLOSURE OR
COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE SECURITIES AND EXCHANGE
COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS OR FORECASTS. DEBTORS' AUDITORS, ACCOUNTANTS AND FINANCIAL ADVISORS
IN THIS CASE HAVE NEITHER EXAMINED NOR COMPILED SUCH ANALYSIS AND ASSUME NO
RESPONSIBILITY THEREFOR.
Q. CONCLUSION
The Debtors believe that this Disclosure Statement contains
adequate information within the meaning of 11 U.S.C. Section 1125 of the
Bankruptcy Code, and that the Plan is in the best interests of the Creditors,
Equity Security Holders and other parties in interest. The Debtors encourage and
request votes in favor of the Plan.
61
<PAGE> 67
Phoenix, Arizona UNITECH INDUSTRIES, INC.
November 11, 1996
By /s/ Gerald C. Bellis
----------------------------------------
Gerald C. Bellis
Its President and Chief Executive Officer
UNITECH ACQUISITION CORP.
By /s/ Gerald C. Bellis
----------------------------------------
Gerald C. Bellis
Its President and Chief Executive Officer
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<PAGE> 68
G. Christopher Meyer, Esq. (Ohio Bar #0016268)
Mark A. Nadeau, Esq. (#011280)
Rawle Andrews, Jr., Esq. (D.C. Bar #436283)
Squire, Sanders & Dempsey L.L.P.
40 North Central, Suite 2700
Phoenix, Arizona 85004
(602) 528-4000
Attorneys for Debtors
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
UNITECH INDUSTRIES, INC., and related ) Case No. 96-818-PHX-RGM
proceedings, ) (Joint Administration Only)
)
Debtors. ) SUPPLEMENTAL AMENDMENT
) TO DEBTORS' AMENDED JOINT
APPLICABLE DEBTOR(S) (Check) ) PLAN OF REORGANIZATION
)
UNITECH ACQUISITION CORP. /X/ )
(Case No. 96-819-PHX-RGM) )
)
UNITECH INDUSTRIES, INC. /X/ )
(Case No. 96-818-PHX-RGM) )
)
- -------------------------------------
The undersigned debtors and debtors in possession hereby propose
the following amendment to their Amended Joint Plan of Reorganization dated
November 11, 1996 (the "Existing Plan"). The Existing Plan, as modified by this
Amendment, shall become the Debtors' Plan, and shall supersede any plan
previously filed by the undersigned in these proceedings:
<PAGE> 69
1. Section 4.5 of the Existing Plan shall be amended to read, in its
entirety, as follows:
"4.5 Intercompany Claims. Class 2B Claims are Impaired. Intercompany
claims shall be netted among the Debtors and their direct of indirect
subsidiaries and the net balance owed by the Debtors to their direct or indirect
subsidiaries as a Class 2B Claim shall be treated by the Debtors, on the
Distribution Date, by a Cash payment in the aggregate amount of Ten Dollars
($10.00)."
2. Except as modified by this Supplemental Amendment, all the terms and
provisions of the Existing Plan shall remain in full force and effect.
Phoenix, Arizona
December 10, 1996 UNITECH INDUSTRIES, INC.
By
-------------------------------
Gerald C. Bellis
Chief Executive Officer
UNITECH ACQUISITION CORP.
By
-------------------------------
Gerald C. Bellis
Chief Executive Officer
CONSENT AND AGREEMENT
The undersigned Hericson Industries Ltd. hereby executes and
joins in this Supplemental Amendment in order to evidence its acceptance of the
modifications made to the treatment of its Class 2B Claim by this Supplemental
Amendment.
2
<PAGE> 70
HERICSON INDUSTRIES LTD.
By
-------------------------------
Virland Johnson
APPROVED AS TO FORM AND CONTENT:
SQUIRE, SANDERS, & DEMPSEY, L.L.P.
----------------------------------
G. Christopher Meyer
Mark A. Nadeau
Rawle Andrews, Jr.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004-4440
Counsel for the Debtor
COPY of the foregoing mailed
this ___ day of December, 1996,
to:
those entities/individuals listed on
the following pages
By ____________________________
3
<PAGE> 1
Exhibit 7.3
Unitech Industries, Inc.
Schedule of Capital Stock
As of May 2, 1997
<TABLE>
<S> <C>
COMMON STOCK:
Authorized 4,704,461
Certificates outstanding 3,443,664
Certificates issuable
upon surrender of
old Unitech stock 1,260,797
---------
Total outstanding 4,704,461
=========
PREFERRED STOCK:
Authorized 2,673,000
Outstanding 2,673,000
Reserved for issuance
in respect of claims
and interests filed and
allowed under the Plan
(estimate) 1,016,117
---------
Total outstanding and
reserved (estimate) 3,689,117
=========
</TABLE>
