EX-99.T3E 40 a08-21650_1ex99dt3e.htm EX-99.T3E

Exhibit 99.T3E

 

DISCLOSURE STATEMENT FOR THE JOINT
PREPACKAGED PLAN OF REORGANIZATION

UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
OF MRS. FIELDS’ ORIGINAL COOKIES, INC. AND
CERTAIN SUBSIDIARIES(1)

 

AUGUST 15, 2008

 

MONTGOMERY, McCRACKEN,  
WALKER & RHOADS, LLP

David R. Hurst, Esq. (Bar No. 3743)

Mark L. Desgrosseilliers, Esq.

(Bar No. 4083)

1105 North Market Street, Suite 1500

Wilmington, Delaware 19801

Telephone: (302) 504-7800

 

Proposed Counsel for the Debtors and
Debtors-in-Possession

 

AKIN GUMP STRAUSS HAUER &

FELD LLP

Fred S. Hodara, Esq.

590 Madison Avenue

New York, New York 10022

Telephone: (212) 872-1000

 

David M. Dunn, Esq.

1333 New Hampshire Avenue, N.W.

Washington, D.C. 20036

Telephone: (202) 736-8000

 

 

 -and-

 

SKADDEN, ARPS, SLATE, MEAGHER 
& FLOM LLP

Mark S. Chehi, Esq. (Bar No. 2855)

One Rodney Square

PO Box 636

Wilmington, Delaware 19899

Telephone: (302) 651-3000

 

Proposed Special Corporate Counsel for the
Debtors and Debtors-in-Possession

YOUNG CONAWAY STARGATT &
TAYLOR, LLP

Robert S. Brady, Esq. (Bar No. 2847)

The Brandywine Building
1000 West Street, 17th Floor
Wilmington, Delaware 19801

Telephone: (302) 571-6600

 

Co-Counsel for the Ad Hoc Noteholder
Committee

 


(1)

The subsidiaries of Mrs. Fields' Original Cookies, Inc. that are the subject of the joint prepackaged plan of reorganization are: Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc., Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., GACCF, LLC, PTF, LLC, PMF, LLC and GAMAN, LLC.

 



 

THIS SOLICITATION IS BEING CONDUCTED TO OBTAIN SUFFICIENT ACCEPTANCES OF A JOINT PLAN OF REORGANIZATION PRIOR TO THE FILING OF VOLUNTARY REORGANIZATION CASES UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE.  BECAUSE NO CHAPTER 11 CASES HAVE YET BEEN COMMENCED, THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(A) OF THE BANKRUPTCY CODE.  FOLLOWING THE COMMENCEMENT OF THEIR CHAPTER 11 CASES, MRS. FIELDS’ ORIGINAL COOKIES, INC. AND CERTAIN OF ITS SUBSIDIARIES EXPECT TO PROMPTLY SEEK AN ORDER OF THE BANKRUPTCY COURT (I) APPROVING (A) THIS DISCLOSURE STATEMENT AS HAVING CONTAINED ADEQUATE INFORMATION AND (B) THE SOLICITATION OF VOTES AS HAVING BEEN IN COMPLIANCE WITH SECTION 1126(B) OF THE BANKRUPTCY CODE AND (II) CONFIRMING THE JOINT PREPACKAGED PLAN OF REORGANIZATION DESCRIBED HEREIN.

 

NEITHER MRS. FIELDS’ ORIGINAL COOKIES, INC., NOR ANY OF ITS SUBSIDIARIES THAT ARE IDENTIFIED IN FOOTNOTE 1, HAS COMMENCED A CASE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AT THIS TIME.  THIS DISCLOSURE STATEMENT SOLICITS ACCEPTANCES OF THE PLAN AND CONTAINS INFORMATION RELEVANT TO A DECISION TO ACCEPT OR REJECT THE PLAN.

 

Mrs. Fields’ Original Cookies, Inc. (“MFOC”), Mrs. Fields Famous Brands, LLC (“MFFB”), Mrs. Fields Financing Company, Inc., Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., GACCF, LLC, PTF, LLC, PMF, LLC and GAMAN, LLC (collectively, the “Companies”) are furnishing this Disclosure Statement and the exhibits hereto, the accompanying ballots, and the related materials delivered herewith pursuant to section 1126(b) of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1532, as amended (the “Bankruptcy Code”), in connection with their solicitation (the “Solicitation”) of acceptances of the proposed joint prepackaged plan of reorganization described herein (the “Plan,” a copy of which is attached to this Disclosure Statement as Appendix I).  The Companies are soliciting such acceptances from all holders of Old Notes, the MFOC Note and the MFOC Equity.  Unless otherwise defined in this Disclosure Statement, initially capitalized terms used herein are used with the same meanings ascribed to such terms in the Plan.

 

The Companies are furnishing this Disclosure Statement to each holder of Old Notes, the MFOC Note and the MFOC Equity to enable such holder to vote to accept or reject the Plan.  The Disclosure Statement is to be used by each such holder of Old Notes, the MFOC Note and the MFOC Equity solely in connection with its evaluation of the Plan; use of the Disclosure Statement for any other purpose is not authorized.

 

The Companies have not commenced reorganization cases under Chapter 11 of the Bankruptcy Code as of the date of this Disclosure Statement.  If, however, the Companies receive properly completed ballots indicating acceptance of the Plan in sufficient amount, but not necessarily in number, to meet the voting requirements prescribed by section 1126 of the Bankruptcy Code, they intend to file with a United States Bankruptcy Court voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, and to seek, as promptly thereafter as practicable, confirmation of the Plan.  Consummation of the Plan is expected to occur shortly following the Bankruptcy Court’s entry of the Confirmation Order.

 

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THE COMPANIES INTEND TO CONTINUE OPERATING THEIR BUSINESSES IN CHAPTER 11 IN THE ORDINARY COURSE AND TO SEEK TO OBTAIN THE NECESSARY RELIEF FROM THE BANKRUPTCY COURT TO PAY THEIR EMPLOYEES, TRADE AND CERTAIN OTHER CREDITORS IN FULL AND ON TIME, SUBJECT TO POSSIBLE REJECTION OR LIMITATION OF CERTAIN CONTRACTS AS DESCRIBED IN THIS DISCLOSURE STATEMENT.  THE CLAIMS OF THE COMPANIES’ EMPLOYEES AND GENERAL UNSECURED CREDITORS (INCLUDING TRADE CREDITORS) ARE NOT IMPAIRED UNDER THE PLAN.

 

THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN IS 5:00 P.M. (EASTERN TIME) ON SEPTEMBER 15, 2008, UNLESS EXTENDED BY THE COMPANIES (THE VOTING DEADLINE).  IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY THE VOTING AGENT BY THE VOTING DEADLINE.

 

THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT TO MATERIAL CONDITIONS PRECEDENT.  SEE “THE PLAN —CONDITIONS TO CONFIRMATION AND CONDITIONS TO THE EFFECTIVE DATE.”  THERE CAN BE NO ASSURANCE THAT THOSE CONDITIONS WILL BE SATISFIED.

 

THE COMPANIES PRESENTLY INTEND TO SEEK TO CONSUMMATE THE PLAN AND TO CAUSE THE EFFECTIVE DATE TO OCCUR PROMPTLY AFTER CONFIRMATION OF THE PLAN.  THERE CAN BE NO ASSURANCE, HOWEVER, AS TO WHEN AND WHETHER CONFIRMATION OF THE PLAN AND THE EFFECTIVE DATE ACTUALLY WILL OCCUR.  PROCEDURES FOR DISTRIBUTIONS UNDER THE PLAN ARE DESCRIBED UNDER “THE PLAN — DISTRIBUTIONS AFTER ALLOWANCE.”

 

THE TERMS OF THE PLAN HAVE BEEN DEVELOPED IN THE COURSE OF DISCUSSIONS AND NEGOTIATIONS WITH THE MEMBERS OF AN AD HOC COMMITTEE OF THE HOLDERS OF THE OLD NOTES (THE “NOTEHOLDER COMMITTEE”).  THE NOTEHOLDER COMMITTEE HAS AGREED, SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE PLAN AND IN CERTAIN SUPPORT AGREEMENTS, TO SUPPORT THE RESTRUCTURING DESCRIBED HEREIN AND HAVE ADVISED THAT THEY INTEND TO VOTE TO ACCEPT THE PLAN.  THE MEMBERS OF THE NOTEHOLDER COMMITTEE HAVE REPRESENTED TO THE COMPANIES THAT THEY COLLECTIVELY HOLD IN THE AGGREGATE IN EXCESS OF 78% OF THE TOTAL OUTSTANDING OLD NOTES.

 

THE BOARDS OF DIRECTORS OF THE COMPANIES HAVE APPROVED THE PLAN AND RECOMMEND THAT THE HOLDERS OF THE OLD NOTES, THE MFOC NOTE AND THE MFOC EQUITY VOTE TO ACCEPT IT.

 


 

IF THE PLAN IS NOT CONFIRMED AND CONSUMMATED, THE COMPANIES BELIEVE THAT THERE IS SUBSTANTIAL DOUBT ABOUT THEIR ABILITY TO CONTINUE AS GOING CONCERNS.  WITHOUT THE RESTRUCTURING OF INDEBTEDNESS CONTEMPLATED BY THE PLAN, THERE CAN BE NO ASSURANCE THAT THE COMPANIES WILL BE ABLE TO EMERGE FROM A CASE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE, AND THE COMPANIES MAY BE FORCED INTO A LIQUIDATION UNDER CHAPTER 7 OF THE BANKRUPTCY CODE.  THE COMPANIES BELIEVE THAT IF THEY ARE LIQUIDATED UNDER CHAPTER 7, THE VALUE OF THE ASSETS AVAILABLE FOR PAYMENT OF CREDITORS WOULD BE SIGNIFICANTLY LOWER THAN THE VALUE OF THE DISTRIBUTIONS CONTEMPLATED BY AND UNDER THE PLAN.

 

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THE COMPANIES BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF THEIR CREDITORS AND INTEREST HOLDERS.  ACCORDINGLY, THE HOLDERS OF OLD NOTES, THE MFOC NOTE AND THE MFOC EQUITY ARE URGED TO VOTE IN FAVOR OF THE PLAN.  (VOTING INSTRUCTIONS ARE SET UNDER PROCEDURES FOR VOTING ON THE PLAN BELOW.)  TO BE COUNTED, YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED, AND ACTUALLY RECEIVED NO LATER THAN 5:00 P.M., EASTERN TIME, ON SEPTEMBER 15, 2008.  THE HOLDERS OF OLD NOTES, THE MFOC NOTE AND THE MFOC EQUITY ARE ENCOURAGED TO READ AND CONSIDER CAREFULLY THIS ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS APPENDIX I, AND THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT UNDER RISK FACTORS PRIOR TO VOTING.

 

IN MAKING AN INVESTMENT DECISION, THE HOLDERS OF OLD NOTES, THE MFOC NOTE AND THE MFOC EQUITY MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANIES AND THE TERMS OF THE PLAN, INCLUDING THE MERITS AND RISKS INVOLVED.  THE HOLDERS OF OLD NOTES, THE MFOC NOTE AND THE MFOC EQUITY SHOULD NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, OR TAX ADVICE.  EACH HOLDER OF OLD NOTES, THE MFOC NOTE AND THE MFOC EQUITY SHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS, FINANCIAL, AND TAX ADVISORS WITH RESPECT TO ANY SUCH MATTERS CONCERNING THIS DISCLOSURE STATEMENT, THE SOLICITATION, THE PLAN AND THE PROPOSALS CONTEMPLATED THEREBY.  SEE RISK FACTORS FOR A DISCUSSION OF VARIOUS FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT DECISION.

 


 

THIS DISCLOSURE STATEMENT HAS NOT BEEN FILED WITH OR REVIEWED BY, AND THE NEW SECURITIES TO BE ISSUED ON THE EFFECTIVE DATE WILL NOT HAVE BEEN THE SUBJECT OF A REGISTRATION STATEMENT FILED WITH, THE SECURITIES AND EXCHANGE COMMISSION (THE SEC) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE UNDER ANY STATE SECURITIES OR “BLUE SKY” LAWS.  THE PLAN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION, AND NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED HEREIN.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.  THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED.

 

THE COMPANIES BELIEVE THAT THE SOLICITATION OF VOTES ON THE PLAN MADE BY THIS DISCLOSURE STATEMENT, AND THE OFFER OF THE NEW SECURITIES THAT MAY BE DEEMED TO BE MADE PURSUANT TO THE SOLICITATION ARE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND RELATED STATE STATUTES BY REASON OF THE EXEMPTIONS PROVIDED BY SECURITIES ACT § 3(a)(9), OR OTHER APPLICABLE EXEMPTIONS, AND EXPECT THAT THE ISSUANCE OF THE NEW SECURITIES UNDER THE PLAN WILL BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND RELATED STATE STATUTES BY REASON OF THE APPLICABILITY OF BANKRUPTCY CODE §§ 1145(a)(1) AND (2) AND 18(b)(4)(C) OF THE SECURITIES ACT.

 

iv



 

NOTICE TO NEW HAMPSHIRE RESIDENTS

 

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM SECURITIES ACT, 1955, AS AMENDED, WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.  NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION.  IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

 


 

THIS DISCLOSURE STATEMENT CONTAINS PROJECTED FINANCIAL INFORMATION REGARDING THE REORGANIZED DEBTORS AND CERTAIN OTHER FORWARD-LOOKING STATEMENTS, ALL OF WHICH ARE BASED ON VARIOUS ESTIMATES AND ASSUMPTIONS.  SUCH INFORMATION AND STATEMENTS ARE SUBJECT TO INHERENT UNCERTAINTIES AND TO A WIDE VARIETY OF SIGNIFICANT BUSINESS, ECONOMIC, AND COMPETITIVE RISKS, INCLUDING, AMONG OTHERS, THOSE SUMMARIZED HEREIN.  SEE RISK FACTORS.”  CONSEQUENTLY, ACTUAL EVENTS, CIRCUMSTANCES, EFFECTS, AND RESULTS MAY VARY SIGNIFICANTLY FROM THOSE INCLUDED IN OR CONTEMPLATED BY THE PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS CONTAINED HEREIN WHICH, THEREFORE, ARE NOT NECESSARILY INDICATIVE OF THE FUTURE FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE COMPANIES OR REORGANIZED DEBTORS AND SHOULD NOT BE REGARDED AS REPRESENTATIONS BY THE COMPANIES, THEIR ADVISORS, OR ANY OTHER PERSONS THAT THE PROJECTED FINANCIAL CONDITION OR RESULTS CAN OR WILL BE ACHIEVED.  NEITHER THE COMPANIES’ INDEPENDENT AUDITORS NOR ANY OTHER INDEPENDENT ACCOUNTANTS HAVE COMPILED, EXAMINED, OR PERFORMED ANY PROCEDURES WITH RESPECT TO THE FINANCIAL PROJECTIONS AND THE LIQUIDATION ANALYSIS CONTAINED HEREIN, NOR HAVE THEY EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE AS TO SUCH INFORMATION OR ITS ACHIEVABILITY, AND ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY ASSOCIATION WITH THE FINANCIAL PROJECTIONS OR LIQUIDATION ANALYSIS.  THERE CAN BE NO ASSURANCE THAT THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS WILL PROVE CORRECT OR THAT THE COMPANIES’ ACTUAL ABILITY TO COVER THEIR FUTURE PRINCIPAL AND CASH INTEREST PAYMENT OBLIGATIONS WILL NOT DIFFER FROM THE INFORMATION CONTAINED WITHIN THIS DISCLOSURE STATEMENT.  THE COMPANIES AND THEIR ADVISORS DO NOT INTEND TO UPDATE OR OTHERWISE REVISE ANY INFORMATION DISCLOSED HEREIN TO REFLECT ANY CHANGES ARISING AFTER THE DATE HEREOF OR TO REFLECT FUTURE EVENTS, EVEN IF ANY ASSUMPTIONS CONTAINED HEREIN ARE SHOWN TO BE IN ERROR.  FORWARD-LOOKING STATEMENTS ARE PROVIDED IN THIS DISCLOSURE STATEMENT PURSUANT TO THE SAFE HARBOR ESTABLISHED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED HEREIN.

 

Except as set forth elsewhere herein, no person has been authorized by the Companies in connection with the Plan or the Solicitation to give any information or to make any representation other than as contained in this Disclosure Statement and the Exhibits attached hereto or incorporated by reference or referred to herein, and, if given or made, such information or representation may not be relied upon as having been authorized by the Companies.  This Disclosure Statement does not constitute an offer to sell or

 

v



 

the solicitation of an offer to buy any securities other than those to which it relates, or an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation.

 

The statements contained in this Disclosure Statement are made as of the date hereof, and neither the delivery of this Disclosure Statement nor any issuance of the securities made pursuant to the Plan will, under any circumstance, create any implication that the information contained herein is correct at any time subsequent to the date hereof.  Any estimates of claims and interests set forth in this Disclosure Statement may vary from the amounts of claims or interests ultimately allowed by the Bankruptcy Court.

 

The summaries of the Plan and the other documents contained in this Disclosure Statement are qualified in their entirety by reference to the Plan itself, the exhibits thereto and all documents described herein.  The information contained in this Disclosure Statement, including, but not limited to, the information regarding the history, businesses and operations of the Companies, the historical and projected financial information of the Companies (including the projected results of operations of the Reorganized Debtors) and the liquidation analysis relating to the Companies is included herein solely for purposes of soliciting acceptances of the Plan.  Such information, including projected financial information and valuation of the Reorganized Debtors, is not to be construed as admissions or stipulations but rather as statements made in settlement negotiations.

 

In this Disclosure Statement, we rely on and refer to information and statistics regarding our industry.  We obtained this market data from independent industry publications or other publicly available information.  Although we believe that these sources are reliable, we have not independently verified and do not guarantee the accuracy and completeness of this information.

 


 

The Companies are “incorporating by reference” the information MFFB files with the SEC into this Disclosure Statement, which means that the Companies are disclosing important information to you by referring you to those documents.  Information that is incorporated by reference is an important part of this Disclosure Statement.  Certain information that MFFB files after the date of this Disclosure Statement with the SEC will automatically update and supersede the information included or incorporated by reference herein.  The Companies incorporate by reference into this Disclosure Statement, the documents listed below, which were filed with the SEC, and such documents form an integral part of this Disclosure Statement:

 

·      Annual Report on Form 10-K for the fiscal year ended December 29, 2007;

 

·      Quarterly Report on Form 10-Q for the period ended March 29, 2008;

 

·      Current Reports on Form 8-K filed on May 5, 2008, May 7, 2008, June 6, 2008, July 7, 2008, July 15, 2008, July 21, 2008, and August 5, 2008; and

 

·      Amended Current Report on Form 8-K/A filed on April 11, 2008.

 

The Companies are also incorporating by reference any future filings MFFB makes with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), after the date of this Disclosure Statement and prior to the consummation of the Plan, except that, unless otherwise indicated, the Companies are not incorporating any information furnished under Item 2.02 or Item 7.01 of any Current Report on Form 8-K.  Any statement contained in this Disclosure Statement or in a document (or part thereof) incorporated or considered to be incorporated by reference in this Disclosure Statement shall be considered to be modified or superseded for purposes of this Disclosure Statement to the extent that a statement contained in this Disclosure Statement or in any other subsequently filed document (or part thereof) which is or is considered to be incorporated by reference in this Disclosure Statement

 

vi



 

modifies or supersedes that statement.  The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes.  Any statement so modified or superseded shall not be considered, except as so modified or superseded, to constitute part of this Disclosure Statement.

 

Copies of each of the documents incorporated by reference into this Disclosure Statement (other than an exhibit to a filing unless that exhibit is specifically incorporated by reference into that filing) may be obtained at no cost, by contacting the Voting Agent at the following address and telephone number:

 

Financial Balloting Group LLC

757 Third Avenue, 3rd Floor

New York, New York 10017

(646) 282-1800

 

                MFFB is subject to the informational requirements of the Exchange Act.  Accordingly, MFFB files periodic reports and other information with the SEC.  MFFB makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports available through their website, www.mrsfields.com, as soon as reasonably practicable after electronically filing such materials with the SEC.  They may also be obtained by writing to Mrs. Fields Famous Brands at 2855 East Cottonwood Parkway, Suite 400, Salt Lake City, UT 84121-1050.  In addition, copies of these reports may be obtained through the SEC website at www.sec.gov or by visiting the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549 or by calling the SEC at 800-SEC-0330.

 


 

THE STATEMENTS MADE HEREIN ARE PART OF THE PRE-NEGOTIATED AGREEMENT BETWEEN THE NOTEHOLDER COMMITTEE AND THE COMPANIES, AND ARE MADE IN THE CONTEXT OF A SETTLEMENT AND COMPROMISE.  NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY PROCEEDING UNRELATED TO CONFIRMATION OF THE PLAN DESCRIBED HEREIN INVOLVING ANY OF THE COMPANIES OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN AS TO HOLDERS OF CLAIMS OR INTERESTS.  YOU SHOULD CONSULT YOUR PERSONAL COUNSEL OR TAX ADVISOR ON ANY QUESTIONS OR CONCERNS REGARDING TAX OR OTHER LEGAL CONSEQUENCES OF THE PLAN.

 


 

THE STATEMENTS SET FORTH HEREIN ARE BASED ON THE INFORMATION KNOWN TO THE COMPANIES AS OF THE DATE HEREOF.  SUBSEQUENT EVENTS MAY CAUSE SUCH STATEMENTS TO BECOME INCOMPLETE OR INACCURATE.  THE COMPANIES DO NOT INTEND TO SUPPLEMENT, MODIFY, CORRECT OR OTHERWISE PROVIDE ADDITIONAL DISCLOSURE OF ANY SUCH CHANGES TO THE STATEMENTS MADE HEREIN.

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

 

SUMMARY

 

1

Purpose and Effect of the Plan

 

1

Overview of Chapter 11

 

1

Summary of the Plan

 

2

Summary of Solicitation Package and Procedures for Voting on the Plan

 

3

Support for the Plan

 

4

The Confirmation Hearing

 

5

Confirming and Consummating the Plan

 

5

Our Business

 

6

Severely Restricted Liquidity; Purpose of the Restructuring Contemplated by the Plan

 

7

Organizational Structure

 

7

CAPITALIZATION

 

8

THE PLAN

 

9

Definitions

 

9

Reasons for the Solicitation; Recommendation

 

9

Anticipated Events During the Bankruptcy Cases

 

9

Summary of the Plan

 

11

Creditors and Interest Holders Entitled to Vote on the Plan

 

12

Certain Matters Regarding Classification and Treatment of Claims and Interests

 

12

Administrative Expense Claims

 

13

Priority Tax Claims

 

14

Class 1 — Other Secured Claims

 

14

Class 2 — Priority Claims

 

14

Class 3 — Secured Notes Claims

 

15

Class 4 — General Unsecured Claims

 

15

Class 5 – MFOC Note Claim

 

15

Class 6 – Intercompany Claims

 

15

Class 7 – Section 510(b) Claims

 

15

Class 8A, 8B and 8C Interests

 

16

Special Provisions Governing Unimpaired Claims

 

16

Distributions Under the Plan

 

16

Procedures for Treating and Resolving Disputed Claims

 

18

Means for Implementation of the Plan

 

18

Provisions Regarding Corporate Governance of Reorganized Debtors

 

20

Treatment of Executory Contracts and Unexpired Leases

 

21

Confirmation and Consummation of the Plan

 

23

Effect of Plan on Claims and Interests

 

25

Summary of Other Provisions of the Plan

 

28

Confirmation and Consummation Procedure

 

29

Certain Other Legal Considerations

 

32

Liquidation Under Chapter 7 or Chapter 11

 

33

PROCEDURES FOR VOTING ON THE PLAN

 

35

Voting Deadline

 

36

Voting Procedures

 

36

Holders of MFOC Note Claim and MFOC Equity Interest

 

36

Securities Clearing Agencies

 

38

Miscellaneous

 

38

Fiduciaries And Other Representatives

 

39

Parties In Interest Entitled To Vote

 

39

Agreements Upon Furnishing Ballots

 

40

Change of Vote

 

40

Waivers of Defects, Irregularities, Etc.

 

40

 

viii



 

Further Information; Additional Copies

40

Voting Agent

40

Miscellaneous

41

RISK FACTORS

41

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

50

APPENDIX I: JOINT PREPACKAGED PLAN OF REORGANIZATION

I-1

APPENDIX II: DESCRIPTION OF NEW NOTES

II-1

APPENDIX III: DESCRIPTION OF STOCKHOLDERS AGREEMENT AND GOVERNANCE DOCUMENTS

III-1

APPENDIX IV: DESCRIPTION OF WARRANT

IV-1

APPENDIX V: LIQUIDATION ANALYSIS

V-1

APPENDIX VI: PRO FORMA FINANCIAL PROJECTIONS

VI-1

APPENDIX VII: HISTORICAL MFOC AND MFFB FINANCIAL INFORMATION

VII-1

 

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SUMMARY

 

This summary highlights some basic information contained, or incorporated by reference, in this Disclosure Statement to help you understand our business and the Plan.  It does not contain all of the information that is important to you.  You should carefully read this Disclosure Statement to understand fully the terms of the Plan, as well as the other considerations that are important to you in making your investment decision.  You should pay special attention to the Risk Factors beginning on page 41 and the introductory statement regarding forward-looking statements beginning on page v.

 

Unless stated otherwise, the discussion in this Disclosure Statement of our business includes the business of MFOC and its direct and indirect subsidiaries.  Unless otherwise indicated or the context otherwise requires, the terms “Mrs. Fields,” “the Company,” “we,” “us” and “our” refer to MFOC and its direct and indirect subsidiaries on a consolidated basis.

 

Purpose and Effect of the Plan

 

The primary purpose of the Plan is to effectuate the restructuring of the Company’s capital structure in order to bring it into alignment with the Company’s present and future operating prospects and to provide the Company with greater liquidity.  We are highly leveraged relative to our cash flow, our liquidity position has been steadily deteriorating and is currently severely restricted and we will not be in a position to make the interest payment due on the Old Notes on September 15, 2008.  The Company believes that the restructuring will reduce uncertainty with respect to its future and better position it to develop and maintain new customers.

 

The Plan will pay Allowed Unsecured Claims in full, and effectuate, without limitation, the following restructuring transactions:

 

1.               the conversion of Old Notes into a combination of cash, New Notes and 87.5% of the equity of MFOC outstanding at the effective date of the Plan; and

 

2.               the conversion of the MFOC note into a combination of cash, 12.5% of the equity of MFOC outstanding at the effective date of the Plan and a warrant to purchase additional equity of Reorganized MFOC.

 

In connection with developing the Plan, the Company conducted a careful review of its current business operations and compared its prospects as an ongoing business enterprise with the estimated recoveries of Holders of Allowed Claims and Interests in various liquidation scenarios.  As a result, the Company concluded that the recovery for Holders of Allowed Claims and Interests would be maximized by continuing to operate as a going concern.  The Company believes that its businesses and assets have significant value that would not be realized in a liquidation, either in whole or in substantial part.  Consistent with the liquidation analysis described herein and other analyses prepared by the Company and its advisors, the value of the Company’s assets would be considerably greater if the Company operates as a going concern instead of liquidating.  Moreover, the Company believes that any alternative to confirmation of the Plan, such as an out-of-court restructuring, liquidation, or attempts by another party in interest to file a plan of reorganization, would result in significant delays, litigation, and additional costs, and ultimately would lower the recoveries for Holders of Allowed Claims and Interests.  Accordingly, the Company strongly recommends that you vote to accept the Plan, if you are entitled to vote.

 

Overview of Chapter 11

 

Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code.  In addition to permitting debtor rehabilitation, Chapter 11 promotes equality of treatment for similarly situated creditors and similarly situated equity interest holders, subject to the priority of distributions prescribed by the Bankruptcy Code.

 

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The commencement of a Chapter 11 case creates an estate that comprises all of the legal and equitable interests of the debtor as of the bankruptcy commencement date.  The Bankruptcy Code provides that the debtor may continue to operate its business and remain in possession of its property as a “debtor in possession.”

 

Consummating a plan is the principal objective of a Chapter 11 case.  The Bankruptcy Court’s confirmation of a plan binds the debtor, any person acquiring property under the plan, any creditor or equity interest holder of a debtor, and any other person or entity as may be ordered by the Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code.  Subject to certain limited exceptions, the order issued by the Bankruptcy Court confirming a plan provides for the treatment of the debtor’s debt in accordance with the terms of the confirmed plan.

 

A “prepackaged” plan of reorganization is one in which a debtor seeks approval of a plan of reorganization from affected creditors before filing for bankruptcy.  Because solicitation of acceptances takes place before the bankruptcy filing, the amount of time required for the bankruptcy case is often less than in more conventional bankruptcy cases.  Greater certainty of results and reduced costs are other benefits generally associated with prepackaged bankruptcy cases.

 

Summary of the Plan

 

To facilitate court approval of the Plan, we are soliciting acceptances of the Plan, a copy of which is attached hereto as Appendix I.  We intend to use the acceptances of the Plan to obtain bankruptcy court approval of the Plan in a Chapter 11 case.

 

Summary

 

Through the Plan, all claims against and interests in us that would exist on the date when we would file our voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code would be divided into classes, exclusive of certain claims, administrative claims, and priority tax claims, which would not be required to be classified.

 

 

 

 

 

All but three classes of Claims and Equity Interests (each as defined and described in the Plan) would be unimpaired under the Plan. Classes 1, 2, 4, and 8B all would be unimpaired by the Plan. Holders of these Claims would be deemed to have accepted the Plan, would not be entitled to vote on the Plan and all of their legal, equitable and contractual rights would be fully reinstated and retained under the Plan. The following summarizes the classification and treatment through the Plan of the principal impaired claims against us (each as defined and described in the Plan).

 

 

 

Class 3 (Secured Notes Claims)

 

Impaired – Class 3 would be impaired by the Plan. Each Holder of an Allowed Secured Notes Claim would be entitled to vote on the Plan. On the Effective Date, in exchange for their Allowed Secured Notes Claims against each of the Debtors, Holders of Allowed Secured Notes Claims shall receive, on a Pro rata basis, (i) the Noteholder Cash, (ii) the New Notes and (iii) 87.5% of the equity of the New Common Equity issued and outstanding as of the Effective Date.

 

 

 

 

 

Estimated Recovery: 86.5%

 

 

 

Class 5 (MFOC Note Claims)

 

Impaired – Class 5 would be impaired by the Plan. The Holder of an Allowed MFOC Note Claim would be entitled to vote on the Plan. On the Effective Date, in exchange for its Allowed MFOC Note Claim, Capricorn, as the Holder of an Allowed MFOC Claim, shall receive (i) 12.5% of the New Common Equity issued and outstanding as of the

 

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Effective Date, (ii) the Warrant and (iii) a payment in the amount of $1.049 million.

 

 

 

 

 

Estimated Recovery: 96.4%

 

 

 

Class 8A (MFOC Equity Interests)

 

Impaired – Class 8A would be impaired by the Plan. The Holder of the Allowed MFOC Equity Interest would be entitled to vote on the Plan. MFH, as the Holder of all of the MFOC Equity Interests, shall receive no recovery under the Plan other than the releases and injunctive relief described in Sections 11.3 and 11.6 of the Plan.

 

 

 

 

 

Estimated Recovery: 0%

 

 

 

 

 

For a more detailed discussion of treatment under the Plan, see “The Plan - Certain Matters Regarding Classification and Treatment of Claims and Interests.”

 

Summary of Solicitation Package and Procedures for Voting on the Plan

 

The following materials constitute the Solicitation Package:

 

·                            the appropriate Ballot and applicable voting instructions;

·                            a pre-addressed, postage pre-paid return envelope; and

·                            the Disclosure Statement with all exhibits thereto, including the Plan.

 

The three voting classes, Classes 3, 5, and 8A, entitled to vote to accept or reject the Plan shall be served paper copies of the Disclosure Statement with all exhibits, including the Plan.  Any party who desires additional paper copies of these documents or additional information about the procedures for voting on the Plan may request copies from the Voting Agent by writing to Financial Balloting Group LLC (the “Voting Agent”), 757 Third Avenue, 3rd Floor, New York, New York 10017, or calling (646) 282-1800.  Each party entitled to vote to accept or reject the Plan shall receive a paper copy of the appropriate Ballot.

 

The Companies have engaged the Voting Agent to assist in the balloting and tabulation process.  The Voting Agent will, among other things, answer questions, provide additional copies of all Solicitation Package materials, and generally oversee the solicitation process.

 

Before voting to accept or reject the Plan, each Holder of a Secured Notes Claim, the MFOC Note Claim and the MFOC Equity Interests should carefully review the Plan attached as Appendix I and described herein under “The Plan.”  All descriptions of the Plan set forth in this Disclosure Statement are subject to the terms and conditions of the Plan.

 

In order to be counted, Beneficial Owner Ballots that have been validated by the nominee, Master Ballots, the MFOC Note Ballot and the MFOC Equity Ballot must be received by the Voting Agent by 5:00 p.m., New York City time on September 15, 2008, unless and until the Plan Proponents, in their sole discretion, extend the date until which Ballots will be accepted, in which case the voting deadline will terminate at 5:00 p.m., New York City time on such extended date (the “Voting Deadline”).  Except to the extent the Plan Proponents so determine or as permitted by the Bankruptcy Court, Ballots that are received after the Voting Deadline will not be counted or otherwise used by the Plan Proponents in connection with its request for confirmation of the Plan (or any permitted modification thereof).

 

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Instructions for voting on the Plan are set forth in the instructions contained in the enclosed Ballots.  Additional description of the procedures for voting on the Plan can be found in “Procedures for Voting on the Plan”.

 

Voting Procedures

 

The Plan Proponents are providing copies of the Solicitation Package of this Disclosure Statement (including all exhibits and appendices) and related materials and, where appropriate, Beneficial Owner Ballots, the MFOC Note Ballot or the MFOC Equity Ballot, to registered holders of Old Notes, the known holder of the MFOC Note and the known Holder of the MFOC Equity as of August 6, 2008.  Registered holders of Old Notes may include brokerage firms, commercial banks, trust companies, or other nominees. If such entities do not hold Old Notes for their own account, they must provide copies of the Solicitation Package (including the Beneficial Owner Ballots) to their customers and to beneficial owners of Old Notes who hold such notes as of the voting record date listed below.  Any beneficial owner of Old Notes who has not received a Beneficial Owner Ballot should contact his, her or its nominee, or the Voting Agent.

 

Registered holders should provide all of the information requested by the Ballots and should complete and return all Ballots received in the enclosed, self-addressed, postage paid envelope provided with each such Ballot.

 

The record date for determining which registered holders of Old Notes are entitled to vote on the Plan is August 6, 2008 (the “Voting Record Date”).  The Old Notes Trustee will not vote on behalf of the registered holders of Old Notes.

 

BALLOTS (INCLUDING THE MFOC NOTE BALLOT, THE MFOC EQUITY BALLOT, PREVALIDATED BENEFICIAL OWNER BALLOTS, AND MASTER BALLOTS) MUST BE TIMELY SUBMITTED TO THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE.  IF A BALLOT IS NOT PROPERLY SUBMITTED, IT WILL BE REJECTED AS INVALID AND WILL NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION OF THE PLAN; PROVIDED, HOWEVER, THAT THE PLAN PROPONENTS RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST AUTHORITY FROM THE BANKRUPTCY COURT TO COUNT SUCH BALLOT.

 

Support for the Plan

 

The members of the Noteholder Committee have entered into support agreements (the “Restructuring Support Agreements”) pursuant to which they have agreed, subject to certain conditions, to support the Plan and have advised that they intend to vote in favor of the Plan in accordance with the terms hereof.  The members of the Noteholder Committee have represented to Mrs. Fields that they collectively hold in aggregate in excess of 78% of the total outstanding Old Notes.  However, the obligation of the Noteholder Committee to support the Plan may be terminated by the Noteholder Committee under circumstances specified in the Restructuring Support Agreements, including the following:

 

i.                  If MFOC experiences a material adverse event (as defined within the support agreements) prior to the Effective Date and the holders of a majority of the Old Notes held by the members of the Noteholder Committee invoke such condition;

 

ii.               If the filing of the Bankruptcy Cases (the date of such filing, the “Filing Date”) shall not have occurred by August 25, 2008, with such date subject to extension by Mrs. Fields and MFOC with the consent of each member of the Noteholder Committee;

 

iii.            If the Plan and Disclosure Statement are not filed on the Filing Date;

 

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iv.          If within one week following the Filing Date, Mrs. Fields fails to file the pleadings agreed by counsel to Mrs. Fields and counsel to the Noteholder Committee to be the “first day motions” that will be filed within that schedule;

 

v.             If the combined hearing seeking approval of the Disclosure Statement and confirmation of the Plan, has not occurred within 35 days of the Petition Date;

 

vi.          If the Disclosure Statement and Plan, including any exhibits, appendices and related documents that are not inconsistent with the terms set forth herein and acceptable to the Noteholder Committee, in its sole discretion, shall not have been approved by a final, non-appealable order of the Bankruptcy Court, in form and substance acceptable to the Noteholder Committee, within 45 days of the Filing Date;

 

vii.       If the Effective Date shall not have occurred within 60 days of the Filing Date;

 

viii.   If one or more of the Bankruptcy Cases is converted to a case under Chapter 7 of the Bankruptcy Code, unless such conversion is made with the prior written consent of the Noteholder Committee;

 

ix.            If there occurs the appointment of a trustee, receiver or examiner with expanded powers in one or more of the Bankruptcy Cases unless such appointment is made with the prior written consent of the Noteholder Committee; or

 

x.               If there occurs the amendment, modification or filing of a pleading by the Company seeking to amend or modify the Plan, Disclosure Statement or any documents related to the foregoing, including motions, notices, exhibits, appendices and orders, in any manner not acceptable to the Noteholder Committee.

 

Capricorn, as the Holder of the MFOC Note, and MFH, as the Holder of the MFOC Equity, have each agreed in the Restructuring Support Agreements to support the Plan.

 

The Confirmation Hearing

 

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on confirmation of the Plan.  Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to confirmation of the Plan.

 

Following commencement of the Chapter 11 Cases, the Company intends to schedule promptly a Confirmation Hearing and will provide notice of the Confirmation Hearing to all necessary parties.  The Confirmation Hearing may be adjourned from time to time without further notice except for an announcement of the adjourned date made at the Confirmation Hearing or any adjournment thereof.

 

Confirming and Consummating the Plan

 

It is a condition to confirmation of the Plan that the Bankruptcy Court shall have entered the Confirmation Order in form and substance acceptable to the Noteholder Committee.  Certain other conditions contained in the Plan must be satisfied or waived pursuant to the provisions of Section 12.3 of the Plan and the Restructuring Support Agreements.

 

Following confirmation, the Plan will be consummated on the day that is the first Business Day after the Confirmation Date provided that the conditions to doing so have been satisfied or waived.  For further information, see Article XII of the Plan, entitled “Conditions Precedent to Confirmation and Consummation of the Plan.”

 

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Our Business

 

We are a well established franchisor in the premium snack food industry, featuring Mrs. Fields ® and TCBY ® as our core brands.  Through our franchisees’ retail stores, we are one of the largest retailers of freshly baked, on-premises specialty cookies and brownies in the United States of America (the “United States”) and the largest retailer of soft-serve frozen yogurt with live active cultures in the United States.  In addition, we operate a gifts and a branded retail business and have entered into licensing arrangements that attempt to leverage awareness of some of our core brands among our retail customer base.  As of July 31, 2008, our franchise systems operated through a network of 1,268 retail concept locations throughout the United States and in 21 foreign countries.

 

Mrs. Fields

 

Our Mrs. Fields brand operates in four distinct channels:

 

·                  Franchising, which includes franchised retail stores located mostly in malls;

 

·                  Gifting, our online and catalogue based direct sales business, that sells cookie and brownie gift assortments;

 

·                  Branded Retail, which includes our packaged goods cookies sold through grocery stores, drug stores, convenience stores and other merchants; and

 

·                  Licensing, which generates revenues by licensing our brand name to manufacturers of boxed chocolates, gourmet popcorn, ice cream sandwiches and other products.

 

TCBY

 

TCBY has been a frozen treats product innovator since its first opening in Little Rock, Arkansas in 1981.  The great tasting frozen yogurt concept received an enthusiastic response from an increasingly health conscious public and was the first in a line of ground breaking menu items.  TCBY product milestones include (i) developing non-fat and no-sugar added frozen treats; (ii) launching a line of frozen yogurt and sorbet novelties; (iii) introducing frozen yogurt to airports and travel plazas through its joint venture agreement with HMS Host, as successor-in-interest to Host International, Inc., Host Marriott Services USA, Inc. and Host Marriott Tollroads Inc. (collectively “HMS Host”); and (iv) developing a soft-serve and hardpack frozen yogurt product with more types of live active cultures than any other yogurt brand.  In fiscal year 2008, we intend to continue to explore ways to grow and take advantage of yogurt’s increasing appeal to today’s health conscious consumer.

 

Sales of Pretzel and Great American Cookies Brands

 

In two transactions in August  2007 and January 2008, MFFB and certain subsidiaries completed sales of certain assets related to MFFB’s pretzel and Great American Cookies businesses to subsidiaries of NexCen Brands, Inc. (“NexCen Brands”), for cash and shares of NexCen Brands common stock (the “NexCen Shares”).  Of the $111.0 million in aggregate cash consideration received from such sales, the Old Notes Trustee currently holds approximately $93.4 million in restricted cash which under the Old Notes Indenture is only permitted to be used to purchase “replacement assets”, for transaction costs related to the sales or for a “net proceeds offer” required by the Old Notes Indenture.  Of the aggregate 2,096,961 shares of NexCen Shares received from such sales, 1,699,840 shares remain in an escrow for possible use to satisfy indemnity claims arising out of the sales, valued at $7.35 per share for the shares received in the pretzel business sale and valued at $4.23 per share for the shares received from the sale of the Great American Cookies business.  The closing sale price per share of a NexCen Brands common stock on August 12, 2008 was $0.42.  Given the proposed restructuring described in this Disclosure Statement, MFFB does not intend to make either of the “net proceeds offers” required by the Old Notes Indenture.

 

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Severely Restricted Liquidity; Purpose of the Restructuring Contemplated by the Plan

 

As of the date of this Disclosure Statement, we have approximately $2.4 million in cash on hand other than $90.9 million in restricted cash held by the Old Notes Trustee and approximately $1.9 million in payables which are either due or past due.  Based on our most recently prepared cash flow estimates, we anticipate that over the next several weeks’ period during which the votes in favor of the Plan will be solicited and court approval of the Plan will be sought, cash from operations will not be sufficient to meet the costs of the solicitation and bankruptcy process and other obligations as they become due.  In that regard, we estimate that we will need to obtain access to approximately $4.8 million in the restricted cash held by the Old Notes Trustee through the end of September 2008, which is approximately the time at which the Plan could earliest be consummated.  In addition and assuming the same end of September 2008 consummation date, we are seeking to raise a $10 million working capital facility to fund working capital needs (the “Working Capital Facility”), some or all of which will need to be drawn to provide the cash distributions required upon confirmation of the Plan.  If the Working Capital Facility is put in place, borrowings under it would be senior as to security to the New Notes.

 

Organizational Structure

 

MFFB is a wholly owned subsidiary of MFOC.  MFOC is a wholly owned subsidiary of Mrs. Fields’ Holding Company, Inc. (“MFH”) and MFH is a wholly owned subsidiary of Mrs. Fields’ Companies, Inc. (“MFC”).  The majority shareholders of MFC are two affiliated private investment management firms: Capricorn Investors III, L.P. (“Capricorn”) and Capricorn Investors II, L.P.

 

The chart below is a summary of the organizational structure of MFOC, its direct subsidiary MFFB and the principal direct subsidiaries of MFFB.  There are also certain immaterial direct subsidiaries of MFOC, MFFB and TCBY Systems that are not identified but would be guarantors under the New Notes Indenture:

 

 

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CAPITALIZATION

 

The following table sets forth the book capitalization of MFOC on a consolidated basis:

 

·                  the actual book capitalization of MFOC as of June 28, 2008; and

 

·                  the estimated book capitalization of MFOC, on a pro forma basis to reflect consummation of the Plan on the assumption that the Plan will be consummated on September 30, 2008, that the amount of Noteholder Cash will be $87.5 million, that the principal amount of the New Notes will be $52.5 million and that there will be borrowings under the Working Capital Facility upon consummation of the Plan equal to $7.5 million.

 

Capitalization Table

($ in millions)

 

 

 

June 28,

 

September 30,

 

 

 

2008

 

2008

 

 

 

Actual

 

Pro Forma

 

Old Notes

 

$

195.7

 

$

 

MFOC Note

 

6.5

 

 

New Notes

 

 

52.5

 

Working Capital Facility

 

 

7.5

 

Total Debt

 

202.2

 

60.0

 

 

 

 

 

 

 

Cash and Equivalents

 

3.3

 

3.0

 

Restricted Cash

 

93.4

 

 

Marketable Securities

 

1.1

 

0.8

 

Total Cash

 

97.8

 

3.8

 

 

 

 

 

 

 

Net Debt

 

104.4

 

56.2

 

 

 

 

 

 

 

Members’ / Shareholders’ Equity / (Deficit)

 

(120.4

)

42.5

 

 

 

 

 

 

 

Total Book Capitalization

 

$

(16.0

)

$

98.7

 

 

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THE PLAN

 

THE COMPANIES HAVE NOT COMMENCED ANY CHAPTER 11 CASES.  MFOC AND CERTAIN OF ITS SUBSIDIARIES INTEND, HOWEVER, TO COMMENCE A CHAPTER 11 CASE UNDER THE BANKRUPTCY CODE TO RESTRUCTURE THEIR FINANCIAL AFFAIRS. THIS DISCLOSURE STATEMENT SOLICITS HOLDERS OF OLD NOTES’, THE MFOC NOTE’S AND THE MFOC EQUITY’S ADVANCE ACCEPTANCE OF THE PLAN, A COPY OF WHICH IS ATTACHED TO THIS DISCLOSURE STATEMENT AS APPENDIX I, AND WHICH CONTAINS IMPORTANT INFORMATION RELEVANT TO THE HOLDERS OF OLD NOTES’, THE MFOC NOTE’S AND THE MFOC EQUITY INTEREST’S DECISION TO ACCEPT THE PLAN. PLEASE READ THE PLAN COMPLETELY AND CAREFULLY.

 

To enhance the likelihood that we will succeed in our restructuring efforts, we have formulated the Plan for our reorganization under Chapter 11 of the Bankruptcy Code. The Plan covers MFOC and certain of its subsidiaries: MFFB, Mrs. Fields Financing Company, Inc., Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., GACCF, LLC, PTF, LLC, PMF, LLC and GAMAN, LLC, and others that we may determine are necessary. In the event that the Plan is accepted by more than two-thirds in aggregate principal amount, but not necessarily one half in number, of the Noteholders (as defined in the Plan), we will file voluntary petitions under Chapter 11 of the Bankruptcy Code and use such acceptances to seek confirmation of the Plan. If the Plan is confirmed and consummated, all Noteholders would receive the same consideration, whether or not they vote for acceptance of the Plan.

 

Definitions

 

All capitalized terms used in this description of the Plan that are not otherwise defined in this Disclosure Statement have the meanings ascribed to such terms in Article I of the Plan, a copy of which is attached as Appendix I to this Disclosure Statement.

 

Reasons for the Solicitation; Recommendation

 

The solicitation is being conducted at this time to obtain the requisite acceptances of the Plan. We anticipate that by beginning the solicitation in advance of commencing any Bankruptcy Cases, the duration of the Bankruptcy Cases would be significantly shortened, and the administration of such cases, which otherwise could be lengthy, complex, and extremely expensive, would be greatly simplified and much less costly. The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan.  The Bankruptcy Code defines “acceptance” of a plan by a class of interests as acceptance by interest holders in that class that hold at least two-thirds in amount of the interests that cast ballots for acceptance or rejection of the plan.

 

Anticipated Events During the Bankruptcy Cases

 

We may commence a bankruptcy case for any reason. In a bankruptcy case, from and after the Filing Date, we would continue to operate our businesses and manage our properties as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

 

We do not expect the Bankruptcy Cases to be protracted. To expedite our emergence from Chapter 11, we would file motions on the Filing Date seeking, among other things, the relief detailed below from the Bankruptcy Court. If granted, this relief would facilitate the administration of the Bankruptcy Cases. There can be no assurance, however, that the Bankruptcy Court would grant the requested relief.

 

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Motion to Approve Combined Disclosure Statement and Confirmation Hearing

 

The Debtors would seek a combined Confirmation Hearing and hearing on the adequacy of this Disclosure Statement on the earliest date which is convenient for the Bankruptcy Court. At that hearing, the Debtors would seek approval of this Disclosure Statement and confirmation of the Plan pursuant to sections 1125, 1128 and 1129 of the Bankruptcy Code. At that time, the Debtors also would request the Bankruptcy Court to approve the prepetition solicitation of votes on the Plan.

 

Motion to Use Cash Collateral

 

The Debtors would seek authority to use their cash collateral in order to continue their business operations.  The Debtors would only seek authorization to use such amounts of cash collateral as are necessary to continue to operate their businesses in the ordinary course, so as to avoid any immediate and irreparable harm to their businesses.

 

Motion to Continue Using Existing Cash Management Systems

 

Because the Debtors expect the Bankruptcy Cases to be pending for between 35-45 days, and because of the administrative hardship that any operating changes would impose, the Debtors would seek authority to continue using their existing cash management system, bank accounts and business forms and to follow their internal investment and deposit guidelines. Absent the Bankruptcy Court’s authorization of the continued use of the cash management system, the Debtors’ cash flow could be impeded to the detriment of the Debtors’ Estates and their creditors.

 

Continued use of their existing cash management system would facilitate the Debtors’ smooth and orderly transition into the Bankruptcy Cases, minimize the disruption of their business while in Chapter 11, and expedite their emergence from Chapter 11. As a result of set-up time and expenses, requiring the Debtors to adopt and implement a new cash management system would likely increase the costs of the Bankruptcy Cases. For the same reasons, requiring the Debtors to cancel their existing bank accounts and establish new accounts or requiring the Debtors to create new business forms would only frustrate the Debtors’ efforts to reorganize expeditiously.

 

Motion for Authority to Pay Prepetition Employee Compensation and Associated Benefits

 

The Debtors have a valuable asset in their work force and believe that any delay in paying prepetition compensation or benefits to their employees would destroy their relationships with employees and irreparably harm employee morale at a time when the continued dedication, confidence and cooperation of their employees is most critical.  Accordingly, the Debtors would seek authority to pay compensation and benefits which were accrued but unpaid as the Filing Date.

 

Motion to Continue Customer Programs

 

In order to maintain the loyalty of their customer base, the Debtors would seek authority to continue to perform their obligations arising under any of their customer programs.  This relief will enable the Debtors to maintain important relationships with their customers during the pendency of the Chapter 11 Cases.

 

Motion to Pay Prepetition Trust Fund Taxes

 

In the ordinary course of their businesses, the Debtors collect “trust fund” taxes on behalf of various taxing authorities. The most common examples of trust fund taxes include income tax withholdings and sales and use taxes. The Debtors would seek authority to pay prepetition “trust fund” taxes in the ordinary course of business.

 

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Adequate Assurance of Utilities

 

In connection with the operation of their businesses and management of their properties, the Debtors obtain electricity, telephone and similar services from many different utility companies. Historically, the Debtors have paid these utilities timely.  The Debtors will move the Court on the Petition Date to enter orders approving procedures for, among other things, determining adequate assurance for utility providers, and prohibiting utility providers from altering, refusing, or discontinuing services.  The Debtors believe that uninterrupted utility services are essential to the Debtors’ ongoing operations and, therefore, to the success of the Debtors’ reorganization.

 

Motion to Pay Prepetition Claims as They Come Due

 

The Debtors plan to continue to operate their businesses in the ordinary course after the filing of the Bankruptcy Cases.  In order to avoid any disruption to their businesses, the Debtors would seek authority to pay prepetition claims as they become due in the ordinary course of their businesses.

 

Insurance Motion

 

In connection with the operation of their business, the Debtors maintain various insurance policies.  Maintenance of insurance is essential to the continued operation of the Debtors’ business, and is required under the United States Trustee’s Operating Guidelines for Chapter 11 Cases and the laws of the various states in which the Debtors operate.  The motion would request relief that would allow the Debtors to continue their prepetition insurance coverage practices.  Further, because the Debtors finance their premiums for certain insurance policies pursuant to a financing arrangement with AICCO, Inc., the motion would request the ability to continue the financing arrangement with AICCO and enter into new financing arrangements.

 

Timetable for Bankruptcy Cases

 

Assuming that the Bankruptcy Court approves the Debtors’ motion with respect to a hearing on the Disclosure Statement and Confirmation Hearing, the Debtors anticipate that the Disclosure Statement and Confirmation Hearing would occur as soon as 35 days from the Filing Date. There can be no assurance, however, that the Bankruptcy Court would permit the Bankruptcy Cases to proceed as expeditiously as anticipated.

 

Summary of the Plan

 

THE REMAINDER OF THIS SECTION PROVIDES A SUMMARY OF (I) THE STRUCTURE AND MEANS FOR IMPLEMENTATION OF THE PLAN AND (II) THE CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN (AS WELL AS THE EXHIBITS THERETO AND DEFINITIONS THEREIN), WHICH IS ANNEXED TO THIS DISCLOSURE STATEMENT AS APPENDIX I.

 

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE SUMMARIES OF THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED TO THEREIN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE PRECISE OR COMPLETE STATEMENTS OF ALL THE TERMS AND PROVISIONS OF THE PLAN OR DOCUMENTS REFERRED TO THEREIN, AND REFERENCE IS MADE TO THE PLAN AND TO SUCH DOCUMENTS FOR THE FULL AND COMPLETE STATEMENTS OF SUCH TERMS AND PROVISIONS.

 

THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN CONTROL THE ACTUAL TREATMENT OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS AND WILL, UPON OCCURRENCE OF THE EFFECTIVE DATE, BE BINDING UPON ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, THEIR ESTATES, THE REORGANIZED DEBTORS, ALL PARTIES RECEIVING PROPERTY UNDER THE PLAN, AND OTHER PARTIES IN INTEREST. IN THE EVENT OF

 

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ANY CONFLICT BETWEEN THIS DISCLOSURE STATEMENT, ON THE ONE HAND, AND THE PLAN OR ANY OTHER OPERATING DOCUMENT, ON THE OTHER HAND, THE TERMS OF THE PLAN OR SUCH OTHER OPERATIVE DOCUMENT WILL CONTROL.

 

Creditors and Interest Holders Entitled to Vote on the Plan

 

As more fully described below, the Plan designates separate classes of Claims against and Interests in the Debtors (other than Administrative Expense Claims and Priority Tax Claims). Only the Holders of Secured Notes Claims, MFOC Note Claims and MFOC Equity Interests would be impaired under the Plan, and votes on the Plan are being solicited only from the Holders of such Claims and Interests. In addition to Holders of Administrative Expense Claims and Priority Tax Claims (which are not classified in the Plan), Holders of Claims in Classes 1, 2, 4, 8B and 8C are unimpaired by the Plan, would not be entitled to vote to accept or reject the Plan, and would be deemed to have accepted the Plan.  Holders of Claims in Class 6 and Class 7 are deemed to reject the Plan and are therefore not entitled to vote to accept or reject the Plan.

 

Bankruptcy Rule 3018(b) prescribes the conditions that must be satisfied to count the ballots solicited with respect to a plan prior to the commencement of a Chapter 11 case. Bankruptcy Rule 3018(b) requires that (i) the Chapter 11 plan must have been disseminated to substantially all impaired creditors and equity security holders in the class(es) entitled to vote, (ii) the time prescribed for voting on the plan must not be unreasonably short and (iii) the solicitation must have been conducted in accordance with section 1126(b) of the Bankruptcy Code, which requires compliance with all applicable non-bankruptcy laws, rules, or regulations or, if there are no such applicable laws, rules or regulations, that the disclosure with respect to the plan contains “adequate information” as defined in section 1125(a) of the Bankruptcy Code. Section 1125(a)(1) defines “adequate information” as information of a kind and in sufficient detail as far as is reasonably practicable in light of the nature and history of a company and the condition of such company’s books and records that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan.

 

We believe that all of the requirements of Bankruptcy Rule 3018(b) would be satisfied in the event that we sought confirmation of the Plan. This Disclosure Statement and the Plan, together with all of the accompanying materials, are being transmitted to Holders of Class 3 Secured Notes Claims, Class 4 MFOC Note Claims and Class 8A MFOC Equity Interests.  We believe that this Disclosure Statement contains adequate information (within the meaning of section 1125(a)(1) of the Bankruptcy Code) for all Holders of such Claims and Interests, as applicable.

 

Certain Matters Regarding Classification and Treatment of Claims and Interests

 

Section 1123 of the Bankruptcy Code provides that a plan must classify the claims and interests of a debtor’s creditors and interest holders. In accordance with section 1123 of the Bankruptcy Code, the Plan divides Claims and Interests into Classes and sets forth the treatment for each Class (other than Administrative Expense Claims and Priority Tax Claims which, pursuant to section 1123(a)(1), need not be and have not been classified). The Debtors are required, under section 1122 of the Bankruptcy Code, to classify Claims against and Interests in the Debtors into Classes, each of which contain Claims and Interests that are substantially similar to the other Claims and Interests in such Class. We believe that the Plan has classified all Claims and Interests in compliance with the provisions of section 1122 of the Bankruptcy Code, but it is possible that a Holder of a Claim or Interest may challenge our classification of Claims and Interests and that the Bankruptcy Court might find that a different classification is required for the Plan to be confirmed. In that event, we would intend, to the extent permitted by the Bankruptcy Code, the Plan and the Bankruptcy Court, to make such reasonable modifications of the classifications through the Plan to permit confirmation and to use the acceptances of the Plan that are received in this solicitation for purpose of obtaining the approval of the reconstituted Class or Classes of which each accepting Holder ultimately would be deemed to be a member. Any such reclassification could adversely affect the Class in which such Holder initially was a member, or any other Class in the Plan, by changing the composition of such Class and the vote required of that Class for approval of the Plan. Furthermore, a reclassification of a Claim or Interest after approval of the Plan could necessitate a resolicitation of acceptances of the Plan.

 

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The classification of Claims and Interests and the nature of distributions to members of each Class are summarized below. We believe that the consideration, if any, that would be provided through the Plan to Holders of Claims and Interests would reflect an appropriate resolution of their Claims and Interests, and would take into account the differing nature and priority of such Claims and Interests. The Bankruptcy Court would be required to find, however, that a number of statutory tests are met before it could confirm the Plan. Many of these tests are designed to protect the interests of Holders of Claims or Interests who would not be entitled to vote on the Plan, or would not vote to accept the Plan, but who would be bound by the provisions of the Plan if it were confirmed by the Bankruptcy Court. The “cramdown” provisions of section 1129(b) of the Bankruptcy Code, for example, permit confirmation of the Plan in certain circumstances even if the Plan is not accepted by all impaired classes of Claims and Interests. Although we believe that the Plan could be confirmed under section 1129(b), there can be no assurance that the requirements of such section would be satisfied.

 

Administrative Expense Claims

 

An Administrative Claim is a Claim for payment of an administrative expense of a kind specified in section 503(b) or 507(b) of the Bankruptcy Code and entitled to priority pursuant to section 507(a)(2) of the Bankruptcy Code, including, without limitation, the actual, necessary costs and expenses, incurred on or after the Filing Date, of preserving the Estates and operating the business of the Debtors, including wages, salaries or commissions for services rendered after the commencement of the Bankruptcy Cases, Professional Compensation, fees and expenses of the Old Notes Trustee and its counsel, fees and expenses of the Noteholder Committee and its professionals, and all fees and charges assessed against the Estates under 28 U.S.C. § 1930.

 

Subject to the provisions of sections 328, 330(a) and 331 of the Bankruptcy Code, each Holder of an Allowed Administrative Expense Claim will be paid the full unpaid amount of such Allowed Administrative Expense Claim in Cash on the latest of (i) on, or as soon as reasonably practical after, the Effective Date, (ii) as soon as practicable after the date on which such Claim becomes an Allowed Administrative Expense Claim, (iii) upon such other terms as may be agreed upon by such Holder and the Noteholder Committee or the Reorganized Debtors, or (iv) as otherwise ordered by the Bankruptcy Court; provided, however, that Allowed Administrative Expense Claims representing obligations incurred by the Debtors in the ordinary course of business, or otherwise assumed by the Debtors on the Effective Date pursuant to the Plan, including any tax obligations arising after the Filing Date, will be paid or performed by the Reorganized Debtors when due in accordance with the terms and conditions of the particular agreements or non-bankruptcy law governing such obligations.

 

Except as otherwise provided in the Plan, any Person asserting an Administrative Expense Claim, other than an Administrative Expense Claim (i) arising from the operation by the Debtors of their business in the ordinary course of business, or (ii) to the extent permitted by law, with respect to the fees and expenses of the Noteholder Committee and its professionals, and the fees and expenses of the Old Notes Trustee and its counsel, shall file a request for payment of such Administrative Expense Claim with the clerk of the Bankruptcy Court within thirty days after the occurrence of the Effective Date.  At the same time any Person files a request for payment of an Administrative Expense Claim, such Person shall also serve a copy of the request for payment of an Administrative Expense Claim upon counsel for the Reorganized Debtors.  Any Person who fails to timely file and serve a request for payment of such Administrative Expense Claim shall be forever barred from seeking payment of such Administrative Expense Claim by the Debtors, the Estates, or the Reorganized Debtors.

 

Any Person seeking an award by the Bankruptcy Court of Professional Compensation shall file a final application with the Bankruptcy Court for allowance of Professional Compensation for services rendered and reimbursement of expenses incurred through the Effective Date within thirty days after the occurrence of the Effective Date.

 

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Priority Tax Claims

 

With respect to any Allowed Priority Tax Claims not paid pursuant to prior Bankruptcy Court order, except to the extent that a Holder of an Allowed Priority Tax Claim agrees to different treatment, each Holder of an Allowed Priority Tax Claim will receive, at the option of the Plan Proponents, (i) on the Effective Date, Cash in an amount equal to such Allowed Priority Tax Claim, or (ii) commencing on the first anniversary of the Effective Date and continuing on each anniversary thereafter over a period not exceeding five years after the Filing Date, equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at the applicable rate under non-bankruptcy law, subject to the option of the Plan Proponents, to prepay the entire remaining amount of the Allowed Priority Tax Claim at any time, or (iii) upon such other terms determined by the Bankruptcy Court to provide the Holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim.  All Allowed Priority Tax Claims which are not due and payable on or before the Effective Date will be paid in the ordinary course of business as such obligations become due.

 

Class 1 — Other Secured Claims

 

Class 1 consists of all Other Secured Claims.  The legal, equitable and contractual rights of the Holders of Class 1 Other Secured Claims would be unaltered by the Plan.  Unless the Holder of such Claim and the Plan Proponents agree to a different treatment, each Holder of an Allowed Class 1 Other Secured Claim shall receive, in full and final satisfaction of such Allowed Class 1 Other Secured Claim, one of the following alternative treatments:

 

·                  the legal, equitable and contractual rights to which such Claim entitles the Holder thereof shall be reinstated and the Holder paid in accordance with such legal, equitable and contractual rights;

 

·                  the Debtors shall surrender all collateral securing such Claim to the Holder thereof, in full satisfaction of such Holder’s Allowed Class 1 Other Secured Claim, without representation or warranty by or recourse against the Debtors or Reorganized Debtors; or

 

·                  such Allowed Class 1 Other Secured Claim will be otherwise treated in a manner so that such Claim shall be rendered Unimpaired pursuant to section 1124 of the Bankruptcy Code.

 

The proposed treatment of each Class 1 Other Secured Claim shall be selected by the Plan Proponents.  Any default with respect to any Class 1 Other Secured Claim that occurred prior to the Effective Date shall be deemed cured upon the Effective Date.

 

Class 2 — Priority Claims

 

Class 2 consists of all Priority Claims.  The legal, equitable and contractual rights of the Holders of Class 2 Priority Claims would be unaltered by the Plan.  Unless the Holder of such Claim and the Plan Proponents agree to a different treatment, each Holder of an Allowed Class 2 Priority Claim shall receive, in full and final satisfaction of such Allowed Class 2 Priority Claim, one of the following alternative treatments:

 

·                  to the extent then due and owing on the Effective Date, such Allowed Class 2 Priority Claim will be paid in full in Cash by the Debtors or the Reorganized Debtors on, or as soon as practical after, the Effective Date;

 

·                  to the extent not due and owing on the Effective Date, such Allowed Class 2 Priority Claim will be paid in full in Cash by the Debtors or the Reorganized Debtors when and as such Allowed Class 2 Priority Claim becomes due and owing in the ordinary course of business; or

 

·                  such Allowed Class 2 Priority Claim will be otherwise treated in a manner so that such Allowed Class 2 Priority Claim shall be rendered Unimpaired pursuant to section 1124 of the Bankruptcy Code.

 

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The proposed treatment of each Class 2 Priority Claim shall be selected by the Plan Proponents.

 

Class 3 — Secured Notes Claims

 

Class 3 consists of all Secured Notes Claims.  The Secured Notes Claims are Allowed in full and shall not be subject to any avoidance, reductions, set off, offset, recharacterization, subordination (whether equitable, contractual, or otherwise), counterclaims, cross-claims, defenses, disallowance, impairment, or any other challenges under any applicable law or regulation by any person or entity.  The Secured Notes Claims are Allowed in an amount not less than $195,747,000 plus applicable fees, charges, costs and interest accrued but unpaid as of the Filing Date.

 

On the Effective Date, in exchange for their Allowed Secured Notes Claims against each of the Debtors, Holders of Allowed Secured Notes Claims shall receive, on a Pro rata basis, (i) the Noteholder Cash, (ii) the New Notes, and (iii) 87.5% of the New Common Equity issued and outstanding as of the Effective Date.  The Holders of Allowed Secured Notes Claims shall be deemed to automatically waive their Secured Notes Deficiency Claim on the Effective Date.

 

Class 4 — General Unsecured Claims

 

Class 4 consists of all General Unsecured Claims.  On the later of the Effective Date and the date on which such Claims are Allowed, or, in each case, as soon thereafter as practicable, each Holder of an Allowed General Unsecured Claim in Class 4 shall be paid in full and final satisfaction of such Holder’s Allowed General Unsecured Claim in Cash.  A General Unsecured Claim that is not due and payable on or before the Effective Date shall be paid thereafter (i) in the ordinary course of business in accordance with the terms of any agreement that governs such General Unsecured Claim or (ii) in accordance with the course of practice between the Debtors and such Holder with respect to such General Unsecured Claim.

 

Class 5 – MFOC Note Claim

 

Class 5 consists of the MFOC Note Claim.  The MFOC Note Claim is Allowed in full and shall not be subject to any avoidance, reductions, set off, offset, recharacterization, subordination (whether equitable, contractual, or otherwise), counterclaims, cross-claims, defenses, disallowance, impairment, or any other challenges under any applicable law or regulation by any person or entity.  The MFOC Note Claim is Allowed in an amount not less than $6,478,030  plus applicable fees, charges, costs and interest accrued but unpaid as of the Filing Date.

 

On the Effective Date, in exchange for its Allowed MFOC Note Claim, the Holder of the Allowed MFOC Note Claim, shall receive, (i) 12.5% of the New Common Equity issued and outstanding as of the Effective Date, (ii) the Warrant, and (iii) $1.049 million in cash.

 

Class 6 – Intercompany Claims

 

Class 6 consists of the Intercompany Claims.  The Intercompany Claims will be discharged on the Effective Date and the Holders of such Claims shall receive no recovery under the Plan.

 

Class 7 – Section 510(b) Claims

 

Class 7 consists of the Section 510(b) Claims.  The Section 510(b) Claims will be deemed cancelled and extinguished and will be discharged on the Effective Date and the Holders of such Claims shall receive no recovery under the Plan.

 

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Class 8A, 8B and 8C Interests

 

Class 8A consists of the MFOC Equity Interests.  Class 8B consists of the MFOC Subsidiary Interests.  Class 8C consists of the MFFB Subsidiary Interests.

 

MFH, as the Holder of the MFOC Equity Interest in Class 8A, shall receive no recovery under the Plan other than the releases and injunctive relief described in Section 11.3 and 11.6 of the Plan.  MFOC, as the Holder of the MFOC Subsidiary Interests in Class 8B, shall have such Interests reinstated on the Effective Date and remain the 100% parent company of MFFB.  MFFB, as the Holder of the MFFB Subsidiary Interests in Class 8C, shall have such Interests reinstated on the Effective Date and remain the 100% parent company of each of its subsidiaries who are Debtors.

 

Special Provisions Governing Unimpaired Claims

 

Except as otherwise provided in the Plan, nothing under the Plan is intended to or shall affect the Debtors’ or Reorganized Debtors’ rights and defenses in respect of any Claim that is Unimpaired under the Plan, including, without limitation, all rights in respect of legal and equitable defenses to or setoffs or recoupment against or counter-claims with respect to such Unimpaired Claims.

 

Distributions Under the Plan

 

Sources of Cash for Plan Distributions

 

All Cash necessary for the Reorganized Debtors to make payments required by the Plan shall be obtained from existing Cash balances, the Net Cash Proceeds held by the Old Notes Trustee, the operations of the Debtors or Reorganized Debtors or the Working Capital Facility.

 

Disbursing Agent

 

Unless otherwise provided for herein, all Distributions under the Plan shall be made by the Reorganized Debtors or their agent.  Notwithstanding the foregoing, all Distributions to the Holders of Allowed Secured Notes Claims shall be made by the applicable Reorganized Debtor to such Holders through or on behalf of the Old Notes Trustee.

 

Distributions of Cash

 

Any Distribution of Cash made by the Reorganized Debtors pursuant to the Plan shall, at the Reorganized Debtor’s option, be made by check drawn on a domestic bank or by wire transfer from a domestic bank.

 

Time Bar to Cash Payments

 

Checks issued in respect of Allowed Claims shall be null and void if not negotiated within one hundred and eighty days after the date of issuance thereof.  Requests for reissuance of any voided check shall be made directly to the Debtors or Reorganized Debtors by the Holder of the Allowed Claim to whom such check was originally issued. Any Claim in respect of such a voided check shall be made on or before the later of (a) the first anniversary of the date on which such Distribution or payment was made and (b) one hundred and eighty days after the date of the issuance of such check. If no Claim is made as provided in the preceding sentence, all Claims in respect of void checks shall be discharged and forever barred and such unclaimed Distributions shall revert to the Debtors or Reorganized Debtors.

 

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No Interest on Claims or Interests

 

Unless otherwise specifically provided for in the Plan, the Confirmation Order, or a postpetition agreement in writing between the Debtors and a Holder, postpetition interest shall not accrue or be paid on Claims, and no Holder shall be entitled to interest accruing on or after the Filing Date on any Claim; provided, however, that in accordance with the Term Sheet, the Old Notes and MFOC Note shall accrue interest through the Effective Date.  Additionally, and without limiting the foregoing, interest shall not accrue or be paid on any Disputed Claim in respect of the period from the Effective Date to the date a Final Distribution is made when and if such Disputed Claim becomes an Allowed Claim.

 

Delivery of Distributions

 

The Distribution to a Holder of an Allowed Claim shall be made by the Reorganized Debtors (i) at the last known address of such Holder according to the Debtors’ books and records; (ii) at the address set forth on any proof of Claim filed by such Holder or at the address set forth in any written notices of address change delivered to the Debtors or Reorganized Debtors after the date of any related proof of Claim, or (iii) in the case of Secured Notes Claims, to the Old Notes Trustee for ultimate distribution to the Holders of such Secured Notes Claims.  If any Holder’s Distribution is returned as undeliverable, no further Distributions to such Holder shall be made unless and until the Reorganized Debtors are notified of such Holder’s then-current address, at which time all missed Distributions shall be made to such Holder without interest.  All Distributions returned to the Reorganized Debtors and not claimed within six months of return shall be irrevocably retained by the Reorganized Debtors notwithstanding any federal or state escheat laws to the contrary.  Upon such reversion, the claim of any Holder or their successors with respect to such property shall be discharged and forever barred notwithstanding any federal or state escheat laws to the contrary.

 

Distributions to Holders as of the Distribution Record Date

 

All Distributions on Allowed Claims, except for those distributions to holders of Secured Notes Claims, shall be made to the Record Holders of such Claims.  As of the close of business on the Distribution Record Date, there shall be no further changes in the Record Holder of any Claim.  The Reorganized Debtors shall have no obligation to recognize any transfer of any Claim occurring after the Distribution Record Date.  The Reorganized Debtors shall instead be entitled to recognize and deal for all purposes under the Plan with the Record Holders as of the Distribution Record Date.  In the case of Secured Notes Claims, the distribution will be made to the Old Notes Trustee for ultimate distribution to the Holders of such Secured Notes Claims.

 

Fractional Securities; Fractional Dollars

 

Any other provision of the Plan notwithstanding, payments of fractions of shares of New Common Equity will not be made and shall be deemed to be zero.  Any other provision of the Plan notwithstanding, the Reorganized Debtors shall not be required to make Distributions or payments of fractions of dollars. Whenever any payment of a fraction of a dollar under the Plan would otherwise be called for, the actual payment shall reflect a rounding of such fraction to the nearest whole dollar (up or down), with half dollars or less being rounded down.

 

Withholding Taxes

 

The Debtors or the Reorganized Debtors, as the case may be, shall comply with all withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority, and all Distributions under the Plan shall be subject to any such withholding and reporting requirements.

 

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Procedures for Treating and Resolving Disputed Claims

 

Objections to Claims

 

The Reorganized Debtors shall be entitled to object to Claims, provided, however, that the Debtors and Reorganized Debtors shall not be entitled to object to Claims (i) that have been Allowed by a Final Order entered by the Bankruptcy Court prior to the Effective Date or (ii) that are Allowed by the express terms of the Plan.  Any objections to Claims must be filed by the Claims Objection Deadline.

 

Estimation of Claims

 

The Plan Proponents or the Reorganized Debtors, as the case may be, may, at any time, request that the Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to section 502 of the Bankruptcy Code regardless of whether the Plan Proponents or the Reorganized Debtors have previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including during the pendency of any appeal relating to any such objection.  All of the aforementioned Claims objection, estimation and resolution procedures are cumulative and are not necessarily exclusive of one another.

 

Resolution of Claims Objections

 

On and after the Effective Date, the Reorganized Debtors shall have the authority to compromise, settle, otherwise resolve, or withdraw any objections to Claims without approval of the Bankruptcy Court.

 

Distributions After Allowance

 

On the first Distribution Date after a Disputed General Unsecured Claim becomes an Allowed General Unsecured Claim, the Holder of an Allowed General Unsecured Claim shall receive the Distribution to which such Holder is then entitled plus any Distribution such Holder would have received on a prior Distribution Date had such Holder’s Claim been Allowed on such prior Distribution Date; provided, however, if the date such General Unsecured Claim becomes entitled to a Distribution is less than twenty Business Days prior to the next Distribution Date, the Distribution with respect to such Claim will be made on the first Distribution Date that occurs more than twenty Business Days after the Claim becomes entitled to a Distribution.  All Distributions made under Article XI of the Plan will be made together with any dividends, payments, or other Distributions made on account of, as well as any obligations arising from, the distributed property as if such Claim had been an Allowed Claim on the dates Distributions were previously made to Allowed Holders included in the applicable Class.

 

Means for Implementation of the Plan

 

Continued Legal Existence

 

Except as otherwise provided in the Plan, each of the Debtors will continue to exist after the Effective Date as a separate legal entity, with all the powers of such an entity (whether a corporation, limited liability company or other entity, as appropriate) under applicable law in the jurisdiction in which each applicable Debtor is incorporated or otherwise formed and pursuant to its certificate or articles of incorporation and bylaws or other organizational documents in effect prior to the Effective Date, except to the extent such certificate or articles of incorporation and bylaws or other organizational documents are amended by the Plan, without prejudice to any right to terminate such existence (whether by merger or otherwise) under applicable law after the Effective Date.

 

Reinstatement of Interests

 

There shall be no reinstatement or other recovery for the Interests held directly by MFH in MFOC in accordance with the terms of the Plan.  The MFOC Subsidiary Interests held directly by MFOC and the MFFB

 

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Subsidiary Interests held by MFFB or its Subsidiary Debtors shall be reinstated in accordance with the terms of the Plan.

 

Cancellation of Existing Securities and Agreements/Discharge of Old Notes Trustee

 

Except as set forth in the Plan, upon the Effective Date, the Existing Securities shall be cancelled and the holders thereof shall have no further rights or entitlements in respect thereof against the Debtors or Non-Debtor Affiliates except the rights to receive the distributions to be made to such holders under the Plan and all Liens against Non-Debtor Affiliates shall be automatically released.  To the extent possible, distributions to be made under the Plan to the beneficial owners of the Old Notes shall be made through The Depository Trust Company (“DTC”) and its participants.  The Confirmation Order shall authorize and direct the Old Notes Trustee to take whatever action may be necessary or appropriate, in its reasonable discretion, to deliver the distributions, including, without limitation, obtaining an order of the Bankruptcy Court.  On the Effective Date, the Old Notes Trustee and its agents shall be discharged of all its obligations associated with (i) the Old Notes, (ii) the Indenture, and (iii) any related documents, and released from all Claims arising in the Bankruptcy Cases.  As of the Effective Date, the Indenture shall be deemed fully satisfied and cancelled, except that such cancellation shall not impair the rights of the Holders of the Old Notes to receive distributions under the Plan, or the rights of the Old Notes Trustee under the Indenture Trustee Charging Lien, to the extent that the Old Notes Trustee has not received payment as provided for in Section 7.5 of the Plan.  On the Effective Date, all Liens in favor of the Old Notes Trustee for the benefit of the holders of the Old Notes or otherwise arising under the Indenture shall be deemed released.

 

Old Notes Trustee and Noteholder Committee Expenses

 

All outstanding fees and expenses of (i) the Old Notes Trustee and its counsel and (ii) the Noteholder Committee and its professionals shall be paid in Cash on the Effective Date by the Debtors or Reorganized Debtors as an Administrative Expense Claim, without, to the extent permitted by law, the need for application to, or approval of, the Bankruptcy Court.  To the extent that the Old Notes Trustee in its capacity as trustee under the Old Notes Indenture provides services related to the Distributions pursuant to the Plan, the Old Notes Trustee will be paid by the Reorganized Debtors, without Bankruptcy Court approval, the reasonable compensation for such services and reimbursement of reasonable expenses incurred in connection therewith, with such payments to be made on terms agreed to between the Old Notes Trustee and the Reorganized Debtors.

 

Deferred Blackstone Fee

 

The Reorganized Debtors will pay not later than December 31, 2008 or earlier should there be available net proceeds from the sale of TCBY, if sold, or any of the NexCen Shares the remainder of the fees and expenses payable to Blackstone Advisory Services L.P. for its financial advisory work for the Debtors.  The Debtors estimate that the amount of such fees and expenses to be so paid will be approximately $1.0 million.

 

Corporate Action

 

Each of the matters provided for under the Plan involving the corporate structure of any Debtor or Reorganized Debtor or any corporate action to be taken by or required of any Debtor or Reorganized Debtor, including, without limitation the adoption of the certificates of incorporation and bylaws of each of the Reorganized Debtors as provided for in Section 8.1 of the Plan, shall be deemed to have occurred and be effective as provided herein, and shall be authorized, approved and, to the extent taken prior to the Effective Date, ratified in all respects without any requirement of further action by stockholders, members, creditors, directors, or managers of any of the Debtors or the Reorganized Debtors.

 

Preservation of Causes of Action

 

In accordance with section 1123(b)(3) of the Bankruptcy Code the Reorganized Debtors will retain and may (but are not required to) enforce all Retained Actions.  After the Effective Date, the Reorganized Debtors, in

 

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their sole and absolute discretion, shall have the right to bring, settle, release, compromise, or enforce such Retained Actions (or decline to do any of the foregoing), without further approval of the Bankruptcy Court. The Reorganized Debtors or any successors, in the exercise of their sole discretion, may pursue such Retained Actions so long as it is in the best interests of the Reorganized Debtors or any successors holding such rights of action. The failure of the Debtors to specifically list any claim, right of action, suit, proceeding or other Retained Action in the Plan does not, and will not be deemed to, constitute a waiver or release by the Debtors or the Reorganized Debtors of such claim, right of action, suit, proceeding or other Retained Action, and the Reorganized Debtors will retain the right to pursue such claims, rights of action, suits, proceedings and other Retained Actions in their sole discretion and, therefore, no preclusion doctrine, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable or otherwise) or laches will apply to such claim, right of action, suit, proceeding or other Retained Action upon or after the confirmation or consummation of the Plan.

 

Effectuating Documents; Further Transactions

 

Each of the Debtors (subject to the consent of the Noteholder Committee) and Reorganized Debtors, and their respective officers and designees, is authorized to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents, and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan, or to otherwise comply with applicable law.

 

Exemption From Certain Transfer Taxes and Recording Fees

 

Pursuant to section 1146(a) of the Bankruptcy Code, any transfers from a Debtor to a Reorganized Debtor or to any other Person or entity pursuant to the Plan, or any agreement regarding the transfer of title to or ownership of any of the Debtors’ real or personal property will not be subject to any document recording tax, stamp tax, conveyance fee, sales tax, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, or other similar tax or governmental assessment, and the Confirmation Order will direct the appropriate state or local governmental officials or agents to forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment.

 

Further Authorization

 

The Reorganized Debtors shall be entitled to seek such orders, judgments, injunctions and rulings as they deem necessary to carry out the intentions and purposes, and to give full effect to the provisions, of the Plan.

 

Provisions Regarding Corporate Governance of Reorganized Debtors

 

Certificates of Incorporation and Bylaws

 

The organizational documents of each Reorganized Debtor  shall be amended to conform with the requirements of section 1123(a)(6) of the Bankruptcy Code.

 

Directors and Officers of Reorganized Debtors

 

a.            Directors.  Pursuant to the Term Sheet, the initial Board of Directors of Reorganized MFOC shall consist of seven directors, four of whom shall be designated by the Noteholder Committee, and two of whom shall be designated jointly by Capricorn Investors.  The chief executive officer of Reorganized MFOC shall be the seventh director.  The identities of the members of the initial Board of Directors to be designated by the Noteholder Committee and the identity of the chief executive officer have not been determined as of the date of this Disclosure Statement and shall be disclosed in the Plan Supplement.  The members of the initial Board of Directors to be designated by Capricorn are expected to be Don K. Rice and John D. Collins, each of whom is currently a director of MFFB, though it is possible that either or both of them may decline to be so designated prior to the Effective Date.  The members of the initial Boards of Directors or equivalent governing bodies for the Reorganized Subsidiaries

 

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shall be selected by the initial Board of Directors for Reorganized MFOC and shall consist of officers or directors of the Reorganized Debtors.  To the extent any such Person is an Insider (as defined in section 101(31) of the Bankruptcy Code), the nature of any compensation for such Person will also be disclosed prior to the Confirmation Hearing.   Each of the Persons on the initial Boards of Directors of the respective Reorganized Debtors shall serve in accordance with the certificates of incorporation and bylaws of the respective Reorganized Debtor, as the same may be amended from time to time.

 

b.             Officers.  The identities of the initial officers of the Reorganized Debtors have not been determined as of the date of this Disclosure Statement and will be disclosed in the Plan Supplement.  To the extent any such Person is an Insider (as defined in section 101(31) of the Bankruptcy Code), the nature of any compensation for such Person will also be disclosed at such time.  The initial officers shall serve in accordance with the certificates of incorporation and bylaws of the applicable Reorganized Debtor, as the same may be amended from time to time.

 

Issuance of New Securities

 

a.             New Common Equity.  On the Effective Date, Reorganized MFOC shall issue shares of New Common Equity pursuant to the Plan.  The certificate of incorporation and bylaws for Reorganized MFOC, form of which are annexed as Exhibits 1 and 2 and are described in Appendix III to this Disclosure Statement, set forth the rights of the New Common Equity.  The New Common Equity shall be issued subject to the Stockholders Agreement, a form of which is annexed as Exhibit 5 to the Plan and described in Appendix III to this Disclosure Statement.

 

b.             Warrant.  On the Effective Date, Reorganized MFOC shall (i) issue the Warrant, a form of which is annexed as Exhibit 3 to the Plan and described in Appendix IV to this Disclosure Statement., and (ii) have authorized the issuance of New Common Equity issuable under the Warrant.

 

c.             New Notes.   On the Effective Date, Reorganized MFFB and Reorganized MFFC, as co-issuers, and the other Debtors, as guarantors, shall issue $50 million in principal amount of New Notes (as described in Section 1.1 of the Plan, subject to an increase by the amount by which the Noteholder Cash is less than $90 million), which New Notes incorporate the terms and conditions set forth in the New Notes Indenture annexed as Exhibit 4 to the Plan and described in Appendix II to this Disclosure Statement.  The “issue price” and “yield to maturity” of a Note for U.S. federal income tax purposes shall be determined by the co-issuers and shall be binding on all holders and persons holding beneficial interests in the New Notes.

 

Stockholders Agreement

 

All holders of New Common Equity and Warrant will be subject to the Stockholders Agreement which will, among other things, govern each holder of New Common Equity’s and Warrant’s access to information with respect to the Reorganized Debtors and the ability to transfer such holder’s New Common Equity and Warrant.  Each certificate representing share(s) of New Common Equity or Warrant shall bear a legend indicating that the New Common Equity and Warrant are subject to the Stockholders Agreement.  The Stockholders Agreement, a form of which is annexed as Exhibit 5 to the Plan and described in Appendix III to this Disclosure Statement will be effective as of the Effective Date.

 

Treatment of Executory Contracts and Unexpired Leases

 

Assumption and Rejection of Executory Contracts and Unexpired Leases

 

On the Effective Date, all Executory Contracts or Unexpired Leases of any of the Debtors will be deemed assumed in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, except those Executory Contracts or Unexpired Leases that (i) have been previously assumed or rejected by any

 

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Debtor (with the consent of the Noteholder Committee) pursuant to an order of the Bankruptcy Court, (ii) previously expired or terminated pursuant to its own terms, (iii) are the subject of a motion to assume or reject filed by any Debtor (with the consent of the Noteholder Committee) which is pending on the Effective Date, (iv) are identified as being Rejected Contracts on Schedule 6.1 to the Plan, or (v) are assumed or rejected pursuant to the terms of the Plan.  An Executory Contract or Unexpired Lease that is deemed to be assumed pursuant to the foregoing sentence shall be referred to as an “Assumed Contract.”  The Plan Proponents shall file Schedule 6.1 (the contents of which shall be acceptable to the Plan Proponents each in their sole discretion) with the Bankruptcy Court and serve Schedule 6.1 on the non-Debtor parties under the agreements listed thereon no later than ten days prior to the last date for filing objections to confirmation of the Plan, provided, however, that the Plan Proponents may amend Schedule 6.1 at any time prior to the Confirmation Hearing.

 

Entry of the Confirmation Order by the Bankruptcy Court shall constitute findings by the Bankruptcy Court (1) approving the rejection of the Rejected Contracts and (2) with respect to the Assumed Contracts, that (i) the Reorganized Debtors had properly provided for the cure of any defaults that might have existed, (ii) each assumption was in the best interest of the Reorganized Debtors, their Estates, and all parties in interest in the Chapter 11 Cases and (iii) the requirements for assumption of any executory contract or unexpired lease to be assumed had been satisfied. Except as otherwise provided in the following sentence, all cure payments under any Assumed Contract would be made by the Reorganized Debtors on the Effective Date or as soon as practicable thereafter, provided, however, that any Claim arising on account of Cure Amounts shall be deemed to have been waived by any Non-Debtor Affiliate who is party to an Assumed Contract.  In the event of a dispute, cure payments required by section 365(b)(1) of the Bankruptcy Code shall be paid upon entry of a Final Order resolving such dispute.  Each Executory Contract or Unexpired Lease that is assumed by any Debtor (with the consent of the Noteholder Committee) under the Plan and pursuant to the Confirmation Order or pursuant to any other Final Order entered by the Bankruptcy Court shall be deemed to be assigned to the Reorganized Debtors on the later of (i) the Effective Date or (ii) the date of assumption.

 

Rejection Damages Claims

 

All proofs of claim with respect to Claims arising from the rejection pursuant to the Plan of the Rejected Contracts, if any, must be filed with the clerk of the Bankruptcy Court and served upon counsel for the Reorganized Debtors within thirty days after the occurrence of the Effective Date.  Any Claim arising from the rejection of Executory Contracts or Unexpired Leases that becomes an Allowed Claim is classified and shall be treated as a Class 4 General Unsecured Claim, as applicable; provided, however, that any Claim arising from a Rejected Contract shall be deemed to have been waived by any Non-Debtor Affiliate who is party to such a Rejected Contract.  Any Claims arising from the rejection of an Executory Contract or Unexpired Lease not filed within the time required by this section will be forever barred from assertion against the Debtors, the Reorganized Debtors, the Estates or property of the Debtors or Reorganized Debtors.

 

Employment Agreements

 

Employment Agreements.  Except as otherwise provided in the Plan, to the extent the Debtors had employment agreements with any of their executives and key employees as of the Filing Date, the Plan Proponents will disclose on Schedule 6.1 to the Plan whether they intend to reject such contracts.  Notwithstanding anything to the contrary in the Plan, the Reorganized Debtors shall maintain all of their existing rights, including, without limitation, any rights that they may have to amend, modify, or terminate, the employment agreements assumed pursuant to Article IV of the Plan, subject to the existing contractual rights, if any, of the directors, officers or employees affected thereby.  All employment agreements assumed pursuant to Section 6.3 of the Plan shall be deemed modified such that transactions contemplated by the Plan shall not be a “change in control” as defined in the relevant employment agreements.  Any Holder of a Claim arising from the rejection of an employment agreement must file a proof of claim with the Bankruptcy Court within thirty days of the deemed rejection.  Any Claims arising from the rejection of an employment agreement not filed within the time required by Section 6.3 of the Plan will be forever barred from assertion against the Debtors, the Reorganized Debtors, the Estates or property of the Debtors or Reorganized Debtors.

 

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Employee Benefit Programs.  All of the Debtors’ programs, plans, agreements and arrangements relating to non-executive employee compensation and benefits, including, without limitation, all savings plans, retirement plans, healthcare plans, disability plans, severance plans, incentive plans, and life, accidental death and dismemberment insurance plans, entered into before the Filing Date and not since terminated, will be deemed to be, and will be treated as though they are, executory contracts that are assumed under Section 6.1 of the Plan, and the Debtors’ and Reorganized Debtors’ obligations under such programs, plans, agreements and arrangements will survive confirmation of the Plan and will be fulfilled in the ordinary course of business.

 

Management Incentive Plan

 

The Board of Directors of Reorganized MFOC shall have the authority to establish a Management Incentive Plan, that shall be acceptable to the Noteholder Committee, as soon as practicable after the Effective Date, to provide designated members of senior management of the Reorganized Debtors with warrants and/or options for up to 10% of the equity of Reorganized MFOC, on a fully diluted basis, being reserved for issuance to senior management at the same strike price as the Warrant.  The Management Incentive Plan will contain terms and conditions that shall be determined by the Board of Directors of Reorganized MFOC.

 

Confirmation and Consummation of the Plan

 

Conditions to Confirmation

 

The following are conditions precedent to the confirmation of the Plan that may be satisfied or waived in accordance with Section 12.3 of the Plan:

 

a.             The Plan and Disclosure Statement shall be filed on the Filing Date;

 

b.             On the Filing Date (or as soon as practicable, but not later than one week, thereafter), the Debtors shall file any other pleadings necessary to effectuate the confirmation of the Plan on an expedited and efficient basis;

 

c.             The combined hearing seeking approval of the Disclosure Statement and confirmation of the Plan shall have occurred within thirty-five days of the Filing Date;

 

d.             The Disclosure Statement and Plan, including any exhibits, appendices and related documents, that are not inconsistent with the terms set forth herein and acceptable to the Noteholder Committee, in its sole discretion, shall have been approved by a final, non-appealable order of the Bankruptcy Court, in form and substance acceptable to the Noteholder Committee, in its sole discretion, within forty-five days of the Filing Date;

 

e.             The Effective Date shall have occurred within sixty days of the Filing Date;

 

f.              One or more of the Bankruptcy Cases shall not have been converted to a case under Chapter 7 of the Bankruptcy Code, unless such conversion is made with the prior written consent of the Noteholder Committee, which consent shall be provided or withheld in the Noteholder Committee’s sole discretion;

 

g.             There shall not have been the appointment of a trustee, receiver or examiner with expanded powers in one or more of the Bankruptcy Cases unless such appointment is made with the prior written consent of the Noteholder Committee, which consent shall be provided or withheld in the Noteholder Committee’s sole discretion; and

 

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h.             The Debtors shall not have submitted any amendment, modification or filing seeking to amend or modify the Plan, Disclosure Statement or any documents related to the foregoing, including motions, notices, exhibits, appendices and orders, in any manner not acceptable to the Noteholder Committee, in its sole discretion.

 

Conditions to the Effective Date

 

The following are conditions precedent to the occurrence of the Effective Date, each of which may be satisfied or waived in accordance with Section 12.3 of the Plan:

 

a.             The Confirmation Order in form and substance acceptable to the Plan Proponents each in their sole discretion shall have become a Final Order and shall not have been vacated or modified;

 

b.             It shall be no later than sixty days of the Filing Date;

 

c.             The Debtors shall not have experienced a material adverse effect (as defined in the Term Sheet) prior to the Effective Date and the holders of a majority of the Old Notes held by the members of the Noteholder Committee shall not have invoked such condition;

 

d.             All documents and agreements to be executed on the Effective Date or otherwise necessary to implement the Plan shall be effective on the Effective Date.

 

e.             The Debtors shall have received any authorization, consent, regulatory approval, ruling, letter, opinion, or document that may be necessary to implement the Plan or that is required by law, regulation, or order; and

 

f.              The New Common Equity, Warrant, and New Notes shall have been issued in accordance with the Plan.

 

Waiver of Conditions to Confirmation or Consummation

 

The foregoing conditions may be waived, in whole or in part, by the Noteholder Committee without any notice to any other parties in interest or the Bankruptcy Court and without a hearing, other than notice shall be provided to the Debtors; provided, however, the conditions to the Effective Date in (a), (e) and (f) above may only be waived, in whole or in part, by consent of both Plan Proponents, each in their sole discretion.  The failure of the Noteholder Committee or, as applicable, the Plan Proponents, to exercise any of the foregoing rights shall not be deemed a waiver of any other rights, and each such right shall be deemed an ongoing right, which may be asserted at any time prior to the Confirmation Date for the conditions set forth in Section 12.1 of the Plan or the Effective Date for the conditions set forth in Section 12.2 of the Plan.

 

Effect of Non-Occurrence of the Effective Date

 

If the Effective Date shall not occur notwithstanding Section 12.3 of the Plan, the Plan shall be null and void and nothing contained in the Plan shall: (i) constitute a waiver or release of any Claims against or Interests in a Debtor; (ii) prejudice in any manner the rights of the Debtors, including without limitation, the right to seek a further extension of the exclusivity periods under section 1121(d) of the Bankruptcy Code; or (iii) constitute an admission, acknowledgement, offer or undertaking by the Debtors.

 

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Effect of Plan on Claims and Interests

 

Revesting of Assets

 

Except as otherwise explicitly provided in the Plan, on the Effective Date, all property comprising the Estates (including Retained Actions, but excluding property that has been abandoned pursuant to an order of the Bankruptcy Court) shall revest in the Reorganized Debtors, free and clear of all Claims, Liens, charges, encumbrances, rights and Interests of creditors and equity security holders, except as specifically provided in the Plan.  As of the Effective Date, the Reorganized Debtors may operate their businesses and use, acquire, and dispose of property and settle and compromise Claims or Interests without supervision of the Bankruptcy Court, free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan or the Confirmation Order.

 

Release and Discharge of the Debtors

 

Pursuant to section 1141(d) of the Bankruptcy Code, except as otherwise specifically provided in the Plan or in the Confirmation Order, the Distributions and rights that are provided in the Plan shall be deemed to and hereby unconditionally and irrevocably release and discharge the Debtors, the Reorganized Debtors or their Estates from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under the Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under the Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any act, omission, transaction, event or other occurrence taking place on or prior to the Effective Date.

 

Mutual Releases

 

a.            Debtor Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the Debtors and Reorganized Debtors, on behalf of themselves and their Estates shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, the shareholders of the Non-Debtor Affiliates, in their capacity as such, the current and former members of the Noteholder Committee including their legal and financial advisors, in each case in their capacity as such, and the Old Notes Trustee, including its legal and financial advisors, in each case in their capacity as such (collectively, the “Debtor Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under the Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under the Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Debtor Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

b.             Non-Debtor Affiliate Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, and the shareholders of the Non-Debtor Affiliates, in their capacity as such, shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge the Debtors, and each of its and their Estates, Reorganized Debtors, all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, the current and former members of the Noteholder Committee including their legal and financial advisors, in each case in their capacity as such, and the Old Notes Trustee, including its legal and financial advisors, in each case in their capacity as such (collectively, the “Non-Debtor Affiliate Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under the Plan, Confirmation Order, and the contracts,

 

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instruments, releases, agreements and documents delivered under the Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Non-Debtor Affiliate Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

c.             Noteholder Committee and Old Notes Trustee Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the current and former members of the Noteholder Committee, in their capacity as such, and the Old Notes Trustee, in its capacity as such, shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge the Debtors, and each of its and their Estates, Reorganized Debtors, all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, and the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, and the shareholders of the Non-Debtor Affiliates, in their capacity as such, (collectively, the “Noteholder Committee Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under the Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under the Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Noteholder Committee Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

d.             Holder of Old Notes Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the Holders of Old Notes, in their capacity as such, shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge the Debtors, and each of its and their Estates, Reorganized Debtors, all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, and the current and former members of the Noteholder Committee including their legal and financial advisors, in each case in their capacity as such, and the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, and the shareholders of the Non-Debtor Affiliates, in their capacity as such, and the Old Notes Trustee, including its legal and financial advisors, in each case in their capacity as such (collectively, the “Old Notes Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under the Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under the Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Old Notes Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

Setoffs

 

The Debtors may, but shall not be required to, set off against any Claim, and the payments or other Distributions to be made pursuant to the Plan in respect of such Claim, claims of any nature whatsoever that the Debtors may have against such Holder; but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtors or the Reorganized Debtors of any such claim that the Debtors or the Reorganized Debtors may have against such Holder.

 

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Exculpation and Limitation of Liability

 

The Debtors, the Reorganized Debtors, the Noteholder Committee, the current and former members of the Noteholder Committee in their capacities as such, the Old Notes Trustee, in its capacity as such, and any of such parties’ respective current and/or post-Filing Date and pre-Effective Date members, officers, directors, employees, advisors, attorneys, representatives, financial advisors, investment bankers, or agents and any of such parties’ successors and assigns, shall not have or incur, and are hereby released from, any claim, obligation, cause of action, or liability to any Holder of any Claim or Interest, or any other party in interest, or any of their respective agents, employees, representatives, financial advisors, attorneys, or Affiliates, or any of their successors or assigns, for any act or omission in connection with, relating to, or arising out of the Bankruptcy Cases, the negotiation, solicitation and filing of the Plan, the filing of the Bankruptcy Cases, the pursuit of confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for their willful misconduct or fraud, and in all respects shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under the Plan.

 

Injunction

 

Except as otherwise expressly provided herein or in the Confirmation Order, all Persons or entities who have held, hold, or may hold Claims against or Interests in the Debtors are permanently enjoined, from and after the Effective Date, from: (i) commencing or continuing in any manner any action or other proceeding of any kind on any such Claim or Interest against any of the Reorganized Debtors or the Non-Debtor Affiliates on account of such Claims or Interests; (ii) the enforcement, attachment, collection, or recovery by any manner or means of any judgment, award, decree, or order against any Reorganized Debtor or Non-Debtor Affiliate with respect to such Claim or Interest; (iii) creating, perfecting, or enforcing any lien or encumbrance of any kind against any Reorganized Debtor or Non-Debtor Affiliate or against the property or interests in property of any Reorganized Debtor or Non-Debtor Affiliate with respect to such Claim or Interest; (iv) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation owed to any Reorganized Debtor or Non-Debtor Affiliate or against the property or interest in property of any Reorganized Debtor or Non-Debtor Affiliate with respect to such Claim or Interest, provided, however, that nothing contained herein shall limit a Person’s ability to assert a valid defense to any Cause of Action, or limit a Person’s ability to exercise its valid setoff or recoupment rights with respect to such Person’s  post-Filing Date claims against the Debtors or Reorganized Debtors and post-Filing Date debts owed to the Debtors or Reorganized Debtors; and (v) pursuing any claim released pursuant to Article XI of the Plan.

 

Effect of Effective Date

 

a.             Binding Effect.  On the Effective Date, the provisions of the Plan shall be binding on the Debtors, the Estates, all Holders of Claims against or Interests in the Debtors, and all other parties in interest whether or not such Holders are Impaired and whether or not such Holders have accepted the Plan.

 

b.             Effect of Effective Date on Automatic Stay.  Except as provided otherwise in the Plan, from and after the Effective Date, the automatic stay of section 362(a) of the Bankruptcy Code shall terminate.

 

c.             Filing of Reports.  The Reorganized Debtors shall file all reports and pay all fees required by the Bankruptcy Code, Bankruptcy Rules, U.S. Trustee guidelines, and the rules and orders of the Bankruptcy Court.

 

d.             Post-Effective Date Retention of Professionals.  Upon the Effective Date, any requirement that professionals comply with sections 327 through 331 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date will terminate, and the Reorganized Debtors will employ and pay professionals in the ordinary course of business.

 

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Summary of Other Provisions of the Plan

 

The following paragraphs summarize certain other significant provisions of the Plan. The Plan should be referred to for the complete text of these and other provisions of the Plan.

 

Modification of the Plan

 

The Plan Proponents may modify the Plan pursuant to section 1127 of the Bankruptcy Code and as provided in the Plan, to the extent applicable law permits; provided, however, that the Plan may not be modified in a manner inconsistent with the Term Sheet unless otherwise agreed by all the parties to the Term Sheet.  Subject to the limitations contained herein, the Plan Proponents may modify the Plan in accordance with this paragraph, before or after confirmation, without notice or hearing, or after such notice and hearing as the Bankruptcy Court deems appropriate, if the Bankruptcy Court finds that the modification does not materially and adversely affect the rights of any parties in interest which have not had notice and an opportunity to be heard with regard thereto.  In the event of any modification on or before confirmation, any votes to accept or reject the Plan shall be deemed to be votes to accept or reject the Plan as modified, unless the Bankruptcy Court finds that the modification materially and adversely affects the rights of parties in interest which have cast said votes.  The Plan Proponents reserve the right in accordance with section 1127 of the Bankruptcy Code to modify the Plan at any time before the Confirmation Date.

 

Securities Law Matters

 

It is an integral and essential element of the Plan that the issuance of the New Common Equity, Warrant and New Notes pursuant to the Plan shall be exempt from registration under the Securities Act, pursuant to Section 1145 of the Bankruptcy Code and from registration under state securities laws.  Any New Common Equity, Warrant or New Notes issued to an “affiliate” of the Debtors within the meaning of the Securities Act or any Person the Debtors reasonably determine to be an “underwriter,” and which does not agree to resell such securities only in “ordinary trading transactions,” within the meaning of Section 1145(b)(1) of the Bankruptcy Code, shall be subject to such transfer restrictions and bear such legends as shall be appropriate to ensure compliance with the Securities Act.  Nothing in the Plan is intended to preclude the SEC from exercising its police and regulatory powers relating to the Debtors or any other entity.

 

Plan Supplement

 

The Plan Supplement, which will contain schedules of the directors and officers of the Reorganized Debtors and information concerning the Working Capital Facility, shall be filed with the Bankruptcy Court no later than five days prior to the commencement of the hearing on confirmation of the Plan.  Notwithstanding the foregoing, the Plan Proponents may amend the Plan Supplement and any attachments thereto, through and including the Confirmation Date.

 

Allocation of Plan Distributions Between Principal and Interest

 

To the extent that any Allowed Claim entitled to a Distribution under the Plan is composed of indebtedness and accrued but unpaid interest thereon, such distribution shall, to the extent permitted by applicable law, be allocated for United States federal income tax purposes to accrued but unpaid interest on the Claim first and then, to the extent the consideration exceeds such amount, to the portion of the Claim representing the principal amount thereof.

 

Revocation of Plan

 

The Plan Proponents collectively reserve the right, unilaterally and unconditionally, to revoke and/or withdraw the Plan at any time prior to entry of the Confirmation Order, and upon such revocation and/or withdrawal the Plan shall be deemed null and void and of no force and effect.

 

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Confirmation and Consummation Procedure

 

The Bankruptcy Court could confirm the Plan only if it determines that the Plan complies with the technical requirements of Chapter 11, including, among other things, that (i) the Plan has properly classified Claims and Interests, (ii) the Plan complies with applicable provisions of the Bankruptcy Code, (iii) the Debtors have complied with applicable provisions of the Bankruptcy Code, (iv) the Debtors have proposed the Plan in good faith and not by any means forbidden by law, (v) disclosure of “adequate information” as required by section 1125 of the Bankruptcy Code has been made, (vi) the Plan has been accepted by the requisite votes of all classes of Holders of Claims and Interests (except to the extent that “cramdown” is available under section 1129(b) of the Bankruptcy Code), (vii) the Plan is in the “best interests” of all Holders of Claims or Interests in an Impaired Class, and (viii) all fees and expenses payable under 28 U.S.C. § 1930, as determined by the Bankruptcy Court at the Confirmation Hearing, have been paid or the Plan provides for the payment of such fees on the Effective Date.

 

The Confirmation Hearing

 

The Bankruptcy Court would schedule a hearing on the confirmation of the Plan. At that hearing the Bankruptcy Court would consider whether the Plan satisfies the various requirements of the Bankruptcy Code. At that time, the Debtors would submit a report to the Bankruptcy Court concerning the votes for acceptance or rejection of the Plan by the parties entitled to vote thereon.

 

Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to confirmation of the Plan. Any objection to confirmation of the Plan would have to be made in writing and filed with the Bankruptcy Court and served on all required parties by the objection deadlines set by the Bankruptcy Court. Unless an objection to confirmation is timely served and filed, the Bankruptcy Court may refuse to hear or consider it.

 

Confirmation

 

At the Confirmation Hearing, the Bankruptcy Court could confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation of a plan are that the plan is (i) accepted by all impaired classes of claims and interests or, if rejected by an impaired class, that the plan “does not discriminate unfairly” and is “fair and equitable” as to such class, (ii) feasible and (iii) in the “best interests” of creditors and interest holders that are impaired under the plan.  Each of these requirements is discussed below.

 

Confirmation Without Acceptance of All Impaired Classes - “Cramdown”

 

The Plan Proponents may request confirmation of the Plan, as it may be modified from time to time, under section 1129(b) of the Bankruptcy Code, and the Plan Proponents reserve the right to modify the Plan to the extent, if any, that confirmation in accordance with section 1129(b) of the Bankruptcy Code requires modification.

 

Under section 1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a plan over the objection of a rejecting class, if, among other things, at least one impaired Class of Claims has accepted the plan (not counting the votes of any “insiders” as defined in the Bankruptcy Code) and if the plan “does not discriminate unfairly” against and is “fair and equitable” to each rejecting class.

 

A plan does not discriminate unfairly within the meaning of the Bankruptcy Code if a rejecting impaired class is treated equally with respect to other classes of equal rank. A plan is fair and equitable as to a class of secured claims that rejects the plan if, among other things, the plan provides (i) (a) that the holders of claims in the rejecting class retain the liens securing those claims (whether the property subject to those liens is retained by the debtor or transferred to another entity) to the extent of the allowed amount of such claims and (b) that each holder of a claim of such class receives on account of that claim deferred cash payments totaling at least the allowed amount of that claim, of a value, as of the effective date of the plan, of at least the value of the holder’s interest in the estate’s

 

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interest in such property, (ii) for the sale, subject to section 363(k) of the Bankruptcy Code, of any property that is subject to the liens securing the claims included in the rejecting class, free and clear of the liens, with the liens to attach to the proceeds of the sale, and the treatment of the liens on proceeds under clause (i) or (iii) of this paragraph, or (iii) for the realization by such holders of the indubitable equivalent of such claims.

 

A plan is fair and equitable as to a class of unsecured claims that rejects the plan, if, among other things, the plan provides that (i) each holder of a claim in the rejecting class will receive or retain on account of its claim property that has a value, as of the effective date of the plan, equal to the allowed amount of the claim or (ii) no holder of a claim or interest that is junior to the claims of the rejecting class will receive or retain under the plan any property on account of such junior claim or interest.

 

A plan is fair and equitable as to a class of interests that rejects the plan if the plan provides, among other things, that (i) each holder of an interest of such class receive or retain on account of such interest property of a value, as of the effective date of the plan, equal to the greatest of the allowed amount of any fixed liquidation preference to which such holder is entitled, any fixed redemption price to which such holder is entitled, or the value of such interest, or (ii) that no holder of an interest that is junior to the interests of such class will receive or retain under the plan any property on account of such junior interest.

 

As described above, Holders of Class 3 Secured Notes Claims, Class 5 MFOC Note Claim and Class 8A MFOC Equity Interest are impaired under the Plan.  If one of these Classes does not vote as a Class to accept the Plan, the Plan Proponents reserve the right to request confirmation of the Plan under section 1129(b) of the Bankruptcy Code notwithstanding the rejection of the Plan by such Class and would reserve the right to seek confirmation of the Plan under section 1129(b) of the Bankruptcy Code notwithstanding the rejection of the Plan by other Classes of Claims or Interests.

 

Best Interests Test

 

With respect to each impaired Class of Claims and Interests, confirmation of the Plan requires that each Holder of a Claim or Interest either (i) accept the Plan or (ii) receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such Holder would receive or retain if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code. To calculate the probable distribution to Holders of each impaired Class of Claims and Interests if the Debtors were liquidated under Chapter 7, a bankruptcy court must first determine the aggregate dollar amount that would be generated from the Debtors’ assets if its Chapter 11 case were converted to a Chapter 7 case under the Bankruptcy Code. This “liquidation value” would consist primarily of the proceeds from a forced sale of the Debtors’ assets by a Chapter 7 trustee.

 

The amount of liquidation value available to unsecured creditors would be reduced by the claims of secured creditors to the extent of the value of their collateral and by the costs and expenses of liquidation, as well as by other administrative expenses and costs of both the Chapter 7 case and the Chapter 11 case. Costs of liquidation under Chapter 7 of the Bankruptcy Code would include the compensation of a trustee, as well as of counsel and other professionals retained by the trustee, asset disposition expenses, all unpaid expenses incurred by the Debtors in their Bankruptcy Cases (such as compensation of attorneys, financial advisors and accountants) that are allowed in the Chapter 7 case, litigation costs, and claims arising from the operations of Debtors during the pendency of the Bankruptcy Cases. The liquidation itself would trigger certain priority claims that otherwise would be due in the ordinary course of business. Those priority claims would be paid in full from the liquidation proceeds before the balance would be made available to pay general claims or to make any distribution in respect of Interests. The liquidation would also prompt the rejection of a large number of executory contracts and unexpired leases and thereby create a significantly higher number of unsecured creditors.

 

The Plan Proponents believe that the Plan meets the “best interests of creditors” test of section 1129(a)(7) of the Bankruptcy Code and that the members of each impaired Class would receive greater value under the Plan than they would in a liquidation.  A copy of the detailed Liquidation Analysis is attached hereto as Appendix V. 

 

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Although the Plan Proponents believe that the Plan meets the “best interests test” of section 1129(a)(7) of the Bankruptcy Code, there can be no assurance that the Bankruptcy Court will determine that the Plan meets this test.

 

Feasibility

 

The Bankruptcy Code requires that the Bankruptcy Court determine that confirmation of a plan is not likely to be followed by liquidation or the need for further financial reorganization of the Debtors. For purposes of showing that the Plan meets this feasibility standard, the Debtors have analyzed the ability of Reorganized Debtors to meet their obligations under the Plan and retain sufficient liquidity and capital resources to conduct their business.

 

The Plan Proponents believe that with the de-leveraging of the Debtors’ balance sheet proposed in the Plan, the Debtors will be able to return to viability. To further support their belief in the feasibility of the Plan, the Debtors have submitted the pro forma financial projections  (the “Pro Forma Financial Projections”) attached as Appendix VI hereto. The Pro Forma Financial Projections indicate that the Reorganized Debtors should have sufficient cash flow to pay and service their debt obligations. Accordingly, the Plan Proponents believe that the Plan complies with the financial feasibility standard of section 1129(a)(11) of the Bankruptcy Code.

 

Holders of Claims against and Interests in the Debtors are advised, however, that the Pro Forma Financial Projections were not prepared with a view toward compliance with the published guidelines of the American Institute of Certified Public Accountants or any other regulatory or professional agency or body or generally accepted accounting principles. Furthermore, the Debtors’ independent certified public accountants have not compiled or examined the Projections and accordingly do not express any opinion or any other form of assurance with respect thereto and assume no responsibility for the Pro Forma Financial Projections.

 

In addition to the assumptions footnoted in the Pro Forma Financial Projections themselves, the Pro Forma Financial Projections also assume that (i) the Plan would be confirmed and consummated in accordance with its terms, (ii) there would be no material change in legislation or regulations, or the administration thereof, that will have an unexpected effect on the operations of Reorganized Debtors, (iii) there would be no change in United States generally accepted accounting principles that would have a material effect on the reported financial results of the Reorganized Debtors and (iv) there would be no material contingent or unliquidated litigation or indemnity claims applicable to the Reorganized Debtors. To the extent that the assumptions inherent in the Pro Forma Financial Projections are based upon future business decisions and objectives, they are subject to change. In addition, although they are presented with numerical specificity and considered reasonable by the Debtors when taken as a whole, the assumptions and estimates underlying the Pro Forma Financial Projections are subject to significant business, economic and competitive uncertainties and contingencies, many of which will be beyond the control of the Reorganized Debtors.

 

Accordingly, the Pro Forma Financial Projections are only estimates that are necessarily speculative in nature. It can be expected that some or all of the assumptions in the Pro Forma Financial Projections would not be realized and that actual results would vary from the Pro Forma Financial Projections.  Such variations could be material and increase over time.  The Pro Forma Financial Projections should therefore not be regarded as a representation by the Debtors or any other person, including the Debtors’ financial advisors, that the results set forth in the Pro Forma Financial Projections will be achieved. In light of the foregoing, readers are cautioned not to place undue reliance on the Pro Forma Financial Projections. The Pro Forma Financial Projections should be read together with the information in this Disclosure Statement entitled “Risk Factors,” which sets forth important factors that could cause actual results to differ from those in the Pro Forma Financial Projections.

 

The Debtors do not intend to update or otherwise revise the Pro Forma Financial Projections, including any revisions to reflect events or circumstances existing or arising after the date of this Disclosure Statement or to reflect the occurrence of unanticipated events, even if any or all of the underlying assumptions do not come to fruition. Furthermore, the Debtors do not intend to update or revise the Pro Forma Financial Projections to reflect changes in general economic or industry conditions.

 

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Certain Other Legal Considerations

 

The Securities Act

 

Mrs. Fields has not filed a registration statement under the Securities Act or any other federal or state securities laws with respect to the new securities that may be deemed to be offered by virtue of this solicitation. Mrs. Fields is relying on section 3(a)(9) and/or any other applicable section of the Securities Act and similar state law provisions to exempt Mrs. Fields from registering the offer of any securities that may be deemed to be made pursuant to this solicitation.

 

Exchange of Old Notes

 

Generally, the Securities Act prohibits the offer of securities to the public unless a registration statement has been filed with the SEC and the sale of securities until such registration statement has been declared effective by the SEC, unless an exemption from registration is available. The Disclosure Statement constitutes an “offer” of securities under the Securities Act. Mrs. Fields is availing itself of section 3(a)(9) of the Securities Act, which provides an exemption from registration for exchanges of securities by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. Accordingly, no registration statement is being filed with the SEC with respect to the Plan. The Company has filed a Statement on Form T-1 and a T-3 with the SEC.

 

Registration

 

After the Effective Date, holders of securities who are deemed to be “underwriters” within the meaning of section 1145(b)(1) of the Bankruptcy Code or who may otherwise be deemed to be “underwriters” of, or to exercise “control” over, Mrs. Fields within the meaning of Rule 405 of Regulation C under the Securities Act may, under certain circumstances, be able to sell their securities pursuant to the more limited safe harbor resale provisions of Rule 144 under the Securities Act. Generally, Rule 144 provides that, if certain conditions are met (e.g., one year holding period with respect to “restricted securities,” volume limitations, manner of sale for equity securities, availability of current information about the issuer, etc.), (i) any person who resells “restricted securities” and (ii) any “affiliate” of the issuer of the securities sought to be resold will not be deemed to be an “underwriter” as defined in section 2(11) of the Securities Act. Under paragraph (k) of Rule 144, the aforementioned conditions to resale will no longer apply to restricted securities sold for the account of a holder who is not an affiliate of Mrs. Fields at the time of such resale and who has not been such during the three-month period next preceding such resale, so long as a period of at least one year has elapsed since the date on which such holder acquired its securities.

 

Alternative Plan(s) of Reorganization

 

The Plan Proponents believe that the length of any bankruptcy cases that it commences, including any case seeking confirmation of the Plan, would be subject to considerable uncertainty and that the completion of such case could be delayed for reasons beyond their control, including the need to solicit additional acceptances of the Plan after commencement of a case. Even if the Plan were uncontested, it is estimated that the Plan would take approximately 45 days to confirm and could take longer if postpetition solicitations are required. Furthermore, even if all Classes accept the Plan, the Plan might not be confirmed by the Bankruptcy Court. The Bankruptcy Court, which sits as a court of equity, could exercise substantial discretion in its rulings. Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation and requires a finding, among other things, that the confirmation of a plan is not likely to be followed by the need for further financial reorganization and that the value of distributions to dissenting creditors and shareholders not be less than the value of distributions such creditors and shareholders would receive if MFOC and certain of its subsidiaries were liquidated under Chapter 7 of the Bankruptcy Code. Although the Plan Proponents believe that the Plan meets such tests, there can be no assurance that the Bankruptcy Court would reach the same conclusion.

 

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Liquidation Under Chapter 7 or Chapter 11

 

If no plan is confirmed after MFOC and certain of its subsidiaries had commenced the Bankruptcy Cases, they could be forced to liquidate under Chapter 7 of the Bankruptcy Code, under which a trustee would be elected or appointed to liquidate the assets of MFOC and certain of its subsidiaries for distribution to creditors in accordance with the priorities established by the Bankruptcy Code. It is impossible to predict precisely how the proceeds of the liquidation would be distributed to the respective Holders of Claims against or Interests in MFOC and certain of its subsidiaries.

 

As described above, however, the Plan Proponents believe that in a liquidation under Chapter 7, additional administrative expenses involved in the appointment of a trustee or trustees and attorneys, accountants and other professionals to assist such trustees would cause a substantial diminution in the value of the Debtors’ Estates. The assets available for distribution to creditors would be reduced by such additional expenses and by Claims, some of which would be entitled to priority, which would arise by reason of the liquidation and from the rejection of leases and other executory contracts in connection with the cessation of operations and the failure to realize the greater going concern value of the assets.

 

MFOC and certain of its subsidiaries also could be liquidated pursuant to the provisions of a Chapter 11 plan. In a liquidation under Chapter 11, the assets could be sold in an orderly fashion over a more extended period of time than in a liquidation under Chapter 7. Thus, a Chapter 11 liquidation might result in larger recoveries than in a Chapter 7 liquidation, but the delay in distributions could result in lower present values received and higher administrative costs. Because a trustee is not required in a Chapter 11 case, expenses for professional fees could be lower than in a Chapter 7 case. Any distribution to the Holders of Claims under a Chapter 11 liquidation plan, however, would probably be delayed substantially.

 

THE PLAN PROPONENTS BELIEVE THAT THE PLAN AFFORDS SUBSTANTIALLY GREATER BENEFITS TO CREDITORS AND INTEREST HOLDERS THAN WOULD A LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11 OF THE BANKRUPTCY CODE.

 

The liquidation analysis, prepared by the Debtors with the assistance of Blackstone (the “Liquidation Analysis”), is premised upon a liquidation in a Chapter 7 case and is attached as Appendix V hereto.

 

The likely form of any liquidation would be a forced sale of the Mrs. Fields and TCBY businesses.  Based on this analysis, it is likely that a liquidation of the assets would produce less value for distribution to creditors than that recoverable in each instance under the Plan. In the Plan Proponents’ opinion, the recoveries projected to be available in liquidation are not likely to afford Holders of Claims as great as a realization potential as does the Plan.

 

Although preferable to a Chapter 7 liquidation, the Plan Proponents believe that any alternative liquidation under Chapter 11 is a much less attractive alternative to creditors than the Plan because of the greater return the Plan Proponents anticipate is provided by the Plan.

 

Estimated Value of the Reorganized Debtors

 

As part of the requirements for confirmation of the Plan, the Debtors have asked Blackstone to prepare an estimate of the enterprise value of the Reorganized Debtors (the “Reorganized Enterprise Value”) and an estimate of the equity value of the Reorganized Debtors (the “Reorganized Equity Value”).  Both analyses have been prepared on the basis that the amount of Noteholder Cash will be $87.5 million and the principal amount of New Notes will be $52.5 million.  The actual amount of Noteholder Cash and principal amount of New Notes depends on the aggregate amount of “restructuring expenses,” currently estimated at $6.0 million.  To the extent that the amount of New Notes issued is more or less than $52.5 million, then the estimated range of Reorganized Equity Value would be adjusted accordingly.

 

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The estimates of Reorganized Enterprise Value and Reorganized Equity Value do not purport to be appraisals, liquidation values or estimates of the actual market value that may be realized if assets are sold.  The estimates of Reorganized Enterprise Value and Reorganized Equity Value represent hypothetical values developed solely for purposes of the Plan and should not be relied upon in making investment decisions. Moreover, the estimates of Reorganized Enterprise Value and Reorganized Equity Value are highly dependent upon achieving the future financial results set forth in management’s projections as well as the realization of certain other assumptions which are not guaranteed.  Because such estimates are inherently subject to uncertainties, neither the Debtors, nor Blackstone, nor any other person assumes responsibility for their accuracy.  Further, to the extent the consummation of the Plan is delayed beyond the time frame assumed, such delays could have a meaningful impact on the Reorganized Debtors’ ability to perform according to the projections and, consequently, will have a meaningful impact on the Reorganized Enterprise Value.

 

I.  Total Enterprise Value

 

Blackstone considered four valuation methodologies to determine the Reorganized Enterprise Value:  (i) comparable public company analysis; (ii) precedent transaction analysis; (iii) discounted cash flow analysis using the terminal multiple method; and (iv) discounted cash flow analysis using the perpetuity growth method.  The methodologies rely upon the financial projections developed by management of the Debtors.  Based on these four methodologies, the estimated Reorganized Enterprise Value is approximately $80 million to $105 million.

 

A.  Comparable Public Company Analysis

 

The comparable public company analysis (the “Comparable Public Company Analysis”) examines the value of comparable companies as a multiple of their key operating statistics and then applies a range of these multiples to the projected 2009 revenue and EBITDA(2) of the various Segments (as hereinafter defined) of the Reorganized Debtors.  The 2009 estimated revenue and EBITDA for comparable companies are based on consensus estimates by equity research analysts as compiled by Capital IQ / Reuters.

 

A key factor to the Comparable Public Company Analysis approach is the selection of companies with relatively similar business and operational characteristics to the various Segments (i.e., franchising, branded retail, gifting, licensing, and TCBY) of the Reorganized Debtors.  Criteria for selecting comparable companies include, among other relevant characteristics, lines of business, business risks, target markets, growth prospects, maturity of businesses, market presence, size, and scale of operations.  The selection of truly comparable companies is often difficult and subject to interpretation.

 

B.  Precedent Transaction Analysis

 

The precedent transaction analysis (the “Precedent Transaction Analysis”) estimates value by examining a comparable company’s disclosed transaction value as a multiple of its key operating statistics.  Multiples for selected precedent transactions were calculated by dividing the purchase price paid (including the assumption of debt) by the target company’s revenue and EBITDA.  The multiple ranges for each set of transactions were then applied to the forecasted 2009 revenue and EBITDA of the Reorganized Debtors’ Segments, thereby providing an aggregate valuation range of the Reorganized Debtors.

 

Due to the fact that the results of a Precedent Transaction Analysis often reflect a control premium, or are impacted by a competitive dynamic due to multiple bidders, the valuation multiples indicate aspects of value that may not necessarily be indicative of a company’s inherent asset or operating value.

 


(2) EBITDA is defined as operating income (excluding the impact of non-recurring items) before interest and financing expenses, taxes, and depreciation and amortization.  EBITDA is a supplemental measure that is not required by, or presented in accordance with, US GAAP and provides a measure of recurring operational cash flow before working capital and capital expenditures.

 

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It should be noted that valuation conclusions cannot be based solely upon quantitative results.  The reasons for, and circumstances surrounding, each acquisition transaction are specific to such acquisition, and there are inherent differences between the businesses, operations and prospects of each.  Qualitative judgments must be made concerning the differences among the characteristics of these transactions and other factors and issues, which could affect a target company’s value.

 

C.  Discounted Cash Flow Analysis

 

The discounted cash flow analysis (the “Discounted Cash Flow Analysis”) estimates value by calculating the present value of the projected future cash flows.  The present value is obtained by discounting the future cash flows by the weighted average cost of capital (“WACC”) of the Reorganized Debtors.  The WACC is calculated as the average of the cost of equity and the after-tax cost of debt, weighted by the ratios of total equity to total capitalization and total debt to total capitalization, respectively.

 

The cost of equity is typically calculated using the capital asset pricing model, which estimates a company’s cost of equity as a function of the additional return over risk-free treasuries required by equity investors.  For purposes of this analysis, a small cap premium was used to incorporate the risk premium associated with companies of similar capitalization, and an illiquidity premium was used to reflect the additional return required for private capital.

 

Two methodologies were used in the Discounted Cash Flow Analysis:

 

1.  Terminal Multiple Method

 

The Reorganized Enterprise Value using the terminal multiple method is calculated as the sum of the present value of the cash flows for fiscal years 2009 through 2013 plus the estimated terminal value of the future cash flows calculated by applying an EBITDA valuation multiple to the projected 2013 EBITDA of the Reorganized Debtors.

 

2.  Perpetuity Growth Method

 

The Reorganized Enterprise Value using the perpetuity growth method is calculated as the sum of the present value of the cash flows for fiscal years 2009 through 2013 plus the estimated value of cash flows beyond the projection period by assuming that the Reorganized Debtors will achieve a constant growth rate in future cash flows.

 

II.  Calculation of Reorganized Equity Value

 

In order to calculate the equity value of the Reorganized Debtors, the Reorganized Enterprise Value is reduced by the face amount of the New Notes assumed to be issued pursuant to the Plan.  Blackstone estimates that the Reorganized Equity Value range is $30 million to $55 million, with a midpoint estimate of $42.5 million  Further, it should be noted that the Reorganized Equity Value includes the value, as of August 7, 2008 of the NexCen Shares as if all such shares have been released from escrow.

 

PROCEDURES FOR VOTING ON THE PLAN

 

Before voting to accept or reject the Plan, each Holder of a Secured Notes Claim, the MFOC Note Claim and the MFOC Equity Interest should carefully review the Plan attached as Appendix I and described herein under “The Plan.”  All descriptions of the Plan set forth in this Disclosure Statement are subject to the terns and conditions of the Plan. Instructions for voting on the Plan are set forth in the instructions contained in the enclosed beneficial owner ballots, master ballots (in the case of nominees) and equity ballots.

 

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Voting Deadline

 

In order to be counted, the MFOC Note ballot (the “MFOC Note Ballot”), beneficial owner ballots (the “Beneficial Owner Ballots”) that have been validated by the nominee, master ballots (the “Master Ballots”) and MFOC Equity ballots (the “MFOC Equity Ballots”, and, together with the MFOC Note Ballots, the Beneficial Owner Ballots and the Master Ballots, the “Ballots”) must be received by the Financial Balloting Group (the “Voting Agent”) by 5:00 p.m., New York City time on September 15, 2008, unless and until the Plan Proponents, in their sole discretion, extend the date until which Ballots will be accepted, in which case the voting deadline will terminate at 5:00 p.m., New York City time on such extended date (the “Voting Deadline”).  Except to the extent the Plan

 

Proponents so determine or as permitted by the Bankruptcy Court, Ballots that are received after the Voting Deadline will not be counted or otherwise used by the Plan Proponents in connection with its request for confirmation of the Plan (or any permitted modification thereof).

 

The Plan Proponents reserve the absolute right, at any time or from time to time, to extend, by oral or written notice to the Voting Agent, the period of time (on a daily basis, if necessary) during which the Ballots will be accepted for any reason including, but not limited to, determining whether or not requisite acceptances of the Plan have been received, by making a public announcement of such extension no later than 9:00 a.m. (New York City time) on the first business day next succeeding the previously announced Voting Deadline. Without limiting the manner in which the Plan Proponents may choose to make any public announcement, the Plan Proponents will not have any obligation to publish, advertise, or otherwise communicate any such public announcement, other than by issuing a current report on Form 8-K. There can be no assurance that the Plan Proponents will exercise their right to extend the Voting Deadline. In the event that, as currently anticipated, the Plan Proponents commence the Bankruptcy Cases prior to the Voting Deadline, the Plan Proponents may use acceptances received prior to the Voting Deadline to obtain consummation of the Plan.

 

Voting Procedures

 

The Plan Proponents are providing copies of this Disclosure Statement (including all exhibits and appendices) and related materials and, where appropriate, Beneficial Owner Ballots, the MFOC Note Ballot or the MFOC Equity Ballot (in each case, a “Solicitation Package”), to registered holders of Old Notes, the known holder of the MFOC Note and the known Holder of the MFOC Equity as of the voting record date listed below.  Registered holders of Old Notes may include brokerage firms, commercial banks, trust companies, or other nominees. If such entities do not hold Old Notes for their own account, they must provide copies of the Solicitation Package (including the Beneficial Owner Ballots) to their customers and to beneficial owners of Old Notes who hold such notes as of the voting record date listed below.  Any beneficial owner of Old Notes who has not received a Beneficial Owner Ballot should contact his, her or its nominee, or the Voting Agent.

 

Registered holders should provide all of the information requested by the Ballots and should complete and return all Ballots received in the enclosed, self-addressed, postage paid envelope provided with each such Ballot.

 

The record date for determining which registered holders of Old Notes are entitled to vote on the Plan is August 6, 2008 (the “Voting Record Date”). The Old Notes Trustee will not vote on behalf of the registered holders of Old Notes.

 

Holders of MFOC Note Claim and MFOC Equity Interest

 

The Holder of the MFOC Note Claim should vote on the Plan by completing and signing the MFOC Note Ballot and returning it directly to the Voting Agent on or before the Voting Deadline using the enclosed self-addressed, postage paid envelope.  The Holder of the MFOC Equity Interest should vote on the Plan by completing and signing the MFOC Equity Ballot and returning it directly to the Voting Agent on or before the Voting Deadline using the enclosed self-addressed, postage paid envelope.

 

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Beneficial Owners

 

A beneficial owner holding Old Notes as Record Holder in its own name should vote on the Plan by completing and signing a Beneficial Owner Ballot and returning it directly to the Voting Agent on or before the Voting Deadline using the enclosed self-addressed, postage paid envelope.

 

A beneficial owner holding Old Notes in “street name” through a nominee may vote on the Plan by one of the following two methods (as selected by such beneficial owner’s nominee):

 

(i)            Complete and sign the enclosed Beneficial Owner Ballot. Return the Ballot to your nominee as promptly as possible and in sufficient time to allow such nominee to process the Ballot and return it to the Voting Agent by the Voting Deadline. If no self-addressed, postage paid envelope was enclosed for this purpose, contact the Voting Agent for instructions; or

 

(ii)           Complete and sign the pre-validated Beneficial Owner Ballot (as described below) provided to you by your nominee. Return the pre-validated Ballot to the Voting Agent by the Voting Deadline using the return envelope provided in the Solicitation Package.

 

Any Beneficial Owner Ballot returned to a nominee by a beneficial owner will not be counted for purposes of acceptance or rejection of the Plan until such nominee properly completes and delivers to the Voting Agent that Ballot (properly validated) or a Master Ballot that reflects the vote of such beneficial owner.

 

If any beneficial owner owns Old Notes through more than one nominee, such beneficial owner may receive multiple mailings containing the Beneficial Owner Ballots. The beneficial owner should execute a separate Beneficial Owner Ballot for each block of Old Notes that it holds through any particular nominee and return each Ballot to the respective nominee in the return envelope provided therewith. Beneficial owners who execute multiple Beneficial Owner Ballots with respect to Old Notes held through more than one nominee must indicate on each Beneficial Owner Ballot the names of ALL such other nominees and the additional amounts of such Old Notes so held and voted. If a beneficial owner holds a portion of the Old Notes through a nominee and another portion as a Record Holder, the beneficial owner should follow the procedures described in subparagraph (i) above to vote the portion held of record and the procedures described in subparagraph (ii) above to vote the portion held through a nominee or nominees.

 

Expedited Voting

 

A Noteholder that wishes to cast its vote in an expedited fashion must, for each separate account that it holds: (i) use the proper form of Ballot for each separate account (each form of Ballot is coded with the relevant security description and CUSIP number); (ii) request that the Nominee holding its bonds validate the Ballot; and (iii) arrange for the fully executed and validated Ballot to be delivered to Financial Balloting Group LLC, 757 Third Avenue, 3rd Floor, New York, New York 10017, Attn: Mrs. Fields Tabulation, as quickly as possible.

 

Nominees

 

A nominee that on the Voting Record Date is the registered holder of Old Notes for one or more beneficial owners can obtain the votes of the beneficial owners of such Old Notes, consistent with customary practices for obtaining the votes of securities held in “street name,” in one of the following two ways:

 

(a)  Pre-Validated Ballots

 

The nominee may “pre-validate” a Beneficial Owner Ballot by (i) signing the Ballot, (ii) indicating on the Ballot the name of the registered Holder, the amount of Old Notes held by the nominee for the beneficial owner, and

 

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the account numbers for the accounts in which such Old Notes are held by the nominee, and (iii) forwarding such Beneficial Owner Ballot, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope addressed to, and provided by, the Voting Agent, and other materials requested to be forwarded, to the beneficial owner for voting. The beneficial owner must then complete the information requested on the Beneficial Owner Ballot, review the certifications contained on the Ballot, and return the Ballot directly to the Voting Agent in the pre-addressed, postage-paid return envelope so that it is RECEIVED by the Voting Agent before the Voting Deadline. A list of the beneficial owners to whom “pre-validated” Ballots were delivered should be maintained by nominees for inspection for at least one year from the Voting Deadline; or

 

(b)  Master Ballots

 

If the nominee elects not to prevalidate Beneficial Owner Ballots, the nominee may obtain the votes of beneficial owners by forwarding the unsigned Beneficial Owner Ballots, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope provided by, and addressed to, the nominee, and other materials requested to be forwarded, to the beneficial owners. Each such beneficial owner must then indicate his, her or its vote on the Beneficial Owner Ballot, complete the information requested on the Ballot, review the certifications contained on the Ballot, execute the Ballot, and return the Ballot to the nominee. After collecting the Beneficial Owner Ballots, the nominee should, in turn, complete a Master Ballot compiling the votes and other information from the Beneficial Owner Ballots, execute the Master Ballot, and deliver the Master Ballot to the Voting Agent so that it is RECEIVED by the Voting Agent before the Voting Deadline. In accordance with its customary practice, the Voting Agent will distribute Master Ballots after the solicitation packages have been sent out.  All Beneficial Owner Ballots returned by beneficial owners should either be forwarded to the Voting Agent (along with the Master Ballot) or retained by nominees for inspection for at least one year from the Voting Deadline. EACH NOMINEE SHOULD ADVISE ITS BENEFICIAL OWNERS TO RETURN THEIR BALLOTS TO THE NOMINEE BY A DATE CALCULATED BY THE NOMINEE TO ALLOW IT TO PREPARE AND RETURN THE MASTER BALLOT TO THE VOTING AGENT SO THAT IT IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING DEADLINE.

 

Multiple Master Ballots may be completed and delivered to the Voting Agent. Votes reflected by multiple Master Ballots will be counted except to the extent that the votes thereon are duplicative of other Master Ballots. If two or more Master Ballots are inconsistent, the latest Master Ballots received prior to the Voting Deadline will, to the extent of such inconsistency, supersede and revoke any prior Master Ballot. If more than one Master Ballot is submitted and the later Master Ballot(s) supplements rather than supersedes earlier Master Ballot(s), please mark the subsequent Master Ballot(s) with the words “Additional Vote” or such other language as you customarily use to indicate an additional vote that is not meant to revoke an earlier vote.

 

Securities Clearing Agencies

 

The Plan Proponents expect that DTC, as a nominee holder of Old Notes, will arrange for its participants to vote by executing a letter of authorization in favor of such participants. As a result of the letter, such participants will be authorized to vote their Voting Record Date positions held in the name of such securities clearing agencies.

 

Miscellaneous

 

In the case of a vote on the Plan, all Ballots must be signed by the holder of Old Notes, the MFOC Note or the MFOC Equity of record or, in the case of Old Notes, any person who has obtained a properly completed Ballot proxy from the Record Holder of Old Notes. For purposes of voting to accept or reject the Plan, the beneficial owners of Old Notes will be deemed to be the “Holders” of the Claims represented by such Old Notes. Unless otherwise ordered by the Bankruptcy Court, Beneficial Owner Ballots, Master Ballots, the MFOC Note Ballot or the MFOC Equity Ballots that are signed, dated and timely received, but on which a vote to accept or reject the Plan has not been indicated, will not be counted.  The Plan Proponents, in their sole discretion, may request that the Voting Agent attempt to contact such voters to cure any such defects in the Beneficial Owner Ballots, Master Ballots, the MFOC Note Ballot or the MFOC Equity Ballots.

 

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Under the Bankruptcy Code, for purposes of determining whether the requisite acceptances have been received from holders of Old Notes, the MFOC Note or the MFOC Equity, only holders of Old Notes, the MFOC Note or the MFOC Equity who actually vote will be counted. The failure of a holder of Old Notes, the MFOC Note or the MFOC Equity to deliver a duly executed Ballot will be deemed to constitute an abstention by such holder with respect to voting on the Plan and such abstentions will not be counted as votes for or against the Plan.

 

Except as provided below, unless a Ballot is timely submitted to the Voting Agent before the Voting Deadline, together with any other documents required by such Ballot, the Plan Proponents may, in their sole discretion, reject such Ballot as invalid, and therefore decline to utilize it in connection with seeking confirmation of the Plan.

 

Fiduciaries And Other Representatives

 

If a Beneficial Owner Ballot, MFOC Note Ballot or MFOC Equity Ballot is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or another acting in a fiduciary or representative capacity, such person should indicate such capacity when signing and, unless otherwise determined by the Plan Proponents, must submit proper evidence satisfactory to the Plan Proponents of authority to so act. Authorized signatories should submit the separate Ballot of each beneficial owner or Holder of Old Notes for whom they are voting.

 

BALLOTS (INCLUDING THE MFOC NOTE BALLOT, THE MFOC EQUITY BALLOT AND PREVALIDATED BENEFICIAL OWNER BALLOTS) AND MASTER BALLOTS MUST BE TIMELY SUBMITTED TO THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE.  IF A BALLOT OR MASTER BALLOT IS NOT PROPERLY SUBMITTED, IT WILL BE REJECTED AS INVALID AND WILL NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION OF THE PLAN, PROVIDED, HOWEVER, THAT THE PLAN PROPONENTS RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST AUTHORITY FROM THE BANKRUPTCY COURT TO COUNT SUCH BALLOT.

 

Parties In Interest Entitled To Vote

 

Under the Bankruptcy Code, only holders of claims or interests in “impaired” classes are entitled to vote on a plan. Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” under a plan unless (i) the Plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default.

 

If, however, the Holder of an Impaired Claim or Interest will not receive or retain any distribution under the Plan on account of such Claim or Interest, the Bankruptcy Code deems such Holder to have rejected the Plan, and, accordingly, Holders of such claims and interests do not actually vote on the Plan. If a Claim or Interest is not impaired by the Plan, the Bankruptcy Code deems the Holder of such Claim or Interest to have accepted the Plan and, accordingly, Holders of such Claims and Interests are not entitled to vote on the Plan.

 

Also, a Holder of a Claim or Interest may vote to accept or to reject a Plan only if the Claim or Interest is “allowed,” which means generally that no party in interest has objected to such Claim or Interest. In the event of a dispute with respect to any Claims relating to Old Notes, the MFOC Note or the MFOC Equity, any vote to accept or reject the Plan cast with respect to such Claim or Interest will not be counted for purposes of determining whether the Plan has been accepted or rejected unless the Bankruptcy Court orders otherwise.

 

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A vote may be disregarded if the Bankruptcy Court determines, pursuant to section 1126(e) of the Bankruptcy Code, that it was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.

 

The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the Plan. Acceptance of a plan by a class of interests requires acceptance by at least two-thirds of the amount of interests of such class that cast ballots for acceptance or rejection of the plan.

 

Agreements Upon Furnishing Ballots

 

The delivery of an accepting Beneficial Owner Ballot, Master Ballot, MFOC Note Ballot or MFOC Equity Ballot pursuant to one of the procedures set forth above will constitute the agreement of the holder of Old Notes, the MFOC Note or the MFOC Equity, as applicable, with respect to such Ballot to accept (i) all of the terms of, and conditions to, this solicitation and (ii) the terms of the Plan.

 

Change of Vote

 

Any party who has previously submitted to the Voting Agent prior to the Voting Deadline a properly completed Ballot may revoke such Ballot and change its vote by submitting to the Voting Agent prior to the Voting Deadline a subsequent, properly completed, Ballot for acceptance or rejection of the Plan.  No change in votes will be permitted after the Voting Deadline.

 

Waivers of Defects, Irregularities, Etc.

 

Unless otherwise directed by the Bankruptcy Court, all questions as to the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawals of Ballots will be determined by the Voting Agent and the Plan Proponents in their sole discretion, which determination will be final and binding. The Plan Proponents reserve the right to reject any and all Ballots not in proper form, the acceptance of which would, in the opinion of the Plan Proponents or their counsel, be unlawful.  The Plan Proponents further reserve the right to waive any defects or irregularities or conditions of delivery as to any particular Ballot. The interpretation (including the Ballot and the respective instructions thereto) by the Plan Proponents, unless otherwise directed by the Bankruptcy Court, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with deliveries of Ballots must be cured within such time as the Plan Proponents (or the Bankruptcy Court) determines. Neither the Plan Proponents nor any other person will be under any duty to provide notification of defects or irregularities with respect to deliveries of Ballots nor will any of them incur any liabilities for failure to provide such notification. Unless otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be deemed to have been made until such irregularities have been cured or waived. Ballots previously furnished (and as to which any irregularities have not theretofore been cured or waived) will be invalidated.

 

Further Information; Additional Copies

 

If you have any questions or require further information about the voting procedures for voting your Old Notes, the MFOC Note or the MFOC Equity, as applicable, or about the packet of material you received, or if you wish to obtain an additional copy of the Plan, this Disclosure Statement, or any exhibits to such documents, please contact the Voting Agent.

 

Voting Agent

 

Financial Balloting Group has been appointed as Voting Agent for the acceptance solicitation. Questions and requests for assistance with respect to Ballots may be directed to the Voting Agent at the following address and

 

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telephone number, Financial Balloting Group LLC, 757 Third Avenue, 3rd Floor, New York, New York 10017, Attn: Mrs. Fields Tabulation, (646) 282-1800.

 

Miscellaneous

 

The Plan Proponents are not aware of any jurisdiction in which the solicitation for votes on the Plan is not in compliance with applicable law. If the Plan Proponents becomes aware of any jurisdiction in which the solicitation would not be in compliance with applicable law, the Plan Proponents will make a good faith effort to comply with any such law. If, after such good faith effort, the Plan Proponents cannot comply with any such law, the solicitation will not be made to the holder of Old Notes, the MFOC Note or the MFOC Equity, as applicable, residing in such jurisdiction.

 

RISK FACTORS

 

The Plan involves a high degree of risk and uncertainty.  You should carefully consider the risks and uncertainties described below as well as the other information appearing elsewhere in this Disclosure Statement before making a decision whether to vote to accept the Plan.  The risks and uncertainties described below are intended to highlight risks and uncertainties that are specific to us but are not the only risks and uncertainties that we face.  Additional risks and uncertainties, including those generally affecting the industry in which we operate, risks and uncertainties that we currently deem immaterial or risks and uncertainties generally applicable to companies that have recently undertaken transactions such as the restructuring may also impair our business, the value of your investment and our ability to pay interest on, and repay or refinance, the New Notes.

 

Risks to Holders of New Notes, New Common Equity and Warrant Issued Pursuant to the Plan

 

The following risks specifically apply only to holders of New Notes, New Common Equity and Warrant issued pursuant to the Plan.  There are additional risks attendant to being an investor in our equity securities and debt securities and the debt securities of our subsidiaries that you should review.  These risks are described elsewhere in this Risk Factors section under the headings “— Risks Related to Our Business.”

 

Investing in our New Common Equity and Warrant is speculative and you should be prepared to lose your investment.

 

The New Common Equity, unlike the Old Notes, is not secured by collateral or any guarantees.  As indicated in the pro forma financial projections contained in Appendix VI to this Disclosure Statement, even after consummation of the Plan, we expect to be operating at a loss.  If our performance does not improve, the value of the New Common Equity could be worthless and you will lose your investment.

 

The consideration being provided by Mrs. Fields for the Old Notes in the Plan does not reflect any independent valuation of the Old Notes or the New Notes.

 

We have not obtained or requested a fairness opinion from any banking or other firm as to the fairness of the consideration being provided by Mrs. Fields for the Old Notes in the Plan.

 

The New Notes, New Common Equity and the Warrant are new issues of securities for which there is no prior market and the trading market for the New Notes, the New Common Equity and the Warrant may be limited.

 

The New Notes, the New Common Equity and the Warrant will be new securities for which there currently is no, and on issuance there will not be any, established trading market.  We do not intend to apply for listing of the New Notes, the New Common Equity or the Warrant on any securities exchange or for quotation in any automated

 

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dealer quotation system.  Trading of New Notes, New Common Equity or the Warrant may be further limited by securities law restrictions on transfer.  We expect the New Notes to be eligible for trading in the PORTAL market, but we cannot assure you that any liquid market will develop for the New Notes.  If any of the New Notes are traded after their initial issuance, they may trade at a discount from their initial issue price or principal amount, depending upon many factors, including prevailing interest rates, the market for similar securities and other factors, including general economic conditions and our financial condition, performance and prospects.  Any decline in trading prices, regardless of the cause, may adversely affect the liquidity and trading markets for the New Notes.

 

Transfers of the New Common Equity and the Warrant will be subject to the Stockholders Agreement.

 

All of the New Common Equity and Warrant issued pursuant to the Plan will be deemed to have been issued subject to the provisions of the Stockholders Agreement, which among other things will restrict or impose conditions on transfers of the New Common Equity and the Warrant.

 

The value of the collateral securing the New Notes is highly uncertain.

 

We have not prepared any appraisals of the collateral in connection with the issuance of the New Notes.  By its nature, some or all of the collateral may be illiquid and may have no readily ascertainable value, and the value of the collateral in the event of a liquidation will depend in part on market conditions and other factors beyond our control, including the availability of suitable buyers for the collateral.

 

Rights of holders of New Notes in their collateral may be adversely affected by any future bankruptcy proceedings.

 

The right of the trustee for the New Notes to repossess and dispose of the collateral securing the New Notes upon acceleration is likely to be significantly impaired by federal bankruptcy law if any future bankruptcy proceedings are commenced by or against us.  This could be true even if bankruptcy proceedings are commenced after the applicable trustee has repossessed and disposed of the collateral.  Under bankruptcy law, a secured creditor such as a trustee for the New Notes is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval.  Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents, or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided, that the secured creditor is given “adequate protection.”

 

The meaning of the term “adequate protection” varies according to circumstance, but in general the doctrine of “adequate protection” requires a debtor to protect the value of a secured creditor’s interest in the collateral, through cash payments, the granting of an additional security interest or otherwise, if and at such time as the court in its discretion may determine during the pendency of the bankruptcy case.  In view of the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the New Notes could be delayed following commencement of a bankruptcy case, whether or when the trustee would repossess or dispose of the collateral, or whether or to what extent holders of the New Notes would be compensated for any delay in payment or loss of value of the collateral through the requirements of “adequate protection.”  Furthermore, in the event the bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due on the New Notes, the holders of the New Notes would have unsecured “deficiency claims” as to the difference.  Federal bankruptcy laws do not generally permit the payment or accrual of interest, costs, or attorneys’ fees for unsecured claims during the debtor’s bankruptcy case.

 

We may have U.S. federal income tax liability as a result of having been a member of a consolidated group.

 

We have been a member of a consolidated group of corporations for U.S. federal income tax purposes (and a member of a similar group for certain state income tax purposes) and have several liability for the income taxes of the group.  We do not believe that the group has material income tax liabilities, but there can be no assurance that the IRS or a state tax authority would not assert, or that a court would not sustain, a contrary position.

 

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You will be required to pay U.S. federal income tax on the New Notes even if we do not pay cash interest.

 

Because the New Notes provide us with an option to pay cash interest or issue Additional Notes during the first two years following the issuance of the New Notes, the New Notes will be treated as issued with original issue discount (“OID”) for U.S. federal income tax purposes.  Accordingly, U.S. holders will be required to include the OID in gross income on a constant yield to maturity basis, regardless of whether interest is paid currently in cash. See “Certain U.S. Federal Income Tax Considerations.”

 

Risks Related to Our Business

 

The results of operations of our business in the future will depend upon the effectiveness of our business strategy and whether we are able to successfully implement our business strategy, the implementation of which depends on factors that are beyond our control.

 

We believe we have a sound business strategy that will enable us to grow our revenues and profitability.  We believe that the implementation of our business strategy is key to enabling us to grow our revenues and profitability and, ultimately, our future success.

 

Our cash on hand and expected future cash flows from operations are inadequate to meet our fiscal year 2008 obligations unless we complete the restructuring.

 

Concerns over our ability to generate cash flows in amounts sufficient to meet our semi-annual interest payment on the Old Notes in September 2008 raise substantial doubt about our ability to continue as a going concern unless we complete the restructuring.  We are pursuing various actions to improve our operating cash flow, results of operations and overall liquidity position, but, unless and until we complete the restructuring, our ability to generate operating cash flow will continue to be hampered by our severely limited liquidity, our inability to sell new franchises and concerns by our suppliers about our ability to continue as a going concern.  Moreover, the longer it takes to complete the restructuring, the greater the likelihood that some of the decline in our business due to our financial difficulties will not be reversible.

 

We are currently, and from time to time in the future may be, restricted from selling our franchises.

 

The sale of franchises is regulated by various state laws as well as by the Federal Trade Commission.  The Federal Trade Commission requires that franchisors make extensive disclosure in a franchise disclosure document to prospective franchisees but does not require registration.  However, a number of states require annual registration of the uniform franchise prospectus with state authorities or other disclosure in connection with franchise offers and sales.  In addition, several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of the franchisors to terminate agreements or to withhold consent to renewal or transfer of these agreements.

 

There are certain events that require us to make certain disclosure to state authorities.  Further, renewal of franchise disclosure document registrations is required in several states within a certain period of time following our fiscal year end.  From time to time in the future, there will be periods of time after certain events, such as material changes to our officers, or financial performance, or commencement of material litigation, or in connection with renewal during which we may be prohibited from selling our franchises in certain states.  Without limiting the foregoing, our financial condition requires us to defer collection of certain fees in some states until the store opens.  If we are unable to sell our franchises for an extended period of time in certain states, our business operations or financial condition could be adversely affected.

 

Because of concerns about our ability to continue as a going concern unless the restructuring is completed, we are not currently permitted under state franchising laws to offer new franchises, and this prohibition will continue until such time as we are in a position to issue financial statements that no longer contain a “going concern”

 

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qualification.  We expect that the process of updating our franchising filings and being able to renew our offering of franchises would likely be completed within 90 days following completion of the Plan.

 

Our ability to attract new franchisees, retain existing franchisees, and locate and procure favorable store locations is critical to the success of our franchising business.

 

We compete with a broad segment of other business opportunities and franchise companies for franchisees.  There is also aggressive competition from many sources for favorable sites for new stores, both within and outside the mall environment.  Many of our competitors have greater resources or more favorable business models than ours with which to attract new investors and procure sites.  If we are unable to attract new or existing franchisees to purchase new franchises, or represent a competitive opportunity for leaseholders, it will limit our ability to develop new franchised locations.

 

A decline in mall traffic and other events signaling or related to a downturn in the United States economy could cause our Mrs. Fields brand franchise income to decrease materially.

 

We believe that the amount and proximity of pedestrian traffic near our bakery brand stores strongly influence sales of our products, which we believe are frequently impulse purchases.  In recent years, we believe visits to major shopping malls, where the majority of our bakery franchisees’ stores are currently located, have experienced periods of decline.  This trend has had a negative impact on our revenues.  We cannot predict whether this trend will continue or that this trend can be offset by increased sales per customer.  Decrease in mall traffic, and other events that signal or arise from a downturn in the United States economy, such as continued increases in energy costs and other expenses that negatively affect consumer spending, could adversely affect our financial condition and results of operations.

 

We have experienced a number of franchise store closures since fiscal year 2004.  If this trend continues, our financial position and results of operations could continue to be adversely affected.

 

We have experienced a number of the franchise store closures since the end of fiscal year 2004 and this trend has continued throughout 2008.  Additional store closures could occur in the future and we may be unable to successfully open additional new stores in the future.  If this trend continues, our financial condition and results of operations may be adversely affected.

 

We believe our brand identity is critical to the success of our business.  If we are unable to use any of our trademarks or to protect our trade secrets, our sales and our results of operations will be adversely affected.

 

We believe that our trademarks have significant value and are important to the marketing of our retail outlets and products and the operations of our franchisees’ stores, gifts segment and licensing strategy.  Most of our trademarks are federally registered with the United States Patent and Trademark Office and registered or pending in many foreign countries.  However, we cannot be sure that our trademarks cannot be circumvented or that our trademarks do not or will not violate the proprietary rights of others.  If a challenge to one of our trademarks is successful, we could be prevented from continuing to use that trademark.  A negative ruling concerning our use or the validity or enforceability of one of our trademarks would adversely affect our sales of the related products and our operating results.  In addition, we cannot be sure that we will have the financial resources necessary to police the use of our trademarks by our franchisees and licensees or enforce or defend our trademarks, which could result in incorrect or unauthorized use of our trademarks.  Moreover, we may not be able to use or register our existing trademarks abroad due to the application of foreign laws, which would force us to adopt new trademarks for use in those jurisdictions that initially will not be as recognizable as our existing marks.  Despite our efforts to protect our trade secrets, unauthorized parties may attempt to obtain and use information regarding our proprietary recipes and our means of protecting our trade secret rights may not be adequate.  The occurrence of any of these factors could diminish the value of our trademark portfolio or trade secrets and negatively impact our sales, business operations and strategies.

 

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We depend heavily on our suppliers and distributors.

 

We depend on several primary suppliers, including Countryside Baking, Inc., a Dawn Food Products Company (who manufactures the majority of Mrs. Fields brand frozen cookie dough and bakery products, made according to our proprietary recipes for our domestic and international franchised stores and our gifts segment) and Oak State Products, Inc. (who manufactures our shelf stable cookies) , which supply products for our Mrs. Fields franchise system, gifts and branded retail business.  We also depend on two main suppliers for production of our TCBY branded yogurt products under Supply Agreements with Scott Brothers Dairy, Inc. and Yarnell Ice Cream Company, Inc.  We also depend on our primary distributors for distribution of perishable and non-perishable items to our franchisees.

 

Our reliance on our suppliers and distributors subjects us to a number of risks, including possible delays or interruptions in supplies, diminished control over quality and a potential lack of adequate raw material capacity.  Any disruption in the supply of or degradation in the quality of the raw materials provided by our suppliers could have a material adverse effect on our business, operating results and financial condition.  In addition, such disruptions in supply or degradations in quality could have a long-term detrimental impact on our efforts to develop a strong brand identity and a loyal consumer base.  If any supplier or distributor fails to perform as anticipated, or if there is a termination or any disruption in any of these relationships for any reason, it could have a material adverse effect on our results of operations.

 

Our information systems are an integral part of our gifts segment business.  Systems disruptions and failures could cause our customers to become dissatisfied with us and may impair our business.

 

Our ability to maintain our website, network system and telecommunications equipment in working order and to reasonably protect them from interruption is critical to the success of our gifts business segment.  Our website must accommodate regular traffic, deliver information and complete transactions.  Our customers, advertisers and business alliances may become dissatisfied by any systems failure that interrupts our ability to provide our products and services to them.

 

We believe that our relationship with our franchisees and retail licensees is critical to the success of our business.  If these franchise and retail license agreements were to be terminated or if we are unable to maintain these relationships, our sales and our results of operations would be adversely affected.

 

Generally, we believe our relationships with our franchisees and our licensees are a critical component in the success of our business.  As required by state and federal franchise disclosure rules, we must provide all prospective franchisees with the name and contact information for each of the concept’s existing franchisees.  Prospects often contact existing franchisees as part of their due diligence before making a franchise purchase decision.  If our relationship with existing franchisees is strained, it may slow or suspend franchise development with new franchisees, as well as curtail additional development with existing franchisees.  Strained relationships with existing franchisees can also contribute to additional or accelerated closure of existing stores, particularly upon transfer or expiration of franchise agreements and leases.

 

We may be harmed by actions taken by our franchisees or licensees that are beyond our control.

 

Our franchisees and licensees generally are independent business owners and are not our employees.  We require our franchisees and licensees to adhere to strict production, display, storage and marketing specifications and procedures and we provide training and support to franchisees, but the quality of franchised store operations or licensed products may be diminished by any number of factors beyond our control.  Consequently, franchisees may not operate stores or licensees may not produce or market licensed products in a manner consistent with our standards and requirements, or may not hire and train qualified managers and other store personnel.  If they do not, our image, reputation and brand may suffer and our franchise and license revenues as well as our ability to attract prospective franchisees may be adversely affected.

 

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We are vulnerable to fluctuations in the cost, availability and quality of our ingredients.

 

The cost, availability and quality of the ingredients we use to prepare our products in our gifts operations are subject to a range of factors, many of which are beyond our control.  Fluctuations in economic and political conditions, weather and demand could adversely affect the costs of ingredients that we and our suppliers use to make our products, which may in turn affect the costs that our customers and franchisees may be required to pay for our branded products.  Significant price increases may in turn contribute to decreases in customer counts in our gifting and branded retail business, as well as decreases in store profits and increases in store closures.  We have no control over fluctuations in the price of commodities and we may not be able to pass through any cost increases to our customers.  We are dependent on frequent deliveries of fresh ingredients, thereby subjecting us to the risk of shortages or interruptions in supply.  All of these factors could cause adverse market conditions which could adversely affect our financial results.

 

Our branded retail business is still relatively new and exists in a very competitive environment.

 

The sale of snack products to grocery, club stores and similar distribution channels is highly competitive and subject to ongoing expenses related to slotting fees, advertising credits and discounts.  Similarly, the business relies on relationships with vendors, brokers and customers.  We commenced this business in July 2006, and as with any relatively new business, we may be unable to predict with any certainty the costs associated with operating the branded retail group or the revenues we expect to generate.

 

If we lose key management personnel, we may have difficulty in implementing the business strategy that current management has developed and may fail to achieve expected profits as a result.

 

Our success depends on the continued services of our senior management.  In addition, our continued growth depends, in part, on attracting and retaining skilled managers and employees as well as management’s ability to utilize effectively our key personnel.  If any senior management personnel leaves us, we may have difficulty in implementing the business strategy they have developed and may fail to achieve expected profits as a result.  We cannot be sure that management’s efforts to integrate, utilize, attract and retain personnel will be successful.

 

Our failure to respond to demographic trends, changes in consumer preferences and other factors and our failure to implement new marketing strategies could have a material adverse effect on our results of operations.

 

The specialty and snack food industry is affected by changes in consumer preferences, tastes and eating habits, local, regional, national and international economic conditions, demographic trends and mall traffic patterns.  A number of factors, including increased food, labor and benefits costs, the availability of experienced management and hourly employees and difficulties or delays in developing and introducing new products to suit consumer preferences, may adversely affect the specialty retail industry in general and our franchise outlets in particular.  Our failure to anticipate, identify and respond to changing consumer preferences and economic conditions and the failure of our customers to respond favorably to our marketing or new products could have a material adverse effect on our results of operations.

 

We believe our TCBY brand has struggled to stay relevant and differentiated from its competitors.  We believe it is important to the brand’s growth to reposition it in a way that capitalizes on yogurt’s current popularity and revitalize it through new store design and venues.  Our recent development and introduction of new products, such as the Beriyo smoothie line, and the new store design for TCBY traditional stores are integral parts of our plans to accomplish this repositioning.  However, we do not know how successful we will be in developing or implementing this plan or the extent to which the capital investment required of us and our franchisees to implement such a plan will be available when needed.  If we are unable to successfully implement this or any other aspect of our business strategy, our business operations and our financial condition could be adversely affected.

 

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We have also initiated efforts to revitalize our Mrs. Fields brand, including a new store design for franchises. While these efforts are designed to strengthen and revitalize the Mrs. Fields brand to help our franchisees achieve a higher level of profitable sales, we cannot be certain that these efforts will have this effect.

 

There is intense competition in the specialty food retailers industry.

 

The specialty retail food and snack food industry is highly competitive with respect to price, service, location and food quality and within the industry we compete with cookie, baked goods, frozen yogurt and ice cream retailers, as well as other confectionary, sweet snack and specialty foods retailers, many of which have greater resources than we do.  Consequently, we cannot be certain that we can compete successfully with these other food retailers.  We will also face competition from NexCen, who in August 2007 and January 2008 acquired the pretzel brands and Great American Cookies and concepts formerly owned and operated by us.

 

In addition to the risks we face from current competitors, we cannot be certain that we can successfully compete with any new entrants into the specialty retail food and snack food industry who may introduce new and successful products or marketing.  Our inability to compete adequately would have a material adverse effect on our results of operations.

 

Adverse publicity, particularly about health concerns, could reduce our sales and adversely affect results of operations.

 

Our ability to compete depends in part on maintaining our reputation with consumers.  We could be adversely affected by publicity resulting from food quality, illness, injury or other health concerns, including food borne illness claims or operating issues stemming from one store, a limited number of stores or even a competitor’s store.  In addition, we use ingredients in several of our products, such as nuts, to which some people may have allergies, and butter and cream, which are high in fat.  There may be adverse publicity about the health risks relating to these or other ingredients.  Adverse publicity about these factors could reduce sales of our products and adversely affect results of operations.

 

Our international operations are exposed to various risks that could have a material adverse effect on our results of operations and financial condition.

 

We have franchised and licensed retail stores in numerous foreign countries.  While most of our operations are in the United States, through our franchised retail store locations and our branded retail activities, we also have operations in numerous other regions, including operations in Canada, Mexico, Australia, South America, the Caribbean, the Middle East and Asia, representing approximately 4.8% of our total revenue during fiscal year 2007.  We expect to expand into additional regions in the future.  Our international operations are subject to many additional risks, including:

 

·                  the burden of complying with multiple and possibly conflicting laws and any unexpected changes in regulatory requirements;

 

·                  import and export restrictions and tariffs;

 

·                  additional expenses relating to the difficulties and costs of staffing and managing international operations;

 

·                  litigation in foreign jurisdictions;

 

·                  potentially adverse tax consequences;

 

·                  increased competition as a result of subsidies to local companies;

 

·                  political instability or war;

 

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·                  cultural differences;

 

·                  the impact of business cycles and economic instability; and

 

·                  increased expense as a result of inflation.

 

Any one of these factors could have a material adverse affect on our sales of products or services to our international customers and curtail our expansion strategy.

 

Government regulation of our business could adversely affect the results of our operations.

 

Numerous governmental authorities have issued regulations that apply to us and our franchisees’ stores, including, without limitation, federal, state and local laws and regulations governing health, sanitation, environmental protection, safety, hiring and employment practices, including laws, such as the Fair Labor Standards Act, governing such matters as minimum wages, overtime and other working conditions.  The FDA administers regulations that apply to our products.  If we fail to obtain or retain the required food licenses or to comply with applicable governmental regulations or if there is any increase in employee benefit costs or other costs associated with employees, our costs could increase as we attempt to comply with regulations.  Our revenues could decrease if we or our suppliers are unable to manufacture or if our franchisees or licensees are unable to sell products in locations in which we do not have required licenses, or if existing or new regulation leads to material changes in the quality, taste, consumer appeal, or availability of our products.  Our products, the manufacturers and their manufacturing facilities are also subject to periodic inspection.  Discovery of problems may reduce our results of operations because of costs of compliance or inability to manufacture or sell products for failure to comply with regulations.

 

In addition, the sale of franchises is regulated by various state laws as well as by the Federal Trade Commission.  The Federal Trade Commission requires that franchisors make extensive disclosure in a franchise disclosure document to prospective franchisees, but does not require registration.  However, a number of states require registration of the franchise disclosure document with state authorities or other disclosure in connection with franchise offers and sales.  In addition, several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of the franchisors to terminate agreements or to withhold consent to renewal or transfer of these agreements.  While we believe that we are in compliance with existing regulations in the jurisdictions where we currently offer franchises, we cannot predict the effect of any future legislation or regulation on our business operations or financial condition.  Additionally, bills have occasionally been introduced in Congress which would provide for federal regulation of aspects of franchisor-franchisee relationships.  We cannot predict what effect those regulations could have on our business.

 

Any interruption in funding sources used by franchisees to purchase and develop our franchises could adversely impact our ability to market franchises.

 

Many of our franchisees must obtain loans to purchase and develop our franchises.  One significant source of this funding is the U.S. Small Business Administration (“SBA”).  Any suspension of funding or delays in approval of the SBA’s funding budget will affect our franchisees’ ability to obtain funding from this significant source and adversely impact our ability to market franchises.  Recent developments in the mortgage and finance industries have adversely affected some sources of funding and may also make it more difficult for franchisees to obtain funding for current operations and new development.

 

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Litigation, including product liability litigation, could reduce our results of operations or increase our losses because of the cost of paying on successful claims and we may not be able to continue to obtain adequate insurance.

 

We are involved in routine litigation in the ordinary course of business, including franchise disputes.  Although we have not been significantly adversely affected in the past by litigation, there can be no assurance as to the effect of any future disputes.

 

Although we currently are not subject to any product liability litigation, we could experience product liability litigation in the future involving our products.  Our quality control program is designed to maintain high standards for the food and materials and food preparation procedures used by franchised stores.  Products are periodically inspected by our personnel at both the point of sale locations and the manufacturing facilities to ensure that they conform to our standards.  In addition to insurance held by our suppliers, we maintain insurance relating to personal injury and product liability in amounts that we consider adequate for the retail food industry.  While we have been able to obtain insurance in the past, there can be no assurance that we will be able to maintain these insurance policies in the future.  Consequently, any successful claim against us, in an amount materially exceeding our coverage, could adversely affect our results of operations and financial condition.

 

Our operating results are subject to quarterly fluctuations and seasonality.

 

Our operating results are subject to quarterly and seasonal fluctuations.  Our sales and income from franchisees’ store operations are seasonal given the significant impact of the high number of mall-based locations.  At these locations, sales tend to mirror customer traffic flow trends in malls, which increase significantly during the fourth quarter, primarily between Thanksgiving and the end of the calendar year.  Holiday gift purchases also are a significant factor in increased sales in the fourth quarter.  However, our TCBY franchised stores tend to have their strongest sales periods during the warmer months from late Spring through early Fall, which helps to balance the impact of seasonality on our operations.  In addition, by marketing our cookie brands around holidays that occur in late Winter and early Spring, such as Valentine’s Day and Easter, as well as holidays in the late Fall, such as Halloween, we hope to continue to decrease the impact of seasonality on our cash flow.  However, we may not be successful in decreasing the impact of seasonality on our cash flow.  If we are unable to manage seasonal fluctuations of cash flow, our financial condition and results of operations may be adversely affected.

 

Risk Related to the Plan

 

Disruption of the Debtors’ Business

 

Commencement of the Bankruptcy Cases, even if only to confirm the Plan, could adversely affect the relationship between the Debtors and their respective employees, customers and suppliers. If such relationships are adversely affected, the Debtors’ working capital position and operating results could deteriorate materially. Such deterioration could adversely affect the Debtors’ ability to consummate the Plan.

 

Risk of Non-Confirmation of the Plan or of Possible Invalidation of the Solicitation

 

There can be no assurance that the Bankruptcy Court would decide that this Disclosure Statement meets the disclosure requirements of the Bankruptcy Code or that the acceptances were effective for the purpose of approving the Plan. Section 1126(b) of the Bankruptcy Code provides that the holder of a claim against, or interest in, a debtor who accepts or rejects a plan before the commencement of a Chapter 11 case is deemed to have accepted or rejected such plan under the Bankruptcy Code so long as the solicitation of such acceptance was made in accordance with applicable non-bankruptcy law governing the adequacy of disclosure in connection with such solicitation, or, if such laws do not exist, such acceptance was solicited after disclosure of “adequate information,” as defined in section 1125 of the Bankruptcy Code. In addition, Bankruptcy Rule 3018(b) provides that a holder of a claim or interest who has accepted or rejected a plan before the commencement of the case under the Bankruptcy Code shall not be

 

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deemed to have accepted or rejected the plan if the court finds after notice and a hearing that the plan was not transmitted in accordance with reasonable solicitation procedures.

 

This Disclosure Statement is being presented to satisfy the foregoing requirements. The Plan Proponents believe that the solicitation of votes to accept or reject the Plan is proper under applicable nonbankruptcy law, rules and regulations. The Plan Proponents cannot be certain, however, that its solicitation of acceptances or rejections would be approved by the Bankruptcy Court. If such approval were not obtained, then the Plan Proponents would potentially have to solicit votes to accept or reject the Plan from one or more Classes of Claims or Interests that were not previously solicited. The Plan Proponents also would potentially have to seek to resolicit acceptances, and, in such event, confirmation of the Plan could be delayed and possibly jeopardized.

 

Section 1122 of the Bankruptcy Code requires that a plan classify claims against, and interests in, a debtor. The Bankruptcy Code also provides that, except for certain claims classified for administrative convenience, a plan may place a claim or interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class. The Plan Proponents believe that all claims and interests have been appropriately classified in the Plan.

 

To the extent that the Bankruptcy Court would find that a different classification is required for the Plan to be confirmed, the Plan Proponents currently anticipate that they would seek (i) to modify the Plan to provide for whatever classification might be required for confirmation and (ii) to use the acceptances received from any creditor or shareholder pursuant to this solicitation for the purpose of obtaining the approval of the class or classes of which such creditor or shareholder ultimately is deemed to be a member. Any such reclassification of creditors or shareholders, although subject to the notice and hearing requirements of the Bankruptcy Code, could adversely affect the class in which such creditor or shareholder was initially a member, or any other class under the Plan, by changing the composition of such class and the vote required for approval of the Plan.

 

There can be no assurance that the Bankruptcy Court, after finding that a classification was inappropriate and requiring a reclassification, would approve the Plan based upon such reclassification. Except to the extent that modification of classification in the Plan requires resolicitation, the Plan Proponents would, in accordance with the Bankruptcy Code and the Bankruptcy Rules, seek a determination by the Bankruptcy Court that acceptance of the Plan by any Holder pursuant to this solicitation will constitute a consent to the Plan’s treatment of such Holder regardless of the class as to which such Holder is ultimately deemed to be a member. The Plan Proponents believe that under the Bankruptcy Rules, the Plan Proponents would be required to resolicit votes for or against the Plan only when a modification adversely affects the treatment of the Claim of any creditor or equity Holder.

 

Alternatives to Confirmation and Consummation of the Plan

 

The Plan Proponents believe that the Plan affords Holders of Claims and Interests the potential for the greatest recovery and, therefore, would be in the best interests of such Holders. If, however, the requisite acceptances of the Plan are not received, or the Plan is not confirmed and consummated, the theoretical alternatives would include: (i) formulation of an alternative Plan or (ii) liquidation of MFOC and certain of its subsidiaries under Chapter 7 or 11 of the Bankruptcy Code.

 

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

The following discussion is a summary of certain U.S. federal income tax considerations of the Plan to MFOC, MFFB, holders of Old Notes that exchange their Old Notes for cash, New Notes and New Common Equity pursuant to the Plan and the holder of the MFOC Note that exchanges such MFOC Note for New Common Equity, Warrants and cash pursuant to the Plan.  The summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, judicial decisions, published positions of the Internal Revenue Service (the “IRS”) and other applicable authorities, all as in effect as of the date hereof and all of which are subject to change or

 

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differing interpretations (possibly with retroactive effect).  The discussion does not address all of the tax consequences that may be relevant to a particular person or to persons subject to special treatment under U.S. federal income tax laws and, in particular, to “non-U.S. holders” (as defined below).  This summary deals only with persons who hold the Old Notes, the New Notes, and the New Common Equity as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment).  No opinion of counsel or IRS ruling has been or will be obtained regarding any matter discussed herein.  No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.  Holders must consult their own tax advisors as to the particular U.S. federal income tax consequences to them of the Plan and of holding and disposing of the New Notes and the New Common Equity, as well as the effects of state, local and non-U.S. tax laws.

 

For purposes of this summary, a “U.S. holder” means a beneficial owner of a note (as determined for U.S. federal income tax purposes) that is, or is treated as, a citizen or individual resident of the United States, a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.  A “Non-U.S. Holder” means any holder of an Old Note, a New Note or New Common Equity (other than an entity treated as a partnership or other flow-through entity and its beneficial owners) that is not a “U.S. Holder.”  The U.S. federal income tax treatment of a partner or other beneficial owner in a partnership or other flow-through entity generally will depend on the status of the partner and the activities of such partnership.  Partners and partnerships (including beneficial owners of pass-through entities and such entities themselves) must consult their own tax advisors as to the particular U.S. federal income tax consequences applicable to them.

 

TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DISCLOSURE STATEMENT IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY US OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 

Mrs. Fields

 

Cancellation of Indebtedness Income

 

Under the Code, a U.S. taxpayer generally must include in gross income the amount of any discharged indebtedness (cancellation of debt or “COD”) realized during the taxable year.  COD income generally equals the difference between (A) the “adjusted issue price” of the indebtedness discharged (which, in the case of the Old Notes, should be the principal amount and accrued but unpaid interest at the Effective Date) and (B) the sum of (i) the amount of cash, (ii) the “issue price” of any new debt instrument (such as the New Notes), and (iii) the fair market value of any other property (such as the New Common Equity) transferred in satisfaction of such discharged indebtedness.  As discussed below in “U.S. Holders – Interest and Original Issue Discount (“OID”) on New Notes,” the “issue price” of the New Notes will depend largely on whether the Old Notes or the New Notes are treated as “publicly traded” for tax purposes.  If either is treated as publicly traded, and is traded at a discount, there likely will be significant COD income.  If they are not treated as publicly traded, the amount of COD income will depend largely on the value of the New Equity.

 

MFOC and MFFB will not, however, be required to include such COD in income as a result of the Plan, because the Old Notes will be discharged while MFOC and MFFB are under the jurisdiction of a court in a title 11 case.  Instead, we will be required to reduce our tax attributes (including NOLs, the tax basis in our assets and the attributes and tax basis of our subsidiaries) by the amount of COD that would otherwise have been required to be included in gross income.

 

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Limitation on NOLs and Other Tax Benefits

 

We believe we have approximately $22 million of available consolidated NOLs as of July 31, 2008 (before taking into account COD income from the Plan).

 

It is likely that any of our NOLs and certain of our other tax attributes remaining after the consummation of the Plan will be significantly reduced as well as limited.  In general, under  section 382 of the Code, whenever there is a more than fifty percent ownership change of a corporation during a three-year testing period, the ability of the corporation to utilize its NOL carryforwards and certain subsequently recognized built-in losses and deductions to offset future taxable income is be subject to an annual limitation, equal to the product of (i) the “long-term tax-exempt rate” (for example, 4.65% for the month of August 2008) and (ii) the fair market value of the stock of the corporation immediately before the ownership change occurs (determined without regard to the cash to be used in partial satisfaction of the Old Notes pursuant to the Plan).  For a corporation in bankruptcy that undergoes an ownership change pursuant to a confirmed bankruptcy plan, the stock value generally is determined immediately after (rather than before) the ownership change after giving effect to the surrender of creditors’ claims, but subject to certain adjustments (which can result in a reduced stock value).  As discussed below, this annual limitation often may be increased in the event the corporation has an overall “built-in” gain in its assets at the time of the ownership change.

 

Section 382 also generally operates to limit the deduction of built-in losses recognized subsequent to the date of the ownership change.  If a loss corporation has a net unrealized built-in loss at the time of an ownership change (taking into account most assets and items of built-in income, gain, loss and deduction), then any built-in losses recognized during the following five years (up to the amount of the original net unrealized built-in loss) generally will be treated as pre-change losses and similarly will be subject to the annual limitation.  We do not expect to have net unrealized built-in losses.

 

Conversely, if the loss corporation has a net unrealized built-in gain at the time of an ownership change, any built-in gains recognized during the following five years (up to the amount of the original net unrealized built-in gain) generally will increase the annual limitation in the year recognized, such that the loss corporation would be permitted to use its pre-change losses against such built-in gain income in addition to its regular annual allowance.

 

The issuance of the New Common Equity will cause us to undergo an ownership change for purposes of section 382 of the Code, and thus we will be subject to this annual limitation.  Any portion of the annual limitation that is not used in a given year may be carried forward, thereby adding to the annual limitation for the subsequent taxable year during the five years following the ownership change.  The impact of an ownership change of MFOC pursuant to the MFOC Plan depends upon, among other things, the amount of pre-change losses remaining after the reduction of attributes due to the cancellation of debt, the value of both the stock and assets of MFOC and its subsidiaries at such time, and the amount and timing of future taxable income.

 

An exception to the foregoing annual limitation rules generally applies where existing stockholders and qualified (so-called “old and cold”) creditors of a debtor receive, in respect of their stock and debt claims, at least 50% of the vote and value of the stock of the reorganized debtor pursuant to a confirmed chapter 11 plan.  Under this exception, a debtor’s pre-change NOLs and built-in losses are not limited on an annual basis but, instead, are required to be reduced by the amount of any interest deductions claimed during the three taxable years preceding the effective date of the reorganization, and during the part of the taxable year that is prior to and includes the reorganization, in respect of all debt that is converted into stock in the bankruptcy proceeding.  Moreover, if this exception applies, any further ownership change of the debtor within a two-year period after the consummation of the chapter 11 plan will preclude the debtor’s future utilization of any pre-change losses existing at the time of the subsequent ownership change.

 

The receipt of the New Common Equity by holders of Old Notes pursuant to the Plan may qualify for this exception.  Even if it does so qualify, MFOC may, if it so desires, elect not to have the exception apply and instead remain subject to the annual limitation described above.

 

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Alternative Minimum Tax

 

A corporation may incur a federal alternative minimum tax (“AMT”) liability even if its NOL carryovers and other tax attributes are sufficient to eliminate its taxable income as computed under the regular corporate income tax.  Mrs. Fields has been and expects to be liable for at least the alternative minimum tax.           In general, the AMT is imposed on a corporation’s alternative minimum taxable income at a 20% rate to the extent that such tax exceeds the corporation’s regular U.S. federal income tax.  For purposes of computing taxable income for AMT purposes, certain tax deductions and other beneficial allowances are modified or eliminated.  In particular, even though a corporation otherwise might be able to offset all of its taxable income for regular tax purposes by available NOL carryforwards, only 90% of a corporation’s taxable income for AMT purposes may be offset by available NOL carryforwards (as computed for AMT purposes).

 

In addition, if a corporation undergoes an “ownership change” within the meaning of section 382 of the Tax Code, as MFOC will, and is in a net unrealized built-in loss position (as determined for AMT purposes) on the date of the ownership change, the corporation’s aggregate tax basis in its assets would be reduced for certain AMT purposes to reflect the fair market value of such assets as of the change date.

 

U.S. Holders

 

Exchange of Old Notes for New Notes, Cash, and New Common Equity Pursuant to the Plan

 

Recapitalization.  We believe that the receipt of New Notes, New Common Equity and cash in exchange for Old Notes pursuant to the Plan should be treated as a partly tax-free “recapitalization” for U.S. federal income tax purposes.  This treatment will depend upon, among other things, whether both the Old Notes and the New Notes are treated as “securities” for U.S. federal income tax purposes.  The determination of whether a debt instrument is treated as a security depends upon an evaluation of the term and nature of the debt instrument.  Generally, corporate debt instruments with maturities of less than five years when issued are not treated as securities, while corporate debt instruments with maturities of ten years or more when issued are treated as securities.  We intend to take the position that the Old Notes and the New Notes are both treated as securities for U.S. federal income tax purposes.  The following discussion assumes such treatment, but no assurances can be made in this regard.

 

ExchangeA holder that surrenders all of its Old Notes in exchange for a combination of New Notes, New Common Equity and cash pursuant to the Plan will recognize gain, if any, with respect to the Old Notes surrendered in the exchange in an amount generally equal to the lesser of (1) the excess, if any, of the sum of (a) the cash (in excess of the amount of accrued but unpaid interest at the Effective Date), (b) the aggregate issue price (as described below) of the New Notes received in the exchange and (c) the aggregate fair market value of the New Common Equity, over the holder’s aggregate adjusted tax basis in the Old Notes surrendered in the exchange and (2) the amount of cash received in the exchange.  Subject to the discussion of “Market Discount” below, any such gain recognized will generally be treated as capital gain, and will be long-term capital gain if the holder’s holding period for its Old Notes is more than one year at the time of the exchange.  No loss, if any, may be recognized in the exchange for U.S. federal income tax purposes.  See “Accrued but Unpaid Interest” below.

 

The holder’s initial aggregate tax basis in the New Notes and the New Common Equity received in the exchange will be equal to the aggregate adjusted tax basis in its Old Notes surrendered in exchange therefor, decreased by the amount of cash, if any, received in the exchange (in excess of the amount of accrued but unpaid interest at the Effective Date), and increased by the amount of any gain, if any, recognized in the exchange.  The aggregate adjusted tax basis will then be allocated between the New Notes and the New Common Equity in proportion to the fair market value of the New Notes and the New Common Equity when the exchange is consummated.  The holding period for New Notes and the New Common Equity received in the exchange will include the holding period of the holder’s Old Notes surrendered in exchange therefor.

 

If the receipt of New Notes, New Common Equity and cash in exchange for Old Notes were not treated as a recapitalization, a holder would generally recognize gain or loss in an amount equal to the difference between (1) the sum of (a) the cash (in excess of the amount of accrued but unpaid interest at the Effective Date), (b) the aggregate issue price of the New Notes received in the exchange and (c) the fair market value of the New Common Equity received in the exchange, and (2) the holder’s aggregate adjusted tax basis in its Old Notes surrendered in exchange

 

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therefor.  Subject to the discussion of “Market Discount” below, any such gain or loss would be capital gain or loss, and would be long-term capital or loss if the holder’s holding period for its Old Notes is more than one year at the time of the exchange.  The deductibility of capital losses is subject to limitations.  The holder’s initial aggregate tax basis in the New Notes received would be equal to their aggregate issue price, and the holder’s initial aggregate tax basis in the New Common Equity received would be equal to its fair market value on the date of the exchange.  The holding period for the New Notes would begin on the day after the exchange.  See “Accrued but Unpaid Interest” below.  Holders must consult their own tax advisors regarding the application of the installment sale rules to the transaction if it were not treated as a recapitalization and the possibility of electing out of the application of such rules.

 

Interest and Original Issue Discount (“OID”) on a New Note

 

For the first four semiannual interest payments following the Effective Date, we have the option of paying interest in cash or by issuing Additional Notes or a combination of cash and Additional Notes.  Following that period, we must pay interest in cash.  Accordingly, none of the interest on the New Notes will be treated as “qualified stated interest,” and U.S. holders will be required to include OID in income with respect to the New Notes over the period that they hold the New Notes under a constant yield method and will be required to include such OID in ordinary income in advance of the receipt of cash attributable thereto, as described below.

 

For each accrual period, the amount of OID includible in a holder’s income should equal the product of (i) the “yield to maturity” of the New Notes and (ii) the “adjusted issue price” of the New Notes as of the beginning of each such accrual period.  The “yield to maturity” is the discount rate that causes the principal and all interest payments on the New Notes as of their issue date to equal their issue price.  The “adjusted issue price” of the New Notes, as of the beginning of each accrual period, should equal (x) their “issue price” (as described in the next paragraph), plus (y) all OID previously includible in income, minus (z) any previous payments of interest.

 

Pursuant to the Plan, each holder agrees that, for purposes of determining the “issue price” of the New Notes for U.S. federal income tax purposes, the cash received pursuant to the Plan will be treated first as satisfying accrued but unpaid interest and second as satisfying the principal amount of the Old Notes.  The discussion of the issue price of the New Notes below applies to the remaining principal amount of the Old Notes.

 

The issue price of the New Notes depends, in part, on whether the New Notes or the Old Notes are treated as “publicly traded” for U.S. federal income tax purposes, as described below.  If neither the New Notes nor the Old Notes are treated as publicly traded, the issue price of the New Notes should be equal to their stated principal amount.  If the New Notes are treated as publicly traded (regardless of whether the Old Notes are so treated), the issue price of the New Notes should be equal to their fair market value on the date the exchange is consummated.  If the Old Notes are treated as publicly traded and the New Notes are not so treated, the issue price of the New Notes should be determined based on the fair market value of the Old Notes (after subtracting the cash paid in partial satisfaction of the Old Notes, as described above) on the date that the exchange is consummated and on our judgment of the relative fair market values of the New Notes and New Common Equity issued in exchange for such Old Notes at that time.

 

A debt instrument generally is treated as “publicly traded” if, at any time during the 60 day period ending 30 days after the issue date, (i) the debt is listed on a national securities exchange or quoted on an interdealer quotation system sponsored by a national securities association, (ii) the debt appears on a system of general circulation (including a computer listing disseminated to subscribing brokers, dealers or traders) that provides a reasonable basis to determine fair market value by disseminating either recent price quotations (including rates, yields or other pricing information) of one or more identified brokers, dealers or traders or actual prices (including rates, yields or other pricing information) of recent sales transactions or (iii) if, in certain circumstances, price quotations are readily available from dealers, brokers or traders.

 

It is unclear whether the Old Notes would be treated as publicly traded for these purposes, and we cannot predict whether the New Notes will be so treated.  Pursuant to the Plan, holders are bound by our determination of the issue price of the New Notes.  Such determination is not binding on the IRS or any court.  If either the New Notes or the Old Notes are treated as publicly traded, the issue price of the New Notes may be lower than their

 

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stated principal amount, thereby giving rise to additional OID and, therefore, additional ordinary income in advance of receipt of cash.

 

For purposes of determining the yield to maturity, a U.S. holder must assume that we will not exercise the option to pay interest by issuing Additional Notes, except in respect of any period in which we have actually elected to issue Additional Notes.  This assumption is solely for U.S. federal income tax purposes and does not constitute a representation by us regarding the actual amounts, or timing of amounts, that will be paid on the New Notes. If for any interest period we pay the interest entirely in cash, a U.S. holder will not be required to adjust its OID inclusions.  If for any interest period we elect to pay interest by issuing Additional Notes in whole or in part, a U.S. holder of a New Note will be required to adjust its OID calculations for future periods by treating the New Note as if it had been retired on the date of such election and then reissued for an amount equal to its adjusted issue price on such date, and to recalculate the yield to maturity of the New Note deemed reissued by treating the amount of interest paid by issuing Additional Notes (and any prior interest paid by issuing Additional Notes) as a payment that will be taken into account on the maturity date of such reissued New Note.

 

The U.S. federal income tax consequences of the existence and exercise of our right to issue Additional Notes are extremely complex, and each U.S. holder must consult with its own tax advisor regarding these consequences.

 

Accrued but Unpaid Interest. If there is accrued but unpaid interest on the Old Notes surrendered pursuant to the Plan that the holder has not already taken into income, then the amount of accrued but unpaid interest at the Effective Date will not be considered part of the amount realized in the exchange, but will instead be allocated first to accrued but unpaid interest, and taxable as ordinary interest income in the taxable year of the exchange, regardless of whether the holder otherwise recognizes a capital gain or an overall loss as a result of the exchange.

 

Market Discount.  A holder who acquired an Old Note after its original issuance at a market discount (generally defined as the amount, if any, by which a holder’s tax basis in a debt obligation immediately after its acquisition is exceeded by the adjusted issue price of the debt obligation at such time, subject to a de minimis exception) generally will be required to treat any gain recognized pursuant to the exchange as ordinary income to the extent of the market discount accrued during the holder’s period of ownership, unless the holder elected to include the market discount in income as it accrued.

 

The amount of any remaining accrued market discount not recognized in the exchange will generally be treated as ordinary income upon a disposition of New Notes and New Common Equity received in the exchange.  The market discount rules are complex.  Holders whose Old Notes have or may have market discount should consult their own tax advisors as to the effects of these rules.

 

Receipt of Consideration in Respect of the MFOC Note

 

The U.S. federal income tax consequences of the Plan to the holder of the MFOC Note generally will depend on whether the MFOC Note is a security and its character in the hands of the holder.  Accordingly, any gain or loss with respect to the receipt of New Common Equity ,Warrants and cash in respect of the MFOC Note pursuant to the Plan will generally be treated as capital gain or loss or ordinary income or deduction.  Capital losses may generally offset only capital gains, although individuals may, to a limited extent, offset ordinary income with capital losses.  In addition, the holder of the MFOC Notes may be subject to other special tax rules that affect the character, timing and amount of any income, gain, loss or deduction.  Accordingly, the holder of the MFOC Note must consult its own tax advisors regarding the U.S. federal income tax consequences of the Plan to it.

 

Sale or Exchange of the New Notes or the New Common Equity

 

Except as discussed below with respect to “Market Discount” above, any gain or loss recognized on a sale, exchange or other taxable disposition of New Notes (which does not include amounts received with respect to accrued but unpaid interest) or New Common Equity will generally be capital gain or loss in an amount equal to the difference, if any, between the amount realized and the holder’s adjusted tax basis in the New Notes or the New Common Equity, as applicable, at the time of such sale, exchange or other taxable disposition.  Any such gain or loss will be long-term capital gain or loss if the holding period for the New Notes or the New Common Equity

 

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exchanged is more than one year at that time (which as noted above would include the holding period for the Old Notes exchanged for New Notes and New Common Equity).  The deductibility of capital losses is subject to limitations.

 

Prepayments

 

Prepayments, if any, on the New Notes should generally be treated as payments in retirement of a portion of a New Notes, and, as a result, U.S. holders may recognize taxable gain or loss in connection with such prepayments.  This gain or loss is generally calculated by assuming that the original debt instrument consists of two instruments, one that is retired and one that remains outstanding. The adjusted issue price, U.S. holder’s adjusted basis, and any accrued but unpaid OID of the original debt instrument, determined immediately before the prepayments, are generally allocated between these two instruments based on that portion of the instrument that is treated is retired by the prepayment.  Holders must consult with their own tax advisors in this regard.

 

Information Reporting and Backup Withholding

 

We or a withholding agent on our behalf generally will be required to file information returns with the IRS in connection with the Plan, in connection with payments of interest and accruals of OID on the New Notes, in connection with a sale or other disposition of the New Notes and in connection with distributions on our New Common Equity, if any.  Backup withholding (currently imposed at 28%) may apply at such times unless the holder (1) is a corporation or is otherwise exempt from backup withholding and, when required, demonstrates this fact or (2) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding (generally on IRS Form W-9) and otherwise complies with the applicable requirements of the backup withholding rules.  Backup withholding is not an additional tax.  If backup withholding results in an overpayment of taxes, a holder may obtain a refund or credit, provided the holder furnishes the required information to the IRS.  The information and exchange agent will act as our withholding agent for purposes of the Plan.

 

Non-U.S. Holders

 

Exchange and Subsequent Dispositions

 

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain or loss recognized in the Plan or in a subsequent disposition of New Notes or New Common Equity received in the exchange, unless

 

·              the gain or loss is effectively connected with the conduct of a U.S. trade or business carried on by the holder (and, under the terms of an applicable income tax treaty, the gain is attributable to a U.S. permanent establishment), or

 

·              in the case of an individual holder, the holder is present in the United States for 183 days or more during the taxable year (or otherwise has a “tax home” in the United States) and certain other conditions are met.

 

Payments of Interest and Accruals of OID

 

Subject to the discussion of withholding and backup withholding below, under the “portfolio interest exemption,” a non-U.S. holder generally will not be subject to U.S. federal income tax on the Plan (including amounts received in respect of accrued but previously unpaid interest) or on payments of interest or accruals of OID on the New Notes, provided that

 

·              the holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote,

 

·              the holder is not a controlled foreign corporation that is related to us (directly or indirectly) through stock ownership,

 

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·              the receipt of interest on the New Notes is not effectively connected with the holder’s conduct of a U.S. trade or business, and

 

·              certain certification requirements are met.

 

Withholding, Backup Withholding and Information Reporting

 

U.S. withholding tax may apply to amounts received in the exchange in respect of accrued but unpaid interest on the Old Notes surrendered, as well as on interest paid on the New Notes unless the holder completes the appropriate IRS Form W-8, certifying as to its non-U.S. status, otherwise establishes an exemption from income tax withholding.  A non-U.S. holder not subject to withholding tax may still be subject to backup withholding on proceeds from the exchange, on accrued but unpaid interest on the Old Notes surrendered in the exchange and on interest on the New Notes, unless the holder provides the withholding agent with the applicable IRS Form W-8 or otherwise establishes an exemption.  A non-U.S. holder will generally be subject to 30% withholding on dividends, if any, paid on the New Common Equity, subject to reduction by applicable income tax treaty.  Information reporting may still apply, even if withholding and backup withholding do not.

 

THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL.  THE ABOVE DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE.  THE TAX CONSEQUENCES ARE IN MANY CASES UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER’S INDIVIDUAL CIRCUMSTANCES.  ACCORDINGLY, HOLDERS MUST CONSULT THEIR OWN TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN AND THE MATTERS ADDRESSED HEREIN.

 

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CONCLUSION AND RECOMMENDATION

 

The Company believes the Plan is in the best interests of all creditors and urges the Holders of Old Notes, MFOC Note and MFOC Equity entitled to vote to accept the Plan and to evidence such acceptance by returning their Ballots so they will be received by Financial Balloting Group LLC no later than September 15, 2008.

 

Dated:

Wilmington, Delaware

 

 

 

August 15, 2008

 

 

 

 

 

 

 

Respectfully submitted,

 

 

 

 

 

Mrs. Fields’ Original Cookies, Inc., et al. (on behalf
of itself, MFFB and the Subsidiary Debtors)

 

By:

 

/s/ Michael R. Ward

 

Name:

 

Michael R. Ward

 

Title:

 

Executive Vice President and Chief
Legal Officer

 

 

 

 

 

 

Ad Hoc Noteholder Committee

 

 

(by its counsel)

 

By:

 

Akin Gump Strauss Hauer & Feld LLP
By: /s/ Fred S. Hodara

 

Name:

 

Fred S. Hodara

 

Title:

 

A Member of the Firm

 

Represented By:

 

MONTGOMERY, McCRACKEN,
WALKER & RHOADS, LLP

 

AKIN GUMP STRAUSS HAUER &
FELD LLP

David R. Hurst, Esq. (Bar No. 3743)

 

Fred S. Hodara, Esq.

Mark L. Desgrosseilliers, Esq.

 

590 Madison Avenue

(Bar No. 4083)

 

New York, New York 10022

1105 North Market Street, Suite 1500

 

Telephone: (212) 872-1000

Wilmington, Delaware 19801

 

 

Telephone: (302) 504-7800

 

David M. Dunn, Esq.

 

 

1333 New Hampshire Avenue, N.W.

Proposed Counsel for the Debtors and

 

Washington, D.C. 20036

Debtors-in-Possession

 

Telephone: (202) 736-8000

 

 

 

 

 

-and-

 

 

 

SKADDEN, ARPS, SLATE, MEAGHER 

 

YOUNG CONAWAY STARGATT &

& FLOM LLP

 

TAYLOR, LLP

Mark S. Chehi, Esq. (Bar No. 2855)

 

Robert S. Brady, Esq. (Bar No. 2847)

One Rodney Square

 

The Brandywine Building

PO Box 636

 

1000 West Street, 17th Floor

Wilmington, Delaware 19899

 

Wilmington, Delaware 19801

Telephone: (302) 651-3000

 

Telephone: (302) 571-6600

 

 

 

Proposed Special Corporate Counsel for the
Debtors and Debtors-in-Possession

 

Co-Counsel for the Ad Hoc Noteholder
Committee

 

58



 

The Voting Agent is:
Financial Balloting Group LLC

 

By Mail, Overnight Courier or Hand Delivery

 

757 Third Avenue, 3RD Floor

New York, New York  10017]

Attn: Mrs. Fields Ballot Tabulation

(646) 282-1800

 

Questions, requests for assistance and requests for additional copies of this Disclosure Statement may be directed to the Voting Agent at its address or telephone number set forth above.

 

59



 

APPENDIX I: JOINT PREPACKAGED PLAN OF REORGANIZATION

 

I-1



 

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

 

In re:

 

 

 

MRS. FIELDS’ ORIGINAL COOKIES,

08-[           ] [Lead Case]

INC., et al., (1)

 

 

 

Debtors.

Chapter 11

 

JOINT PREPACKAGED PLAN OF REORGANIZATION

UNDER CHAPTER 11 OF THE BANKRUPTCY CODE OF

MRS. FIELDS’ ORIGINAL COOKIES, INC. AND CERTAIN SUBSIDIARIES

 

MONTGOMERY, McCRACKEN,

 

AKIN GUMP STRAUSS HAUER &

WALKER & RHOADS, LLP

 

FELD LLP

David R. Hurst, Esq. (Bar No. 3743)

 

Fred S. Hodara, Esq.

Mark L. Desgrosseilliers, Esq.

 

590 Madison Avenue

(Bar No. 4083)

 

New York, New York 10022

1105 North Market Street, Suite 1500

 

Telephone: (212) 872-1000

Wilmington, Delaware 19801

 

 

Telephone: (302) 504-7800

 

David M. Dunn, Esq.

 

 

1333 New Hampshire Avenue, N.W.

 

 

Washington, D.C. 20036

 

 

Telephone: (202) 736-8000

Proposed Counsel for the Debtors and

 

 

Debtors-in-Possession

 

-and-

 

 

 

SKADDEN, ARPS, SLATE, MEAGHER 

 

YOUNG CONAWAY STARGATT &

& FLOM LLP

 

TAYLOR, LLP

Mark S. Chehi, Esq. (Bar No. 2855)

 

Robert S. Brady, Esq. (Bar No. 2847)

One Rodney Square

 

The Brandywine Building

PO Box 636

 

1000 West Street, 17th Floor

Wilmington, Delaware 19899

 

Wilmington, Delaware 19801

Telephone: (302) 651-3000

 

Telephone: (302) 571-6600

 

 

 

Proposed Special Corporate Counsel for the

 

Co-Counsel for the Ad Hoc Noteholder

Debtors and Debtors-in-Possession

 

Committee

 


(1)                                  The Debtors are the following entities:  Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc., Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., PTF, LLC, PMF, LLC, GACCF, LLC, and GAMAN, LLC.

 



 

NO CHAPTER 11 CASE HAS BEEN COMMENCED AT THIS TIME.  THE SOLICITATION MATERIALS ACCOMPANYING THIS PLAN OF REORGANIZATION HAVE NOT BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING “ADEQUATE INFORMATION” WITHIN THE MEANING OF BANKRUPTCY CODE SECTION 1125(a).  FOLLOWING THE COMMENCEMENT OF THEIR CHAPTER 11 CASES THE DEBTORS EXPECT TO PROMPTLY SEEK AN ORDER OF THE BANKRUPTCY COURT (I) APPROVING THEIR SOLICITATION OF VOTES AS HAVING BEEN IN COMPLIANCE WITH BANKRUPTCY CODE SECTION 1126(b) AND (II) CONFIRMING THIS PLAN OF REORGANIZATION PURSUANT TO BANKRUPTCY CODE SECTION 1129.

 



 

TABLE OF CONTENTS

 

Article I Definitions And General Provisions

 

1

Section 1.1

 

Definitions

 

1

Section 1.2

 

Time

 

10

 

 

 

 

 

Article II Classification of Claims and Interests; Impairment

 

10

Section 2.1

 

Summary

 

10

Section 2.2

 

Deemed Acceptance of Plan

 

11

Section 2.3

 

Deemed Rejection of Plan

 

11

 

 

 

 

 

Article III Treatment of Claims and Interests

 

12

Section 3.1

 

Class 1 — Other Secured Claims

 

12

Section 3.2

 

Class 2 — Priority Claims

 

12

Section 3.3

 

Class 3 — Secured Note Claims

 

13

Section 3.4

 

Class 4 — General Unsecured Claims

 

13

Section 3.5

 

Class 5 — MFOC Note Claim

 

14

Section 3.6

 

Class 6 — Intercompany Claims

 

14

Section 3.7

 

Class 7 — Section 510(b) Claims

 

14

Section 3.8

 

Classes 8A — 8C Interests

 

14

Section 3.9

 

Special Provision Governing Unimpaired Claims

 

15

 

 

 

 

 

Article IV Treatment of Unclassified Claims

 

15

Section 4.1

 

Summary

 

15

Section 4.2

 

Administrative Expense Claims

 

15

Section 4.3

 

Priority Tax Claims

 

16

 

 

 

 

 

Article V Acceptance or Rejection of this Plan

 

16

Section 5.1

 

Voting Classes

 

16

Section 5.2

 

Acceptance by Voting Classes

 

16

Section 5.3

 

Presumed Acceptance of Plan

 

16

Section 5.4

 

Presumed Rejection of Plan

 

16

Section 5.5

 

Non-Consensual Confirmation

 

17

 

 

 

 

 

Article VI Treatment of Executory Contracts and Unexpired Leases

 

17

Section 6.1

 

Assumption and Rejection of Executory Contracts and Unexpired Leases

 

17

Section 6.2

 

Rejection Damages Claims

 

18

Section 6.3

 

Employment Agreements

 

18

Section 6.4

 

Management Incentive Plan

 

18

 

 

 

 

 

Article VII Means for Implementation of Plan

 

18

Section 7.1

 

Continued Legal Existence

 

18

Section 7.2

 

Sources of Cash for Distribution

 

19

Section 7.3

 

Reinstatement of Interests

 

19

Section 7.4

 

Cancellation of Existing Securities and Agreements/Discharge of Old Notes Trustee

 

19

Section 7.5

 

Old Notes Trustee and Noteholder Committee Expenses

 

19

Section 7.6

 

Deferred Blackstone Fee

 

19

Section 7.7

 

Corporate Action

 

20

Section 7.8

 

Preservation of Causes of Action

 

20

 

i



 

Section 7.9

 

Effectuating Documents; Further Transactions

 

20

Section 7.10

 

Exemption From Certain Transfer Taxes and Recording Fees

 

20

Section 7.11

 

Further Authorization

 

21

 

 

 

 

 

Article VIII Provisions Regarding Corporate Governance of Reorganized Debtors

 

21

Section 8.1

 

Certificates of Incorporation and By-Laws

 

21

Section 8.2

 

Directors and Officers of Reorganized Debtors

 

21

Section 8.3

 

Issuance of New Securities

 

21

Section 8.4

 

Stockholders Agreement

 

22

 

 

 

Article IX Distributions Under The Plan

 

22

Section 9.1

 

Disbursing Agent

 

22

Section 9.2

 

Distributions of Cash

 

22

Section 9.3

 

Time Bar to Cash Payments

 

22

Section 9.4

 

No Interest on Claims or Interests

 

22

Section 9.5

 

Delivery of Distributions

 

23

Section 9.6

 

Distributions to Holders as of the Distribution Record Date

 

23

Section 9.7

 

Fractional Securities; Fractional Dollars

 

23

Section 9.8

 

Withholding Taxes

 

23

 

 

 

 

 

Article X Procedures for Treating and Resolving Disputed Claims

 

23

Section 10.1

 

Objections to Claims

 

23

Section 10.2

 

Estimation of Claims

 

24

Section 10.3

 

Resolution of Claims Objections

 

24

Section 10.4

 

Distributions After Allowance

 

24

 

 

 

 

 

Article XI Effect of Plan on Claims and Interests

 

24

Section 11.1

 

Revesting of Assets

 

24

Section 11.2

 

Release and Discharge of the Debtors

 

24

Section 11.3

 

Releases

 

25

Section 11.4

 

Setoffs

 

26

Section 11.5

 

Exculpation and Limitation of Liability

 

26

Section 11.6

 

Injunction

 

27

Section 11.7

 

Effect of Effective Date

 

27

 

 

 

 

 

Article XII Conditions Precedent

 

28

Section 12.1

 

Conditions to Confirmation

 

28

Section 12.2

 

Conditions to the Effective Date

 

28

Section 12.3

 

Waiver of Conditions to Confirmation or Consummation

 

29

Section 12.4

 

Effect of Non-Occurrence of the Effective Date

 

29

 

 

 

 

 

Article XIII Retention and Scope of Jurisdiction of the Bankruptcy Court

 

29

Section 13.1

 

Retention of Jurisdiction

 

29

Section 13.2

 

Alternative Jurisdiction

 

30

Section 13.3

 

Final Decree

 

30

 

 

 

 

 

Article XIV Miscellaneous Provisions

 

31

Section 14.1

 

Modification of the Plan

 

31

Section 14.2

 

Securities Law Matters

 

31

Section 14.3

 

Plan Supplement

 

31

Section 14.4

 

Allocation of Plan Distributions Between Principal and Interest

 

31

Section 14.5

 

Creditors’ Committee

 

31

 

ii



 

Section 14.6

 

Applicable Law

 

32

Section 14.7

 

Preparation of Estates’ Returns and Resolution of Tax Claims

 

32

Section 14.8

 

Notice

 

32

Section 14.9

 

Headings

 

32

Section 14.10

 

Revocation of Plan

 

32

Section 14.11

 

Severability of Plan Provisions

 

32

Section 14.12

 

No Admissions; Objection to Claims

 

32

Section 14.13

 

No Bar to Suits

 

32

Section 14.14

 

Exhibits/Schedules

 

33

Section 14.15

 

Conflicts

 

33

 

iii



 

INTRODUCTION

 

Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc., Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., PTF, LLC, PMF, LLC, GACCF, LLC, and GAMAN, LLC, debtors and debtors-in-possession in the above-captioned cases, jointly with the Noteholder Committee, propose this joint prepackaged plan of reorganization for the resolution of the outstanding Claims against and Interests in the Debtors.  The Debtors and Noteholder Committee are the proponents of this plan of reorganization within the meaning of section 1129 of the Bankruptcy Code.

 

ARTICLE I

DEFINITIONS AND GENERAL PROVISIONS

 

For the purposes of this Plan, except as otherwise expressly provided or unless the context otherwise requires, all capitalized terms not otherwise defined shall have the meanings ascribed to them in Section 1.1 of this Plan.  Any term used in this Plan that is not defined herein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy Code or the Bankruptcy Rules.

 

Section 1.1           Definitions.  The following terms shall have the following meanings when used in this Plan.

 

(a)                                  “Administrative Expense Claim” means a Claim for payment of an administrative expense of a kind specified in section 503(b) or 507(b) of the Bankruptcy Code and entitled to priority pursuant to section 507(a)(2) of the Bankruptcy Code, including, without limitation, the actual, necessary costs and expenses, incurred on or after the Filing Date, of preserving the Estates and operating the business of the Debtors, including wages, salaries or commissions for services rendered after the commencement of the Bankruptcy Cases, Professional Compensation, fees and expenses of the Old Notes Trustee and its counsel, fees and expenses of the Noteholder Committee and its professionals, and all fees and charges assessed against the Estates under 28 U.S.C. § 1930.

 

(b)                                 “Affiliates” has the meaning given such term by section 101(2) of the Bankruptcy Code.

 

(c)                                  “Allowed” means, with respect to any Claim, such Claim or any portion thereof (i) that has been allowed (a) by a Final Order of the Bankruptcy Court, (b) pursuant to the terms of this Plan, or (c) by agreement between the Holder of such Claim and the Debtors or Reorganized Debtors; (ii) as to which the Claims Objection Deadline has passed without the filing of an objection or request for estimation; or (iii) as to which any objection has been settled, waived, withdrawn or denied by a Final Order or in accordance with the Plan; provided, however, that, notwithstanding anything herein to the contrary, by treating a Claim as an “Allowed Claim” under (ii) above, the Debtors do not waive their rights to contest the amount and validity of any disputed, contingent or unliquidated Claim in the manner and venue in which such Claim would have been determined, resolved or adjudicated if the Bankruptcy Cases had not been commenced.

 

(d)                                 “Assets” means, collectively, all of the property, as defined in section 541 of the Bankruptcy Code of the Estates of the Debtors (including, without limitation, all of the assets, property,

 

1



 

interests (including equity interests) and effects, real and personal, tangible and intangible, including all Avoidance Actions), wherever situated as such properties exist on the Effective Date or thereafter.

 

(e)                                  “Asset Sales” means the sales of the assets of (i) Great American Cookie Company Franchising, LLC and Great American Manufacturing, LLC to NexCen Brands, Inc. and NexCen Asset Acquisition, LLC in January 2008, and (ii) Pretzel Time Franchising, LLC and Pretzelmaker Franchising, LLC to NexCen Brands, Inc. and NexCen Asset Acquisition, LLC in August 2007.

 

(f)                                    “Assumed Contracts” shall have the meaning given such term in Section 6.1 of this Plan.

 

(g)                                 “Avoidance Action” means any claim or cause of action of an Estate arising out of or maintainable pursuant to sections 510, 541, 542, 543, 544, 545, 547, 548, 549, 550, 551, or 553 of the Bankruptcy Code or under any other similar applicable law, regardless of whether or not such action has been commenced prior to the Effective Date.

 

(h)                                 “Bankruptcy Case” means, with respect to each Debtor, the chapter 11 case initiated by such Debtor’s filing on the Filing Date of a voluntary petition for relief in the Bankruptcy Court under chapter 11 of the Bankruptcy Code.  On the Filing Date, the Debtors will seek the joint administration of the Bankruptcy Cases.

 

(i)                                     “Bankruptcy Code” means title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as applicable to the Bankruptcy Cases.

 

(j)                                     “Bankruptcy Court” means the United States Bankruptcy Court for the District of Delaware or, in the event such court ceases to exercise jurisdiction over any Bankruptcy Case, such court or adjunct thereof that exercises jurisdiction over such Bankruptcy Case in lieu of the United States Bankruptcy Court for the District of Delaware.

 

(k)                                  “Bankruptcy Rules” means, collectively, the Federal Rules of Bankruptcy Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of Civil Procedure, as applicable to the Bankruptcy Cases or proceedings therein, and the local rules of the Bankruptcy Court, as applied to the Bankruptcy Cases or proceedings therein, as the case may be.

 

(l)                                     “Board of Directors” means the applicable board of directors of each of the Reorganized Debtors.

 

(m)                               “Business Day” means any day on which commercial banks are required to be open for business in Wilmington, Delaware.

 

(n)                                 “Capricorn” means Capricorn Investors III, L.P.

 

(o)                                 “Cash” means legal tender of the United States of America and equivalents thereof.

 

(p)                                 “Causes of Action” means all Avoidance Actions and any and all of a Debtor’s or a Reorganized Debtor’s actions, causes of action, suits, accounts, agreements, promises, rights to payment and claims, whether known or unknown, reduced to judgment, not reduced to judgment,

 

2



 

liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured, and whether asserted or assertable directly or derivatively, in law, equity, or otherwise.

 

(q)                                 “Claim” means a claim against one of the Debtors (or all or some of them) whether or not asserted, as defined in section 101(5) of the Bankruptcy Code.

 

(r)                                    “Claims Objection Deadline” means the later of the first Business Day which is (i) after the Effective Date, (ii) one hundred and eighty days after a proof of Claim was filed, or (iii) such other time as may be ordered by the Bankruptcy Court for cause shown by the Reorganized Debtors, as such dates may be from time to time extended by the Bankruptcy Court without further notice to parties in interest.

 

(s)                                  “Class” means a category of Claims or Interests described in Article III of this Plan.

 

(t)                                    “Confirmation Date” means the date on which the Bankruptcy Court enters the Confirmation Order.

 

(u)                                 “Confirmation Hearing” means the hearing before the Bankruptcy Court held to consider confirmation of this Plan and related matters under section 1128 of the Bankruptcy Code, as such hearing may be continued from time to time.

 

(v)                                 “Confirmation Order” means the order entered by the Bankruptcy Court confirming this Plan pursuant to section 1129 of the Bankruptcy Code, which shall be acceptable in form and substance to the Noteholder Committee, in its sole discretion.

 

(w)                               “Creditors’ Committee” means the official committee of unsecured creditors, if such committee is appointed in the Debtors’ Bankruptcy Cases pursuant to section 1102(a) of the Bankruptcy Code, and as such committee may be reconstituted from time to time.

 

(x)                                   “Cure Amount” means the amount required to satisfy the Debtors’ obligations under section 365(b) of the Bankruptcy Code with respect to the Debtors’ assumption of any Executory Contract or Unexpired Lease which amount will be determined in accordance with the procedures set forth in Section 6.1 of this Plan.

 

(y)                                 “Debtor” or “Debtors” means, individually, Mrs. Fields’ Original Cookies, Inc., Mrs. Fields Famous Brands, LLC, Mrs. Fields Financing Company, Inc., Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., PTF, LLC, PMF, LLC, GACCF, LLC, and GAMAN, LLC, each of which is a Debtor in its Bankruptcy Case.

 

(z)                                   “Debtor Restructuring Fees” means the Restructuring Fees of Blackstone Advisory Services L.P. (“Blackstone”), Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), and Montgomery, McCracken, Walker & Rhoads, LLP (“MMWR”).

 

(aa)                            “Disclosure Statement” means the Disclosure Statement for the Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Mrs. Fields’ Original Cookies, Inc., and Certain Subsidiaries that relates to this Plan, combined with any other written disclosure made by the Debtors, as amended, modified or supplemented from time to time, and

 

3



 

that is prepared and distributed in accordance with section 1125 of the Bankruptcy Code and Bankruptcy Rule 3017.

 

(bb)                          “Disputed” means, with reference to any Claim, a Claim or any portion thereof, that is not Allowed.

 

(cc)                            “Distribution” means any distribution by the Debtors or Reorganized Debtors to a Holder of an Allowed Claim or Interest.

 

(dd)                          “Distribution Date” means (i) the Initial Distribution Date and (ii) the first Business Day after the end of the months of March, June, September, and December, commencing with the first such date to occur more than ninety days after the Initial Distribution Date and continuing until the Final Distribution Date; provided, however, that, subject to Section 10.6 of this Plan, a Distribution Date (other than the Initial Distribution Date and Final Distribution Date) shall not occur if the aggregate value of the consideration to be distributed on account of all Allowed Claims on any Distribution Date is less than Twenty-Five Thousand and 00/100 Dollars ($25,000.00), in which case the amount to be distributed shall be retained and added to the amount to be distributed on the next Distribution Date.

 

(ee)                            “Distribution Record Date” means the date established by the Bankruptcy Court for determining the identity of Holders of Allowed Claims or Interests, other than Secured Notes Claims, entitled to receive Distributions under this Plan.

 

(ff)                                “District Court” means the United States District Court for the District of Delaware.

 

(gg)                          “Effective Date” means the day that is the first Business Day after all conditions to the Effective Date have been satisfied or waived pursuant to Sections 12.2 and 12.3 of this Plan.

 

(hh)                          “Estate” means, with regard to each Debtor, the estate that was created, pursuant to section 541 of the Bankruptcy Code, by the commencement by a Debtor of a Bankruptcy Case.

 

(ii)                                  “Executory Contract or Unexpired Lease” means all executory contracts and unexpired leases to which any of the Debtors is a party.

 

(jj)                                  “Existing Securities” means, collectively, the Old Notes, the MFOC Note and the MFOC Equity.

 

(kk)                            “Filing Date” means the date the Debtors file for relief under Chapter 11 of the Bankruptcy Code in accordance with this Plan.

 

(ll)                                  “Final Distribution” means the Distribution by the Debtors or Reorganized Debtors that satisfies all Allowed Claims and Interests in accordance with and to the extent provided in this Plan.

 

(mm)                      “Final Distribution Date” means the date on which the Final Distribution is made.

 

4



 

(nn)                          “Final Order” means an order or judgment of the Bankruptcy Court, or other court of competent jurisdiction, as entered on the docket in the Bankruptcy Cases or the docket of any other court of competent jurisdiction, which has not been reversed, stayed, modified or amended, and as to which the time to appeal or seek certiorari has expired, and no appeal or petition for certiorari has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been timely filed has been resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought.

 

(oo)                          “General Unsecured Claim” means any Unsecured Claim other than an Intercompany Claim.

 

(pp)                          “Guarantors” shall have the meaning given in the New Notes Indenture.

 

(qq)                          “Holder” means a holder of a Claim or Interest, as applicable.

 

(rr)                                “Impaired” shall have the meaning ascribed thereto in section 1124 of the Bankruptcy Code.

 

(ss)                            “Indenture Trustee Charging Lien” means a lien that secures repayment of the Old Notes Trustee’s fees and expenses, to the extent provided for in the Indenture.

 

(tt)                                “Initial Distribution Date” means the Effective Date or as soon as reasonably practical thereafter; provided, however, that in no event shall the Initial Distribution Date be more than five business days after the Effective Date unless otherwise ordered by the Bankruptcy Court.

 

(uu)                          “Intercompany Claim” means (i) any Claim against any Debtor held by any Non-Debtor Affiliate, (ii) any Claim against any Non-Debtor Affiliate held by any Debtor, or (iii) any Claim against any Debtor held by any other Debtor; provided, however, the MFOC Note Claim is not an Intercompany Claim.

 

(vv)                          “Interests” means the equity interests issued by each of the Debtors, including, without limitation, the MFOC Equity, MFOC Subsidiary Interests, and MFFB Subsidiary Interests and any options, warrants, puts, calls, subscriptions, or other similar rights or other agreements, commitments, or outstanding securities obligating any of the Debtors to issue, transfer, purchase, redeem, or sell any shares of capital stock or other securities, any claims arising out of any appraisal or dissenter’s rights, any claims arising from rescission of a purchase, sale or other acquisition of any common stock or other equity security (or any right, claim, or interest in and to any common stock or equity security) of any of the Debtors, and any claims for damages or any other relief arising from any such purchase, sale, or other acquisition of such common stock or other equity security.

 

(ww)                      “Lien” has the meaning set forth in section 101(37) of the Bankruptcy Code.

 

(xx)                              “Management Incentive Plan” means the management incentive plan, as more fully described in Section 6.4, that shall be implemented as soon as practicable after the Effective Date for the benefit of designated members of senior management of the Reorganized Debtors.

 

(yy)                          “MFFB” means Mrs. Fields Famous Brands, LLC.

 

5



 

(zz)                              “MFFB Subsidiary Interests” means the equity interests in the subsidiaries of MFFB that are directly or indirectly wholly owned by MFFB.

 

(aaa)                      “MFFC” means Mrs. Fields Financing Company, Inc.

 

(bbb)                   “MFH” means Mrs. Fields’ Holding Company, Inc.

 

(ccc)                      “MFOC” means Mrs. Fields’ Original Cookies, Inc.

 

(ddd)                   “MFOC Equity” means the equity in MFOC, which equity is wholly owned by MFH, the sole shareholder of MFOC.

 

(eee)                      “MFOC Equity Interests” means the equity interests in MFOC that are wholly owned by MFH.

 

(fff)                            “MFOC Note” means that certain 16.5% Amended and Restated Promissory Note issued by Mrs. Fields’ Original Cookies, Inc. to Capricorn.

 

(ggg)                   “MFOC Note Claims” means the Claims against MFOC arising under the MFOC Note, plus applicable fees, charges, costs and interest accrued but unpaid as of the Filing Date.

 

(hhh)                   “MFOC Subsidiary Interests” means the equity interests in subsidiaries of MFOC that are wholly owned by MFOC, the sole member of MFFB.

 

(iii)                               “Net Cash Proceeds” means, as of the Filing Date, the approximately $90 million in net cash held by the Old Notes Trustee, with such net cash derived from the Asset Sales.

 

(jjj)                               “New Common Equity” means newly issued shares of common stock of MFOC, par value $0.01 per share, to be issued on the Effective Date.  Holders of Allowed Secured Notes Claims will receive, in the aggregate, an amount equal to 87.5% of the New Common Equity issued and outstanding on the Effective Date, subject to dilution on account of the Management Incentive Plan and the Warrant.  The Holder of the MFOC Note Claim will receive, in the aggregate, an amount equal to 12.5% of the New Common Equity issued and outstanding on the Effective Date, subject to dilution on account of the Management Incentive Plan and the Warrant.

 

(kkk)                      “New Notes Indenture” means that certain indenture dated as of the Effective Date, by and among MFFB and MFFC, as issuers, the Guarantors as guarantors, the Old Notes Trustee, as trustee, as such indenture may be amended, supplemented, or otherwise modified from time to time, and all related agreements and documents.  A form of New Notes Indenture is annexed hereto as Exhibit 4.

 

(lll)                               “New Notes” means the secured notes to be issued on the Effective Date in the aggregate principal amount of $50 million, plus the amount by which the Noteholder Cash is less than $90 million.

 

(mmm)             “NexCen Shares” means the shares of NexCen Brands, Inc. transferred to MFFB as part of the consideration for the Asset Sales.  Of the aggregate 2,096,961 shares of NexCen Shares received from such sales, only 1,699,840 shares remain in an escrow for possible use to satisfy indemnity claims arising out of the sales, valued at $7.35 per share for the shares received in the

 

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pretzel business sale and valued at $4.23 per share for the shares received from the sale of the Great American Cookies business.  The closing sale price per share of NexCen Brands common stock on August 12, 2008 was $0.42 per share.

 

(nnn)                   “Non-Debtor Affiliates” means MFH, Mrs. Fields’ Companies, Inc., and any other non-Debtor subsidiaries of MFOC and MFFB.

 

(ooo)                   “Noteholder” or “Noteholders” means, individually, a holder of an Old Note and, collectively, all of the Holders of the Old Notes.

 

(ppp)                   “Noteholder Cash” means $90 million, less the amount by which the Restructuring Fees exceed $3.5 million in the aggregate; provided, however, that Capricorn shall be responsible for payment of any Debtor Restructuring Fees to the extent that the Debtor Restructuring Fees exceed $3.7 million in the aggregate; provided, further, however, that fees and expenses of Skadden and Akin Gump accrued through June 2, 2008, the expenses of Skadden through the Effective Date, and the fees and expenses of MMWR accruing beginning on the Filing Date shall not be counted toward either cap.  The Noteholders shall receive on the Effective Date the Noteholder Cash on a pro rata basis.

 

(qqq)                   “Noteholder Committee” means the ad hoc committee of certain holders of Old Notes who, collectively, hold in excess of 78% of the Old Notes and each of whom executed the Term Sheet and Restructuring Support Agreements.

 

(rrr)                            “Old Notes” means the 9.00% and 11.50% Senior Secured Notes due 2011 issued pursuant to the Old Notes Indenture.

 

(sss)                      “Old Notes Indenture” means that certain indenture dated as of March 16, 2004, by and among MFFB and MFFC, as issuers, the Guarantors as guarantors, the Old Notes Trustee, as trustee, as such indenture may have been amended, supplemented, or otherwise modified from time to time, and all related agreements and documents.

 

(ttt)                            “Old Notes Trustee” means The Bank of New York Mellon Trust Company, N.A., as trustee, or any successor trustee, under the Old Notes Indenture.

 

(uuu)                   “Other Secured Claim” means a Secured Claim other than a Secured Notes Claim.

 

(vvv)                   “Person” means an individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, limited liability partnership, trust, estate, unincorporated organization, governmental unit (as defined in section 101(27) of the Bankruptcy Code) or other entity.

 

(www)             “Plan” means this joint pre-packaged plan of reorganization as the same may hereafter be amended, modified or supplemented.

 

(xxx)                         “Plan Proponents” means the Debtors and the Noteholder Committee.

 

(yyy)                   “Plan Supplement” means the document containing the information specified in Section 14.3 of this Plan.

 

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(zzz)                         “Priority Claim” means a Claim entitled to priority under the provisions of section 507(a) of the Bankruptcy Code other than an Administrative Expense Claim or a Priority Tax Claim.

 

(aaaa)                “Priority Tax Claim” means a Claim against the Debtors that is of a kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.

 

(bbbb)            “Professional Compensation” means (i) any amounts that the Bankruptcy Court allows pursuant to section 330 of the Bankruptcy Code as compensation earned, and reimbursement of expenses incurred, by professionals employed by the Debtors and the Creditors’ Committee, if any, and (ii) any amounts the Bankruptcy Court allows pursuant to sections 503(b)(3) and (4) of the Bankruptcy Code in connection with the making of a substantial contribution to the Bankruptcy Cases.

 

(cccc)                “Pro Rata” means with respect to any Claim or Interest, at any time, the proportion that the amount of the Claim or Interest in a particular Class bears to the aggregate amount of all Claims or Interests (including Disputed Claims or Interests) in such Class, or, as appropriate, other Classes, unless in each case this Plan provides otherwise.

 

(dddd)            “Record Date” means August 6, 2008, the date for determining the identity of Holders of Allowed Claims or Interests entitled to vote to accept or reject this Plan.

 

(eeee)                “Record Holder” means the Holder of a Claim or Interest as of the Distribution Record Date.

 

(ffff)                        “Rejected Contracts” means all Executory Contracts and Unexpired Leases on Schedule 6.1 as Executory Contracts or Unexpired Leases to be rejected on the Effective Date.

 

(gggg)            “Reorganized Debtor” or “Reorganized Debtors” means, individually, any Debtor and, collectively, all of the Debtors, in each case on and after the Effective Date.

 

(hhhh)            “Reorganized MFFB” means MFFB on and after the Effective Date.

 

(iiii)                            “Reorganized MFFC” means MFFC on and after the Effective Date.

 

(jjjj)                            “Reorganized MFOC” means MFOC on and after the Effective Date.

 

(kkkk)                “Reorganized Subsidiaries” means, collectively, the Subsidiary Debtors on and after the Effective Date.

 

(llll)                            “Restructuring” means the proposed restructuring through this Plan of the Debtors’ obligations under the Old Notes and the Debtors’ other obligations.

 

(mmmm)    “Restructuring Fees” refers to the aggregate amount of professional fees (but not reasonable charges and disbursements) incurred in connection with the Restructuring.

 

(nnnn)            “Restructuring Support Agreements” means the letter agreements, dated June 3, 2008, as amended by the letter agreements dated August 13, 2008, by and among Capricorn, MFFB, MFFC, and MFOC, on the one hand, and the members of the Noteholder Committee listed on the signature pages thereto, on the other hand.

 

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(oooo)                    “Retained Actions” means all claims, Causes of Action, rights of action, suits and proceedings, whether in law or in equity, whether known or unknown, which any Debtor or any Debtor’s Estate may hold against any Person, including, without limitation, (i) claims and Causes of Action brought prior to the Effective Date, (ii) claims and Causes of Action against any Persons for failure to pay for products or services provided or rendered by any of the Debtors, (iii) claims and Causes of Action relating to strict enforcement of any of the Debtors’ intellectual property rights, including patents, copyrights and trademarks, (iv) claims and Causes of Action seeking the recovery of any of the Debtors’ or the Reorganized Debtors’ accounts receivable or other receivables or rights to payment created or arising in the ordinary course of any of the Debtors’ or the Reorganized Debtors’ businesses, including, without limitation, claim overpayments and tax refunds, and (v) all Avoidance Actions; provided, however, that Retained Actions shall not include those claims, Causes of Action, rights of action, suits and proceedings, whether in law or in equity, whether known or unknown, released under Section 11.3 herein.

 

(pppp)                    “Schedule 6.1” means the schedule to be provided in accordance with Section 6.1 of this Plan (the contents of which shall be acceptable to the Plan Proponents, each in their sole discretion), which shall contain a list of all Executory Contracts and Unexpired Leases to be rejected under this Plan.

 

(qqqq)                    “Section 510(b) Claims” means any claims against a Debtor that is subordinated, or subject to subordination, pursuant to section 510(b) of the Bankruptcy Code, including Claims arising from the recission of a purchase or sale of a security of a Debtor, for damages arising from the purchase or sale of such a security, or for reimbursement or contribution allowed under section 502 of the Bankruptcy Code on account of such Claim.  Any Claim against the Debtors that is described in section 510(b) of the Bankruptcy Code shall not receive a distribution under this Plan and shall be extinguished.

 

(rrrr)                                “Secured Claim” means a claim (as defined in section 101(5) of the Bankruptcy Code) that is secured by a valid, perfected and non-avoidable lien on collateral against any obligor or guarantor to such indebtedness (including any Lien on collateral) to the extent of the value of the holder of the Claim’s interest in such collateral as provided in section 506(a) of the Bankruptcy Code.

 

(ssss)                        “Secured Notes Claim” means the Secured Claims against the Debtors arising under the Old Notes and Old Notes Indenture, plus applicable fees, charges, costs and interest accrued but unpaid as of the Filing Date.

 

(tttt)                                “Secured Notes Deficiency Claim” means the portion, if any, of the Secured Notes Claim that exceeds the value of any Lien securing such indebtedness, including any Lien on collateral.  Solely for the purposes of this Plan and assuming Classes 3, 5 and 8A vote to accept this Plan, the Holders of the Secured Notes Deficiency Claim, if any, have agreed to waive such Claim.  In the event this Plan is not confirmed by the Bankruptcy Court, the Holders of the Secured Notes Deficiency Claim, if any, shall retain all rights to assert such Claims with respect to any other proposed plan or reorganization.

 

(uuuu)                    “Securities Act” means the Securities Act of 1933, as amended.

 

(vvvv)                    “SEC” means the United States Securities and Exchange Commission.

 

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(wwww)            “Stockholders Agreement” means the agreement described in Section 8.4 of this Plan.

 

(xxxx)                            “Subsidiary Debtors” means MFFC, Mrs. Fields Franchising, LLC, TCBY Systems, LLC, Mrs. Fields Gifts, Inc., The Mrs. Fields’ Brand, Inc., Mrs. Fields Cookies Australia, TCBY International, Inc., TCBY of Texas, Inc., PTF, LLC, PMF, LLC, GACCF, LLC, and GAMAN, LLC.

 

(yyyy)                    “Term Sheet” means the term sheet, dated June 2, 2008, as amended on July 11, 2008, and August 13, 2008, the form of which was annexed to the Restructuring Support Agreements as Exhibit A, setting forth the principal terms of the Restructuring, by and between MFOC, MFFB, and MFFC, on the one hand, and those Noteholders who are listed on the signature pages thereto, on the other hand.

 

(zzzz)                            “Unimpaired” means, with respect to a Class of Claims or Interests, any Class that is not Impaired.

 

(aaaaa)                  “Unsecured Claim” means any Claim other than an Other Secured Claim, a Secured Note Claim, an Administrative Expense Claim, a Priority Tax Claim, or a Priority Claim.

 

(bbbbb)             “Warrant” means that certain warrant to be issued to Capricorn, as the Holder of the MFOC Note, with such warrant entitling Capricorn to purchase an additional number of shares of the New Common Equity so that, after giving effect to the exercise of the Warrant, Capricorn would hold 30% of the outstanding New Common Equity.  The foregoing percentage is subject to dilution on the same basis as the New Common Equity to be issued to the Noteholders.  The Warrant will be exercisable in whole or in part, at any time or from time to time, for a period of 24 months, beginning on the Effective Date.  The aggregate exercise price of the Warrant is determined by first determining the sum of principal plus accrued and unpaid interest on the Old Notes through the Effective Date, less $140 million, divided by 18.875%, then divided by the aggregate number of shares of common stock initially issuable upon exercise of the Warrant (the “Initial Sum”).  Next, an implied rate of interest equal to 10.47% compounded semi-annually, will be applied to the Initial Sum and computed from the Effective Date through the date of exercise.  A form of warrant is annexed to this Plan as Exhibit 3, the terms of which are incorporated herein.

 

(ccccc)                  “Working Capital Facility” means that certain senior secured credit facility in an amount not to exceed $10 million to be entered into by certain of the Reorganized Debtors.

 

Section 1.2                                   Time.   Whenever the time for the occurrence or happening of an event as set forth in this Plan falls on a day which is a Saturday, Sunday, or legal holiday under the laws of the United States of America or the State of Delaware, then the time for the next occurrence or happening of said event shall be extended to the next day following which is not a Saturday, Sunday, or legal holiday.

 

ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT

 

Section 2.1                                   Summary.  The categories of Claims and Interests set forth below classify all Claims against and Interests in the Debtors for all purposes of this Plan.  This Plan is premised upon the substantive consolidation of the Debtors for Plan purposes only.  Accordingly, for

 

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Plan purposes, the assets and liabilities of the Debtors are deemed the assets and liabilities of a single, consolidated entity and any Intercompany Claims are eliminated.  A Claim or Interest shall be deemed classified in a particular Class only to the extent the Claim or Interest qualifies within the description of that Class and shall be deemed classified in a different Class to the extent that any remainder of such Claim or Interest qualifies within the description of such different Class.  The treatment with respect to each Class of Claims and Interests provided for in this Article II shall be in full and complete satisfaction, release, and discharge of such Claims and Interests.

 

The classification of Claims under this Plan is as follows:

 

Class

 

Designation

 

Impairment

 

Entitled to Vote

1

 

Other Secured Claims

 

Unimpaired

 

No

2

 

Priority Claims

 

Unimpaired

 

No

3

 

Secured Notes Claims

 

Impaired

 

Yes

4

 

General Unsecured Claims

 

Unimpaired

 

No

5

 

MFOC Note Claim

 

Impaired

 

Yes

6

 

Intercompany Claims

 

Impaired

 

No

7

 

Section 510(b) Claims

 

Impaired

 

No

 

The classification of Interests under this Plan is as follows:

 

Class

 

Designation

 

Impairment

 

Entitled to Vote

8A

 

MFOC Equity Interests

 

Impaired

 

Yes

8B

 

MFOC Subsidiary Interests

 

Unimpaired

 

No

8C

 

MFFB Subsidiary Interests

 

Unimpaired

 

No

 

Section 2.2                                   Deemed Acceptance of Plan.  Classes 1, 2, 4, 8B and 8C are Unimpaired under this Plan.  Accordingly, pursuant to section 1126(f) of the Bankruptcy Code, Classes 1, 2, 4, 8B and 8C are deemed to accept this Plan and are not entitled to vote to accept or reject this Plan.

 

Section 2.3                                   Deemed Rejection of Plan.  Classes 6 and 7 are Impaired under this Plan.  Accordingly, pursuant to section 1126(g) of the Bankruptcy Code, Classes 6 and 7 are deemed to reject this Plan and are not entitled to accept or reject this Plan.

 

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ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS

 

Section 3.1           Class 1 — Other Secured Claims.

 

(a)                                  Classification:  Class 1 consists of all Other Secured Claims.

 

(b)                                 Treatment:  The legal, equitable, and contractual rights of the Holders of Class 1 Other Secured Claims are unaltered by this Plan.  Unless the Holder of such Claim and the Plan Proponents agree to a different treatment, each Holder of an Allowed Class 1 Other Secured Claim shall receive, in full and final satisfaction of such Allowed Class 1 Other Secured Claim, one of the following alternative treatments:

 

1.                                       the legal, equitable and contractual rights to which such Claim entitles the Holder thereof shall be reinstated and the Holder paid in accordance with such legal, equitable, and contractual rights;

 

2.                                       the Debtors shall surrender all collateral securing such Claim to the Holder thereof, in full satisfaction of such Holder’s Allowed Class 1 Other Secured Claim, without representation or warranty by or recourse against the Debtors or Reorganized Debtors; or

 

3.                                       such Allowed Class 1 Other Secured Claim will be otherwise treated in a manner so that such Claim shall be rendered Unimpaired pursuant to section 1124 of the Bankruptcy Code.

 

The proposed treatment of each Class 1 Other Secured Claim shall be selected by the Plan Proponents.  Any default with respect to any Class 1 Other Secured Claim that occurred prior to the Effective Date shall be deemed cured upon the Effective Date.

 

(c)                                  Voting:  Class 1 is an Unimpaired Class, and the Holders of Allowed Class 1 Other Secured Claims are conclusively deemed to have accepted this Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, the Holders of Class 1 Other Secured Claims are not entitled to vote to accept or reject this Plan.

 

Section 3.2           Class 2 — Priority Claims.

 

(a)                                  Classification:  Class 2 consists of all Priority Claims.

 

(b)                                 Treatment:  The legal, equitable, and contractual rights of the Holders of Class 2 Priority Claims are unaltered by this Plan.  Unless the Holder of such Claim and the Plan Proponents agree to a different treatment, each Holder of an Allowed Class 2 Priority Claim shall receive, in full and final satisfaction of such Allowed Class 2 Priority Claim, one of the following alternative treatments:

 

1.                                       to the extent then due and owing on the Effective Date, such Allowed Class 2 Priority Claim will be paid in full in Cash by the Debtors or the Reorganized Debtors on, or as soon as practical after, the Effective Date;

 

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2.                                       to the extent not due and owing on the Effective Date, such Allowed Class 2 Priority Claim will be paid in full in Cash by the Debtors or the Reorganized Debtors when and as such Allowed Class 2 Priority Claim becomes due and owing in the ordinary course of business; or

 

3.                                       such Allowed Class 2 Priority Claim will be otherwise treated in a manner so that such Allowed Class 2 Priority Claim shall be rendered Unimpaired pursuant to section 1124 of the Bankruptcy Code.

 

The proposed treatment of each Class 2 Priority Claim shall be selected by the Plan Proponents.

 

(c)                                  Voting:  Class 2 is an Unimpaired Class, and the Holders of Class 2 Priority Claims are conclusively deemed to have accepted this Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, the Holders of Allowed Class 2 Priority Claims are not entitled to vote to accept or reject this Plan.

 

Section 3.3           Class 3 — Secured Note Claims.

 

(a)                                  Classification:  Class 3 consists of all Secured Notes Claims.  The Secured Notes Claims are Allowed in full and shall not be subject to any avoidance, reductions, set off, offset, recharacterization, subordination (whether equitable, contractual, or otherwise), counterclaims, cross-claims, defenses, disallowance, impairment, or any other challenges under any applicable law or regulation by any person or entity.  The Secured Notes Claims are Allowed in an amount not less than $195,747,000 plus applicable fees, charges, costs, and interest accrued but unpaid as of the Filing Date.

 

(b)                                 Treatment:  On the Effective Date, in exchange for their Allowed Secured Notes Claims against each of the Debtors, Holders of Allowed Secured Notes Claims shall receive, on a Pro Rata basis, (i) the Noteholder Cash, (ii) the New Notes, and (iii) 87.5% of the New Common Equity issued and outstanding as of the Effective Date.  The Holders of Allowed Secured Notes Claims shall be deemed to waive their Secured Notes Deficiency Claim on the Effective Date.

 

(c)                                  Voting: Class 3 is Impaired.  Pursuant to section 1126 of the Bankruptcy Code, each Holder of Class 3 Allowed Secured Notes Claims is entitled to vote to accept or reject this Plan.

 

Section 3.4           Class 4 — General Unsecured Claims.

 

(a)                                  Classification: Class 4 consists of all General Unsecured Claims.

 

(b)                                 Treatment:  On the later of the Effective Date and the date on which such Claims are Allowed, or, in each case, as soon thereafter as practicable, each Holder of an Allowed General Unsecured Claim in Class 4 shall be paid in full and final satisfaction of such Holder’s Allowed General Unsecured Claim in Cash.  A General Unsecured Claim that is not due and payable on or before the Effective Date shall be paid thereafter (i) in the ordinary course of business in accordance with the terms of any agreement that governs such General Unsecured Claim, or (ii) in accordance with the course of practice between the Debtors and such Holder with respect to such General Unsecured Claim

 

(c)                                  Voting:  Class 4 is an Unimpaired Class and the Holders of Class 4 General Unsecured Claims are conclusively deemed to have accepted this Plan pursuant to section 1126(f) of

 

13



 

the Bankruptcy Code.  Therefore, the Holders of Allowed Class 4 General Unsecured Claims are not entitled to vote to accept or reject this Plan.

 

Section 3.5           Class 5 — MFOC Note Claim.

 

(a)                                  Classification: Class 5 consists of the MFOC Note Claim.  The MFOC Note Claim is Allowed in full and shall not be subject to any avoidance, reductions, set off, offset, recharacterization, subordination (whether equitable, contractual, or otherwise), counterclaims, cross-claims, defenses, disallowance, impairment, or any other challenges under any applicable law or regulation by any person or entity.  The MFOC Note Claim is Allowed in an amount not less than $6,478,030 plus applicable fees, charges, costs and interest accrued but unpaid as of the Filing Date.

 

(b)                                 Treatment:  On the Effective Date, the Holder of the Allowed MFOC Note Claim in Class 5 shall receive, (i) 12.5% of the New Common Equity issued and outstanding as of the Effective Date, (ii) the Warrant, and (iii) $1.049 million in cash.

 

(c)                                  Voting:  Class 5 is Impaired.  Pursuant to section 1126 of the Bankruptcy Code, the Holder of the Class 5 MFOC Note Claim is entitled to vote to accept or reject this Plan.

 

Section 3.6                Class 6 — Intercompany Claims.

 

(a)                                  Classification: Class 6 consists of the Intercompany Claims.

 

(b)                                 Treatment:  The Intercompany Claims will be discharged on the Effective Date and the Holders of such Claims shall receive no recovery under this Plan.

 

(c)                                  Voting:  Class 6 is an Impaired Class and pursuant to section 1126(g) of the Bankruptcy Code, the Holders of the Class 6  Intercompany Claim are conclusively deemed to reject this Plan.

 

Section 3.7                Class 7 — Section 510(b) Claims.

 

(a)                                  Classification: Class 7 consists of the Section 510(b) Claims.

 

(b)                                 Treatment:  The Section 510(b) Claims shall be deemed canceled and extinguished and shall be discharged on the Effective Date and the Holders of such Claims shall receive no recovery under this Plan.

 

(c)                                  Voting:  Class 7 is an Impaired Class and pursuant to section 1126(g) of the Bankruptcy Code, the Holders of the Class 7 Section 510(b) Claims are conclusively deemed to reject this Plan.

 

Section 3.8                Classes 8A — 8C Interests.

 

(a)                                  Classification:  Class 8A consists of the MFOC Equity Interests, Class 8B consists of the MFOC Subsidiary Interests, and Class 8C consists of the MFFB Subsidiary Interests.

 

(b)                                 Treatment:  MFH, as the Holder of the MFOC Equity Interest in Class 8A, shall receive no recovery under this Plan other than the releases and injunctive relief described in Sections 11.3 and 11.6 of this Plan.  MFOC, as the Holder of the MFOC Subsidiary Interests in Class 8B, shall

 

14



 

have such Interests reinstated on the Effective Date and remain the 100% parent company of MFFB.  MFFB, as the Holder of the MFFB Subsidiary Interests in Class 8C, shall have such Interests reinstated on the Effective Date and remain the 100% parent company of each of its subsidiaries who are Debtors.

 

(c)                                  Voting: Class 8A is an Impaired Class.  Pursuant to section 1126 of the Bankruptcy Code, the Holder of Class 8A MFOC Equity Interests is entitled to vote to accept or reject this Plan.  Classes 8B and 8C are Unimpaired Classes and the Holders of Class 8B MFOC Subsidiary Interests and 8C MFFB Subsidiary Interests are conclusively deemed to have accepted this Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, the Holders of Allowed Class 8B MFOC Subsidiary Interests and Class 8C MFFB Subsidiary Interests are not entitled to vote to accept or reject this Plan.

 

Section 3.9                Special Provision Governing Unimpaired Claims.  Except as otherwise provided in this Plan, nothing under this Plan is intended to or shall affect the Debtors’ or Reorganized Debtors’ rights and defenses in respect of any Claim that is Unimpaired under this Plan, including, without limitation, all rights in respect of legal and equitable defenses to or setoffs or recoupment against or counter-claims with respect to such Unimpaired Claims.

 

ARTICLE IV
TREATMENT OF UNCLASSIFIED CLAIMS

 

Section 4.1                Summary.  Pursuant to section 1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims and Priority Tax Claims against the Debtors are not classified for purposes of voting on, or receiving Distributions under, this Plan.  Holders of such Claims are not entitled to vote on this Plan.  All such Claims are instead treated separately in accordance with this Article IV and in accordance with the requirements set forth in section 1129(a)(9) of the Bankruptcy Code.

 

Section 4.2                Administrative Expense Claims.

 

(a)                                  Subject to the provisions of sections 328, 330(a) and 331 of the Bankruptcy Code, each Holder of an Allowed Administrative Expense Claim will be paid the full unpaid amount of such Allowed Administrative Expense Claim in Cash on the latest of (i) on, or as soon as reasonably practical after, the Effective Date, (ii) as soon as practicable after the date on which such Claim becomes an Allowed Administrative Expense Claim, (iii) upon such other terms as may be agreed upon by such Holder and the Noteholder Committee or the Reorganized Debtors, or (iv) as otherwise ordered by the Bankruptcy Court; provided, however, that Allowed Administrative Expense Claims representing obligations incurred by the Debtors in the ordinary course of business, or otherwise assumed by the Debtors on the Effective Date pursuant to this Plan, including any tax obligations arising after the Filing Date, will be paid or performed by the Reorganized Debtors when due in accordance with the terms and conditions of the particular agreements or non-bankruptcy law governing such obligations.

 

(b)                                 Except as otherwise provided in this Plan, any Person asserting an Administrative Expense Claim, other than an Administrative Expense Claim (i) arising from the operation by the Debtors of their business in the ordinary course of business, or (ii) to the extent permitted by law, with respect to the fees and expenses of the Noteholder Committee and its professionals, and the fees and expenses of the Old Notes Trustee and its counsel, shall file a request

 

15



 

for payment of such Administrative Expense Claim with the clerk of the Bankruptcy Court within thirty days after the occurrence of the Effective Date.  At the same time any Person files a request for payment of an Administrative Expense Claim, such Person shall also serve a copy of the request for payment of an Administrative Expense Claim upon counsel for the Reorganized Debtors.  Any Person who fails to timely file and serve a request for payment of such Administrative Expense Claim shall be forever barred from seeking payment of such Administrative Expense Claim by the Debtors, the Estates, or the Reorganized Debtors.

 

(c)                                  Any Person seeking an award by the Bankruptcy Court of Professional Compensation shall file a final application with the Bankruptcy Court for allowance of Professional Compensation for services rendered and reimbursement of expenses incurred through the Effective Date within thirty days after the occurrence of the Effective Date.

 

Section 4.3                Priority Tax Claims.  With respect to any Allowed Priority Tax Claims not paid pursuant to prior Bankruptcy Court order, except to the extent that a holder of an Allowed Priority Tax Claim agrees to different treatment, each holder of an Allowed Priority Tax Claim will receive, at the option of the Plan Proponents, (i) on the Effective Date, Cash in an amount equal to such Allowed Priority Tax Claim, or (ii) commencing on the first anniversary of the Effective Date and continuing on each anniversary thereafter over a period not exceeding five years after the Filing Date, equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at the applicable rate under non-bankruptcy law, subject to the option of the Plan Proponents, to prepay the entire remaining amount of the Allowed Priority Tax Claim at any time, or (iii) upon such other terms determined by the Bankruptcy Court to provide the Holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim.  All Allowed Priority Tax Claims which are not due and payable on or before the Effective Date will be paid in the ordinary course of business as such obligations become due.

 

ARTICLE V
ACCEPTANCE OR REJECTION OF THIS PLAN

 

Section 5.1                Voting Classes.  Each Holder of an Allowed Claim or Interest, as applicable, in Classes 3, 5, and 8A shall be entitled to vote to accept or reject this Plan.

 

Section 5.2                Acceptance by Voting Classes.   Holders of Allowed Claims or Interests in Classes 3, 5, and 8A shall have accepted this Plan if (i) the Holders (other than any Holder designated under section 1126(e) of the Bankruptcy Code) of at least two-thirds in amount and one-half in number of the Allowed Claims actually voting in Classes 3 and 5 have voted to accept this Plan, and (ii) the Holders (other than any Holder designated under section 1126(e) of the Bankruptcy Code) of at least two-thirds in amount of the Allowed Interests actually voting in Class 8A have voted to accept this Plan.

 

Section 5.3                Presumed Acceptance of Plan.  Classes 1, 2, 4, 8B and 8C are Unimpaired under this Plan, and are therefore presumed to have accepted this Plan pursuant to section 1126(f) of the Bankruptcy Code.

 

Section 5.4                Presumed Rejection of Plan.  Classes 6 and 7 are Impaired under this Plan, and are therefore presumed to have rejected this Plan pursuant to section 1126(g) of the Bankruptcy Code.

 

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Section 5.5                Non-Consensual Confirmation. To the extent that any of Classes 3, 5 and 8A vote to reject this Plan, the Plan Proponents reserve the right to seek (i) Confirmation of this Plan under section 1129(b) of the Bankruptcy Code, and/or (ii) modify this Plan in accordance with Section 14.1 hereof.

 

ARTICLE VI
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

 

Section 6.1                Assumption and Rejection of Executory Contracts and Unexpired Leases.  On the Effective Date, all Executory Contracts or Unexpired Leases of any of the Debtors will be deemed assumed in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, except those Executory Contracts or Unexpired Leases that (i) have been previously assumed or rejected by any Debtor (with the consent of the Noteholder Committee) pursuant to an order of the Bankruptcy Court, (ii) previously expired or terminated pursuant to its own terms, (iii) are the subject of a motion to assume or reject filed by any Debtor (with the consent of the Noteholder Committee) which is pending on the Effective Date, (iv) are identified as being Rejected Contracts on Schedule 6.1 to the Plan, or (v) are assumed or rejected pursuant to the terms of the Plan.  An Executory Contract or Unexpired Lease that is deemed to be assumed pursuant to the foregoing sentence shall be referred to as an “Assumed Contract.”  The Plan Proponents shall file Schedule 6.1 (the contents of which shall be acceptable to the Plan Proponents each in their sole discretion) with the Bankruptcy Court and serve Schedule 6.1 on the non-Debtor parties under the agreements listed thereon no later than ten days prior to the last date for filing objections to confirmation of the Plan, provided, however, that the Plan Proponents may amend Schedule 6.1 at any time prior to the Confirmation Hearing.

 

Entry of the Confirmation Order by the Bankruptcy Court shall constitute findings by the Bankruptcy Court (1) approving the rejection of the Rejected Contracts and (2) with respect to the Assumed Contracts, that (i) the Reorganized Debtors had properly provided for the cure of any defaults that might have existed, (ii) each assumption was in the best interest of the Reorganized Debtors, their Estates, and all parties in interest in the Chapter 11 Cases and (iii) the requirements for assumption of any executory contract or unexpired lease to be assumed had been satisfied. Except as otherwise provided in the following sentence, all cure payments under any Assumed Contract would be made by the Reorganized Debtors on the Effective Date or as soon as practicable thereafter, provided, however, that any Claim arising on account of Cure Amounts shall be deemed to have been waived by any Non-Debtor Affiliate who is party to an Assumed Contract.  In the event of a dispute, cure payments required by section 365(b)(1) of the Bankruptcy Code shall be paid upon entry of a Final Order resolving such dispute.  Each Executory Contract or Unexpired Lease that is assumed by any Debtor (with the consent of the Noteholder Committee) under the Plan and pursuant to the Confirmation Order or pursuant to any other Final Order entered by the Bankruptcy Court shall be deemed to be assigned to the Reorganized Debtors on the later of (i) the Effective Date or (ii) the date of assumption.

 

All of the Debtors’ programs, plans, agreements and arrangements relating to non-executive employee compensation and benefits, including, without limitation, all savings plans, retirement plans, healthcare plans, disability plans, severance plans, incentive plans, and life, accidental death and dismemberment insurance plans, entered into before the Filing Date and not since terminated, will be deemed to be, and will be treated as though they are, executory contracts that are assumed under this Section 6.1 of the Plan, and the Debtors’ and Reorganized Debtors’ obligations under such programs, plans, agreements

 

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and arrangements will survive confirmation of the Plan and will be fulfilled in the ordinary course of business.

 

Section 6.2                Rejection Damages Claims.  All proofs of claim with respect to Claims arising from the rejection pursuant to this Plan of the Rejected Contracts, if any, must be filed with the clerk of the Bankruptcy Court and served upon counsel for the Reorganized Debtors within thirty days of the occurrence of the Effective Date.  Any Claim arising from the rejection of Executory Contracts or Unexpired Leases that becomes an Allowed Claim is classified and shall be treated as a Class 4 General Unsecured Claim, as applicable; provided, however, that any Claim arising from a Rejected Contract shall be deemed to have been waived by any Non-Debtor Affiliate who is party to such a Rejected Contract.  Any Claims arising from the rejection of an Executory Contract or Unexpired Lease not filed within the time required by this section will be forever barred from assertion against the Debtors, the Reorganized Debtors, the Estates, or property of the Debtors or Reorganized Debtors.

 

Section 6.3                Employment Agreements.   Except as otherwise provided in this Plan, to the extent the Debtors had employment agreements with any of their executives and key employees as of the Filing Date, the Plan Proponents will disclose on Schedule 6.1 whether they intend to reject such contracts.  Notwithstanding anything to the contrary in this Plan, the Reorganized Debtors shall maintain all of their existing rights, including, without limitation, any rights that they may have to amend, modify, or terminate, the employment agreements assumed pursuant to this article, subject to the existing contractual rights, if any, of the directors, officers or employees affected thereby.  All employment agreements assumed pursuant to this Section 6.3 of this Plan shall be deemed modified such that transactions contemplated by this Plan shall not be a “change in control” as defined in the relevant employment agreements.  Any Holder of a Claim arising from the rejection of an employment agreement must file a proof of claim with the Bankruptcy Court within thirty days of the deemed rejection.  Any Claims arising from the rejection of an employment agreement not filed within the time required by this section will be forever barred from assertion against the Debtors, the Reorganized Debtors, the Estates or property of the Debtors or Reorganized Debtors.

 

Section 6.4                Management Incentive Plan.  The Board of Directors of Reorganized MFOC shall have the authority to establish a Management Incentive Plan that shall be acceptable to the Noteholder Committee, as soon as practicable after the Effective Date, to provide designated members of senior management of the Reorganized Debtors with warrants and/or options for up to 10% of the equity of Reorganized MFOC, on a fully diluted basis, being reserved for issuance to senior management at the same strike price as the Warrant.  The Management Incentive Plan will contain terms and conditions that shall be determined by the Board of Directors of Reorganized MFOC.

 

ARTICLE VII
MEANS FOR IMPLEMENTATION OF PLAN

 

Section 7.1                Continued Legal Existence.  Except as otherwise provided in this Plan, each of the Debtors will continue to exist after the Effective Date as a separate legal entity, with all the powers of such an entity (whether a corporation, limited liability company or other entity, as appropriate) under applicable law in the jurisdiction in which each applicable Debtor is incorporated or otherwise formed and pursuant to its certificate or articles of incorporation and by-laws or other organizational documents in effect prior to the Effective Date, except to the extent such certificate or

 

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articles of incorporation and by-laws or other organizational documents are amended by this Plan, without prejudice to any right to terminate such existence (whether by merger or otherwise) under applicable law after the Effective Date.

 

Section 7.2                Sources of Cash for Distribution.  All Cash necessary for the Reorganized Debtors to make payments required by this Plan shall be obtained from existing Cash balances, the Net Cash Proceeds held by the Old Notes Trustee, the operations of the Debtors or Reorganized Debtors or the Working Capital Facility.

 

Section 7.3                Reinstatement of Interests.  There shall be no reinstatement or other recovery for the Interests held directly by MFH in MFOC in accordance with the terms of the Plan.  The MFOC Subsidiary Interests held directly by MFOC and the MFFB Subsidiary Interests held by MFFB or its Subsidiary Debtors shall be reinstated in accordance with the terms of the Plan.

 

Section 7.4                Cancellation of Existing Securities and Agreements/Discharge of Old Notes Trustee.  Except as set forth in the Plan, upon the Effective Date, the Existing Securities shall be cancelled and the holders thereof shall have no further rights or entitlements in respect thereof against the Debtors or Non-Debtor Affiliates except the rights to receive the distributions to be made to such holders under the Plan and all Liens against Non-Debtor Affiliates shall be automatically released.  To the extent possible, distributions to be made under the Plan to the beneficial owners of the Old Notes shall be made through The Depository Trust Company (“DTC) and its participants.  The Confirmation Order shall authorize and direct the Old Notes Trustee to take whatever action may be necessary or appropriate, in its reasonable discretion, to deliver the distributions, including, without limitation, obtaining an order of the Bankruptcy Court.  On the Effective Date, the Old Notes Trustee and its agents shall be discharged of all its obligations associated with (i) the Old Notes, (ii) the Old Notes Indenture, and (iii) any related documents, and released from all Claims arising in the Bankruptcy Cases.  As of the Effective Date, the Indenture shall be deemed fully satisfied and cancelled, except that such cancellation shall not impair the rights of the Holders of the Old Notes to receive distributions under the Plan, or the rights of the Old Notes Trustee under the Indenture Trustee Charging Lien, to the extent that the Old Notes Trustee has not received payment as provided for in Section 7.5 of the Plan.  On the Effective Date, all Liens in favor of the Old Notes Trustee for the benefit of the holders of the Old Notes or otherwise arising under the Old Notes Indenture shall be deemed released.

 

Section 7.5                Old Notes Trustee and Noteholder Committee Expenses.  To the extent permitted by law, all outstanding fees and expenses of (i) the Old Notes Trustee and its counsel and (ii) the Noteholder Committee and its professionals shall be paid in Cash on the Effective Date by the Debtors or Reorganized Debtors as an Administrative Expense Claim, without the need for application to, or approval of, the Bankruptcy Court.  To the extent that the Old Notes Trustee in its capacity as trustee under the Indenture provides services related to the Distributions pursuant to this Plan, the Old Notes Trustee will be paid by the Reorganized Debtors, without Bankruptcy Court approval, the reasonable compensation for such services and reimbursement of reasonable expenses incurred in connection therewith, with such payments to be made on terms agreed to between the Old Notes Trustee and the Reorganized Debtors.

 

Section 7.6                Deferred Blackstone Fee.  The Reorganized Debtors will pay not later than December 31, 2008 or earlier, should there be available net proceeds from the sale of TCBY, if sold, or any of the NexCen Shares, the remainder of the fees and expenses payable to Blackstone for

 

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its financial advisory work for the Debtors.  The Debtors estimate that the amount of such fees and expenses to be so paid will be approximately $1.0 million.

 

Section 7.7                Corporate Action.  Each of the matters provided for under this Plan involving the corporate structure of any Debtor or Reorganized Debtor or any corporate action to be taken by or required of any Debtor or Reorganized Debtor, including, without limitation, the adoption of the certificates of incorporation and bylaws of each of the Reorganized Debtors as provided for in Section 8.1 of this Plan, shall be deemed to have occurred and be effective as provided herein, and shall be authorized, approved and, to the extent taken prior to the Effective Date, ratified in all respects without any requirement of further action by stockholders, members, creditors, directors, or managers of any of the Debtors or the Reorganized Debtors.

 

Section 7.8                Preservation of Causes of Action.  In accordance with section 1123(b)(3) of the Bankruptcy Code the Reorganized Debtors will retain and may (but are not required to) enforce all Retained Actions.  After the Effective Date, the Reorganized Debtors, in their sole and absolute discretion, shall have the right to bring, settle, release, compromise, or enforce such Retained Actions (or decline to do any of the foregoing), without further approval of the Bankruptcy Court. The Reorganized Debtors or any successors, in the exercise of their sole discretion, may pursue such Retained Actions so long as it is in the best interests of the Reorganized Debtors or any successors holding such rights of action. The failure of the Debtors to specifically list any claim, right of action, suit, proceeding or other Retained Action in this Plan does not, and will not be deemed to, constitute a waiver or release by the Debtors or the Reorganized Debtors of such claim, right of action, suit, proceeding or other Retained Action, and the Reorganized Debtors will retain the right to pursue such claims, rights of action, suits, proceedings and other Retained Actions in their sole discretion and, therefore, no preclusion doctrine, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable, or otherwise) or laches will apply to such claim, right of action, suit, proceeding, or other Retained Action upon or after the confirmation or consummation of this Plan.

 

Section 7.9                Effectuating Documents; Further Transactions.  Each of the Debtors (subject to the consent of the Noteholder Committee) and Reorganized Debtors, and their respective officers and designees, is authorized to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents, and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of this Plan, or to otherwise comply with applicable law.

 

Section 7.10         Exemption From Certain Transfer Taxes and Recording Fees.  Pursuant to section 1146(a) of the Bankruptcy Code, any transfers from a Debtor to a Reorganized Debtor or to any other Person or entity pursuant to this Plan, or any agreement regarding the transfer of title to or ownership of any of the Debtors’ real or personal property will not be subject to any document recording tax, stamp tax, conveyance fee, sales tax, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, or other similar tax or governmental assessment, and the Confirmation Order will direct the appropriate state or local governmental officials or agents to forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment.

 

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Section 7.11                            Further Authorization.  The Reorganized Debtors shall be entitled to seek such orders, judgments, injunctions, and rulings as they deem necessary to carry out the intentions and purposes, and to give full effect to the provisions, of this Plan.

 

ARTICLE VIII
PROVISIONS REGARDING CORPORATE GOVERNANCE OF REORGANIZED DEBTORS

 

Section 8.1                                   Certificates of Incorporation and By-Laws.  The organizational documents of each Reorganized Debtor  shall be amended to conform with the requirements of section 1123(a)(6) of the Bankruptcy Code.

 

Section 8.2                                   Directors and Officers of Reorganized Debtors.

 

(a)                Directors.  Pursuant to the Term Sheet, the initial Board of Directors of Reorganized MFOC shall consist of seven directors, four of whom shall be designated by the Noteholder Committee, and two of whom shall be designated jointly by Capricorn.  The chief executive officer of Reorganized MFOC shall be the seventh director.  The identities of the members of the initial Board of Directors to be designated by the Noteholder Committee and the identity of the chief executive officer have not been determined as of the date of this Plan and shall be disclosed in the Plan Supplement.  The members of the initial Board of Directors to be designated by Capricorn are expected to be Don K. Rice and John D. Collins, each of whom is currently a director of MFFB, though it is possible that either or both of them may decline to be so designated prior to the Effective Date.  The members of the initial Boards of Directors or equivalent governing bodies for the Reorganized Subsidiaries shall be selected by the initial Board of Directors for Reorganized MFOC and shall consist of officers or directors of the Reorganized Debtors.  To the extent any such Person is an Insider (as defined in section 101(31) of the Bankruptcy Code), the nature of any compensation for such Person will also be disclosed prior to the Confirmation Hearing.   Each of the Persons on the initial Boards of Directors of the respective Reorganized Debtors shall serve in accordance with the certificates of incorporation and bylaws of the respective Reorganized Debtor, as the same may be amended from time to time.

 

(b)               Officers.  The identities of the initial officers of the Reorganized Debtors have not been determined as of the date hereof and shall be disclosed in the Plan Supplement.  To the extent any such Person is an Insider (as defined in section 101(31) of the Bankruptcy Code), the nature of any compensation for such Person will also be disclosed at such time.  The initial officers shall serve in accordance with the certificates of incorporation and bylaws of the applicable Reorganized Debtor, as the same may be amended from time to time.

 

Section 8.3                                   Issuance of New Securities

 

(a)                New Common Equity.  On the Effective Date, Reorganized MFOC shall issue shares of New Common Equity pursuant to the Plan.  The certificate of incorporation and by-laws for Reorganized MFOC, forms of which are annexed hereto as Exhibits 1 and 2 and are described in Appendix I to the Disclosure Statement, sets forth the rights of the New Common Equity.  The New Common Equity shall be issued subject to the Stockholders Agreement, a form of which is annexed hereto as Exhibit 5 and described in Appendix III to the Disclosure Statement.

 

(b)               Warrant.  On the Effective Date, Reorganized MFOC shall (i) issue the Warrant, a substantially similar form of which is annexed hereto as Exhibit 3 and described in Appendix IV to

 

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the Disclosure Statement, and (ii) have authorized the issuance of New Common Equity issuable under the Warrant.

 

(c)                New Notes.   On the Effective Date, Reorganized MFFB and Reorganized MFFC, as co-issuers, shall issue $50 million in principal amount of New Notes (as described in Section 1.1, subject to an increase by the amount by which the Noteholder Cash is less than $90 million), which New Notes incorporate the terms and conditions set forth in the New Notes Indenture annexed hereto as Exhibit 4 and described in Appendix II to the Disclosure Statement.  The “issue price” and “yield to maturity” of a New Note for U.S. federal income tax purposes shall be determined by the co-issuers and shall be binding on all holders and persons holding beneficial interests in the New Notes.

 

Section 8.4                                   Stockholders Agreement. All holders of New Common Equity and Warrant will be subject to the Stockholders Agreement which will, among other things, govern each holder of New Common Equity’s and Warrant’s access to information with respect to the Reorganized Debtors and the ability to transfer such holder’s New Common Equity and Warrant.  Each certificate representing share(s) of New Common Equity or Warrant shall bear a legend indicating that the New Common Equity and Warrant are subject to the Stockholders Agreement.  The Stockholders Agreement, a form of which is annexed hereto as Exhibit 5 and described in Appendix III to the Disclosure Statement, will be effective as of the Effective Date.

 

ARTICLE IX
DISTRIBUTIONS UNDER THE PLAN

 

Section 9.1                                   Disbursing Agent.  Unless otherwise provided for herein, all Distributions under this Plan shall be made by the Reorganized Debtors or their agent.  Notwithstanding the foregoing, all Distributions to the Holders of Allowed Secured Notes Claims shall be made by the applicable Reorganized Debtor to such Holders through the Old Notes Trustee.

 

Section 9.2                                   Distributions of Cash.  Any Distribution of Cash made by the Reorganized Debtors pursuant to this Plan shall, at the Reorganized Debtor’s option, be made by check drawn on a domestic bank or by wire transfer from a domestic bank.

 

Section 9.3                                   Time Bar to Cash Payments. Checks issued in respect of Allowed Claims shall be null and void if not negotiated within one hundred and eighty days after the date of issuance thereof.  Requests for reissuance of any voided check shall be made directly to the Debtors or Reorganized Debtors by the holder of the Allowed Claim to whom such check was originally issued. Any Claim in respect of such a voided check shall be made on or before the later of (a) the first anniversary of the date on which such Distribution or payment was made and (b) one hundred and eighty days after the date of the issuance of such check. If no Claim is made as provided in the preceding sentence, all Claims in respect of void checks shall be discharged and forever barred and such unclaimed Distributions shall revert to the Debtors or Reorganized Debtors.

 

Section 9.4                                   No Interest on Claims or Interests.  Unless otherwise specifically provided for in this Plan, the Confirmation Order, or a postpetition agreement in writing between the Debtors and a Holder, postpetition interest shall not accrue or be paid on Claims, and no Holder shall be entitled to interest accruing on or after the Filing Date on any Claim; provided, however, that in accordance with the Term Sheet, the Old Notes and MFOC Note shall accrue interest through the Effective Date.  Additionally, and without limiting the foregoing, interest shall not accrue or be paid on

 

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any Disputed Claim in respect of the period from the Effective Date to the date a Final Distribution is made when and if such Disputed Claim becomes an Allowed Claim.

 

Section 9.5                                   Delivery of Distributions.  The Distribution to a Holder of an Allowed Claim shall be made by the Reorganized Debtors (i) at the last known address of such Holder according to the Debtors’ books and records; (ii) at the address set forth on any proof of Claim filed by such Holder or at the address set forth in any written notices of address change delivered to the Debtors or Reorganized Debtors after the date of any related proof of Claim, or (iii) in the case of Secured Notes Claims, to the Old Notes Trustee for ultimate distribution to the Holders of such Secured Notes Claims.  If any Holder’s Distribution is returned as undeliverable, no further Distributions to such Holder shall be made unless and until the Reorganized Debtors are notified of such Holder’s then-current address, at which time all missed Distributions shall be made to such Holder without interest.  All Distributions returned to the Reorganized Debtors and not claimed within six months of return shall be irrevocably retained by the Reorganized Debtors notwithstanding any federal or state escheat laws to the contrary.  Upon such reversion, the claim of any Holder or their successors with respect to such property shall be discharged and forever barred notwithstanding any federal or state escheat laws to the contrary.

 

Section 9.6                                   Distributions to Holders as of the Distribution Record Date.  All Distributions on Allowed Claims, except for distributions to Holders of Secured Notes Claims, shall be made to the Record Holders of such Claims.  As of the close of business on the Distribution Record Date, there shall be no further changes in the Record Holder of any Claim.  The Reorganized Debtors shall have no obligation to recognize any transfer of any Claim occurring after the Distribution Record Date.  The Reorganized Debtors shall instead be entitled to recognize and deal for all purposes under this Plan with the Record Holders as of the Distribution Record Date.  In the case of Secured Notes Claims, the distribution will be made to the Old Notes Trustee for ultimate distribution to the Holders of such Secured Notes Claims.

 

Section 9.7                                   Fractional Securities; Fractional Dollars.  Any other provision of this Plan notwithstanding, payments of fractions of shares of New Common Equity will not be made and shall be deemed to be zero.  Any other provision of this Plan notwithstanding, the Reorganized Debtors shall not be required to make Distributions or payments of fractions of dollars.  Whenever any payment of a fraction of a dollar under this Plan would otherwise be called for, the actual payment shall reflect a rounding of such fraction to the nearest whole dollar (up or down), with half dollars or less being rounded down.

 

Section 9.8                                   Withholding Taxes.  The Debtors or the Reorganized Debtors, as the case may be, shall comply with all withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority, and all Distributions under this Plan shall be subject to any such withholding and reporting requirements.

 

ARTICLE X
PROCEDURES FOR TREATING AND RESOLVING DISPUTED CLAIMS

 

Section 10.1                            Objections to Claims.  The Reorganized Debtors shall be entitled to object to Claims, provided, however, that the Debtors and Reorganized Debtors shall not be entitled to object to Claims (i) that have been Allowed by a Final Order entered by the Bankruptcy Court prior to the Effective Date or (ii) that are Allowed by the express terms of this Plan.  Any objections to Claims must be filed by the Claims Objection Deadline.

 

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Section 10.2         Estimation of Claims.  The Plan Proponents or the Reorganized Debtors, as the case may be, may, at any time, request that the Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to section 502 of the Bankruptcy Code regardless of whether the Plan Proponents or the Reorganized Debtors have previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including during the pendency of any appeal relating to any such objection.  All of the aforementioned Claims objection, estimation and resolution procedures are cumulative and are not necessarily exclusive of one another.

 

Section 10.3         Resolution of Claims Objections.  On and after the Effective Date, the Reorganized Debtors shall have the authority to compromise, settle, otherwise resolve, or withdraw any objections to Claims without approval of the Bankruptcy Court.

 

Section 10.4         Distributions After Allowance.  On the first Distribution Date after a Disputed General Unsecured Claim becomes an Allowed General Unsecured Claim, the Holder of an Allowed General Unsecured Claim shall receive the Distribution to which such Holder is then entitled plus any Distribution such Holder would have received on a prior Distribution Date had such Holder’s Claim been Allowed on such prior Distribution Date; provided, however, if the date such General Unsecured Claim becomes entitled to a Distribution is less than twenty Business Days prior to the next Distribution Date, the Distribution with respect to such Claim will be made on the first Distribution Date that occurs more than twenty Business Days after the Claim becomes entitled to a Distribution.  All Distributions made under this article of this Plan will be made together with any dividends, payments, or other Distributions made on account of, as well as any obligations arising from, the distributed property as if such Claim had been an Allowed Claim on the dates Distributions were previously made to Allowed Holders included in the applicable Class.

 

ARTICLE XI
EFFECT OF PLAN ON CLAIMS AND INTERESTS

 

Section 11.1         Revesting of Assets.  Except as otherwise explicitly provided in this Plan, on the Effective Date, all property comprising the Estates (including Retained Actions, but excluding property that has been abandoned pursuant to an order of the Bankruptcy Court) shall revest in the Reorganized Debtors, free and clear of all Claims, Liens, charges, encumbrances, rights and Interests of creditors and equity security holders, except as specifically provided in this Plan.  As of the Effective Date, the Reorganized Debtors may operate their businesses and use, acquire, and dispose of property and settle and compromise Claims or Interests without supervision of the Bankruptcy Court, free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by this Plan or the Confirmation Order.

 

Section 11.2         Release and Discharge of the Debtors.  Pursuant to section 1141(d) of the Bankruptcy Code, except as otherwise specifically provided in this Plan or in the Confirmation Order, the Distributions and rights that are provided in this Plan shall be deemed to and hereby unconditionally and irrevocably release and discharge the Debtors, the Reorganized Debtors or their Estates from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under this Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under this Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or

 

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thereafter arising, in law, equity or otherwise that relates to any act, omission, transaction, event or other occurrence taking place on or prior to the Effective Date.

 

Section 11.3         Releases.

 

(a)           Debtor Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the Debtors and Reorganized Debtors, on behalf of themselves and their Estates shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, the shareholders of the Non-Debtor Affiliates, in their capacity as such, the current and former members of the Noteholder Committee including their legal and financial advisors, in each case in their capacity as such, and the Old Notes Trustee, including its legal and financial advisors, in each case in their capacity as such (collectively, the “Debtor Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under this Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under this Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Debtor Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

(b)           Non-Debtor Affiliate Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, and the shareholders of the Non-Debtor Affiliates, in their capacity as such, shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge the Debtors, and each of its and their Estates, Reorganized Debtors, all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, the current and former members of the Noteholder Committee including their legal and financial advisors, in each case in their capacity as such, and the Old Notes Trustee, including its legal and financial advisors, in each case in their capacity as such (collectively, the “Non-Debtor Affiliate Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under this Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under this Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Non-Debtor Affiliate Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

(c)           Noteholder Committee and Old Notes Trustee Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the current and former members of the Noteholder Committee, in their

 

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capacity as such, and the Old Notes Trustee, in its capacity as such, shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge the Debtors, and each of its and their Estates, Reorganized Debtors, all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, and the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, and the shareholders of the Non-Debtor Affiliates, in their capacity as such, (collectively, the “Noteholder Committee Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under this Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under this Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Noteholder Committee Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

(d)           Holder of Old Notes Releases.  On the Effective Date, and to the greatest extent permissible by law, for good and valuable consideration, the adequacy of which is hereby confirmed, the Holders of Old Notes, in their capacity as such, shall be deemed to and hereby unconditionally and irrevocably release, waive and discharge the Debtors, and each of its and their Estates, Reorganized Debtors, all of the Debtors’ respective officers serving on the Effective Date, current and former directors, legal and financial advisors, and other representatives of the Debtors, in each case in their capacity as such, and the current and former members of the Noteholder Committee including their legal and financial advisors, in each case in their capacity as such, and the Non-Debtor Affiliates, including the Holder of the MFOC Equity Interests as of the Filing Date, and the shareholders of the Non-Debtor Affiliates, in their capacity as such, and the Old Notes Trustee, including its legal and financial advisors, in each case in their capacity as such (collectively, the “Old Notes Released Parties”), from any and all claims, demands, debts, rights, Causes of Action or liabilities (other than the right to enforce obligations under this Plan, Confirmation Order, and the contracts, instruments, releases, agreements and documents delivered under this Plan), known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that relates to any pre-Filing Date act, omission, transaction, event or other occurrence, in any way relating to the Debtors, the Reorganized Debtors, the Bankruptcy Cases, the Plan, or the Disclosure Statement, except that no Old Notes Released Party shall be released from any act or omission that constitutes willful misconduct or fraud.

 

Section 11.4         Setoffs.  The Debtors may, but shall not be required to, set off against any Claim, and the payments or other Distributions to be made pursuant to this Plan in respect of such Claim, claims of any nature whatsoever that the Debtors may have against such Holder; but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtors or the Reorganized Debtors of any such claim that the Debtors or the Reorganized Debtors may have against such Holder.

 

Section 11.5         Exculpation and Limitation of Liability.  The Debtors, the Reorganized Debtors, the Noteholder Committee, the current and former members of the Noteholder Committee in their capacities as such, the Old Notes Trustee, in its capacity as such, and any of such parties’ respective current and/or post-Filing Date and pre-Effective Date members, officers, directors, employees, advisors, attorneys, representatives, financial advisors, investment bankers, or agents and

 

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any of such parties’ successors and assigns, shall not have or incur, and are hereby released from, any claim, obligation, cause of action, or liability to any Holder of any Claim or Interest, or any other party in interest, or any of their respective agents, employees, representatives, financial advisors, attorneys, or Affiliates, or any of their successors or assigns, for any act or omission in connection with, relating to, or arising out of the Bankruptcy Cases, the negotiation, solicitation, and filing of this Plan, the filing of the Bankruptcy Cases, the pursuit of confirmation of this Plan, the consummation of this Plan, or the administration of this Plan or the property to be distributed under this Plan, except for their willful misconduct or fraud, and in all respects shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under this Plan.

 

Section 11.6         Injunction.  Except as otherwise expressly provided herein or in the Confirmation Order, all Persons or entities who have held, hold, or may hold Claims against or Interests in the Debtors are permanently enjoined, from and after the Effective Date, from: (i) commencing or continuing in any manner any action or other proceeding of any kind on any such Claim or Interest against any of the Reorganized Debtors or the Non-Debtor Affiliates on account of such Claims or Interests; (ii) the enforcement, attachment, collection, or recovery by any manner or means of any judgment, award, decree, or order against any Reorganized Debtor or Non-Debtor Affiliate with respect to such Claim or Interest; (iii) creating, perfecting, or enforcing any lien or encumbrance of any kind against any Reorganized Debtor or Non-Debtor Affiliate or against the property or interests in property of any Reorganized Debtor or Non-Debtor Affiliate with respect to such Claim or Interest; (iv) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation owed to any Reorganized Debtor or Non-Debtor Affiliate or against the property or interest in property of any Reorganized Debtor or Non-Debtor Affiliate with respect to such Claim or Interest, provided, however, that nothing contained herein shall limit a Person’s ability to assert a valid defense to any Cause of Action, or limit a Person’s ability to exercise its valid setoff or recoupment rights with respect to such Person’s  post-Filing Date claims against  the Debtors or Reorganized Debtors and post-Filing Date debts owed to the Debtors or Reorganized Debtors; and (v) pursuing any claim released pursuant to this Article XI of this Plan.

 

Section 11.7 Effect of Effective Date.

 

(a)           Binding Effect.  On the Effective Date, the provisions of this Plan shall be binding on the Debtors, the Estates, all Holders of Claims against or Interests in the Debtors, and all other parties in interest whether or not such Holders are Impaired and whether or not such Holders have accepted this Plan.

 

(b)           Effect of Effective Date on Automatic Stay.  Except as provided otherwise in this Plan, from and after the Effective Date, the automatic stay of section 362(a) of the Bankruptcy Code shall terminate.

 

(c)           Filing of Reports.  The Reorganized Debtors shall file all reports and pay all fees required by the Bankruptcy Code, Bankruptcy Rules, U.S. Trustee guidelines, and the rules and orders of the Bankruptcy Court.

 

(d)           Post-Effective Date Retention of Professionals.  Upon the Effective Date, any requirement that professionals comply with sections 327 through 331 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date will terminate, and the Reorganized Debtors will employ and pay professionals in the ordinary course of business.

 

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ARTICLE XII
CONDITIONS PRECEDENT

 

Section 12.1         Conditions to Confirmation.  (a)      The following are conditions precedent to confirmation of this Plan that may be satisfied or waived in accordance with Section 12.3 of this Plan:

 

(b)           This Plan and Disclosure Statement shall be filed on the Filing Date;

 

(c)           On the Filing Date (or as soon as practicable, but not later than one week, thereafter), the Debtors shall file any other pleadings necessary to effectuate the confirmation of this Plan on an expedited and efficient basis;

 

(d)           The combined hearing seeking approval of the Disclosure Statement and confirmation of the Plan shall have occurred within thirty-five days of the Filing Date;

 

(e)           The Disclosure Statement and Plan, including any exhibits, appendices and related documents, that are not inconsistent with the terms set forth herein and acceptable to the Noteholder Committee, in its sole discretion, shall have been approved by a final, non-appealable order of the Bankruptcy Court, in form and substance acceptable to the Noteholder Committee, within forty-five days of the Filing Date;

 

(f)            The Effective Date shall have occurred within sixty days of the Filing Date;

 

(g)           One or more of the Bankruptcy Cases shall not have been converted to a case under Chapter 7 of the Bankruptcy Code, unless such conversion is made with the prior written consent of the Noteholder Committee, which consent shall be provided or withheld in the Noteholder Committee’s sole discretion;

 

(h)           There shall not have been the appointment of a trustee, receiver or examiner with expanded powers in one or more of the Bankruptcy Cases unless such appointment is made with the prior written consent of the Noteholder Committee, which consent shall be provided or withheld in the Noteholder Committee’s sole discretion; and

 

(i)            The Debtors shall not have submitted any amendment, modification or filing seeking to amend or modify this Plan, Disclosure Statement or any documents related to the foregoing, including motions, notices, exhibits, appendices and orders, in any manner not acceptable to the Noteholder Committee, in its sole discretion.

 

Section 12.2         Conditions to the Effective Date.  The following are conditions precedent to the occurrence of the Effective Date, each of which may be satisfied or waived in accordance with Section 12.3 of this Plan:

 

(a)           The Confirmation Order in form and substance acceptable to the Plan Proponents each in their sole discretion shall have become a Final Order and shall not have been vacated or modified;

 

(b)           It shall be no later than sixty days from the Filing Date;

 

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(c)           The Debtors shall not have experienced a material adverse effect (as defined in the Term Sheet) prior to the Effective Date and the holders of a majority of the Old Notes held by the members of the Noteholder Committee shall not have invoked such condition;

 

(d)           All documents and agreements to be executed on the Effective Date or otherwise necessary to implement this Plan shall be effective on the Effective Date;

 

(e)           The Debtors shall have received any authorization, consent, regulatory approval, ruling, letter, opinion, or document that may be necessary to implement this Plan or that is required by law, regulation, or order; and

 

(f)            The New Common Equity, Warrant, and New Notes shall have been issued in accordance with this Plan.

 

Section 12.3         Waiver of Conditions to Confirmation or Consummation.  The conditions set forth in Section 12.1 and Section 12.2 of this Plan may be waived, in whole or in part, by the Noteholder Committee without any notice to any other parties in interest or the Bankruptcy Court and without a hearing, other than the notice that shall be provided to the Debtors; provided, however, the conditions to the Effective Date in Section 12.2(a), 12.2(e) and 12.2(f) of this Plan may only be waived, in whole or in part, by consent of both Plan Proponents, each in their sole discretion.  The failure of the Noteholder Committee or, as applicable, the Plan Proponents, to exercise any of the foregoing rights shall not be deemed a waiver of any other rights, and each such right shall be deemed an ongoing right, which may be asserted at any time prior to the Confirmation Date for the conditions set forth in Section 12.1 or the Effective Date for the conditions set forth in Section 12.2.

 

Section 12.4         Effect of Non-Occurrence of the Effective Date.  If the Effective Date shall not occur notwithstanding Section 12.3, this Plan shall be null and void and nothing contained in this Plan shall: (a) constitute a waiver or release of any Claims against or Interests in a Debtor; (b) prejudice in any manner the rights of the Debtors, including without limitation, the right to seek a further extension of the exclusivity periods under section 1121(d) of the Bankruptcy Code; or (c) constitute an admission, acknowledgement, offer or undertaking by the Debtors.

 

ARTICLE XIII
RETENTION AND SCOPE OF JURISDICTION OF THE BANKRUPTCY COURT

 

Section 13.1         Retention of Jurisdiction.  Subsequent to the Effective Date, the Bankruptcy Court shall have or retain jurisdiction for the following purposes:

 

(a)           To adjudicate objections concerning the allowance, priority or classification of Claims or Interests and any subordination thereof, and to establish a date or dates by which objections to Claims must be filed to the extent not established herein;

 

(b)           To liquidate the amount of any Disputed, contingent or unliquidated Claim, to estimate the amount of any Disputed, contingent or unliquidated Claim, and to establish the amount of any reserve required to be withheld from any Distribution under this Plan.

 

(c)           To resolve all matters related to the rejection, and assumption and/or assignment of any Executory Contract or Unexpired Lease of the Debtors;

 

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(d)           To hear and rule upon all Retained Actions, Avoidance Actions and other Causes of Action commenced and/or pursued by the Debtors and/or the Reorganized Debtors;

 

(e)           To hear and rule upon all applications for Professional Compensation;

 

(f)            To remedy any defect or omission or reconcile any inconsistency in this Plan, as may be necessary to carry out the intent and purpose of this Plan;

 

(g)           To construe or interpret any provisions in this Plan and to issue such orders as may be necessary for the implementation, execution and consummation of this Plan, to the extent authorized by the Bankruptcy Code;

 

(h)           To adjudicate controversies arising out of the administration of the Estates or the implementation of this Plan;

 

(i)            To make such determinations and enter such orders as may be necessary to effectuate all the terms and conditions of this Plan, including the Distribution of funds from the Estates and the payment of Claims;

 

(j)            To determine any suit or proceeding brought by the Debtors and/or the Reorganized Debtors to recover property under any provisions of the Bankruptcy Code;

 

(k)           To hear and determine any tax disputes concerning the Debtors and to determine and declare any tax effects under this Plan;

 

(l)            To determine such other matters as may be provided for in this Plan or the Confirmation Order or as may be authorized by or under the provisions of the Bankruptcy Code;

 

(m)          To determine any controversies, actions or disputes that may arise under the provisions of this Plan, or the rights, duties or obligations of any Person under the provisions of this Plan; and

 

(n)           To enter a final decree.

 

Section 13.2         Alternative Jurisdiction.  In the event that the Bankruptcy Court is found to lack jurisdiction to resolve any matter, then the District Court shall hear and determine such matter.  If the District Court does not have jurisdiction, then the matter may be brought before any court having jurisdiction with regard thereto.

 

Section 13.3         Final Decree.  The Bankruptcy Court may, upon application of the Reorganized Debtors, at any time on or after one hundred twenty days after the Initial Distribution Date, enter a final decree in these cases, notwithstanding the fact that additional funds may eventually be distributed to parties in interest.  In such event, the Bankruptcy Court may enter an Order closing these cases pursuant to section 350 of the Bankruptcy Code, provided, however, that: (i) the Reorganized Debtors shall continue to have the rights, powers, and duties set forth in this Plan; (ii) any provision of this Plan requiring the absence of an objection shall no longer be required, except as otherwise ordered by the Bankruptcy Court; and (iii) the Bankruptcy Court may from time to time reopen the Bankruptcy Cases if appropriate for any of the following purposes:  (a) administering Assets; (b) entertaining any adversary proceedings, contested matters or applications the Debtors have

 

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brought or bring with regard to the liquidation of Assets and the prosecution of Causes of Action; (c) enforcing or interpreting this Plan or supervising its implementation; or (d) for other cause.

 

ARTICLE XIV
MISCELLANEOUS PROVISIONS

 

Section 14.1         Modification of the Plan.  The Plan Proponents may modify this Plan pursuant to section 1127 of the Bankruptcy Code and as herein provided, to the extent applicable law permits; provided, however, that this Plan may not be modified in a manner inconsistent with the Restructuring Support Agreements and Term Sheet unless otherwise agreed by all the parties to such agreements.  Subject to the limitations contained herein, the Plan Proponents may modify this Plan in accordance with this paragraph, before or after confirmation, without notice or hearing, or after such notice and hearing as the Bankruptcy Court deems appropriate, if the Bankruptcy Court finds that the modification does not materially and adversely affect the rights of any parties in interest which have not had notice and an opportunity to be heard with regard thereto.  In the event of any modification on or before confirmation, any votes to accept or reject this Plan shall be deemed to be votes to accept or reject this Plan as modified, unless the Bankruptcy Court finds that the modification materially and adversely affects the rights of parties in interest which have cast said votes.  The Plan Proponents reserve the right in accordance with section 1127 of the Bankruptcy Code to modify this Plan at any time before the Confirmation Date.

 

Section 14.2         Securities Law Matters.  It is an integral and essential element of this Plan that the issuance of the New Common Equity, Warrant and New Notes pursuant to this Plan shall be exempt from r