-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wpzzub4JzRAA/7hfOHhSlysY8WEalkbl8Bd4/xEWI2T2qMbSmNomHnsB1rYTrV1g xTAEhbzTiYnJZHg91c7Z5A== 0001019056-03-000728.txt : 20030811 0001019056-03-000728.hdr.sgml : 20030811 20030808190145 ACCESSION NUMBER: 0001019056-03-000728 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030805 ITEM INFORMATION: Bankruptcy or receivership ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL DATACOMM INDUSTRIES INC CENTRAL INDEX KEY: 0000040518 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 060853856 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08086 FILM NUMBER: 03832948 BUSINESS ADDRESS: STREET 1: ROUTE 63 CITY: MIDDLEBURY STATE: CT ZIP: 06762 BUSINESS PHONE: 2035741118 MAIL ADDRESS: STREET 1: P O BOX 1299 CITY: MIDDLEBURY STATE: CT ZIP: 06762-1299 8-K 1 general_8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 5, 2003 General DataComm Industries, Inc. -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 1-8086 06-0853856 - ---------------------------- ------------ ------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) Naugatuck, Connecticut 06770 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (203) 729-0271 -------------- N/A (Former Name or Former Address, if Changed Since Last Report) Item 3. Bankruptcy or Receivership On August 5, 2003 in the United States Bankruptcy Court for the District of Delaware, the Registrant received confirmation of its Amended Joint Plan of Reorganization (the "Plan") dated April 29, 2003. The Plan appears as Exhibit A to the Amended Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code in Respect to Amended Joint Plan of Reorganization and is filed with this Form 8-K as Exhibit 2. The Registrant anticipates that the Effective Date will be in the latter part of August 2003. The Plan provides for creditors to receive payment of 100% of their claims over a five-year period. Payment of the unsecured creditors' claims (estimated to be less than $20 million) will be made in the form of new Debentures. No principal will be payable on the new Debentures until the secured lender's claim is paid in full. Interest shall accrue on the new Debentures at an annual rate of 10%, but such rate shall be reduced if the new Debentures are paid in full within four years or less. Shareholders will retain their shares subject to a one-for-ten reverse stock split of outstanding shares effective as of the Effective Date. Under the terms of the New Loan Agreement with the secured lenders that was agreed as part of the Plan, the secured lenders will receive a note in the original amount of $25 million, subject to adjustment, dated as of August 20, 2002, and due on December 31, 2007 (the "Term Obligation"). The Term Obligation accrues interest from August 20, 2002 at the annual rate of 7.25% through December 31, 2003, and thereafter at the greater of (i) 7.25% and (ii) the prime rate plus 2.5%. The Term Obligation shall amortize at the rate of $250,000 per month subject to adjustment after January 1, 2005. In addition, the secured lenders will receive an obligation in the original principal amount of $5 million, subject to adjustment, dated as of August 20, 2002 and due December 31, 2007 (the "PIK Obligation"). Interest accrues at the same rates as the Term Obligation. The outstanding principal and accrued interest thereon shall be forgiven in increments of $1.25 million if the Term Obligation is reduced by $5 million by June 30, 2003, by $10 million by December 31, 2003, by $15 million by June 30, 2004 and by $25 million (in full) by December 31, 2004. Since the Term Obligation has already been reduced by more than $10 million, the current balance owing on the PIK Obligation is reduced to $2.5 million, plus accrued interest. Since the initial bankruptcy filing on November 2, 2001, the Company has recorded all adequate protection and interest payments otherwise due the to secured lenders as interest expense due to the uncertainty as to the ultimate disposition of the Company in the bankruptcy process. Therefore, based on the terms of the New Loan Agreement, the amount presently due under the new Term Obligation and PIK Obligation is approximately $3 million less than the Company's immediately preceding carrying value of such obligation. The number of shares of Common and Class B stock issued and outstanding is 34,001,380 and the number reserved for future issuance in respect of claims and interests filed and allowed under - 2 - the Plan is 11,925,419, for an aggregate total is 45,926,799 (in each case prior to the one-for-ten reverse split). In addition, the Company's secured lenders have warrants (1) to purchase up to 51% of the Common Stock at $.01 per share in the event of default under the New Lender Loan and Security Agreement, and (2) to purchase 10% of the Common Stock if the debt owing to them is not paid in full by December 31, 2004. However, both such warrants and any Common Stock issued thereunder will be canceled if the secured lender's outstanding debt is fully paid by December 31, 2007. The unaudited assets and liabilities of the Registrant are included in the unaudited balance sheet which is included in Exhibit 99.2 of this Form 8-K. Also included in this Exhibit are the unaudited income statements for the one month, three months and nine months ended June 30, 2003. See Schedule 1.42 to Exhibit 99.1 for more details of the new Debentures and Schedules 1.41, 1.46 and 1.47 for information relating to secured lender transactions. Item 5. Other Events On July 18, 2003, General DataComm Industries, Inc. (GDC) and U.S. Assemblies Raleigh, Inc. and U.S. Assemblies Georgia, Inc. and The Matco Electornics Group, Inc. (Matco) signed a stipulation resolving GDC's objection to the claims of Matco whereby Matco was allowed solely a General Unsecured Claim in the amount of $4 million and, in addition, GDC agreed to purchase inventory from Matco for $600,000. Litigation and claims between the two companies were withdrawn. As a result of the settlement, GDC will record a gain of approximately $4,700,000 in the quarter ending September 30, 2003. Item 7. Exhibits 2. Amended Joint Plan of Reorganization under Chapter 11 of the United States Bankruptcy Code (incorporated by reference to Exhibit A to the within contained Exhibit 99.1, Amended Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code). 99.1 Amended Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code. 99.2 Unaudited financials of the Registrant for the one, three and nine month periods ended June 30, 2003 and as of June 30, 2003. - 3 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. General DataComm Industries, Inc. --------------------------------- (Registrant) By: /s/ WILLIAM G. HENRY ----------------------------- William G. Henry Vice President and Principal Financial Officer Dated: August 8, 2003 - 4 - EX-2 3 exhibit_2.txt EXHIBIT 2 EXHIBIT A JOINT PLAN OF REORGANIZATION IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE - -----------------------------------------------------x ) Chapter 11 In re: ) ) Case No. 01-11101 (PJW) GENERAL DATACOMM INDUSTRIES, INC., ) et al., ) - ------ ) ) (Jointly Administered) ) Debtors. ) - -----------------------------------------------------x AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE ------------------------------------------------ Joel A. Waite SHULTE ROTH & ZABEL, LLP Michael R. Nestor Michael L. Cook YOUNG CONAWAY STARGATT & David M. Hillman TAYLOR, LLP 919 Third Avenue P.O. Box 391 New York, NY 10022 1000 West Street, 17th Floor (212) 756-2000 Wilmington, Delaware 19801 (312) 571-6600 - and - Counsel to the Debtors ZUCKERMAN SPAEDER LLP and Debtors-In-Possession Thomas G. Macauley One Commerce Center 1201 Orange Street, Suite 650 Wilmington, DE 19801 (302) 427-0400 Co-Counsel to Ableco Finance LLC and Foothill Capital Corporation Dated: April 29, 2003 TABLE OF CONTENTS ARTICLE 1 Page DEFINITIONS...................................................................1 1.1 Ableco.....................................................1 1.2 Administrative Bar Date....................................1 1.3 Administrative Claim.......................................1 1.4 Allowed Claim..............................................2 1.5 Assumed Agreement..........................................2 1.6 Avoidance Action...........................................2 1.7 Ballot.....................................................2 1.8 Bankruptcy Code............................................2 1.9 Bankruptcy Court...........................................2 1.10 Bankruptcy Rules...........................................2 1.11 Business Day...............................................2 1.12 Cash.......................................................3 1.13 Causes of Action...........................................3 1.14 Chapter 11 Cases...........................................3 1.15 Claim......................................................3 1.16 Committee..................................................3 1.17 Common Stock...............................................3 1.18 Confirmation Date..........................................3 1.19 Confirmation Order.........................................3 1.20 Contingent Claim...........................................3 1.21 Convenience Class Claim....................................3 1.22 Creditor...................................................3 1.23 Debtors....................................................3 1.24 Disclosure Statement.......................................4 1.25 Disputed Claim.............................................4 1.26 Distribution Date..........................................4 1.27 Effective Date.............................................4 1.28 Employee Stock Bonus Plan..................................4 1.29 Equity Interest............................................4 1.30 Final Distribution Date....................................4 1.31 Final Order................................................4 1.32 Foothill...................................................4 1.33 GDC........................................................4 1.34 GDC Common Stock...........................................5 1.35 General DataComm...........................................5 1.36 General Unsecured Claim....................................5 1.37 Lender.....................................................5 1.38 Lender Director Selection Right............................5 i 1.39 Lender Release.............................................5 1.40 Lender Secured Claim.......................................5 1.41 Lender Warrants............................................5 1.42 New Debentures.............................................5 1.43 New Indenture..............................................5 1.44 New Indenture Trustee......................................6 1.45 New Lender Loan and Security Agreement.....................6 1.46 New Lender PIK Obligation..................................6 1.47 New Lender Term Obligation.................................6 1.48 Old GDC Stock Option Plans.................................6 1.49 Other Priority Claims......................................6 1.50 Person.....................................................6 1.51 Petition Date..............................................6 1.52 Plan.......................................................6 1.53 Plan Supplement............................................6 1.54 Pre-Petition Secured Loan Agreements.......................7 1.55 Preferred Interests........................................7 1.56 Priority Tax Claim.........................................7 1.57 Pro Rata...................................................7 1.58 Registered Holder..........................................7 1.59 Rejected Agreement.........................................7 1.60 Reorganized Debtors........................................7 1.61 Retiree Benefits...........................................7 1.62 Schedules..................................................7 1.63 Secured Claim..............................................7 1.64 73/4% Debentures...........................................7 1.65 73/4% Indenture............................................8 1.66 73/4% Indenture Trustee....................................8 1.67 Subsidiary Debtors.........................................8 1.68 Taxes......................................................8 1.69 Unsecured Claim............................................8 1.70 Unsecured Creditors Director Selection Right...............8 1.71 Unsecured Deficiency Claim.................................8 1.72 Voting Deadline............................................8 1.73 Other Definitions..........................................8 ARTICLE 2 SUBSTANTIVE CONSOLIDATION AND MERGER..........................................9 ii ARTICLE 3 PROVISIONS AND PAYMENT OF ALLOWED ADMINISTRATIVE AND PRIORITY TAX CLAIMS.......................................10 3.1 General....................................................10 3.2 Treatment of Administrative Claims.........................10 3.3 Treatment of Priority Tax Claims...........................10 3.4 Bar Date for Administrative Claims.........................10 ARTICLE 4 DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS.....................................11 4.1 Class 1 - Other Priority Claims............................11 4.2 Class 2 - Allowed Lender Secured Claim.....................11 4.3 Class 3 - Other Secured Claims.............................11 4.4 Class 4 - Allowed General Unsecured Claims.................11 4.5 Class 5 - Allowed Convenience Class Claims.................11 4.6 Class 6 - Preferred Interests in GDC.......................12 4.7 Class 7 = Equity Interest in Subsidiary Debtors............12 4.8 Class 8 - GDC Common Stock Interests.......................12 ARTICLE 5 EXECUTORY CONTRACTS AND EXPIRED LEASES........................................12 5.1 Assumption of Certain Executory Contracts and Unexpired Leases......................................12 5.2 Rejection and Cancellation of 73/4% Indenture..............13 5.3 Indemnification Obligations Assumed........................13 5.4 Claims Based on Rejection of Executory.....................13 Contracts or Unexpired Leases.............................13 ARTICLE 6 ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE CLASSES...................................14 6.1 Impaired Classes to Vote...................................14 6.2 Acceptance By Class of Creditors...........................14 6.3 Acceptance By Class of Interests...........................14 6.4 Cramdown...................................................14 iii ARTICLE 7 PROVISIONS COVERING DISTRIBUTIONS AND PAYMENTS.................................................................15 7.1 Making of Distributions and Payments.......................15 7.2 Distribution to Lenders....................................15 7.3 Distribution of New Debentures.............................15 7.4 Delivery of Distributions; Unclaimed Property..............15 7.5 Payments of Less Than Five Dollars.........................16 ARTICLE 8 PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND CAUSES OF ACTION..............................................16 8.1 Filing of Objections to Claims.............................17 8.2 Prosecutions of Objections to Claims.......................17 8.3 Payment or Distribution Upon Resolution of Disputed Claims........................................17 8.4 Causes of Action...........................................17 ARTICLE 9 MEANS FOR IMPLEMENTATION OF THIS JOINT PLAN 18 9.1 Conveyance Free and Clear..................................18 9.2 Cancellation of Certain Existing Securities and Agreements...........................................18 9.3 Surrender of Instruments...................................19 9.4 Release of Certain Claims and Actions......................19 9.5 Exculpation................................................20 9.6 Exemption from Certain Taxes...............................20 9.7 Certificate of Incorporation and By-Laws...................20 9.8 Directors and Officers.....................................20 9.9 Revesting of Assets; No Further Supervision................21 9.10 Authority to Implement.....................................21 9.11 No Injunctive Relief.......................................21 iv ARTICLE 10 CONDITIONS PRECEDENT TO THE EFFECTIVE DATE....................................21 10.1 Effectiveness of this Plan.................................21 10.2 Conditions Not Satisfied or Waived.........................22 ARTICLE 11 MISCELLANEOUS PROVISIONS......................................................22 11.1 Modification of Payment Terms..............................22 11.2 Discharge of Debtors.......................................22 11.3 Filing of Additional Documents.............................23 11.4 Compliance with Tax Requirements...........................23 11.5 Setoffs....................................................23 11.6 Retiree Benefits...........................................23 11.7 Payment of Certain Expenses by the Reorganized Debtors.......................................23 11.8 Termination of Committee...................................23 11.9 Section Headings...........................................23 11.10 Waiver.....................................................24 11.11 Notices....................................................24 11.12 Severability...............................................24 11.13 Plan Controls..............................................24 11.14 Reservation of Rights......................................24 11.15 Governing Law..............................................25 11.16 Non-Voting Equity Securities...............................25 11.17 Exemption from Transfer Taxes..............................25 11.18 Termination of Subordination Rights........................25 11.19 Payment of Statutory Fees..................................25 ARTICLE 12 PROVISIONS FOR EXECUTION AND SUPERVISION OF THIS PLAN.....................................................26 12.1 Retention of Jurisdiction..................................26 12.2 Amendment of Plan..........................................27 12.3 Revocation of Plan.........................................27 12.4 Implementation.............................................28 v ARTICLE 13 CONFIRMATION REQUEST..........................................................29 13.1 SCHEDULES Schedule 1.4 Assumed Agreements Schedule 1.41 Terms of Lender Warrants Schedule 1.42 Terms of New Debentures Schedule 1.46 Terms of New PIK Obligation Schedule 1.46.1 Debtors' Claims Analysis Of Lenders Claim as of 6/12/02 Schedule 1.47 Terms of New Lender Term Obligation Schedule 1.47.1 List of Assets Related to Discontinued Operations of Debtors or Excess Assets of Debtors vi AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE ------------------------------------ GENERAL DATACOMM INDUSTRIES, INC., GENERAL DATACOMM, INC., DATACOMM LEASING CORPORATION, GDC FEDERAL SYSTEMS, INC., GDC REALTY, INC., GDC NAUGATUCK, INC., GDC HOLDING COMPANY, LLC, DATACOMM RENTAL CORPORATION, GENERAL DATACOMM INTERNATIONAL CORPORATION and GENERAL DATACOMM CHINA LTD., the Debtors and Debtors-in-Possession in the above-captioned jointly administered Chapter 11 Cases (Debtors"), Ableco Finance LLC and FOOTHILL CAPITAL CORPORATION hereby propose the following Joint Plan of Reorganization pursuant to section 1121(a), title 11, United States Code. ARTICLE 1. DEFINITIONS As used in this Plan, the following terms shall have the respective meanings specified below: 1.1 Ableco. Ableco Finance LLC. 1.2 Administrative Bar Date. The date forty-five (45) days after the Effective Date or such other date(s), if any, as determined by order of the Bankruptcy Court. 1.3 Administrative Claim. Any cost or expense of administration of the Chapter 11 Cases (a) required to be asserted by filing an application with the Bankruptcy Court on or before the Administrative Bar Date or (b) Allowed under section 503(b) of the Bankruptcy Code, except to the extent the holder of such Claim agrees to be treated differently. Administrative Claims include, but are not limited to, (i) any actual and necessary expenses of preserving the estate of the Debtors incurred during the Chapter 11 Cases, (ii) any actual and necessary expenses of operating the business of the Debtors incurred during the Chapter 11 Cases, (iii) any indebtedness or obligations incurred or assumed by the Debtors in connection with the conduct of the business as a debtor-in-possession or for the acquisition or lease of property by, or for the rendition of services to, the Debtors as debtors-in-possession, (iv) obligations pursuant to executory contracts assumed by the Debtors pursuant to an order of the Bankruptcy Court, (v) all Claims as provided by section 507(b) of the Bankruptcy Code, (vi) all allowances of compensation or reimbursement of expenses to the extent allowed by the Bankruptcy Court, (vii) any Allowed Contingent Claims which are granted administrative priority status by Final Order of the Bankruptcy Court, (viii) all fees payable and unpaid under section 1930 of title 28, United States Code and (ix) any fees or charges assessed against the estates of the Debtors under Chapter 123, title 28, United States Code. 1.4 Allowed Claim. Any Claim against the Debtors (i) proof of which (or application for) was filed on or before the date designated by the Bankruptcy Court as the last date for filing proofs of claims against the Debtors or, if no proof of claim is filed, which has been or hereafter is listed by the Debtors in their Schedules as liquidated in amount and not disputed or contingent and, in either case, a Claim as to which, (a) no objection to the allowance thereof has been interposed within the applicable period of limitation fixed by this Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court or (b) the Debtors have determined that no objection will be filed, or (ii) in favor of any Person arising from a judgment against such Person in any Avoidance Action (if the effect of such judgment gives such Person an Allowed General Unsecured Claim). A Disputed Claim shall be an Allowed Claim if, and only to the extent that, such Disputed Claim has been Allowed by a Final Order. The term "Allowed," when used to modify a reference in this Plan to any Claim or class of Claims, shall mean a Claim (or any Claim in any such class) that is allowed, e.g., an Allowed Secured Claim is a Claim that has been Allowed to the extent of the value, as determined by the Bankruptcy Court pursuant to section 506(a) of the Bankruptcy Code, of any interest in property of the estates of the Debtors securing such Claim. Unless otherwise specified in this Plan or in the Final Order of the Bankruptcy Court allowing such Claim, "Allowed Claim" shall not include interest on the amount of such Claim from and after the Petition Date. 1.5 Assumed Agreement. Each executory contract and unexpired lease of the Debtors that is assumed pursuant to the Plan, including, without limitation, those listed on Schedule 1.4 hereof, which schedule may be amended by the Debtors prior to entry of the Confirmation Order. 1.6 Avoidance Action. Any action to avoid a transfer of property or to recover property pursuant to ss.ss. 542, 543, 544, 545, 546, 547, 548, 549, 550, 551 or 553 of the Bankruptcy Code. 1.7 Ballot. The document used in voting on the Plan that must be executed and delivered by holders of Claims and Interests entitled to vote on the Plan. 1.8 Bankruptcy Code. The Bankruptcy Reform Act of 1978, as amended, title 11, United States Code. 1.9 Bankruptcy Court. The unit of the United States District Court for the District of Delaware having jurisdiction over the Chapter 11 Cases. 1.10 Bankruptcy Rules. The Federal Rules of Bankruptcy Procedure and the local rules of the Bankruptcy Court, as applicable to the Chapter 11 Cases. 1.11 Business Day. Any day other than a Saturday, Sunday or other day on which commercial banks in New York are authorized or required by law to close. 2 1.12 Cash. Cash and readily marketable securities or instruments including, without limitation, readily marketable direct obligations of the United States of America or agencies or instrumentalities thereof, time certificates of deposit issued by any bank, and commercial paper. 1.13 Causes of Action. Any and all actions, causes of action, liabilities, obligations, rights, suits, debts, damages, judgments, claims and demands whatsoever, whether known or unknown, contingent or non-contingent, liquidated or unliquidated, in law, equity or otherwise, of the Debtors with respect to any other party, existing at or prior to the Effective Date, including, without limitation, Avoidance Actions. 1.14 Chapter 11 Cases. The cases under Chapter 11 of the Bankruptcy Code in which the Debtors are the debtors. 1.15 Claim. Any right to payment from the Debtors, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, arising at any time before the Effective Date or relating to any event that occurred before the Effective Date; or any right to an equitable remedy for breach of performance if such breach gives rise to a right of payment from the Debtors, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured, arising at any time before the Effective Date or relating to any event that occurred before the Effective Date. 1.16 Committee. The official committee of unsecured creditors appointed in the Debtors' Chapter 11 Cases by the Office of the United States Trustee on November 20, 2001. 1.17 Common Stock. All of the outstanding shares of common stock (or equivalent common equity security, however designated) in the Debtors. 1.18 Confirmation Date. The date upon which the Bankruptcy Court enters the Confirmation Order. 1.19 Confirmation Order. An order of the Bankruptcy Court confirming this Plan in accordance with the provisions of Chapter 11 of the Bankruptcy Code. 1.20 Contingent Claim. A Claim which is either contingent or unliquidated on or immediately before the Confirmation Date. 1.21 Convenience Class Claim. Any Unsecured Claim of $1,000 or less or that is reduced to $1,000 by the holder thereof by making such election on its ballot. 1.22 Creditor. Any Person that holds a Claim against the Debtors. 1.23 Debtors. The Debtors (as defined in the preamble), including in their capacity as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 3 1.24 Disclosure Statement. The disclosure statement filed with the Bankruptcy Court with respect to the Plan, either in its present form or as it may be altered, amended or modified from time to time. 1.25 Disputed Claim. A Claim which is the subject of a timely objection interposed by the Debtors or the Reorganized Debtors, if at such time such objection remains unresolved; provided, however, that the Bankruptcy Court may determine the amount of a Disputed Claim for purposes of allowance pursuant to section 502(c) of the Bankruptcy Code; provided, further, that, except as otherwise provided in Section 7.3 of this Plan, the Debtors or the Reorganized Debtors, in their sole discretion, may elect to treat the portion of a Disputed Claim, if any, that is not in dispute as an Allowed Claim, with the disputed portion remaining a Disputed Claim. 1.26 Distribution Date. With respect to any Allowed Claim, each date on which a distribution is made with respect to such Allowed Claim. 1.27 Effective Date. The Business Day on which all of the conditions set forth in Section 10.1 of this Plan shall have been satisfied or waived . 1.28 Employee Stock Bonus Plan. The new stock bonus plan being established for directors, officers and employees of the Debtors under which they will receive, in the aggregate, up to 20% of the Common Stock of Reorganized GDC on a fully diluted basis (but subject to dilution upon exercise of the Lender Warrants), as will be more fully set forth in the Stock Bonus Plan to be filed as a Plan Supplement at least ten days prior to the Voting Deadline. 1.29 Equity Interest. Any interest in the Debtors represented by any class or series of Preferred Stock, Common Stock or other capital stock of the Debtors prior to the Petition Date, and any and all warrants, options, convertible or exchangeable securities, subscriptions, rights (including any preemptive rights), stock appreciation rights, calls or commitments of any character whatsoever relating to any such shares of capital stock of the Debtors. Equity Interests also include, without limitation, all Stockholder Actions and other Claims arising from rescission of a purchase or sale of an Equity Interest, for damages arising from the purchase or sale of such an Equity Interest, or for reimbursement or contribution allowed under section 502 of the Bankruptcy Code on account of such a Claim. 1.30 Final Distribution Date. The first Distribution Date to occur after all Disputed Claims are resolved and Avoidance Actions that are pursued and prosecuted by or on behalf of the Debtors by the Reorganized Debtors have been resolved by Final Order. 1.31 Final Order. An order which is no longer subject to appeal, certiorari proceeding or other proceeding for review or rehearing, and as to which no appeal, certiorari proceeding, or other proceeding for review or rehearing shall then be pending. 1.32 Foothill. Foothill Capital Corporation. 1.33 GDC. General DataComm Industries, Inc. 4 1.34 GDC Common Stock. The currently outstanding shares of Common Stock or Common Stock equivalents of GDC, $.10 par value, as well as the Class B Common Stock and the remaining shares of Redeemable 5% Preferred Stock automatically converted into shares of Common Stock of GDC on July 31, 2002. 1.35 General DataComm. General DataComm, Inc. 1.36 General Unsecured Claim. Any Unsecured Claim, other than an Administrative Claim, an Other Priority Claim, a Priority Tax Claim, or a Convenience Class Claim. Allowed General Unsecured Claims include, without limitation, Allowed Unsecured Deficiency Claims, and any Claim in favor of any Person arising from a judgment against such Person in any Avoidance Action (if the effect of such judgment gives such Person an Allowed General Unsecured Claim). 1.37 Lender. Collectively, Ableco and Foothill. 1.38 Lender Director Selection Right. The right of Ableco to select three directors of GDC for so long as any portion of the New Lender Term Obligation or the New Lender PIK Obligation remains outstanding. 1.39 Lender Release. The mutual release to be executed by the Debtors, Ableco and Foothill on the Effective Date, which shall release all rights, claims and causes of action between the parties, except as otherwise provided for in the New Lender Loan and Security Agreement and the Lender Warrants, as will be more fully set forth in the form of release to be filed as a Plan Supplement at least 10 days prior to the Voting Deadline. 1.40 Lender Secured Claim. The Secured Claim of the Lender which is being satisfied by the agreed upon treatment provided for in Section 4.2 of the Plan. 1.41 Lender Warrants. The warrants to be given to Ableco under the Plan, which shall contain those provisions outlined in Schedule 1.41 hereto and as will be more fully set forth in the form of warrant agreement (and the related registration rights agreement) to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.42 New Debentures. The Debentures to be issued pursuant to the New Indenture and distributed to the holders of Allowed General Unsecured Claims, which shall be subject to those provisions outlined in Schedule 1.42 hereto, and as will be more fully set forth in the form of New Indenture to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.43 New Indenture. The indenture agreement which shall govern the terms of the New Debentures and the rights and duties of the New Indenture Trustee, which shall contain those provisions outlined in Schedule 1.42 hereto and as will be more fully set forth in the form of indenture agreement to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 5 1.44 New Indenture Trustee. The indenture trustee for the New Debentures to be selected by the Debtors prior to the Effective Date, or any replacement for such indenture trustee. 1.45 New Lender Loan and Security Agreement. The new loan and security agreement to be executed on the Effective Date and which shall govern the New Lender Term Obligation and the New Lender PIK Obligation, as will be more fully set forth in the form of loan and security agreement to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.46 New Lender PIK Obligation. The obligation in the face amount of $5,000,000 as of August 20, 2002 to be given to Ableco under the Plan, which shall contain those provisions outlined in Schedule 1.46 hereto and as will be more fully set forth in the form of note to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.47 New Lender Term Obligation. The obligation in the face amount of $25,000,000 as of August 20, 2002 to be given to Ableco under the Plan which shall contain those provisions outlined on Schedule 1.47 hereto and as will be more fully set forth in the form of note to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.48 Old GDC Stock Option Plans. All contracts, plans, agreements or arrangements existing on the Petition Date providing for the grant to any current or former employees of the Debtors of Common Stock or warrants or options to acquire Common Stock of GDC. 1.49 Other Priority Claims. Any Claim to the extent entitled to priority in payment under sections 507(a)(2) through 507(a)(7) of the Bankruptcy Code. 1.50 Person. An individual, a corporation, a partnership, an association, a joint stock company, a joint venture, an estate, a trust, an unincorporated organization or a government, governmental unit or any subdivision thereof or any other entity. 1.51 Petition Date. November 2, 2001. 1.52 Plan. This Plan of Reorganization, either in its present form or as it may be amended or modified from time to time in any manner permitted by the Bankruptcy Code or Bankruptcy Rules. 1.53 Plan Supplement. The collection of Plan related documents to be filed with the Court at least 10 days prior to the Voting Deadline, which may consist of one or multiple filings. 1.54 Pre-Petition Secured Loan Agreements. The loan and security agreement, pledge agreements, notes and other documents evidencing the Debtors' pre-petition secured loan obligations to Ableco and Foothill. 6 1.55 Preferred Interests. The 9% Preferred Stock of GDC and any other Equity Interests in GDC having priority over the GDC Common Stock. 1.56 Priority Tax Claim. Any Claim arising prior to the Petition Date to the extent entitled to priority in payment under section 507(a)(8) of the Bankruptcy Code. 1.57 Pro Rata. As of any certain date, with respect to any Allowed Claim or Allowed Equity Interest in any Class, the proportion that such Allowed Claim or Allowed Equity Interest bears to the aggregate amount of all Claims or Equity Interests, including Disputed Claims or Equity Interests, in such Class. 1.58 Registered Holder. The holder of record of any shares of GDC Common Stock on the applicable record date, as such holder's name appears on the stock registry of GDC. 1.59 Rejected Agreement. Each executory contract and unexpired lease of the Debtors which (i) is not an Assumed Agreement, (ii) has not been expressly assumed or rejected by order of the Bankruptcy Court prior to the Confirmation Date, or (iii) is not the subject of a pending motion to assume on the Effective Date. 1.60 Reorganized Debtors. Collectively, the Debtors from and after the Effective Date, as reorganized, discharged and revested with their assets pursuant to this Plan. 1.61 Retiree Benefits. Payments to any Person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by any of the Debtors prior to the Petition Date. 1.62 Schedules. The schedules of assets and liabilities and any amendments thereto filed by the Debtors with the Bankruptcy Court in accordance with section 521(l) of the Bankruptcy Code. 1.63 Secured Claim. A Claim to the extent of the value, as determined pursuant to section 506(a) or 1111(b) of the Bankruptcy Code, of any interest in property of the Debtors' estates securing such Claim. To the extent that the value of such interest is less than the amount of the Claim which has the benefit of such security, such Claim is an Unsecured Deficiency Claim unless, in any such case, the class of which such Claim is a part makes a valid and timely election under section 1111(b) of the Bankruptcy Code to have such Claim treated as a Secured Claim to the extent allowed. 1.64 73/4% Debentures. GDC's 73/4% Convertible Senior Subordinated Debentures due 2002. 1.65 7 3/4% Indenture. The Indenture dated as of September 26, 1997 between GDC and Continental Stock Transfer & Trust Company, with respect to the 7 3/4% Debentures. 7 1.66 73/4% Indenture Trustee. Continental Stock Transfer & Trust Company in its capacity as trustee with respect to the 73/4% Debentures. 1.67 Stockholder Actions. Any claims, litigation or actions brought or that could have been or could be brought by or on behalf of stockholders of GDC or derivatively on behalf of GDC or any of its subsidiaries, arising out of or with respect to any action, event or omission occurring before the Confirmation Date. 1.68 Subsidiary Debtors. The Debtors, other than GDC. 1.69 Taxes. All income, franchise, excise, sales, use, employment, withholding, property, payroll and other taxes, assessments, and governmental charges, together with any interest, penalties, additions to tax, fines, and similar amounts relating thereto, imposed or collected by any federal, state, local or foreign governmental authority. 1.70 Unsecured Claim. A Claim not secured by a charge against or interest in property in which the Debtors' estates have an interest, including any Unsecured Deficiency Claim, and any Claim arising at any time under Bankruptcy Rule 3002(c)(3). 1.71 Unsecured Creditors Director Selection Right. The right of the Committee initially and after the Effective Date the right of the New Indenture Trustee to select one director of GDC for so long as any portion of the New Debentures remain outstanding, provided that if the Lender Secured Claim has not been paid in full by the third anniversary of the Effective Date, the New Indenture Trustee shall have the right to select two additional directors of GDC (for a total of three) until the Lender Secured Claim has been paid in full, and provided further however, in the event there is a payment default with respect to the New Debentures that is not cured within 60 days after notice, the Indenture Trustee shall be entitled to appoint a majority of the board of directors of GDC until the New Debentures have been paid in full. 1.72 Unsecured Deficiency Claim. A Claim by a Creditor arising out of the same transaction as a Secured Claim to the extent that the value, as determined by the Bankruptcy Court pursuant to section 506(a) of the Bankruptcy Code, of such Creditor's interest in property of the Reorganizing Debtors' estates securing such Claim is less than the amount of the Claim which has the benefit of such security as provided by section 506(a) of the Bankruptcy Code. 1.73 Voting Deadline. The date set in an order of the Bankruptcy Court as the deadline for the return of Ballots accepting or rejecting the Plan. 1.74 Other Definitions. Unless the context otherwise requires, any capitalized term used and not defined herein or elsewhere in this Plan but that is defined in the Bankruptcy Code or Bankruptcy Rules shall have the meaning set forth therein. Wherever from the context it appears appropriate, each term stated in either of the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. The words "herein," "hereof," "hereto," "hereunder," and others of similar inference refer to this Plan as a whole and not to any particular article, section, subsection, or clause contained in this Plan. The word "including" shall mean including without limitation. 8 ARTICLE 2 SUBSTANTIVE CONSOLIDATION AND MERGER ------------------------------------ Pursuant to the Plan, the Chapter 11 Cases of the Debtors will be substantively consolidated for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation and distribution. As a result of such substantive consolidation, (i) all assets and liabilities of the Subsidiary Debtors shall be treated as though they were merged into and with the assets and liabilities of GDC, (ii) no distributions shall be made under the Plan on account of intercompany claims among the Debtors, (iii) all guarantees of the Debtors of the obligations of any other Debtor and any joint or several liability of any of the Debtors shall be deemed to be one obligation of the consolidated Debtors and (iv) each and every Claim filed or to be filed in the Chapter 11 Cases of any of the Debtors shall be deemed filed against the consolidated Debtors and shall be deemed one Claim against and obligation of the consolidated Debtors. Such substantive consolidation shall not (other than for purposes related to the Plan) affect (i) the legal and corporate structures of the Reorganized Debtors, except that on the Effective Date, DataComm Rental Corporation, General DataComm International Corporation and General DataComm China, Ltd shall be merged into GDC and shall cease to exist as separate corporate entities, (ii) Subsidiary Equity Interests and (iii) pre and post Confirmation Date guarantees that are required to be maintained (a) in connection with executory contracts or unexpired leases that were entered into during the Chapter 11 Cases or that have been or will be assumed, or (b) pursuant to the Plan. Notwithstanding the foregoing, substantive consolidation will not affect the obligation of each and every debtor to pay quarterly fees to the Office of the United States Trustee pursuant to 28 U.S.C. ss. 1930 (a)(6) until each case is closed, converted or dismissed. At the Confirmation Hearing, the Debtors may submit an order to the Court closing some or all of the Chapter 11 Cases other than the Chapter 11 Case of GDC, effective as of the Effective Date. 9 ARTICLE 3. PROVISIONS FOR PAYMENT OF ALLOWED ADMINISTRATIVE AND PRIORITY TAX CLAIMS -------------------------------------- 3.1 General. Administrative Claims and Priority Tax Claims are not classified in this Plan. The treatment of and consideration to be received by holders of Allowed Administrative Claims and Allowed Priority Tax Claims pursuant to this Article 3 of the Plan shall be in full and complete satisfaction, settlement, release and discharge of such Claims. The Debtors' obligations in respect of such Allowed Administrative and Priority Tax Claims shall be satisfied in accordance with the terms of this Plan. 3.2 Treatment of Administrative Claims. Except to the extent the holder of an Allowed Administrative Claim agrees otherwise, each holder of an Allowed Administrative Claim shall be paid in respect of such Allowed Claim the full amount thereof, in Cash, as soon as practicable after the later of (i) the Effective Date and (ii) the date on which such Claim becomes an Allowed Claim, except that Allowed Administrative Claims arising in the ordinary course of business shall, if due at a later date pursuant to their terms, be paid when otherwise due. On the Effective Date, the Reorganized Debtors shall establish a reserve, in an amount to be agreed to by the Committee and Debtors prior to the Confirmation Hearing or in the absence of such an agreement in an amount to be established by the Court at the Confirmation Hearing, to be used to pay all or a portion of the accrued and unpaid fees and expenses of the Committee's professionals existing as of the Effective Date. 3.3 Treatment of Priority Tax Claims. Except to the extent that a holder of an Allowed Priority Tax Claim has been paid by the Debtors prior to the Effective Date or agrees to a different treatment, each holder of an Allowed Priority Tax Claim shall receive, at the sole option of the Reorganized Debtors, (a) Cash in an amount equal to such Allowed Priority Tax Claim on the later of the Effective Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (b) equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to 4.25%, over a period through the sixth anniversary of the date of assessment of such Allowed Priority Tax Claim, or upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim. 3.4 Bar Date for Administrative Claims. Unless otherwise ordered by the Bankruptcy Court, requests for payment of Administrative Claims, including all applications for final allowance of compensation and reimbursement of expenses must be filed and served on the Reorganized Debtors, the Office of the United States Trustee and counsel to the Committee and Lender, no later than forty-five (45) days after the Effective Date. Any Person required to file and serve a request for payment of an Administrative Claim and who fails to timely file and serve such request, shall be forever barred, estopped and enjoined from asserting such Claim or participating in distributions under the Plan on account thereof. 10 ARTICLE 4 DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS --------------------------- A Claim or Equity Interest is included in a particular class or designation only to the extent that such Claim or Equity Interest qualifies within the description of that class or designation, and is in a different class or designation to the extent that the remainder of such Claim or Equity Interest qualifies within the description of such different class or designation. The Claims against and Equity Interests in the Debtors are designated, and shall be treated, as follows: 4.1 Class 1 - Other Priority Claims. Allowed Other Priority Claims are unimpaired by this Plan. The legal, contractual and equitable rights of each Allowed Class 1 Claim shall be left unaltered. Payment in full in Cash shall be made to the holders of Allowed Class 1 Claims as soon as practicable after the later of (i) the Effective Date, and (ii) the date on which any such Claim becomes an Allowed Claim. The holders of Claims in this Class are not entitled to vote because their Claims are unimpaired. 4.2 Class 2 - Allowed Lender Secured Claim. The Allowed Lender Secured Claim is impaired by the Plan. In full and complete satisfaction of the Allowed Lender Secured Claim, the holder thereof shall receive the New Lender Loan and Security Agreement, the Lender Warrants, the Lender Release and the Lender Director Selection Right. The holders of the Claim in this class are entitled to vote because their Claim is impaired. 4.3 Class 3 - Other Secured Claims. Allowed Other Secured Claims may be impaired by the Plan. Each Allowed Other Secured Claim, if any, shall be deemed to be a separate subclass. In full satisfaction of each Allowed Other Secured Claim, each holder of such Claim shall, at the option of the Reorganized Debtors, receive either (i) payment in full in Cash in the amount of such Claim as soon as practicable after the later of (a) the Effective Date, and (b) the date on which such Claim becomes an Allowed Claim, (ii) the collateral securing such Claim, or (iii) such other treatment as may be agreed to by the Reorganized Debtors and the holder of such Claim. The holders of Claims in this Class, if any, are entitled to vote because their Claims may be impaired. 4.4 Class 4 - Allowed General Unsecured Claims. Allowed General Unsecured Claims are impaired by the Plan. In full satisfaction of each Allowed General Unsecured Claim, each holder of such Claim shall receive a New Debenture in the full amount of such Allowed General Unsecured Claim, which shall be subject to the terms of the New Indenture. The holders of Claims in this Class are entitled to vote because their Claims are impaired. 4.5 Class 5 - Allowed Convenience Class Claims. Allowed Convenience Class Claims are impaired by this Plan. In full satisfaction of each Allowed Convenience Class Claim, each holder of such Claim shall receive payment in full in cash within 60 days after the Effective Date. The holders of Claims in this Class are entitled to vote because their Claims are impaired. 11 4.6 Class 6 - Preferred Interests in GDC. Holders of Preferred Interests in GDC are unimpaired by this Plan. The legal, equitable and contractual rights of the holders of Allowed Preferred Interests in GDC shall remain unaltered by the Plan. The holders of Interests in this Class are not entitled to vote because their Interests are unimpaired. 4.7 Class 7 - Equity Interests in Subsidiary Debtors. This Class is unimpaired by the Plan. All common stock interests in the Debtors other than GDC, and all options and rights with respect thereto, shall be retained by the respective parent Debtor without alteration. The holders of interests in this Class are not entitled to vote because their Interests are unimpaired. 4.8 Class 8 -GDC Common Stock Interests. This Class is impaired by the Plan. All shares of GDC Common Stock and the warrants, rights and options with respect thereto shall be retained by the holders thereof without alteration, except that (a) they shall be subject to dilution as the result of the Employee Stock Bonus Plan, (b) they shall be subject to dilution in the event of the exercise of the Lender Warrants, (c) they shall be subject to the Lender Director Selection Right and the Unsecured Creditors Director Selection Right, (d) they shall be subject to a 10/1 reverse stock split effective as of the Effective Date and (e) they shall be subject to any modifications made to Reorganized GDC's articles of incorporation and bylaws. The holders of Interests in this Class are entitled to vote because their Interests are impaired. ARTICLE 5. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ---------------------------------------- 5.1 Assumption of Certain Executory Contracts and Unexpired Leases. (a) As of the Effective Date, all Executory Contracts and Unexpired Leases which have not previously been assumed or rejected or are not the subject of a motion to reject pending on the Confirmation Date, including, without limitation, the Assumed Agreements listed on Schedule 1.4 attached hereto, shall be assumed by the Debtors, and the Confirmation Order shall constitute an order under section 365 of the Bankruptcy Code assuming such agreements as of the Effective Date. (b) The amount of any cure payment the Debtors believe are required for each identified Assumed Agreement is listed on Schedule 1.4. The cure amounts listed on Schedule 1.4 shall be binding on the counterpart to each Assumed Agreement, unless an objection is filed by the deadline established for filing objections to confirmation of the Plan. If an objection to a cure amount is filed, the cure amount shall be agreed to by the parties or established by order of the Bankruptcy Court. (c) The Reorganized Debtors may reach agreements with parties to certain Assumed Agreements providing for the deferral of cure payments that would otherwise be due by reason of such assumption and for the payment of interest on such deferred amounts. 5.2 Rejection and Cancellation of 7 3/4% Indenture. On the Effective Date, the 7 3/4% Indenture, to the extent it is an executory contract within the meaning of section 365 of the Bankruptcy Code, shall be deemed 12 rejected in accordance with the provisions of sections 365 and 1123 of the Bankruptcy Code and, to the extent it is not an executory contract subject to rejection under section 365 of the Bankruptcy Code, the 7 3/4% Indenture shall be cancelled and deemed terminated pursuant to section 1123(a)(5)(F) of the Bankruptcy Code. Any and all obligations of the Debtors under the 7 3/4% Indenture, including without limitation any obligations of the Debtors which the 7 3/4% Indenture provides will continue and survive the satisfaction and discharge thereunder, are and shall be extinguished. Entry of the Confirmation Order by the Bankruptcy Court shall constitute approval of such deemed rejection and/or cancellation pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Notwithstanding the rejection and/or cancellation of the 7 3/4% Indenture, the holders of the 7 3/4% Debentures will have the right to receive distributions on account of their Allowed Claims under the Plan. Notwithstanding the rejection and/or cancellation of the 7 3/4% Indenture, the 7 3/4% Indenture shall remain in effect as to the 7 3/4% Indenture Trustee to the extent necessary to allow the 7 3/4% Indenture Trustee to make the distributions to holders of the 7 3/4% Debentures under the Plan and the Confirmation Order. Any actions taken by the 7 3/4% Indenture Trustee other than as provided for in the Plan in respect of distributions, including without limitation any actions to enforce any lien provided to the 7 3/4% Indenture Trustee under the 7 3/4% Indenture shall be null and void as to the Debtors and the Reorganized Debtors, none of which shall be liable for any fees, costs or charges associated with unauthorized actions by the 7 3/4% Indenture Trustee. The 7 3/4% Indenture Trustee shall be relieved of all obligations under the 7 3/4% Indenture after its performance of its obligations to make the distributions to holders of Allowed General Unsecured Claims with respect to the 7 3/4% Debentures, as provided by the Plan and Confirmation Order. 5.3 Indemnification Obligations Assumed. For purposes of the Plan, the obligations of the Debtors to indemnify their respective present directors or officers, in such capacity or as plan administrators or trustees to any employee benefit plan, or any person serving at the request of any of the Debtors as a director, officer of any other entity pursuant to the Debtors' certificates of incorporation or by-laws or pursuant to and consistent with applicable state law or specific agreement, or any combination of the foregoing, shall be deemed to be executory contracts, shall be assumed by the Reorganized Debtors, effective as of the Effective Date, in accordance with the provisions of sections 365 and 1123 of the Bankruptcy Code and shall survive confirmation of the Plan, remain unaffected thereby, shall not be discharged, and shall pass unaltered to the Reorganized Debtors irrespective of whether such indemnification is owed in connection with an event occurring before, on or after the Petition Date. The Debtors are not aware of any claims being asserted against their officers and directors or of any facts or circumstances that would give rise to a claim being asserted against their officers and directors that would result in an indemnification claim being asserted against the Debtors by their officers and directors. 5.4 Claims Based on Rejection of Executory Contracts or Unexpired Leases. Except to the extent a prior order of the Bankruptcy Court provided for an earlier date, in which case such earlier date shall control, all proofs of claim with respect to Claims arising from the rejection of executory contracts or unexpired leases shall be filed with the Bankruptcy Court within thirty (30) days after the date of service of notice of entry of an order of the Bankruptcy Court approving such rejection and requiring the filing of a proof of claim. Any Claims not filed within such times shall be released and discharged and forever barred from assertion against the Debtors, their estates and property, or the Reorganized Debtors. 13 ARTICLE 6. ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE CLASSES ------------------------------------------ 6.1 Impaired Classes to Vote. Except as otherwise required by the Bankruptcy Code or the Bankruptcy Court, any holder of a Claim that is impaired under this Plan is entitled to vote to accept or reject this Plan if, at any time prior to the voting deadline, (i) its Claim has been Allowed, (ii) its Claim has been temporarily allowed for voting purposes only by order of the Bankruptcy Court pursuant to Bankruptcy Rule 3018 (in which case such Claim may be voted in such temporarily allowed amount), (iii) its Claim has been scheduled by the Debtors (but only if such Claim is not scheduled as disputed, contingent or unliquidated) and no objection to such Claim has been filed, or (iv) it has filed a proof of claim on or before the Bar Date (or such later date as the Bankruptcy Court may have established with respect to any particular Claim, but not later than the date of the order approving the disclosure statement accompanying this Plan), and such Claim is not a Disputed Claim. Notwithstanding the foregoing, a holder of a Disputed Claim which has not been temporarily allowed as provided above may nevertheless vote such Disputed Claim in an amount equal to the portion, if any, of such Claim shown as fixed, liquidated and undisputed in the Debtors' Schedules. 6.2 Acceptance By Class of Creditors. A class of Creditors shall have accepted this Plan if this Plan is accepted by at least two-thirds in amount and more than one-half in number of the Allowed Claims of such class that have voted and either accepted or rejected this Plan. 6.3 Acceptance By Class of Interests. A class of Interests shall have accepted this Plan if this Plan is accepted by at least two-thirds in amount of the Allowed Interests of such class that have voted and either accepted or rejected this Plan. 6.4 Cramdown. In the event that one or more classes of impaired Claims or Interests does not accept or is deemed not to have accepted this Plan, the Debtors requests that the Bankruptcy Court confirm this Plan in accordance with section 1129(b) of the Bankruptcy Code. The Debtors reserve the right to amend the Plan, if necessary, in order to satisfy the requirements of section 1129(b) of the Bankruptcy Code. 14 ARTICLE 7. PROVISIONS COVERING DISTRIBUTIONS AND PAYMENTS ---------------------------------------------- 7.1 Making of Distributions and Payments. (a) The Reorganized Debtors shall make the payments and distributions expressly required to be made in respect of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, Allowed Lenders Secured Claim, Allowed Other Secured Claims, Allowed General Unsecured Claims, and Allowed Convenience Class Claims at such time or times as are provided for in Articles 3, 4 and 7 hereof. 7.2 Distribution to Lenders. On the Effective Date, the Reorganized Debtors shall distribute the New Lender Loan and Security Agreement and the Lender Warrants to Ableco and the Debtors, Ableco and Foothill shall execute the Lender Release. 7.3 Distribution of New Debentures. On the Effective Date or as soon thereafter as is practicable, the Reorganized Debtors shall deliver to the New Indenture Trustee, New Debentures in the amount of the Allowed General Unsecured Claims as of that date, for distribution to the holders of such Allowed Claims. Thereafter, on a quarterly basis, the Reorganized Debtors shall deliver additional New Debentures to the New Indenture Trustee in an amount equal to the General Unsecured Claims that have become Allowed Claims since the last distribution, for distribution to the holders of such Allowed Claims. If at the time the Reorganized Debtors' initial payment obligation on account of the New Debentures becomes due, there are unresolved Disputed Claims, the Reorganized Debtors shall issue New Debentures on account of the undisputed portion, if any, of such unresolved Disputed Claims, with the balance of such Claim to remain a Disputed Claim until settled or a Final Order is entered with respect to such Claim. If there are Disputed Claims (or portions thereof) outstanding at such time as the Reorganized Debtors make any payments on the New Debentures, the Reorganized Debtors shall reserve, in a segregated account, on account of such Disputed Claims either (a) an amount equal to the payment that would have been made on account of such Disputed Claim if it were Allowed in the amount asserted or (b) an amount determined by the Bankruptcy Court upon estimation of such Claim for purposes of establishing the reserve amount. If New Debentures are issued on account of Disputed Claims after the initial payment is made on account of the New Debentures, at the time such New Debentures are issued to the holders of such previously Disputed Claims, the Reorganized Debtors shall also pay over to the New Indenture Trustee from such reserve account, for payment to such Claim holder, an amount equal to the principal and interest payments that would have been made on account of such New Debenture if it had been issued prior to the time the initial payment was made on account of the New Debentures. Any amounts reserved by the Reorganized Debtors in excess of their actual payment obligations on account of such Disputed Claims at the time the Claim is resolved and the New Debentures are issued, shall be returned to the Reorganized Debtors' general operating account. 7.4 Delivery of Distributions; Unclaimed Property. (a) Distributions and deliveries to holders of Allowed Claims shall be made at the addresses set forth on the proofs of claim filed by such holders (or at the last known addresses of such holders if no proof of claim is filed or if the Reorganized Debtors have been notified of a change of address). 15 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 in writing of such holder's then current address, at which time all missed distributions shall be made to such holder without interest (except to the extent that such missed distributions have become unclaimed property). All claims for undeliverable distributions shall be made on or before the earlier of the second (2nd) anniversary of the applicable Distribution Date and the Final Distribution Date, and after such date, such undeliverable distributions shall be unclaimed property. All unclaimed property attributable to any Claim or Equity Interest shall revert to the Reorganized Debtors, and the claim of any holder with respect to such property shall be discharged and forever barred and, in the case of a Claim, shall no longer be deemed an Allowed Claim. (b) Checks issued by the Reorganized Debtors in respect of Allowed Claims shall be null and void if not cashed within ninety (90) days of the date of issuance thereof. Requests for reissuance of any check shall be made in writing to the Reorganized Debtors by the record holder of the Allowed Claim with respect to which such check was originally issued. Any funds in respect of such a voided check shall be deemed an undeliverable or unclaimed distribution and shall revert to the Reorganized Debtors. (c) Method of Payment. Payments of Cash required to be made pursuant to this Plan shall be made by check drawn on a domestic bank or by wire transfer from a domestic bank at the election of the Person making such payment. (d) Payment Dates. Whenever any payment or distribution to be made under this Plan shall be due on a day other than a Business Day, such payment or distribution shall instead be made, without interest, on the immediately following Business Day. (e) Rounding. Whenever any payment of a fraction of a cent would otherwise be called for, the actual payment shall reflect a rounding of such fraction to the nearest whole cent, with one-half cent being rounded up to the nearest whole cent. 7.5. Payments of Less Than Five Dollars. If a cash payment otherwise provided for by this Plan with respect to an Allowed Claim would be less than five ($5.00) dollars (whether in the aggregate or on any Distribution Date provided for in this Plan), notwithstanding any contrary provision of this Plan, the Reorganized Debtors shall not be required to make such payment. ARTICLE 8. PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND CAUSES OF ACTION ------------------------------------ 8.1 Filing of Objections to Claims. Objections to Claims shall be filed with the Bankruptcy Court and served upon the holders of such Claims no later than 120 days after the Effective Date, provided however, that this deadline may be extended by the Bankruptcy Court upon a motion of the Reorganized Debtors, without notice or a hearing. Notwithstanding the foregoing, 16 unless an order of the Bankruptcy Court specifically provides for a later date, any proof of claim filed after the Confirmation Date shall be automatically disallowed as a late filed claim, without any action by the Reorganized Debtors, unless and until the party filing such Claim obtains the written consent of the Reorganized Debtors to file such Claim late or obtains an order of the Bankruptcy Court upon notice to the Reorganized Debtors that permits the late filing of the Claim, in which event, the Reorganized Debtors shall have 120 days from the date of such written consent or order to object to such Claim, which deadline may be extended by the Bankruptcy Court upon motion of the Reorganized Debtors, without notice or a hearing. 8.2 Prosecutions of Objections to Claims. Prior to the Effective Date the Debtors shall litigate to judgment, propose settlements of or withdraw objections to such Disputed Claims asserted against them as the Debtors may choose. From and after the Effective Date, the Reorganized Debtors shall litigate to judgment, propose settlements of or withdraw objections to all Disputed Claims. The Reorganized Debtors will act in accordance with their fiduciary duties as reorganized debtors in the claims resolution process. All proposed settlements of Disputed Claims where the settlement amount exceeds $125,000, shall be subject to the approval of the Bankruptcy Court after notice and opportunity for a hearing (as that term is used in section 102(1) of the Bankruptcy Code). After the Effective Date, the Reorganized Debtors may settle any Disputed Claim where the settlement amount is $125,000 or less without providing any notice or obtaining an order from the Court. 8.3 Payment or Distribution Upon Resolution of Disputed Claims. Except as the Debtors or the Reorganized Debtors, as applicable, may otherwise agree with respect to any Disputed Claim, no payments or distributions shall be made with respect to any portion of a Disputed Claim unless and until (a) all objections to such Disputed Claim have been resolved or determined by a Final Order of the Bankruptcy Court or (b) the Bankruptcy Court shall have entered an order treating any portion of a Disputed Claim as an Allowed Claim. Payments and distributions to each holder of a Disputed Claim to the extent that it ultimately becomes an Allowed Claim shall be made in accordance with the provisions of this Plan with respect to the class of Claims to which such Allowed Claim belongs. A Disputed Claim which is estimated for purposes of allowance and distribution pursuant to section 502(c) of the Bankruptcy Code and which is estimated and Allowed at a fixed amount by Final Order of the Bankruptcy Court shall thereupon be an Allowed Claim for all purposes in the amount so estimated and Allowed. 8.4 Causes of Action. After the Effective Date, the Reorganized Debtors shall have the sole right, in the name of the Debtors, to commence, continue or settle any Causes of Action, including any Causes of Action brought by the Debtors prior to the Effective Date and which remain unsettled as of the Effective Date. All proposed settlements of Causes of Action, where the settlement amount exceeds $125,000 shall be subject to the approval of the Bankruptcy Court after notice and opportunity for a hearing (as that term is used in section 102(1) of the Bankruptcy Code). All proposed settlements of Causes of Action, where the settlement amount is $125,000 or less, may be entered into by the Reorganized Debtors without further notice, hearing or order of the Court. PARTIES IN INTEREST, INCLUDING WITHOUT LIMITATION, CREDITORS, MAY NOT RELY ON THE ABSENCE OF A REFERENCE IN THE DISCLOSURE STATEMENT OR THE PLAN AS ANY INDICATION THAT THE DEBTORS OR REORGANIZED DEBTORS WILL NOT PURSUE ANY 17 AND ALL AVAILABLE CAUSES OF ACTION AGAINST THEM. THE DEBTORS, ON BEHALF OF THEIR ESTATES, EXPRESSLY RESERVE ALL RIGHTS TO PROSECUTE ANY AND ALL CAUSES OF ACTION AGAINST THIRD PARTIES (WHETHER OR NOT REFERENCED IN THE DISCLOSURE STATEMENT OR PLAN), INCLUDING WITHOUT LIMITATION, AVOIDANCE OR SUBORDINATION ACTIONS AGAINST ANY CREDITOR. ARTICLE 9. MEANS FOR IMPLEMENTATION OF THIS JOINT PLAN ------------------------------------------- 9.1 Conveyance Free and Clear. All assets or property of the estates of the Debtors sold at any time during the Chapter 11 Case pursuant to section 363 of the Bankruptcy Code were or are sold free and clear of all liens, claims, encumbrances and interests except as otherwise specifically provided in a Final Order of the Bankruptcy Court approving any such sale. 9.2 Cancellation of Certain Existing Securities and Agreements. On the Effective Date, (i) any and all notes, documents, agreements or other evidence of indebtedness underlying the Lender Secured Claim, Other Secured Claims, General Unsecured Claims and Convenience Class Claims, including without limitation the Pre-Petition Secured Loan Agreements with the Lender and the 7 3/4% Indenture shall be cancelled and shall be null and void, and (ii) the obligations of the Debtors or the Reorganized Debtors under the Pre-Petition Secured Loan Agreements, the 7 3/4% Debentures, the 7 3/4% Indenture and any other notes, documents, agreements or other evidence of indebtedness underlying the Lender Secured Claim, the Other Secured Claims, the General Unsecured Claims or the Convenience Class Claims and any and all other agreements, indentures, deeds, guarantees and/or certificates of designation governing, securing, guaranteeing or relating thereto shall be discharged. The holder of any such documents cancelled pursuant to this provision shall have no rights arising from or relating to such documents, including, without limitation, any subordination or subrogation rights, except the right to receive distributions provided for in the Plan. 18 9.3 Surrender of Instruments. Each holder of a promissory note, document or other instrument evidencing a Claim shall surrender such note, document or instrument to the Reorganized Debtors, and the Reorganized Debtors shall distribute or shall cause to be distributed to the holders thereof the appropriate distribution of property hereunder; provided, however, that distributions in respect of the 7 3/4% Debentures may be made to the 7 3/4% Indenture Trustee for further distribution to the beneficial holder of the 7 3/4% Debenture. No distribution of property hereunder shall be made to or on behalf of any holders of Claims unless and until such promissory note, document or other instrument is received by the Reorganized Debtors, or the unavailability of such note, document or instrument is reasonably established to the satisfaction of the Reorganized Debtors. In addition to certain holders of Claims, the holders of the outstanding shares of GDC's Redeemable 5% Preferred Stock which was automatically converted into shares of GDC Common Stock on July 31, 2002 shall be required to surrender the certificates for the GDC Redeemable 5% Preferred Stock in order receive its shares of GDC Common Stock. Any such holder that fails to surrender or cause to be surrendered such note, document or other instrument or to execute and deliver an affidavit of loss and indemnity reasonably satisfactory to the Reorganized Debtors, and in the event the Reorganized Debtors shall so request, fails to furnish a bond in form and substance (including, without limitation, with respect to amount) reasonably satisfactory to the Reorganized Debtors within two (2) years after the Effective Date, shall be deemed to have forfeited all rights, Claims, and interests related thereto and shall not participate in any distributions hereunder and all property in respect of such forfeited distribution, including interest and dividends accrued thereon, if any, shall revert to the Reorganized Debtors. 9.4 Release of Certain Claims and Actions. As of and on the Effective Date, the Debtors, their Estates, Ableco, Foothill, the Committee and the individual members thereof (solely in their role as committee members) and any of their successors, assigns or representatives shall be deemed to have waived, released and discharged all rights or claims, including, without limitation direct claims or any claims, litigations or actions brought or that could have been brought derivatively arising out of or with respect to any event or omission occurring before the Effective Date, whether based upon tort, contract or otherwise, which they possessed or may possess prior to the Effective Date against the Debtors, the Committee and the individual members thereof (solely in their role as committee members), Ableco, Foothill, their present and former directors, officers, employees, agents, representatives and attorneys and any of their successors or assigns except as otherwise provided for in the Plan (including the documents filed as Exhibits or Schedules to the Plan or as part of the Plan Supplement) or the Confirmation Order, provided, however, that the foregoing release shall not apply to performance or nonperformance under the Plan or related instruments, securities, agreements or documents, or to any action or omission that constitutes gross negligence or willful misconduct, and provided, further, that nothing in this Plan shall be deemed to waive, release or relinquish any rights the Debtors or the Reorganized Debtors may have to assert any claim under any insurance policy indemnifying present or former officers or directors of the Debtors or any of the Debtors' professional advisors. The Confirmation Order shall contain a permanent injunction to effectuate the releases granted in this Section 9.4. 19 9.5 Exculpation. To the fullest extent permitted by Section 1125(e) of the Bankruptcy Code, the Debtors, the Reorganized Debtors, the Committee and its members, Ableco, Foothill and their respective present and former members, officers, directors, employees, representatives, professionals or agents shall be deemed released by each of them against the other and by the holders of Claims or Allowed Interests of and from any and all claims, obligations, rights, causes of action and liabilities for any act or omission in connection with, or arising out of, the Debtors' Chapter 11 Cases, including without limiting the generality of the foregoing, the Disclosure Statement and the Plan, the pursuit and approval of the Disclosure Statement, 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 willful misconduct or gross negligence, and all such persons, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan and under the Bankruptcy Code. 9.6 Exemption from Certain Taxes. To the full extent allowed pursuant to section 1146(c) of the Bankruptcy Code, the consummation of the transactions contemplated by this Joint Plan shall not subject the Debtors or the Reorganized Debtors to any state or local stamp tax or similar tax. 9.7 Certificate of Incorporation and By-Laws. The certificate of incorporation and by-laws of the Reorganized Debtors shall be amended and restated, after consultation with the Committee and Lenders, and shall be substantially in the forms that will be included in the Plan Supplement which will be filed with the Court at least ten days prior to the Voting Deadline. 9.8 Directors and Officers. The existing officers and directors of the Debtors shall continue in their existing positions after the Effective Date of the Plan. With respect to Reorganized GDC, the board of directors shall consist of no less than five and no more then thirteen members. Initially upon emergence from Chapter 11, Reorganized GDC's board is expected to consist of four or five members, one of which may be selected by the Creditors Committee and the remainder of which may be selected by the existing board of directors or its designees. Thereafter, Reorganized GDC's board of directors shall be selected in accordance with normal corporate governance procedures of GDC, as set forth in its amended and restated certificate of incorporation, provided that Ableco shall be entitled to appoint three directors until its claim has been paid in full and the New Indenture Trustee for the New Debentures shall be entitled to select one director until the New Debentures are paid in full, provided that if the Lenders' Claim is not paid in full by the third anniversary of the Effective Date, the New Indenture Trustee shall be entitled to select two additional directors (for a total of three directors) until the Lender's Claim has been paid in full, and provided further that in the event the Reorganized Debtors default on any payment due under the New Debentures and such default is not cured within 60 days after notice, then the New Indenture Trustee shall be entitled to select a majority of the board of directors of Reorganized GDC until the New Debentures are paid in full. Additionally, as referenced above, Ableco is entitled to appoint three directors until its claim has been paid in full. Ableco has advised the Debtors that it does not presently intend to exercise its right to appoint directors immediately after the Effective Date. In the event Ableco later decides to exercise its right to appoint three directors, the size of the Board of Directors of GDC will be increased by four or five directors, three of which will be elected by Ableco and the other one or two to be initially selected by the other directors (other than the director selected by 20 the Committee or New Indenture Trustee) and thereafter by the holders of Common Stock. The initial post-Effective Date directors and officers of the Reorganized Debtors, shall be constituted as of the Effective Date, and shall consist of the existing officers and directors of the Debtors and those additional individuals identified in the Disclosure Statement or in a subsequent document submitted to the Court at or prior to the Confirmation Hearing. 9.9 Revesting of Assets; No Further Supervision. The assets of the Debtors and all property of the Debtors' estates (including, without limitation, all rights of the Debtors to recover property under sections 542, 543, 550 and 553 of the Bankruptcy Code, all avoiding powers under sections 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of the Bankruptcy Code, all proceeds thereof, and all claims and causes of action, cross-claims and counterclaims of any kind or nature whatsoever against third parties arising before the Confirmation Date that have not been disposed of prior to the Confirmation Date), shall be preserved and revest in the Reorganized Debtors, in each case free and clear of all Claims and Equity Interests, but subject to the obligations of the Reorganized Debtors as specifically set forth in this Plan. This Plan does not contain any restrictions or prohibitions on the conduct of the business of the Reorganized Debtors. The Reorganized Debtors may use, operate and deal with their assets, and may conduct and change their businesses, without any supervision by the Bankruptcy Court or the Office of the United States Trustee, and free of any restrictions imposed on the Debtors by the Bankruptcy Code or by the Bankruptcy Court during the Chapter 11 Cases, except as otherwise provided herein. 9.10 Authority to Implement. The Debtors are hereby authorized to take all necessary steps, and perform all necessary acts, to consummate the terms and conditions of this Plan. 9.11 No Injunctive Relief. No Claim shall under any circumstances be entitled to specific performance or other injunctive, equitable or other prospective relief. ARTICLE 10. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE ------------------------------------------ 10.1 Effectiveness of this Plan. The Plan shall not become effective unless and until the following conditions shall have been satisfied, or waived by the Debtors with the consent of Ableco to such waiver, which consent shall not be unreasonably withheld: (a) The Confirmation Order shall have been entered, shall not have been modified or altered in any way, and no stay or injunction of the Confirmation Order shall be in effect. (b) The New Lender Loan and Security Agreement, the Lender Warrant and the Lender Release shall have been executed and delivered to the Lender. (c) The New Indenture shall have been executed and the initial distribution of New Debentures shall have been delivered by the Debtors to the New Indenture Trustee. 21 10.2 Conditions Not Satisfied Or Waived. In the event that the conditions to effectiveness of the Plan have not occurred and have not been properly waived as provided in 10.1, and upon the filing of a notice with the Bankruptcy Court by the Debtors, (i) no distributions under the Plan shall be made, (ii) all of the Debtors' obligations in respect of Allowed Claims and Interests shall remain unchanged, (iii) the Debtors shall not have been substantively consolidated nor merged and (iv) the Confirmation Order, if entered, shall be vacated. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Modification of Payment Terms. The Reorganized Debtors reserve the right to modify the treatment of any Allowed Claim in any manner adverse only to the holder of such Claim at any time after the Effective Date upon the written consent of the Creditor whose Allowed Claim treatment is being adversely affected. 11.2 Discharge of Debtors. The consideration distributed under this Plan shall be in exchange for and in complete satisfaction, discharge, release, and termination of, all Claims of any nature whatsoever against the Debtors or any of their assets or properties and all Equity Interests in the Debtors (other than as provided in this Plan); and except as otherwise provided herein, upon the Effective Date the Debtors shall be deemed discharged and released pursuant to section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims, including but not limited to demands and liabilities that arose before the Confirmation Date, all Stockholder Actions as they relate to the Debtors, and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (a) a proof of claim based upon such debt is filed or deemed filed under section 501 of the Bankruptcy Code; (b) a Claim based upon such debt is allowed under section 502 of the Bankruptcy Code; or (c) the holder of a Claim based upon such debt has accepted this Plan. The Confirmation Order shall be a judicial determination of discharge and termination of all liabilities of and all Claims against, and all Equity Interests in, the Debtors, except as otherwise specifically provided in this Plan. On the Confirmation Date, as to every discharged debt, Claim and Equity Interest, the Creditor or Equity Interest holder that held such debt, Claim or Equity Interest shall be permanently enjoined and precluded from asserting against the Reorganized Debtors, or against their assets or properties or any transferee thereof, any other or further Claim or Equity Interest based upon any document, instrument or act, omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date, except as expressly set forth in this Plan. In the event that, after the Confirmation Date, any Person asserts, against the Reorganized Debtors or any of their subsidiaries or affiliates, any right to payment or equitable remedy for breach of performance which gives rise to a right of payment, which right was not asserted prior to the Confirmation Date but is based on any act, fact, event, occurrence, or omission, by or relating to the Debtors, as the Debtors existed before the Confirmation Date, and in the further event that such right is determined by a court of competent jurisdiction not to have been discharged pursuant to the provisions of Bankruptcy Code section 1141 and this Plan, and that such right may be asserted against the Reorganized Debtors then, in such circumstances the holder of such right shall be entitled to receive from the Reorganized Debtors value equivalent to the value such holder would have received if such right had been asserted against the Debtors before the Confirmation Date and only to the 22 extent such right would have been allowed or allowable as a Claim. Nothing in this Section shall have the effect of excepting from discharge any Claim which is or would be discharged pursuant to Bankruptcy Code section 1141 or this Plan. The Confirmation Order shall contain a permanent injunction to effectuate the discharge provided by this Section 11.2. 11.3 Filing of Additional Documents. On or before the Effective Date, the Debtors shall file with the Bankruptcy Court such agreements and other documents, if any, as may be necessary or appropriate to effectuate and further evidence the terms and conditions of this Plan and the other agreements referred to herein. 11.4 Compliance with Tax Requirements. In connection with this Plan, the Debtors and the Reorganized Debtors shall comply with all withholding and reporting requirements imposed by federal, state, local and foreign taxing authorities and all distributions hereunder shall be subject to such withholding and reporting requirements. 11.5 Setoffs. The Debtors and the Reorganized Debtors may (if it is in the best interests of the Debtors' estates), but shall not be required to, set off or recoup against any Claim claims of any nature whatsoever which the Debtors or Reorganized Debtors may have against the holder of such Claim to the extent such claim may be set off or recouped under applicable law, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtors or the Reorganized Debtors of any such claim that it may have against such holder. 11.6 Retiree Benefits. To the extent the Debtors provide any Retiree Benefits, such Retiree Benefits shall continue from and immediately after the Effective Date at the levels established pursuant to section 1114(e)(1)(B) or (g) of the Bankruptcy Code, at any time prior to the Confirmation Date, to the extent that the Debtors have obligated themselves to provide Retiree Benefits at such levels. The Reorganized Debtors reserve the right to modify, amend, freeze or terminate such Retiree Benefits to the full extent permitted by law. 11.7 Payment of Certain Expenses by the Reorganized Debtors. The Reorganized Debtors shall assume responsibility for the payment of all fees and expenses of professionals retained by the Debtors accruing following the Effective Date 11.8 Termination of Committee. The appointment and existence of the Committee shall terminate on the Effective Date. 11.9 Section Headings. The section headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan. 11.10. Waiver. The Debtors reserve the right, in their sole discretion, to waive any provision of this Plan to the extent such provision is for the sole benefit of the Debtors and/or its officers or directors. 11.11. Notices. Any notice required or permitted to be provided under the Plan shall be in writing and served by either (a) certified mail, 23 return receipt requested, postage prepaid, (b) hand delivery or (c) reputable overnight courier service, freight prepaid, to be addressed as follows: General DataComm Industries, Inc. 6 Rubber Avenue Naugatuck, CT 06770 Attn: Chief Executive Officer with a copy to: YOUNG CONAWAY STARGATT & TAYLOR, LLP 17th Floor, 1000 West Street P.O. Box 391 Wilmington, DE 19899-0391 (302) 571-6600 Attention: Joel A. Waite, Esquire 11.12. Severability. If any term or provision of the Plan is held by the Bankruptcy Court prior to or at the time of Confirmation to be invalid, void or unenforceable, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as so altered or interpreted. In the event of any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan may, at the Debtors' option, remain in full force and effect and not be deemed affected. However, the Debtors reserve the right not to proceed to Confirmation or consummation of the Plan if any such ruling occurs. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms. 11.13 Plan Controls. To the extent the Plan is inconsistent with the Disclosure Statement or any other document, agreement, pleading or understanding, the provisions of the Plan shall control, except that the Confirmation Order shall control to the extent there is any inconsistency between the Plan and the Confirmation Order. 11.14 Reservation of Rights. If the Plan is not confirmed by the Bankruptcy Court or any other Court of competent jurisdiction for any reason, the rights of all parties in interest in the Debtors' Chapter 11 Cases are and shall be reserved in full. Any concession reflected or provision contained herein, is made for the purposes of the Plan only, and if the Plan does not become effective, no party in interest in the Debtors' Chapter 11 cases shall be bound or deemed prejudiced by any such concession. 11.15 Governing Law. Except to the extent that the Bankruptcy Code is applicable, the rights and obligations arising under this Plan shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 24 11.16 Non-Voting Equity Securities. The Debtors' amended and restated certificates of incorporation shall include a provision complying with the requirements of Section 1123(a)(6) of the Bankruptcy Code. 11.17 Exemption from Transfer Taxes. Pursuant to Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of notes or equity securities under the Plan, the creation of any mortgage, deed of trust or other security interest, the making or assignment of any lease or sublease, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Plan, shall not be subject to any stamp tax or other similar tax. 11.18 Termination of Subordination Rights. The classification and manner of satisfying all Claims and Interests under the Plan takes into consideration all contractual, legal and equitable subordination and turnover rights, if any, whether arising under general principals of equitable subordination, section 510(c) of the Bankruptcy Code or otherwise, that a holder of a Claim or Interest in the Debtors may have against other Claim holders with respect to any distribution made pursuant to this Plan. On the Effective Date, all contractual, legal, equitable subordination and turnover rights that a holder of a Claim against or Interest in the Debtors may have with respect to any distribution to be made pursuant to this Plan will be discharged and terminated, and all actions related to the enforcement of such subordination rights, if any, will be permanently enjoined. Accordingly, distributions pursuant to this Plan to holders of Allowed Claims will not be subject to payment of a beneficiary of such terminated subordination rights, or to levy, garnishment, attachment or other legal process by a beneficiary of such terminated subordination rights. 11.19 Payment of Statutory Fees. All fees payable pursuant to Section 1930 of Title 28 of the United States Code, as determined by the Bankruptcy Court, shall be paid when and as they come due. 25 ARTICLE 12 PROVISIONS FOR EXECUTION AND SUPERVISION OF THIS PLAN ------------------------ 12.1 Retention of Jurisdiction. From and after the Effective Date, the Bankruptcy Court shall retain and have exclusive jurisdiction over the Chapter 11 Cases for the following purposes: (a) to determine any and all objections to the allowance of Claims; (b) to determine any and all applications for the rejection, assumption, or assumption and assignment, as the case may be, of executory contracts or unexpired leases to which the Debtor is a party or with respect to which the Debtors may be liable, and to hear and determine, and if need be to liquidate, any and all Claims arising therefrom; (c) to determine any and all applications for the determination of any priority of any Claim including Claims arising from any event that occurred prior to the Petition Date or from the Petition Date through the Effective Date and for payment of any alleged Administrative Claim, Priority Tax Claim, Other Priority Claims, Secured Claim or Unsecured Claim; (d) to determine any and all applications, motions, adversary proceedings and contested or litigated matters that may be pending on the Effective Date or filed thereafter; (e) to determine all controversies, suits and disputes that may arise in connection with the interpretation, enforcement or consummation of this Plan or in connection with the obligations of the Debtors or the Reorganized Debtors under this Plan, and to enter such orders as may be necessary or appropriate to implement any distributions to holders of Allowed General Unsecured Claims; (f) to consider any modification, remedy any defect or omission, or reconcile any inconsistency in this Plan or any order of the Bankruptcy Court, including the Confirmation Order, all to the extent authorized by the Bankruptcy Code; (g) to issue such orders in aid of execution of this Plan to the extent authorized by section 1142 of the Bankruptcy Code; (h) to determine such other matters as may be set forth in the Confirmation Order or as may arise in connection with this Plan or the Confirmation Order; (i) to hear and determine any claim or controversy of any nature arising from or in connection with any agreement made a part of this Plan; and to enter such orders as may be appropriate to enforce, modify, interpret or effectuate such agreements; (j) to determine any suit or proceeding brought by the Debtors or the Reorganized Debtors, on behalf of the Debtors' estates, to (a) recover property under section 542, 543 or 553 of the Bankruptcy Code or to avoid any 26 transfer or obligation under section 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of the Bankruptcy Code or (b) otherwise collect or recover on account of any claim or cause of action that the Debtors may have (provided that the Bankruptcy Court's jurisdiction with respect to such matters shall be nonexclusive); (k) to consider and act on the compromise and settlement of any Claim against or cause of action by or against the Debtors' estates; (l)) to estimate Claims pursuant to section 502(c) of the Bankruptcy Code; (m) to hear and determine any dispute or controversy relating to any Allowed Claim or any Claim alleged or asserted by any Person to be an Allowed Claim; (n) to determine any and all applications for allowances of compensation and reimbursement of expenses and any other fees and expenses authorized to be paid or reimbursed under the Bankruptcy Code or this Plan; (o) to administer and enforce the injunctions contained in this Plan, and any related injunction or decree contained in the Confirmation Order; (p) to hear and determine any other matter related hereto and not inconsistent with Chapter 11 of the Bankruptcy Code; and (q) to hear a motion and any issues related to issuing a final decree closing the Chapter 11 Cases. 12.2 Amendment of Plan. This Plan may be amended by the Debtors before the Effective Date, with the consent of Ableco, which consent shall not be unreasonably withheld, and by the Reorganized Debtors after the Effective Date as provided in section 1127 of the Bankruptcy Code. 12.3 Revocation of Plan. The Debtors reserve the right to revoke and withdraw this Plan prior to entry of the Confirmation Order. If the Debtors revoke or withdraw this Plan, then this Plan shall be deemed null and void and nothing contained herein shall be deemed to constitute a waiver or release of any Claims by or against the Debtors or any other person or to prejudice in any manner the rights of the Debtors or any person in any further proceedings involving the Debtors. 27 12.4 Implementation. The Debtors shall be authorized to take all necessary steps, and perform all necessary acts, to consummate the terms and conditions of this Plan, including, without limitation, any transaction contemplated by the disclosure statement approved by the Bankruptcy Court. Nothing contained in this Section shall be construed to prohibit, limit, restrict, or condition the Debtors' authority in any lawful manner to sell or otherwise dispose of any other assets. 28 ARTICLE 13 CONFIRMATION REQUEST -------------------- 13.1 The Debtors, Foothill and Ableco hereby request confirmation of the Plan pursuant to Section 1129(a) and Section 1129(b) of the Bankruptcy Code. Dated: April 29, 2003 Respectfully submitted, GENERAL DATACOMM INDUSTRIES, INC., ET AL. By: --------------------------------------- Name: Howard Modlin Title: Chairman AGREED TO: ABLECO FINANCE LLC By: --------------------------------- Name: Title: FOOTHILL CAPITAL CORPORATION By: --------------------------------- Name: Title: 29 Schedule 1.4 ASSUMED AGREEMENTS GENERAL DATACOM INDUSTRIES INC., ET AL SCHEDULE 1.4 - ASSUMED AGREEMENTS --------------------------------- Debtors reserve the right to amend this list and to file motions to assume or rejection unexpired leases and executory contracts at anytime prior to the Effective Date of the Plan.
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Party to Contract Description of Contract Cure Amount Per Debtors - ----------------------------------------------- ----------------------------------------------------- ------------------------- - ----------------------------------------------- ----------------------------------------------------- ------------------------- ReliaStar Life Insurance Company (formerly Group Policy Employee Life Insurance, Accidental Northwestern National Life Ins.) Death and Dismemberment and Supplemental Life $0 20 Washington Avenue South Insurance Minneapolis, MN 55401 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Aetna US Healthcare Company sponsored group health plan for employees 1000 Middle Street $0 Middlefield, CT 06457 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Diversified Waste Disposal Agreement for the location of and pick-up of refuse 60 Newtown Road from GDC facilities $1,060.00 Suite 62 Danbury, CT 06810-6236 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Fire Control Service Co., Inc. Agreement for monitoring, testing and inspection of Alarm Services Division GDC's fire alarm systems at GDC facilities $2,000.22 221 Danbury Road New Milford, CT 06776 Attn: Tom Hoefer - ----------------------------------------------- ----------------------------------------------------- ------------------------- Kone, Inc. Agreement to provide service and maintenance of 16 Old Forge Road elevators at GDC facilities $6,036.80 Rocky Hill, CT 06067 Attn: Jeremy Vivian - ----------------------------------------------- ----------------------------------------------------- ------------------------- Netquest Corporation Multiple Project Engineering Development and 523 Fellowship road License/Royalty Agreement on a unit schedule $0 Suite 205 Mt. Laurel, NJ 08054 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Elite Technical Solutions Corporation Agreement to provide for hardware maintenance of 186 River Road GDC's Hewlett-Packard mini-main-from computers. $1,885.00 Newington, NH 03801 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Alliance Food Management Corporation Agreement to provide for location of vending 1172 North Main Street machines for the sale of food, beverages and snacks $1,455.46 P.O. Box 4744 at GDC's Connecticut facilities. Waterbury, CT 06704 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Network Appliance, Inc. Hardware and Software maintenance and tech support 495 East Java Drive for installed products. $0 Sunnyvale, CA 94089 Attn: Brian Watson - ----------------------------------------------- ----------------------------------------------------- ------------------------- Apptitude, Inc. Software source code license agreement 6330 San Ignacio Avenue $0 San Jose, CA 95119 Attn: CFO - ----------------------------------------------- ----------------------------------------------------- ------------------------- NetQuest Corporation License Agreement for the use of NetQuest Frame 523 Fellowship Road Relay Link Probe Software. $0 Suite 205 Mt. Laurel, NJ 08054 Attn: Dan Pocek - ----------------------------------------------- ----------------------------------------------------- ------------------------- Redpoint Network Systems, Inc. Agreement for the License and Distribution of 4925 N. O'Connor Road Redpoint software in GDC products. $0 Suite 125 Irving, TX 75062 Attn: Kevin Martin - ----------------------------------------------- ----------------------------------------------------- ------------------------- CA Business Partners Non-exclusive sale, resale, distribution and $0 125 East Lake St., Suite 306 integration agreements for GDC products Bloomingdale, IL 60108 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Amerinet Non-exclusive sale, resale, distribution and $0 1241 S. Maple integration agreements for GDC products Ann Arbor, MI 48103 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Com/Peripherals, Inc. Non-exclusive sale, resale, distribution and $0 87 Water Mill Lane integration agreements for GDC products Great Neck, NY 11021 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Jencom Non-exclusive sale, resale, distribution and $0 2229 Springfield Avenue integration agreements for GDC products P.O. Box 201 Vauxhall, NJ 07088 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Alliance DataCom L.P. Non-exclusive sale, resale, distribution and $0 11130 Petal Street integration agreements for GDC products Suite 800 Dallax, TX 75238 - ----------------------------------------------- ----------------------------------------------------- ------------------------- MDSI (Management Data Systems Int'l) Non-exclusive sale, resale, distribution and $0 1265 Oak Industrial Lane integration agreements for GDC products Cumming, GA 30041 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Satellite Communications Non-exclusive sale, resale, distribution and $0 2 Eaton Street, Suite 800 integration agreements for GDC products Hampton, VA 23669 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Story & Roberts Associates, Inc. Non-exclusive sale, resale, distribution and $0 13216 Executive Park Terrace integration agreements for GDC products Germantown, MD 20874 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Sunrise Communications Non-exclusive sale, resale, distribution and $0 1711 F. Anderson Highway integration agreements for GDC products Powhatan, VA 23139 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Century Telephone Non-exclusive sale, resale, distribution and $0 100 Century Park Drive integration agreements for GDC products Monroe, LA 71203 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- CBM of America, Inc. Non-exclusive sale, resale, distribution and $0 1455 W. Newport Center Drive integration agreements for GDC products Deerfield Beach, FL 33442 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Datalink Ready, Inc. Non-exclusive sale, resale, distribution and $0 145 East Drive integration agreements for GDC products Melbourne, FL 32904 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Walker & Associates Non-exclusive sale, resale, distribution and $0 Highway 52 North, Box 1029 integration agreements for GDC products Welcome, NC 27374 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Atlanta Datacomm Non-exclusive sale, resale, distribution and $0 2915-A Courtyards Drive integration agreements for GDC products Norcross, GA 30071 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Commercial Business Systems, Inc. Non-exclusive sale, resale, distribution and $0 14321 Sommerville Court integration agreements for GDC products Suite 103 Midlothian, VA 23113 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Communications Test Design, Inc. Non-exclusive sale, resale, distribution and $0 Goshen Corporate Park integration agreements for GDC products 1334 Enterprise Drive West Chester, PA 19380 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Interlink Communications Sys. Non-exclusive sale, resale, distribution and $0 4400 140th Avenue North integration agreements for GDC products Suite 250 Clearwater, FL 33762 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Sunbelt Telecommunications Non-exclusive sale, resale, distribution and $0 505 Century Parkway, Bldg. 100 integration agreements for GDC products Allen, TX 75013-3675 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Thomas Technologies Non-exclusive sale, resale, distribution and $0 1860 I-30 East integration agreements for GDC products Rockwall, TX 75087 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Delta Communications Group Non-exclusive sale, resale, distribution and $0 27136-A Paseo Espada, Suite 101 integration agreements for GDC products San Juan Capistrano, CA 92675 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Alltel Supply, Inc. Non-exclusive sale, resale, distribution and $0 6625 The Corners Parkway integration agreements for GDC products Norcross, GA 30092 Attn: Stan Stevens - ----------------------------------------------- ----------------------------------------------------- ------------------------- Ameritech Advanced Data Services Non-exclusive sale, resale, distribution and $0 225 West Randolph Street integration agreements for GDC products Floor 25B Chicago, Il 60606 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Telesector Resources Group Non-exclusive sale, resale, distribution and $0 (formerly Bell-Atlantic Network Services, Inc.) integration agreements for GDC products 1050 Virginia Drive, 1st Floor Ft. Washington, PA 19034 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Bell South Mobility, Inc. Non-exclusive sale, resale, distribution and $0 5600 Glenridge Drive integration agreements for GDC products Suite 600 Atlanta, GA 30342 - ----------------------------------------------- ----------------------------------------------------- ------------------------- GTE Communications Systems Corporation Non-exclusive sale, resale, distribution and $0 700 Hidden Ridge integration agreements for GDC products Irving, TX 75083 - ----------------------------------------------- ----------------------------------------------------- ------------------------- MCI Telecommunications/Worldcom Non-exclusive sale, resale, distribution and $0 2400 North Glenville Drive integration agreements for GDC products Richardson, TX 75081 - ----------------------------------------------- ----------------------------------------------------- ------------------------- North Supply Corporation Non-exclusive sale, resale, distribution and $0 600 Industrial Parkway integration agreements for GDC products Industrial Airport, KS 66031-8000 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Nortel Networks, Inc. Non-exclusive sale, resale, distribution and $0 200 Athens Way integration agreements for GDC products Nashville, TN 37228 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Siemens Information and Non-exclusive sale, resale, distribution and $0 Communications Networks, Inc. integration agreements for GDC products 900 Broken Sound Parkway Boca Raton, FL 33487 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Southwestern Bell Telephone Corporation Non-exclusive sale, resale, distribution and $0 1010 Market Street integration agreements for GDC products St. Louis, MO 63101 Attn: District Manager - Procurement Contracting and Vendor Relations - ----------------------------------------------- ----------------------------------------------------- ------------------------- U.S. West Business Resources, Inc. (Qwest) Non-exclusive sale, resale, distribution and $0 188 Inverness Drive West integration agreements for GDC products Englewood, CO 80112 - ----------------------------------------------- ----------------------------------------------------- -------------------------
Schedule 1.41 Terms of Lender Warrants Ableco (or its designee) shall be issued: (i) warrants to acquire a percentage (as described below) of the number of shares of GDC's common stock on a fully diluted basis based on an exercise price equal to $0.01 per share, which warrants may only be exercised at the option of Ableco (or its designee) upon an event of default under the New Lender Loan and Security Agreement that is not cured within an applicable cure period, and (ii) warrants for 10% of the common stock of GDC's Common Stock on a fully diluted basis based upon an exercise price equal to $0.01 per share, which warrants may only be exercised at the option of Ableco (or its designee) upon the failure of the reorganized Debtors to repay the New Lender Term Obligation in full by December 31, 2004 ((i) and (ii), together, the "New Warrants"). The New Warrants shall contain customary registration rights acceptable to the parties. The New Warrants and any stock issued upon the exercise of the New Warrants shall be cancelled if the entire amount owing under the New Lender Loan and Security Agreement is paid in full on or before December 31, 2007. The New Warrants and any stock issued upon the exercise of the New Warrants, shall not be transferable by Ableco or its designee prior to December 31, 2007 except to affiliates of Ableco or its designee (an entity controlled by or under common control with Ableco or its designee) subject to the provisions of this restriction. The percentage of the reorganized GDC's shares subject to the New Warrants shall be determined based upon the then outstanding principal amount of the New Lender Term Obligation at the time of the exercise of the New Warrants, as follows: Outstanding Amount of Term Obligation % of Stock --------------- --------------------- Above $15M 51% $12.5M - $15M 35% $10M - $12.5M 20% $7.5M - $10M 10% $1M - $7.5M 5% Schedule 1.42 Terms of New Debentures ----------------------- 1. Debenture. The Debtors shall issue debentures (the "New Debentures), pursuant to an indenture, in a total principal amount equal to the allowed amount of all Allowed General Unsecured Claims. The Debtors shall be jointly and severally liable with respect to the New Debentures. 2. Secured. As more fully described below, the New Debentures would be secured by a subordinated silent security interest that would be subject to all existing security interests, including those of the Lender and any party taking out the Lender. Such subordinated security interest will be structured and documented so that it does not adversely affect or interfere with the senior security interests or any rights thereunder or the ability of the Reorganized Debtors to effectively operate the business and would contain the usual exceptions, including, without limitation, it would permit the sale of assets in the ordinary course of business, or outside of the ordinary course of business solely with the consent of the senior secured lenders, including, without limitation, the property listed on Schedule 1.47.1 hereto. With respect to the Naugatuck property, the subordinated lien of the holders of the debentures would be subordinate not only to the senior lien of the Lender, but also as to any new first mortgage on the property, provided the proceeds are used to pay the Lender's Claim, or if the Lender's Claim has already been satisfied, to reduce the outstanding amount owing on the debentures. Additionally, to the extent that any party loaning funds to the Reorganized Debtors in exchange for a new first mortgage on the Naugatuck Property requires that there be no second liens on the property, the indenture trustee would be obligated to release the lien on such property provided that the loan proceeds were being used to reduce the amount owing to the Lender or if the Lender's Claim has been paid in full, to reduce the amount owing under the New Debentures. The documentation would permit, without the consent of the indenture trustee, (a) the replacement of the senior debt; (b) the acquisition of additional senior secured indebtedness if needed by the Reorganized Debtors for working capital in an amount up to the amount by which the Reorganized Debtors' inventory and receivables with respect to ongoing operations exceeds the amount of such inventory and receivables on the Effective Date, provided that the total senior secured indebtedness does not exceed $30 million at any time; and (c) the acquisition of any amount of additional senior secured indebtedness if such funds are used to satisfy obligations under the New Debentures. 3. Interest. Interest shall accrue on the unpaid principal balance of the New Debentures at the annual rate of 10.00%, provided however, that if the New Debentures are paid in full within two years after the Effective Date, the interest rate shall be reduced and recalculated at the annual rate of 7.25% for the period of time that the debentures were outstanding, and further provided that if the New Debentures are paid in full within three years after the Effective Date, the interest rate shall be reduced and recalculated at the annual rate of 8.25% for the period of time that the debentures were outstanding, and further provided that if the New Debentures are paid in full within four years after the Effective Date, the interest rate shall be reduced and recalculated at the annul rate of 9.25% for the period of time that the New Debentures were outstanding. 4. Amortization. Interest shall accrue but not be payable and no principal shall be payable until the Lender Secured Claim is paid in full. Once the Lender Secured Claim is paid in full, the unpaid principal and interest owing under the New Debentures shall be paid in equal monthly installments over the remaining balance of the term of the debentures, beginning with the third month after the Lender Secured Claim has been satisfied, provided that the full principal and interest is to be paid in full no later than the fifth anniversary of the Effective Date. 5. Prepayment. The unpaid balance owing under the New Debentures may be prepaid by the Reorganized Debtors, in whole or in part, at any time without fee or penalty. Schedule 1.46 Terms of New PIK Obligation --------------------------- (a) Ableco shall receive an obligation from the Reorganized Debtors in the original principal amount of $5,000,000, subject to adjustment, which shall be dated August 20, 2002 and shall be due on December 31, 2007 (the "PIK Obligation"), except to the extent it is reduced or eliminated as a result of the accelerated payment of the New Lender Term Obligation. (b) The PIK Obligation shall accrue interest, from and after August 20, 2002, at the annual rate of 7.25% through December 31, 2003 and thereafter at the greater of: (i) 7.25% and (ii) the prime rate plus 2.5%. Interest shall accrue but shall not be payable on the PIK Obligation until December 31, 2007. (c) The outstanding principal of the PIK Obligation, together with accrued interest thereon, shall be reduced as follows: (i) $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation has been reduced by $5,000,000 between August 20, 2002 and June 30, 2003; (ii) another $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation has been reduced by $10,000,000 between August 20, 2002 and December 30, 2003; (iii) another $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation has been reduced by $15,000,000 between August 20, 2002 and June 30, 2004; (iv) the remaining $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation, together with all accrued interest thereon, has been paid in full by December 31, 2004. (v) To the extent the PIK Obligation is not eliminated entirely by the accelerated payment of the New Lender Term Obligation, the balance owing under the PIK Obligation shall be determined by the Bankruptcy Court based on the amount claimed by Lender as owing as of August 20, 2002 after reducing any such claimed amount by amounts determined by the Bankruptcy Court as not owing to Lender based on payments made to Lender, the deductions set forth in Debtors' "Claim Analysis - Settlement Proposal" attached hereto as Schedule 1.46.1, of amounts owing and to be deducted dated June 12, 2002, and the grounds set forth in the Answer dated June 24, 2002, filed by the debtors in the Adversary Proceeding, captioned Foothill Capital Corporation et al. v. General DataComm Industries, Inc. et al (In re General DataComm, Inc.), Adversary Proceeding No. 02-2018 (the "Adversary Proceeding"), less $25,000,000 and less the reductions to the PIK Obligation set forth above. Any such claim for such determination shall be brought in the Bankruptcy Court no earlier than January 1, 2005. The New Lender Term Obligation, and to the extent not eliminated, the New Lender PIK Obligation, may be repaid at any time with accrued interest thereon, without fee or penalty. The Bankruptcy Court shall retain jurisdiction to make the above determination as well as jurisdiction to resolve any claims, disputes and other matters with respect to the Pre-Petition Secured Loan Agreements. Schedule 1.46.1 Dated: June 12, 2002 Lender's Asserted Claim as of the Petition Date: $30,663,733.29 LESS: Fees and expenses with no documentation or support ($ 180,200.00) SUBTOTAL AFTER UNSUPPORTED FEES: $30,483,533.29 LESS: (1) Principal payments from discontinued operation collections as of 6/4/02 ($1,178,808.51) (2) Principal payments from sale of stock in Mexican subsidiary as of 6/4/02 ($ 340,906.66) (3) Adequate Protection Payments through 6/4/02: ($1,750,000.00) SUBTOTAL AFTER POST-PETITION PRINCIPAL REDUCTIONS: $27,213,818.12 LESS: (1) Default incremental interest improperly charged through 5/02: ($ 513,443.06) (2) Interest on incremental interest ($ 20,765.92) (3) Division Sale Consent Fees: ($1,630,000.00) (4) Compounded interest on consent fees: ($ 66,689.86) (5) Compounded interest on Vital note: ($ 191,063.70) NET LENDER'S CLAIM BEFORE ACCOUNTING FOR AHEAD NOTE ASSIGNMENT AND OTHER ISSUES: $24,791,855.58 =============== NOTE: THE FOREGOING CALCULATION IS AS OF JUNE 12, 2002 AND DOES NOT ACCOUNT FOR ADDITIONAL INTEREST OR FEES THAT THE LENDERS MIGHT ASSERT ACCRUED SUBSEQUENT TO SUCH DATE OR ADDITONAL PRINCIPAL PAYMENTS OR ADQUEATE PROTECTION PAYMENTS MADE BY THE DEBTORS SUBSEQUENT TO SUCH DATE, AS DESCRIBED MORE FULLY IN THE DISCLOSURE STATEMENT. Schedule 1.47 Terms of New Lender Term Obligation ----------------------------------- (a) Ableco shall receive a term obligation from the Reorganized Debtors, in the original principal amount of $25 million, subject to adjustment, which shall be dated August 20, 2002 and shall be due on December 31, 2007 (the "Term Obligation"). (b) The Term Obligation shall accrue interest, from and after August 20, 2002, at the annual rate of 7.25% through December 31, 2003 and thereafter at the greater of (i) 7.25% and (ii) the prime rate plus 2.5%. Until January 1, 2005, the Term Obligation shall amortize at the rate of $250,000 per month (provided however, that in a single month during 2003 (only one time) if management determines that the Reorganized Debtors cannot afford to timely pay the $250,000, they shall have a 30 day grace period to make such payment) plus accrued interest, plus 100% of the net proceeds from the disposition of the assets related to discontinued operations or excess assets listed on Schedule 1.47.1 hereto ("Listed Assets"), provided that the minimum cumulative principal reduction of the New Lender Term Obligation between August 20, 2002 and September 30, 2003, shall be at least $7,500,000, and the minimum cumulative principal reduction of the New Lender Term Obligation between August 20, 2002 and December 31, 2003, shall be at least $10,000,000; provided however, that if on either September 30, 2003 or December 31, 2003, such principal reductions have not been achieved, but the Reorganized Debtors are party to a firm contract, in form and substance reasonably acceptable to Ableco, for the sale of assets of the Reorganized Debtors that, if closed, would enable the Reorganized Debtors to achieve such required cumulative principal reductions, the Reorganized Debtors shall have a period of 60 days beyond such deadlines to close such transaction(s) and satisfy the required cumulative principal reduction amounts. Lenders agree to cooperate with Debtors on the disposition of the Listed Assets as set forth in Schedule 1.47.1. (c) Any remaining balance under the Term Obligation on December 31, 2004 shall amortize at the greater of (a) equal monthly installments over the succeeding three-year period plus accrued interest or (b) $250,000 per month plus accrued interest. (d) Notwithstanding anything herein to the contrary, (i) the aggregate amount of the New Lender Term Obligation and the New Lender PIK Obligation shall be reduced to $23,000,000 as of August 20, 2002, if the Debtors pay such amount in full together with all accrued interest on such amount on or before June 30, 2003, and (ii) the aggregate amount of the New Lender Term Obligation and the New Lender PIK Obligation shall be reduced to $24,000,000 as of August 20, 2002, if the Debtors pay such amount in full together with all accrued interest on such amount on or before December 31, 2003. (e) The New Lender Loan and Security Agreement shall contain a financial covenant requiring the Reorganized Debtors to have positive aggregate consolidated EBITDA ($.01 or greater) for the fourth calendar quarter of 2003. (f) The New Lender Loan and Security Agreement shall contain a financial covenant requiring the Reorganized Debtors to have an aggregate consolidated EBITDA of no less than $750,000 for the first calendar quarter of 2004 plus the interest accrued on the New Lender Term Obligation during such calendar quarter, and for each subsequent calendar quarter provided that such amount for any subsequent quarter shall be no less than $1,100,000, with such EBITDA calculated on a cumulative basis less amounts previously required for the prior calendar quarters. This covenant shall be eliminated in the event the Reorganized Debtors' loan availability based on the traditional asset-based loan borrowing structure in the Pre-Petition Secured Loan Agreements equals the unpaid balance of the New Lender Term Obligation. Schedule 1.47.1 List of Assets Related to Discontinued Operations of Debtors or Excess Assets of Debtors --------------------------- 1 - Ahead a) Austria insolvency proceedings claims b) Ahead U.S. Bankruptcy claims c) Auction of Ahead Assets by Bankruptcy Court or recovery of Ahead Assets by Debtors 2 - Excess Parts Inventory - liquidation or bulk sale 3 - Liquidation of U.K. subsidiary 4 - Lucent settlement (already completed and paid to Lender) 5 - Mayan/Vital promissory note 6 - Naugatuck Building mortgage or sale 7 - Mexican subsidiary sale proceeds 8 - Canadian subsidiary sale contract proceeds including any monies held in escrow pursuant to such contract Lender agrees to cooperate with Reorganized Debtors on the realization of proceeds from these assets including consent to the sale of assets in which it has security interests, provided the net proceeds of such sales are applied in reduction of the New Lender Term Obligation, consent to a prior mortgage on the Naugatuck Building and/or the satisfaction of Lenders' mortgage and other security interests on the sale of the Naugatuck Building, provided the net proceeds therefrom are applied in reduction of the New Lender Term Obligation. EXHIBIT B UNAUDITED HISTORICAL FINANCIAL STATEMENTS ------------------------------------------ GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(1) (In Thousands) (Unaudited)
September 30, September 30, 2001 2000 - ------------------------------------------------------------------------------------------------- ASSETS: Current assets: Cash and cash equivalents $669 $3,572 Accounts receivable 6,753 25,631 Receivables from sale of division: Notes receivable 6,000 -- Inventories 5,815 31,718 Deferred income taxes -- 1,521 Other current assets 494 8,311 - ------------------------------------------------------------------------------------------------- Total current assets 19,731 70,753 ================================================================================================= Property, plant and equipment, net 283 24,140 Land and buildings held for sale 9,933 5,518 Capitalized software development costs, net -- 22,160 Net assets of discontinued operations 1,482 -- Other assets -- 10,512 - ------------------------------------------------------------------------------------------------- $31,429 $133,083 ================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current portion of long-term debt $39,838 $47,921 Mortgages on land and buildings held for sale 9,126 4,061 Accounts payable, trade 12,448 23,040 Accrued payroll and payroll-related costs 1,631 4,853 Deferred income -- 6,567 Net current liabilities of discontinued operations 4,315 -- Other current liabilities 16,086 14,070 - ------------------------------------------------------------------------------------------------- Total current liabilities 83,444 100,512 ================================================================================================= Long-term debt, less current portion -- 3,000 Deferred income taxes -- 2,266 Other liabilities -- 1,142 - ------------------------------------------------------------------------------------------------- Total liabilities 83,444 106,920 ================================================================================================= Commitments and contingent liabilities Redeemable 5% preferred stock 3,043 5,000 Non-redeemable preferred stock, common stock and other stockholders' equity (deficit) (55,058) 21,163 - ------------------------------------------------------------------------------------------------- Total stockholders' equity ($52,015) $26,163 - ------------------------------------------------------------------------------------------------- $31,429 $133,083 =================================================================================================
(1) Subject to adjustments that may be required to record the fiscal year-end 2001 audit adjustments. GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (1) (In Thousands) (Unaudited) Twelve months ended September 30, ------------------- 2001 ------------------- Sales $ 59,855 Cost of Sales 51,964 ------------------- Gross Margin 7,891 Operating expenses: Selling, general and administrative 31,071 Research and product development 12,231 Other charges 38,196 ------------------- 81,498 Operating loss (73,607) Other income (expense): Interest, net (8,746) Gain on sale of Multimedia division 1,346 Legal settlement proceeds, net 5,000 Other, net (669) ------------------- (3,069) Loss from continuing operations before income taxes (76,676) Income tax provision 126 ------------------- Net loss from continuing operations (76,802) Discontinued Operations: Income (loss) from discontinued operations, net of income taxes (3,789) Loss on sales of discontinued operations, net of income taxes (2,709) ------------------- Net Loss $ (83,300) =================== (1) Subject to adjustments that may be required to record the fiscal year-end 2001 audit adjustments. GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(1) (In Thousands) (Unaudited)
September 30, September 30, 2002 2001 - ------------------------------------------------------------------------------------------------- ASSETS: Current assets: Cash and cash equivalents $3,138 $669 Accounts receivable 3,520 6,753 Receivables from sales of divisions 134 6,000 Inventories 5,422 5,815 Other current assets 1,011 494 - ------------------------------------------------------------------------------------------------- Total current assets 13,225 19,731 ================================================================================================= Property, plant and equipment, net 0 283 Land and buildings held for sale 6,271 9,933 Net assets of discontinued operations 99 1,482 Other assets 4 -- - ------------------------------------------------------------------------------------------------- $19,599 $31,429 ================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise - ------------------------------------- Accounts payable, trade 658 0 Accrued payroll and payroll-related costs 555 0 Accrued expenses and other current liab. 3,423 0 - ------------------------------------------------------------------------------------------------- 4,636 0 Liabilities subject to compromise - --------------------------------- Current portion of long-term debt $30,784 $39,838 Mortgages on land and buildings held for sale 60 9,126 Accounts payable, trade 12,017 12,448 Accrued payroll and payroll-related costs 662 1,631 Net current liabilities for discontinued operations 7,898 4,315 Other current liabilities 12,689 16,086 - ------------------------------------------------------------------------------------------------- 64,110 83,444 - ------------------------------------------------------------------------------------------------- Total current liabilities 68,746 83,444 ================================================================================================= Commitments and contingent liabilities Redeemable 5% preferred stock 3,043 3,043 Non-redeemable preferred stock, common stock and other stockholders' equity (deficit) (52,190) (55,058) - ------------------------------------------------------------------------------------------------- Total stockholders' equity ($49,147) ($52,015) - ------------------------------------------------------------------------------------------------- $19,599 $31,429 =================================================================================================
(1) Subject to adjustments that may be required to record the fiscal year-end 2001 and 2002 audit adjustments and the effects of the bankruptcy filing. GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS(1) (In Thousands) (Unaudited) Twelve months ended September 30, ------------------- 2002 ------------------- Sales $ 27,161 Cost of Sales 14,086 ------------------- Gross Margin 13,075 Operating expenses: Selling, general and administrative 7,733 Research and product development 3,556 Other charges - ------------------- 11,289 Operating income(loss) 1,786 Other income (expense): Interest, net (3,441) Net gain on sale of real estate 3,319 Other, net 291 ------------------- 169 Income from continuing operations before extraordinary item, reorganization item and income taxes 1,955 Extraordinary item: Gain on early extinguishment of debt 1,967 ------------------- Income from continuing operations before reorganization item and income taxes 3,922 Reorganization item: Professional fees 2,750 ------------------- Income from continuing operations before income taxes 1,172 Income tax provision 127 ------------------- Net income from continuing operations 1,045 Discontinued Operations: Income from discontinued operations, net of income taxes 873 Gain on sales of discontinued operations, net of income taxes 950 ------------------- Net Income $ 2,868 =================== (1) Subject to adjustments that may be required to record the fiscal year-end 2001 and 2002 audit adjustments and the effects of the bankruptcy filing. EXHIBIT C PROJECTED FINANCIAL STATEMENTS ------------------------------ DEBTORS' FINANCIAL PROJECTIONS AND BUSINESS PLAN SIGNIFICANT ASSUMPTIONS AND RISK FACTORS ---------------------------------------- The Company does not, as a matter of course, publicly disclose projections as to its future revenues or earnings In connection with the Company's consideration of the Plan, certain projections set forth below (the "Projections") of the Company's future operating performance were prepared. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS ("AICPA"), THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY THE DEBTORS' INDEPENDENT ACCOUNTANTS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH, ALTHOUGH DEVELOPED AND CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON, AS TO THE ACCURACY OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THESE PROJECTIONS. GIVEN THAT SUCH PROJECTIONS ARE SUBJECT TO SIGNIFICANT UNCERTAINTY, NONE OF THE COMPANY, MANAGEMENT, OR ANY OTHER PERSON ASSUMES ANY RESPONSIBILITY FOR THEIR ACCURACY. HOLDERS OF CLAIMS AND INTERESTS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTIONS. SIGNIFICANT ASSUMPTIONS UNDERLYING THE PROJECTIONS AND BUSINESS PLAN The starting point of the Projections is the unaudited historical financial information at February 28, 2003, and pro forma adjustments based upon the terms of the Plan and estimates of the amounts of prepetition claims. The Projections are presented on a going-concern basis which contemplates the realization by the Company of its assets and the satisfaction of its liabilities in the ordinary course of business. Significant general assumptions underlying the Projections and Business Plan include, but are not limited to, the following: (i) a return to favorable conditions in the market for high technology networking products over a five-year period and a return of major customers to at least historical levels. ii (ii) retention and growth of a significant customer relationship. (iii) successful expansion of the Company's sales into the business enterprise market as compared to the Company's historical telecom service provider market. (iv) fulfillment of a large anticipated contract. (v) realization of proceeds from the sale of non-core assets and a claim against Mayan Networks Corporation. (Refer to the Assumptions attached hereto). (vi) ability to outsource manufacture at significantly higher levels of production. (vii) ability to successfully lower costs of product components. (viii) ability to sustain the business with minimum capital investment of less than $500,000. (ix) successful completion of an outside audit for the fiscal years 2001 and 2002 and thereafter. (x) ability to use available federal and state tax NOL's to offset future income tax liabilities. (xi) the satisfaction of significant secured, unsecured, tax and contingent liabilities. (xii) no significant new liabilities arise. (xiii) the ability to retain qualified technical and other employees. (xiv) new products and features are successfully developed on schedule and achieve market acceptance and sales. (xv) no new regulations are passed that negatively impact the buying patterns of the Company's customers in the telecommunications industry. (xvi) ability to support growth without increasing total employee headcount. (xvii) the Company will continue to generate revenues, as in the past, without the benefit of long-term contracts. Further discussion of key plan assumptions is as follows: iii Revenue The following are the key revenue assumptions incorporated into the Business Plan: Telecom Equipment Market The Plan assumes that the market for telecommunications equipment and the economy in general will begin to improve in the last half of calendar 2003. To the extent such improvements do not occur or are delayed or less substantial than assumed, the Company's financial performance will be negatively impacted. Major Expected Order The Company anticipates that it will receive substantial orders under a large project for shipment beginning in Fiscal Year 2004 and continuing thereafter. Based upon discussions with representatives of the prime contractor for such project and the Company's distributor, the Company has been advised that its products have been selected for deployment in such project and the initial products for testing have been delivered. The anticipated orders from such project, in part, support the increasing revenue projected by the Company beginning in Fiscal Year 2004. New Products Over the past year the Company has introduced new products and product features. There exists a long cycle, often up to a year, to get new products approved by the Company's traditional customers who are large telecommunications service providers. Certain of the new products, most notably the SCIP and SCES (which provide Internet and Ethernet applications) have been tested and approved by certain important customers and early shipments to such customers have begun. Debtors expect sales of such products to improve in the future as they are implemented by customers and as additional customers complete their internal review and approval process. The internal review and approval process can take several months, depending on the customer. The Company is in the process of developing other new products and features which will be introduced in the future. While there is no guarantee that such new products will be successful, the Company believes strongly that they will be successful, as such products are being developed in large part to address particular needs and functionality identified to the Company by its larger customers. New products and features are also being introduced not only for the Company's traditional markets within the domestic telecom companies, but also to target the service provisioning markets within such companies. The Plan anticipates that shipments of new products and features will be substantial in the future (up to 20 percent of revenue in fiscal 2004 and higher thereafter), and in part, support the increasing future revenue projected by the Company. iv New Markets Through product innovation and sales force changes, the Company is actively pursuing business enterprise, integrators, resellers and other customers for product and service offerings. As part of this effort, the Company is reestablishing relationships with its substantial base of former business enterprise customers. The Plan anticipates that enterprise markets alone will constitute more than 10 percent of revenue in fiscal 2004 and beyond. The Company is also establishing international sales agency and distributor arrangements and anticipates growth in international sales. During the past year the Company has been able to reestablish relationships with old customers who have not done business with the Company for several years, as well as establishing relationships with new customers. These customers have already purchased the Company's products and have indicated they will be purchasing more of the Company's products in the future. Reorganization Costs The plan assumes that upon emergence from bankruptcy, the Company will benefit from a reduction in professional bankruptcy fees. For the first 18 months in Chapter 11 bankruptcy (through February 28, 2003), the Company incurred approximately $4.1 million, or $228,000 per month, in professional bankruptcy fees. Improved Margins The Company's financial projections assume the Company will be able to improve upon its overall gross margins over a period of time. The projected improvement in margins, a portion of which has already been achieved, is based upon a number of factors, including without limitation, reducing the Company's manufacturing and overhead costs, reducing the component costs for the Company's products (through the use of strategic purchases and utilization of alternative sources, including international sources), savings associated with increased volumes, increased utilization of outsource manufacturing of its products, and other productivity improvements. While there is no guarantee, the Company's management believes the margin improvements assumed in the preparation of the financial projections are achievable. If the projected margin improvements are not achieved, or are achieved more slowly than anticipated, the Company's financial performance will be negatively impacted. Secured Debt/Asset Recoveries Since August 20, 2002, when the secured debt level was agreed at $25 million(4), the Company has been able to reduce the secured debt to approximately $16.2 million (as of June 18, 2003) through a combination of asset sales and operating cash flow. - --------------- 4 The agreed debt level with the Lenders as of August 20, 2002 is actually $30 million, except that $5 million of that amount is eliminated if the debt is repaid by certain deadlines. The Company has already met one of those targets and expects to meet the other three. v Based on the cash flow projections in the Plan, the secured debt will be fully paid off by October 2004. Since the reorganization plan provides that such debt must be fully paid by December 31, 2007, the Company may perform below its projections and still be able to satisfy the Plan payment requirements. The Plan furthermore anticipates that approximately $9 million of cash will be generated from the sale of non-core assets and other recoveries apart from cash generated from ongoing operations. Such amounts will be applied first to pay down the secured debt. $1.9 million of this amount was recently satisfied from the sale of real estate in England, which occurred on April 24, 2003. This reduced the secured debt balance to approximately $16.2 million, as of June 18, 2003. Debtors expect to shortly receive an additional $1 million from proceeds of a Letter of Credit issued in connection with the sale of certain assets prepetition. Breakeven Upon emergence and for the quarter ending September 30, 2003, the Company's business plan requires average monthly revenue of $1.9 million in order to achieve breakeven net income (loss). Assuming that gross margins do not improve as anticipated in the Company's business plan in the quarter ended September 30, 2003 and remain at current levels, the average monthly revenue required to break even becomes $2.1 million (not including principal amortization payments to Ableco). When accounting for the principal amortization payments to Ableco, the break even point level is approximately $2.4 million to $2.6 million at current gross margins. The break even levels are substantially below the revenue projections. Tax Net Operating Loss Carryforwards The Plan anticipates that the Company will be able to utilize federal net operating loss carryforwards in order to offset tax liabilities in the years presented in the Plan. Management believes that under the federal tax rules, the total amount of its tax net operating losses (estimated by the Company to be in excess of $250 million) continue to be available. It is possible that certain events could limit the Company's ability to use its net operating losses. However, in the event they are limited, the Company believes that federal income taxes would still be reduced to the extent of the limitation and to the extent of other income tax credit carry forwards the Company has available. In the event the Company's use of the net operating loss carryforwards is limited and as a result the Company becomes obligated to pay substantial income taxes, the Company's ability to timely meet its payment obligations under the Plan may (depending upon the nature, magnitude and timing of such income tax obligations) be negatively impacted, including its ability to repay Ableco and in turn to repay the New Debentures. Plan Payment Obligations Under the Plan, the Company is required to pay the Lender's Secured Claim (estimated to be less than $15 million in principal on the Effective Date(5)) in full by December 31, 2007, and to pay the New Debentures (estimated to be less - --------------- 5 If the payment of the Lender's Secured Claim does not occur on the schedule necessary to eliminate all of the $ 5 million PIK Obligation ($2.50 million of which is expecting to be eliminated by the Effective Date), the total amount owing to the Lender could be higher. vi than $25 million in principal) in full by the fifth anniversary of the Effective Date, according to certain payment schedules and formulas. The Company's financial projections, if met, would enable the Company to satisfy those obligations in a much shorter period of time (approximately three years). The Committee has advised the Debtors that it believes certain of the revenue assumptions underlying the Debtors' financial projections are aggressive and has expressed its view that due to the risks referenced herein and in Exhibit E to the Disclosure Statement, there is some uncertainty whether the Company's performance will be sufficient to allow it to timely repay its obligations under the Plan. While the projections do show steady increases in revenue over the next four years and there is no guarantee that actual results will equal or exceed projections, the Debtors believe the assumptions underlying the projections are reasonable. Because the Plan provides the Reorganized Debtors with a period of five years to repay its debt obligations under the Plan and the financial projections, if met, would enable the Reorganized Debtors to fully satisfy those obligations in approximately three years, creditors and equity interest holders should be aware, that as a result and depending upon the nature, magnitude and timing of any variances, the Company may be able to meet its payment obligations under the Plan even if its actual financial performance is below the projections. WHILE MANAGEMENT BELIEVES THE ASSUMPTIONS UNDERLYING THE PROJECTED FINANCIAL INFORMATION FOR THE PROJECTION PERIOD, WHEN CONSIDERED ON AN OVERALL BASIS, ARE REASONABLE IN LIGHT OF CURRENT CIRCUMSTANCES AND EXPECTATIONS, NO ASSURANCE CAN BE GIVEN THAT THE PROJECTIONS WILL BE REALIZED. THE DEBTORS URGE THE UNDERLYING ASSUMPTIONS BE CONSIDERED CAREFULLY BY HOLDERS OF CLAIMS AND EQUITY INTERESTS IN REACHING THEIR DETERMINATION OF WHETHER TO ACCEPT OR REJECT THE PLAN. vii General DataComm Industries Income Statement (in thousands)
6 Mo. Total Total Total ---------------------------------------------------------------------------------------------- April May June July August Sept 2003 Q1 04 Q2 04 ---------------------------------------------------------------------------------------------- Revenue $2,100 $2,025 $2,000 $2,075 $2,075 $2,325 $12,600 $ 9,400 $10,250 Cost of Goods Sold 1,009 952 920 934 901 1,010 5,726 3,728 4,118 ---------------------------------------------------------------------------------------------- Gross Profit 1,091 1,073 1,080 1,141 1,174 1,315 $ 6,874 5,672 6,132 Gross Margin % 52% 53% 54% 55% 57% 57% 55% 60% 60% Operating Expenses Employee Benefits 50 50 50 50 50 50 300 150 174 Repairs & Maintenance 23 18 18 20 20 20 119 15 15 Rent Expense 7 7 7 7 7 7 42 6 6 Salaries, Commission & Fees 600 605 600 605 610 630 3,650 2,000 2,066 Supplies 4 4 4 4 4 4 24 14 14 Real Estate Taxes 10 10 10 10 10 10 60 32 32 Other Taxes 20 20 20 20 20 20 120 60 65 Travel & Entertainment 42 36 40 40 40 40 238 144 150 Utilities 18 18 16 20 22 20 114 50 65 Insurance 66 66 66 66 66 66 396 209 210 Other Expenses 45 45 44 44 44 44 266 136 140 Professional Fees 200 200 250 250 250 100 1,250 125 125 Depreciation & Amortization 1 1 1 1 1 1 6 15 15 ---------------------------------------------------------------------------------------------- Operating Expenses 1,086 1,080 1,126 1,137 1,144 1,012 6,585 2,956 3,077 Interest Expense 121 118 103 94 269 264 969 791 702 Other (income)/ Expense (164) (463) (958) (220) (220) (265) (2,290) (550) (500) Income Tax Expense 13 13 13 13 13 13 78 39 39 ---------------------------------------------------------------------------------------------- Net Income/ (Loss) $35 $325 $796 $117 ($32) $291 $1,532 $2,436 $2,814 ============================================================================================== ---------------------------------------------------------------------------------------------- EBITA $170 $457 $913 $225 $251 $569 $2,585 $3,281 $3,570 ==============================================================================================
Total Total Total Total Total Total ------------------------------------------------------------------------- Q3 04 Q4 04 FY 2004 FY 2005 FY 2006 FY 2007 ------------------------------------------------------------------------- Revenue $12,625 $13,025 $45,300 $59,400 $61,080 $73,300 Cost of Goods Sold 4,913 4,995 17,754 23,083 23,750 28,482 ------------------------------------------------------------------------- Gross Profit 7,712 8,030 $27,546 $ 36,317 $37,330 $44,818 Gross Margin % 61% 62% 61% 61% 61% 61% Operating Expenses Employee Benefits 174 174 672 752 843 944 Repairs & Maintenance 15 17 62 70 75 80 Rent Expense 6 7 25 28 31 34 Salaries, Commission & Fees 2,430 2,580 9,076 10,256 10,950 11,920 Supplies 16 18 62 68 75 83 Real Estate Taxes 32 34 130 140 151 163 Other Taxes 65 65 255 265 275 285 Travel & Entertainment 156 162 612 673 741 815 Utilities 55 69 239 251 264 277 Insurance 209 210 838 888 941 997 Other Expenses 140 142 558 586 616 647 Professional Fees 100 100 450 475 500 525 Depreciation & Amortization 20 28 78 90 105 120 ------------------------------------------------------------------------ Operating Expenses 3,418 3,606 13,057 14,542 15,567 16,890 Interest Expense 627 566 2,686 1,402 119 0 Other (income)/ Expense (450) (400) (1,900) (750) 0 0 Income Tax Expense 39 39 156 156 156 156 ------------------------------------------------------------------------- Net Income/ (Loss) $4,078 $4,219 $13,547 $20,967 $21,488 $27,772 ========================================================================= ------------------------------------------------------------------------- EBITA $4,764 $4,852 $16,467 $22,615 $21,868 $28,048 =========================================================================
General DataComm Industries, Inc Statement of Cash Flows (Unaudited) (1) ($$ in 000's) Increase in Cash and Cash Equivalents Projections
April 2003 May 2003 June 2003 July 2003 August 2003 Sept 2003 6 Mo. Total -------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $ 2,677 $ 1,983 $ 2,482 $ 2,267 $ 2,222 $ 2,235 $ 13,866 Non A/R cash 137 2,043 933 200 225 250 $ 3,788 Interest paid (121) (114) (105) (94) (95) (92) $ (621) Cash paid to suppliers and employees (1,740) (1,593) (1,597) (1,860) (1,770) (1,856) $(10,416) -------------------------------------------------------------------------------- Net cash provided by operating activities before reorganization items 953 2,319 1,713 513 582 537 $ 6,617 Operating cash flows from reorganization items: Professional fees (152) (465) (175) (175) (300) (300) $ (1,567) -------------------------------------------------------------------------------- Net cash used by reorganization items (152) (465) (175) (175) (300) (300) $ (1,567) Net cash provided by(used in) operating activities 801 1,854 1,538 338 282 237 $ 5,050 Cash flows from financing activities: Payments on Bank debt Principal (350) (2,283) (1,167) (425) (450) (475) $ (5,150) Payments on Debenture Principal $ - Payments on Taxes (150) $ (150) -------------------------------------------------------------------------------- Net cash provided by financing activities (350) (2,283) (1,167) (425) (450) (625) $ (5,300) -------------------------------------------------------------------------------- Net increase in cash $ 451 $ (429) $ 371 $ (87) $ (168) $ (388) $ (250) ================================================================================ Cash at beginning of period 1,378 1,829 1,400 1,771 1,684 1,516 1,378 Cash at end of period $ 1,829 $ 1,400 $ 1,771 $ 1,684 $ 1,516 $ 1,128 $ 1,128
Q1 2004 Q2 2004 Q3 2004 Q4 2004 2004 2005 2006 2007 ------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $ 7,494 $ 9,774 $ 11,295 $ 12,801 $ 41,364 57,487 60,514 71,711 Non A/R cash $ 3,724 665 450 400 $ 5,239 750 - - Interest paid $ (267) (190) (109) (50) $ (616) (2) (3,932) - Cash paid to suppliers and employees $ (6,837) $(7,180) $ (8,311) $ (8,731) $ (31,059) (38,520) (40,241)(46,724) ------------------------------------------------------------------------------------- Net cash provided by operating activities before reorganization items 4,114 3,069 3,325 4,420 14,928 19,715 16,342 24,988 Operating cash flows from reorganization item Professional fees - - - - - - - - ------------------------------------------------------------------------------------- Net cash used by reorganization items - - - - - - - - Net cash provided by(used in) operating activ 4,114 3,069 3,325 4,420 14,928 19,715 16,342 24,988 Cash flows from financing activities: Payments on Bank debt Principal (4,138) (3,095) (3,050) (3,278) $ (13,561) (600) - - Payments on Debenture Principal $ - (17,000) (6,000) Payments on Taxes (600) $ (600) (750) (500) ------------------------------------------------------------------------------------- Net cash provided by financing activities (4,138) (3,095) (3,050) (3,878) (14,161) (18,350) (6,500) - ------------------------------------------------------------------------------------- Net increase in cash $ (24) $ (26) $ 275 $ 542 $ 767 $ 1,365 $ 9,842 $24,988 ===================================================================================== Cash at beginning of period $ 1,128 $ 1,104 $ 1,078 $ 1,353 1,128 1,895 3,260 13,101 Cash at end of period $ 1,104 $ 1,078 $ 1,353 $ 1,895 $ 1,895 $ 3,260 $ 13,101 $38,089
General DataComm Industries, Inc. Consolidated Balance Sheet (1)
6/30/2003 9/30/2003 12/31/2003 In thousands Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 2004 ASSETS: Current Assets: Cash and cash equivalents $1,771 $1,128 $1,104 $1,078 $1,353 $1,895 $1,895 Accounts receivable 3,448 3,358 5,264 5,740 7,070 7,294 7,294 Notes receivable 0 0 0 0 0 0 0 Inventories 5,023 5,023 5,275 5,375 5,650 5,897 5,897 Deferred income taxes 0 0 0 0 0 0 0 Other current assets 824 574 408 383 358 308 308 --------- --------- --------- --------- ---------- --------- -------- 11,066 10,083 12,051 12,576 14,431 15,394 15,394 Property, plant and equipment, net 0 0 0 0 0 0 0 Land and buildings held for sale 4,569 4,569 1,569 1,569 1,569 1,569 1,569 Other assets 4 4 4 4 4 4 4 Net assets of discontinued operations 92 92 92 92 92 92 92 --------- --------- --------- --------- ---------- --------- -------- Total Assets $15,731 $14,748 $13,716 $14,241 $16,096 $17,059 $17,059 ========= ========= ========= ========= ========== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise Accounts payable, trade 945 975 1,025 1,225 1,400 1,500 1,500 Accrued payroll and payroll-related costs 617 617 620 625 635 642 642 Accrued expenses and other current liab. 4,175 3,943 4,036 4,125 4,249 4,248 4,248 --------- --------- --------- --------- ---------- --------- -------- 5,737 5,535 5,681 5,975 6,284 6,390 6,390 Liabilities subject to compromise Revolving credit loan $0 $0 $0 $0 $0 $0 $0 Notes payable 15,511 14,161 10,023 6,928 3,878 600 600 Mortgages payable on real estate held for sale 0 0 0 0 0 0 0 7 3/4% Convertible debentures 0 0 0 0 0 0 0 Accounts payable, trade 0 0 0 0 0 0 0 Accrued expenses and other current liab. 0 0 0 0 0 0 0 Debentures 25,000 25,193 25,717 26,229 26,747 26,663 26,663 --------- --------- --------- --------- ---------- --------- -------- 40,511 39,354 35,740 33,157 30,625 27,263 27,263 Redeemable 5% Preferred Stock 3,043 3,043 3,043 3,043 3,043 3,043 3,043 Stockholders' equity: Preferred stock 788 788 788 788 788 788 788 Common stock 3,328 3,328 3,328 3,328 3,328 3,328 3,328 Paid-in-capital 191,313 191,313 191,313 191,313 191,313 191,313 191,313 Accumulated deficit (227,550) (227,174) (224,738) (221,924) (217,846) (213,627) (213,627 Less: Treasury stock (1,439) (1,439) (1,439) (1,439) (1,439) (1,439) (1,439 --------- --------- --------- --------- ---------- --------- -------- (33,560) (33,184) (30,748) (27,934) (23,856) (19,637) (19,637 --------- --------- --------- --------- ---------- --------- -------- Total Liabilities and Stockholders' Equity $15,731 $14,748 $13,716 $14,241 $16,096 $17,059 $17,059 ========= ========= ========= ========= ========== ========= ========
In thousands 2005 2006 2007 ASSETS: Current Assets: Cash and cash equivalents $3,260 $13,101 $38,089 Accounts receivable 9,207 9,773 11,362 Notes receivable 0 0 0 Inventories 7,025 7,878 9,474 Deferred income taxes 0 0 0 Other current assets 258 258 200 ---------- --------- ---------- 19,750 31,010 59,125 Property, plant and equipment, net 0 0 0 Land and buildings held for sale 1,569 1,569 1,569 Other assets 4 4 4 Net assets of discontinued operations 92 92 92 ---------- --------- ---------- Total Assets $21,415 $32,675 $60,790 ========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise Accounts payable, trade 1,725 1,900 2,100 Accrued payroll and payroll-related costs 668 694 722 Accrued expenses and other current liab. 4,217 4,221 4,334 ---------- --------- ---------- 6,610 6,815 7,156 Liabilities subject to compromise Revolving credit loan $0 $0 $0 Notes payable 0 0 0 Mortgages payable on real estate held for sale 0 0 0 7 3/4% Convertible debentures 0 0 0 Accounts payable, trade 0 0 0 Accrued expenses and other current liab. 0 0 0 Debentures 10,432 0 0 ---------- --------- ---------- 10,432 0 0 Redeemable 5% Preferred Stock 3,043 3,043 3,043 Stockholders' equity: Preferred stock 788 788 788 Common stock 3,328 3,328 3,328 Paid-in-capital 191,313 191,313 191,313 Accumulated deficit (192,660) (171,172) (143,399) Less: Treasury stock (1,439) (1,439) (1,439) ---------- --------- ---------- 1,330 22,818 50,591 ---------- --------- ---------- Total Liabilities and Stockholders' Equity $21,415 $32,676 $60,790 ========== ========= ==========
(1) Subject to adjustments that may be required to record the fiscal year-end (2001 and 2002) audit adjustments and the effects of the bankruptcy filing. (2) Excludes $3,370 interest/fees on secured debt that may not be payable. General DataComm Industries, Inc. Business Plan Key Assumptions
COMMENTS 2003 2004 2005 2006 2007 Fiscal Year The Company's fiscal tear is assumed to be September 30, which is unchanged. Revenue Growth in revenue beginning in fiscal 2004 is due to several factors which include, sales of new products which is estimated to represent up to 20% of total revenue, the development of the enterprise market and the recovery of GDC's core telco customers. Headcount by Organization Departmental headcounts are shown by year. CEO All counts are effective the first of the year shown 1 1 1 1 1 Finance/hr 9 9 9 9 9 Sales 24 26 27 28 29 Marketing 4 4 5 6 6 Engineering 28 30 31 32 33 IT 6 6 6 4 4 Facilities/Admin/Cust Svcs 10 8 7 6 6 SUBTOTAL 82 84 86 86 88 Manufacturing 31 25 20 20 20 TOTAL EMPLOYEES 113 109 106 106 108 Salary Increases Salary Increases are assumed at the 0% 4% 4% 4% 4% rates in the year shown Employee Benefits Assumes health plan increase is 12% annually. 12% 12% 12% 12% Repairs and Maintenance Minimum amounts for computers and test fixtures. Salaries Commission & Fees Salaries are based upon current rates including reductions. (non-MFG) No increases are assumed in FY 2003. In 2004 the 10% salary deferral program currently in effect, is repaid. $650K for incremental salary required for non-mfg headcount. 5% (Five) of the Net sales increase is added for commissions. Travel & Entertainment Travel expenses will increase as new salespeople 10% 10% 10% 10% are added. Increased travel 10% per year. Utilities Assumed increase of 5% per year. 5% 5% 5% 5% Insurances Assumed increases of 6% over previous year. 6% 6% 6% 6% Other Expenses Assumed increases of 5% over previous year. 5% 5% 5% 5% Professional Fees Fees for Outside Auditors, Legal and Tax. 2004 assumed at $450,000 added $25,000 to each subsequent year. Term Note Assumes $19 million outstanding as of April 1, 2003. Subsequent Payments on debt will result in full payment of the note on or before September 2004. Interest on the note is 7.25% and paid until note is paid in full. Debentures Assumed $23 million outstanding. Excess cash used to prepay debentures and interest beginning in October 2004. Payments will continue through March of 2006, when the principal and interest will be paid. Interest on debentures is based on 8.25% Taxes Assumed $2 million outstanding. Excess cash used to repay Tax and interest beginning in October 2004. Payments will continue through August of 2006, when the taxes and interest will be paid. Interest on taxes is based on 8.25% Non A/R Cash Non A/R Cash receipts consists of: Aheadcom adequate protection payments assumed of $100,000 per month and totalling $1,725,000 Sale of GDC UK Building: $2 million in May 2003 Mayan Arbitration Award: $800,000 in June 2003 Excess component Inventory sales: Beginning July 2003 for $50,000 peaking at $100,000 per month in Sept.for several months and then declining. Total amounts recognized are $225,000 in FY2003 and $775,000 in FY2004. Sale of GDC Naugatuck Building Dec. 2003 for $3,000,000 Payout from Aheadcom Austria liquidation July 2005 of $750,000 Cash Paid to Vendors and Employees Inventory purchases increase both to support higher forecast sales levels and to reflect lower available inventory levels on hand. Balance Sheet Key Assumptions 2004 2005 2006 2007 ----------------------------- Inventory Inventory value is based upon the current year's COGS divided by 3.1 3.2 3.25 3.3 the turn estimates shown. Turns are lower historically based on high available inventory levels on-hand. Liabilities All unsecured Liabilities Subject to Compromise are included in a $25 million Debenture assumed to be issued on June 30, 2003. Accrued Expenses Reflects the estimated timing of property/franchise tax payments and professional fees. In addition, the company implemented a salary deferral program in April 2003 and such deferral amount is assumed to be paid in December 2003. Accounts Receivable Assumes approximately 49 days outstanding, consistent with historical experience.
Cash Flow Statement Formulas
Item ---- Cash flows from Operating activities Consists of 84.5% of current periods revenue, plus prior periods Non-A/R cash ending A/R Asset sales, Ahead Adequate Protection Payments, Vital Interest paid payments and inventory liquidation Reflects Interest paid on Cash Paid to Suppliers and Employees either Term Loan or debentures in the current period Reflects COGS plus all the current period's operating expenses except professional fees and Depreciation plus ordinary course professional fees in July 2003 and the cash difference between the current period's ending inventory less the previous preiod's ending inventory. Professional Fees Reflect bankruptcy related professional fees. Payments on debt Reflects principal payments made against first the term loan and then the debentures. Payments consist of GDC Adequate protection, Aheadcom adequate protection (up to $1,175,000), sales of assets held for sale and sales of excess inventories. Balance Sheet Formula's Item ---- Cash and Cash Equivalents Takes from cash flow statement the Cash at end of Period Accounts Receivable Consists of A/R from the previous period plus current period's revenue from the income statement less the cash received from customers in the current period. Inventories End of period inventories equal about 11.5% of net equipment revenues of the current period. Land & Buildings held for sale Reflects transaction for partial sale of property in 12/03 Accounts Payable trade Increases 5% over previous year Accrued Payroll Increases 4% over previous year All other accrued expenses Balances Liabilities to assets Accumulated deficit June 30, calculated with Bill Henry. Next period equals previous period's number plus the net income from the current period.
EXHIBIT D DEBTORS' GOING CONCERN VALUATION viii GDC's financial advisor, Chodan Advisors, Inc., ("Chodan"), was engaged by the Company's management to determine an estimate of the Company's reorganized value and to provide a limited scope report. The estimated range of the Company's reorganized enterprise value should not be considered indicative of the price at which the business may be purchased or sold upon completion of the proposed restructuring. Furthermore, the estimated reorganized enterprise value should not be considered a proxy for the value of the Company's new securities after completion of the restructuring. In preparing the valuation, Chodan relied upon the financial projections prepared by the Debtors' management, which were last updated as of May 13, 2003, and upon Chodan's review and discussions with management regarding the financial projections. To the extent the estimate of GDC's enterprise value derived by Chodan's analysis is dependent on the Company achieving the projected results, the valuation estimate is subject to uncertainty and risk. Since projections, by definition, are forward looking, certain financial results projected by the Company's management may differ from recent historical results. There are three conventional and generally accepted approaches to determine the value of a business like GDC: o Market approach. o Income approach o Asset approach The market approach is a valuation technique in which the fair market value of a business is estimated by comparing the target company to be valued to industry guideline companies whose stock is publicly traded. The income approach, also referred to as the Discounted Cash Flow (DCF) approach, measures the value of a company based on anticipated future (projected) earnings and cash flows of the business. An alternative approach to valuing a business enterprise is the underlying asset approach. This approach requires the determination of the aggregate market value of the collective assets and liabilities of the business. This approach is commonly used in valuing real estate, investment holding companies and insolvent businesses under a liquidation scenario. (a) The Market Approach Valuation As previously discussed, the market approach is a valuation technique in which the fair market value of a business is measured by comparing the target company to industry specific guideline companies whose common stock is publicly-traded. Chodan reviewed a list of companies in the United States, which manufacture and distribute telecommunication equipment. The following criteria were used to select companies for our market value analysis: o The company's stock was traded on a national exchange or over-the-counter o Adequate financial information was available o The company's size was relatively comparable to GDC - the approximate annual revenue range was $14.2M to $345.7M (note: GDC's reorganized average revenue amount for the projected period is near the midpoint of this range) o The companies operate in the telecommunications equipment market. The following companies were identified: - -------------------------------------- ----------------------- --------------- B. Company C. Ticker Symbol D. Revenue - -------------------------------------- ----------------------- --------------- Adtran, Inc. ADTN $345,725 - -------------------------------------- ----------------------- --------------- Aware, Inc. AWRE $13,844 - -------------------------------------- ----------------------- --------------- Carrier Access Corporation CACS $50,247 - -------------------------------------- ----------------------- --------------- Entrada Networks, Inc. ESCN $14,197 - -------------------------------------- ----------------------- --------------- Paradyne Networks, Inc. PDYN $112,264 - -------------------------------------- ----------------------- --------------- Tekelec TKLC $260,341 - -------------------------------------- ----------------------- --------------- Terayon Communications Systems, Inc. TERN $129,403 - -------------------------------------- ----------------------- --------------- Verilink Corporation VRLK $29,716 - -------------------------------------- ----------------------- --------------- Vina Technologies, Inc. VINA $25,143 - -------------------------------------- ----------------------- --------------- Zoom Technologies, Inc. ZOOM $37,274 - -------------------------------------- ----------------------- --------------- Chodan compared certain financial data for GDC with similar data for the industry guideline companies. The selected earnings parameters were the EBITDA and sales multiples. (Tab 2) EBITDA multiples for the guideline companies ranged from (-4.48)x to 32.72x at May 13, 2003. This wide range of results demonstrates the difficulty in using the market method to value certain companies, particularly financially troubled companies. With respect to the guideline companies, there is no apparent EBITDA multiple within this range to extrapolate to GDC's projected EBITDA. Furthermore, the Company anticipates significantly different earnings trends compared to its historical performance. While sales multiples for the guideline companies were more closely grouped, Chodan does not believe that this parameter alone provides sufficient guidance to apply it in valuing GDC. We also note that a number of the guideline companies have market valuations that are less than or close to the cash these companies have on their balance sheets. This indicates that there is some degree of irrational market valuation that currently exists in the sector and should not be construed as a basis for long-term valuations of going concerns. Accordingly, Chodan determined that the income approach was the most relevant valuation methodology for measuring GDC's reorganized enterprise value. Income Valuation Approach The income approach or DCF measures the value of a company based on anticipated future (projected) earnings and cash flows of the business. These estimated future earnings and cash flows are discounted to the present date at a rate of return, which is commensurate with the company's inherent market risk and expected growth. The present value of the company's projected cash flows is a proxy for the fair market value of the business. ii Cash Flow Estimates: In performing our valuation study, Chodan prepared a discounted cash flow analysis of the Company's unlevered free cash flows (assuming the financial forecasts, prepared and provided to Chodan by the Company's management were accurate and were realized in the amounts and at the times indicated). In connection with its review, Chodan did not assume any responsibility for independent investigation or verification of any of the information that was provided to it and it relied on such information being complete and accurate in all material respects. With respect to the financial forecasts prepared and provided by GDC, Chodan was advised, and assumed, that the forecasts were reasonably prepared on basis reflecting the best currently available estimates and judgments of Management as to the future financial performance of the Company. However, the materials and information presented in this report have been prepared for illustrative purposes only, and do not represent a prediction, forecast or projection of actual results. Chodan disclaims any assurance on the underlying assumptions and the user of this report should not rely on such assumptions as achievable since the actual results may significantly differ from the underlying assumptions. Furthermore, Chodan does not make, and expressly disclaims, any warranty or guarantee of any particular result and the user of this report should not rely on this analysis and valuation. Cost of Capital (Discount Rate): The proper cost of capital, or discount rate, is the expected rate of return that the market requires to attract funds to a particular investment. The cost of capital is market driven meaning it is the competitive rate of return in the market for assets with similar earnings streams and risk characteristics. Since GDC's restructured capital structure will incorporate both debt and equity financing, Chodan analyzed the Company's overall weighted-average cost of capital (WACC). The steps involved in developing the discount rate or WACC include the following: o Measure the company's cost of debt o Measure the company's cost of equity The pretax cost of GDC's debt of 8.81% (5.28% after tax) is the weighted average of the rates negotiated for both the secured and unsecured debt assumed to be in place at the time of emergence from Chapter 11. According to the proposed plan of reorganization, GDC's reorganized capital structure will include approximately $19.2 million of new secured debt with a proposed interest rate equal to the greater of 7.25% or the prime rate plus 2.5%, and approximately $25.0 of unsecured debt with a proposed initial interest rate of 10.0% that, under certain conditions, can be adjusted downward to 7.25%. It is important to note that these debt balances reflect the expected balances at the date of emergence from Chapter 11 and do not reflect the potential of reduced debt levels based upon certain prepayment discounts incorporated into the terms of the new debt and have chosen the higher amounts to reflect a more conservative valuation. Upon conditions that the projections indicate will be met, the iii balance of the Secured debt will effectively be $15.5 million upon emergence. If these conditions are not met, the effective balance is $20.5 million. The cost of the new debentures is also subject to reduction if certain financial targets are achieved. For conservative reasons, these potential reductions have not been included in the analysis. Unlike the cost of debt instruments, the cost of equity is not directly observable in the market because there are no known future return amounts to compare to current stock prices. The cost of equity for businesses covers a wide range of required rates of return due to a broad range of risks. The Capital Asset Pricing Model ("CAPM") was used to determine GDC's equity cost of capital. The computed CAPM equity cost of capital for the ten previously described publicly traded guideline industry companies ranged from 13.77% to 36.31% with a median of 25.43%. Chodan determined that a range of equity cost between 30% and 35% was appropriate for valuing GDC. This range is just below the average of the four highest equity costs of the guideline companies (30.87%) and slightly lower than the highest of 36.31%. Each of these is significantly higher than the median cost of equity capital of the guideline companies of 25.43%. These costs of equity capital were used to reflect the risk inherent in achieving the Companies projections and provides a more conservative valuation than using the median equity cost of capital. (Tab 3) To determine its weighted-average cost of capital, Chodan assumed a capital structure of 30% debt and 70% equity. It should be noted that depending upon how the equity of the reorganized entity is valued, the debt-to-equity ratio may be different from that used in the calculation. Accordingly, GDC's computed WACC at May 13, 2003 was within a range of 22.62% and 26.12% (see Tab 1 and 1a). Computation of Reorganized Value Based on management's projected operating assumptions, Chodan conducted the following procedures utilized in the application of the Discounted Cash Flow approach (see Tab 1 and 1a): o Computed unlevered free cash flows for the 4.25 year period ending September 30, 2007. o Computed the present value of the unlevered free cash flows using the weighted-average cost of capital at July 1, 2003. o Computed the terminal value by "capitalizing" the final year's free cash flow amount at the Company's cost of capital less an expected future cash flow growth rate of 5%. o Added the present value of the terminal value and the sum of the present values of the annual free cash flow amounts to arrive at an estimated reorganized enterprise value at July 1,2003. Based on management's projected assumptions for revenue, operating costs, working capital requirements and capital expenditures, in addition to GDC's current financial condition and assessed market risks, Chodan determined the Company's reorganized enterprise value including non-core assets held for sale at July 1, 2003 to be in a range of approximately: $89.9 million to $108.9 million iv This figure includes the estimated aggregate value of the "additional assets" is approximately $6.3 million and that it will take one year to realize the proceeds from disposition. The Company's plan of reorganization calls for general unsecured claims to be satisfied through the issuance of approximately $25.0 of new unsecured notes. Preferred stock will be reinstated and dividend arrears will be assumed in full. Accordingly, the estimated unencumbered (without debt) value of GDC's reorganized equity (common stock) at July 1, 2003 is a range of approximately: $19.1 million to $38.0 million In light of the valuation indicating a positive value for the common stock, the debentures offered to unsecured creditors in satisfaction of their claims should be valued at 100% of face. The terms of the debentures were extensively negotiated at arms length and the interest rate should therefore represent the rate appropriate for the perceived risk of the instrument. We note that the debenture's initial rate of 10% over 700 basis points above the current five-year treasury, a particularly large spread, especially considering the fact that the debentures benefit from a security interest in the Company's assets. Chodan assumed that the Restructuring would be completed in accordance with the terms of the Plan without any material amendments, modifications or waivers. Chodan also assumed that in the course of obtaining the necessary consents and approvals for the proposed restructuring and related transactions, there would be no material delays, modifications or restrictions imposed that would have a material adverse impact on the contemplated benefits of the proposed restructuring. Chodan was not requested to, and did not make an independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of GDC, and was not furnished with any evaluations or appraisals. Chodan's estimate of restructured enterprise values for GDC did not address any other aspects of the proposed restructuring or any related transactions or constitute a recommendation to any holder of GDC's outstanding securities as to how such security holder should vote or act on any matter relating to the restructuring or any related transactions. In addition, Chodan's valuation analysis does not constitute a fairness opinion to the holders of GDC's outstanding securities from a financial point of view for the consideration to be received by such security holders pursuant to the Restructuring. Chodan's valuation analysis was based on information available as of May 13, 2003 and financial, economic, market and other conditions as they existed on such date and assumed that the Restructuring became effective June 30, 2003. In performing its analysis, Chodan incorporated forward-looking projections prepared by management that included the period following May 13, 2003. Although developments subsequent to May 13, 2003 may affect the results of Chodan's analysis, Chodan does not have any obligation to update, revise or reaffirm its analysis or its estimate of GDC's restructured values. The reorganization value of a debtor does not necessarily correspond to the anticipated market or trading value of the debtor's securities upon plan confirmation. Nevertheless, GDC believes that a determination of reorganization v value is the proper means of valuing the Reorganized Company for purposes of confirmation, to the extent that such valuation is necessary. vi DRAFT - FOR DISCUSSION PURPOSES ONLY Management's Projections Tab 1
Operating Projections ($000's) ------------------------------ 3 Months FYE FYE FYE FYE 9/30/2003 9/30/2004 9/30/2005 9/30/2006 9/30/2007 ----------------------------------------------------------- Revenue $ 6,475 $ 45,300 $ 59,400 $ 61,080 $ 73,300 Cost of Goods Sold Total $ 2,845 $ 17,754 $ 23,083 $ 23,750 $ 28,482 ----------------------------------------------------------- Gross Profit $ 3,630 $ 27,546 $ 36,317 $ 37,330 $ 44,818 56% 61% 61% 61% 61% Operating Expenses Employee Benefits $ 150 $ 672 $ 752 $ 843 $ 944 Repairs & Maintenance $ 60 $ 62 $ 70 $ 75 $ 80 Rent Expense $ 21 $ 25 $ 28 $ 31 $ 34 Salaries, Commission & Fees $ 1,845 $ 9,076 $10,256 $10,950 $11,920 Supplies $ 12 $ 62 $ 68 $ 75 $ 83 Real Estate Taxes $ 30 $ 130 $ 140 $ 151 $ 163 Other Taxes $ 60 $ 255 $ 265 $ 275 $ 285 Travel & Entertainment $ 120 $ 612 $ 673 $ 741 $ 815 Utilities $ 62 $ 239 $ 251 $ 264 $ 277 Insurance $ 198 $ 838 $ 888 $ 941 $ 997 Other Expenses $ 132 $ 558 $ 586 $ 616 $ 647 Professional Fees $ 600 $ 450 $ 475 $ 500 $ 525 ----------------------------------------------------------- Depreciation & Amortization $ 3 $ 78 $ 90 $ 105 $ 120 Operating Expenses $ 3,293 $13,057 $14,542 $15,567 $16,890 Interest Expense $ 627 $ 2,686 $ 1,402 $ 119 $ - Other (Income)/Expense $ (705) $(1,900) $ (750) $ - $ - Income before taxes $ 415 $13,703 $21,123 $21,644 $27,928 Income Tax Expense $ 39 $ 156 $ 156 $ 156 $ 156 Net Income/ (Loss) $ 376 $13,547 $20,967 $21,488 $27,772 EBITDA $ 1,045 $16,467 $22,615 $21,868 $28,048 Margin 16.1% 36.4% 38.1% 35.8% 38.3% Net change in working capital $ 138 $(3,689) $(2,771) $(1,214) $(2,786) Capital expenditures $ (80) $ (80) $ (100) $ (120) $ (140) ----------------------------------------------------------- Net Cash Flow $ 1,064 $12,542 $19,588 $20,378 $24,966 Assets held for sale or collection $ 525 $ 5,750 Debt Repayment - ------------------------------------------------------------------------------------------------------------------ Free cash flow before debt payments $ 1,589 $ 18,292 $ 19,588 $ 20,378 $ 24,966 Interest expense $ 627 $ 2,686 $ 1,402 $ 119 $ - -------------------------------------------------------- Net cash available for debt payments $ 962 $ 15,606 $ 18,186 $ 20,259 $ 24,966 Bank debt payments $ 1,350 $ 13,561 $ 600 Debenture payments $ 17,000 $ 6,000 - ------------------------------------------------------------------------------------------------------------------ Terminal value $141,974 $ 1,589 $ 18,292 $ 19,588 $ 20,378 $166,940 Present Value of Cash Flows $ 1,510 $ 14,181 $ 12,388 $ 10,513 $ 70,259 Total Enterprise Value $108,852 Secured debt (1) $20,511 Prepetition unsecured debt(2) $25,000 -------- $45,511 Preferred stock(3) $25,300 ------- $70,811 Equity Value $38,041 Proportion Cost ---------- ----- Cost of equity 70.00% 30.00% Terminal cap rate 17.58% Cost of debt 30.00% 8.81% Growth rate 5.00% After tax debt cost 5.28% Tax rate 40.00% WACC 22.58% (1) May be reduced to $15.5 million under certain conditions. (2) Assumed face of the debenture is $25mm upon emergence. (3) Includes $5.3mm in arrears.0 EBITDA factor 1 Sr debt 19211 0.43 0.0725 0.0315 other debt 25000 0.57 0.1000 0.0565 44211 0.0881
DRAFT - FOR DISCUSSION PURPOSES ONLY Management's Projections Tab 1a
Operating Projections ($000's) ------------------------------ 3 Months FYE FYE FYE FYE 9/30/2003 9/30/2004 9/30/2005 9/30/2006 9/30/2007 ----------------------------------------------------------- Revenue $ 6,475 $ 45,300 $ 59,400 $ 61,080 $ 73,300 Cost of Goods Sold Total $ 2,845 $ 17,754 $ 23,083 $ 23,750 $ 28,482 ----------------------------------------------------------- Gross Profit $ 3,630 $ 27,546 $ 36,317 $ 37,330 $ 44,818 56% 61% 61% 61% 61% Operating Expenses Employee Benefits $ 150 $ 672 $ 752 $ 843 $ 944 Repairs & Maintenance $ 60 $ 62 $ 70 $ 75 $ 80 Rent Expense $ 21 $ 25 $ 28 $ 31 $ 34 Salaries, Commission & Fees $ 1,845 $ 9,076 $10,256 $10,950 $11,920 Supplies $ 12 $ 62 $ 68 $ 75 $ 83 Real Estate Taxes $ 30 $ 130 $ 140 $ 151 $ 163 Other Taxes $ 60 $ 255 $ 265 $ 275 $ 285 Travel & Entertainment $ 120 $ 612 $ 673 $ 741 $ 815 Utilities $ 62 $ 239 $ 251 $ 264 $ 277 Insurance $ 198 $ 838 $ 888 $ 941 $ 997 Other Expenses $ 132 $ 558 $ 586 $ 616 $ 647 Professional Fees $ 600 $ 450 $ 475 $ 500 $ 525 Depreciation & Amortization $ 3 $ 78 $ 90 $ 105 $ 120 ----------------------------------------------------------- Operating Expenses $ 3,293 $13,057 $14,542 $15,567 $16,890 Interest Expense $ 627 $ 2,686 $ 1,402 $ 119 $ - Other (Income)/Expense $ (705) $(1,900) $ (750) $ - $ - Income before taxes $ 415 $13,703 $21,123 $21,644 $27,928 Income Tax Expense $ 39 $ 156 $ 156 $ 156 $ 156 Net Income/ (Loss) $ 376 $13,547 $20,967 $21,488 $27,772 EBITDA $ 1,045 $16,467 $22,615 $21,868 $28,048 Margin 16.1% 36.4% 38.1% 35.8% 38.3% Net change in working capital $ 138 $(3,689) $(2,771) $(1,214) $(2,786) Capital expenditures $ (80) $ (80) $ (100) $ (120) $ (140) ----------------------------------------------------------- Net Cash Flow $ 1,064 $12,542 $19,588 $20,378 $24,966 Assets held for sale or collection $ 525 $ 5,750 Debt Repayment - ------------------------------------------------------------------------------------------------------------------ Free cash flow before debt payments $ 1,589 $ 18,292 $ 19,588 $ 20,378 $ 24,966 Interest expense $ 627 $ 2,686 $ 1,402 $ 119 $ - -------------------------------------------------------- Net cash available for debt payments $ 962 $ 15,606 $ 18,186 $ 20,259 $ 24,966 Bank debt payments $ 1,350 $ 13,561 $ 600 Debenture payments $ 17,000 $ 6,000 - ------------------------------------------------------------------------------------------------------------------ Terminal value $118,407 $ 1,589 $ 18,292 $ 19,588 $ 20,378 $143,373 Present Value of Cash Flows $ 1,500 $ 13,691 $ 11,628 $ 9,594 $ 53,536 Total Enterprise Value $89,949 Secured debt (1) $20,511 Prepetition unsecured debt(2) $25,000 -------- $45,511 Preferred stock(3) $25,300 ------- $70,811 Equity Value $19,138 Proportion Cost ---------- ----- Cost of equity 70.00% 35.00% Terminal cap rate 21.08% Cost of debt 30.00% 8.81% Growth rate 5.00% After tax debt cost 5.28% Tax rate 40.00% WACC 26.08% (1) May be reduced to $15.5 million under certain conditions. (2) Assumed face of the debenture is $25mm upon emergence. (3) Includes $5.3mm in arrears.0 EBITDA factor 1 Sr debt 19211 0.43 0.0725 0.0315 other debt 25000 0.57 0.1000 0.0565 44211 0.0881
DRAFT - FOR DISCUSSION PURPOSES ONLY Tab 2 $'s in 000's
5/13/2003 Market Value Parameters - ------------------------------------------------------------------------------------------------------------------------------------ Last Fiscal Gross EBITDA % Share Total Market BV of EV Ticker Quarter Revenue Margin EBITDA of Revenue Price Shares Cap. Debt - ------------------------------------------------------------------------------------------------------------------------------------ ADTN 31-Dec-02 $ 345,725 50.6% $53,930 15.60% $45.87 37,383 $1,714,758 $ 50,000 $1,764,758 AWRE 31-Dec-02 $ 13,844 37.9% ($10,685) -77.18% $ 1.95 22,698 $ 44,261 $ 0 $ 44,261 CACS 31-Dec-02 $ 50,247 34.0% ($34,317) -68.30% $ 1.52 24,771 $ 37,652 $ 0 $ 37,652 ESAN 31-Oct-02 $ 14,197 41.5% $2,773 19.53% $ 0.37 12,937 $ 4,787 $ 1,410 $ 6,197 PDYN 31-Dec-02 $ 112,264 48.4% ($17,295) -15.41% $ 1.64 42,862 $ 70,294 $ 396 $ 70,690 TKLC 31-Dec-02 $ 260,341 70.5% $53,595 20.59% $11.67 60,893 $ 710,621 $126,973 $ 837,594 TERN 31-Dec-02 $ 129,403 22.0% ($74,037) -57.21% $ 2.33 73,084 $ 170,286 $ 68,656 $ 238,942 VRLK 27-Dec-02 $ 29,716 34.2% $5,052 17.00% $ 1.17 15,003 $ 17,554 $ 4,842 $ 22,396 VINA 31-Dec-02 $ 25,143 30.3% ($16,098) -64.03% $ 0.13 62,080 $ 8,070 $ 3,000 $ 11,070 ZOOM 31-Dec-02 $ 37,274 25.0% ($2,605) -6.99% $ 0.78 7,858 $ 6,129 $ 5,534 $ 11,663 36.1% Median 39.4% Mean Std. Dev. 1.64 Maximum Minimum
- ------------------------------------------------------- EV to EV to EV Less Ticker Revenue EBITDA Cash Cash - ------------------------------------------------------- ADTN 5.10 32.72 $ 144,839 $1,619,919 AWRE 3.20 -4.14 $ 25,268 $ 18,993 CACS 0.75 -1.10 $ 14,900 $ 22,752 ESAN 0.44 2.23 $ 556 $ 5,641 PDYN 0.63 -4.09 $ 47,706 $ 22,984 TKLC 3.22 15.63 $ 181,572 $ 656,022 TERN 1.85 -3.23 $ 206,503 $ 32,439 VRLK 0.75 4.43 $ 9,790 $ 12,606 VINA 0.44 -0.69 $ 8,067 $ 3,003 ZOOM 0.31 -4.48 $ 7,612 $ 4,051 Median 0.75 -0.89 Mean 1.67 3.73 Std. Dev. 11.86 Maximum 5.10 32.72 Minimum 0.31 -4.48
General Datacomm Industries Tab 3
WACC Capital Asset Pricing Model - ----------------------------------------------------------------------------------------------------------------------------- Capital Structure -------------------------------------------------------------------------------------------------------------- 5/13/2003 Market Debt Equity Market Share Total Value as a % as a % Debt to Levered Unlevered Risk-Free Ticker Debt Price Shares of Equity of Capital of Capital Equity Ratio Beta(1) Beta(2) Rate(3) - ---------- ------------ --------- -------- ------------ ---------- ---------- ------------ -------- ---------- ----------- ADTN $50,000 $45.87 37,383 $1,714,758 2.83% 97.17% 2.92% 1.11 1.09 4.90% AWRE $0 $1.95 22,698 $44,261 0.00% 100.00% 0.00% 2.66 2.66 4.90% CACS $0 $1.52 24,771 $37,652 0.00% 100.00% 0.00% 2.66 2.66 4.90% ESAN $1,410 $0.37 12,937 $4,787 22.75% 77.25% 29.46% 4.08 3.47 4.90% PDYN $396 $1.64 42,862 $70,294 0.56% 99.44% 0.56% 2.67 2.66 4.90% TKLC $126,973 $11.67 60,893 $710,621 15.16% 84.84% 17.87% 1.55 1.40 4.90% TERN $68,656 $2.33 73,084 $170,286 28.73% 71.27% 40.32% 2.49 2.00 4.90% VRLK $4,842 $1.17 15,003 $17,554 21.62% 78.38% 27.58% 2.52 2.16 4.90% VINA $3,000 $0.13 62,080 $8,070 27.10% 72.90% 37.17% 4.85 3.97 4.90% ZOOM $5,534 $0.78 7,858 $6,129 47.45% 52.55% 90.29% 1.28 0.83 4.90% Median 0.18 0.82 0.23 2.59 2.41 Mean 0.17 0.83 0.25 2.59 2.29
------------------------------------- Lg. Co. Size Market Risk Risk Cost of Ticker Premium(4) Premium(5) Equity(6) - ---------- ------------- ----------- ----------- ADTN 7.00% 1.23% 13.77% AWRE 7.00% 3.65% 27.17% CACS 7.00% 3.65% 27.17% ESAN 7.00% 3.65% 32.82% PDYN 7.00% 3.65% 27.18% TKLC 7.00% 0.77% 15.47% TERN 7.00% 1.55% 20.48% VRLK 7.00% 3.65% 23.69% VINA 7.00% 3.65% 36.31% ZOOM 7.00% 3.65% 14.36% Mean 23.84% Median 25.43% Minimum 13.77% Maximum 36.31%
Notes: - ---------- (1) Source: Market Guide as of 4/4/03 (2) Unlevered beta determined as: beta --------------------------------------------- Unlevered Beta = 1+(1-tax rate)*(debt/equity) (3) 20 Year U.S. Treasury yield to maturity on April 4, 2003. (4) Source: Stocks, Bonds, Bills and Inflation: 2002 Yearbook Arithmetic mean market risk premium return for the period from 1926 through 1999; 7.0% large capitalization premium = arithmetic mean of total return of large company stocks less return on long-term U.S. Treasury securities (5) Source: Stocks, Bonds, Bills and Inflation: 2002 Yearbook Arithmetic mean micro-cap (10th size decile) risk premium return for the period from 1926 through 1999; Decile #1: Size Premium = -0.50% Decile #6: Size Premium = 1.23% Decile #2: Size Premium = 0.27% Decile #7: Size Premium = 0.77% Decile #3: Size Premium = 0.63% Decile #8: Size Premium = 1.22% Decile #4: Size Premium = 0.54% Decile #9: Size Premium = 1.61% Decile #5: Size Premium = 0.73% Decile #10: Size Premium = 3.65% (6) Cost of equity capital is determined using the Capital Asset Pricing Model: EXHIBIT E COMMITTEE'S VALUATION AND VIEW OF DEBTORS' BUSINESS PROJECTIONS AND VALUATION SUMMARY OF WORK PERFORMED BY DELOITTE & TOUCHE BACKGROUND The Financial Advisor to the Unsecured Creditor Committee of General Datacomm Corporation ("GDC" or the "Debtor"), Deloitte & Touche ("D&T"), has performed several tasks for the Committee, at the request of Counsel. These tasks include: o Critiquing the financial projections developed by GDC as found in their Amended Disclosure Statement filed April 29, 2003; o Performing some limited independent valuation analyses related to the Fair Market Value of GDC, and; o Reviewing and critiquing a valuation developed at the request of the Debtor by Chodan Advisors Inc. ("Chodan"). This summary contains details related to D&T's analyses, including a summary of our findings related to GDC's projections, a summary of D&T's valuation analysis, and a limited critique of the valuation performed by Chodan. 1. ASSESSMENT OF FINANCIAL PROJECTIONS DEVELOPED BY GDC GDC has provided projections through the end of fiscal year 2007 (September 30, 2007). We have reviewed these projections, held discussions with GDC management and performed market research on the telecom industry, GDC's primary customers and comparable companies to GDC in order to determine the reasonableness of these projections. The following sections briefly summarize the market research we utilized in our analysis. a. Industry Environment While Regional Bell Operating Companies ("RBOCs") have shown some improvement, weak economic conditions and competition are expected to continue to hamper telecom services growth and push recovery beyond 2003. Local business and consumer access line and enterprise long distance demand are expected to remain weak as a result of the economy and the effects of substitution (e.g. wireless). Competition in consumer and enterprise data remains intense particularly in light of RBOC and cable company advances. Despite significant cost cutting, aggressive pricing and declining pension/post-retirement income have pressured margins. Most industry observers agree that a rebound in demand, and consolidation are critical for a recovery and neither appears likely in the near-term. Telecom services capex guidance for 2003 is forecast to decline by roughly 8% from 2002 levels with some industry analysts suggesting the potential for further cuts in light of the FCC's Unbundled Network Element Platform ("UNE-P") ruling. In early 2003, RBOC capex spending was roughly 11% of revenue and viewed by some as in line with historical maintenance levels and sustainable for the short term. This is slightly below guidance of 15% of revenue for the full year 2003. Capex could decline further should weak economic conditions and UNE-P losses persist. 1 RBOC Capital Expenditures [Graphic Omitted] In light of the challenging economic and industry conditions, telecommunications equipment providers continue to face near-term risks with weak demand from wireline telecom service providers and enterprise customers. Consequently, guidance has remained cautious at best for 2003. Adtran management, for example, suggested that overall economic health and IT spending would carry legacy product sales and they remained cautiously optimistic that market share gains and an enhanced product portfolio would lead to gradual improvements through year-end 2003. Verilink cautioned that reduced customer capital spending and declines in legacy product sales would continue to affect revenue until the overall telecommunications market recovered and its newer Wide Area Network ("WAN") suite of products gained solid market share. Similar to other industry players, Verilink expressed doubt of a near-term recovery suggesting instead that it does not expect a telecom recovery until at least 2004. b. Customer Environment SBC During the first quarter of 2003, SBC reported strong growth in Digital Subscriber Line ("DSL") and Long Distance ("LD") subscriber adds as well as a slight decline in UNE-P line losses. Despite showing signs of improvement, the company's revenue and margins remain under pressure from aggressive pricing, competition and continued economic weakness. The decline in wireline revenue (-6% year-over-year) and EBITDA (-16% year-over-year) was largely attributable to SBC's reduction in access prices in response to UNE-P competition, continued line losses and the introduction of new LD and unlimited usage plans. Adding further to competition, the plans were priced below competitors such as Verizon and Bell South. Such declines within voice and LD revenue more than offset the 4% year-over-year growth in the data segment and record LD customer adds (marking entry into California market). Limited growth expectations within the analyst community are largely tempered by concerns that competition and operating tactics (e.g. bundling local/LD voice plus other services) will adversely affect margins. 2 Although management reaffirmed full year guidance of $5-$6 billion, capex declined to $897 million, 9% of revenue in the first quarter of 2003. Based on analyst projections, SBC capex is projected to grow (8% CAGR) from $5.3 billion in 2003 to $6.7 billion in 2006. Qwest Similar to SBC, analysts anticipate access lines will decline by roughly 5% year-over-year in the first quarter of 2003 in part from UNE-P competition. The company is expected to face continued revenue and EBITDA margin pressure despite cost savings efforts and improving LD revenue (stemming from recent approval of 9-state application). Qwest continues to add DSL subscribers (~15,000 during 1Q03) albeit to a lesser extent that its peers. DSL growth is expected to remain weak in the near term. Overall, total revenue is expected to decline through 2006 while EBITDA margins are expected to improve beginning in 2004. Capex, ranging from 15-18% of revenue, is expected to continue to decline (-7% CAGR) from $2.6 billion in 2003 to $2.1 billion in 2006. Verizon Telecom revenue is projected to continue to decline although at a slower pace than the prior year. Line losses are expected to continue largely driven by second-line losses and UNE-P competition. Verizon DSL growth is expected to outpace its peers and LD customer gains are expected to improve in light of the bundling approach (similar to competitors). Capex is expected to decline from $6.6 billion in 2003 to $5.5 billion in 2006 (-6% CAGR). c. Competitor Environment ADC Telecommunications ADC Telecommunications revenue is expected to decline to $810 million in 2003 from roughly $950 million in 2002. In the absence of a telecom capital expenditure recovery, ADC will likely maintain revenue with mature products and face challenges in driving growth as new product sales ramp slowly. ADC's new product sales, such as those related to cable systems, wireless and billing software, appear uncertain as carriers seek to maximize use of current networks and defer capital expenses. Operating margins are expected to improve from -26% in 2002 to -5% in 2003 as a result of restructuring efforts. In 2004, revenue growth of about 11% and continued margin expansion is expected in light of the slightly positive outlook for the overall telecom equipment market. Adtran Despite modest growth prospects, Adtran's management team and company structure are deemed by the analyst community to be the best amongst telecom equipment players. During the first quarter of 2003, T1 revenue declined in part due to seasonality but also as a result of the increasing use of Integrated Access Devices ("IAD") and access routers (vs. DSUs/CSUs). Despite the decline in DSU/CSU revenue, Adtran has been successful in gaining market share in the IAD market. In addition, the company expects to begin shipping its new ADSL DSLAM product line in mid-2003, however, it remains to be seen whether the company will be able to maintain this schedule and if so, how quickly sales will ramp. 3 Adtran management has expressed little, if any, optimism of an industry recovery during 2003. Congruent with the industry outlook, Adtran revenue is projected to grow roughly 5% from $346 million in 2002 to $364 million in 2003. New product revenues are expected to account for roughly 10% for total revenue in 2003. Operating margin is also expected to improve from 11% in 2002 to 16% in 2003. 2004 revenue growth is projected at 10% and operating margin is expected to expand further to 18% of revenue. Over the longer term, Adtran's continued success is expected to hinge on the overall success of its ILEC customers who are facing competition from cable companies in providing business high-speed data services. Carrier Access Corporation Carrier Access Corporation revenue is expected to decline slightly from roughly $50 million in 2002 to $48 million in 2003. Centillium Communications Centillium Communications revenue is projected to grow roughly 4% from $105 million in 2002 to $110 million in 2003 and reach $170 million in 2004. Operating margins are expected to improve to -11% in 2003 and turn positive reaching 12% in 2004. As a player in the Japanese DSL market, Centillium's key challenge in the future will be maintaining its significant market share with NTT (99%). In addition, the company faces challenges in gaining market share in the US and China. Paradyne Networks Corporation Paradyne Networks revenue is expected to decline slightly from $112 million in 2002 to $108 million in 2003 before reaching $164 million in 2004. The company is expected to shift focus to developing standards-based ADSL solutions in positioning for the future. Although the company has engaged in cost cutting, operating margins are expected to decline to -12% in 2003 before making positive gains, reaching 5% in 2004. Verilink Similar to other industry players, Verilink has experienced top-line declines as a result of the overall economic environment and declines in carrier and enterprise spending. Although there have been some gains in its carrier access product lines, the company has attributed this to sales to its largest customer which often fluctuate based on project timing. Enterprise access products have declined in large part due to decreased capital spending and legacy product sales. Closure of the Polycom network access division acquisition was the highlight of the recent quarter ended March. The acquisition will further expand Verilink's portfolio to include the Net Engine family of IADs and Voice-over-Broad (VoB) products which enable enterprise customers to access broadband and VoB services (e.g. VoIP and VoDSL). Company management heralded the acquisition as an opportunity to not only broaden its range of VOB solutions but also as an opportunity to increase its customer base and revenue stream, and to expand to new international markets. d. Critique Based on our discussions and findings, the primary focus of our critique of GDC's projections is on forecasted revenue. Although there are risks within the expense portion of the forecasted income statement, the gross margins and operating expense levels projected by GDC appear reasonable based on our discussions with GDC management, historical expense levels, and market information. Revenue projections, however, appear aggressive given the continued uncertainty within the 4 telecommunications sector, the capital expenditure forecasts of GDC's primary customers, and revenue forecasts of comparable companies. In addition to utilizing the market information outlined above, we utilized information provided to us by the Debtor in order to complete our analysis. This information included detailed projections, historical revenue streams by major customer or category, the Debtor's valuation as prepared by Chodan, and discussions with management. Revenue The Company projected revenue for eleven separate revenue streams for the remainder of 2003, and full year 2004 and 2005:
o Major Customer #1 o Distributors o Enterprise o Major Customer #2 o Independents/Other Telco's o Gov't Agency Project o Major Customer #3 o International o Maint./Service o Canada o Integrators
Revenue in 2006 and 2007 is not broken down into the above referenced revenue streams. Revenue in 2006 is based on a 20% growth rate applied to total 2005 revenue less revenue from the Government Agency Project. Revenue in 2007 is simply 2006 revenue grown by the 20% growth rate. Major Customer #1: Historically, this customer has had annual shipments of between $6 million and $8.5 million until the most recent year. GDC forecasts only $3 million of shipments for 2003. This customer has had sharp declines in their capex spending since 2001, and is forecast in 2003 to spend approximately half of what they spent in 2001. This drop in spending generally mirrors the decline in shipments to this customer by GDC. According to industry research, this customer is expected to basically maintain their current capex budget beginning in 2004. GDC's projections, however, show 100% growth in 2004, 17% growth in 2005, and 20% growth in 2006 and 2007. Based on the forecasted spending of this customer and the continued uncertainty within the telecom sector, GDC's revenue forecast for this customer appears aggressive. Major Customer #2: Historically, this customer has had annual shipments of between $8.0 million and $9.0 million until the most recent few years. GDC forecasts only $2.7 million of shipments for 2003. This customer has also had sharp declines in their capex spending since 2001, and is forecast in 2003 to spend approximately half of what they spent in 2001. This drop in spending again generally mirrors the decline in shipments to this customer by GDC. According to industry research, this customer is expected to continue to maintain their current capex budget beginning in 2004. GDC's projections, however, show 70% growth in 2004, 50% growth in 2005, and 20% growth in 2006 and 2007. Based on the forecasted spending of this customer and the continued uncertainty within the telecom sector, GDC's revenue forecast for this customer also appears aggressive. Major Customer #3: Historically, this customer has had annual shipments of between $3.5 million and $6.0 million until the most recent year in which shipments totaled only $1.1 million. GDC forecasts only $2.4 million of shipments for 2003. This customer has also had sharp declines in their capex spending since 2001, and is forecast in 2003 to spend approximately one third of what they spent in 2001. This drop in spending again generally mirrors the decline in shipments to this customer by GDC. According to industry research, this customer is expected to continue to maintain their current capex budget beginning 5 in 2004. GDC's projections, however, show 44% growth in 2004, 29% growth in 2005, and 20% growth in 2006 and 2007. Based on the forecasted spending of this customer and the continued uncertainty within the telecom sector, GDC's revenue forecast for this customer also appears aggressive. Canada: During the past three years, the Canadian market has totaled approximately $5 million of shipments per year. GDC has forecasted $5.4 million in 2003 and $6 million per year for 2004 and 2005. Based on the generic 20% revenue growth rate utilized by GDC for 2006 and 2007, Canadian shipments would have to grow by that percentage in 2006 and 2007 in maintain the overall 20% revenue growth rate. According to market research, the Canadian telecom market is similar to the U.S. market and suffers from the same uncertainty. As such, increasing the revenue derived from Canada much beyond their historical levels would appear to be aggressive. Distributors: During the past two years, distributors have accounted for approximately $3 million in shipments per year. GDC has forecasted $3.7 million in 2003, $4.8 million in 2004, $6 million in 2005, and 20% revenue growth thereafter. Distributors sell to customers in the telecom sector who are struggling with similar issues to those of GDC's major customers, and are thus reducing capex budgets in order to survive in this uncertain market. Given this uncertainty, GDC's forecast of 31% revenue growth in 2004 and 25% revenue growth in 2005 appears aggressive. Independents and Other Telco's: Revenue from independents and other telco's dwindled to $800,000 in 2002 from a high of $4.3 million in 2000. GDC projects revenue from this sector of $939,000 in 2003. In the following years, GDC projects revenue in this category to grow to $4.5 million in 2004 and $6 million in 2005. The primary reason for this tremendous growth is the potential for significant sales from a major telecom company that is currently in bankruptcy. Given the uncertainty as to whether this revenue will actually occur and at what level, GDC's forecasted growth in this sector appears aggressive. International: Although international accounted for over $8 million per year in 1999 and 2000, revenue from this sector plummeted to approximately $2 million per year in 2001 and 2002. GDC projects $2 million in shipments will also occur in 2003. In the following years, however, international revenue is forecasted to grow by 60% in 2004 and 25% in 2005. Once again, given the uncertainty of the international telecom market and historical trends in shipments, GDC's forecast appears aggressive. Integrators: Over the past two years, revenue from integrators was approximately $2 million per year. In 2003, GDC forecasts $691,000 from this revenue source. In 2004, this figure increases to $1.6 million and $2.4 million or a growth rate of 132% and 50%, respectively. GDC has achieved those revenue levels historically, but according to management has not targeted that market of late. It appears that it may be difficult to restart that revenue source without significant effort on the part of GDC management. Given that the Debtor has multiple areas that are being targeted by sales and limited resources in terms of staffing, the growth levels forecasted by GDC appear aggressive. Enterprise: The enterprise market has declined from a high of $3.8 million in 1999 to $925,000 in 2002. GDC has projected enterprise revenue of $2.3 in 2003, $4.8 million in 2004 and $6.0 million in 2005. The Debtor's management has stated that this revenue source is a major area of opportunity for the Debtor. GDC's projections, however, appear aggressive in light of the competition within the enterprise market and the limited staffing at GDC. 6 Government Agency Project: The Debtor has been informed that certain of their products will be utilized by a subcontractor for a major project with a government agency in 2004 and 2005. Information surrounding the contract such as how much equipment and the exact timing of shipments has been limited. GDC has projected approximately $13 million of shipments related to this project in the latter half of 2004 and throughout 2005. According to management, the revenue from this project is expected to cease after 2005. Given the uncertainty related to this project and the actual amount of GDC equipment to be utilized, it appears that the projections for 2004 and 2005 are aggressive. Maintenance and Service: Revenue from this source has declined from $4.2 million in 1999 to $1.0 million in 2002. GDC has forecasted $800,000 in 2003, $1.8 million in 2004 and $2.0 million in 2005. A substantial portion of the growth is directly related to the growth in enterprise revenue as enterprise customers will require maintenance and service on their GDC equipment. Given that the enterprise revenue growth appears aggressive, maintenance and service revenue would also appear aggressive. Cost of Goods Sold/Gross Margin An area of concern within Cost of Goods Sold is the ability of the Company to continue to receive favorable pricing of product components from foreign suppliers. If the general demand for components increases and prices rise, or if the minimum order level requirements are raised in order to maintain favorable pricing, the gross margins would be negatively impacted. Operating Expenses Given that the majority of the operating expense categories are fixed in nature, there appear to be no areas of significant risk within the forecasted operating expenses. The only area of concern would be the ability of the Company to maintain current staffing levels as revenue increases. For example, GDC forecasts revenue to increase from the current annual run rate of approximately $23 million to $73.3 million annually in 2007 while over the same period reducing headcount by five people. This may be difficult to achieve given the effort that will be required to increase sales levels, maintain customer relationships and develop new products. Capital Expenditures The valuation presented by the debtors includes very limited capital expenditures over the projection period. Between 2004 and 2007, capital expenditures range from $80,000 to $140,000 per year. This figure, which is approximately 0.2% of revenue per year, appears extremely low. Comparable company capital expenditures, for example, ranged from 0.8% to 3.9% of revenue in 2002. e. Conclusion In 1999 and 2000, when the telecom market was in its "boom" period, GDC's revenue within the categories outlined above was approximately $56 million per year. GDC's current forecast shows the Debtor returning to "boom" year revenue levels by 2005 and exceeding those levels in 2006 and 2007. The general consensus among telecom experts is that the "boom" years of excessive capital spending will never occur again in the telecom sector. Therefore, it is difficult to imagine GDC growing 7 revenue from $23 million over the past 12 months to $73.3 million in 2007 given current market conditions, little to negative capex spending growth forecast among its primary customers, and less significant growth rates forecasted by comparable companies. Given our market research of the industry, customers and comparable companies, as well as our review of the GDC projections and discussions with management, GDC's revenue projections appear aggressive, their gross margin levels and operating expense assumptions appear reasonable, and their capex forecast appears unusually low. 2. D&T'S VALUATION ANALYSIS D&T has developed a limited valuation analysis related to GDC. This section discusses the key valuation considerations, the valuation approaches utilized, a description of the valuation procedures performed, and a conclusion of value. a. Key Valuation Considerations o Limited Engagement D&T performed a limited valuation estimate of GDC. We have not performed the valuation in accordance with the Uniform Standards of Professional Appraisal Practice or the American Society of Appraisers. o Standard of Value The standard of value for D&T's valuation analysis is "Fair Market Value". Fair Market Value is defined as "the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties having reasonable knowledge of relevant facts."(1) Fair Market Value is commonly used in business valuations. In fact, "In the United States, the most widely recognized and accepted standard of value related to business valuations is fair market value."(2) o Premise of Value We have valued the total invested capital of GDC as of March 31, 2003. Invested capital is defined as common equity plus total debt plus preferred stock. This valuation assumes GDC continues as a going concern, and assumes a controlling, non-marketable interest. b. Valuation Approaches The generally accepted approaches to business valuation include the Income approach, the Market approach, and the Asset-Based approach. A brief description of each of these approaches follows. - --------------- 1 Revenue Ruling 59-60 2 Shannon Pratt, Robert Reilly, Robert Schweihs. Valuing a Business - The Analysis and Appraisal of Closely Held Companies (New York, McGraw -Hill Inc., 2000), pg. 28 8 o Market Approach Under the market approach, recent sales and listings of comparable assets are gathered and analyzed. The guideline company method (a variation of the Market Approach) quantifies value by reference to (a) the capital market activities of the shares of similar publicly traded companies, and (b) transactions involving the sale of public or private companies. o Income Approach The income approach is based on the premise that the value of a security or asset is the present value of the future earning capacity that is available for distribution to the subject investors in the security or asset. The most commonly used income approach to the valuation of securities or individual assets is a Discounted Cash Flow Analysis ("DCF"). A DCF analysis involves forecasting the appropriate cash flow stream over an appropriate period and then discounting it back to a present value at an appropriate discount rate. This discount rate should consider the time value of money, inflation and the risk inherent in ownership of the asset or security interest being valued. o Asset-Based Approach A third approach to valuation is the asset-based approach. The discrete valuation of an asset using an asset-based approach is based upon the concept of replacement as an indicator of value. The asset approach establishes value based on the cost of reproducing or replacing the property, less depreciation from physical deterioration and functional obsolescence, if present and measurable. This approach generally provides the most reliable indication of the value of land improvements, special-purpose buildings, special structures, systems, and special machinery and equipment. After giving careful consideration to each of the three approaches, we determined that the most appropriate approaches for the valuation analysis of GDC were the income and market approaches - the asset-based approach was not used. It is important to note that the objective of using more than one method is to develop mutually supporting evidence as to the valuation conclusion. A description of the valuation procedures related to the income and market approaches follows. c. Valuation Procedures Income Approach - DCF D&T estimated the value of GDC's invested capital using a DCF analysis. Under a DCF methodology, financial projections are used to estimate the present value of the future cash flows that an investor might anticipate. Present value is determined by adjusting anticipated future cash flows by a discount rate which reflects the risk or uncertainty regarding the realization of the cash flows. Different expectations of the amount of future cash flow or different assessments of risk will lead to different conclusions of value. The major variables in our DCF analysis are outlined below. 9 o Future Cash Flow Our DCF analysis utilizes the expected cash flow available to the total invested capital (defined above as total equity plus total debt). Cash flow was estimated for the remainder of the fiscal year (April 2003 - September 2003) and for the fiscal years 2004 through 2007 based on the following formula: - Revenue (less) Cost of Goods Sold (less) Operating Expenses (less) Depreciation Expense (less) Income Tax Expense = Net Income - Net Income (plus) Depreciation (less) Capital Expenditures (less) Working Capital Requirement = Cash Flow Available to Invested Capital. It is important to note that the revenue projections utilized in our DCF analysis consisted of GDC's projections, adjusted downward based on the rationale outlined above. Expense assumptions such as gross margins, fixed operating expenses and capital expenditures were unchanged and consistent with GDC Management estimates. o Discount Rate - Weighted Average Cost of Capital The discount rate applied to the forecasted cash flows must adequately reflect the nature of the subject investment and the risk of the underlying cash flows. For purposes of our analysis, the appropriate discount rate was determined to be the Weighted Average Cost of Capital ("WACC"), which was calculated using estimates of required equity and debt rates of return based upon a group of peer companies. In order to estimate an appropriate equity rate of return for use in our analysis, we employed the Capital Asset Pricing Model ("CAPM")(3). Employing the CAPM, and weighting anticipated debt and equity returns 5% and 95% respectively, we estimated a weighted average cost of capital of approximately 26% percent. o Terminal Value The anticipated future cash flow during 2003 - 2007 was discounted to the present using the WACC. A residual or terminal value was added to this interim cash flow to arrive at the value of GDC's invested capital. The residual or terminal value was calculated based on capitalization theory using the Gordon Growth model(4). The Gordon Growth model estimates the value of cash flow received after the discrete forecast period (i.e. after 2007), assuming stable annual growth, in perpetuity. The key assumptions in our terminal value estimate include the WACC of 26% (described above), and the perpetuity growth rate of 5%. The perpetuity growth rate of 5% is based upon long-term inflationary expectations and the expected growth of GDC's business. By combining the present value of the terminal value with the present value of the interim cash flow, we arrived at a DCF value of approximately $23.7M. We then subtracted total debt of approximately $19.8M and applied a lack of marketability discount of 35% to arrive at a value of GDC's equity of approximately $2.6M. We then added back total debt to arrive at an invested capital value of approximately $22.4M on a controlling, non-marketable basis. The DCF analysis can be found in Exhibit A. - --------------- 3 The CAPM formula is: Re =Rf + B(Rm) + Rc. Where: Re=Return on equity, Rf = Risk-free rate, B =Beta, Rm = Market risk premium, Rc =Company specific risk premium 4 The formula for the Gordon Growth Model is: PV=E(1+g)/(k-g). Where PV = present value in last year of projection period, E = cash flow in last year of projection period, g = long term/perpetuity growth rate of cash flow, k = WACC. 10 Market Approach The Market Approach is an important valuation approach and should not be easily discarded. "The use of comparable publicly held corporations as a guide to valuation, as a practical matter, may be the most important and appropriate technique for valuing a privately held business."(5) The guideline public company approach provides an indication of the Fair Market Value of a subject company by comparing it to publicly traded companies in similar lines of business. The basic premise of this approach is that an analysis of the market multiples of companies engaged in similar businesses yields insight into investor perceptions and, therefore, the value of the subject company. We performed the following tasks when applying the guideline public company approach to GDC: o Identified six publicly traded companies (after discussion with GDC management) that operate in the same industry or are influenced by the same underlying economics as the subject company and analyzed their business and financial profiles for relative similarity to the subject company; o Calculated valuation multiples (i.e. invested capital to LTM sales, invested capital to EBIT and invested capital to EBITDA), o Applied valuation multiples to the relevant financial results of GDC to estimate the marketable, minority interest invested capital value, o Subtracted debt to arrive at an equity value, o Applied a marketability discount and a control premium to the equity value, and o Added back the debt to arrive at the market value of invested capital. The majority of the guideline companies we selected had negative EBIT or EBITDA. As a result, the number and range of valuation multiples based on EBIT and EBITDA was limited and we did not use these multiples to estimate a value for GDC. Conversely, the range of invested capital to LTM sales multiples for the guideline companies was more closely grouped and provided a better indication of value. The median invested capital to LTM sales multiple was .95. We applied this multiple to GDC's LTM sales to arrive at a marketable, minority invested capital value of approximately $22.3M. We then applied a marketability discount of 35%, and added a control premium of 40%, to the equity component of the invested capital to arrive at a total invested capital valuation estimate of approximately $22M on a controlling, non-marketable basis. The Guideline Public Company Approach analysis can be found in Exhibit B. - --------------- 5 Frank M. Burke Jr., Valuation and Valuation Planning for Closely Held Businesses (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1981.) 11 d. Valuation Conclusions In order to arrive at a final estimate of value for GDC, we weighted the valuation indications provided by the DCF and Market approaches 60% and 40%, respectively. The corresponding value indications are summarized below: ---------------------- ------------------- -------------- ------------- Approach Estimated Value Weighting Value ---------------------- ------------------- -------------- ------------- DCF $22.4 M 60% $13.4M ---------------------- ------------------- -------------- ------------- Market Approach $22.0 M 40% $8.8M ---------------------- ------------------- -------------- ------------- Total Value $22.2M ---------------------- ------------------- -------------- ------------- We understand Chodan estimated the value of GDC's non-core assets at approximately $9.3M. When the value of the non-core assets is added to the above valuation indication, the total value of GDC including non-core assets is approximately $31.6M. e. Statement of Valuation Assumptions and Limiting Conditions This valuation analysis has been prepared pursuant to the following general assumptions and general limiting conditions: 1. We assume no responsibility for the legal description or matters including legal or title considerations. Title to the subject assets, properties, or business interests is assumed to be good and marketable unless otherwise stated. 2. The subject assets, properties, or business interests are valued free and clear of any or all liens or encumbrances unless otherwise stated. 3. We assume responsible ownership and competent management with respect to the subject assets, properties, or business interests. 4. The information furnished by others is believed to be reliable. However, we issue no warranty or other form of assurance regarding its accuracy. 5. We assume that there is full compliance with all applicable Federal, state, and local regulations and laws unless noncompliance is stated, defined, and considered in the valuation report. 6. We assume that all required licenses, certificates of occupancy, consents, or legislative or administrative authority from any local, state, or national government, private entity or organization have been or can be obtained or renewed for any use on which the valuation opinion contained in this report is based. 7. Possession of this valuation opinion report, or a copy thereof, does not carry with it the right of publication or distribution to or use by any third party. It may not be used for any purpose by any person other than the party to whom it is addressed without our prior written consent. Use of this analysis by any third party is at the sole risk of that party who agrees to hold Deloitte & Touche LLP harmless from any claims resulting from use by any third party. Access by any third party does not create privity between Deloitte & Touche LLP and any third party. 12 8. We, by reason of this engagement, are not required to furnish a complete valuation report, or to give testimony, or to be in attendance in court with reference to the assets, properties, or business interests in question unless arrangements have been previously made. 9. No part of the contents of this report (especially any conclusions of value, the identity of the appraisers, or the firm with which the appraisers are associated) may be disseminated to the public through advertising, public relations, news, sales, or other media without the prior written consent and in the sole discretion of Deloitte & Touche LLP. 10. We assume no responsibility for any financial or tax reporting requirements; such reporting requirements are the responsibility of the client for whom this analysis was prepared. 11. The valuation analyses contained herein are valid only as of the indicated date and for the indicated purpose. 3. CRITIQUE OF THE VALUATION PERFORMED BY CHODAN Essentially, there are three key differences between the valuation performed by Chodan on the Debtor's behalf, and the valuation performed by D&T that result in the tremendous difference in value: o Valuation Approaches Utilized o Revenue Projections o Income Taxes a. Valuation Approaches Utilized The Chodan valuation only utilizes the income approach or discounted cash flow methodology, whereas the D&T valuation considers two approaches to value (income and market) and weighs them 60/40 in order to arrive at a conclusion of value. According to the Chodan valuation, the market approach is not utilized in their valuation because "there is some degree of irrational market valuation that currently exists in the sector" as the valuation multiples derived through the market approach generally give little to no value to the assets of the comparable companies. As mentioned earlier in our analysis, the objective of using more than one method is to develop mutually supporting evidence as to the valuation conclusion. Chodan's use of only the income approach provides no supporting evidence for his valuation conclusion. In addition, the market approach yields insight into investor perceptions about the sector and, therefore, the value of the subject company. The fact that the valuation multiples give little to no value to the assets of the comparables does not mean that the market is irrational, it simply means that investors have a very poor perception of the future outlook of this sector. It is our opinion that the values indicated by the market approach, although low, should be carefully considered and factored into any conclusion of value for GDC. 13 b. Revenue Projections The income approach involves utilizing projections of cash flow for the subject company and discounting the cash flows to a present value based on a discount rate that reflects the risk associated with achieving those cash flows. The Chodan valuation utilizes the cash flows supplied by GDC Management which are generated through a substantial growth in revenue through 2007. As discussed in the critique of GDC's projections, it is our view that the revenue forecasts are aggressive based on historical trends, customer spending forecasts, and comparable company revenue growth forecasts. As such, the revenue forecast utilized in the D&T discounted cash flow model has been adjusted downward thus reducing the future expected cash flows from the levels forecasted by GDC Management. Obviously, any reduction in cash flows reduces the value derived by the discounted cash flow approach. c. Income Taxes The final key difference between the Chodan valuation and the D&T valuation is the use of GDC's net operating loss carry forward ("NOL") to limit the effect of income taxes in the discounted cash flow forecast. It is Chodan's contention that the NOL is applicable, and thus only a minimal amount of income taxes is included in their valuation model. As discussed earlier, the standard of value utilized by D&T is "Fair Market Value". Fair Market Value is defined as "the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties having reasonable knowledge of relevant facts." This standard of value, therefore, assumes a willing buyer. In only very limited circumstances is a willing buyer able to utilize the NOL generated by the willing seller. Therefore, it is common practice that any NOL is eliminated from consideration, and taxes must be included in the forecast of cash flows. As such, the D&T discounted cash flow model has assumed a 40% tax rate thus reducing cash flow available to investors, and the overall value of the invested capital. d. Conclusion The most widely accepted standard of value is Fair Market Value which is the value that a third party would pay for an asset or business. As such, the cash flows utilized in a discounted cash flow approach should reflect the cash flows that a potential buyer would expect to achieve. The D&T valuation projects revenue at growth rates which are more in line with investor perceptions, and includes taxes which would more than likely be paid by a willing buyer. In addition, the D&T valuation utilizes the market approach which again reflects investor perceptions of the sector and provides guidance as to what value a willing buyer would pay for a company such as GDC. 14 General DataComm Industries Discounted Cash Flow Valuation (in thousands) As of March 31, 2003
Projected ------------------------------------------------------------- Year = GDC Fiscal Year (Oct.-Sept.) April-Sept. Year 2 Year 3 Year 4 Year 5 2003 2004 2005 2006 2007 Total --------------------------------------------------------------------------- Revenue $12,050 $34,800 $44,100 $41,800 $44,100 $176,850 Cost of Goods Sold 5,434 13,720 17,136 16,242 17,136 69,668 Operating Expenses (Excluding Depreciation and Amortization) 6,229 12,026 13,075 13,707 14,487 59,523 ----- ------ ------ ------ ------ ------ EBITDA $387 $9,054 $13,889 $11,850 $12,478 $47,659 EBITDA Margin 3.2% 26.0% 31.5% 28.4% 28.3% Less: Depreciation Expense 6 78 90 105 120 399 - -- -- --- --- --- EBIT 381 8,976 13,799 11,745 12,358 $47,260 Income Taxes 40% 153 3,590 5,520 4,698 4,943 18,904 --- ----- ----- ----- ----- ------ Net Income 229 5,385 8,280 7,047 7,415 $28,356 Add: Depreciation 6 78 90 105 120 399 Less: Capital Expenditures 80 80 100 120 140 520 Less: Working Capital Requirement 20% 211 2,351 1,860 (460) 460 4,423 Add: Residual Value 0 0 0 0 34,673 34,673 - - - - ------ ------ Available Cash Flow (57) 3,032 6,410 7,492 41,608 $58,485 Periods to discount 0.50 1.50 2.50 3.50 4.50 Discount factor 0.891 0.707 0.561 0.445 0.353 ($50) $2,144 $3,597 $3,337 $14,706 Cash Flow Margin -0.5% 8.7% 14.5% 17.9% 94.3% Discount Rate 26.0% Residual Value Calculation ------------------------------- Discounted Cash Flow Value $23,733 Residual Value = CFYr6/Cap Rate CFYr5 = CFYr5 * g Less: Debt 19,783 D&T March Report Cap Rate = wacc - g ------ Equity Value $3,950 Less: Discount for lack of marketability 35.0% 1,383 ------ CFYr5 = $6,935 Equity Value $2,568 CFYr6 = $7,281 Plus: Debt 19,783 wacc = 26.0% ------- g = 5.0% Invested Capital Value $22,351 Cap Rate = 21.0% Invested Capital Value Based on Market Approach $22,000 Residual Value = $34,673 ------------------------------- Applicable weighting DCF 60.0% Market 40.0% DCF & Market $22,210 Non Core Assets $9,375 Chodin Valuation Invested Capital Value Including Non Core Assets $31,585
Comparable Public Company Analysis Market Performance Summary
Confidential Information - For Discussion Purposes Only - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Share Common Cash & Price Shares Equity Marketable MVIC Enterprise 3/31/03 Outstanding Capitalization Debt Securities Value [1] Value [2] ------------------------------------------------------------------------------------------------------ ADC TELECOMMUNICATIONS INC $ 2.06 801.9 $ 1,651.9 $ 30.1 $ 366.3 $ 1,682.0 $ 1,315.7 ADTRAN INC 35.91 37.7 1,353.8 50.0 138.7 1,403.8 1,265.1 CARRIER ACCESS CORPORATION 0.98 24.8 24.3 - 15.3 24.3 9.0 CENTILLIUM COMMUNICATIONS 4.05 35.3 143.0 - 99.5 143.0 43.4 PARADYNE NETWORKS INC 1.30 42.9 55.8 0.2 46.5 56.0 9.5 VERILINK CORP 0.81 15.0 12.2 3.9 7.3 16.1 8.8 - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL DATACOMM INDS 19.8 - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE - ------------------------------------------------------------------------------------------------------------------------------------ MEDIAN - ------------------------------------------------------------------------------------------------------------------------------------
Comparable Public Company Analysis Market Performance Summary Confidential Information - For Discussion Purposes Only - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MVIC Value to Enterprise Value to -------------------------------- --------------------------------- LTM LTM LTM ----------- ----------- ----------- --------- ---------- ----------- --------- --------- ------------- Sales EBIT EBITDA Sales EBIT EBITDA Sales EBIT EBITDA ADC TELECOMMUNICATIONS INC $ 954.1 $ (856.8) $ (764.5) 1.76 N.M. N.M. 1.38 N.M. N.M. ADTRAN INC 348.6 45.5 61.8 4.03 30.85 22.71 3.63 27.81 20.47 CARRIER ACCESS CORPORATION 45.0 (38.0) (31.8) 0.54 N.M. N.M. 0.20 N.A. N.M. CENTILLIUM COMMUNICATIONS 110.2 (27.8) (25.5) 1.30 N.M. N.M. 0.39 N.A. N.M. PARADYNE NETWORKS INC 91.4 (23.0) (14.6) 0.61 N.M. N.M. 0.10 N.M. N.M. VERILINK CORP 28.2 1.6 (2.0) 0.57 9.91 N.M. 0.31 5.44 N.M. - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL DATACOMM INDS - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE 1.47 20.38 22.71 1.00 16.62 20.47 - ------------------------------------------------------------------------------------------------------------------------------------ MEDIAN 0.95 20.38 22.71 0.35 16.62 20.47 - ------------------------------------------------------------------------------------------------------------------------------------
[1] MVIC Value is defined as market value of common equity, plus total debt, plus preferred stock [2] Enterprise Value is defined as market value of common equity, plus total debt, plus preferred stock, less cash
COMPARABLE COMPANY VALUATION SUMMARY ----------------------------------------------------------------------------------- LTM Comparable Sales Median MVIC Value Based Sales Multip on Multiple of Sales -------------------------------------------- General Datacomm Inds $ 23.3 0.95 $22.3 ----------------------------------------------------------------------------------- MVIC Value $22.3 ----------------------------------------------------------------------------------- ----------------- Less: Debt $19.8 ----------------- Equity Value (Marketable/Minority Interest Basis) $2.5 Less: Discount for Lack of Marketability 35% 0.9 Equity Value (Non-Marketable/Minority Interest Basis) 1.6 Plus: Control Premium 40% 0.6 Equity Value (Non-Marketable/Controlling Basis) 2.2 Plus: Debt 19.8 ----------------------------------------------------------------------------------- MVIC Value (Non-Marketable/Controlling Basis) $22.0 -----------------------------------------------------------------------------------
EXHIBIT F SUMMARY OF CHODAN'S CRITIQUE OF COMMITTEE VALUATION viii Chodan Advisors, Inc. 655 Barrymore Lane Mamaroneck, NY 10543 Telephone 914 381 2829 Fax 914 381 4062 Memo To: General Datacomm Industries, Inc. From: Arnold Kastenbaum Subject: Deloitte & Touche Valuation Analysis Date: 5/15/03 Chodan Advisors, Inc. ("Chodan"), as the financial advisor to General Datacomm Industries, Inc. ("GDC" or the "Company"), prepared a valuation of the Company based upon information previously set forth in the Company's Amended Disclosure Statement filed April 29, 2003 and has updated the valuation for inclusion in the Company's Amended Disclosure Statement to be filed on May 15, 2003. We have reviewed the Summary of Work Performed by Deloitte & Touche ("DT"), regarding GDC and the valuation analysis included therein on behalf of the Official Committee of Unsecured Creditors. We disagree with a number of the points DT raised as summarized below. While we do not agree with DT's reduced projections, we note that even according to DT's reduced projections GDC will be able to meet all its debt obligations under the Plan within the projected period. o DT applied a 40% tax rate to GDC's projected profits notwithstanding the availability of significant net operating loss carry forwards ("NOL's") which GDC believes will shield projected profits through the projection period from taxes. Assuming no other changes in DT's evaluation, the elimination of the income tax payments from DT's valuation would increase the valuation from $31,585,000 to $43,626000. o DT applied a lack of marketability discount in its valuation which is not applicable to a public company like GDC. Eliminating this discount together with the elimination of income tax payments results in a valuation of $51,417,000. o A valuation inconsistency exists in DT's analysis. The reduced DT projections indicate that all debt obligations can be satisfied in full yet DT's final determination of value indicates that the debt is not covered by the valuation. o DT used stock prices of March 31,2003 for its comparables while the use of more current stock prices of May 13, 2003 for the comparables results in a valuation range of $39,600,000 to $51,260,000 versus the $22,300,000 DT shows. o DT significantly reduced GDC's projected revenues relying chiefly on broad industry conditions and did not address specific factors favoring GDC's future revenue growth while citing significant projected growth for a number of GDC's competitors. Discounted Cash Flow Value Approach Taxes DT assumed a 40% tax rate even though GDC has significant net operating loss carryfowards, which GDC believes will effectively shield all profits from taxes for the foreseeable future. The total reduction DT used for taxes is $18,904,000 for 2003 through 2007. The correction of this item alone would have a significant effect on their valuation. While not accepting any of DT's differences, we note however, that eliminating the taxes alone from the DT calculation changes the valuation from $31,585,000 to $43,626,000. It is important to note that (as discussed below) even though we do not believe it is correct, in this calculation we reduced the valuation for a "discount due to lack of marketability" to remain consistent with DT's methodology. The elimination of this "discount" results in a further revised enterprise valuation of $51,417,000 versus $31,585,000. Marketability Discount and Control Premium With respect to the discount for lack of marketability (35%) we note the following: The lead article, as well as others that DT provided to GDC for support of this discount concerns itself with "estimating appropriate discounts for lack of marketability for both minority and controlling interests in closely held businesses." These articles refer to "Shares of closely held companies, most of which will never be freely tradable" and "restricted shares of publicly traded companies." Since GDC will emerge from bankruptcy as a public company neither of these applies to GDC and thus the articles do no support DT's methodology. Regarding the control premium, we note that in the DT valuation it is applied after the marketability discount. Common practice requires the control premium to be applied first and then the marketability discount. When these factors are -2- applied in this order and tax payments are eliminated, the DT valuation increases to $49,414,000 even including the marketability discount with which we disagree. Eliminating the marketability discount and control premiums from the calculation and also eliminating the tax reduction, results in an enterprise valuation of $51,417,000 based upon DT's reduced projections while keeping all other DT assumptions unchanged. Valuation and Cash flow Inconsistency DT's valuation indicates that, using their reduced projections, GDC will generate enough free cash flow to pay all principal and interest obligations on its debt. However, DT's final determination of value indicates that the debt is not covered by the valuation. This inconsistency is a function of the elimination of the NOL's in DT's calculation and points to the need to correct this assumption. Other The residual value appears to be low. A comparison of DT's residual value to other valuation matrices reveals the following: The $34,673,000 residual value shown by DT is 2.78 times DT's projected EBITDA of $12,478,000 and only 0.8 times their projected revenue in 2007. These multiples appear too low for a company exhibiting the performance shown even in the reduced projections. We note that DT showed sales comparative multiples of an average of 1.47 times with a median of 0.95 times, using March 31, 2003 market prices. Using more current stock prices the median of the DT selected comparables sales multiples is 1.7 times and the average is 2.2 times. Applying these sales multiples to the DT 2007 sales projection of $44,100,000 yields a range of residual value of between $74,970,000 and $97,020,000 versus the $34,673,000 DT computes. This would add between $14,225,000 and $22,008,000 to the DT valuation. DT assumed a valuation date effective March 31, 2003 effectively assuming emergence from bankruptcy on that date. Since such emergence is not expected until sometime after June 30, 2003, this adds at least three months of additional discounting which further reduces the valuation. Revenues The projections used by DT are significantly reduced from those provided by GDC. DT states its view that GDC's revenue projections "appear aggressive" and references certain industry data to support their reductions to GDC's projections. However, the determination of the amount of the reductions are not documented and therefore, appear arbitrary. With respect to the Customer Environment, DT notes that they expect revenue growth in 2004 to be 11% for ADC, 10% for Adtran, 55% for Centillium, and 52% for Paradyne. These higher projections as well as specific factors favoring GDC's growth, do not appear to be considered in DT's reduced revenue projections for GDC. -3- Sensitivity Analysis With respect to DT's view that GDC's revenue projections appear aggressive we have performed a variety of sensitivity analyses as applied to GDC's projections and the valuation ascribed thereto. Using our valuation model, for each of the major variables of EBITDA, revenue and gross margins, we performed a sensitivity analysis to determine what each of these variables would have to be reduced by in order to yield a breakeven level of common equity. In other words, we stressed the valuation model to determine, for example, what could projected EBITDA be reduced by while still providing enough value to cover the debt. The following chart shows the results of this analysis. This analysis is based upon the assumptions set forth in the Disclosure Statement to be filed May 15, 2003 and based upon a cost of equity capital of 30%. - ------------------------------------- ----------------------------------- Breakeven For Equity - ------------------------------------- ----------------------------------- EBITDA Reduction 59% - ------------------------------------- ----------------------------------- Revenue Reduction 38% - ------------------------------------- ----------------------------------- Gross Margins 38% - ------------------------------------- ----------------------------------- This chart shows, for example that using a 30% cost of equity capital and holding all other factors constant in our valuation model, EBITDA can fall by 59% in each of the projected periods and the resulting valuation will cover all of GDC's debt. Discount Rate Calculation In the current DT valuation there is no explanation for how the Weighted Average Cost of Capital (WACC) is determined. Since a previous explanation was provided in DT's previous valuation of October 2003 our comments are based on that document. One of the most important factors in determining value using a DCF approach is the WACC that is used to discount expected future cash flows. WACC is commonly determined by using the Capital Asset Pricing Model (CAPM) which has as it's components a risk free rate, beta, and market premium. Aside from using CAPM, which attempts to derive the cost of equity capital, one must determine both the cost and proportion of debt in the capital structure. In their cost of equity calculation, DT added a 2% company specific risk cost premium. No justification was offered for this. Accepted valuation theory indicates that application of an appropriate beta allows for individual company specific risk. Since DT used a beta of 2, which we do not take exception to, it appears that the company specific risk premium is duplicated and should not be applied. -4- DT used a debt to capital ratio of 5% based upon the average of the comparables even though GDC will emerge with a ratio of at least 30%. While there is some literature that suggests an appropriate ratio is that of an industry norm we believe that the correct ratio is one based upon company specific data. The IRS supports this view. In the IRS Business Valuation Standards literature, Invested Capital is defined as "the sum of equity and debt in a business enterprise. Debt is typically a) all interest bearing debt or b) long-term interest-bearing debt." Furthermore, if a ratio other than the one actually employed by the company is used an adjustment must be made to reflect the value derived from being able to take advantage of lower capital costs. Comparable Analysis While we take exception to the validity of using market comparables as noted in our valuation presented in the Disclosure Statement, we note a number of points with regard to DT's use of market comparables in their analysis. The most obvious is the use of stale data. DT used stock market prices of March 31, 2003 for their analysis. We note that between March 31, 2003 and May 13, 2003 the stock prices of the comparables used by DT moved up an average of 54.1%. Updating DT's spreadsheet for this change alone results in average and median sales multiples of 2.2 and 1.7 times, respectively. Using these revised averages applied to LTM sales of $23.3 million results in valuations of $51.3 million and $39.6 million, respectively, versus the $22.3 million DT used. We note that these figures do not include non-core assets the inclusion of which would significantly increase valuations. The only "benchmark" valuation DT used was market enterprise value as a percentage of sales. This benchmark, while not uncommon, generally is not regarded as a reliable measurement guide and typically shows a very wide range. In addition, it is only theoretically correct if there is a consistency in the ratio of profitability to sales. A more commonly used valuation benchmark is an EBITDA multiple. We note that only one of the comparable companies chosen by DT had a positive EBITDA and currently trades at 29.4 times EBITDA. Applying this multiple to DT's EBITDA 2004 projection of $9,054,000 yields a valuation of $266 million. While we do not suggest that this is the right multiple to apply to GDC, we do point out the difficulty in applying market comparables in this sector. The tremendous volatility in the sector speaks to this point as well. This point is emphasized by the large change in the comparable companies stock prices over a six-week period. Additionally, we note that the average range of stock prices of DT's comparables over the past 52 weeks has been over 600% adding credence to the argument. Furthermore, DT has chosen only six comparables and we suggest that it is difficult to draw valid conclusions from such a small field. We point out that a review of Market Guide, an unbiased collection of -5- market data, indicates that as of May 13, 2003 the industry and sector traded at 5.00 and 4.65 times sales, respectively, versus a 3.16 multiple for the S & P. This data alone indicates that by merely altering the selection of comparables there can be widely varying conclusions as to value. Conclusion Our review of the Summary of Work Performed By Deloitte & Touche noted a number of technical and theoretical points that result in material reductions in the DT valuation of GDC. We recognize that some of the points we raise, such as the variation of the projections prepared by DT versus those prepared by GDC are subject to debate. However, we believe that a number of points are not subject to serious debate, such as the use of stale data or the payment of taxes when the reorganized debtor will be able to avail itself of tax shields. Although we take exception with many of DT's assumptions and calculations, nevertheless DT's projections reflect that all of GDC's debt obligations can be satisfied. -6- EXHIBIT G LIQUIDATION ANALYSIS ix Chapter 7 Liquidation Analysis The "Best Interest Test" under Section 1129 of the Bankruptcy Code requires that each holder of impaired claims or impaired interests receive property with a value not less than the amount such holder would receive in a Chapter 7 liquidation. As indicated above, the Company believes that under the Plan, Holders of Impaired Claims or Impaired Equity Interests will receive property with a value equal to or in excess of the value such Holders would receive in a liquidation of the Company under Chapter 7 of the Bankruptcy Code. The Chapter 7 Liquidation Analysis set forth herein demonstrates that the Plan satisfies the requirements of the "Best Interest Test." To estimate potential returns to Holders of Claims and Equity Interests in a Chapter 7 liquidation, the Company determined, as might a bankruptcy court conducting such an analysis, the amount of liquidation proceeds that might be available for distribution and the allocation of such proceeds among the classes of Claims and Equity Interests based on their relative priority. The Company considered many factors and data, including (i) the Company's operating and projected financial performance, (ii) the attractiveness of the Company's assets to potential buyers, (iii) the potential universe of buyers, (iv) the potential impact of chapter 7 cases upon the businesses of the Company, as well as possible buyers' pricing strategies, (v) the relative timing of the potential sale of the Company's assets, and (vi) an analysis of the liabilities and obligations of the Company. The Company has assumed that the liquidation of all assets would be conducted in an orderly manner. The liquidation proceeds available to the Company for distribution to Holders of Claims against and Equity Interests in the Company would consist of the net proceeds from the disposition of the assets of the Company, augmented by any other cash held and generated during the assumed holding period stated herein by the Company and after deducting the incremental expenses of operating the business pending disposition. In general, liquidation proceeds would be allocated in the following priority: (i) first, to the Claims of secured creditors to the extent of the value of their collateral; (ii) second, to the costs, fees and expenses of the liquidation, as well as other administrative expenses of the Company's Chapter 7 cases, including tax liabilities; (iii) third, to the unpaid Administrative Claims of the Reorganization Case; (iv) fourth, to other Claims entitled to priority in payment under the Bankruptcy Code; (v) fifth, to Unsecured Claims; (vi) sixth, to Holders of Preferred Stock, and (vii) seventh, to Holders of Old Common Stock. The Company's liquidation costs in a Chapter 7 case would include the compensation of a bankruptcy trustee, as well as compensation of counsel and other professionals retained by such trustee, asset disposition expenses, applicable taxes, litigation costs, Claims arising from the operation of the Company during the pendency of the Chapter 7 cases and all unpaid Administrative Claims incurred by the Company during the Reorganization Case that are allowed in the Chapter 7 case. The liquidation itself might trigger certain Priority Claims. These Priority Claims would be paid in full out of the net liquidation proceeds, after payment of secured Claims, Chapter 7 costs of administration and other Administrative Claims, and before the balance would be made available to pay Unsecured Claims or to make any distribution in respect of Equity Interests. x The following Chapter 7 liquidation analysis is provided solely to discuss the effects of a hypothetical Chapter 7 liquidation of the Company and is subject to the assumptions set forth herein. There can be no assurance that such assumptions would be accepted by a bankruptcy court. The Chapter 7 liquidation analysis has not been independently audited or verified. Liquidation Value of the Company The table below details the computation of the Company's liquidation value and the estimated distributions to Holders of Impaired Claims and Impaired Equity Interests in a Chapter 7 liquidation of the Company. This analysis is based upon a number of estimates and assumptions that are inherently subject to significant uncertainties and contingencies, many of which would be beyond the control of the Company. Accordingly, while the analysis that follow are necessarily presented with numerical specificity, there can be no assurance that the values assumed would be realized if the Company was in fact liquidated, nor can there be any assurance that a bankruptcy court would accept this analysis or concur with such assumptions in making its determinations under Section 1129(a) of the Bankruptcy Code. Actual liquidation proceeds could be materially lower or higher than the amounts set forth below; no representation or warranty can or is being made with respect to the actual proceeds that could be received in a Chapter 7 liquidation of the Company. The liquidation valuations have been prepared solely for purposes of estimating proceeds available in a Chapter 7 liquidation of the Company's Estate and do not represent values that may be appropriate for any other purpose. Nothing contained in these valuations is intended or may constitute a concession or admission of the Company for any other purpose. In preparing the Hypothetical Liquidation Analysis, Chodan was provided financial information and certain assumptions from GDC's management. Chodan did not assume any responsibility for independent verification of any of the information that was provided and relied on such information being complete and accurate in all material respects. Methods for Determining Gross Proceeds from Liquidation To estimate the potential returns to Holders of Claims and Interests in a Chapter 7 liquidation, the Company determined, as might a bankruptcy court conducting such an analysis, the amount of liquidation proceeds that might be available for distribution and the allocation of such proceeds among the Classes of Claims and Interests based on their relative priority. The Company developed a liquidation analysis based upon a "forced liquidation" sale, such as an auction or other similar-type sale of the assets of the Company occurring over a period of six months starting August 5, 2003 and ending by February 5, 2004. The gross proceeds were based upon estimates from the Company and its financial advisors in light of a "forced liquidation" scenario. As set forth more particularly in the chart that follows, among the assumptions underlying the generation of Cash from liquidation of the Company's assets are that the Company's (i) accounts receivable would realize a return of approximately 90% of book value based upon the estimated recoveries based upon the financial strength of the majority of GDC's customers, (ii) inventory would realize a return of approximately 100% of book value, (which approximates 13% of gross value before reserves), after accounting for the salability of the inventory and allowing for the costs of collection or sale in bulk, (iii) property and equipment would realize a return of approximately 50% of book value, and (iv) real estate and other assets held for sale or collection would xi realize a return of approximately 150% of book value or $9,375 based upon fair market value estimates and estimated recoveries. Nature and Timing of the Liquidation Process Under Section 704 of the Bankruptcy Code, a Chapter 7 trustee must, among other duties, collect and convert the property of the debtor's estate to cash and close the estate as expeditiously as is compatible with the best interests of the parties in interest. Solely for the purposes of this liquidation analysis, it is assumed that the case would be converted to a Chapter 7 liquidation on August 5, 2003. The Company assumes dispositions of its assets in multiple transactions, rather than as an entirety or a piecemeal liquidation of the Company's operating assets, during a 6-month period ending February 5, 2004. Additional Liabilities and Reserves The Company believes that there would be certain actual and contingent liabilities and expenses for which provision would be required in a Chapter 7 liquidation before distributions could be made to creditors in addition to the expenses that would be incurred in a Chapter 11 reorganization, including: (a) certain liabilities that are not dischargeable pursuant to the Bankruptcy Code; (b) Administrative Claims including the fees of a trustee, counsel and other professionals (including financial advisors and accountants) and other liabilities; and (c) certain administrative costs including post-petition trade payables and general and corporate costs associated with the orderly wind-down of the business. Conclusion In summary, the Company believes that a Chapter 7 liquidation of the Company would result in a diminution in the value to be realized by the Holders of Claims and Equity Interests. As set forth in the table below, management of the Company estimates that the total liquidation proceeds available for distribution, net of Chapter 7 expenses, would aggregate approximately $20.1 million. The Company believes that the holders of claims other than those of the Secured Bank Claims would receive no value in a liquidation of the Company under Chapter 7 of the Bankruptcy Code. The Holders of the Secured Bank Claims, Other Unsecured Debt, and Administrative Claims, Priority Claims and Equity Interests are expected to receive recoveries under the Plan in excess of that shown in a Chapter 7 liquidation. Based upon the foregoing analysis, in a Chapter 7 liquidation, the recovery for the Company's creditors, in aggregate, would be less than the proposed distribution under the Plan. Consequently, the Company believes that the Plan, which provides for the continuation of its business, would prove a substantially greater ultimate return to the Holders of Claims and Equity Interests than would a Chapter 7 liquidation. The following table estimates the Company's assets as of February 28, 2003, and the amount of recovery on each asset. xii Liquidation Analysis
- ------------------------------------------------------------------------------------------------------------------ ($'s in 000's) Est. Est. 2/28/03 Est. Liquidation Plan Book Value Recovery Proceeds Recovery(1) Notes ----------- -------- ----------- ----------- ------- Cash and cash equivalents $ 1,292 100% $1,292 Accounts receivable $ 4,313 90% $3,882 2 Inventories $ 5,023 100% $5,023 3 Other current assets $ 908 10% $91 4 Property, plant and equipment, net $ 5 50% $3 Land, buildings and other assets held for sale or collection $ 6,269 150% $9,375 5 Other assets $ 4 50% $2 Net assets of discontinued operations $ 92 50% $46 Chapter 5 potential avoidance claim $500 Total net proceeds available for distribution $ 17,906 $20,213 Est. Total net proceeds available for distribution $ 20,213 Trustee fees $ 606 100% $ 606 n/a 6 Wind down costs $ 903 100% $ 903 n/a 7 Total $ 1,509 $ 1,509 Proceeds available for secured claims $ 18,704 Secured Claims Notes payable $ 24,258 77% $ 18,704 100% 8 Unsecured Claims $ 25,000 0% $0 100% 8 Preferred Stock $ 24,900 0% $0 100% 8 Common Stock $ 3,328 0% $0 >0 9
- --------------- 1 Under the Plan all creditor claims are estimated to be satisfied in full. 2 Receivables from major phone cos 3 B/S value is net of reserves of $37.27mm. Effective liquidation rate is 13%. 4 Mostly prepaids. Possible recovery of prepaid insurance premiums. 5 Contains assets held for sale or collection. 6 Calculated as 3% of recovery. 7 Includes estimated salaries, utilities, insurance, removal and miso. expenses. 8 Book value does not reflect settlement as provided by the Plan of Reorganization, nor does it reflect any reduction of the amount owed to lenders if the lender's claim was fully litigated. 9 Recovery for common stock assumed to be positive under the plan. Valuation not determined. xiii EX-99.1 4 ex99_1.txt EXHIBIT 99.1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 ) GENERAL DATACOMM INDUSTRIES, INC., et al., ) Case No. 01-11101 (PJW) -- --- ) ) ) (Jointly Administered) Debtors. ) AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE IN RESPECT TO AMENDED JOINT PLAN OF REORGANIZATION Joel A. Waite SCHULTE ROTH & ZABEL, LLP Michael R. Nestor Michael L. Cook YOUNG CONAWAY STARGATT & David M. Hillman TAYLOR, LLP 919 Third Avenue P.O. Box 391 New York, NY 10022 1000 West Street, 17th Floor (212) 756-2000 Wilmington, Delaware 19801 (312) 571-6600 - and - Counsel to the Debtors ZUCKERMAN SPAEDER LLP and Debtors-In-Possession Thomas G. Macauley 919 Market Street Suite 1705 Wilmington, DE 19801 (302) 427-0400 Co-Counsel to Ableco Finance LLC and Foothill Capital Corporation Dated: June 24, 2003 TABLE OF CONTENTS ARTICLE 1 Page INTRODUCTION AND OVERVIEW.....................................................2 A. General..............................................................2 B. Purpose of Disclosure Statement......................................3 C. Brief Overview of the Debtors and the Plan...........................5 1. Description of the Debtors' Operations........................5 2. Reasons for the chapter 11 Filings............................5 3. The Proposed Reorganized Debtors and Anticipated Post-Effective Date Operations and Marketing Plans............5 D. Distributions Under The Plan.........................................5 E. Creditors and Interest Holders Entitled to Vote on the Plan..........9 F. Instructions Regarding Voting, Confirmation, and Objections To Confirmation...........................................10 1. Voting Instructions...........................................10 2. Confirmation of the Plan......................................11 3. Objections to Confirmation....................................12 4. Confirmation Hearing..........................................12 ARTICLE II BACKGROUND INFORMATION REGARDING DEBTOR.......................................12 A. History of the Debtors' Business.....................................12 B. The Debtors' Current Operations......................................13 C. Capital Structure of the Company.....................................14 1. Debt..........................................................14 2. Equity........................................................14 D. Officers and Directors...............................................15 1. Management....................................................15 E. Pending Non-Bankruptcy Litigation....................................16 1. B.F. Goodrich v. Murtha.......................................16 2. General DataComm Industries, Inc. v. Sahara Networks, Inc. et al...................................16 3. Middlebury Office Park Limited Partnership v. General DataComm Industries, Inc..............................17 4. Data Connect Enterprises, Inc. v. General DataComm, Inc. and Vital Network Services, LLC........17 i 5. The Matco Electronics' Group, Inc., U.S. Assemblies Raleigh, Inc., US Assemblies Georgia, Inc., and Eagle Technologies, Inc. ("Matco") v. General DataComm, Inc.......................18 6. MTI International, Inc. v. General DataComm, Inc..............19 7. Claim of the State of Wisconsin Investment Board..............19 8. The Crawford Group Information Systems v. General DataComm, Inc.........................................19 9. Avnet, Inc. v. General DataComm, Inc..........................19 F. Bankruptcy Litigation................................................19 1. Lender Adversary Proceeding...................................20 2. General DataComm Industries, Inc., et al v. Vital Network Services, Inc...................................20 3. Contested Matters With Former Employees.......................21 4. Mayan Claims Dispute..........................................21 5. General DataComm Industries, Inc. v. New Venture Technologies, Corp................................22 G. Significant Events during These Chapter 11 Cases.....................22 1. The Debtors' "First Day" Pleadings ...........................22 2. Continuation of Business After Filing.........................23 3. Retention of the Claims/Balloting Agent.......................23 4. Retention of Professionals by the Debtors.....................23 (a) Legal Professionals......................................23 (b) Other Professionals......................................24 5. The Committee and Its Professionals...........................24 6. Use of Cash Collateral........................................24 7. Rejection of Certain Leases and Executory Contracts...........25 8. Filing of Schedules...........................................25 9. Bar Date for Filing of Claims.................................25 10. Sale of Assets................................................25 (a) Sale of Certain Test Fixtures............................25 (b) Sale of Mexican Operations...............................25 (c) Sale of Middlebury Property..............................26 (d) De Minimis Assets Sales..................................26 (e) Consignment of Spare Parts Inventory with SMT Corporation..............................................26 11. Satisfaction of Mortgage with J.P. Morgan Chase Bank..........26 12. Termination Agreements........................................26 (a) Cignal Agreement.........................................26 (b) Ionosphere Agreement.....................................27 13. Lucent/Sahara Settlement......................................27 ARTICLE III THE PLAN OF REORGANIZATON.....................................................27 A. Summary of Payment Provisions of the Plan...........................27 1. Impairment of Claims and Interests...........................27 2. Treatment of Claims and Equity Interests.....................28 B. Classified Claims and Interests.....................................28 1. Allowed Administrative Claims................................28 ii 2. Allowed Priority Tax Claims..................................29 3. Class 1 (Allowed Other Priority Claims)......................29 4. Class 2 (Allowed Lender Secured Claim).......................29 5. Class 3 (Other Secured Claims)...............................30 6. Class 4 (Allowed General Unsecured Claims)...................30 7. Class 5 (Allowed Convenience Class Claims....................30 8. Class 6 (Preferred Interests in GDC..........................31 9. Class 7 (Equity Interests in Subsidiary Debtors).............31 10. Glass 8 (GDC Common Stock Interests).........................31 C. Provisions of the Plan...............................................31 1. Executory Contracts...........................................31 (a) Assumed Agreements.......................................31 (b) Rejected Agreements......................................32 2. Rejection and Cancellation of 73/4% Indenture.................32 3. Indemnification Obligations Assumed...........................32 4. Distributions.................................................33 5. Causes of Action..............................................34 6. Administrative Bar Date.......................................35 7. Objections to Claims..........................................35 8 Discharge.....................................................35 9. Employee and Management Stock Bonus Plan......................36 10. Miscellaneous.................................................37 (a) Consummation - Retention of Jurisdiction.................37 (b) Release of Certain Claims and Actions....................37 (c) Exculpation..............................................37 (d) Conditions Precedent to Effectiveness of the Plan........38 (e) Revesting of Assets of the Debtors.......................38 (f) Rounding.................................................38 (g) Plan Related Transaction Documents.......................38 ARTICLE IV CONFIRMATION OF THE PLAN 39 A. Feasibility..........................................................39 B. Acceptance...........................................................40 C. Non-acceptance and Cramdown..........................................40 D. Valuation............................................................40 E. Best Interest Test - Liquidation Analysis............................41 ARTICLE V CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN...........................42 A. Utilization by the Reorganized Debtors of Debtor's Existing Tax Attributes..............................................43 1. Effect of Sections 382 and 383 of the Tax Code................43 iii 2. The Bankruptcy Exception......................................45 B. Cancellation of Indebtedness Income..................................46 C. Alternative Minimum Tax..............................................46 D. Federal Income Tax Consequences to Holders of Claims.................47 E. Importance of Obtaining Professional Tax Assistance..................48 ARTICLE VI REORGANIZED DEBTORS SECURITIES; CORPORATE GOVERNANCE..........................48 A. Description of The Reorganized Debtors' Securities...................48 1. Dividends.....................................................49 B. Corporate Governance.................................................49 1. Certificate of Incorporation and By-Laws......................49 2. Limitation of Liability; Indemnification of Directors, Officers and Others...........................................51 (a) Charter Provisions.......................................51 (b) Director and Officer Insurance...........................52 (c) Registrar and Transfer Agent.............................52 ARTICLE VII SECURITIES LAW CONSIDERATIONS.................................................52 ARTICLE VIII MATERIAL UNCERTAINTIES AND RISK FACTORS.......................................54 A. Certain Disputed Claims..............................................55 B. Conditions to Confirmation and Effective Date........................55 C. Certain Tax Matters..................................................55 D. Lack of Trading market for New Debentures and Equity Interest in Reorganized GDC..........................................55 E. New Products and Business Strategies.................................55 iv F. Restrictions on Dividends............................................56 G. Competition..........................................................56 H. Industry Conditions..................................................56 I. Management...........................................................56 ARTICLE IX CONCLUSION....................................................................57 EXHIBITS A - Joint Plan of Reorganization B - Unaudited Historical Financial Statements C - Projected Financial Statements D - Debtors' Going Concern Valuation E - Committee's Valuation and View of Debtors Business Projections and Valuation F - Summary of Chodan's Critique of Committee Valuation G - Liquidation Analysis v ARTICLE I INTRODUCTION AND OVERVIEW NO REPRESENTATIONS CONCERNING THE DEBTORS, THEIR BUSINESSES OR FUTURE OPERATIONS, OTHER THAN THOSE SPECIFICALLY SET FORTH HEREIN, HAVE BEEN AUTHORIZED BY THE DEBTORS. A. General On November 2, 2001 (the "Petition Date"), General DataComm Industries, Inc. ("GDC" or the "Company"), General DataComm, Inc., DataComm Leasing Corporation, DataComm Rental Corporation, GDC Federal Systems, Inc., GDC Naugatuck, Inc., GDC Holding Company, LLC, General DataComm International Corp., General DataComm China, Ltd., and GDC Realty, Inc. (collectively, the "Debtors") each filed voluntary petitions for relief (collectively, the "Petitions") under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors continue in possession of their properties and the management of their businesses as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. The Honorable Peter J. Walsh, Chief United States Bankruptcy Judge, has presided over these cases (the "Chapter 11 Cases") since their inception. On November 20, 2001, the Office of the United States Trustee for the District of Delaware (the "Trustee") appointed an Official Committee of Unsecured Creditors to serve in these cases (the "Committee"). No chapter 11 trustee or examiner has been appointed in these Chapter 11 Cases. On April 29, 2003, the Amended Joint Plan of Reorganization [Docket No. 1024] (as it may be amended from time to time, the "Plan") was filed. The Plan is proposed jointly by the Debtors and the Lenders, and represents the result of extensive negotiations between such parties and the Committee. The Plan sets forth the proposed reorganization of the Debtors' assets and distribution of recoveries to their creditors and equity security holders. The Plan and its treatment of creditors is consistent with the plan term sheet executed by the Debtors, the Committee and Lenders in October, 2002, as modified by agreement of such parties in February 2003. A copy of the Plan appears as Exhibit A to this Disclosure Statement (the "Disclosure Statement").(1) The Plan specifies the classes of the Debtors' creditors and equity security holders and the treatment of the Claims and Equity Interests of such creditors and equity security holders, respectively. Pursuant to section 1126 of the Bankruptcy Code, the Debtors are soliciting acceptances of the Plan from the classes entitled to vote on the Plan. This Disclosure Statement is submitted pursuant to section 1125 of the Bankruptcy Code in order to provide information of the kind necessary to enable a hypothetical reasonable investor to make an informed judgment in the exercise of his, her, or its right to vote on the Plan. - --------------- 1 Unless otherwise defined in this Disclosure Statement, capitalized terms not defined in this Disclosure Statement shall have the meanings ascribed to such terms in the Plan. 2 B. Purpose of Disclosure Statement The Debtors provide this Disclosure Statement in order to permit eligible parties to make an informed decision in voting to accept or reject the Plan, a copy of which accompanies this Disclosure Statement as Exhibit A. This Disclosure Statement is presented to the holders of Claims (collectively, the "Claimants") and Equity Interests in order to satisfy the requirements of section 1125 of the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq. (the "Bankruptcy Code"). Section 1125 requires a disclosure statement to provide information sufficient to enable a hypothetical and reasonable investor, typical of the Debtors' creditors and stockholders, to make an informed judgment whether to accept or reject the Plan. This Disclosure Statement may not be relied upon for any purpose other than that described above. THIS DISCLOSURE STATEMENT AND THE PLAN ARE AN INTEGRAL PACKAGE, AND THEY MUST BE CONSIDERED TOGETHER FOR THE READER TO BE ADEQUATELY INFORMED. NO REPRESENTATIONS CONCERNING THE DEBTORS (PARTICULARLY AS TO THE VALUE OF THEIR PROPERTY) ARE AUTHORIZED BY THE DEBTORS OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY REPRESENTATIONS OR INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE OF THE PLAN OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH ADDITIONAL REPRESENTATIONS AND INDUCEMENTS SHOULD BE REPORTED TO COUNSEL FOR THE DEBTORS, WHO SHALL IN TURN DELIVER SUCH INFORMATION TO THE BANKRUPTCY COURT FOR SUCH ACTION AS MAY BE APPROPRIATE. THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE INFORMATION CONTAINED IN THE EXHIBITS ATTACHED HERETO, HAS NOT BEEN SUBJECT TO AN AUDIT OR INDEPENDENT REVIEW. ACCORDINGLY, THE DEBTORS ARE UNABLE TO WARRANT OR REPRESENT THAT THE INFORMATION CONCERNING THE DEBTORS OR THEIR FINANCIAL CONDITION IS ACCURATE OR COMPLETE. ANY PROJECTED INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY, AND BECAUSE OF THE UNCERTAINTY AND RISK FACTORS INVOLVED, THE DEBTORS' ACTUAL RESULTS MAY NOT BE AS PROJECTED HEREIN. ALTHOUGH AN EFFORT HAS BEEN MADE TO BE AS ACCURATE AS POSSIBLE UNDER THE CIRCUMSTANCES, THE DEBTORS DO NOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS CORRECT. THE DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE PLAN. EACH CLAIMANT WHO IS ENTITLED TO VOTE ON THE PLAN IS URGED TO REVIEW THE PLAN PRIOR TO CASTING SUCH VOTE. 3 THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE OF THE DISCLOSURE STATEMENT UNLESS ANOTHER TIME IS SPECIFIED. THE DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH SINCE THE DATE OF THE DISCLOSURE STATEMENT. SCHEDULES OF THE ASSETS AND LIABILITIES OF THE DEBTORS AS OF THE DATE OF THE COMMENCEMENT OF THEIR BANKRUPTCY CASES (COLLECTIVELY AND AS AMENDED, THE "SCHEDULES") ARE ON FILE WITH THE CLERK OF THE BANKRUPTCY COURT AND MAY BE INSPECTED BY INTERESTED PARTIES DURING REGULAR BUSINESS HOURS. THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAW. ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST, INTERESTS IN, OR SECURITIES OF THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. The Honorable Peter J. Walsh will hold a hearing on confirmation of the Plan (the "Confirmation Hearing"), beginning at 10:00 a.m. (Eastern Standard Time) on August 5, 2003, in the United States Bankruptcy Court, 824 Market Street, 6th Floor, Wilmington, Delaware. At the Confirmation Hearing, the Bankruptcy Court will consider whether the Plan satisfies the requirements of the Bankruptcy Code, including whether the Plan is in the best interests of the Claimants and Equity Interest holders, and will review a ballot report concerning votes cast for acceptance and rejection of the Plan. To obtain, at your cost, additional copies of the Plan or this Disclosure Statement, please contact: Bankruptcy Services, LLC Attention: General DataComm Industries, Inc. 70 E. 55th Street, 6th Floor New York, NY 10022 Telephone: (212) 376-8494. 4 C. Brief Overview of the Debtors and the Plan 1. Description of the Debtors' Operations The Debtors are presently engaged in the design, assembly, marketing and sale of telecommunication access products and services. Further information regarding the Debtors' history and business operations is set forth below under Article II. 2. Reasons for the Chapter 11 Filings Prior to the Petition Date, the Debtors reported continuing net losses, due in great part to general economic and industry slowdown, technology changes, and high investments in product development. As a result, the Debtors lacked adequate liquidity to fund their continuing operations and commenced these Chapter 11 Cases in order to enable them to successfully reorganize their businesses and maximize value for their estates and creditors. Attached hereto as Exhibit B are unaudited consolidated financial statements for the fiscal year ended September 30, 2001 ("Fiscal 2001") and unaudited consolidated financial statements for the fiscal year ended September 30, 2002 ("Fiscal 2002"). 3. The Proposed Reorganized Debtors and Anticipated Post-Effective Date Operations and Marketing Plans The Company's mission is to ensure that its customers' needs for access products are met in terms of product, service, support and delivery. Its vision is to develop and manufacture access products that meet and exceed standards of reliability, safety, security and performance, while remaining price competitive in the marketplace. With its experienced management team, the Company has reestablished itself in the access product market of the telecommunications industry and devotes the bulk of its resources to the access product line. In addition to continuing to market and sell its legacy access products, the Company has embarked on an aggressive product development program to meet the needs of its current and expanding areas of its business and intends to develop new products to be introduced each year. Attached as Exhibit C to this Disclosure Statement are the Debtors' unaudited pro forma and projected financial statements for the periods set forth therein. D. Distributions Under the Plan THE FOLLOWING IS A BRIEF SUMMARY OF THE CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN. THE DESCRIPTION OF THE PLAN SET FORTH BELOW CONSTITUTES A SUMMARY ONLY. CLAIMANTS AND OTHER PARTIES IN INTEREST ARE URGED TO REVIEW THE MORE DETAILED DESCRIPTION OF THE PLAN CONTAINED IN SECTION III OF THIS DISCLOSURE STATEMENT AND THE PLAN ITSELF. THE PLAN IS ATTACHED TO THIS DISCLOSURE STATEMENT AS EXHIBIT A. The reorganization of the Debtors' business under the Plan rather than a liquidation under chapter 7 of the Bankruptcy Code is preferable because it will ensure a greater return to unsecured creditors and equity holders than they would receive if the Debtors were liquidated and because preservation of 5 the Debtors' businesses as going concerns will preserve many ongoing and beneficial business relationships between the Debtors and their creditors and enhance the value of the Debtors' assets. For a more detailed explanation, please refer to Article IV below. The following is a summary of the classification and treatment of Allowed Claims and Equity Interests and the distribution that holders of such Claims and Equity Interests may expect to receive under the Plan. This summary is qualified in its entirety by reference to the relevant provisions of the Plan, a copy of which is attached as Exhibit A to this Disclosure Statement. THE FOLLOWING AMOUNTS ARE MERELY THE DEBTORS' ESTIMATES BASED ON INFORMATION AVAILABLE AS OF THE FILING OF THIS DISCLOSURE STATEMENT. THE ACTUAL AMOUNTS COULD BE SUBSTANTIALLY DIFFERENT, CAUSING THE ULTIMATE DISTRIBUTIONS TO CREDITORS TO BE SIGNIFICANTLY HIGHER OR LOWER THAN ESTIMATED. For a more detailed description of these classifications and certain other significant terms and provisions of the Plan, please refer to Article III below.
============================================== =================================================== ================== DESCRIPTION OF CLAIMS AND INTERESTS AND DESCRIPTION OF PROPOSED DISTRIBUTION UNDER THE ESTIMATED CLASSES AND ANTICIPATED AMOUNT OF ALLOWED PLAN RECOVERY CLAIMS - ---------------------------------------------- --------------------------------------------------- ------------------ Allowed Administrative Claims Not Classified Under the Plan 100% Anticipated to be less than $750,000 Each holder of an Allowed Administrative on the Effective Date. Generally, an Claim shall be paid in respect of such Allowed Allowed Administrative Claim means any cost Claim the full amount thereof, in Cash, as soon and expense of administration of the Chapter as practicable after the later of (i) the 11 Cases entitled to and allowed priority in Effective Date and (ii) the date on which such payment under section 507(a)(1) of the Claim becomes an Allowed Claim, except that Bankruptcy Code or as may be allowed by Allowed Administrative Claims arising in the Final Order of the Bankruptcy Court. Such ordinary course of business shall, if due at a claims shall consist of all Allowed later date pursuant to their terms, be paid when Administrative Claims, including cure otherwise due. payments for assumed executory contracts and unexpired leases and Allowed professional fees and expenses. - ---------------------------------------------- --------------------------------------------------- ------------------
6
============================================== =================================================== ================== DESCRIPTION OF CLAIMS AND INTERESTS AND DESCRIPTION OF PROPOSED DISTRIBUTION UNDER THE ESTIMATED CLASSES AND ANTICIPATED AMOUNT OF ALLOWED PLAN RECOVERY CLAIMS - ---------------------------------------------- --------------------------------------------------- ------------------ Allowed Priority Tax Claims Not Classified Under the Plan 100% Anticipated to be less than Except to the extent that a holder of an $2,000,000. An Allowed Priority Tax Claim Allowed Priority Tax Claim has been paid by the shall be any Claim that is entitled to Debtors prior to the Effective Date or agrees to priority in payment pursuant to section a different treatment, each holder of an Allowed 507(a)(8) of the Bankruptcy Code. Priority Tax Claim shall receive, at the sole option of the Reorganized Debtors, (a) Cash in an amount equal to such Allowed Priority Tax Claim on the later of the Effective Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (b) equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to 4.25%, over a period through the sixth anniversary of the date of assessment of such Allowed Priority Tax Claim, or upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim. - ---------------------------------------------- --------------------------------------------------- ------------------ Class 1 (Allowed Other Priority Claims) Not Impaired Under the Plan 100% Anticipated to be less than $50,000. Each Allowed Other Priority Claim in Class 1 Class 1 shall consist of all Claims to the shall be paid in full in Cash on the later of the extent Allowed and entitled to priority in Effective Date and the date such Claim becomes an payment under sections 507(a)(2) through 507 Allowed Claim in full compliance with its legal, (a)(7) of the Bankruptcy Code. contractual and equitable rights. Class 1 is unimpaired and not permitted to vote. - ---------------------------------------------- --------------------------------------------------- ------------------ Class 2 (Allowed Lender Secured Claim) Impaired Under the Plan 100% Anticipated to be approximately $30 In full satisfaction of the Allowed Lender million as of August 20, 2002, subject to Secured Claim, the holder thereof shall receive adjustments as provided herein and in the the New Lender Loan and Security Agreement, the Plan. Class 2 shall consist of the claims Lender Warrants and the Lender Release. Class 2 of the Lenders under that certain Loan and is impaired and entitled to vote. Security Agreement dated May 14, 1999 (as amended from time to time), which claim is secured by a lien on substantially all of the Debtors' assets. Assuming the liability under the New Lender PIK Obligation is eliminated per the agreement, the balance owing to the Lenders as of 6/18/03 is approximately $16.2 million. - ---------------------------------------------- --------------------------------------------------- ------------------
7
============================================== =================================================== ================== DESCRIPTION OF CLAIMS AND INTERESTS AND DESCRIPTION OF PROPOSED DISTRIBUTION UNDER THE ESTIMATED CLASSES AND ANTICIPATED AMOUNT OF ALLOWED PLAN RECOVERY CLAIMS - ---------------------------------------------- --------------------------------------------------- ------------------ Class 3 (Other Secured Claims) May Be Impaired Under the Plan 100% Anticipated to be less than In full satisfaction of each Allowed Secured $50,000 on the Effective Date. Class 3 Claim, each holder of such Claim shall, at the shall consist of all Allowed Claims to the option of the Debtors, receive either (i) payment extent of the value, as determined pursuant in full in Cash in the amount of such Claim as to sections 506(a) or 1111(b) of the soon as practicable after the later of (a) the Bankruptcy Code, of any interest in property Effective Date and (b) the date on which such of the Debtors' estates securing such Claim becomes an Allowed Claim, (ii) the Claims. To the extent any such Allowed collateral securing such Claim, or (iii) such Claim exceeds the value of any interest in other treatment as may be agreed to by the any property of the Debtor's estate securing Reorganized Debtors and the holder of such such Claim, such Allowed Claim shall be Claim. Class 3 may be impaired and is entitled considered an Allowed General Unsecured to vote on the Plan. Claim and satisfied under Class 4. - ---------------------------------------------- --------------------------------------------------- ------------------ Class 4 (Allowed General Unsecured Claims) Impaired Under the Plan 100% Anticipated to be less than $25 In full and complete satisfaction of their million. Class 4 shall consist of all Allowed Claims, each holder of a Class 4 claim Allowed Claims not included in any other shall receive a Debenture in the full amount of Class and not secured by a charge against or such Allowed General Unsecured Claim, which shall interest in property in which the Debtors' be subject to the terms of the Indenture. Class estates have an interest. 4 is impaired and is entitled to vote on the Plan. - ---------------------------------------------- --------------------------------------------------- ------------------ Class 5 (Convenience Class Claims) Impaired Under the Plan 100% Anticipated to total less than $40,000 Holders of Class 5 Convenience Class Claims Class 5 shall consist of Allowed General shall be paid in full in cash within 60 days Unsecured Claims of $1,000 or less or that after the Effective Date of the Plan. Class 5 is are voluntarily reduced to $1,000 by the impaired and is entitled to vote on the Plan. holders thereof. - ---------------------------------------------- --------------------------------------------------- ------------------ 100% Class 6 (Preferred Interests in GDC) Not Impaired Under the Plan Class 6 shall consist of all holders of The legal, equitable and contractual rights of the 9% preferred stock of General DataComm the holders of Allowed Preferred Interests in GDC Industries, Inc. and any other Equity shall remain unaltered by the Plan. Class 6 is Interest having priority over the GDC Common unimpaired and is not entitled to vote on the Stock. Plan. - ---------------------------------------------- --------------------------------------------------- ------------------
8
============================================== =================================================== ================== DESCRIPTION OF CLAIMS AND INTERESTS AND DESCRIPTION OF PROPOSED DISTRIBUTION UNDER THE ESTIMATED CLASSES AND ANTICIPATED AMOUNT OF ALLOWED PLAN RECOVERY CLAIMS - ---------------------------------------------- --------------------------------------------------- ------------------ Class 7 (Equity Interests in Subsidiary Not Impaired Under the Plan 100% Debtors) The Equity Interests in Subsidiary Debtors Class 7 shall consist of all common shall be retained by the respective parent Debtor stock interests in the Debtors other than without alteration. Class 7 is unimpaired and is GDC, and all rights and options with respect not entitled to vote on the Plan. thereto. - ---------------------------------------------- --------------------------------------------------- ------------------ Class 8 (GDC Common Stock Interests) Impaired Under the Plan Greater than zero Class 8 shall consist of all common All GDC Common Stock Interests shall be stock of GDC, $.10 par value, as well as the retained by the holders thereof, without Class B Common Stock and the remaining alteration, except that (a) they shall be subject shares of Redeemable 5% Preferred Stock to dilution as the result of the Employee Stock automatically converted into shares of Plan, (b) they shall be subject to dilution in common stock on July 31, 2002, and all the event of the exercise of the Lender Warrants, warrants, rights and options with respect (c) they shall be subject to the Lender Director thereto. Selection Right and Unsecured Creditors Selection Right, and (d) they shall be subject to the amendments to the GDC Articles of Incorporation and Bylaws. Class 8 is impaired and entitled to vote on the Plan. ============================================== =================================================== ==================
E. Creditors and Interest Holders Entitled to Vote on the Plan A ballot is enclosed for the use by holders of Claims and Equity Interests in and against the Debtors entitled to vote on the Plan. Only holders of Allowed Claims and Equity Interests in Classes 2, 3, 4, 5 and 8 are entitled to vote on the Plan. As set forth in Section 6.1 of the Plan, claims which have not been objected to, have been allowed by Final Order of the Bankruptcy Court, or have been temporarily allowed for voting purposes, are entitled to vote. Holders of Disputed Claims who wish to vote on the Plan must seek an order from the Bankruptcy Court temporarily allowing such Disputed Claims for voting purposes only. For more information, please refer to Article I, Section F below. Claims in Classes 1, 6 and 7 are unimpaired under the Plan. In accordance with section 1126(f) of the Bankruptcy Code, the holders of Claims and Equity Interests in such Classes are conclusively deemed to have accepted the Plan, and the votes of holders of such Claims and Equity Interests are not being solicited herein. The Plan will be confirmed if it is accepted by the requisite majorities of each Class of Claims and Equity Interests entitled to vote and all other conditions to confirmation are met by the Debtors; provided, however, that the Debtors may seek to "cramdown" the Plan pursuant to section 1129(b) of the Bankruptcy Code on any Class that votes to reject the Plan. (For more information on "cramdown," please refer to Article I, Section F below). The requisite majority for confirmation of the Plan by a particular Class without "cramdown" is acceptance by at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of Allowed Claims or more than 2/3 in amount of Equity Interests that are actually voted. 9 F. Instructions Regarding Voting, Confirmation, and Objections to Confirmation 1. Voting Instructions BEFORE VOTING, YOU SHOULD READ THIS DISCLOSURE STATEMENT AND ITS EXHIBITS, INCLUDING THE PLAN AND ITS EXHIBITS, IN THEIR ENTIRETY. You may vote on the Plan by completing and mailing the enclosed ballot to BSI Services, LLC, the Debtor's claims and noticing agent, at: Bankruptcy Services, LLC Attention: General DataComm Industries, Inc. 757 Third Avenue, Third Floor New York, NY 10017 Telephone: (646) 282-2500 You should use the ballot sent to you with this Disclosure Statement to cast your vote for or against the Plan. You may NOT cast ballots or votes orally. In order for your ballot to be considered by the Bankruptcy Court, it must be received at the above address no later than the time designated in the notice accompanying this Disclosure Statement. Any ballot executed by the holder of an Allowed Claim that does not indicate acceptance or rejection of the Plan shall be considered a vote to accept the Plan. If you are a Holder of a Claim or Equity Interest in Classes 2, 3, 4, 5 or 8 and did not receive a ballot with this Disclosure Statement, you may obtain a ballot by contacting: Bankruptcy Services, LLC Attention: General DataComm Industries, Inc. 757 Third Avenue, Third Floor New York, NY 10017 Telephone: (646) 282-2500 Only holders of Allowed Claims or Equity Interests in impaired Classes are entitled to vote on the Plan. In addition, the record date of all Claims and Equity Interests against the Debtors for voting purposes shall be the date on which the Bankruptcy Court enters an order approving this Disclosure Statement. Persons holding Claims transferred after such date will not be permitted to vote on the Plan. An impaired Class of Claims accepts the Plan if at least two-thirds (2/3) in amount, and more than one-half (1/2) in number, of the Allowed Claims in the Class that are actually voted are cast in favor of the Plan. An impaired Class of Equity Interests accepts the Plan if at least two-thirds (2/3) in amount of Allowed Equity Interests in the Class that are actually voted are cast in favor of the Plan. Subject to the terms of the Plan, Claimants and Equity Interest holders who do not vote are not counted as having voted either for or against the Plan. Pursuant to the provisions of Section 1126 of the Bankruptcy Code, the Bankruptcy Court may disallow any vote accepting or rejecting the Plan if such vote is not cast in good faith. A Claimant's or Equity Interest holder's failure to vote on the Plan will not affect such Claimant's or Equity Interest holder's right to a Distribution under the Plan. If the voting members of an impaired Class do not vote unanimously for the Plan but, nonetheless, vote for the Plan by at least the requisite two-thirds (2/3) in amount and one-half (1/2) in number of Allowed 10 Claims or Equity Interests actually voted in that Class, the Plan, at a minimum, must provide that each member of such Class will receive property of a value as of the Effective Date, that is not less than the amount such Class members would receive or retain if the Debtors' estates were liquidated under chapter 7 of the Bankruptcy Code. The Debtors may dispute Proofs of Claim or Equity Interests that have been filed or that the Debtors listed as disputed, unliquidated or contingent in their Schedules filed with the Bankruptcy Court. Persons whose Claims or Equity Interests are disputed may vote on, or otherwise participate in, Distributions under the Plan only to the extent that the Bankruptcy Court allows their Claims or Equity Interests. The Bankruptcy Court may temporarily allow a Claim or Equity Interest for voting purposes only. The Debtors' Schedules, which list the Claims and whether such Claims are disputed, can be inspected at the Office of the Clerk of the United States Bankruptcy Court for the District of Delaware, 824 Market Street, Wilmington, Delaware, 19801. The Bankruptcy Court established May 1, 2002 at 4:00 p.m. (ET) as the deadline by which all Proofs of Claim were required to be filed in the Bankruptcy Case. Whether or not a Claimant or Equity Interest holder votes on the Plan, such Person will be bound by the Plan, including the terms and treatment of Claims or Equity Interests set forth therein, if the Plan is accepted by the requisite majorities of the Classes or is crammed-down and is confirmed by the Bankruptcy Court. Allowance of a Claim or Equity Interest for voting purposes or disallowance of a Claim for voting purposes does not necessarily mean that all or a portion of that Claim will be allowed or disallowed for purposes of Distribution under the Plan. 2. Confirmation of the Plan Once it is determined which impaired Classes have or have not accepted the Plan, the Bankruptcy Court will determine whether the Plan may be confirmed. If all impaired Classes accept the Plan, it will be confirmed provided that the Bankruptcy Court finds the other conditions set forth in Section 1129(a) of the Bankruptcy Code satisfied. THESE ARE COMPLEX STATUTORY PROVISIONS, AND THE PRECEDING PARAGRAPHS ARE NOT INTENDED TO BE A COMPLETE SUMMARY OF THE LAW. IF YOU DO NOT UNDERSTAND ANY OF THESE PROVISIONS, PLEASE CONSULT WITH YOUR ATTORNEY. IF ALL CLASSES DO NOT ACCEPT THE PLAN, THE DEBTORS INTEND TO RELY UPON THE "CRAM DOWN" PROVISION OF SECTION 1129(b) OF THE BANKRUPTCY CODE. The Bankruptcy Court may confirm the Plan, even if all of the impaired Classes do not accept the Plan, if the Bankruptcy Court finds that certain additional conditions are met. Accordingly, if the Plan is not accepted by the requisite amount of Claims in Classes 2, 3, 4, or 5, or Equity Interests in Class 8, the Debtors will seek confirmation of the Plan as to such non-accepting Class or Classes pursuant to Section 1129(b) of the Bankruptcy Code. Section 1129(b) of the Bankruptcy Code is generally referred to as the "cramdown" provision. The Bankruptcy Court may confirm the Plan over the objection of a non-accepting Class of Unsecured Claims or Equity Interests if the Plan satisfies one of the alternative requirements of Section 1129(b)(2)(B) or (C) of the Bankruptcy Code. The Bankruptcy Court may confirm the Plan over the objection of a non-accepting Class of Unsecured Claims or Equity Interests 11 if the non-accepting members of the Class will receive the full value of their Claims or Equity Interests, or, if the non-accepting members of the Class stand to receive less than full value, no Classes of junior priority will receive anything on account of their respective Claims or Equity Interests. 3. Objections to Confirmation Any objections to confirmation of the Plan must be filed with the Clerk of the Bankruptcy Court and served upon (a) Young Conaway Stargatt & Taylor, LLP, The Brandywine Building, 1000 West Street, 17th Floor, P.O. Box 391, Wilmington, Delaware 19899-0391, Attention: Joel A. Waite, Esquire, (b) Schulte Roth & Zabel, 919 Third Avenue, New York, New York 10022, Attention: Michael Cook, Esquire, (c) Zuckerman Spaeder, LLP, 919 Market Street, Suite 1705, Wilmington, Delaware 19801, Attention: Thomas G. Macauley, (d) The Bayard Firm, 222 Delaware Avenue, Suite 900, Wilmington, Delaware 19801, Attention Jeffrey M. Schlerf, Esquire, and (e) The Office of the United States Trustee for the District of Delaware, 844 North King Street, Room 2311, Wilmington, Delaware, 19801, Attention: David Buchbinder, Esquire, in such manner as will cause such objections to be filed with the Bankruptcy Court and received by the aforementioned parties no later than July 28, 2003 at 4:00 p.m. (ET). 4. Confirmation Hearing A hearing on confirmation of the Plan is scheduled to be held before the Honorable Peter J. Walsh, Chief United States Bankruptcy Judge, United States Bankruptcy Court for the District of Delaware, 824 Market Street, 6th Floor, Wilmington, Delaware, on August 5, 2003 at 10:00 a.m. (ET). Announcement of the adjournment of such hearing, if any, may be made in writing or in open court. No further written notice is required to be sent to claimants, interest holders, or other parties in interest. ARTICLE II BACKGROUND INFORMATION REGARDING DEBTOR A. History of the Debtors' Business General DataComm Industries, Inc. was incorporated in 1969 under the laws of the State of Delaware. Based in Naugatuck, Connecticut, the Company is a provider of telecommunications access products and services. Over the past 30 years, the Company has designed, assembled, marketed and sold products and services that have enabled telecommunications common carriers, corporations, and governments to build, improve, and more cost effectively manage their global telecommunications networks. Prior to 1998, the Company operated with a horizontal structure with such functional organizations as marketing, sales, and engineering operating across all of its product lines. In December 1998, the Company restructured its operations into three distinct business units with increased operating autonomy and business focus. The Broadband Systems Division ("BSD") was responsible for the development, marketing, and sale of broadband telecommunications products, including Asynchronous Transfer Mode ("ATM") products. The Network Access 12 Division ("NAD") was responsible for the development, marketing, and sale of access telecommunications products. VITAL Network Services, L.L.C. ("VITAL") offered a broad range of network services, including an expansion into professional network design and consulting services. During 2000, the Company established the Multimedia Division ("MMD") as a fourth operating division. MMD was responsible for the development, marketing, and sale of broadband video product solutions for, among other things, distance learning, telemedicine and video conferencing over broadband wide area ATM, and next-generation Internet networks. During 2000, the Company concluded that the sale of one or more strategic business units would be the most effective means of generating working capital, reducing outstanding indebtedness, and enhancing shareholder value. The Company determined that such action would allow it to more effectively focus its sales, marketing, and product development efforts on the remaining business units. In January 2001, the Company restructured its operations to consolidate the BSD and NAD operating units which resulted in a significant work force reduction. In addition, the Company consummated various sales of assets in order to increase cash flow and reduce debt. In July 2001, the Company sold its Montreal-based MMD division to Miranda Technologies, Inc. for $8.5 million in cash plus a 20% interest in multimedia revenue for two years. On August 13, 2001, the Company sold its ATM business to AHEAD Communications Systems for $3.0 million in cash and a $17.0 million interest-bearing note, and on or about August 31, 2001, the Company consummated a sale of its VITAL business unit to Mayan Networks Corporation for $6.4 million in cash, $17.1 million in a combination of notes, stock, and assumption of liabilities, and the retention by the Company of $8.0 million of VITAL's accounts receivable. Notwithstanding the asset sales effected by the Company during 2001, and as a result of the Debtors lack of adequate liquidity to fund continuing operations, the Debtors filed the Petitions and commenced these Chapter 11 Cases. B. The Debtors' Current Operations As of the Petition Date, the Debtors had experienced operating losses for many years and a substantial negative cash flow. The Debtors' management team immediately tackled the urgent needs then facing the Debtors, trimming their infrastructures to bring them into line with their current revenues by severely cutting costs, including reducing headcount, eliminating rent by relocating their headquarters to a Debtor-owned facility, cutting communication costs, and reducing health and other insurance costs and various other costs. At the same time the new management team totally restructured the Debtors, including its research and development programs, customer service, sales and marketing, human resources and many other aspects of its operations. Perhaps most significant for the Debtors' future, it embarked upon the development of a new line of IP products, the first of which are just coming to market and which have received a very favorable reception so far. The Company's customer base includes local exchange carriers, alternative service providers, inter-exchange carriers, corporations, government entities, international communications carriers, and suppliers of central office switching equipment. As of September 30, 2002, the Debtors employed approximately 115 persons. 13 The Debtors have reestablished themselves in the access market of the telecommunications industry. The Debtors had originally commenced business as a manufacturer of modem equipment for sale to telecommunication service providers in the U.S., Canada and throughout the world. The Debtors are now devoting virtually all of their resources to their access product line. C. Capital Structure of the Company 1. Debt The Debtors currently have approximately $20 million of secured debt. This figure assumes that the settlement with the Lenders provided for in the Plan is approved and implemented and assumes the PIK Obligation provided for in the Plan is eliminated as a result of the Debtors reaching certain payment targets to the Lenders on the remainder of their secured claim. This figure also accounts for the fact that in excess of $8 million of secured mortgage debt owing to Chase as of the Petition Date, was fully satisfied during the course of the Chapter 11 Cases. In excess of $9 million of priority claims (primarily tax claims) were filed against or scheduled by the Debtors. The Debtors are in the process of preparing objections to many of such claims. While no assurances can be given, the Debtors believe that after they have completed the claims objection process, the total amount of Allowed Priority Tax Claims and Allowed Other Priority Claims will be less than $2 million. In excess of $70 million of unsecured claims have been filed against or scheduled by the Debtors (including many duplicate or amended claims), including approximately $3 million of 7 3/4 Debentures. As a result of certain claims objections which have been filed by the Debtors and approved by the Court, the total amount of unsecured claims has already been reduced. The Debtors are still in the process of reviewing claims and preparing objections, including objections to certain large claims. While no assurances can be given, the Debtors believe that after they have completed the claims objection process, the total amount of Allowed Unsecured Claims will be less than $25 million. 2. Equity The Debtors had the following Equity Interests listed on their consolidated balance sheets as of September 30, 2002: (a) 9% Cumulative Convertible Exchangeable Preferred Stock - par value $1.00 per share, 800,000 authorized, 782,496 shares issued and outstanding with a liquidation value of approximately $24 million. (b) Class B Common Stock - par value of $0.10 per share, 10,000,000 shares authorized, 2,057,103 shares issued and outstanding. (c) Common Stock - par value of $0.10 per share, 50,000,000 shares authorized, 32,138,891 shares issued and outstanding, plus the 419,443 shares of Redeemable 5% Preferred Stock automatically converted into shares of Common Stock on July 31, 2002. 14 D. Officers and Directors 1. Management Soon after the Petition Date, Charles P. Johnson, the Debtors' founder, Chief Executive Officer, and Chairman of the Board of Directors, passed away. In the wake of Mr. Johnson's death, the Board of Directors elected Howard Modlin to serve as Chairman and Chief Executive Officer. Mr. Modlin remains CEO/President of the Company, and is joined in management by William G. Henry (Chief Financial Officer and Vice President), George Best (Vice President - Sales and Marketing), and George Gray (Vice President - Engineering). While Mr. Modlin has not been and is not currently being compensated for his position as CEO/President and Chairman of the Debtors (2), Messrs. Henry, Best and Gray currently receive salaries at the annual rates of $190,000, $150,000, and $175,000, respectively. In addition, Messrs. Gray and Best receive annual bonuses based upon performance criteria. As of June 18, 2003, the Directors of the Debtors consisted of (1) Howard Modlin, who is also the CEO/President, (2) John Segall, an outside director and (3) Lee Paschall, an outside director. The members of the Board of Directors are not currently compensated for their services other than reimbursement of their actual out of pocket expenses incurred in participating in meetings of the Board. In connection with confirmation and implementation of the Plan, the makeup of the Debtors' Board of Directors will change. Specifically, the board of directors shall consist of no less than five and no more than thirteen members. Initially, upon emergence from Chapter 11, Reorganized GDC's board is expected to consist of four or five members, one of which may be selected by the Creditors Committee, and the remainder of which may be selected by the existing board of directors or its designees. Thereafter, Reorganized GDC's board of directors shall be selected in accordance with normal corporate governance procedures of GDC, as set forth in its amended and restated certificate of incorporation, provided that Ableco shall be entitled to appoint three directors until its claim has been paid in full and the New Indenture Trustee for the New Debentures shall be entitled to select one director until the New Debentures are paid in full, provided that if the Lenders' Claim is not paid in full by the third anniversary of the Effective Date, the New Indenture Trustee shall be entitled to select two additional directors (for a total of three directors) until the Lender's Claim has been paid in full, and provided further that in the event the Reorganized Debtors default on any payment due under the New Debentures and such default is not cured within 60 days after notice, then the New Indenture Trustee shall be entitled to select a majority of the board of directors of Reorganized GDC until the New Debentures are paid in full. Additionally, as referenced above, Ableco is entitled to appoint three directors until its claim has been paid in full. Ableco has advised the Debtors that it does not presently intend to exercise its right to appoint directors immediately after the Effective Date. In the event Ableco later decides to exercise its right to appoint three directors, the size of the Board of Directors of GDC will be increased by four or five directors, three of which will be elected by Ableco and the other one or two to be initially selected by the other directors (other than the director selected by the Committee or New Indenture Trustee) and thereafter by the holders of Common Stock. The initial post-Effective Date - --------------- 2 At the request of Ableco, the Company obtained, owns and is the beneficiary of a $5 million key man life insurance policy on the life of Mr. Modlin. 15 directors and officers of the Reorganized Debtors, shall be constituted as of the Effective Date, and shall consist of the current officers and directors identified in this Disclosure Statement and the additional directors to be identified in a subsequent document submitted to the Court at or prior to the Confirmation Hearing. E. Pending Non-Bankruptcy Litigation The Debtors are parties to numerous non-Bankruptcy Court actions, all of which, to the Debtors' knowledge, were stayed upon the filing of these Chapter 11 Cases by the automatic stay provision of section 362 of the Bankruptcy Code. The following are summaries of those actions: 1. B.F. Goodrich v. Murtha The Company, along with several hundred other third-party defendants, was sued in United States District Court for the District of Connecticut in the matter entitled B.F Goodrich, et al., v. Harold Murtha, et al., 3:87CV0052 (PCD), involving so-called "Superfund" litigation involving two landfills. No specific amount was alleged in the pleadings to be paid by the Company. On March 31,1995, Judge Dorsey issued an Amended Judgment in which he stated that the claims against the Debtors in Civil Actions Nos. N-87-52 (PCD), N-87-73 (PCD) and N-87-74 (PCD) were dismissed without prejudice and without costs. The Amended Judgment recited that the claims of both sets of plaintiffs, the so-called Beacon Heights Coalition and the so-called Laurel Park Coalition, were dismissed against the Company without costs. The Laurel Park Coalition and the Beacon Heights Coalition appealed from Judge Dorsey's order and on November 1, 1996, the United States Court of Appeals for the Second Circuit affirmed in part, reversed in part and remanded this case to the District Court to conduct further proceedings consistent with its opinion. At this time, both the District Court and the plaintiffs are in the process of determining which parties will remain in the case. Preliminary reports from the District Court indicate that the Company is no longer a third-party defendant. 2. General DataComm Industries, Inc. v. Sahara Networks, Inc. et al. In April 1997, the Company commenced an action (the "Sahara Action") in the Superior Court of Connecticut against Sahara Networks, Inc. ("Sahara") and fourteen former employees of the Company, some of whom founded Sahara and some of whom were hired by Sahara. Sahara was acquired by Cascade Communications, Inc. ("Cascade") and Cascade was acquired by Ascend Communications, Inc. ("Ascend"). Lucent Technologies ("Lucent") acquired and became the successor-in-interest to Ascend. A motion for leave to amend the complaint was filed on March 1, 1999 (the "Complaint") to include Lucent as a defendant. The complaint alleged violations by the individual defendants of a Secrecy and Assignment of Inventions Agreement between the Company and the individual defendants, tortious interference with contractual relations, unjust enrichment misappropriation of trade secrets, unfair competition, interference with financial expectancies, and violation of the Connecticut unfair trade practices act, theft of corporate opportunity and breach of fiduciary duty. The Company sought unspecified damages, injunctive relief, imposition of a 16 constructive trust, punitive damages, attorneys fees, costs and interest. The defendants asserted counterclaims for declaratory relief that the Company does not have a valid copyright in its software; that the defendants did not misappropriate the Company's trade secrets; and that the Company's Secrecy and Assignment of Inventions Agreement is void and/or unenforceable. Subsequently, the defendants asserted two additional counterclaims for compensatory relief in an unspecified amount under the Connecticut Unfair Trade Practices Act for damages for alleged defamatory statements regarding Sahara products and Sahara's alleged misconduct. In June of 1999, the Company began an action (the "Ascend Action") in the Superior Court of Connecticut against Ascend Communications, Inc. The complaint alleged tortious interference with contractual relations, unjust enrichment, unfair competition, interference with financial expectancies, and violation of the Connecticut Unfair Trade Practices Act. The Company sought unspecified damages, injunctive relief, imposition of a constructive trust, punitive damages, attorneys fees, costs and interest. The defendant asserted counterclaims for declaratory relief alleging that the Company did not have a valid copyright in its software; that the defendants did not misappropriate the Company's trade secrets; and that the Company's Secrecy and Assignment of Inventions Agreement was void and/or unenforceable. The Debtors entered into a settlement agreement with Lucent and the other defendants, which was approved by the Bankruptcy Court on October 11, 2002, pursuant to which (a) the Debtors received a payment of $2.5 million in satisfaction of all claims against the defendants and (b) Lucent and the other defendants executed a release in favor of GDC, and Lucent and the other defendants waived all claims held by such parties in these Chapter 11 Cases. The Debtors paid the $2.5 million settlement proceeds to the Lenders to reduce the Debtors' principal obligations to the Lenders. As a result of the settlement agreement approved by the Bankruptcy Court, both the Saraha and Ascend Actions were resolved. 3. Middlebury Office Park Limited Partnership v. General DataComm Industries, Inc. This matter consists of two actions. The first commenced on June 12, 1995 in the New York Supreme Court, New York County. Middlebury Office Park, the Company's then Landlord, alleged damages in the sum of at least $378,000 by reason of the Company's failure to issue warrants permitting the plaintiff to purchase the Company's stock pursuant to a warrant agreement, as amended. The second action, begun July 13, 1999, alleged that the Company miscalculated the number of warrants required to be issued in 1993 and alleges damages of not less than $81,000.00. These actions were settled before a court-appointed mediator in Court upon the terms that the Company would grant to the plaintiff five year warrants for 52,379 shares of the Company's common stock at a price of $5.50 per share, but plaintiff never signed the settlement papers. In connection therewith, Middlebury Office Park filed a proof of claim against the Debtors for alleged damages relating to these warrants in the amount of $1,500,000. The Debtors have filed an objection to this claim, which is currently pending before the Bankruptcy Court. 4. Data Connect Enterprises, Inc. v. General DataComm, Inc. and Vital Network Services, LLC. On or about February 25, 2000, the plaintiff, a distributor of the Company's products, commenced this action against the Company in the United States District Court for the District of Maryland, which was subsequently 17 transferred by that court to the District of Connecticut. The plaintiff has not filed a claim in the Chapter 11 Cases. The action arises out of an alleged agreement between the plaintiff, Vital, and the Company, whereby the plaintiff would sell for a profit certain of the Company's and Vital's products and services to the New York City Transit Authority ("NYCTA"). Plaintiff claims that the Company and Vital breached the alleged agreement by selling products and services directly to the NYCTA, made false representations with respect to the agreement, obtained unjust enrichment at the plaintiff's expense, and interfered with a contract between the plaintiff and the NYCTA. The plaintiff sought damages in excess of $1 million and an accounting of all amounts received by the Company and Vital from the NYCTA. The Company has denied any liability in favor of plaintiff and, in fact, has brought its own action against plaintiff in the District of Connecticut for $360,054.48 for goods sold and delivered. This action was dismissed by the United States District Court for the District of Maryland. 5. The Matco Electronics' Group, Inc., U.S. Assemblies Raleigh, Inc., U S Assemblies Georgia, Inc., and Eagle Technologies, Inc. ("Matco") v. General DataComm, Inc. On or about January 31, 2001, the plaintiffs commenced an action against the Company in the New York Supreme Court, Broome County. The plaintiffs allege that they are affiliated companies who entered into a written agreement with the Company wherein plaintiffs were to perform certain manufacturing operations for the Company. Plaintiffs alleged breach of contract, unjust enrichment, and an account stated in the total sum of $8,351,482. Thereafter, plaintiffs served an amended complaint increasing the amount of alleged damages to $13,759,556.05, plus interest and attorneys fees. The Company has answered the complaint, asserting numerous defenses and counterclaims. The first counterclaim seeking at least $156.15 million, alleges, among other things, that plaintiff breached warranties and representations by failing to have the requisite expertise to perform the manufacturing of the Company's products and failing to produce products that satisfied the Company's quality standards, resulting in losses to the Company. The second counterclaim, seeking at least $156.15 million, asserts that plaintiff's representations were fraudulently made. The third counterclaim, seeking damages in an unspecified amount, alleges that plaintiff failed to deliver prototypes of a new product to the Company and as a result, the Company could not bring this new product to market. The court has dismissed the first two counterclaims, together with the Company's defense of fraudulent inducement, but the court's decision provided that GDC could assert claims under certain provisions of the agreement between the parties, which claims the Debtors estimate at approximately $7.5 million. The Company is appealing the Court's ruling. Matco is also a debtor in a chapter 11 proceeding pending in the Northern District of New York. The Debtors have filed a proof of claim in the Matco chapter 11 bankruptcy case consistent with the counterclaims raised in the state court litigation. Matco, in turn, has filed a claim in these Chapter 11 Cases consistent with the claims asserted in the subject action. On April 28, 2003, the Debtors filed an objection to the claims filed by Matco. 18 6. MTI International, Inc. v. General DataComm, Inc. On or about July 30, 2001, the plaintiff commenced the above action in the Circuit Court of Wisconsin, Waukesha County, seeking $1,497,686.24, plus interest and attorneys fees, arising out of plaintiffs manufacture of electronic components for the Company. The Company has answered the complaint. Following the filing of the Chapter 11 Cases, the parties stipulated to dismissal of this action without prejudice and the case was dismissed on December 6, 2002. Plaintiff has filed two general unsecured claims in those Chapter 11 cases, each in the amount of $1,732,916.97. The Debtors dispute the claims filed by plaintiff. 7. Claim of the State of Wisconsin Investment Board The Company has received a request from a law firm representing the State of Wisconsin Investment Board ("SWIB") for information regarding the Company's failure to redeem its 5% Cumulative Convertible Preferred Stock subsequent to the execution by SWIB and the Company of their September 12, 2000 "General DataComm Industries, Inc. Share Purchase Agreement." While SWIB filed a claim in the Chapter 11 Cases, it was filed after the Bankruptcy Court approved bar date and, as a result, disallowed by Bankruptcy Court order. 8. The Crawford Group Information Systems v. General DataComm, Inc. On or about September 5, 2001, the plaintiff began this action in the Connecticut Superior Court at Waterbury seeking the return of alleged overpayments in the amount of $157,835.23. The Company settled this action by an agreement whereby GDC paid $13,152.94 and agreed to pay the remaining settlement amount over the ensuing eleven (11) months without interest. 9. Avnet, Inc. v. General DataComm, Inc. On September 24, 2001, plaintiff made an application in the Connecticut Superior Court at Waterbury for a prejudgment remedy in the amount of $800,000 to secure a judgment sought in the above action. The action seeks alleged damages in the amount of $639,971.54, plus finance charges and attorneys fees in an unspecified amount. The time for the Company to respond to the application has been extended and has not yet expired. In connection therewith, Avnet filed a proof of claim for the amount claimed in damages. The Debtors resolved this claim in the Chapter 11 Cases, pursuant to which Avnet's claim was reduced to a general unsecured claim in the amount of $305,000. F. Bankruptcy Litigation The Debtors are or were parties to numerous Bankruptcy Court actions. The following are summaries of those actions: 19 1. Lender Adversary Proceeding On or about February 25, 2002, the Lenders commenced an adversary proceeding (the "Lender Action") against the Debtors seeking a declaratory judgment regarding the validity and priority of the Lenders' liens and claims. The Debtors filed an answer with affirmative defenses to the Lender Action and the Committee intervened and filed a motion to dismiss the Lender Action. Subject to Bankruptcy Court approval, the Debtors, the Committee and the Lenders have settled the Lender Action by and through the distributions on account of Class 2 Claims as provided in the Plan. Confirmation of the Plan will also constitute approval of the settlement reached by the parties. 2. General DataComm Industries Inc., et al. v. Vital Network Services, Inc. On or about September 27, 2002, GDC and General DataComm, Inc. commenced an adversary proceeding in the Bankruptcy Court (the "Vital Adversary Proceeding") as a result of the refusal of Vital Network Services, Inc. ("Vital") to turnover certain consigned inventory, (the "Inventory"). In the Vital Adversary Proceeding, GDC and General DataComm, Inc. sought, inter alia, a temporary restraining order and preliminary injunction seeking to enjoin Vital's use of the Inventory in its business operations. Since the filing of the action, GDC and General DataComm, Inc. and Vital have entered into several interim agreements pursuant to which Vital agreed, inter alia, that (a) GDC and General DataComm, Inc. are the rightful owner of the Inventory, (b) Vital would pay on a going-forward basis, GDC and General DataComm, Inc. for all of the Inventory used for the limited purposes set forth in section 2.6 of the Transition Services Agreement, dated August 31, 2001, (c) Vital would submit a deposit to GDC and General DataComm, Inc. in the aggregate amount of $40,000, and (d) Vital would submit detailed accountings to GDC and General DataComm, Inc. of all of the Inventory in Vital's possession or control. Pursuant to the interim agreements Vital also agreed to return approximately $3,000,000, in the aggregate, worth of Inventory to GDC and General DataComm, Inc. (the "Returned Inventory"). GDC and General DataComm, Inc. have received the Returned Inventory, but have not verified the value, condition or functionality of the Returned Inventory. The parties operated under the interim agreements up through April 3, 2003, the date on which the parties agreed to a final settlement of their disputes. On April 28, 2003, the Bankruptcy Court approved the Debtors' Motion for Authority to Compromise Claims and Approving Settlement Agreement Between the Debtors and Vital Network Service, Inc. (the "Vital Settlement Order"). Pursuant to the Vital Settlement Order, the Court authorized and approved the settlement agreement with Vital (the "Settlement Agreement"), which provided, inter alia, that (a) GDC and General DataComm, Inc. own and have sole title to the Remaining Inventory (as defined in the Settlement Agreement) until purchased by Vital according to a set title transfer/payment schedule, (b) Vital would pay GDC and General DataComm, Inc. $606,000 in monthly installments over a 12 month period, (c) Vital would maintain a $10,000 deposit with GDC and General DataComm, Inc. and (d) both parties would execute a mutual release of all claims, with certain exceptions, and that the adversary proceeding, including counterclaims asserted by Vital, would be dismissed with prejudice. 20 3. Contested Matters With Former Employees On or about July 9, 2002, the Bankruptcy Court denied the Debtors' Motion to Reject Certain Executory Contracts Pursuant to Section 365 of The Bankruptcy Code (the "Rejection Motion") with respect to the benefits provided to certain former employees of the Company (the "Former Employees"). In denying the Debtors' motion, the Bankruptcy Court held that the subject contracts with the Former Employees could not be rejected because the former senior employees were "retirees" as that term is used in section 1114 of the Bankruptcy Code. The Debtors have appealed (the "Former Employee Appeal") the Bankruptcy Court decision to the United States District Court for the District of Delaware. As of the date hereof, briefing has completed and the parties await scheduling of oral argument before the appellate court. In connection with the Rejection Motion, the Former Employees filed a motion with the Bankruptcy Court to compel the Debtors to pay the benefits to such Former Employees pursuant to section 1114 of the Bankruptcy Code (the "Motion to Compel"). The Debtors objected to the Motion to Compel and, instead, offered to escrow all amounts alleged to be due to the Former Employees under section 1114 pending the outcome of the Former Employee Appeal. The Bankruptcy Court ordered the Debtors to pay all amounts properly due and owing to the Former Employees but ruled that if the Debtors are ultimately successful with respect to the Former Employee Appeal, then the Bankruptcy Court would retain exclusive jurisdiction for any action commenced by the Debtors to collect such amounts as improperly paid. If the Former Employee Appeal is ultimately decided in favor of the Former Employees, the Debtors estimate that their annual obligation to the Former Employees will be less than $75,000. 4. Mayan Claims Dispute In August 2001, Mayan Networks Corporation purchased certain assets of the business of the Debtors (the "Vital Sale Transaction") from the Debtors and the Lenders. Among the consideration given by Mayan (and Vital Acquisition Corporation ("VAC"), a subsidiary of Mayan to whom the assets were transferred) to the Company in connection with the Vital Sale Transaction was a $1,000,000 Purchase Money Note, dated August 31, 2001 (the "$1 Million Note"), which was due to be paid on or before December 31, 2001. The $1 Million Note was secured by a $1 million letter of credit issued by Silicon Valley Bank for Mayan and made payable to Foothill (the "LOC"). Mayan has refused to release the LOC proceeds to the Lenders based upon certain alleged claims of recoupment against the Debtors under the $1Million Note. On January 4, 2002, Mayan filed a proof of claim in the Chapter 11 Cases asserting a claim of recoupment against the $1Million Note and for damages arising out of alleged breaches by the Debtors in connection with the Vital Sales Transaction (the "Mayan POC"). On or about April 29, 2002, the Debtors filed a proof of claim in Mayan's bankruptcy proceeding in the amount of $1 Million, on account of the $1 Million Note (the "GDC POC"). Although the bar date for filing proofs of claim in Mayan's case was March 5, 2002, Mayan has agreed that the GDC POC will be treated as timely filed. The $1 Million Note provides that any claims by Mayan for recoupment against the $1 Million Note, if not agreed to by the parties, will be submitted to AAA Arbitration in New York 21 City, New York. On August 27, 2002, Mayan filed its objection to the GDC POC (the "Mayan Objection"). The Debtors also objected to the Mayan POC. Mayan agreed to withdraw the Mayan POC and the Debtors and Mayan agreed to have the dispute over the $1 Million Note resolved by JAMS Arbitration in California. The GDC POC has been stayed by agreement of the parties pending the outcome of the JAMS Arbitration in California, which was held on March 14, 2003. On June 3, 2003, the Arbitrator issued an award in favor of GDC and requiring payment of the $ 1 million Letter of Credit Proceeds. 5. General DataComm Industries, Inc. v. NewVenture Technologies Corp. Prior to the commencement of the Chapter 11 Cases, the Debtors and NewVenture had engaged in a business relationship, pursuant to which: (a) the Debtors purchased certain unassembled parts and materials; (b) the Debtors organized such parts and materials into "kits" and forwarded the same to NewVenture for assembly and testing; (c) the Debtors supplied NewVenture with certain test fixtures to be used by NewVenture to test the assembled product, printer circuit boards for compliance with the Debtors' customers' standards; (d) NewVenture assembled the kits, tested the finished product, and returned the finished product to the Debtors for shipment to its customers; and (e) upon such return, NewVenture issued an invoice for labor provided to assemble and test the returned product, payable on 30-day terms. Shortly after the Petition Date, NewVenture terminated performance of services to the Debtors and refused to return certain property of the Debtors' Chapter 11 estates. The Debtors filed an adversary proceeding in the Delaware Bankruptcy Court to compel NewVenture to return the subject equipment or complete its services to the Company under certain pending purchase orders. The Delaware Bankruptcy Court transferred the Debtors' action to the United States Bankruptcy Court for the District of Connecticut, where NewVenture had commenced its chapter 11 proceeding. The Debtors and NewVenture ultimately resolved the action in an agreement approved by the Bankruptcy Court, pursuant to which (a) NewVenture returned to the Debtors all of the Debtors' property in NewVenture's possession and (b) the Debtors agreed to pay NewVenture for all work actually performed on such property. G. Significant Events During These Chapter 11 Cases 1. The Debtors' "First Day" Pleadings On the Petition Date, the Debtors filed motions with the Bankruptcy Court seeking authorization to take a number of actions that would allow them to continue operations uninterrupted during the pendency of the Chapter 11 cases. By a series of orders entered by the Bankruptcy Court on or about November 6, 2000, the Debtors were given authority to, among other things: (i) maintain their existing business forms, bank accounts, investment guidelines and cash management system; (ii) use cash collateral on an interim basis; (iii) pay prepetition claims of shippers; (iv) pay prepetition wages and other prepetition benefits owed to their employees; and (v) maintain and continue customer programs. The Bankruptcy Court also entered an interim order dated October 24, 2000 that prohibited the Debtor's utilities from altering, refusing or discontinuing service on account of prepetition debts and established 22 procedures for adjudicating requests by such utilities for additional adequate assurance of future payment in consideration for providing continued service. 2. Continuation of Business After Filing The Company's management has continued to manage the operations and affairs of the Company as debtors in possession, subject to the oversight of the Committee and the Bankruptcy Court. Consequently, certain actions of the Debtors during the pendency of these Chapter 11 Cases, including, for example, transactions outside of the ordinary course of business, were taken only after first requesting and receiving authorization from the Bankruptcy Court. Upon the filing of the Petitions, the automatic stay provision of section 362 of the Bankruptcy Code stayed substantially all claims against the Debtors that existed prior to the Petition Date. 3. Retention of the Claims/Balloting Agent On November 13, 2001, the Bankruptcy Court entered an order authorizing the retention of Bankruptcy Services, LLC ("BSI") as the noticing, balloting, and claims agent in these Chapter 11 Cases. Pursuant to the retention order, BSI is authorized to, among other things, relieve the clerk of the Bankruptcy Court's office of all noticing and processing of claims in these Chapter 11 Cases. BSI is further authorized to maintain all proofs of claim, maintain an official claims register, record all transfer of claims pursuant to Bankruptcy Rule 3001(e), and engage in the organization, management, control, and reconciliation of all Claims against the Debtors. 4. Retention of Professionals by the Debtors (a) Legal Professionals On December 10, 2001, the Bankruptcy Court entered an order authorizing the Debtors' retention of Young Conaway Stargatt & Taylor, LLP ("Young Conaway") as bankruptcy counsel in connection with these Chapter 11 Cases. On February 7, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of Bingham McCutcheon, LLP (f/k/a Bingham Dana, LLP) as special counsel in connection with various adversary proceedings in Connecticut and California during these Chapter 11 Cases. On February 14, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of Weisman Celler Spett & Modlin, PC as special corporate counsel in connection with these Chapter 11 Cases. On March 20, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of Brown Rudnick Freed & Gesmer as special litigation counsel in connection with Connecticut state court proceedings involving the Debtors, Sahara Networks, Inc., Ascend Communication, Vital Network Services, LLC, and Data Connect Enterprises, Inc. 23 (b) Other Professionals On February 5, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of RAS Management Advisors, Inc. ("RAS") as the Debtors' workout and management consultants in connection with these Chapter 11 Cases. The retention of RAS was terminated by the Debtors upon Court approval of the retention of Chodan Advisors, Inc. On February 7, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of McGee & Associates, LLC as consultants in connection with the Debtors' marketing efforts for the potential sale of its VITAL operations in Mexico. On July 8, 2002 and September 12, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of M.F. DiScala & Company, Inc. as real estate brokers in connection with the Debtors' attempts to lease and/or sell space at its corporate headquarters located at 6 Rubber Avenue, Naugatuck, Connecticut (the "Naugatuck Property"). On September 9, 2002, the Bankruptcy Court entered an order authorizing the Debtors' retention of Chodan Advisors, Inc. as valuation expert and financial advisor to the Debtors. 5. The Committee and Its Professionals On November 20, 2001, the Office of the United States Trustee for the District of Delaware (the "United States Trustee") appointed the Committee, consisting of the following three (3) members: a) U.S. Assemblies Attn: Larry Davis b) MTI Electronics, Inc. Attn: Gregory S. Martinek c) Sanmina, Inc. Attn: Letty Richards On December 21, 2001, the Bankruptcy Court entered an order authorizing the retention of the Bayard Firm as bankruptcy counsel for the Committee in connection with these Chapter 11 Cases. On January 11, 2002, the Bankruptcy Court entered an order authorizing the retention of Deloitte & Touche, LLP as consultants and financial advisors to the Committee in connection with these Chapter 11 Cases. 6. Use of Cash Collateral Since the Petition Date, the Debtors have used the Lenders' cash collateral with the Lender's consent, which consent has been approved by orders of the Bankruptcy Court. As protection against and to secure the extent of any diminution in the value of the Lenders' collateral resulting from the Debtors' use of cash collateral, the Debtors provided the Lenders with, inter alia, replacement liens in the form of security interests in and liens upon all assets and property of the Debtors (excluding any causes of action arising under sections 544, 547, 548 and 550 of the Bankruptcy Code) subject to valid liens existing as of the Petition Date and periodic adequate protection payments during the pendency of these Chapter 11 cases. As of June 17, 2003, the aggregate adequate protection payments made to the Lenders since the Petition 24 Date, exceeds $7,400,000. In addition, since the Petition Date, the Lenders have been paid in excess of $7,100,000 from the disposition of, or collection on account of, certain non-core assets. 7. Rejection of Certain Leases and Executory Contracts Since the Petition Date, the Debtors have moved for the rejection of several leases of non-residential real property, equipment leases, employment agreements, sales representative agreements and various other executory contracts, all of which the Debtors determined had no value and were otherwise not necessary for the Debtors' current or going forward business. 8. Filing of Schedules On January 11, 2002, each of the Debtors filed their Summary of Schedules of Assets and Liabilities and Statement of Financial Affairs (collectively as amended from time to time, the "Schedules") with the Bankruptcy Court. Certain portions of the Schedules were subsequently amended. 9. Bar Date for Filing of Claims By order dated February 25, 2002, the Bankruptcy Court established May 1, 2002 at 4:00 p.m. (ET) (the "Bar Date") as the last date for filing prepetition claims against the Debtors by the claimants who wish to receive any distribution in the Debtors' Chapter 11 Cases. The Debtors gave notice of the Bar Date to all known actual or potential claimants and informed them of their need to file a proof of claim with the Bankruptcy Court. 10. Sales of Assets Since the Petition Date, the Debtors have effected numerous asset sales, including the following: (a) Sale of Certain Test Fixtures As of the Petition Date, the Debtors owned various fixtures that were of no value to their businesses. On January 8, 2002, the Bankruptcy Court entered an order (i) approving the sale of a certain test fixture to Ahead Communications Systems, Inc., free and clear of any and all liens on the fixtures and (ii) authorizing the Debtors to use the proceeds from the sale of the test fixture to satisfy the prepetition claim of the Commonwealth of Kentucky, Jefferson County School District. (b) Sale of Mexican Operations On March 28, 2002, the Bankruptcy Court entered an order approving the sale of seventy-five percent (75%) of the Debtors' equity interest in its VITAL operations in Mexico (the "Mexican Operations") free and clear of any and all liens, claims and encumbrances. In connection therewith, the Debtors transferred seventy-five percent (75%) of their stock interest in the Mexican Operations to DataComm Acquisition, S. A. de C. V. in exchange for $800,000 in cash, plus the assumption of outstanding liabilities of the Mexican Operations by the purchaser. In addition, the Debtors retained a twenty-five percent (25%) stock interest in the Mexican Operations. Sixty-six percent (66%) of the cash proceeds of the sale were paid to the Lenders in reduction of the Lenders' Class 2 Claim. 25 (c) Sale of Middlebury Property On July 11, 2002, the Bankruptcy Court entered an order approving the sale (the "Middlebury Sale") of the Debtors' real property located at 1579 Straits Turnpike, Middlebury, Connecticut (the "Middlebury Property") to JSD Partners free and clear of any and all liens, claims, encumbrances and interests. The net proceeds from the sale of the Middlebury Property were paid to J.P. Morgan Chase Bank to satisfy its lien on the Middlebury Property, reduce its claim, and reduce its lien on the Debtors' real property located in Naugatuck, Connecticut (the "Naugatuck Property"). (d) De Minimis Assets Sales In addition to the sales referenced above, the Debtors consummated sales of various office equipment and other de minimis assets, pursuant to a Bankruptcy Court Order dated January 10, 2002 authorizing the Debtors to sell miscellaneous assets valued at less than $50,000. (e) Consignment of Spare Parts Inventory with SMT Corporation Pursuant to an order of the Bankruptcy Court dated December 12, 2002, the Debtors were authorized to enter into a consignment agreement with SMT Corporation, pursuant to which SMT Corporation would hold and sell certain spare parts inventory of the Debtors that was not being utilized in connection with the Debtors ongoing operations. 11. Satisfaction of Mortgage with J.P. Morgan Chase Bank In conjunction with the Middlebury Sale, the Debtors entered into an agreement with J.P. Morgan Chase Bank and its participant banks (collectively, "Chase") for the satisfaction of all mortgages, claims and interests held by Chase (the "Chase Claims") against the Debtors and their real property (the "Buyout Agreement"). Pursuant to the Buyout Agreement, the Debtors were provided the option to satisfy the entirety of the Chase Claims for payments in cash equal to $7.45 million (including the Middlebury sale proceeds) by October 1, 2002 (the "Chase Payoff"). On October 1, 2002, the Debtors completed the Chase Payoff and Chase's first lien on the Naugatuck Property was satisfied and released, together with all claims held by Chase against the Debtors. As a result, the Lenders second mortgage on the Naugatuck Property was elevated to a first mortgage. 12. Termination Agreements (a) Cignal Agreement The Debtors and Cignal Global Communications Carrier Services, Inc. ("Cignal") were parties to a certain Master Rental Agreement, Security Agreement, Promissory Note whereby the Debtors sold certain telecommunications equipment to Cignal on an installment sale basis (the "Cignal Lease"). Due to unforeseen economic changes, Cignal requested that the Debtors terminate the Cignal Lease in exchange for a one-time cash payment of $900,000 by Cignal, return of the equipment by Cignal, and a general release of claims by both parties (the "Cignal Agreement"). On July 11, 2002, the Bankruptcy Court entered an order approving the Cignal Agreement. 26 (b) Ionosphere Agreement The Debtors and Ionosphere, Inc. ("Ionosphere") were parties to a certain Master Rental Agreement whereby the Debtors leased certain telecommunications equipment to Ionosphere (the "Ionosphere Lease"). Ionosphere requested that the Debtors agree to terminate the lease in exchange for cash payments totaling approximately $86,000, forfeiture of a $31,250 security deposit held by the Debtors, turnover of the leased equipment by Ionosphere, and a general release of claims by both parties (the "Ionosphere Agreement"). On October 18, 2002, the Bankruptcy Court entered an order approving the Ionosphere Agreement (the "Ionosphere Order"). Pursuant to the Ionosphere Order, fifty percent (50%) of the cash payments paid by Ionosphere under the Ionosphere Agreement were to be forwarded to Foothill, as agent for Abelco to reduce certain Prepetition Obligations (as defined in the Sixth Stipulation and Consent Order Authorizing Debtors in Possession to use Cash Collateral and Granting Adequate Protection filed on September 20, 2002 [Docket No. 651] (the "Sixth Cash Collateral Stipulation"). In addition, all leased equipment returned by Ionosphere was subject to the lenders' Replacement Liens (as such term was defined in the Sixth Cash Collateral Stipulation), to the extent permitted by the Sixth Cash Collateral Stipulation, and to the Lender's pre-petition liens, to the extent that the Lenders possessed a lien on such leased equipment as of the Petition Date. 13. Lucent/Sahara Settlement As set forth more fully above, in April, 1997, the Debtors filed the Sahara Action against Sahara and certain individual defendants. After diligent negotiations with Lucent, the primary defendant in the Sahara Action as successor in interest to the named defendants, the Debtors have settled the Sahara Action in exchange for, among other things, a payment of $2.5 million to the Debtors and a waiver of Lucent's claims in these Chapter 11 Cases. ARTICLE III THE PLAN OF REORGANIZATION THE FOLLOWING IS A SUMMARY OF THE PROVISIONS OF THE PLAN AND, ACCORDINGLY, IS NOT AS COMPLETE AS THE FULL TEXT OF THE PLAN THAT ACCOMPANIES THIS DISCLOSURE STATEMENT. THE PLAN ITSELF, ATTACHED HERETO AS EXHIBIT A, SHOULD BE READ IN ITS ENTIRETY. A. Summary of Payment Provisions of the Plan 1. Impairment of Claims and Interests Under the Bankruptcy Code, a class of claims or interests is deemed "impaired" under a plan of reorganization unless, in general, the rights of the holders of the claims or interests of such class are not altered or, with respect to interests, the holders receive cash equal to the greater of (i) any liquidation preference or (ii) the redemption price, if either is applicable. Any class that is deemed impaired must accept the plan by the requisite majority before the plan can be confirmed, unless the Bankruptcy Court finds, pursuant to section 1129(b) of the Bankruptcy Code, that the plan is fair and equitable and 27 does not discriminate unfairly with respect to each class that is impaired and has not accepted the plan. 2. Treatment of Claims and Equity Interests The treatment of and consideration to be received by holders of Allowed Claims and Equity Interests pursuant to the Plan will be in full settlement, release and discharge of their respective Allowed Claims or Equity Interests relating to the Debtors and other Persons, as applicable, as specified in the Plan. B. Classified Claims and Interests The Plan divides the Claims against, and Equity Interests in, the Debtors into various Classes and designations. Below is a description of the general Classes and designations of Claims against, and Equity Interests in, the Debtors and the corresponding treatment under the Plan. Allowed Administrative Claims and Allowed Priority Tax Claims are not designated as classes of Claims for purposes of the Plan and sections 1123, 1124, 1126 and 1129 of the Bankruptcy Code. Reference is made to "SUMMARY OF THE CLASSIFICATION AND TREATMENT OF ALLOWED CLAIMS AND EQUITY INTERESTS AND RECOVERIES THAT MIGHT BE AVAILABLE TO CERTAIN CREDITORS" above. 1. Allowed Administrative Claims Each holder of an Allowed Administrative Claim shall be paid in respect of such Allowed Claim the full amount thereof, in Cash, as soon as practicable after the later of (i) the Effective Date and (ii) the date on which such Claim becomes an Allowed Claim, except that Allowed Administrative Claims arising in the ordinary course of business shall, if due at a later date pursuant to their terms, be paid when otherwise due. The Debtors expect to have sufficient funds to pay all Allowed Administrative Claims in full. On the Effective Date, the Reorganized Debtors shall establish a reserve, in an amount to be agreed to by the Committee and Debtors prior to the Confirmation Hearing or in the absence of such an agreement, in an amount to be established by the Court at the Confirmation Hearing, to be used to pay all or a portion of the accrued and unpaid fees and expenses of the Committee's professionals existing as of the Effective Date. Administrative Claims consist of the costs and expenses of the administration of the Chapter 11 Cases, including professional fees. The Allowed Administrative Claims are granted priority in payment pursuant to section 507(a) of the Bankruptcy Code. The Debtors have kept substantially current in payment of their obligations incurred during the course of the Chapter 11 Cases, inclusive of fees payable to the United States Trustee pursuant to 28 U.S.C. ss. 1930. The Debtors believe that the amount of unpaid postpetition liabilities other than for professional fees, on the Effective Date, will be minimal, consisting primarily of ordinary course business expenses for payroll, rent, utilities and the like. The Debtors estimate that unpaid professional fees for services rendered by counsel, accountants and professionals appointed by the Bankruptcy Court on an anticipated Effective Date of August 15, 2003 will aggregate less than $750,000. Since, under the terms of the Plan, there will be services required after Confirmation, and since the actual fees paid for professional services are determined by the Bankruptcy Court, the amounts estimated for 28 Allowed Administrative Claims are based on the information currently available to the Debtors and are subject to change. Allowed Administrative Claims are not classified. Solicitation of acceptances from holders of Allowed Administrative Claims is not required and is not being undertaken. 2. Allowed Priority Tax Claims Except to the extent that a holder of an Allowed Priority Tax Claim has been paid by the Debtors prior to the Effective Date or agrees to a different treatment, each holder of an Allowed Priority Tax Claim shall receive, at the sole option of the Reorganized Debtors, (a) Cash in an amount equal to such Allowed Priority Tax Claim on the later of the Effective Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (b) equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to 4.25%, over a period through the sixth anniversary of the date of assessment of such Allowed Priority Tax Claim, or upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim. While approximately $7 million of priority tax claims have been filed, the Debtors estimate that after completion of the claim objection process, Allowed Priority Tax Claims in the aggregate will be less than $2 million. Allowed Priority Tax Claims are not classified. Solicitation of acceptances from holders of Allowed Priority Tax Claims is not required and is not being undertaken. 3. Class 1 (Allowed Other Priority Claims) Class 1 will consist of all Claims to the extent Allowed and entitled to priority in payment under sections 507(a)(2) through 507(a)(7) of the Bankruptcy Code. All Allowed Other Priority Claims shall be paid in full in Cash on or as soon as practicable after the Effective Date or the date such a Claim becomes an Allowed Claim unless such Allowed Claim holder and the Debtors agree upon other terms for the treatment of such Claim, which payment shall be in full compliance with the legal, equitable and contractual rights to which the holder of such Claim is entitled. Such claims are anticipated to be less than $50,000. Class 1 is not impaired and is deemed to have accepted the Plan. Solicitation of acceptances from Class 1 is not required and is not being undertaken. 4. Class 2 (Allowed Lender Secured Claim) Class 2 under the Plan consists of all Claims of the Lender, which are secured by a lien on substantially all of the Debtors' assets. In full and complete satisfaction of the Allowed Lender Secured Claim, the holder thereof shall receive the New Lender Loan and Security Agreement, the Lender Warrants, the Lender Release and the Lender Director Selection Right. The holders of the Claim in this Class are entitled to vote. The agreement with the Lenders provides that until they are paid in full, the proceeds from the disposition or recovery on account of certain assets will be paid to the Lenders to reduce the amount of their claim. These assets are set forth on Exhibit 1.46.1 to the Plan. 29 Class 2 is impaired and entitled to vote on the Plan. 5. Class 3 (Other Secured Claims) Class 3 under the Plan consists of all Allowed Claims to the extent of value, as determined pursuant to section 506(a) or 1111(b) of the Bankruptcy Code, of any interest in property of the Debtors' estates securing such Claims, other than the Lender Secured Claim. Each holder of an Allowed Other Secured Claim, if any, shall be deemed to be a separate subclass and, at the option of the Debtors, receive either (i) Cash in the full amount of such Claim, (ii) the collateral securing such Claim, or (iii) such other treatment as may be agreed to by Reorganized Debtors and the holder of such Claim. The Debtors believe that if there are any Allowed Class 3 Claims, the total amount will be less than $50,000. Class 3 may be impaired under the Plan. Accordingly, solicitation of acceptances from Class 3 will be undertaken if any Allowed Class 3 Claims exist. 6. Class 4 (Allowed General Unsecured Claims) Class 4 under the Plan consists of prepetition general unsecured claims not included in any other Class, including, without limitation, (i) Claims for goods and services delivered prior to the Petition Date, (ii) any Unsecured Deficiency Claim, (iii) any Claim arising from a judgment against a Person in any Avoidance Action, (iv) Claims arising out of the rejection of any Executory Contract, and (v) all Allowed Claims not included in any other class and not secured by a charge against or interest in property in which the Debtors' estate has an interest. Based upon the Debtors' review of the proofs of claim filed with the Bankruptcy Court on or before the May 1, 2002 Bar Date for filing proofs of Claim, and upon the books and records of the Debtors, the Debtors estimate that upon completion of the claims objection process, the total of all Allowed Class 4 Claims will be less than $25 million. However, until the claims objection process and the prosecution of all Avoidance Actions (if any) are completed, no assurance can be provided as to the ultimate amount of the total Allowed Class 4 General Unsecured Claims. In full and complete satisfaction of their Allowed Claims, each holder of a Class 4 Claim shall receive a New Debenture in the full amount of such Allowed General Unsecured Claim, which shall be subject to the terms of the New Indenture. Class 4 is impaired and is entitled to vote on the Plan. 7. Class 5 (Allowed Convenience Class Claims) Class 5 under the Plan consists of all Allowed General Unsecured Claims of $1,000 or less or that are voluntarily reduced to $1,000 by the holders thereof. Each holder of an Allowed Convenience Class Claim will receive a payment in full in cash within 60 days after the later of the (i) Effective Date of the Plan and (ii) the date such Claim becomes an Allowed Claim. Class 5 is impaired and entitled to vote on the Plan. 30 8. Class 6 (Preferred Interests in GDC) Class 6 shall consists of all holders of 9% Preferred Stock of General DataComm Industries, Inc. The legal, equitable and contractual rights of the holders of Allowed Preferred Interests in GDC, including rights to unpaid dividends and current rights to select 2 directors by reason thereof, shall remain unaltered by the Plan. Class 6 is unimpaired and is not entitled to vote. 9. Class 7 (Equity Interests in Subsidiary Debtors) Class 7 shall consist of all common stock interests in the Debtors other than GDC, and all warrant rights and options with respect thereto. All shares of common stock of the Debtors other than GDC and the warrant rights and options with respect thereto shall be retained by the holders thereof without alteration. Class 7 is unimpaired and is not entitled to vote on the Plan. 10. Class 8 (GDC Common Stock Interests) Class 8 shall consist of all Common Stock of GDC and all warrant rights and options with respect thereto. All shares of Common Stock of GDC and the warrant rights and options with respect thereto shall be retained by the holders thereof without alteration, except that (a) they shall be subject to dilution as the result of the Employee Stock Bonus Plan, (b) they shall be subject to dilution upon the exercise of the Lender Warrants, (c) they shall be subject to the Lender Director Selection Right and the Unsecured Creditors Director Selection Right, (d)they shall be subject to a 10/1 reverse stock split effective as of the Effective Date and (e) they shall be subject to any modifications made to Reorganized GDC's articles of incorporation and bylaws. Class 8 is impaired and is entitled to vote on the Plan. C. Other Provisions of the Plan 1. Executory Contracts (a) Assumed Agreements As of the Effective Date, all executory contracts and unexpired leases of the Debtors which have not previously been assumed or rejected or are not the subject of a motion to reject pending on the Confirmation Date, shall be assumed by the Debtors, including without limitation, the presently identified agreements listed on Schedule 1.4 to the Plan. The amount of any cure payment which the Debtor believes is required to be paid on account of the Assumed Agreements is listed on Schedule 1.4 to the Plan. The listed amount will be binding on the counterpart to such Assumed Agreement unless objected to by July 28, 2003 at 4:00 p.m. If not otherwise resolved by the parties, the Bankruptcy Court shall determine any dispute pertaining to the assumption and assignment of any Assumed Agreement, and any required disputed cure payment shall be paid promptly following the entry of a Final Order resolving such dispute. 31 (b) Rejected Agreements Except to the extent a prior order of the Bankruptcy Court provided for an earlier date, in which case such earlier date shall control, all proofs of claim with respect to Claims arising from the rejection of executory contracts or unexpired leases shall be filed with the Bankruptcy Court within thirty (30) days after the earlier of (i) the date of service of notice of entry of an order of the Bankruptcy Court approving such rejection, or (ii) the date of service of notice of the Confirmation Date, if such executory contract or unexpired lease has been rejected under the Plan. Any Claims not filed within such time shall be released and discharged and forever barred from assertion against the Debtors, their estates and property, or the Reorganized Debtors. 2. Rejection and Cancellation of 7 3/4% Indenture On the Effective Date, the 7 3/4 % Indenture, to the extent it is an executory contract within the meaning of section 365 of the Bankruptcy Code, shall be deemed rejected in accordance with the provisions of sections 365 and 1123 of the Bankruptcy Code and, to the extent it is not an executory contract subject to rejection under section 365 of the Bankruptcy Code, the 7 3/4 % Indenture shall be cancelled and deemed terminated pursuant to section 1123(a)(5)(F) of the Bankruptcy Code. Any and all obligations of the Debtors under the 7 3/4 % Indenture, including without limitation any obligations which the 7 3/4 % Indenture provides will continue and survive the satisfaction and discharge thereunder, are and shall be extinguished. Entry of the Confirmation Order by the Bankruptcy Court shall constitute approval of such deemed rejection and/or cancellation pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Notwithstanding the rejection and/or cancellation of the 7 3/4 % Indenture, the rights of holders of the 7 3/4 % Debentures to receive distributions on account of their Claims under the Plan shall not be affected thereby. Notwithstanding the rejection and/or cancellation of the 7 3/4 % Indenture, the 7 3/4 % Indenture shall remain in effect as to the 7 3/4 % Indenture Trustee to the extent necessary to allow the 7 3/4 % Indenture Trustee to make the distributions to holders of the 7 3/4 % Debentures under the Plan and the Confirmation Order. Any actions taken by the 7 3/4 % Indenture Trustee other than as provided for in the Plan in respect of distributions, including without limitation any actions to enforce any lien provided to the 7 3/4 % Indenture Trustee under the 7 3/4 % Indenture shall be null and void as to the Debtors and the Reorganized Debtors, none of which shall be liable for any fees, costs or charges associated with unauthorized actions by the 7 3/4 % Indenture Trustee. The 7 3/4 % Indenture Trustee shall be relieved of all obligations under the 7 3/4 % Indenture after its performance of its obligations to make the distributions to holders of Allowed General Unsecured Claims with respect to the 7 3/4 % Debentures, as provided by the Plan and Confirmation Order. 3. Indemnification Obligations Assumed For purposes of the Plan, the obligations of the Debtors to indemnify their respective present directors, officers, employees and agents, in such capacity or as plan administrators or trustees to any employee benefit plan, or any person serving at the request of any of the Debtors as a director, officer of any other entity pursuant to the Debtors' certificates of incorporation or by-laws or pursuant to and consistent with applicable state law or specific agreement, or any combination of the foregoing, shall be deemed to be executory contracts, shall be assumed by the Reorganized Debtors, effective as of the Effective Date, in accordance with the provisions of sections 365 and 32 1123 of the Bankruptcy Code and shall survive confirmation of the Plan, remain unaffected thereby, shall not be discharged, and shall pass unaltered to the Reorganized Debtors irrespective of whether such indemnification is owed in connection with an event occurring before, on or after the Petition Date. The Debtors are not aware of any claims being asserted against their officers and directors or of any facts or circumstances that would give rise to a claim being asserted against their officers and directors that would result in an indemnification claim being asserted against the Debtors by their officers and directors. 4. Distributions The Reorganized Debtors shall make the payments and distributions expressly required to be made in respect of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, Allowed Lenders Secured Claim, Allowed Other Secured Claims, Allowed General Unsecured Claims, and Allowed Convenience Class Claims at such time or times as are provided herein and in the Plan. On the Effective Date, the Reorganized Debtors shall distribute the New Lender Loan and Security Agreement and the Lender Warrants to Ableco and the Debtors, Ableco and Foothill shall execute the Lender Release. On the Effective Date, the Reorganized Debtors shall deliver to the New Indenture Trustee, New Debentures in the amount of the Allowed General Unsecured Claims as of that date, for distribution to the holders of such Allowed Claims. Thereafter, on a quarterly basis, the Reorganized Debtors shall deliver additional New Debentures to the New Indenture Trustee in an amount equal to the General Unsecured Claims that have become Allowed Claims since the last distribution, for distribution to the holders of such Allowed Claims. If at the time the Reorganized Debtors' initial payment obligation on account of the New Debentures becomes due, there are unresolved Disputed Claims, the Reorganized Debtors shall issue New Debentures on account of the undisputed portion, if any, of such unresolved Disputed Claims, with the balance of such Claim to remain a Disputed Claim until settled or a Final Order is entered with respect to such Claim. If there are Disputed Claims (or portions thereof) outstanding at such time as the Reorganized Debtors make any payments on the New Debentures, the Reorganized Debtors shall reserve on account of such Disputed Claims either (a) an amount equal to the payment that would have been made on account of such Disputed Claim if it were Allowed in the amount asserted or (b) an amount determined by the Bankruptcy Court upon estimation of such Claim for purposes of establishing the reserve amount. If New Debentures are issued on account of Disputed Claims after the initial payment is made on account of the New Debentures, at the time such New Debentures are issued to the holders of such previously Disputed Claims, the Reorganized Debtors shall also pay over to the New Indenture Trustee from such reserve account, for payment to such Claim holder, an amount equal to the principal and interest payments that would have been made on account of such New Debenture if it had been issued prior to the time the initial payment was made on account of the New Debentures. Any amounts reserved by the Reorganized Debtors in excess of their actual payment obligations on account of such Disputed Claims at the time the Claim is resolved and the New Debentures are issued, shall be returned to the Reorganized Debtors' general operating account. 33 5. Causes of Action After the Effective Date, the Reorganized Debtors shall have the sole right, in the name of the Debtors, to commence, continue or settle any Causes of Action, including any Causes of Action brought by the Debtors prior to the Effective Date. All proposed settlements of Causes of Action, where the settlement amount of the claim in such Causes of Action exceeds $125,000 shall be subject to the approval of the Bankruptcy Court after notice and opportunity for a hearing (as that term is used in section 101(1) of the Bankruptcy Code). All proposed settlements of Causes of Action, where the settlement amount of the claim in such Causes s of Action is $125,000 or less, may be entered into by the Reorganized Debtors without further notice, hearing or order of the Court. At the present time, the Debtors have not identified any potential causes of action, in addition to those outlined above with respect to pending litigation matters, other than certain accounts receivable collection matters that may be pursued in the ordinary course of business and potential preference actions. A preference analysis was prepared by the Committee's financial advisors which identified a number of potential preference actions. The Debtors and Committee have differing views on the merits and collectability of such potential actions(3) and as to the general merits of pursuing such potential actions in the context of this case. While there may exist potential preference actions that could be pursued, the Plan provides for the payment of Allowed General Unsecured Claims in full with post-Effective Date interest. As a result, any preferential payments that would be recovered from pursuing such actions, would then become Allowed General Unsecured Claims to be repaid in full under the Plan with post-Effective Date interest. The Committee has advised the Debtors that because repayment of the New Debentures is expected to occur over several years and because there are risks associated with repayment of the New Debentures that, if they occur, are not likely to occur until after the statute of limitations for pursuing preference actions has expired, that some preference actions should be pursued by the Debtors, even though the creditor defending against such actions ultimately may have to be repaid in full with interest under the Plan. The Debtors, on the other had, while not waiving such potential claims, do not presently see the merit in filing and prosecuting preference actions, when any amount recovered would have to be repaid in full with interest under the Plan, especially when you factor in the legal fees that would be associated with pursuing such actions. PARTIES IN INTEREST, INCLUDING CREDITORS, MAY NOT RELY UPON THE ABSENCE OF A REFERENCE IN THE DISCLOSURE STATEMENT OR PLAN AS AN INDICATION THAT THE REORGANIZED DEBTORS WILL NOT PURSUE ANY AND ALL AVAILABLE CAUSES OF ACTION AGAINST THEM. THE DEBTORS, ON BEHALF OF THEIR ESTATES, EXPRESSLY RESERVE THE RIGHT TO PROSECUTE ANY AND ALL CAUSES OF ACTION AGAINST THIRD PARTIES (WHETHER OR NOT REFERENCED IN THE DISCLOSURE STATEMENT OR PLAN), INCLUDING, WITHOUT LIMITATION, AVOIDANCE AND SUBORDINATION ACTIONS AGAINST ANY CREDITOR. - --------------- 3 The Committee believes the likely recovery range to be $750,000 - $1,000,000. The Debtors believe that at least some of the potential preference actions identified by the Committee are either not valid preference claims or are not collectible and that the likely recovery from the pursuit of such potential preference actions would be less than $500,000. 34 6. Administrative Bar Date In accordance with Section 3.4 of the Plan, and except as otherwise ordered by the Bankruptcy Court (including any order providing for an earlier date), requests for payment of Administrative Claims, including all applications for final allowance of compensation and reimbursement of expenses of Professionals, must be filed and served on the Debtors, no later than forty-five (45) days after the Effective Date. Any Person required to file and serve a request for payment of an Administrative Claim and who fails to timely file and serve such request, shall be forever barred, estopped and enjoined from asserting such Claim against Reorganized Debtors or participating in distributions under the Plan on account thereof. 7. Objections to Claims Objections to Claims shall be filed with the Bankruptcy Court and served upon Creditors no later than 120 days after the Effective Date, provided however, that this deadline may be extended by the Bankruptcy Court upon a motion of the Reorganized Debtors, without notice or a hearing. Notwithstanding the foregoing, unless an order of the Bankruptcy Court specifically provides for a later date, any proof of claim filed after the Confirmation Date shall be automatically disallowed as a late filed claim, without any action by the Reorganized Debtors, unless and until the party filing such Claim obtains the written consent of the Reorganized Debtors to file such Claim late or obtains an order of the Bankruptcy Court upon notice to the Reorganized Debtors that permits the late filing of the Claim, in which event, the Reorganized Debtors shall have 120 days from the date of such written consent or order to object to such Claim, which deadline may be extended by the Bankruptcy Court upon motion of the Reorganized Debtors, without notice or a hearing. Prior to the Effective Date the Debtor shall litigate to judgment, propose settlements of or withdraw objections to such Disputed Claims asserted against it as the Debtor may choose. From and after the Effective Date, the Reorganized Debtors shall litigate to judgment, propose settlements of or withdraw objections to all Disputed Claims. The Reorganized Debtors will act in accordance with their fiduciary duties as reorganized debtors in the claims resolution process. All proposed settlements of Disputed Claims where the settlement amount exceeds $125,000, shall be subject to the approval of the Bankruptcy Court after notice and opportunity for a hearing (as that term is used in section 102(1) of the Bankruptcy Code). After the Effective Date, the Reorganized Debtors may settle any Disputed Claim where the settlement amount is $125,000 or less without providing any notice or obtaining an order from the Court. 8. Discharge The consideration distributed under the Plan shall be in exchange for and in complete satisfaction, discharge, release, and termination of, all Claims of any nature whatsoever against the Debtors or any of their assets or properties and all Equity Interests in the Debtors; and except as otherwise provided in the Plan, upon the Effective Date the Debtors shall be deemed discharged and released pursuant to section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims, including but not limited to demands and liabilities that arose before the Confirmation Date, all Stockholder Actions (as defined in the Plan) as they relate to the Debtors, and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (a) a proof of claim based upon such debt has been filed or is deemed filed under 35 section 501 of the Bankruptcy Code; (b) a Claim based upon such debt is allowed under section 502 of the Bankruptcy Code; or (c) the holder of a Claim based upon such debt has accepted the Plan. Except as otherwise specifically provided in the Plan, the Confirmation Order shall be a judicial determination of discharge and termination of all liabilities of and all Claims against, and all Equity Interests in, the Debtor. On the Confirmation Date, as to every discharged Claim and Equity Interest, the Creditor or Equity Interest holder that held such Claim or Equity Interest shall be permanently enjoined and precluded from asserting against the Reorganized Debtors, or against their assets or properties or any transferee thereof, any other or further Claim or Equity Interest of any kind or nature that occurred prior to the Confirmation Date, except as expressly set forth in the Plan. In the event that, after the Confirmation Date, any Person asserts, against the Reorganized Debtors or any of their subsidiaries or affiliates, any right to payment or equitable remedy for breach of performance which gives rise to a right of payment, which right was not asserted prior to the Confirmation Date but is based on any act, fact, event, occurrence, or omission, by or relating to the Debtors, as the Debtors existed before the Confirmation Date, and in the further event that such right is determined by a court of competent jurisdiction not to have been discharged pursuant to the provisions of Bankruptcy Code section 1141 and the Plan, and that such right may be asserted against the Reorganized Debtors then, in such circumstances the holder of such right shall be entitled to receive from the Reorganized Debtors value equivalent to the value such holder would have received if such right had been asserted against such Debtors before the Confirmation Date and only to the extent such right would have been allowed or allowable as a Claim. Nothing in the Plan shall have the effect of excepting from discharge any Claim which is or would be discharged pursuant to Bankruptcy Code section 1141 or the Plan. 9. Employee and Management Stock Bonus Plan The Reorganized Debtors will implement a new management and employee stock bonus plan that will provide for the issuance of stock to officers, directors and employees totaling up to 20% of the then outstanding Common Stock of General DataComm Industries, Inc. (but subject to dilution in the event the Lender Warrant is executed). The purpose of the Stock Bonus Plan is to secure for the Reorganized Debtors and their creditors and stockholders, the benefits of the incentive inherent in the ownership of common stock by the Reorganized Debtors' employees and directors. The Stock Bonus Plan will include shares of GDC Common Stock and shares of GDC Class B Stock (representing 20% of the total shares of Common Stock of the Company on a fully diluted basis after giving effect to the 10/1 reverse stock split, but subject to dilution in the event that the Lender Warrants are exercised). The Stock Bonus Plan will be administered by a special committee of Reorganized GDC's board of directors. A copy of the Stock Bonus Plan will be filed with the Court as a Plan Supplement at least 10 days prior to the Voting Deadline. 36 10. Miscellaneous (a) Consummation -- Retention of Jurisdiction Consummation of the Plan consists of commencement of distributions by the Reorganized Debtors of the consideration required to be paid by the Reorganized Debtors pursuant to the terms and conditions of the Plan. Pursuant to Article 12 of the Plan, the Bankruptcy Court will continue to retain jurisdiction after Confirmation to resolve all outstanding matters in the Chapter 11 Case and with respect to the fulfillment of the obligations of the Debtor and Reorganized Debtors under the Plan. (b) Release of Certain Claims and Actions As of and on the Effective Date, the Debtors, their Estates, Ableco, Foothill, the Committee and the individual members thereof (solely in their role as committee members) and any of their successors, assigns or representatives shall be deemed to have waived, released and discharged all rights or claims, including, without limitation direct claims or any claims, litigations or actions brought or that could have been brought derivatively arising out of or with respect to any event or omission occurring before the Effective Date, whether based upon tort, contract or otherwise, which they possessed or may possess prior to the Effective Date against the Debtors, the Committee and the individual members thereof (solely in their role as committee members), Ableco, Foothill, their present and former directors, officers, employees, agents, representatives and attorneys and any of their successors or assigns except as otherwise provided for in the Plan (including the documents filed as Exhibits or Schedules to the Plan or as part of the Plan Supplement) or the Confirmation Order, provided, however, that the foregoing release shall not apply to performance or nonperformance under the Plan or related instruments, securities, agreements or documents, or to any action or omission that constitutes gross negligence or willful misconduct, and provided, further, that nothing in this Plan shall be deemed to waive, release or relinquish any rights the Debtors or the Reorganized Debtors may have to assert any claim under any insurance policy indemnifying present or former officers or directors of the Debtors or any of the Debtors' professional advisors. The Confirmation Order shall contain a permanent injunction to effectuate the releases granted in Section 9.4. of the Plan. (c) Exculpation To the fullest extent permitted by Section 1125(e) of the Bankruptcy Code, the Debtors, the Reorganized Debtors, the Committee and its members, Ableco, Foothill and their respective members, officers, directors, employees, representatives, professionals or agents shall be deemed released by each of them against the other and by the holders of Claims or Allowed Interests of and from any and all claims, obligations, rights, causes of action and liabilities for any act or omission in connection with, or arising out of, the Debtors' Chapter 11 Cases, including without limiting the generality of the foregoing, the Disclosure Statement and the Plan, the pursuit and approval of the Disclosure Statement, 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 willful misconduct or gross negligence, and all such persons, in all respects, shall be entitled to rely upon the advice 37 of counsel with respect to their duties and responsibilities under the Plan and under the Bankruptcy Code. (d) Conditions Precedent to Effectiveness of the Plan Each of the following conditions must occur and be satisfied on or before the Effective Date for the Plan to be confirmed and effective: i. The Confirmation Order shall have been entered, shall not have been modified or altered in any way, and no stay of the Confirmation Order shall be in effect. ii. The New Lender Loan and Security Agreement, the Lender Warrant and the Lender Release shall have been executed and delivered. iii. The New Indenture shall have been executed and the initial distribution of New Debentures shall have been delivered by the Debtors to the New Indenture Trustee. (e) Revesting of Assets of the Debtors The Plan provides that the assets of the Debtors and all property of the Debtors' estates (including, without limitation, all rights of the Debtors to recover property under sections 542, 543, 550 and 553 of the Bankruptcy Code, all avoiding powers under sections 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of the Bankruptcy Code, all proceeds thereof, and all claims and causes of action, cross-claims and counterclaims of any kind or nature whatsoever against third parties arising before the Confirmation Date that have not been disposed of prior to the Confirmation Date), shall be preserved and revest in the Reorganized Debtors in each case free and clear of all Claims and Equity Interests, but subject to the obligations of the Reorganized Debtors, as specifically set forth in the Plan. (f) Rounding Whenever any payment of a fraction of a cent would otherwise be called for, the actual payment shall reflect a rounding of such fraction to the nearest whole cent, with one-half cent being rounded up to the nearest whole cent. To the extent Cash remains undistributed as a result of the rounding of such fraction to the nearest whole cent, such Cash shall be treated as unclaimed property under the Plan. Wherever any distribution of a fraction of a share of Reorganized Debtor Common Stock would otherwise be called for, the actual distribution shall reflect a rounding of such fraction down to the nearest whole number of shares. (g) Plan Related Transaction Documents There are a number of important plan related transaction documents that underlie the transactions and treatment of Claims and Equity Interests provided for under the Plan, including without limitation, the New Indenture and related security agreement, the New Lender Loan and Security Agreement, the Lender Warrant agreement, the Lender Release, and amended and restated certificate of incorporation and bylaws. The terms of these plan related documents set forth important details regarding unsecured creditors' rights and remedies with respect to the New Debentures and exercising rights related to corporate governance. Under the Plan, copies of these documents are 38 to be filed as a Plan Supplement at least ten days prior to the Voting Deadline. On April 29, 2003, the Debtors filed a Plan Supplement that contains substantially final drafts of a number of these documents. The Debtors, Committee and Ableco continue to engage in discussions regarding certain of the plan related transaction documents. The Committee has advised the Debtors that its goal in working with the Debtors and Ableco to finalize all of these documents, including any amendments made to the documents filed on April 29, 2003, is to ensure that unsecured creditors receive appropriate protections in enforcing their rights and remedies with respect to the New Debentures and exercising rights of corporate governance. The Committee has further advised the Debtors that it will continue to work with the Debtors in selecting an indenture trustee for the New Debentures prior to the Confirmation Hearing and in negotiating the terms of such trustee's engagement, including compensation and funding. At least ten days prior to the Voting Deadline, the Debtors will file copies of the plan related documents, including any amendments made to the documents included in the Plan Supplement filed on April 29, 2003. ARTICLE IV CONFIRMATION OF THE PLAN A. Feasibility Section 1129(a) of the Bankruptcy Code requires a judicial determination that Confirmation of the Plan will not likely be followed by liquidation or the need for further financial reorganization of the Debtors or any successor to the Debtors under the plan, unless liquidation is contemplated under the plan. In this case, the Plan contemplates that there will be sufficient funds available for the payment of Claims as specified in the Plan. In addition, the Debtors are confident that there will be sufficient funds on hand to satisfy the minimum distributions required under section 1129(a)(9) of the Bankruptcy Code and the obligations of the Reorganized Debtors under the Plan. The Debtors presently project that they will have approximately $1.5 million to $2.0 million of cash on hand on the Effective Date, which is more than enough to satisfy their payment obligations under the Plan on the Effective Date and provide sufficient funds to carry on their business. Creditors are advised to consult Exhibit C to this Disclosure Statement, which contains the unaudited, projected and pro forma financial statements prepared by the Debtors. The projected financial statements included in Exhibit C reflect the ability of the Reorganized Debtors to satisfy their payment obligations under the Plan, including, without limitation, payment in full of the New Debentures, with interest, within five years of the Effective Date. Creditors and Equity Interest holders are advised to review Exhibit C which sets forth various assumptions, limitations and risks associated with the financial projections. Creditors and Equity Interest Holders are also referred to Exhibit E to this Disclosure Statement, which includes the Committee's valuation and views of the Debtors' business projections and valuation. Additionally, Creditors are referred to Exhibit B to this Disclosure Statement which contains unaudited consolidated historical financial statements of the Debtors for Fiscal 2001 and Fiscal 2002. 39 B. Acceptance As a condition to Confirmation of the Plan, section 1129(a) of the Bankruptcy Code, with certain exceptions, requires that each impaired Class accept the Plan. In general, a class is "impaired" if the legal, equitable or contractual rights attaching to the claims or interests of that class are modified, other than by curing defaults and reinstating maturities or by payment in full in cash. The Bankruptcy Code defines acceptance of a plan (a) by a class of creditors entitled to vote thereon as acceptance by holders of two-thirds in dollar amount and a majority in number of Allowed Claims in that class and (b) by a class of equity holders entitled to vote thereon by acceptance of two-thirds in amount of such interests. Each calculation, however, includes only those holders of Allowed Claims and Equity Interests who actually vote to accept or reject the Plan. Under section 1126(f) of the Bankruptcy Code, classes of Claims and Equity Interests that are not "impaired" under a plan are conclusively deemed to have accepted the plan. Under section 1126(g) of the Bankruptcy Code, classes that receive no distributions under a plan are conclusively deemed to have rejected the plan. For these reasons, acceptances of the Plan are being solicited only from Classes 2, 3, 4, 5 and 8. Holders in Classes 1, 6 and 7 will receive the full value of their Allowed Claims or Equity Interests with the legal, equitable and contractual rights thereunder unaltered and unimpaired. C. Non-acceptance and Cramdown If any Class of impaired Claims fails to accept the Plan, the Debtors will seek to effect a "cramdown" on such dissenting Class and all Classes that are junior to such dissenting Class under section 1129(b) of the Bankruptcy Code. The Debtors also reserve the right to amend the Plan and request the Bankruptcy Court to confirm the Plan as further amended. If an amendment or amendments to the Plan are material, the Debtors may have to resolicit acceptances from any Class adversely affected by the change(s), unless that Class can be deemed to have accepted or rejected the Plan. The Plan's treatment of Classes 3, 4, 5 and 8 is consistent with the foregoing. Consequently, the Debtors believe that if any of the holders in Classes 3, 4, 5 or 8 reject the Plan, the Plan may be confirmed over such opposition. D. Valuation As additional information, included as Exhibit D to this Disclosure Statement, is the going concern enterprise valuation of the Debtors' business prepared by its financial advisor, Chodan Advisors, Inc. ("Chodan") This going concern valuation, utilizing an income valuation approach and the Debtors' projected earnings and cash flows, shows a substantial value to the Debtors' equity and values the New Debentures at 100% of their face amount. The Debtors note that the going concern valuation prepared by Chodan is calculated using the Debtors' projected earnings and cash flows. In preparing the valuation, Chodan relied upon the financial projections prepared by the Debtors' management and upon Chodan's review and discussions with management regarding the financial projections. Consistent with the Debtors' financial projections, the valuation prepared by Chodan assumes the Reorganized Debtors would have the 40 full use of its net operating loss carryforwards and would not have to pay income taxes during the projection period. As discussed in Exhibit C, there are various risks associated with such financial projections. To the extent the Debtors' future financial performance is different (either lower or higher) than the projections, the going concern valuation calculation will be impacted. Creditors and Equity Interest holders are advised to review Exhibit D which sets forth various assumptions, limitations and risks associated with the going concern valuation prepared by Chodan Advisors, Inc. The Committee has advised the Debtors that the valuation prepared by Chodan is substantially higher than the valuation prepared by the Committee's financial advisor and that the Committee disagrees with the Chodan valuation in several respects. The Committee has advised the Debtors that it believes creditors should not use the valuation prepared by Chodan as the basis upon which they vote on the Plan. Included in Exhibit E to this Disclosure Statement is the valuation analysis prepared by the Committee's financial advisors and its critique of the valuation prepared by Chodan. The Debtors believe that the valuation prepared by the Committee's financial advisors substantially undervalues the Debtors' business and the Debtors disagree with the Committee's valuation in several respects, as set forth in Chodan's critique of the Committee valuation attached hereto as Exhibit F. The Debtors believe creditors and equity interest holders should not use the valuation prepared by the Committee's financial advisors as the basis upon which they vote on the Plan. The Debtors note that even if the going concern value of its business is half of the low end valuation prepared by Chodan as set forth in Exhibit D, the going concern value still exceeds the Debtors' total anticipated debt upon emergence from Chapter 11 and the Debtors believe would still support valuing the New Debentures at 100% of their face amount. The Committee stands by its valuation as reflected in Exhibit E and disagrees with the Chodan Critique in Exhibit F. E. Best Interests Test -- Liquidation Analysis Notwithstanding acceptance of the Plan in accordance with section 1126 of the Bankruptcy Code, the Court must find that each member of an impaired class of creditors and each member of an impaired class of interest holders has accepted the plan, or will receive or retain property of a value, as of the effective date of the plan, that is not less than the amount such creditor or interest holder would have received or retained if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code. The Debtors believe that the Plan complies with this "best interests" test. As discussed below and demonstrated in Exhibit G, a conversion of the Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code, followed by a liquidation under Chapter 7, would engender higher expenses and risks than the reorganization contemplated by the Plan. When coupled with the inevitable delay caused by the appointment of a Chapter 7 trustee and the retention of the trustee's professionals, distribution to holders of Allowed Claims that would otherwise be made on the Plan's Effective Date necessarily will be delayed for an indefinite period. 41 A conversion of the Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code would require the appointment of a trustee to conduct the liquidation of the Debtors. Such a trustee would likely have limited historical experience or knowledge of the Chapter 11 Case or of the Debtors' records, assets or former business. The fees charged by a Chapter 7 trustee and any professionals hired by the Chapter 7 trustee could impose additional administrative costs on the Debtors' estates that will not be incurred under the Plan and which will be paid ahead of Allowed Administrative, Priority Tax and Other Priority Claims. The liquidation analysis reveals that confirmation of the Plan is preferable to a liquidation under Chapter 7 of the Bankruptcy Code because creditors will receive more under the Plan than they would receive in a Chapter 7 liquidation by preserving the going-concern value of the Debtors and their assets. Further, conversion of the case to a later Chapter 7 case would necessarily occasion substantial delay associated with the trustee and its professionals educating themselves as to the particularities of the Debtors' estates. The Plan, in contrast, provides an efficient mechanism for prompt and subsequent periodic distributions to holders of Allowed Claims that would not exist in a Chapter 7 liquidation. Consequently, the value of the liquidation proceeds would be further reduced by the time value of money. Accordingly, for all the foregoing reasons, the Debtors believe that the Plan is in the best interests of creditors and fully complies with the statutory requirements of the Bankruptcy Code. ARTICLE V CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN The following discussion summarizes certain federal income tax consequences of the Plan to the Debtors. The analysis contained herein is based upon the Internal Revenue Code of 1986, as amended (the "Tax Code"), the Treasury Regulations promulgated and proposed thereunder, judicial decisions and published administrative rulings and pronouncements of the Internal Revenue Service ("IRS") as in effect on the date hereof. Legislative, judicial or administrative changes or interpretations hereafter enacted or promulgated could alter or modify the analysis and conclusions set forth below. Any such changes or interpretations may be retroactive and could affect significantly the federal income tax consequences discussed below. This summary does not address foreign, state, local or other tax law, or any estate or gift tax consequences of the Plan, nor does it purport to address the federal income tax consequences of the Plan to creditors and equity security holders. THE TAX CONSEQUENCES TO HOLDERS OF CLAIMS AND EQUITY INTERESTS MAY VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. MOREOVER, THE TAX CONSEQUENCES OF CERTAIN ASPECTS OF THE PLAN ARE UNCERTAIN DUE TO THE LACK OF APPLICABLE LEGAL PRECEDENT AND THE POSSIBILITY OF CHANGES IN THE APPLICABLE TAX LAW. NO RULING HAS BEEN APPLIED FOR OR OBTAINED FROM THE IRS WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN AND NO OPINION OF COUNSEL HAS BEEN REQUESTED OR OBTAINED BY THE DEBTORS WITH RESPECT THERETO. THIS DISCUSSION DOES NOT 42 CONSTITUTE TAX ADVICE OR A TAX OPINION CONCERNING THE MATTERS DESCRIBED. THERE CAN BE NO ASSURANCE THAT THE IRS WILL NOT CHALLENGE ANY OR ALL OF THE TAX CONSEQUENCES DESCRIBED HEREIN, OR THAT SUCH A CHALLENGE, IF ASSERTED, WOULD NOT BE SUSTAINED. ACCORDINGLY, EACH HOLDER OF A CLAIM OR EQUITY INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF THE PLAN. A. Utilization by the Reorganized Debtors of Debtor's Existing Tax Attributes The Debtors have net operating loss carryovers ("NOLs"), and research and development tax credit carryovers as of the Effective Date that are likely to carry over and be available to the Reorganized Debtors and their subsidiaries to offset income of the Reorganized Debtors and their subsidiaries after the Effective Date. It is difficult to ascertain the amount of potential future tax attributes that will carry over to the Reorganized Debtors and their subsidiaries. The Debtors do not believe that any of these tax attributes are currently subject to limitations imposed under section 382 of the Tax Code. Moreover, because the Plan will not result in an "ownership change" (as defined in section 382 of the Tax Code) with respect to the Debtors, the availability of any such tax attributes to offset income of the Reorganized Debtors and their subsidiaries after the Effective Date will not be limited by sections 382 and 383 of the Tax Code. In general, an ownership change occurs if the stock ownership of a company changes by more than 50 percentage points during a three-year testing period. Under the Plan warrants to purchase stock of Reorganized Debtor are issued that if exercised or deemed exercised on the Effective Date would result in an ownership change under section 382 of the Tax Code. The Debtor believes, however, that the Treasury Regulations promulgated under section 382 of the Tax Code would not treat such warrants as exercised on the Effective Date so that no ownership change will be triggered by issuance of such warrants on the Effective Date. To the extent the Reorganized Debtors' use of NOLs is limited, there may be (depending on the nature, magnitude and timing of any income tax obligation to the Reorganized Debtors resulting therefrom) a negative impact on creditor recoveries in these cases. See. Exhibit C - "Debtors' Financial Projections and Business Plan - Significant Assumptions and Risk Factors". The Debtors also have significant built-in losses, that, if realized within the "recognition period" (generally, the five-year period following an ownership change) could be limited by section 382 of the Tax Code if an ownership change occurs or is deemed to occur. The Debtors' tax attributes may also be offset by any gain or income recognized as a result of the transactions contemplated by the Plan and, absent any applicable exceptions, any discharge of indebtedness income excluded from income pursuant to section 108 of the Tax Code (the "COI income"). The precise amount of the Debtors' COI income and tax attributes has not been finally determined. 1. Effect of Sections 382 and 383 of the Tax Code Under the Plan, the holders of Equity Interests will continue to hold their pre-bankruptcy proportionate interests in the Reorganized Debtors, subject to dilution in certain instances. Thus, the Plan will not cause an ownership change within the meaning of section 382 of the Tax Code with respect to the Debtors on the Effective Date. If warrants issued on the Effective Date 43 are later exercised or deemed to be exercised, an ownership change within the meaning of section 382 of the Tax Code could occur. In general, unless the provisions of section 382(l)(5) (commonly referred to as the "Bankruptcy Exception") apply, a corporation that experiences an ownership change may, on an annual basis, utilize its pre-ownership change NOL carryforwards (and certain built-in losses) only up to the extent of the "Section 382 Limitation." The Section 382 Limitation is calculated as the product of (i) the federal long-term tax-exempt rate (prescribed monthly by the IRS) at the time of such ownership change, and (ii) the fair market value of the equity of the corporation, as determined under section 382 of the Tax Code, immediately before the time of such ownership change. An analogous rule under section 383 of the Tax Code applies to restrict utilization of certain other tax attributes following an ownership change, such as capital losses and certain credits. In the case of a corporation undergoing an ownership change in a bankruptcy proceeding, the fair market value of the equity of the corporation is deemed equal to the value of the corporation's stock immediately prior to the ownership change, increased to reflect the increase (if any) in its value resulting from any surrender or cancellation of creditors' claims in the transaction. Moreover, if Section 382 of the Tax Code applies with respect to an ownership change and the continuity of business enterprise requirement of Section 382 of the Tax Code is satisfied during the two-year period following the date of any ownership change, then the section 382 limitation is limited to recognized built-in gains. If the corporation's taxable income that would otherwise be offset by NOLs (or built-in losses) in a given year exceeds the Section 382 Limitation, the excess is generally subject to federal income tax (except to the extent such taxable income is attributable to certain "built-in gains" of the corporation). NOL carryforwards not utilized in a given year because of the Section 382 Limitation remain available for use in future years until their normal expiration dates. To the extent that a corporation's Section 382 Limitation in a given year exceeds its taxable income for such year, that excess will increase the Section 382 Limitation in future taxable years. As noted above, the Section 382 Limitation affects the utilization of built-in losses and is affected by built-in gains. Generally, if a corporation has net unrealized built-in losses (i.e., the aggregate adjusted basis of the corporation's assets immediately before the ownership change exceeds the fair market value of such assets at that time) in excess of a de minimis threshold amount, any such built-in losses recognized within the five-year period beginning on the date of the ownership change will be subject to the applicable Section 382 Limitation in the same manner as pre-change NOL carryforwards. This rule also applies to deductions that have accrued economically prior to the ownership change but are recognized for tax purposes after the ownership change. If a corporation has net unrealized built-in gains prior to the section 382 ownership change (i.e., the aggregate adjusted basis of the corporation's assets immediately before the ownership change is less than the fair market value of such assets) in excess of a de minimis threshold amount, the Section 382 Limitation for any taxable year within the five-year period beginning on the date of the ownership change will be increased by any such built-in gains recognized for such taxable year. For purposes of the adjustments for built-in gains and built-in losses, if the amount of the net unrealized built-in gain or loss (i.e., the difference between the fair market value of the assets of the corporation immediately before the ownership change and the aggregate adjusted basis of such assets at such time) is not greater than a de minimis threshold amount, the net unrealized built-in gain or loss amount will be treated as zero. The de minimis threshold amount is the lesser of 44 (a) 15% of the fair market value of the assets of the corporation immediately prior to the ownership change, or (b) $10,000,000. Consequently, at such time as Reorganized Debtors and its subsidiaries recognize built-in gains or built-in losses, the Section 382 Limitation may be adjusted, provided the de minimis threshold requirements applicable to unrealized built-in gains or losses are satisfied. There can be no assurance that Reorganized Debtors or its subsidiaries will have recognized built-in gains or losses, or if any such built-in gains or losses will materially affect the taxable income of Reorganized Debtors and its subsidiaries. 2. The Bankruptcy Exception Pursuant to the Bankruptcy Exception under section 382(l)(5) of the Tax Code, the general Section 382 Limitation does not apply to an ownership change resulting from transactions that are pursuant to a plan of reorganization of a corporation in a Chapter 11 case if the stockholders and certain qualified creditors of such corporation immediately before the ownership change own at least fifty percent (50%) of the stock of the corporation, by vote and value, immediately after such change, as a result of being stockholders or qualified creditors immediately before such change. For purposes of this rule, stock transferred to a creditor is taken into account only to the extent that such stock is transferred in satisfaction of debt and only if such debt either (i) was held by the creditor at least 18 months before the filing of the Chapter 11 case, or (ii) arose in the ordinary course of the trade or business of the old loss corporation and is held by the person who at all times held the beneficial interest in such debt. It should be noted, however, that the "held at all times" requirement will not apply, and thus a loss corporation generally may treat debt as always having been owned by the creditor, unless (i) the creditor will be a five percent (5%) shareholder of the loss corporation (directly or indirectly) immediately after the ownership change, or (ii) the real owner will be a less than five percent (5%) shareholder immediately after the ownership change, but such shareholder's participation in the formulation of the debtor's reorganization plan makes it evident to the debtor that the shareholder has not owned the debt in question for the required period. If the issuance of warrants pursuant to the Plan on the Effective Date is for any reason deemed to cause an ownership change and the Reorganized Debtors qualify under the Bankruptcy Exception, the Reorganized Debtors could avoid the application of the general Section 382 Limitation to its NOLs and built-in losses, but the Reorganized Debtors' NOLs would be reduced by the amount of any interest previously paid or accrued on any indebtedness that is converted into stock and for which the Debtors claimed a deduction during the three-year period preceding the taxable year of the ownership change plus the portion of the year of the ownership change prior to the Effective Date (in addition to any reduction for COI income excluded from income under general tax principles, as discussed above, see "Federal Income Tax Consequences to the Debtors -- Utilization by the Reorganized Debtors of Debtors' Existing Tax Attributes" and below, see "Federal Income Tax Consequences to the Debtors -- Utilization by the Reorganized Debtors of Debtors' Existing Tax Attributes -- Cancellation of Indebtedness Income"). Under the Bankruptcy Exception, if there is a second ownership change during the two-year period following the ownership change that results from the Plan, the NOLs and other tax attributes of the Reorganized Debtors carried forward from the pre-Effective Date taxable years would be effectively eliminated for all taxable years ending after the date of the second ownership change. 45 The Bankruptcy Exception automatically applies if its requirements are satisfied. A debtor, however, has the option of filing an election not to have the Bankruptcy Exception apply. If this election is made, the normal Section 382 Limitation will apply, and the NOL carryforwards will be subject to the annual limitation as described above in "Federal Income Tax Consequences to the Debtors -- Utilization by Reorganized Debtors of Debtors' Existing Tax Attributes -- Effect of Sections 382 and 383 of the Tax Code." The Debtors believe that the issuance of warrants on the Effective Date will not be deemed to cause a change of ownership. If an ownership change is deemed to occur, based on the regulations under section 382 of the Tax Code and certain assumptions of fact and law, the Debtors believe the Bankruptcy Exception would apply to such deemed ownership change in such a manner as to preclude triggering the Section 382 Limitation. No assurance can be given that the Bankruptcy Exception will be available because of uncertainties regarding the assumptions on which the Debtors' expectations are based. If there is a deemed ownership change, the Debtors may also conclude that it is advisable to elect not to have the Bankruptcy Exception apply (e.g., if the Debtors determine that the NOL reduction rules mandated by the Bankruptcy Exception would seriously reduce the amount of the Debtors' NOL carryforwards, or if there is a significant possibility that Reorganized Debtors will undergo another ownership change within the two-year period following the ownership change resulting from the Plan). B. Cancellation of Indebtedness Income Under the Tax Code, a taxpayer generally must include in gross income the amount of any COI income realized. However, such amounts are not included in gross income when the COI income arises in a case under the Bankruptcy Code. Instead, unless one of the exceptions discussed below applies, any COI income that otherwise would have been included in gross income generally is applied to reduce certain tax attributes of the taxpayer in the following order: NOLs, general business credit carryovers, minimum tax credit carryovers, capital loss carryovers, the taxpayer's basis in property, and foreign tax credit carryovers. The treatment under the Plan of certain of each of the Secured Claims, Reclamation Claims, General Unsecured Claims or the Convenience Class Claims generally may result in COI income that will reduce tax attributes of the Debtors by the difference between the fair market value of the consideration received by the holders thereof and the amount of the discharged indebtedness unless, inter alia, (i) the discharged Claims do not constitute "indebtedness" for federal income tax purposes or (ii) the discharged Claims would have given rise to a deduction had they been paid in full and a deduction for such amount has not already been claimed. The Debtors believe that, because certain Claims do not constitute indebtedness for federal income tax purposes, the discharge of such Claims will not result in COI income. In addition, the Debtors believe, pursuant to section 108(e)(2) of the Tax Code, that because certain other Claims would have given rise to deductions had they been paid in full, discharge of such Claims will not give rise to COI income. Nevertheless, it is likely that certain claims will give rise to COI and a commensurate reduction of tax attributes. C. Alternative Minimum Tax The Tax Code provides that, for any taxable year, a corporation's federal income tax liability equals the greater of (i) the regular tax computed at the regular 35% corporate tax rate on taxable income and (ii) the alternative 46 minimum tax ("AMT") computed at a lower tax rate (20%) but on a broader income base (alternative minimum taxable income ("AMTI")). For purposes of computing a corporation's regular federal income tax liability, all of the income recognized in a taxable year may be offset by available NOLs and other tax carryovers (to the extent permitted under, inter alia, sections 382 and 383 of the Tax Code). In contrast, for purposes of computing AMTI, NOLs (as determined for AMT purposes) and other tax carryovers generally are taken into account, but may not offset more than 90% of the pre-NOL AMTI. Thus, a corporation that is currently profitable for AMT purposes generally will be required to pay federal income tax at an effective rate of at least 2% of its pre-NOL AMTI (10% of the 20% AMT tax rate), regardless of the amount of its NOLs. As a result, even if the Debtors (or, after the Effective Date, the Reorganized Debtors and their subsidiaries) are otherwise able to fully shelter their income with NOLs, they will be subject to current taxation in any year in which they have positive net pre-NOL AMTI (including as a result of gain and income recognition in connection with the transactions contemplated by the Plan). To the extent that a corporation's AMT liability for any taxable year exceeds its regular federal income tax liability, the excess may be carried forward as a credit against regular tax liability in subsequent years. D. Federal Income Tax Consequences to Holders of Claims A holder of an Allowed Claim will generally recognize ordinary income to the extent that the amount of Cash or property, including debentures, received (or to be received) under the Plan is attributable to interest that accrued on the holder's Claim but was not previously paid by the Debtors or included in income by the holder of the Allowed Claim. A holder of an Allowed Claim will generally recognize gain or loss equal to the difference between the holder's adjusted basis in its Claim and the amount realized by the holder upon consummation of the Plan that is not attributable to accrued but unpaid interest. The amount realized will equal the sum of Cash and the fair market value of other consideration received (or to be received). The character of any gain or loss that is recognized will depend upon a number of factors, including the status of the Creditor, the nature of the Claim in its hands, whether the Claim was purchased at a discount, whether and to what extent the Creditor has previously claimed a bad debt deduction with respect to the Claim, and the Creditor's holding period of the Claim. If the Claim in the Creditor's hands is a capital asset, the gain or loss realized will generally be characterized as a capital gain or loss. Such gain or loss will constitute long-term capital gain or loss if the Creditor is a non-corporate taxpayer and held such Claim for longer than one year or short-term capital gain or loss if the Creditor held such Claim for less than one year. A holder of an Allowed Claim who receives, in respect of its Claim, an amount that is less than its tax basis in such Claim may be entitled to a bad debt deduction if either: (i) the holder is a corporation; or (ii) the Claim constituted (a) a debt created or acquired (as the case may be) in connection with a trade or business of the holder or (b) a debt the loss from the worthlessness of which is incurred in the holder's trade or business. A holder that has previously recognized a loss or deduction in respect of its Claim may be required to include in its gross income (as ordinary income) any amounts received under the Plan to the extent such amounts exceed the holder's adjusted basis in such Claim. Holders of Claims who were not previously required to include any accrued but unpaid interest in their gross income on a Claim may be treated as receiving taxable interest income to the extent any consideration they receive under the Plan is allocable to such interest. Holders previously required to 47 include in their gross income any accrued but unpaid interest on a Claim may be entitled to recognize a deductible loss to the extent such interest is not satisfied under the Plan. Holders of a Claim constituting any installment obligation for tax purposes may be required to currently recognize any gain remaining with respect to such obligation if, pursuant to the Plan, the obligation is considered to be satisfied at other than its face value, distributed, transmitted, sold or otherwise disposed of within the meaning of section 453B of the Tax Code. Under backup withholding rules, a holder of an Allowed Claim may be subject to backup withholding with respect to payments made pursuant to the Plan unless such holder (a) is a corporation or is otherwise exempt from backup withholding and, when required, demonstrates this fact or (b) provides a correct taxpayer identification and certifies under penalty of perjury that the taxpayer identification number is correct and that the holder is not subject to backup withholding because of failure to report all dividend and interest income. Any amount withheld under these rules will be credited against the holder's federal income tax liability. Holders of Claims may be required to establish an exemption from backup withholding or to make arrangements with regard to payment thereof. E. Importance of Obtaining Professional Tax Assistance The foregoing is intended to be only a summary of certain of the United States federal income tax consequences of the Plan and is not a substitute for careful tax planning with a tax professional. Holders of Claims or Equity Interests are strongly urged to consult with their own tax advisors regarding the federal, state, local and foreign income and other tax consequences of the Plan, including, in addition to the issues discussed above, whether a bad debt deduction may be available with respect to their Claims and if so, when such deduction or loss would be available. THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, HOLDERS OF CLAIMS OR INTERESTS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. ARTICLE VI REORGANIZED DEBTORS SECURITIES; CORPORATE GOVERNANCE A. Description of The Reorganized Debtors' Securities As of the Effective Date, all Equity Interests in the Debtors shall be retained by the holders thereof and otherwise remain unaltered, except as to dilution and certain other modifications with respect to the GDC Common Stock. See "Introduction -- Overview of the Debtors and the Plan -- Sources of Recovery Under the Plan" and "The Plan of Reorganization - Summary of Payment Provisions of the Plan -- Treatment of Claims and Equity Interests" above, and "Material Uncertainties and Risk Factors" below. 48 After the Confirmation Date, the terms and conditions of Equity Interests in Classes 6, 7 and 8 ("Reorganized Debtors' Equity Interests") will be governed by the laws of the State of Delaware as well as by the Amended and Restated Certificate of Incorporation and By-laws. See "-- Corporate Governance" below. 1. Dividends It is not anticipated that Reorganized Debtors will pay any dividends on the Equity Interests in the Reorganized Debtors in the foreseeable future. It is expected that payments to be made on account of Claims in Classes 2 and 4, and after such claims are paid in full, payment of arrears on dividends on the 9% Preferred Stock, will prohibit payment of dividends with respect to Reorganized GDC's Common Stock for the foreseeable future. B. Corporate Governance 1. Certificate of Incorporation and By-Laws Pursuant to the Amended and Restated Certificate of Incorporation, except with respect to the directors of General DataComm Industries, Inc., the existing officers and directors of the Debtors shall continue in their existing positions after the Effective Date of the Plan. As to General DataComm Industries, Inc., pursuant to the Plan, the board shall consist of no less than five and no more than thirteen members. Initially upon emergence from chapter 11, the board is expected to consist of four or five members, one of which may be selected by the Creditors Committee and the remainder of which shall be selected by the existing Board of Directors or its designees. Thereafter, the directors shall be selected in accordance with normal corporate governance procedures of the company, the New Indenture Trustee for the Debentures shall be entitled to select one director until the New Debentures are paid in full, provided that if the Lenders' Claim is not paid in full by the third anniversary of the Effective Date, the New Indenture Trustee shall be entitled to select two additional directors (for a total of three directors) until the Lender's Claim has been paid in full, and provided further that in the event the Reorganized Debtors default on any payment due under the New Debentures and such default is not cured within 60 days after notice, then the New Indenture Trustee shall be entitled to select a majority of the board of directors of Reorganized GDC until the New Debentures are paid in full. Additionally, Ableco will be entitled to appoint three directors until its claim has been paid in full. Ableco has advised the Debtors that it does not presently intend to exercise its right to appoint directors immediately after the Effective Date. In the event Ableco later decides to exercise its right to appoint three directors, the size of the Board of Directors will increased by four or five directors, three of which will be elected by Ableco and the other one or two to be initially selected by the other directors (other than the director selected by the Committee or New Indenture Trustee) and thereafter by the holders of Common Stock. In addition, the Amended and Restated Articles of Incorporation and Amended By-Laws of GDC shall provide for (a) the continuation of the right of the holders of 9% Preferred Stock to select two directors as a result of the non-payment of dividends; (b) the continuation of the current provisions restricting hostile takeovers under applicable Delaware law and other anti-takeover provisions; (c) a 10:1 reverse split of GDC Common Stock and Class B Common Stock; (d) the Class B Common Stock to be automatically converted to Common Stock if and when the amount of Class B Common Stock is less than one percent (1%) of all outstanding stock; (e) the issuance of Class B Common Stock pursuant to the Company's Stock Bonus Plan and the issuance of Common Stock 49 including Class B Common Stock pursuant to the Warrants; and (f) the par value of GDC Common Stock to be reduced from $.10 per share to $.01 per share. Directors of General DataComm Industries, Inc. may be removed only by the holders of at least eighty percent (80%) of the outstanding voting interests of Common Stock of General DataComm Industries, Inc. with or without cause at a meeting of stockholders called for such purpose. The affirmative vote of the holders of shares entitled to cast at least four-fifths of the votes represented by the shares of all classes of stock of Reorganized Debtors entitled to vote generally in elections of directors, considered for such purpose as one class, shall be required to amend, alter, change or repeal, or adopt any provision inconsistent with certain of the provisions of the Amended and Restated Certificate of Incorporation described above in this subsection. The Amended By-Laws of Reorganized Debtors may be amended or repealed at any regular meeting of the stockholders or directors, or at any special meeting thereof if notice of such amendment or repeal is contained in the notice of such special meeting. Under certain circumstances, the holders of Class B Common Stock have ten votes per share in the election of directors. Holders of Reorganized Debtors Equity Interests will be entitled to participate equally in such dividends as may be declared by the Board of Directors out of funds legally available therefor. However, it is not anticipated that dividends will be paid on Reorganized Debtors Equity Interests in the foreseeable future. See "Material Uncertainties and Risk Factors -- Restrictions on Dividends" below. In the event of a liquidation, dissolution or winding-up of Reorganized Debtors, holders of Equity Interests in Reorganized GDC will be entitled to participate equally in the assets remaining after payment of liabilities and the liquidation preference of any preferred stock of Reorganized Debtors. Holders of Reorganized Debtors Equity Interests will have no preemptive rights. Holders of Equity Interests in Reorganized GDC will have no rights to convert their Equity Interests in Reorganized GDC into any other securities and will have no redemption provisions or sinking fund provisions with respect to such shares, except that Class B Common Stock can be converted into Common Stock on a share for share basis at any time and is automatically so converted upon certain transfers of such stock and except that the 9% Preferred Stock can be converted into Common Stock at any time at a conversion rate of approximately 1.8315 shares of Common Stock (and not Class B Common Stock) for each share of 9% Preferred Stock, subject to adjustment. The provisions of the Amended and Restated Certificate of Incorporation and Amended By-Laws described herein may, under certain circumstances, make more difficult or discourage a takeover of Reorganized Debtors and the removal of incumbent management. The Amended and Restated Certificate of Incorporation and the Amended By-Laws of Reorganized Debtors shall be in substantially the form of that to be filed as a Plan Supplement not less than ten (10) days prior to the Voting Deadline. 50 2. Limitation of Liability; Indemnification of Directors, Officers and Others (a) Charter Provisions The Amended and Restated Certificate of Incorporation will limit personal liability of Reorganized Debtors' directors to the full extent permitted by Delaware law. Section 102(b)(7) of the DGCL enables a Delaware corporation to include in its certificate of incorporation a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breaches of fiduciary duties as a director, but no such provision may eliminate or limit the liability of a director (i) for any breach of the duty of loyalty, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the GDCL (dealing with illegal redemptions and stock repurchases) or (iv) for any transaction from which the director derived an improper personal benefit. The Amended and Restated Certificate of Incorporation and Amended By-Laws will also provide for the indemnification of persons to the fullest extent permitted by Delaware Law. Section 145 of the DGCL provides that a corporation (a) must indemnify its directors, officers, employees and agents for all expenses of litigation when they are successful on the merits or otherwise; (b) may indemnify such persons for the expenses, judgments, fines and amounts paid in settlement of litigation (other than a derivative suit) even if they are not successful on the merits, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation (and, in the case of criminal proceedings, have no reason to believe that their conduct was unlawful); and (c) may indemnify such persons for the expenses of a derivative suit even if they are not successful on the merits if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, provided that no such indemnification may be made on behalf of a person adjudged to be liable in a derivative suit, unless the Delaware Chancery Court or the court where the action was brought determines that, despite such adjudication but in view of all of the circumstances, such person is entitled to indemnification. In any such case, indemnification may be made only upon determination by (i) a majority of the disinterested directors, (ii) independent legal counsel or (iii) the shareholders that indemnification is proper because the applicable standard of conduct was met. The advancement of litigation expenses to a director or officer is also authorized upon receipt by the board of directors of an undertaking to repay such amounts if it is ultimately determined that such person is not entitled to be indemnified for them. The Amended and Restated Certificate of Incorporation and Amended By-Laws also will provide for indemnification to the fullest extent permitted by the DGCL for any person and his or her successors made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person is or was a director, employee, agent or officer of Reorganized Debtors or serves or served any other enterprise as a director or officer at the request of Reorganized Debtors. Furthermore, Reorganized Debtors may enter into agreements with any person that provides for indemnification greater or different than provided for in the Restated Certificate of Incorporation as permitted by DGCL, whose provisions are not deemed exclusive. 51 (b) Director and Officer Insurance Section 145 of the DGCL also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability. The Amended and Restated Certificate of Incorporation and Amended By-Laws will authorize Reorganized Debtors to maintain insurance protecting itself, its directors, officers, employees and agents against certain losses arising out of actual or threatened actions, suits or proceedings to which such persons may be made or threatened to be made parties. However, Reorganized Debtors and the directors or officers cannot be sure that such insurance coverage will continue to be available in the future or, if available, that it will not be unreasonably expensive to purchase and maintain. It is presently expected that Reorganized Debtors will purchase such insurance. The Debtors currently have a Director and Officer liability insurance policy with $5 million of coverage. (c) Registrar and Transfer Agent Effective on the Effective Date, American Stock Transfer and Trust Company, 59 Maiden Lane, New York, New York 10038, will continue to be the registrar and transfer agent. ARTICLE VII SECURITIES LAW CONSIDERATIONS Section 1145 of the Bankruptcy Code provides that federal and state securities registration requirements do not apply to the offer or sale under a plan of reorganization of securities of a debtor or of a successor to a debtor under such a plan to holders of claims or interests wholly or principally in exchange for those claims or interests. The ability of the recipients of such securities to resell such securities, however, is subject to certain restrictions under such securities laws. Set forth below is a discussion of the securities law considerations regarding securities under the Plan and subsequent transfers thereof. The Equity Interests of the Reorganized Debtors provided for under the Plan will not be "restricted securities" in the hands of holders of Equity Interests in Classes 6, 7 and 8, but will be subject to the restrictions described in "Reorganized Debtors Securities; Corporate Governance -- Description of Reorganized Debtors Securities" above, and may be freely transferred by most holders of Equity Interests under the Securities Act of 1933, as amended (the "Securities Act"). Section 3(a) of the Securities Act provides that the provisions of such Act do not apply to any of certain enumerated classes of securities. Such securities are considered "Exempt Securities" and include (7) "Certificates issued by a receiver or by a trustee or debtor in possession in a case under title 11 of the United States Code with the approval of the court". The New Debentures are certificates being issued by a debtor in possession with the approval of the Bankruptcy Court under title 11 of the United States Code. Accordingly, all resales and subsequent transactions in Equity Interests of Reorganized GDC and the New Debentures, will be exempt from registration under the Securities Act pursuant to section 4(1) of the 52 Securities Act, unless the holder thereof is an "underwriter" with respect to such securities. Section 1145(b) of the Bankruptcy Code defines four types of "underwriters": (1) persons who purchase a claim against, interest in or claim for administrative expense in the case concerning the debtor with a view to distribution of any security received or to be received in exchange for such claim or interest; (2) persons who offer to sell securities offered or sold under the plan for holders of such securities; (3) persons who offer to buy securities offered or sold under a plan, if such offer to buy is (a) with a view to distributing such securities and (b) made under an agreement made in connection with the plan; or (4) any person who is an "issuer" (as defined in section 2(11) of the Securities Act) with respect to such securities. Under section 2(11) of the Securities Act, an "issuer" includes any person directly or indirectly controlling or controlled by the debtor, as the case may be, or any person under direct or indirect common control with the debtor. Whether a person is an "issuer," and therefore an "underwriter," for purposes of section 1145(b) of the Bankruptcy Code depends on a number of factors. These include (i) the person's equity interest in a company, (ii) the distribution and concentration of other equity interests in the company, (iii) whether the person is a director or an officer of the company, (iv) whether the person, either alone or acting in concert with others, has a contractual or other relationship giving that person power over management policies and decisions of the company, and (v) whether the person actually has such power notwithstanding the formal indicia of control. A director or an officer of a company may be deemed a controlling person, particularly if his position is coupled with ownership of a significant percentage of voting stock. In addition, the legislative history of section 1145 of the Bankruptcy Code suggests that a creditor with at least ten percent (10%) of the securities of a debtor could be deemed a controlling person. The New Debentures being issued to holders of Allowed General Unsecured Claims under the Plan are not convertible into common stock or other capital stock of the Reorganized Debtors and therefore are not deemed equity securities within the meaning of Rule 3a11-1 under the Securities Exchange Act of 1934. Accordingly, the holders of the New Debentures would not be subject to the short swing trading restrictions and reporting requirements under Section 16 of such Act, although they would be subject to the antifraud provisions of the state and federal securities laws in connection with their trading in New Debentures if they made false statements or had access to material information of the company that was not publicly available in connection with such transactions. Unless the holders of a debt security like the New Debentures are entitled to and do elect a majority of a company's directors and thereby control such directors and the company by directing what action to take on the company's behalf, they should not be deemed a controlling person of such company. To the extent that persons deemed "underwriters" receive Reorganized Debtors Equity Interests, pursuant to the Plan, resales by such persons would not be exempted by section 1145(a) of the Bankruptcy Code from registration under the Securities Act or other applicable laws. Persons deemed to be "underwriters," however, may be able to sell such securities without registration subject to the registration exemption provided by Rule 144 under the Securities Act, which permits "affiliates" of the issuer to publicly sell 53 within any three-month period a number of shares that does not exceed the greater of one percent (1%) of the outstanding shares of common stock or the average weekly trading volume in common stock during the four calendar weeks preceding the date on which notice of such sale is filed pursuant to Rule 144, subject to the satisfaction of certain other requirements of Rule 144 regarding the manner of sale, notice requirements, holding period requirements and the availability of current public information regarding the issuer. Persons who have not been affiliates of the Reorganized Debtors for more than three (3) months may sell such securities after two years pursuant to Rule 144(k) without such volume and other limitations. Whether any particular person would be deemed to be an "underwriter" with respect to any security to be issued pursuant to the Plan would depend on various facts and circumstances applicable to that person. Accordingly, the Debtor expresses no view as to whether any person would be an "underwriter" with respect to any security to be issued pursuant to the Plan. See "Material Uncertainties and Risk Factors -- Restrictions on Resale of Reorganized Debtors Equity Interests below. THE FOREGOING DISCUSSION IS GENERAL IN NATURE. GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY BE AN "UNDERWRITER," AND THE VARYING STATE SECURITIES LAWS, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE RIGHT OF ANY PARTICULAR PERSON TO TRADE IN THE EQUITY INTERESTS OF REORGANIZED GDC OR THE NEW DEBENTURES TO BE TRANSFERRED PURSUANT TO THE PLAN. THE DEBTORS RECOMMEND THAT HOLDERS OF CLASS 4 GENERAL UNSECURED CLAIMS RECEIVING NEW DEBENTURES PURSUANT TO THE PLAN AND HOLDERS OF EQUITY INTERESTS IN CLASSES 6, 7 AND 8 CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THE DEBTORS HAVE NOT SOUGHT A "NO-ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION WITH RESPECT TO ANY MATTER DISCUSSED HEREIN. ARTICLE VIII MATERIAL UNCERTAINTIES AND RISK FACTORS HOLDERS OF CLAIMS AGAINST THE DEBTORS SHOULD READ AND CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN). THESE RISK FACTORS SHOULD NOT, HOWEVER, BE 54 REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION. A. Certain Disputed Claims The feasibility of the Plan is predicated upon the levels of Administrative, Priority, Secured and General Unsecured Claims not being materially in excess of the amounts estimated herein. If such claims are substantially in excess of the estimated amounts, the Debtors ability to satisfy their payment obligations under the Plan could be impacted. B. Conditions to Confirmation and Effective Date As more fully discussed herein, if certain conditions precedent to the Effective Date have not been satisfied, the Plan may be withdrawn and the Confirmation Order shall be vacated. C. Certain Tax Matters Implementation of the Plan may have material federal income tax consequences to the Debtors and holders of Claims and Equity Interests. See "Certain Federal Income Tax Consequences of the Plan" above for a discussion of such tax consequences. D. Lack of Trading Market for New Debentures and Equity Interests in Reorganized GDC No assurance can be given as to the liquidity of the market for the New Debentures or the Equity Interests in Reorganized GDC or the price at which any sales of such New Debentures or Equity Interests may occur. THE DEBTORS DO NOT PRESENTLY INTEND TO SEEK TO HAVE THE NEW DEBENTURES OR THE EQUITY INTERESTS IN REORGANIZED GDC LISTED FOR TRADING ON ANY NATIONAL EXCHANGE, BUT RESERVE THE RIGHT TO DO SO. NO ASSURANCE CAN BE GIVEN THAT REORGANIZED DEBTORS WILL REMAIN REGISTERED AS A REPORTING COMPANY UNDER THE SECURITIES EXCHANGE ACT OF 1934. No precise predictions can be made of the effect, if any, that market sales or the availability of shares or New Debentures for sale will have on the market prices of the Equity Interests in Reorganized GDC or the New Debentures prevailing from time to time. Nevertheless, sales of substantial amounts of the Equity Interests in Reorganized GDC or the New Debentures in the public market could adversely affect the respective prevailing market prices of such equity or debt securities. E. New Products and Business Strategies The success of Reorganized Debtors as a going concern post-Confirmation will depend in large part upon Reorganized Debtors' ability to complete their efforts to combine their legacy product line with their ability to research, develop and manufacture new products and become a profitable vendor of such products. There can be no assurance that Reorganized Debtors will be able to develop such new products, however, and Reorganized Debtors' inability 56 to develop such new products for sale in its existing distribution network may adversely affect the ability of Reorganized Debtors to achieve their projected financial results. F. Restrictions on Dividends It is not anticipated that the Reorganized Debtors will pay any dividends on Reorganized Debtors Equity Interests in the foreseeable future. It is expected that payments to be made on account of Claims in Classes 2 and 4 will prohibit payment of dividends with respect to Reorganized GDC Common Stock. G. Competition The telecommunications industry is highly competitive, and the factors affecting competition are subject to rapid change. See "Background Information Regarding Debtors -- Description of GDC -- GDC's Operations -- Competition" above. Reorganized Debtors will continue their historical product line, in addition to researching, developing and manufacturing new products for sale to telecommunications providers. Reorganized Debtors will face significant competition from many companies with assets and resources which far exceed those of the Reorganized Debtors. Consequently, no assurance can be given that Reorganized Debtors' products will remain competitive, even with the anticipated introduction of an expanded product line. H. Industry Conditions The telecommunications industry has experienced a substantial slowdown in the past few years. While the Debtors expect conditions in the industry that impact their particular business segment to improve, there can be no guarantee that conditions will improve or that they will not worsen. Certain regulatory actions by the government have also negatively impacted the telecommunications industry. Future regulatory actions by the government could improve conditions in the industry or worsen them. I. Management Reorganized Debtors' ability to be competitive will depend, in part, on its ability to attract and retain highly qualified personnel. Retention of such personnel will depend, at least in part, on Reorganized Debtors' ability to provide such personnel with competitive compensation arrangements. There can be no assurance, however, that Reorganized Debtors will be able to secure the continued services of highly qualified personnel currently employed by the Debtors or that Reorganized Debtors will be able to locate replacements for anticipated and unanticipated departures of senior management both prior and subsequent to the Effective Date of the Plan. 56 ARTICLE IX CONCLUSION FOR ALL OF THE REASONS SET FORTH IN THIS DISCLOSURE STATEMENT, THE DEBTORS, ABLECO AND FOOTHILL BELIEVE THAT THE CONFIRMATION AND CONSUMMATION OF THE PLAN IS PREFERABLE TO ALL OTHER ALTERNATIVES. THE DEBTORS, ABLECO AND FOOTHILL URGES ALL CREDITORS ENTITLED TO VOTE TO ACCEPT THE PLAN AND TO EVIDENCE SUCH ACCEPTANCE BY RETURNING THEIR BALLOTS SO THAT THEY WILL BE RECEIVED BY 4:00 P.M. (PREVAILING EASTERN TIME) ON JULY 28, 2003]. Dated: Wilmington, Delaware June 24, 2003 Respectfully submitted, GENERAL DATACOMM INDUSTRIES, INC. By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman GENERAL DATACOMM, INC. By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman DATACOMM LEASING CORPORATION By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman DATACOMM RENTAL CORPORATION By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman 57 GDC FEDERAL SYSTEMS, INC. By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman GDC NAUGATUCK, INC. By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman GDC HOLDING COMPANY, LLC By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman GENERAL DATACOMM INTERNATIONAL CORP. By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman 58 GENERAL DATACOMM CHINA, LTD By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman GDC REALTY, INC. By: /s/Howard Modlin ------------------------------- Name: Howard Modlin Title: Chairman CONSENTED TO: ABLECO FINANCE, LLC By: /s/ Kevin P. Genda ---------------------------------------- Name: Kevin P. Genda Title: Senior Vice President and Chief Credit Officer FOOTHILL CAPITAL CORPORATION By: /s/ Andrew T. Furlong -------------------------------------------------- Name: Andrew T. Furlong Title: Vice President 59 EXHIBIT A JOINT PLAN OF REORGANIZATION IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE - -----------------------------------------------------x ) Chapter 11 In re: ) ) Case No. 01-11101 (PJW) GENERAL DATACOMM INDUSTRIES, INC., ) et al., ) - ------ ) ) (Jointly Administered) ) Debtors. ) - -----------------------------------------------------x AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE ------------------------------------------------ Joel A. Waite SHULTE ROTH & ZABEL, LLP Michael R. Nestor Michael L. Cook YOUNG CONAWAY STARGATT & David M. Hillman TAYLOR, LLP 919 Third Avenue P.O. Box 391 New York, NY 10022 1000 West Street, 17th Floor (212) 756-2000 Wilmington, Delaware 19801 (312) 571-6600 - and - Counsel to the Debtors ZUCKERMAN SPAEDER LLP and Debtors-In-Possession Thomas G. Macauley One Commerce Center 1201 Orange Street, Suite 650 Wilmington, DE 19801 (302) 427-0400 Co-Counsel to Ableco Finance LLC and Foothill Capital Corporation Dated: April 29, 2003 TABLE OF CONTENTS ARTICLE 1 Page DEFINITIONS...................................................................1 1.1 Ableco.....................................................1 1.2 Administrative Bar Date....................................1 1.3 Administrative Claim.......................................1 1.4 Allowed Claim..............................................2 1.5 Assumed Agreement..........................................2 1.6 Avoidance Action...........................................2 1.7 Ballot.....................................................2 1.8 Bankruptcy Code............................................2 1.9 Bankruptcy Court...........................................2 1.10 Bankruptcy Rules...........................................2 1.11 Business Day...............................................2 1.12 Cash.......................................................3 1.13 Causes of Action...........................................3 1.14 Chapter 11 Cases...........................................3 1.15 Claim......................................................3 1.16 Committee..................................................3 1.17 Common Stock...............................................3 1.18 Confirmation Date..........................................3 1.19 Confirmation Order.........................................3 1.20 Contingent Claim...........................................3 1.21 Convenience Class Claim....................................3 1.22 Creditor...................................................3 1.23 Debtors....................................................3 1.24 Disclosure Statement.......................................4 1.25 Disputed Claim.............................................4 1.26 Distribution Date..........................................4 1.27 Effective Date.............................................4 1.28 Employee Stock Bonus Plan..................................4 1.29 Equity Interest............................................4 1.30 Final Distribution Date....................................4 1.31 Final Order................................................4 1.32 Foothill...................................................4 1.33 GDC........................................................4 1.34 GDC Common Stock...........................................5 1.35 General DataComm...........................................5 1.36 General Unsecured Claim....................................5 1.37 Lender.....................................................5 1.38 Lender Director Selection Right............................5 i 1.39 Lender Release.............................................5 1.40 Lender Secured Claim.......................................5 1.41 Lender Warrants............................................5 1.42 New Debentures.............................................5 1.43 New Indenture..............................................5 1.44 New Indenture Trustee......................................6 1.45 New Lender Loan and Security Agreement.....................6 1.46 New Lender PIK Obligation..................................6 1.47 New Lender Term Obligation.................................6 1.48 Old GDC Stock Option Plans.................................6 1.49 Other Priority Claims......................................6 1.50 Person.....................................................6 1.51 Petition Date..............................................6 1.52 Plan.......................................................6 1.53 Plan Supplement............................................6 1.54 Pre-Petition Secured Loan Agreements.......................7 1.55 Preferred Interests........................................7 1.56 Priority Tax Claim.........................................7 1.57 Pro Rata...................................................7 1.58 Registered Holder..........................................7 1.59 Rejected Agreement.........................................7 1.60 Reorganized Debtors........................................7 1.61 Retiree Benefits...........................................7 1.62 Schedules..................................................7 1.63 Secured Claim..............................................7 1.64 73/4% Debentures...........................................7 1.65 73/4% Indenture............................................8 1.66 73/4% Indenture Trustee....................................8 1.67 Subsidiary Debtors.........................................8 1.68 Taxes......................................................8 1.69 Unsecured Claim............................................8 1.70 Unsecured Creditors Director Selection Right...............8 1.71 Unsecured Deficiency Claim.................................8 1.72 Voting Deadline............................................8 1.73 Other Definitions..........................................8 ARTICLE 2 SUBSTANTIVE CONSOLIDATION AND MERGER..........................................9 ii ARTICLE 3 PROVISIONS AND PAYMENT OF ALLOWED ADMINISTRATIVE AND PRIORITY TAX CLAIMS.......................................10 3.1 General....................................................10 3.2 Treatment of Administrative Claims.........................10 3.3 Treatment of Priority Tax Claims...........................10 3.4 Bar Date for Administrative Claims.........................10 ARTICLE 4 DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS.....................................11 4.1 Class 1 - Other Priority Claims............................11 4.2 Class 2 - Allowed Lender Secured Claim.....................11 4.3 Class 3 - Other Secured Claims.............................11 4.4 Class 4 - Allowed General Unsecured Claims.................11 4.5 Class 5 - Allowed Convenience Class Claims.................11 4.6 Class 6 - Preferred Interests in GDC.......................12 4.7 Class 7 = Equity Interest in Subsidiary Debtors............12 4.8 Class 8 - GDC Common Stock Interests.......................12 ARTICLE 5 EXECUTORY CONTRACTS AND EXPIRED LEASES........................................12 5.1 Assumption of Certain Executory Contracts and Unexpired Leases......................................12 5.2 Rejection and Cancellation of 73/4% Indenture..............13 5.3 Indemnification Obligations Assumed........................13 5.4 Claims Based on Rejection of Executory.....................13 Contracts or Unexpired Leases.............................13 ARTICLE 6 ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE CLASSES...................................14 6.1 Impaired Classes to Vote...................................14 6.2 Acceptance By Class of Creditors...........................14 6.3 Acceptance By Class of Interests...........................14 6.4 Cramdown...................................................14 iii ARTICLE 7 PROVISIONS COVERING DISTRIBUTIONS AND PAYMENTS.................................................................15 7.1 Making of Distributions and Payments.......................15 7.2 Distribution to Lenders....................................15 7.3 Distribution of New Debentures.............................15 7.4 Delivery of Distributions; Unclaimed Property..............15 7.5 Payments of Less Than Five Dollars.........................16 ARTICLE 8 PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND CAUSES OF ACTION..............................................16 8.1 Filing of Objections to Claims.............................17 8.2 Prosecutions of Objections to Claims.......................17 8.3 Payment or Distribution Upon Resolution of Disputed Claims........................................17 8.4 Causes of Action...........................................17 ARTICLE 9 MEANS FOR IMPLEMENTATION OF THIS JOINT PLAN 18 9.1 Conveyance Free and Clear..................................18 9.2 Cancellation of Certain Existing Securities and Agreements...........................................18 9.3 Surrender of Instruments...................................19 9.4 Release of Certain Claims and Actions......................19 9.5 Exculpation................................................20 9.6 Exemption from Certain Taxes...............................20 9.7 Certificate of Incorporation and By-Laws...................20 9.8 Directors and Officers.....................................20 9.9 Revesting of Assets; No Further Supervision................21 9.10 Authority to Implement.....................................21 9.11 No Injunctive Relief.......................................21 iv ARTICLE 10 CONDITIONS PRECEDENT TO THE EFFECTIVE DATE....................................21 10.1 Effectiveness of this Plan.................................21 10.2 Conditions Not Satisfied or Waived.........................22 ARTICLE 11 MISCELLANEOUS PROVISIONS......................................................22 11.1 Modification of Payment Terms..............................22 11.2 Discharge of Debtors.......................................22 11.3 Filing of Additional Documents.............................23 11.4 Compliance with Tax Requirements...........................23 11.5 Setoffs....................................................23 11.6 Retiree Benefits...........................................23 11.7 Payment of Certain Expenses by the Reorganized Debtors.......................................23 11.8 Termination of Committee...................................23 11.9 Section Headings...........................................23 11.10 Waiver.....................................................24 11.11 Notices....................................................24 11.12 Severability...............................................24 11.13 Plan Controls..............................................24 11.14 Reservation of Rights......................................24 11.15 Governing Law..............................................25 11.16 Non-Voting Equity Securities...............................25 11.17 Exemption from Transfer Taxes..............................25 11.18 Termination of Subordination Rights........................25 11.19 Payment of Statutory Fees..................................25 ARTICLE 12 PROVISIONS FOR EXECUTION AND SUPERVISION OF THIS PLAN.....................................................26 12.1 Retention of Jurisdiction..................................26 12.2 Amendment of Plan..........................................27 12.3 Revocation of Plan.........................................27 12.4 Implementation.............................................28 v ARTICLE 13 CONFIRMATION REQUEST..........................................................29 13.1 SCHEDULES Schedule 1.4 Assumed Agreements Schedule 1.41 Terms of Lender Warrants Schedule 1.42 Terms of New Debentures Schedule 1.46 Terms of New PIK Obligation Schedule 1.46.1 Debtors' Claims Analysis Of Lenders Claim as of 6/12/02 Schedule 1.47 Terms of New Lender Term Obligation Schedule 1.47.1 List of Assets Related to Discontinued Operations of Debtors or Excess Assets of Debtors vi AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE ------------------------------------ GENERAL DATACOMM INDUSTRIES, INC., GENERAL DATACOMM, INC., DATACOMM LEASING CORPORATION, GDC FEDERAL SYSTEMS, INC., GDC REALTY, INC., GDC NAUGATUCK, INC., GDC HOLDING COMPANY, LLC, DATACOMM RENTAL CORPORATION, GENERAL DATACOMM INTERNATIONAL CORPORATION and GENERAL DATACOMM CHINA LTD., the Debtors and Debtors-in-Possession in the above-captioned jointly administered Chapter 11 Cases (Debtors"), Ableco Finance LLC and FOOTHILL CAPITAL CORPORATION hereby propose the following Joint Plan of Reorganization pursuant to section 1121(a), title 11, United States Code. ARTICLE 1. DEFINITIONS As used in this Plan, the following terms shall have the respective meanings specified below: 1.1 Ableco. Ableco Finance LLC. 1.2 Administrative Bar Date. The date forty-five (45) days after the Effective Date or such other date(s), if any, as determined by order of the Bankruptcy Court. 1.3 Administrative Claim. Any cost or expense of administration of the Chapter 11 Cases (a) required to be asserted by filing an application with the Bankruptcy Court on or before the Administrative Bar Date or (b) Allowed under section 503(b) of the Bankruptcy Code, except to the extent the holder of such Claim agrees to be treated differently. Administrative Claims include, but are not limited to, (i) any actual and necessary expenses of preserving the estate of the Debtors incurred during the Chapter 11 Cases, (ii) any actual and necessary expenses of operating the business of the Debtors incurred during the Chapter 11 Cases, (iii) any indebtedness or obligations incurred or assumed by the Debtors in connection with the conduct of the business as a debtor-in-possession or for the acquisition or lease of property by, or for the rendition of services to, the Debtors as debtors-in-possession, (iv) obligations pursuant to executory contracts assumed by the Debtors pursuant to an order of the Bankruptcy Court, (v) all Claims as provided by section 507(b) of the Bankruptcy Code, (vi) all allowances of compensation or reimbursement of expenses to the extent allowed by the Bankruptcy Court, (vii) any Allowed Contingent Claims which are granted administrative priority status by Final Order of the Bankruptcy Court, (viii) all fees payable and unpaid under section 1930 of title 28, United States Code and (ix) any fees or charges assessed against the estates of the Debtors under Chapter 123, title 28, United States Code. 1.4 Allowed Claim. Any Claim against the Debtors (i) proof of which (or application for) was filed on or before the date designated by the Bankruptcy Court as the last date for filing proofs of claims against the Debtors or, if no proof of claim is filed, which has been or hereafter is listed by the Debtors in their Schedules as liquidated in amount and not disputed or contingent and, in either case, a Claim as to which, (a) no objection to the allowance thereof has been interposed within the applicable period of limitation fixed by this Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court or (b) the Debtors have determined that no objection will be filed, or (ii) in favor of any Person arising from a judgment against such Person in any Avoidance Action (if the effect of such judgment gives such Person an Allowed General Unsecured Claim). A Disputed Claim shall be an Allowed Claim if, and only to the extent that, such Disputed Claim has been Allowed by a Final Order. The term "Allowed," when used to modify a reference in this Plan to any Claim or class of Claims, shall mean a Claim (or any Claim in any such class) that is allowed, e.g., an Allowed Secured Claim is a Claim that has been Allowed to the extent of the value, as determined by the Bankruptcy Court pursuant to section 506(a) of the Bankruptcy Code, of any interest in property of the estates of the Debtors securing such Claim. Unless otherwise specified in this Plan or in the Final Order of the Bankruptcy Court allowing such Claim, "Allowed Claim" shall not include interest on the amount of such Claim from and after the Petition Date. 1.5 Assumed Agreement. Each executory contract and unexpired lease of the Debtors that is assumed pursuant to the Plan, including, without limitation, those listed on Schedule 1.4 hereof, which schedule may be amended by the Debtors prior to entry of the Confirmation Order. 1.6 Avoidance Action. Any action to avoid a transfer of property or to recover property pursuant to ss.ss. 542, 543, 544, 545, 546, 547, 548, 549, 550, 551 or 553 of the Bankruptcy Code. 1.7 Ballot. The document used in voting on the Plan that must be executed and delivered by holders of Claims and Interests entitled to vote on the Plan. 1.8 Bankruptcy Code. The Bankruptcy Reform Act of 1978, as amended, title 11, United States Code. 1.9 Bankruptcy Court. The unit of the United States District Court for the District of Delaware having jurisdiction over the Chapter 11 Cases. 1.10 Bankruptcy Rules. The Federal Rules of Bankruptcy Procedure and the local rules of the Bankruptcy Court, as applicable to the Chapter 11 Cases. 1.11 Business Day. Any day other than a Saturday, Sunday or other day on which commercial banks in New York are authorized or required by law to close. 2 1.12 Cash. Cash and readily marketable securities or instruments including, without limitation, readily marketable direct obligations of the United States of America or agencies or instrumentalities thereof, time certificates of deposit issued by any bank, and commercial paper. 1.13 Causes of Action. Any and all actions, causes of action, liabilities, obligations, rights, suits, debts, damages, judgments, claims and demands whatsoever, whether known or unknown, contingent or non-contingent, liquidated or unliquidated, in law, equity or otherwise, of the Debtors with respect to any other party, existing at or prior to the Effective Date, including, without limitation, Avoidance Actions. 1.14 Chapter 11 Cases. The cases under Chapter 11 of the Bankruptcy Code in which the Debtors are the debtors. 1.15 Claim. Any right to payment from the Debtors, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, arising at any time before the Effective Date or relating to any event that occurred before the Effective Date; or any right to an equitable remedy for breach of performance if such breach gives rise to a right of payment from the Debtors, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured, arising at any time before the Effective Date or relating to any event that occurred before the Effective Date. 1.16 Committee. The official committee of unsecured creditors appointed in the Debtors' Chapter 11 Cases by the Office of the United States Trustee on November 20, 2001. 1.17 Common Stock. All of the outstanding shares of common stock (or equivalent common equity security, however designated) in the Debtors. 1.18 Confirmation Date. The date upon which the Bankruptcy Court enters the Confirmation Order. 1.19 Confirmation Order. An order of the Bankruptcy Court confirming this Plan in accordance with the provisions of Chapter 11 of the Bankruptcy Code. 1.20 Contingent Claim. A Claim which is either contingent or unliquidated on or immediately before the Confirmation Date. 1.21 Convenience Class Claim. Any Unsecured Claim of $1,000 or less or that is reduced to $1,000 by the holder thereof by making such election on its ballot. 1.22 Creditor. Any Person that holds a Claim against the Debtors. 1.23 Debtors. The Debtors (as defined in the preamble), including in their capacity as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 3 1.24 Disclosure Statement. The disclosure statement filed with the Bankruptcy Court with respect to the Plan, either in its present form or as it may be altered, amended or modified from time to time. 1.25 Disputed Claim. A Claim which is the subject of a timely objection interposed by the Debtors or the Reorganized Debtors, if at such time such objection remains unresolved; provided, however, that the Bankruptcy Court may determine the amount of a Disputed Claim for purposes of allowance pursuant to section 502(c) of the Bankruptcy Code; provided, further, that, except as otherwise provided in Section 7.3 of this Plan, the Debtors or the Reorganized Debtors, in their sole discretion, may elect to treat the portion of a Disputed Claim, if any, that is not in dispute as an Allowed Claim, with the disputed portion remaining a Disputed Claim. 1.26 Distribution Date. With respect to any Allowed Claim, each date on which a distribution is made with respect to such Allowed Claim. 1.27 Effective Date. The Business Day on which all of the conditions set forth in Section 10.1 of this Plan shall have been satisfied or waived . 1.28 Employee Stock Bonus Plan. The new stock bonus plan being established for directors, officers and employees of the Debtors under which they will receive, in the aggregate, up to 20% of the Common Stock of Reorganized GDC on a fully diluted basis (but subject to dilution upon exercise of the Lender Warrants), as will be more fully set forth in the Stock Bonus Plan to be filed as a Plan Supplement at least ten days prior to the Voting Deadline. 1.29 Equity Interest. Any interest in the Debtors represented by any class or series of Preferred Stock, Common Stock or other capital stock of the Debtors prior to the Petition Date, and any and all warrants, options, convertible or exchangeable securities, subscriptions, rights (including any preemptive rights), stock appreciation rights, calls or commitments of any character whatsoever relating to any such shares of capital stock of the Debtors. Equity Interests also include, without limitation, all Stockholder Actions and other Claims arising from rescission of a purchase or sale of an Equity Interest, for damages arising from the purchase or sale of such an Equity Interest, or for reimbursement or contribution allowed under section 502 of the Bankruptcy Code on account of such a Claim. 1.30 Final Distribution Date. The first Distribution Date to occur after all Disputed Claims are resolved and Avoidance Actions that are pursued and prosecuted by or on behalf of the Debtors by the Reorganized Debtors have been resolved by Final Order. 1.31 Final Order. An order which is no longer subject to appeal, certiorari proceeding or other proceeding for review or rehearing, and as to which no appeal, certiorari proceeding, or other proceeding for review or rehearing shall then be pending. 1.32 Foothill. Foothill Capital Corporation. 1.33 GDC. General DataComm Industries, Inc. 4 1.34 GDC Common Stock. The currently outstanding shares of Common Stock or Common Stock equivalents of GDC, $.10 par value, as well as the Class B Common Stock and the remaining shares of Redeemable 5% Preferred Stock automatically converted into shares of Common Stock of GDC on July 31, 2002. 1.35 General DataComm. General DataComm, Inc. 1.36 General Unsecured Claim. Any Unsecured Claim, other than an Administrative Claim, an Other Priority Claim, a Priority Tax Claim, or a Convenience Class Claim. Allowed General Unsecured Claims include, without limitation, Allowed Unsecured Deficiency Claims, and any Claim in favor of any Person arising from a judgment against such Person in any Avoidance Action (if the effect of such judgment gives such Person an Allowed General Unsecured Claim). 1.37 Lender. Collectively, Ableco and Foothill. 1.38 Lender Director Selection Right. The right of Ableco to select three directors of GDC for so long as any portion of the New Lender Term Obligation or the New Lender PIK Obligation remains outstanding. 1.39 Lender Release. The mutual release to be executed by the Debtors, Ableco and Foothill on the Effective Date, which shall release all rights, claims and causes of action between the parties, except as otherwise provided for in the New Lender Loan and Security Agreement and the Lender Warrants, as will be more fully set forth in the form of release to be filed as a Plan Supplement at least 10 days prior to the Voting Deadline. 1.40 Lender Secured Claim. The Secured Claim of the Lender which is being satisfied by the agreed upon treatment provided for in Section 4.2 of the Plan. 1.41 Lender Warrants. The warrants to be given to Ableco under the Plan, which shall contain those provisions outlined in Schedule 1.41 hereto and as will be more fully set forth in the form of warrant agreement (and the related registration rights agreement) to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.42 New Debentures. The Debentures to be issued pursuant to the New Indenture and distributed to the holders of Allowed General Unsecured Claims, which shall be subject to those provisions outlined in Schedule 1.42 hereto, and as will be more fully set forth in the form of New Indenture to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.43 New Indenture. The indenture agreement which shall govern the terms of the New Debentures and the rights and duties of the New Indenture Trustee, which shall contain those provisions outlined in Schedule 1.42 hereto and as will be more fully set forth in the form of indenture agreement to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 5 1.44 New Indenture Trustee. The indenture trustee for the New Debentures to be selected by the Debtors prior to the Effective Date, or any replacement for such indenture trustee. 1.45 New Lender Loan and Security Agreement. The new loan and security agreement to be executed on the Effective Date and which shall govern the New Lender Term Obligation and the New Lender PIK Obligation, as will be more fully set forth in the form of loan and security agreement to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.46 New Lender PIK Obligation. The obligation in the face amount of $5,000,000 as of August 20, 2002 to be given to Ableco under the Plan, which shall contain those provisions outlined in Schedule 1.46 hereto and as will be more fully set forth in the form of note to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.47 New Lender Term Obligation. The obligation in the face amount of $25,000,000 as of August 20, 2002 to be given to Ableco under the Plan which shall contain those provisions outlined on Schedule 1.47 hereto and as will be more fully set forth in the form of note to be included in the Plan Supplement to be filed with the Court at least 10 days prior to the Voting Deadline. 1.48 Old GDC Stock Option Plans. All contracts, plans, agreements or arrangements existing on the Petition Date providing for the grant to any current or former employees of the Debtors of Common Stock or warrants or options to acquire Common Stock of GDC. 1.49 Other Priority Claims. Any Claim to the extent entitled to priority in payment under sections 507(a)(2) through 507(a)(7) of the Bankruptcy Code. 1.50 Person. An individual, a corporation, a partnership, an association, a joint stock company, a joint venture, an estate, a trust, an unincorporated organization or a government, governmental unit or any subdivision thereof or any other entity. 1.51 Petition Date. November 2, 2001. 1.52 Plan. This Plan of Reorganization, either in its present form or as it may be amended or modified from time to time in any manner permitted by the Bankruptcy Code or Bankruptcy Rules. 1.53 Plan Supplement. The collection of Plan related documents to be filed with the Court at least 10 days prior to the Voting Deadline, which may consist of one or multiple filings. 1.54 Pre-Petition Secured Loan Agreements. The loan and security agreement, pledge agreements, notes and other documents evidencing the Debtors' pre-petition secured loan obligations to Ableco and Foothill. 6 1.55 Preferred Interests. The 9% Preferred Stock of GDC and any other Equity Interests in GDC having priority over the GDC Common Stock. 1.56 Priority Tax Claim. Any Claim arising prior to the Petition Date to the extent entitled to priority in payment under section 507(a)(8) of the Bankruptcy Code. 1.57 Pro Rata. As of any certain date, with respect to any Allowed Claim or Allowed Equity Interest in any Class, the proportion that such Allowed Claim or Allowed Equity Interest bears to the aggregate amount of all Claims or Equity Interests, including Disputed Claims or Equity Interests, in such Class. 1.58 Registered Holder. The holder of record of any shares of GDC Common Stock on the applicable record date, as such holder's name appears on the stock registry of GDC. 1.59 Rejected Agreement. Each executory contract and unexpired lease of the Debtors which (i) is not an Assumed Agreement, (ii) has not been expressly assumed or rejected by order of the Bankruptcy Court prior to the Confirmation Date, or (iii) is not the subject of a pending motion to assume on the Effective Date. 1.60 Reorganized Debtors. Collectively, the Debtors from and after the Effective Date, as reorganized, discharged and revested with their assets pursuant to this Plan. 1.61 Retiree Benefits. Payments to any Person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by any of the Debtors prior to the Petition Date. 1.62 Schedules. The schedules of assets and liabilities and any amendments thereto filed by the Debtors with the Bankruptcy Court in accordance with section 521(l) of the Bankruptcy Code. 1.63 Secured Claim. A Claim to the extent of the value, as determined pursuant to section 506(a) or 1111(b) of the Bankruptcy Code, of any interest in property of the Debtors' estates securing such Claim. To the extent that the value of such interest is less than the amount of the Claim which has the benefit of such security, such Claim is an Unsecured Deficiency Claim unless, in any such case, the class of which such Claim is a part makes a valid and timely election under section 1111(b) of the Bankruptcy Code to have such Claim treated as a Secured Claim to the extent allowed. 1.64 73/4% Debentures. GDC's 73/4% Convertible Senior Subordinated Debentures due 2002. 1.65 7 3/4% Indenture. The Indenture dated as of September 26, 1997 between GDC and Continental Stock Transfer & Trust Company, with respect to the 7 3/4% Debentures. 7 1.66 73/4% Indenture Trustee. Continental Stock Transfer & Trust Company in its capacity as trustee with respect to the 73/4% Debentures. 1.67 Stockholder Actions. Any claims, litigation or actions brought or that could have been or could be brought by or on behalf of stockholders of GDC or derivatively on behalf of GDC or any of its subsidiaries, arising out of or with respect to any action, event or omission occurring before the Confirmation Date. 1.68 Subsidiary Debtors. The Debtors, other than GDC. 1.69 Taxes. All income, franchise, excise, sales, use, employment, withholding, property, payroll and other taxes, assessments, and governmental charges, together with any interest, penalties, additions to tax, fines, and similar amounts relating thereto, imposed or collected by any federal, state, local or foreign governmental authority. 1.70 Unsecured Claim. A Claim not secured by a charge against or interest in property in which the Debtors' estates have an interest, including any Unsecured Deficiency Claim, and any Claim arising at any time under Bankruptcy Rule 3002(c)(3). 1.71 Unsecured Creditors Director Selection Right. The right of the Committee initially and after the Effective Date the right of the New Indenture Trustee to select one director of GDC for so long as any portion of the New Debentures remain outstanding, provided that if the Lender Secured Claim has not been paid in full by the third anniversary of the Effective Date, the New Indenture Trustee shall have the right to select two additional directors of GDC (for a total of three) until the Lender Secured Claim has been paid in full, and provided further however, in the event there is a payment default with respect to the New Debentures that is not cured within 60 days after notice, the Indenture Trustee shall be entitled to appoint a majority of the board of directors of GDC until the New Debentures have been paid in full. 1.72 Unsecured Deficiency Claim. A Claim by a Creditor arising out of the same transaction as a Secured Claim to the extent that the value, as determined by the Bankruptcy Court pursuant to section 506(a) of the Bankruptcy Code, of such Creditor's interest in property of the Reorganizing Debtors' estates securing such Claim is less than the amount of the Claim which has the benefit of such security as provided by section 506(a) of the Bankruptcy Code. 1.73 Voting Deadline. The date set in an order of the Bankruptcy Court as the deadline for the return of Ballots accepting or rejecting the Plan. 1.74 Other Definitions. Unless the context otherwise requires, any capitalized term used and not defined herein or elsewhere in this Plan but that is defined in the Bankruptcy Code or Bankruptcy Rules shall have the meaning set forth therein. Wherever from the context it appears appropriate, each term stated in either of the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. The words "herein," "hereof," "hereto," "hereunder," and others of similar inference refer to this Plan as a whole and not to any particular article, section, subsection, or clause contained in this Plan. The word "including" shall mean including without limitation. 8 ARTICLE 2 SUBSTANTIVE CONSOLIDATION AND MERGER ------------------------------------ Pursuant to the Plan, the Chapter 11 Cases of the Debtors will be substantively consolidated for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation and distribution. As a result of such substantive consolidation, (i) all assets and liabilities of the Subsidiary Debtors shall be treated as though they were merged into and with the assets and liabilities of GDC, (ii) no distributions shall be made under the Plan on account of intercompany claims among the Debtors, (iii) all guarantees of the Debtors of the obligations of any other Debtor and any joint or several liability of any of the Debtors shall be deemed to be one obligation of the consolidated Debtors and (iv) each and every Claim filed or to be filed in the Chapter 11 Cases of any of the Debtors shall be deemed filed against the consolidated Debtors and shall be deemed one Claim against and obligation of the consolidated Debtors. Such substantive consolidation shall not (other than for purposes related to the Plan) affect (i) the legal and corporate structures of the Reorganized Debtors, except that on the Effective Date, DataComm Rental Corporation, General DataComm International Corporation and General DataComm China, Ltd shall be merged into GDC and shall cease to exist as separate corporate entities, (ii) Subsidiary Equity Interests and (iii) pre and post Confirmation Date guarantees that are required to be maintained (a) in connection with executory contracts or unexpired leases that were entered into during the Chapter 11 Cases or that have been or will be assumed, or (b) pursuant to the Plan. Notwithstanding the foregoing, substantive consolidation will not affect the obligation of each and every debtor to pay quarterly fees to the Office of the United States Trustee pursuant to 28 U.S.C. ss. 1930 (a)(6) until each case is closed, converted or dismissed. At the Confirmation Hearing, the Debtors may submit an order to the Court closing some or all of the Chapter 11 Cases other than the Chapter 11 Case of GDC, effective as of the Effective Date. 9 ARTICLE 3. PROVISIONS FOR PAYMENT OF ALLOWED ADMINISTRATIVE AND PRIORITY TAX CLAIMS -------------------------------------- 3.1 General. Administrative Claims and Priority Tax Claims are not classified in this Plan. The treatment of and consideration to be received by holders of Allowed Administrative Claims and Allowed Priority Tax Claims pursuant to this Article 3 of the Plan shall be in full and complete satisfaction, settlement, release and discharge of such Claims. The Debtors' obligations in respect of such Allowed Administrative and Priority Tax Claims shall be satisfied in accordance with the terms of this Plan. 3.2 Treatment of Administrative Claims. Except to the extent the holder of an Allowed Administrative Claim agrees otherwise, each holder of an Allowed Administrative Claim shall be paid in respect of such Allowed Claim the full amount thereof, in Cash, as soon as practicable after the later of (i) the Effective Date and (ii) the date on which such Claim becomes an Allowed Claim, except that Allowed Administrative Claims arising in the ordinary course of business shall, if due at a later date pursuant to their terms, be paid when otherwise due. On the Effective Date, the Reorganized Debtors shall establish a reserve, in an amount to be agreed to by the Committee and Debtors prior to the Confirmation Hearing or in the absence of such an agreement in an amount to be established by the Court at the Confirmation Hearing, to be used to pay all or a portion of the accrued and unpaid fees and expenses of the Committee's professionals existing as of the Effective Date. 3.3 Treatment of Priority Tax Claims. Except to the extent that a holder of an Allowed Priority Tax Claim has been paid by the Debtors prior to the Effective Date or agrees to a different treatment, each holder of an Allowed Priority Tax Claim shall receive, at the sole option of the Reorganized Debtors, (a) Cash in an amount equal to such Allowed Priority Tax Claim on the later of the Effective Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (b) equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to 4.25%, over a period through the sixth anniversary of the date of assessment of such Allowed Priority Tax Claim, or upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim. 3.4 Bar Date for Administrative Claims. Unless otherwise ordered by the Bankruptcy Court, requests for payment of Administrative Claims, including all applications for final allowance of compensation and reimbursement of expenses must be filed and served on the Reorganized Debtors, the Office of the United States Trustee and counsel to the Committee and Lender, no later than forty-five (45) days after the Effective Date. Any Person required to file and serve a request for payment of an Administrative Claim and who fails to timely file and serve such request, shall be forever barred, estopped and enjoined from asserting such Claim or participating in distributions under the Plan on account thereof. 10 ARTICLE 4 DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS --------------------------- A Claim or Equity Interest is included in a particular class or designation only to the extent that such Claim or Equity Interest qualifies within the description of that class or designation, and is in a different class or designation to the extent that the remainder of such Claim or Equity Interest qualifies within the description of such different class or designation. The Claims against and Equity Interests in the Debtors are designated, and shall be treated, as follows: 4.1 Class 1 - Other Priority Claims. Allowed Other Priority Claims are unimpaired by this Plan. The legal, contractual and equitable rights of each Allowed Class 1 Claim shall be left unaltered. Payment in full in Cash shall be made to the holders of Allowed Class 1 Claims as soon as practicable after the later of (i) the Effective Date, and (ii) the date on which any such Claim becomes an Allowed Claim. The holders of Claims in this Class are not entitled to vote because their Claims are unimpaired. 4.2 Class 2 - Allowed Lender Secured Claim. The Allowed Lender Secured Claim is impaired by the Plan. In full and complete satisfaction of the Allowed Lender Secured Claim, the holder thereof shall receive the New Lender Loan and Security Agreement, the Lender Warrants, the Lender Release and the Lender Director Selection Right. The holders of the Claim in this class are entitled to vote because their Claim is impaired. 4.3 Class 3 - Other Secured Claims. Allowed Other Secured Claims may be impaired by the Plan. Each Allowed Other Secured Claim, if any, shall be deemed to be a separate subclass. In full satisfaction of each Allowed Other Secured Claim, each holder of such Claim shall, at the option of the Reorganized Debtors, receive either (i) payment in full in Cash in the amount of such Claim as soon as practicable after the later of (a) the Effective Date, and (b) the date on which such Claim becomes an Allowed Claim, (ii) the collateral securing such Claim, or (iii) such other treatment as may be agreed to by the Reorganized Debtors and the holder of such Claim. The holders of Claims in this Class, if any, are entitled to vote because their Claims may be impaired. 4.4 Class 4 - Allowed General Unsecured Claims. Allowed General Unsecured Claims are impaired by the Plan. In full satisfaction of each Allowed General Unsecured Claim, each holder of such Claim shall receive a New Debenture in the full amount of such Allowed General Unsecured Claim, which shall be subject to the terms of the New Indenture. The holders of Claims in this Class are entitled to vote because their Claims are impaired. 4.5 Class 5 - Allowed Convenience Class Claims. Allowed Convenience Class Claims are impaired by this Plan. In full satisfaction of each Allowed Convenience Class Claim, each holder of such Claim shall receive payment in full in cash within 60 days after the Effective Date. The holders of Claims in this Class are entitled to vote because their Claims are impaired. 11 4.6 Class 6 - Preferred Interests in GDC. Holders of Preferred Interests in GDC are unimpaired by this Plan. The legal, equitable and contractual rights of the holders of Allowed Preferred Interests in GDC shall remain unaltered by the Plan. The holders of Interests in this Class are not entitled to vote because their Interests are unimpaired. 4.7 Class 7 - Equity Interests in Subsidiary Debtors. This Class is unimpaired by the Plan. All common stock interests in the Debtors other than GDC, and all options and rights with respect thereto, shall be retained by the respective parent Debtor without alteration. The holders of interests in this Class are not entitled to vote because their Interests are unimpaired. 4.8 Class 8 -GDC Common Stock Interests. This Class is impaired by the Plan. All shares of GDC Common Stock and the warrants, rights and options with respect thereto shall be retained by the holders thereof without alteration, except that (a) they shall be subject to dilution as the result of the Employee Stock Bonus Plan, (b) they shall be subject to dilution in the event of the exercise of the Lender Warrants, (c) they shall be subject to the Lender Director Selection Right and the Unsecured Creditors Director Selection Right, (d) they shall be subject to a 10/1 reverse stock split effective as of the Effective Date and (e) they shall be subject to any modifications made to Reorganized GDC's articles of incorporation and bylaws. The holders of Interests in this Class are entitled to vote because their Interests are impaired. ARTICLE 5. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ---------------------------------------- 5.1 Assumption of Certain Executory Contracts and Unexpired Leases. (a) As of the Effective Date, all Executory Contracts and Unexpired Leases which have not previously been assumed or rejected or are not the subject of a motion to reject pending on the Confirmation Date, including, without limitation, the Assumed Agreements listed on Schedule 1.4 attached hereto, shall be assumed by the Debtors, and the Confirmation Order shall constitute an order under section 365 of the Bankruptcy Code assuming such agreements as of the Effective Date. (b) The amount of any cure payment the Debtors believe are required for each identified Assumed Agreement is listed on Schedule 1.4. The cure amounts listed on Schedule 1.4 shall be binding on the counterpart to each Assumed Agreement, unless an objection is filed by the deadline established for filing objections to confirmation of the Plan. If an objection to a cure amount is filed, the cure amount shall be agreed to by the parties or established by order of the Bankruptcy Court. (c) The Reorganized Debtors may reach agreements with parties to certain Assumed Agreements providing for the deferral of cure payments that would otherwise be due by reason of such assumption and for the payment of interest on such deferred amounts. 5.2 Rejection and Cancellation of 7 3/4% Indenture. On the Effective Date, the 7 3/4% Indenture, to the extent it is an executory contract within the meaning of section 365 of the Bankruptcy Code, shall be deemed 12 rejected in accordance with the provisions of sections 365 and 1123 of the Bankruptcy Code and, to the extent it is not an executory contract subject to rejection under section 365 of the Bankruptcy Code, the 7 3/4% Indenture shall be cancelled and deemed terminated pursuant to section 1123(a)(5)(F) of the Bankruptcy Code. Any and all obligations of the Debtors under the 7 3/4% Indenture, including without limitation any obligations of the Debtors which the 7 3/4% Indenture provides will continue and survive the satisfaction and discharge thereunder, are and shall be extinguished. Entry of the Confirmation Order by the Bankruptcy Court shall constitute approval of such deemed rejection and/or cancellation pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Notwithstanding the rejection and/or cancellation of the 7 3/4% Indenture, the holders of the 7 3/4% Debentures will have the right to receive distributions on account of their Allowed Claims under the Plan. Notwithstanding the rejection and/or cancellation of the 7 3/4% Indenture, the 7 3/4% Indenture shall remain in effect as to the 7 3/4% Indenture Trustee to the extent necessary to allow the 7 3/4% Indenture Trustee to make the distributions to holders of the 7 3/4% Debentures under the Plan and the Confirmation Order. Any actions taken by the 7 3/4% Indenture Trustee other than as provided for in the Plan in respect of distributions, including without limitation any actions to enforce any lien provided to the 7 3/4% Indenture Trustee under the 7 3/4% Indenture shall be null and void as to the Debtors and the Reorganized Debtors, none of which shall be liable for any fees, costs or charges associated with unauthorized actions by the 7 3/4% Indenture Trustee. The 7 3/4% Indenture Trustee shall be relieved of all obligations under the 7 3/4% Indenture after its performance of its obligations to make the distributions to holders of Allowed General Unsecured Claims with respect to the 7 3/4% Debentures, as provided by the Plan and Confirmation Order. 5.3 Indemnification Obligations Assumed. For purposes of the Plan, the obligations of the Debtors to indemnify their respective present directors or officers, in such capacity or as plan administrators or trustees to any employee benefit plan, or any person serving at the request of any of the Debtors as a director, officer of any other entity pursuant to the Debtors' certificates of incorporation or by-laws or pursuant to and consistent with applicable state law or specific agreement, or any combination of the foregoing, shall be deemed to be executory contracts, shall be assumed by the Reorganized Debtors, effective as of the Effective Date, in accordance with the provisions of sections 365 and 1123 of the Bankruptcy Code and shall survive confirmation of the Plan, remain unaffected thereby, shall not be discharged, and shall pass unaltered to the Reorganized Debtors irrespective of whether such indemnification is owed in connection with an event occurring before, on or after the Petition Date. The Debtors are not aware of any claims being asserted against their officers and directors or of any facts or circumstances that would give rise to a claim being asserted against their officers and directors that would result in an indemnification claim being asserted against the Debtors by their officers and directors. 5.4 Claims Based on Rejection of Executory Contracts or Unexpired Leases. Except to the extent a prior order of the Bankruptcy Court provided for an earlier date, in which case such earlier date shall control, all proofs of claim with respect to Claims arising from the rejection of executory contracts or unexpired leases shall be filed with the Bankruptcy Court within thirty (30) days after the date of service of notice of entry of an order of the Bankruptcy Court approving such rejection and requiring the filing of a proof of claim. Any Claims not filed within such times shall be released and discharged and forever barred from assertion against the Debtors, their estates and property, or the Reorganized Debtors. 13 ARTICLE 6. ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE CLASSES ------------------------------------------ 6.1 Impaired Classes to Vote. Except as otherwise required by the Bankruptcy Code or the Bankruptcy Court, any holder of a Claim that is impaired under this Plan is entitled to vote to accept or reject this Plan if, at any time prior to the voting deadline, (i) its Claim has been Allowed, (ii) its Claim has been temporarily allowed for voting purposes only by order of the Bankruptcy Court pursuant to Bankruptcy Rule 3018 (in which case such Claim may be voted in such temporarily allowed amount), (iii) its Claim has been scheduled by the Debtors (but only if such Claim is not scheduled as disputed, contingent or unliquidated) and no objection to such Claim has been filed, or (iv) it has filed a proof of claim on or before the Bar Date (or such later date as the Bankruptcy Court may have established with respect to any particular Claim, but not later than the date of the order approving the disclosure statement accompanying this Plan), and such Claim is not a Disputed Claim. Notwithstanding the foregoing, a holder of a Disputed Claim which has not been temporarily allowed as provided above may nevertheless vote such Disputed Claim in an amount equal to the portion, if any, of such Claim shown as fixed, liquidated and undisputed in the Debtors' Schedules. 6.2 Acceptance By Class of Creditors. A class of Creditors shall have accepted this Plan if this Plan is accepted by at least two-thirds in amount and more than one-half in number of the Allowed Claims of such class that have voted and either accepted or rejected this Plan. 6.3 Acceptance By Class of Interests. A class of Interests shall have accepted this Plan if this Plan is accepted by at least two-thirds in amount of the Allowed Interests of such class that have voted and either accepted or rejected this Plan. 6.4 Cramdown. In the event that one or more classes of impaired Claims or Interests does not accept or is deemed not to have accepted this Plan, the Debtors requests that the Bankruptcy Court confirm this Plan in accordance with section 1129(b) of the Bankruptcy Code. The Debtors reserve the right to amend the Plan, if necessary, in order to satisfy the requirements of section 1129(b) of the Bankruptcy Code. 14 ARTICLE 7. PROVISIONS COVERING DISTRIBUTIONS AND PAYMENTS ---------------------------------------------- 7.1 Making of Distributions and Payments. (a) The Reorganized Debtors shall make the payments and distributions expressly required to be made in respect of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, Allowed Lenders Secured Claim, Allowed Other Secured Claims, Allowed General Unsecured Claims, and Allowed Convenience Class Claims at such time or times as are provided for in Articles 3, 4 and 7 hereof. 7.2 Distribution to Lenders. On the Effective Date, the Reorganized Debtors shall distribute the New Lender Loan and Security Agreement and the Lender Warrants to Ableco and the Debtors, Ableco and Foothill shall execute the Lender Release. 7.3 Distribution of New Debentures. On the Effective Date or as soon thereafter as is practicable, the Reorganized Debtors shall deliver to the New Indenture Trustee, New Debentures in the amount of the Allowed General Unsecured Claims as of that date, for distribution to the holders of such Allowed Claims. Thereafter, on a quarterly basis, the Reorganized Debtors shall deliver additional New Debentures to the New Indenture Trustee in an amount equal to the General Unsecured Claims that have become Allowed Claims since the last distribution, for distribution to the holders of such Allowed Claims. If at the time the Reorganized Debtors' initial payment obligation on account of the New Debentures becomes due, there are unresolved Disputed Claims, the Reorganized Debtors shall issue New Debentures on account of the undisputed portion, if any, of such unresolved Disputed Claims, with the balance of such Claim to remain a Disputed Claim until settled or a Final Order is entered with respect to such Claim. If there are Disputed Claims (or portions thereof) outstanding at such time as the Reorganized Debtors make any payments on the New Debentures, the Reorganized Debtors shall reserve, in a segregated account, on account of such Disputed Claims either (a) an amount equal to the payment that would have been made on account of such Disputed Claim if it were Allowed in the amount asserted or (b) an amount determined by the Bankruptcy Court upon estimation of such Claim for purposes of establishing the reserve amount. If New Debentures are issued on account of Disputed Claims after the initial payment is made on account of the New Debentures, at the time such New Debentures are issued to the holders of such previously Disputed Claims, the Reorganized Debtors shall also pay over to the New Indenture Trustee from such reserve account, for payment to such Claim holder, an amount equal to the principal and interest payments that would have been made on account of such New Debenture if it had been issued prior to the time the initial payment was made on account of the New Debentures. Any amounts reserved by the Reorganized Debtors in excess of their actual payment obligations on account of such Disputed Claims at the time the Claim is resolved and the New Debentures are issued, shall be returned to the Reorganized Debtors' general operating account. 7.4 Delivery of Distributions; Unclaimed Property. (a) Distributions and deliveries to holders of Allowed Claims shall be made at the addresses set forth on the proofs of claim filed by such holders (or at the last known addresses of such holders if no proof of claim is filed or if the Reorganized Debtors have been notified of a change of address). 15 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 in writing of such holder's then current address, at which time all missed distributions shall be made to such holder without interest (except to the extent that such missed distributions have become unclaimed property). All claims for undeliverable distributions shall be made on or before the earlier of the second (2nd) anniversary of the applicable Distribution Date and the Final Distribution Date, and after such date, such undeliverable distributions shall be unclaimed property. All unclaimed property attributable to any Claim or Equity Interest shall revert to the Reorganized Debtors, and the claim of any holder with respect to such property shall be discharged and forever barred and, in the case of a Claim, shall no longer be deemed an Allowed Claim. (b) Checks issued by the Reorganized Debtors in respect of Allowed Claims shall be null and void if not cashed within ninety (90) days of the date of issuance thereof. Requests for reissuance of any check shall be made in writing to the Reorganized Debtors by the record holder of the Allowed Claim with respect to which such check was originally issued. Any funds in respect of such a voided check shall be deemed an undeliverable or unclaimed distribution and shall revert to the Reorganized Debtors. (c) Method of Payment. Payments of Cash required to be made pursuant to this Plan shall be made by check drawn on a domestic bank or by wire transfer from a domestic bank at the election of the Person making such payment. (d) Payment Dates. Whenever any payment or distribution to be made under this Plan shall be due on a day other than a Business Day, such payment or distribution shall instead be made, without interest, on the immediately following Business Day. (e) Rounding. Whenever any payment of a fraction of a cent would otherwise be called for, the actual payment shall reflect a rounding of such fraction to the nearest whole cent, with one-half cent being rounded up to the nearest whole cent. 7.5. Payments of Less Than Five Dollars. If a cash payment otherwise provided for by this Plan with respect to an Allowed Claim would be less than five ($5.00) dollars (whether in the aggregate or on any Distribution Date provided for in this Plan), notwithstanding any contrary provision of this Plan, the Reorganized Debtors shall not be required to make such payment. ARTICLE 8. PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND CAUSES OF ACTION ------------------------------------ 8.1 Filing of Objections to Claims. Objections to Claims shall be filed with the Bankruptcy Court and served upon the holders of such Claims no later than 120 days after the Effective Date, provided however, that this deadline may be extended by the Bankruptcy Court upon a motion of the Reorganized Debtors, without notice or a hearing. Notwithstanding the foregoing, 16 unless an order of the Bankruptcy Court specifically provides for a later date, any proof of claim filed after the Confirmation Date shall be automatically disallowed as a late filed claim, without any action by the Reorganized Debtors, unless and until the party filing such Claim obtains the written consent of the Reorganized Debtors to file such Claim late or obtains an order of the Bankruptcy Court upon notice to the Reorganized Debtors that permits the late filing of the Claim, in which event, the Reorganized Debtors shall have 120 days from the date of such written consent or order to object to such Claim, which deadline may be extended by the Bankruptcy Court upon motion of the Reorganized Debtors, without notice or a hearing. 8.2 Prosecutions of Objections to Claims. Prior to the Effective Date the Debtors shall litigate to judgment, propose settlements of or withdraw objections to such Disputed Claims asserted against them as the Debtors may choose. From and after the Effective Date, the Reorganized Debtors shall litigate to judgment, propose settlements of or withdraw objections to all Disputed Claims. The Reorganized Debtors will act in accordance with their fiduciary duties as reorganized debtors in the claims resolution process. All proposed settlements of Disputed Claims where the settlement amount exceeds $125,000, shall be subject to the approval of the Bankruptcy Court after notice and opportunity for a hearing (as that term is used in section 102(1) of the Bankruptcy Code). After the Effective Date, the Reorganized Debtors may settle any Disputed Claim where the settlement amount is $125,000 or less without providing any notice or obtaining an order from the Court. 8.3 Payment or Distribution Upon Resolution of Disputed Claims. Except as the Debtors or the Reorganized Debtors, as applicable, may otherwise agree with respect to any Disputed Claim, no payments or distributions shall be made with respect to any portion of a Disputed Claim unless and until (a) all objections to such Disputed Claim have been resolved or determined by a Final Order of the Bankruptcy Court or (b) the Bankruptcy Court shall have entered an order treating any portion of a Disputed Claim as an Allowed Claim. Payments and distributions to each holder of a Disputed Claim to the extent that it ultimately becomes an Allowed Claim shall be made in accordance with the provisions of this Plan with respect to the class of Claims to which such Allowed Claim belongs. A Disputed Claim which is estimated for purposes of allowance and distribution pursuant to section 502(c) of the Bankruptcy Code and which is estimated and Allowed at a fixed amount by Final Order of the Bankruptcy Court shall thereupon be an Allowed Claim for all purposes in the amount so estimated and Allowed. 8.4 Causes of Action. After the Effective Date, the Reorganized Debtors shall have the sole right, in the name of the Debtors, to commence, continue or settle any Causes of Action, including any Causes of Action brought by the Debtors prior to the Effective Date and which remain unsettled as of the Effective Date. All proposed settlements of Causes of Action, where the settlement amount exceeds $125,000 shall be subject to the approval of the Bankruptcy Court after notice and opportunity for a hearing (as that term is used in section 102(1) of the Bankruptcy Code). All proposed settlements of Causes of Action, where the settlement amount is $125,000 or less, may be entered into by the Reorganized Debtors without further notice, hearing or order of the Court. PARTIES IN INTEREST, INCLUDING WITHOUT LIMITATION, CREDITORS, MAY NOT RELY ON THE ABSENCE OF A REFERENCE IN THE DISCLOSURE STATEMENT OR THE PLAN AS ANY INDICATION THAT THE DEBTORS OR REORGANIZED DEBTORS WILL NOT PURSUE ANY 17 AND ALL AVAILABLE CAUSES OF ACTION AGAINST THEM. THE DEBTORS, ON BEHALF OF THEIR ESTATES, EXPRESSLY RESERVE ALL RIGHTS TO PROSECUTE ANY AND ALL CAUSES OF ACTION AGAINST THIRD PARTIES (WHETHER OR NOT REFERENCED IN THE DISCLOSURE STATEMENT OR PLAN), INCLUDING WITHOUT LIMITATION, AVOIDANCE OR SUBORDINATION ACTIONS AGAINST ANY CREDITOR. ARTICLE 9. MEANS FOR IMPLEMENTATION OF THIS JOINT PLAN ------------------------------------------- 9.1 Conveyance Free and Clear. All assets or property of the estates of the Debtors sold at any time during the Chapter 11 Case pursuant to section 363 of the Bankruptcy Code were or are sold free and clear of all liens, claims, encumbrances and interests except as otherwise specifically provided in a Final Order of the Bankruptcy Court approving any such sale. 9.2 Cancellation of Certain Existing Securities and Agreements. On the Effective Date, (i) any and all notes, documents, agreements or other evidence of indebtedness underlying the Lender Secured Claim, Other Secured Claims, General Unsecured Claims and Convenience Class Claims, including without limitation the Pre-Petition Secured Loan Agreements with the Lender and the 7 3/4% Indenture shall be cancelled and shall be null and void, and (ii) the obligations of the Debtors or the Reorganized Debtors under the Pre-Petition Secured Loan Agreements, the 7 3/4% Debentures, the 7 3/4% Indenture and any other notes, documents, agreements or other evidence of indebtedness underlying the Lender Secured Claim, the Other Secured Claims, the General Unsecured Claims or the Convenience Class Claims and any and all other agreements, indentures, deeds, guarantees and/or certificates of designation governing, securing, guaranteeing or relating thereto shall be discharged. The holder of any such documents cancelled pursuant to this provision shall have no rights arising from or relating to such documents, including, without limitation, any subordination or subrogation rights, except the right to receive distributions provided for in the Plan. 18 9.3 Surrender of Instruments. Each holder of a promissory note, document or other instrument evidencing a Claim shall surrender such note, document or instrument to the Reorganized Debtors, and the Reorganized Debtors shall distribute or shall cause to be distributed to the holders thereof the appropriate distribution of property hereunder; provided, however, that distributions in respect of the 7 3/4% Debentures may be made to the 7 3/4% Indenture Trustee for further distribution to the beneficial holder of the 7 3/4% Debenture. No distribution of property hereunder shall be made to or on behalf of any holders of Claims unless and until such promissory note, document or other instrument is received by the Reorganized Debtors, or the unavailability of such note, document or instrument is reasonably established to the satisfaction of the Reorganized Debtors. In addition to certain holders of Claims, the holders of the outstanding shares of GDC's Redeemable 5% Preferred Stock which was automatically converted into shares of GDC Common Stock on July 31, 2002 shall be required to surrender the certificates for the GDC Redeemable 5% Preferred Stock in order receive its shares of GDC Common Stock. Any such holder that fails to surrender or cause to be surrendered such note, document or other instrument or to execute and deliver an affidavit of loss and indemnity reasonably satisfactory to the Reorganized Debtors, and in the event the Reorganized Debtors shall so request, fails to furnish a bond in form and substance (including, without limitation, with respect to amount) reasonably satisfactory to the Reorganized Debtors within two (2) years after the Effective Date, shall be deemed to have forfeited all rights, Claims, and interests related thereto and shall not participate in any distributions hereunder and all property in respect of such forfeited distribution, including interest and dividends accrued thereon, if any, shall revert to the Reorganized Debtors. 9.4 Release of Certain Claims and Actions. As of and on the Effective Date, the Debtors, their Estates, Ableco, Foothill, the Committee and the individual members thereof (solely in their role as committee members) and any of their successors, assigns or representatives shall be deemed to have waived, released and discharged all rights or claims, including, without limitation direct claims or any claims, litigations or actions brought or that could have been brought derivatively arising out of or with respect to any event or omission occurring before the Effective Date, whether based upon tort, contract or otherwise, which they possessed or may possess prior to the Effective Date against the Debtors, the Committee and the individual members thereof (solely in their role as committee members), Ableco, Foothill, their present and former directors, officers, employees, agents, representatives and attorneys and any of their successors or assigns except as otherwise provided for in the Plan (including the documents filed as Exhibits or Schedules to the Plan or as part of the Plan Supplement) or the Confirmation Order, provided, however, that the foregoing release shall not apply to performance or nonperformance under the Plan or related instruments, securities, agreements or documents, or to any action or omission that constitutes gross negligence or willful misconduct, and provided, further, that nothing in this Plan shall be deemed to waive, release or relinquish any rights the Debtors or the Reorganized Debtors may have to assert any claim under any insurance policy indemnifying present or former officers or directors of the Debtors or any of the Debtors' professional advisors. The Confirmation Order shall contain a permanent injunction to effectuate the releases granted in this Section 9.4. 19 9.5 Exculpation. To the fullest extent permitted by Section 1125(e) of the Bankruptcy Code, the Debtors, the Reorganized Debtors, the Committee and its members, Ableco, Foothill and their respective present and former members, officers, directors, employees, representatives, professionals or agents shall be deemed released by each of them against the other and by the holders of Claims or Allowed Interests of and from any and all claims, obligations, rights, causes of action and liabilities for any act or omission in connection with, or arising out of, the Debtors' Chapter 11 Cases, including without limiting the generality of the foregoing, the Disclosure Statement and the Plan, the pursuit and approval of the Disclosure Statement, 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 willful misconduct or gross negligence, and all such persons, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan and under the Bankruptcy Code. 9.6 Exemption from Certain Taxes. To the full extent allowed pursuant to section 1146(c) of the Bankruptcy Code, the consummation of the transactions contemplated by this Joint Plan shall not subject the Debtors or the Reorganized Debtors to any state or local stamp tax or similar tax. 9.7 Certificate of Incorporation and By-Laws. The certificate of incorporation and by-laws of the Reorganized Debtors shall be amended and restated, after consultation with the Committee and Lenders, and shall be substantially in the forms that will be included in the Plan Supplement which will be filed with the Court at least ten days prior to the Voting Deadline. 9.8 Directors and Officers. The existing officers and directors of the Debtors shall continue in their existing positions after the Effective Date of the Plan. With respect to Reorganized GDC, the board of directors shall consist of no less than five and no more then thirteen members. Initially upon emergence from Chapter 11, Reorganized GDC's board is expected to consist of four or five members, one of which may be selected by the Creditors Committee and the remainder of which may be selected by the existing board of directors or its designees. Thereafter, Reorganized GDC's board of directors shall be selected in accordance with normal corporate governance procedures of GDC, as set forth in its amended and restated certificate of incorporation, provided that Ableco shall be entitled to appoint three directors until its claim has been paid in full and the New Indenture Trustee for the New Debentures shall be entitled to select one director until the New Debentures are paid in full, provided that if the Lenders' Claim is not paid in full by the third anniversary of the Effective Date, the New Indenture Trustee shall be entitled to select two additional directors (for a total of three directors) until the Lender's Claim has been paid in full, and provided further that in the event the Reorganized Debtors default on any payment due under the New Debentures and such default is not cured within 60 days after notice, then the New Indenture Trustee shall be entitled to select a majority of the board of directors of Reorganized GDC until the New Debentures are paid in full. Additionally, as referenced above, Ableco is entitled to appoint three directors until its claim has been paid in full. Ableco has advised the Debtors that it does not presently intend to exercise its right to appoint directors immediately after the Effective Date. In the event Ableco later decides to exercise its right to appoint three directors, the size of the Board of Directors of GDC will be increased by four or five directors, three of which will be elected by Ableco and the other one or two to be initially selected by the other directors (other than the director selected by 20 the Committee or New Indenture Trustee) and thereafter by the holders of Common Stock. The initial post-Effective Date directors and officers of the Reorganized Debtors, shall be constituted as of the Effective Date, and shall consist of the existing officers and directors of the Debtors and those additional individuals identified in the Disclosure Statement or in a subsequent document submitted to the Court at or prior to the Confirmation Hearing. 9.9 Revesting of Assets; No Further Supervision. The assets of the Debtors and all property of the Debtors' estates (including, without limitation, all rights of the Debtors to recover property under sections 542, 543, 550 and 553 of the Bankruptcy Code, all avoiding powers under sections 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of the Bankruptcy Code, all proceeds thereof, and all claims and causes of action, cross-claims and counterclaims of any kind or nature whatsoever against third parties arising before the Confirmation Date that have not been disposed of prior to the Confirmation Date), shall be preserved and revest in the Reorganized Debtors, in each case free and clear of all Claims and Equity Interests, but subject to the obligations of the Reorganized Debtors as specifically set forth in this Plan. This Plan does not contain any restrictions or prohibitions on the conduct of the business of the Reorganized Debtors. The Reorganized Debtors may use, operate and deal with their assets, and may conduct and change their businesses, without any supervision by the Bankruptcy Court or the Office of the United States Trustee, and free of any restrictions imposed on the Debtors by the Bankruptcy Code or by the Bankruptcy Court during the Chapter 11 Cases, except as otherwise provided herein. 9.10 Authority to Implement. The Debtors are hereby authorized to take all necessary steps, and perform all necessary acts, to consummate the terms and conditions of this Plan. 9.11 No Injunctive Relief. No Claim shall under any circumstances be entitled to specific performance or other injunctive, equitable or other prospective relief. ARTICLE 10. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE ------------------------------------------ 10.1 Effectiveness of this Plan. The Plan shall not become effective unless and until the following conditions shall have been satisfied, or waived by the Debtors with the consent of Ableco to such waiver, which consent shall not be unreasonably withheld: (a) The Confirmation Order shall have been entered, shall not have been modified or altered in any way, and no stay or injunction of the Confirmation Order shall be in effect. (b) The New Lender Loan and Security Agreement, the Lender Warrant and the Lender Release shall have been executed and delivered to the Lender. (c) The New Indenture shall have been executed and the initial distribution of New Debentures shall have been delivered by the Debtors to the New Indenture Trustee. 21 10.2 Conditions Not Satisfied Or Waived. In the event that the conditions to effectiveness of the Plan have not occurred and have not been properly waived as provided in 10.1, and upon the filing of a notice with the Bankruptcy Court by the Debtors, (i) no distributions under the Plan shall be made, (ii) all of the Debtors' obligations in respect of Allowed Claims and Interests shall remain unchanged, (iii) the Debtors shall not have been substantively consolidated nor merged and (iv) the Confirmation Order, if entered, shall be vacated. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Modification of Payment Terms. The Reorganized Debtors reserve the right to modify the treatment of any Allowed Claim in any manner adverse only to the holder of such Claim at any time after the Effective Date upon the written consent of the Creditor whose Allowed Claim treatment is being adversely affected. 11.2 Discharge of Debtors. The consideration distributed under this Plan shall be in exchange for and in complete satisfaction, discharge, release, and termination of, all Claims of any nature whatsoever against the Debtors or any of their assets or properties and all Equity Interests in the Debtors (other than as provided in this Plan); and except as otherwise provided herein, upon the Effective Date the Debtors shall be deemed discharged and released pursuant to section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims, including but not limited to demands and liabilities that arose before the Confirmation Date, all Stockholder Actions as they relate to the Debtors, and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (a) a proof of claim based upon such debt is filed or deemed filed under section 501 of the Bankruptcy Code; (b) a Claim based upon such debt is allowed under section 502 of the Bankruptcy Code; or (c) the holder of a Claim based upon such debt has accepted this Plan. The Confirmation Order shall be a judicial determination of discharge and termination of all liabilities of and all Claims against, and all Equity Interests in, the Debtors, except as otherwise specifically provided in this Plan. On the Confirmation Date, as to every discharged debt, Claim and Equity Interest, the Creditor or Equity Interest holder that held such debt, Claim or Equity Interest shall be permanently enjoined and precluded from asserting against the Reorganized Debtors, or against their assets or properties or any transferee thereof, any other or further Claim or Equity Interest based upon any document, instrument or act, omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date, except as expressly set forth in this Plan. In the event that, after the Confirmation Date, any Person asserts, against the Reorganized Debtors or any of their subsidiaries or affiliates, any right to payment or equitable remedy for breach of performance which gives rise to a right of payment, which right was not asserted prior to the Confirmation Date but is based on any act, fact, event, occurrence, or omission, by or relating to the Debtors, as the Debtors existed before the Confirmation Date, and in the further event that such right is determined by a court of competent jurisdiction not to have been discharged pursuant to the provisions of Bankruptcy Code section 1141 and this Plan, and that such right may be asserted against the Reorganized Debtors then, in such circumstances the holder of such right shall be entitled to receive from the Reorganized Debtors value equivalent to the value such holder would have received if such right had been asserted against the Debtors before the Confirmation Date and only to the 22 extent such right would have been allowed or allowable as a Claim. Nothing in this Section shall have the effect of excepting from discharge any Claim which is or would be discharged pursuant to Bankruptcy Code section 1141 or this Plan. The Confirmation Order shall contain a permanent injunction to effectuate the discharge provided by this Section 11.2. 11.3 Filing of Additional Documents. On or before the Effective Date, the Debtors shall file with the Bankruptcy Court such agreements and other documents, if any, as may be necessary or appropriate to effectuate and further evidence the terms and conditions of this Plan and the other agreements referred to herein. 11.4 Compliance with Tax Requirements. In connection with this Plan, the Debtors and the Reorganized Debtors shall comply with all withholding and reporting requirements imposed by federal, state, local and foreign taxing authorities and all distributions hereunder shall be subject to such withholding and reporting requirements. 11.5 Setoffs. The Debtors and the Reorganized Debtors may (if it is in the best interests of the Debtors' estates), but shall not be required to, set off or recoup against any Claim claims of any nature whatsoever which the Debtors or Reorganized Debtors may have against the holder of such Claim to the extent such claim may be set off or recouped under applicable law, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtors or the Reorganized Debtors of any such claim that it may have against such holder. 11.6 Retiree Benefits. To the extent the Debtors provide any Retiree Benefits, such Retiree Benefits shall continue from and immediately after the Effective Date at the levels established pursuant to section 1114(e)(1)(B) or (g) of the Bankruptcy Code, at any time prior to the Confirmation Date, to the extent that the Debtors have obligated themselves to provide Retiree Benefits at such levels. The Reorganized Debtors reserve the right to modify, amend, freeze or terminate such Retiree Benefits to the full extent permitted by law. 11.7 Payment of Certain Expenses by the Reorganized Debtors. The Reorganized Debtors shall assume responsibility for the payment of all fees and expenses of professionals retained by the Debtors accruing following the Effective Date 11.8 Termination of Committee. The appointment and existence of the Committee shall terminate on the Effective Date. 11.9 Section Headings. The section headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan. 11.10. Waiver. The Debtors reserve the right, in their sole discretion, to waive any provision of this Plan to the extent such provision is for the sole benefit of the Debtors and/or its officers or directors. 11.11. Notices. Any notice required or permitted to be provided under the Plan shall be in writing and served by either (a) certified mail, 23 return receipt requested, postage prepaid, (b) hand delivery or (c) reputable overnight courier service, freight prepaid, to be addressed as follows: General DataComm Industries, Inc. 6 Rubber Avenue Naugatuck, CT 06770 Attn: Chief Executive Officer with a copy to: YOUNG CONAWAY STARGATT & TAYLOR, LLP 17th Floor, 1000 West Street P.O. Box 391 Wilmington, DE 19899-0391 (302) 571-6600 Attention: Joel A. Waite, Esquire 11.12. Severability. If any term or provision of the Plan is held by the Bankruptcy Court prior to or at the time of Confirmation to be invalid, void or unenforceable, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as so altered or interpreted. In the event of any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan may, at the Debtors' option, remain in full force and effect and not be deemed affected. However, the Debtors reserve the right not to proceed to Confirmation or consummation of the Plan if any such ruling occurs. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms. 11.13 Plan Controls. To the extent the Plan is inconsistent with the Disclosure Statement or any other document, agreement, pleading or understanding, the provisions of the Plan shall control, except that the Confirmation Order shall control to the extent there is any inconsistency between the Plan and the Confirmation Order. 11.14 Reservation of Rights. If the Plan is not confirmed by the Bankruptcy Court or any other Court of competent jurisdiction for any reason, the rights of all parties in interest in the Debtors' Chapter 11 Cases are and shall be reserved in full. Any concession reflected or provision contained herein, is made for the purposes of the Plan only, and if the Plan does not become effective, no party in interest in the Debtors' Chapter 11 cases shall be bound or deemed prejudiced by any such concession. 11.15 Governing Law. Except to the extent that the Bankruptcy Code is applicable, the rights and obligations arising under this Plan shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 24 11.16 Non-Voting Equity Securities. The Debtors' amended and restated certificates of incorporation shall include a provision complying with the requirements of Section 1123(a)(6) of the Bankruptcy Code. 11.17 Exemption from Transfer Taxes. Pursuant to Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of notes or equity securities under the Plan, the creation of any mortgage, deed of trust or other security interest, the making or assignment of any lease or sublease, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Plan, shall not be subject to any stamp tax or other similar tax. 11.18 Termination of Subordination Rights. The classification and manner of satisfying all Claims and Interests under the Plan takes into consideration all contractual, legal and equitable subordination and turnover rights, if any, whether arising under general principals of equitable subordination, section 510(c) of the Bankruptcy Code or otherwise, that a holder of a Claim or Interest in the Debtors may have against other Claim holders with respect to any distribution made pursuant to this Plan. On the Effective Date, all contractual, legal, equitable subordination and turnover rights that a holder of a Claim against or Interest in the Debtors may have with respect to any distribution to be made pursuant to this Plan will be discharged and terminated, and all actions related to the enforcement of such subordination rights, if any, will be permanently enjoined. Accordingly, distributions pursuant to this Plan to holders of Allowed Claims will not be subject to payment of a beneficiary of such terminated subordination rights, or to levy, garnishment, attachment or other legal process by a beneficiary of such terminated subordination rights. 11.19 Payment of Statutory Fees. All fees payable pursuant to Section 1930 of Title 28 of the United States Code, as determined by the Bankruptcy Court, shall be paid when and as they come due. 25 ARTICLE 12 PROVISIONS FOR EXECUTION AND SUPERVISION OF THIS PLAN ------------------------ 12.1 Retention of Jurisdiction. From and after the Effective Date, the Bankruptcy Court shall retain and have exclusive jurisdiction over the Chapter 11 Cases for the following purposes: (a) to determine any and all objections to the allowance of Claims; (b) to determine any and all applications for the rejection, assumption, or assumption and assignment, as the case may be, of executory contracts or unexpired leases to which the Debtor is a party or with respect to which the Debtors may be liable, and to hear and determine, and if need be to liquidate, any and all Claims arising therefrom; (c) to determine any and all applications for the determination of any priority of any Claim including Claims arising from any event that occurred prior to the Petition Date or from the Petition Date through the Effective Date and for payment of any alleged Administrative Claim, Priority Tax Claim, Other Priority Claims, Secured Claim or Unsecured Claim; (d) to determine any and all applications, motions, adversary proceedings and contested or litigated matters that may be pending on the Effective Date or filed thereafter; (e) to determine all controversies, suits and disputes that may arise in connection with the interpretation, enforcement or consummation of this Plan or in connection with the obligations of the Debtors or the Reorganized Debtors under this Plan, and to enter such orders as may be necessary or appropriate to implement any distributions to holders of Allowed General Unsecured Claims; (f) to consider any modification, remedy any defect or omission, or reconcile any inconsistency in this Plan or any order of the Bankruptcy Court, including the Confirmation Order, all to the extent authorized by the Bankruptcy Code; (g) to issue such orders in aid of execution of this Plan to the extent authorized by section 1142 of the Bankruptcy Code; (h) to determine such other matters as may be set forth in the Confirmation Order or as may arise in connection with this Plan or the Confirmation Order; (i) to hear and determine any claim or controversy of any nature arising from or in connection with any agreement made a part of this Plan; and to enter such orders as may be appropriate to enforce, modify, interpret or effectuate such agreements; (j) to determine any suit or proceeding brought by the Debtors or the Reorganized Debtors, on behalf of the Debtors' estates, to (a) recover property under section 542, 543 or 553 of the Bankruptcy Code or to avoid any 26 transfer or obligation under section 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of the Bankruptcy Code or (b) otherwise collect or recover on account of any claim or cause of action that the Debtors may have (provided that the Bankruptcy Court's jurisdiction with respect to such matters shall be nonexclusive); (k) to consider and act on the compromise and settlement of any Claim against or cause of action by or against the Debtors' estates; (l)) to estimate Claims pursuant to section 502(c) of the Bankruptcy Code; (m) to hear and determine any dispute or controversy relating to any Allowed Claim or any Claim alleged or asserted by any Person to be an Allowed Claim; (n) to determine any and all applications for allowances of compensation and reimbursement of expenses and any other fees and expenses authorized to be paid or reimbursed under the Bankruptcy Code or this Plan; (o) to administer and enforce the injunctions contained in this Plan, and any related injunction or decree contained in the Confirmation Order; (p) to hear and determine any other matter related hereto and not inconsistent with Chapter 11 of the Bankruptcy Code; and (q) to hear a motion and any issues related to issuing a final decree closing the Chapter 11 Cases. 12.2 Amendment of Plan. This Plan may be amended by the Debtors before the Effective Date, with the consent of Ableco, which consent shall not be unreasonably withheld, and by the Reorganized Debtors after the Effective Date as provided in section 1127 of the Bankruptcy Code. 12.3 Revocation of Plan. The Debtors reserve the right to revoke and withdraw this Plan prior to entry of the Confirmation Order. If the Debtors revoke or withdraw this Plan, then this Plan shall be deemed null and void and nothing contained herein shall be deemed to constitute a waiver or release of any Claims by or against the Debtors or any other person or to prejudice in any manner the rights of the Debtors or any person in any further proceedings involving the Debtors. 27 12.4 Implementation. The Debtors shall be authorized to take all necessary steps, and perform all necessary acts, to consummate the terms and conditions of this Plan, including, without limitation, any transaction contemplated by the disclosure statement approved by the Bankruptcy Court. Nothing contained in this Section shall be construed to prohibit, limit, restrict, or condition the Debtors' authority in any lawful manner to sell or otherwise dispose of any other assets. 28 ARTICLE 13 CONFIRMATION REQUEST -------------------- 13.1 The Debtors, Foothill and Ableco hereby request confirmation of the Plan pursuant to Section 1129(a) and Section 1129(b) of the Bankruptcy Code. Dated: April 29, 2003 Respectfully submitted, GENERAL DATACOMM INDUSTRIES, INC., ET AL. By: --------------------------------------- Name: Howard Modlin Title: Chairman AGREED TO: ABLECO FINANCE LLC By: --------------------------------- Name: Title: FOOTHILL CAPITAL CORPORATION By: --------------------------------- Name: Title: 29 Schedule 1.4 ASSUMED AGREEMENTS GENERAL DATACOM INDUSTRIES INC., ET AL SCHEDULE 1.4 - ASSUMED AGREEMENTS --------------------------------- Debtors reserve the right to amend this list and to file motions to assume or rejection unexpired leases and executory contracts at anytime prior to the Effective Date of the Plan.
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Party to Contract Description of Contract Cure Amount Per Debtors - ----------------------------------------------- ----------------------------------------------------- ------------------------- - ----------------------------------------------- ----------------------------------------------------- ------------------------- ReliaStar Life Insurance Company (formerly Group Policy Employee Life Insurance, Accidental Northwestern National Life Ins.) Death and Dismemberment and Supplemental Life $0 20 Washington Avenue South Insurance Minneapolis, MN 55401 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Aetna US Healthcare Company sponsored group health plan for employees 1000 Middle Street $0 Middlefield, CT 06457 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Diversified Waste Disposal Agreement for the location of and pick-up of refuse 60 Newtown Road from GDC facilities $1,060.00 Suite 62 Danbury, CT 06810-6236 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Fire Control Service Co., Inc. Agreement for monitoring, testing and inspection of Alarm Services Division GDC's fire alarm systems at GDC facilities $2,000.22 221 Danbury Road New Milford, CT 06776 Attn: Tom Hoefer - ----------------------------------------------- ----------------------------------------------------- ------------------------- Kone, Inc. Agreement to provide service and maintenance of 16 Old Forge Road elevators at GDC facilities $6,036.80 Rocky Hill, CT 06067 Attn: Jeremy Vivian - ----------------------------------------------- ----------------------------------------------------- ------------------------- Netquest Corporation Multiple Project Engineering Development and 523 Fellowship road License/Royalty Agreement on a unit schedule $0 Suite 205 Mt. Laurel, NJ 08054 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Elite Technical Solutions Corporation Agreement to provide for hardware maintenance of 186 River Road GDC's Hewlett-Packard mini-main-from computers. $1,885.00 Newington, NH 03801 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Alliance Food Management Corporation Agreement to provide for location of vending 1172 North Main Street machines for the sale of food, beverages and snacks $1,455.46 P.O. Box 4744 at GDC's Connecticut facilities. Waterbury, CT 06704 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Network Appliance, Inc. Hardware and Software maintenance and tech support 495 East Java Drive for installed products. $0 Sunnyvale, CA 94089 Attn: Brian Watson - ----------------------------------------------- ----------------------------------------------------- ------------------------- Apptitude, Inc. Software source code license agreement 6330 San Ignacio Avenue $0 San Jose, CA 95119 Attn: CFO - ----------------------------------------------- ----------------------------------------------------- ------------------------- NetQuest Corporation License Agreement for the use of NetQuest Frame 523 Fellowship Road Relay Link Probe Software. $0 Suite 205 Mt. Laurel, NJ 08054 Attn: Dan Pocek - ----------------------------------------------- ----------------------------------------------------- ------------------------- Redpoint Network Systems, Inc. Agreement for the License and Distribution of 4925 N. O'Connor Road Redpoint software in GDC products. $0 Suite 125 Irving, TX 75062 Attn: Kevin Martin - ----------------------------------------------- ----------------------------------------------------- ------------------------- CA Business Partners Non-exclusive sale, resale, distribution and $0 125 East Lake St., Suite 306 integration agreements for GDC products Bloomingdale, IL 60108 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Amerinet Non-exclusive sale, resale, distribution and $0 1241 S. Maple integration agreements for GDC products Ann Arbor, MI 48103 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Com/Peripherals, Inc. Non-exclusive sale, resale, distribution and $0 87 Water Mill Lane integration agreements for GDC products Great Neck, NY 11021 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Jencom Non-exclusive sale, resale, distribution and $0 2229 Springfield Avenue integration agreements for GDC products P.O. Box 201 Vauxhall, NJ 07088 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Alliance DataCom L.P. Non-exclusive sale, resale, distribution and $0 11130 Petal Street integration agreements for GDC products Suite 800 Dallax, TX 75238 - ----------------------------------------------- ----------------------------------------------------- ------------------------- MDSI (Management Data Systems Int'l) Non-exclusive sale, resale, distribution and $0 1265 Oak Industrial Lane integration agreements for GDC products Cumming, GA 30041 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Satellite Communications Non-exclusive sale, resale, distribution and $0 2 Eaton Street, Suite 800 integration agreements for GDC products Hampton, VA 23669 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Story & Roberts Associates, Inc. Non-exclusive sale, resale, distribution and $0 13216 Executive Park Terrace integration agreements for GDC products Germantown, MD 20874 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Sunrise Communications Non-exclusive sale, resale, distribution and $0 1711 F. Anderson Highway integration agreements for GDC products Powhatan, VA 23139 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Century Telephone Non-exclusive sale, resale, distribution and $0 100 Century Park Drive integration agreements for GDC products Monroe, LA 71203 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- CBM of America, Inc. Non-exclusive sale, resale, distribution and $0 1455 W. Newport Center Drive integration agreements for GDC products Deerfield Beach, FL 33442 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Datalink Ready, Inc. Non-exclusive sale, resale, distribution and $0 145 East Drive integration agreements for GDC products Melbourne, FL 32904 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Walker & Associates Non-exclusive sale, resale, distribution and $0 Highway 52 North, Box 1029 integration agreements for GDC products Welcome, NC 27374 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Atlanta Datacomm Non-exclusive sale, resale, distribution and $0 2915-A Courtyards Drive integration agreements for GDC products Norcross, GA 30071 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Commercial Business Systems, Inc. Non-exclusive sale, resale, distribution and $0 14321 Sommerville Court integration agreements for GDC products Suite 103 Midlothian, VA 23113 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Communications Test Design, Inc. Non-exclusive sale, resale, distribution and $0 Goshen Corporate Park integration agreements for GDC products 1334 Enterprise Drive West Chester, PA 19380 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Interlink Communications Sys. Non-exclusive sale, resale, distribution and $0 4400 140th Avenue North integration agreements for GDC products Suite 250 Clearwater, FL 33762 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Sunbelt Telecommunications Non-exclusive sale, resale, distribution and $0 505 Century Parkway, Bldg. 100 integration agreements for GDC products Allen, TX 75013-3675 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Thomas Technologies Non-exclusive sale, resale, distribution and $0 1860 I-30 East integration agreements for GDC products Rockwall, TX 75087 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Delta Communications Group Non-exclusive sale, resale, distribution and $0 27136-A Paseo Espada, Suite 101 integration agreements for GDC products San Juan Capistrano, CA 92675 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Alltel Supply, Inc. Non-exclusive sale, resale, distribution and $0 6625 The Corners Parkway integration agreements for GDC products Norcross, GA 30092 Attn: Stan Stevens - ----------------------------------------------- ----------------------------------------------------- ------------------------- Ameritech Advanced Data Services Non-exclusive sale, resale, distribution and $0 225 West Randolph Street integration agreements for GDC products Floor 25B Chicago, Il 60606 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Telesector Resources Group Non-exclusive sale, resale, distribution and $0 (formerly Bell-Atlantic Network Services, Inc.) integration agreements for GDC products 1050 Virginia Drive, 1st Floor Ft. Washington, PA 19034 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Bell South Mobility, Inc. Non-exclusive sale, resale, distribution and $0 5600 Glenridge Drive integration agreements for GDC products Suite 600 Atlanta, GA 30342 - ----------------------------------------------- ----------------------------------------------------- ------------------------- GTE Communications Systems Corporation Non-exclusive sale, resale, distribution and $0 700 Hidden Ridge integration agreements for GDC products Irving, TX 75083 - ----------------------------------------------- ----------------------------------------------------- ------------------------- MCI Telecommunications/Worldcom Non-exclusive sale, resale, distribution and $0 2400 North Glenville Drive integration agreements for GDC products Richardson, TX 75081 - ----------------------------------------------- ----------------------------------------------------- ------------------------- North Supply Corporation Non-exclusive sale, resale, distribution and $0 600 Industrial Parkway integration agreements for GDC products Industrial Airport, KS 66031-8000 - ----------------------------------------------- ----------------------------------------------------- -------------------------
- ----------------------------------------------- ----------------------------------------------------- ------------------------- Nortel Networks, Inc. Non-exclusive sale, resale, distribution and $0 200 Athens Way integration agreements for GDC products Nashville, TN 37228 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Siemens Information and Non-exclusive sale, resale, distribution and $0 Communications Networks, Inc. integration agreements for GDC products 900 Broken Sound Parkway Boca Raton, FL 33487 - ----------------------------------------------- ----------------------------------------------------- ------------------------- Southwestern Bell Telephone Corporation Non-exclusive sale, resale, distribution and $0 1010 Market Street integration agreements for GDC products St. Louis, MO 63101 Attn: District Manager - Procurement Contracting and Vendor Relations - ----------------------------------------------- ----------------------------------------------------- ------------------------- U.S. West Business Resources, Inc. (Qwest) Non-exclusive sale, resale, distribution and $0 188 Inverness Drive West integration agreements for GDC products Englewood, CO 80112 - ----------------------------------------------- ----------------------------------------------------- -------------------------
Schedule 1.41 Terms of Lender Warrants Ableco (or its designee) shall be issued: (i) warrants to acquire a percentage (as described below) of the number of shares of GDC's common stock on a fully diluted basis based on an exercise price equal to $0.01 per share, which warrants may only be exercised at the option of Ableco (or its designee) upon an event of default under the New Lender Loan and Security Agreement that is not cured within an applicable cure period, and (ii) warrants for 10% of the common stock of GDC's Common Stock on a fully diluted basis based upon an exercise price equal to $0.01 per share, which warrants may only be exercised at the option of Ableco (or its designee) upon the failure of the reorganized Debtors to repay the New Lender Term Obligation in full by December 31, 2004 ((i) and (ii), together, the "New Warrants"). The New Warrants shall contain customary registration rights acceptable to the parties. The New Warrants and any stock issued upon the exercise of the New Warrants shall be cancelled if the entire amount owing under the New Lender Loan and Security Agreement is paid in full on or before December 31, 2007. The New Warrants and any stock issued upon the exercise of the New Warrants, shall not be transferable by Ableco or its designee prior to December 31, 2007 except to affiliates of Ableco or its designee (an entity controlled by or under common control with Ableco or its designee) subject to the provisions of this restriction. The percentage of the reorganized GDC's shares subject to the New Warrants shall be determined based upon the then outstanding principal amount of the New Lender Term Obligation at the time of the exercise of the New Warrants, as follows: Outstanding Amount of Term Obligation % of Stock --------------- --------------------- Above $15M 51% $12.5M - $15M 35% $10M - $12.5M 20% $7.5M - $10M 10% $1M - $7.5M 5% Schedule 1.42 Terms of New Debentures ----------------------- 1. Debenture. The Debtors shall issue debentures (the "New Debentures), pursuant to an indenture, in a total principal amount equal to the allowed amount of all Allowed General Unsecured Claims. The Debtors shall be jointly and severally liable with respect to the New Debentures. 2. Secured. As more fully described below, the New Debentures would be secured by a subordinated silent security interest that would be subject to all existing security interests, including those of the Lender and any party taking out the Lender. Such subordinated security interest will be structured and documented so that it does not adversely affect or interfere with the senior security interests or any rights thereunder or the ability of the Reorganized Debtors to effectively operate the business and would contain the usual exceptions, including, without limitation, it would permit the sale of assets in the ordinary course of business, or outside of the ordinary course of business solely with the consent of the senior secured lenders, including, without limitation, the property listed on Schedule 1.47.1 hereto. With respect to the Naugatuck property, the subordinated lien of the holders of the debentures would be subordinate not only to the senior lien of the Lender, but also as to any new first mortgage on the property, provided the proceeds are used to pay the Lender's Claim, or if the Lender's Claim has already been satisfied, to reduce the outstanding amount owing on the debentures. Additionally, to the extent that any party loaning funds to the Reorganized Debtors in exchange for a new first mortgage on the Naugatuck Property requires that there be no second liens on the property, the indenture trustee would be obligated to release the lien on such property provided that the loan proceeds were being used to reduce the amount owing to the Lender or if the Lender's Claim has been paid in full, to reduce the amount owing under the New Debentures. The documentation would permit, without the consent of the indenture trustee, (a) the replacement of the senior debt; (b) the acquisition of additional senior secured indebtedness if needed by the Reorganized Debtors for working capital in an amount up to the amount by which the Reorganized Debtors' inventory and receivables with respect to ongoing operations exceeds the amount of such inventory and receivables on the Effective Date, provided that the total senior secured indebtedness does not exceed $30 million at any time; and (c) the acquisition of any amount of additional senior secured indebtedness if such funds are used to satisfy obligations under the New Debentures. 3. Interest. Interest shall accrue on the unpaid principal balance of the New Debentures at the annual rate of 10.00%, provided however, that if the New Debentures are paid in full within two years after the Effective Date, the interest rate shall be reduced and recalculated at the annual rate of 7.25% for the period of time that the debentures were outstanding, and further provided that if the New Debentures are paid in full within three years after the Effective Date, the interest rate shall be reduced and recalculated at the annual rate of 8.25% for the period of time that the debentures were outstanding, and further provided that if the New Debentures are paid in full within four years after the Effective Date, the interest rate shall be reduced and recalculated at the annul rate of 9.25% for the period of time that the New Debentures were outstanding. 4. Amortization. Interest shall accrue but not be payable and no principal shall be payable until the Lender Secured Claim is paid in full. Once the Lender Secured Claim is paid in full, the unpaid principal and interest owing under the New Debentures shall be paid in equal monthly installments over the remaining balance of the term of the debentures, beginning with the third month after the Lender Secured Claim has been satisfied, provided that the full principal and interest is to be paid in full no later than the fifth anniversary of the Effective Date. 5. Prepayment. The unpaid balance owing under the New Debentures may be prepaid by the Reorganized Debtors, in whole or in part, at any time without fee or penalty. Schedule 1.46 Terms of New PIK Obligation --------------------------- (a) Ableco shall receive an obligation from the Reorganized Debtors in the original principal amount of $5,000,000, subject to adjustment, which shall be dated August 20, 2002 and shall be due on December 31, 2007 (the "PIK Obligation"), except to the extent it is reduced or eliminated as a result of the accelerated payment of the New Lender Term Obligation. (b) The PIK Obligation shall accrue interest, from and after August 20, 2002, at the annual rate of 7.25% through December 31, 2003 and thereafter at the greater of: (i) 7.25% and (ii) the prime rate plus 2.5%. Interest shall accrue but shall not be payable on the PIK Obligation until December 31, 2007. (c) The outstanding principal of the PIK Obligation, together with accrued interest thereon, shall be reduced as follows: (i) $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation has been reduced by $5,000,000 between August 20, 2002 and June 30, 2003; (ii) another $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation has been reduced by $10,000,000 between August 20, 2002 and December 30, 2003; (iii) another $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation has been reduced by $15,000,000 between August 20, 2002 and June 30, 2004; (iv) the remaining $1,250,000 of the PIK Obligation plus accrued interest thereon shall be forgiven if the principal balance of the New Lender Term Obligation, together with all accrued interest thereon, has been paid in full by December 31, 2004. (v) To the extent the PIK Obligation is not eliminated entirely by the accelerated payment of the New Lender Term Obligation, the balance owing under the PIK Obligation shall be determined by the Bankruptcy Court based on the amount claimed by Lender as owing as of August 20, 2002 after reducing any such claimed amount by amounts determined by the Bankruptcy Court as not owing to Lender based on payments made to Lender, the deductions set forth in Debtors' "Claim Analysis - Settlement Proposal" attached hereto as Schedule 1.46.1, of amounts owing and to be deducted dated June 12, 2002, and the grounds set forth in the Answer dated June 24, 2002, filed by the debtors in the Adversary Proceeding, captioned Foothill Capital Corporation et al. v. General DataComm Industries, Inc. et al (In re General DataComm, Inc.), Adversary Proceeding No. 02-2018 (the "Adversary Proceeding"), less $25,000,000 and less the reductions to the PIK Obligation set forth above. Any such claim for such determination shall be brought in the Bankruptcy Court no earlier than January 1, 2005. The New Lender Term Obligation, and to the extent not eliminated, the New Lender PIK Obligation, may be repaid at any time with accrued interest thereon, without fee or penalty. The Bankruptcy Court shall retain jurisdiction to make the above determination as well as jurisdiction to resolve any claims, disputes and other matters with respect to the Pre-Petition Secured Loan Agreements. Schedule 1.46.1 Dated: June 12, 2002 Lender's Asserted Claim as of the Petition Date: $30,663,733.29 LESS: Fees and expenses with no documentation or support ($ 180,200.00) SUBTOTAL AFTER UNSUPPORTED FEES: $30,483,533.29 LESS: (1) Principal payments from discontinued operation collections as of 6/4/02 ($1,178,808.51) (2) Principal payments from sale of stock in Mexican subsidiary as of 6/4/02 ($ 340,906.66) (3) Adequate Protection Payments through 6/4/02: ($1,750,000.00) SUBTOTAL AFTER POST-PETITION PRINCIPAL REDUCTIONS: $27,213,818.12 LESS: (1) Default incremental interest improperly charged through 5/02: ($ 513,443.06) (2) Interest on incremental interest ($ 20,765.92) (3) Division Sale Consent Fees: ($1,630,000.00) (4) Compounded interest on consent fees: ($ 66,689.86) (5) Compounded interest on Vital note: ($ 191,063.70) NET LENDER'S CLAIM BEFORE ACCOUNTING FOR AHEAD NOTE ASSIGNMENT AND OTHER ISSUES: $24,791,855.58 =============== NOTE: THE FOREGOING CALCULATION IS AS OF JUNE 12, 2002 AND DOES NOT ACCOUNT FOR ADDITIONAL INTEREST OR FEES THAT THE LENDERS MIGHT ASSERT ACCRUED SUBSEQUENT TO SUCH DATE OR ADDITONAL PRINCIPAL PAYMENTS OR ADQUEATE PROTECTION PAYMENTS MADE BY THE DEBTORS SUBSEQUENT TO SUCH DATE, AS DESCRIBED MORE FULLY IN THE DISCLOSURE STATEMENT. Schedule 1.47 Terms of New Lender Term Obligation ----------------------------------- (a) Ableco shall receive a term obligation from the Reorganized Debtors, in the original principal amount of $25 million, subject to adjustment, which shall be dated August 20, 2002 and shall be due on December 31, 2007 (the "Term Obligation"). (b) The Term Obligation shall accrue interest, from and after August 20, 2002, at the annual rate of 7.25% through December 31, 2003 and thereafter at the greater of (i) 7.25% and (ii) the prime rate plus 2.5%. Until January 1, 2005, the Term Obligation shall amortize at the rate of $250,000 per month (provided however, that in a single month during 2003 (only one time) if management determines that the Reorganized Debtors cannot afford to timely pay the $250,000, they shall have a 30 day grace period to make such payment) plus accrued interest, plus 100% of the net proceeds from the disposition of the assets related to discontinued operations or excess assets listed on Schedule 1.47.1 hereto ("Listed Assets"), provided that the minimum cumulative principal reduction of the New Lender Term Obligation between August 20, 2002 and September 30, 2003, shall be at least $7,500,000, and the minimum cumulative principal reduction of the New Lender Term Obligation between August 20, 2002 and December 31, 2003, shall be at least $10,000,000; provided however, that if on either September 30, 2003 or December 31, 2003, such principal reductions have not been achieved, but the Reorganized Debtors are party to a firm contract, in form and substance reasonably acceptable to Ableco, for the sale of assets of the Reorganized Debtors that, if closed, would enable the Reorganized Debtors to achieve such required cumulative principal reductions, the Reorganized Debtors shall have a period of 60 days beyond such deadlines to close such transaction(s) and satisfy the required cumulative principal reduction amounts. Lenders agree to cooperate with Debtors on the disposition of the Listed Assets as set forth in Schedule 1.47.1. (c) Any remaining balance under the Term Obligation on December 31, 2004 shall amortize at the greater of (a) equal monthly installments over the succeeding three-year period plus accrued interest or (b) $250,000 per month plus accrued interest. (d) Notwithstanding anything herein to the contrary, (i) the aggregate amount of the New Lender Term Obligation and the New Lender PIK Obligation shall be reduced to $23,000,000 as of August 20, 2002, if the Debtors pay such amount in full together with all accrued interest on such amount on or before June 30, 2003, and (ii) the aggregate amount of the New Lender Term Obligation and the New Lender PIK Obligation shall be reduced to $24,000,000 as of August 20, 2002, if the Debtors pay such amount in full together with all accrued interest on such amount on or before December 31, 2003. (e) The New Lender Loan and Security Agreement shall contain a financial covenant requiring the Reorganized Debtors to have positive aggregate consolidated EBITDA ($.01 or greater) for the fourth calendar quarter of 2003. (f) The New Lender Loan and Security Agreement shall contain a financial covenant requiring the Reorganized Debtors to have an aggregate consolidated EBITDA of no less than $750,000 for the first calendar quarter of 2004 plus the interest accrued on the New Lender Term Obligation during such calendar quarter, and for each subsequent calendar quarter provided that such amount for any subsequent quarter shall be no less than $1,100,000, with such EBITDA calculated on a cumulative basis less amounts previously required for the prior calendar quarters. This covenant shall be eliminated in the event the Reorganized Debtors' loan availability based on the traditional asset-based loan borrowing structure in the Pre-Petition Secured Loan Agreements equals the unpaid balance of the New Lender Term Obligation. Schedule 1.47.1 List of Assets Related to Discontinued Operations of Debtors or Excess Assets of Debtors --------------------------- 1 - Ahead a) Austria insolvency proceedings claims b) Ahead U.S. Bankruptcy claims c) Auction of Ahead Assets by Bankruptcy Court or recovery of Ahead Assets by Debtors 2 - Excess Parts Inventory - liquidation or bulk sale 3 - Liquidation of U.K. subsidiary 4 - Lucent settlement (already completed and paid to Lender) 5 - Mayan/Vital promissory note 6 - Naugatuck Building mortgage or sale 7 - Mexican subsidiary sale proceeds 8 - Canadian subsidiary sale contract proceeds including any monies held in escrow pursuant to such contract Lender agrees to cooperate with Reorganized Debtors on the realization of proceeds from these assets including consent to the sale of assets in which it has security interests, provided the net proceeds of such sales are applied in reduction of the New Lender Term Obligation, consent to a prior mortgage on the Naugatuck Building and/or the satisfaction of Lenders' mortgage and other security interests on the sale of the Naugatuck Building, provided the net proceeds therefrom are applied in reduction of the New Lender Term Obligation. EXHIBIT B UNAUDITED HISTORICAL FINANCIAL STATEMENTS ------------------------------------------ GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(1) (In Thousands) (Unaudited)
September 30, September 30, 2001 2000 - ------------------------------------------------------------------------------------------------- ASSETS: Current assets: Cash and cash equivalents $669 $3,572 Accounts receivable 6,753 25,631 Receivables from sale of division: Notes receivable 6,000 -- Inventories 5,815 31,718 Deferred income taxes -- 1,521 Other current assets 494 8,311 - ------------------------------------------------------------------------------------------------- Total current assets 19,731 70,753 ================================================================================================= Property, plant and equipment, net 283 24,140 Land and buildings held for sale 9,933 5,518 Capitalized software development costs, net -- 22,160 Net assets of discontinued operations 1,482 -- Other assets -- 10,512 - ------------------------------------------------------------------------------------------------- $31,429 $133,083 ================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current portion of long-term debt $39,838 $47,921 Mortgages on land and buildings held for sale 9,126 4,061 Accounts payable, trade 12,448 23,040 Accrued payroll and payroll-related costs 1,631 4,853 Deferred income -- 6,567 Net current liabilities of discontinued operations 4,315 -- Other current liabilities 16,086 14,070 - ------------------------------------------------------------------------------------------------- Total current liabilities 83,444 100,512 ================================================================================================= Long-term debt, less current portion -- 3,000 Deferred income taxes -- 2,266 Other liabilities -- 1,142 - ------------------------------------------------------------------------------------------------- Total liabilities 83,444 106,920 ================================================================================================= Commitments and contingent liabilities Redeemable 5% preferred stock 3,043 5,000 Non-redeemable preferred stock, common stock and other stockholders' equity (deficit) (55,058) 21,163 - ------------------------------------------------------------------------------------------------- Total stockholders' equity ($52,015) $26,163 - ------------------------------------------------------------------------------------------------- $31,429 $133,083 =================================================================================================
(1) Subject to adjustments that may be required to record the fiscal year-end 2001 audit adjustments. GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (1) (In Thousands) (Unaudited) Twelve months ended September 30, ------------------- 2001 ------------------- Sales $ 59,855 Cost of Sales 51,964 ------------------- Gross Margin 7,891 Operating expenses: Selling, general and administrative 31,071 Research and product development 12,231 Other charges 38,196 ------------------- 81,498 Operating loss (73,607) Other income (expense): Interest, net (8,746) Gain on sale of Multimedia division 1,346 Legal settlement proceeds, net 5,000 Other, net (669) ------------------- (3,069) Loss from continuing operations before income taxes (76,676) Income tax provision 126 ------------------- Net loss from continuing operations (76,802) Discontinued Operations: Income (loss) from discontinued operations, net of income taxes (3,789) Loss on sales of discontinued operations, net of income taxes (2,709) ------------------- Net Loss $ (83,300) =================== (1) Subject to adjustments that may be required to record the fiscal year-end 2001 audit adjustments. GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(1) (In Thousands) (Unaudited)
September 30, September 30, 2002 2001 - ------------------------------------------------------------------------------------------------- ASSETS: Current assets: Cash and cash equivalents $3,138 $669 Accounts receivable 3,520 6,753 Receivables from sales of divisions 134 6,000 Inventories 5,422 5,815 Other current assets 1,011 494 - ------------------------------------------------------------------------------------------------- Total current assets 13,225 19,731 ================================================================================================= Property, plant and equipment, net 0 283 Land and buildings held for sale 6,271 9,933 Net assets of discontinued operations 99 1,482 Other assets 4 -- - ------------------------------------------------------------------------------------------------- $19,599 $31,429 ================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise - ------------------------------------- Accounts payable, trade 658 0 Accrued payroll and payroll-related costs 555 0 Accrued expenses and other current liab. 3,423 0 - ------------------------------------------------------------------------------------------------- 4,636 0 Liabilities subject to compromise - --------------------------------- Current portion of long-term debt $30,784 $39,838 Mortgages on land and buildings held for sale 60 9,126 Accounts payable, trade 12,017 12,448 Accrued payroll and payroll-related costs 662 1,631 Net current liabilities for discontinued operations 7,898 4,315 Other current liabilities 12,689 16,086 - ------------------------------------------------------------------------------------------------- 64,110 83,444 - ------------------------------------------------------------------------------------------------- Total current liabilities 68,746 83,444 ================================================================================================= Commitments and contingent liabilities Redeemable 5% preferred stock 3,043 3,043 Non-redeemable preferred stock, common stock and other stockholders' equity (deficit) (52,190) (55,058) - ------------------------------------------------------------------------------------------------- Total stockholders' equity ($49,147) ($52,015) - ------------------------------------------------------------------------------------------------- $19,599 $31,429 =================================================================================================
(1) Subject to adjustments that may be required to record the fiscal year-end 2001 and 2002 audit adjustments and the effects of the bankruptcy filing. GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS(1) (In Thousands) (Unaudited) Twelve months ended September 30, ------------------- 2002 ------------------- Sales $ 27,161 Cost of Sales 14,086 ------------------- Gross Margin 13,075 Operating expenses: Selling, general and administrative 7,733 Research and product development 3,556 Other charges - ------------------- 11,289 Operating income(loss) 1,786 Other income (expense): Interest, net (3,441) Net gain on sale of real estate 3,319 Other, net 291 ------------------- 169 Income from continuing operations before extraordinary item, reorganization item and income taxes 1,955 Extraordinary item: Gain on early extinguishment of debt 1,967 ------------------- Income from continuing operations before reorganization item and income taxes 3,922 Reorganization item: Professional fees 2,750 ------------------- Income from continuing operations before income taxes 1,172 Income tax provision 127 ------------------- Net income from continuing operations 1,045 Discontinued Operations: Income from discontinued operations, net of income taxes 873 Gain on sales of discontinued operations, net of income taxes 950 ------------------- Net Income $ 2,868 =================== (1) Subject to adjustments that may be required to record the fiscal year-end 2001 and 2002 audit adjustments and the effects of the bankruptcy filing. EXHIBIT C PROJECTED FINANCIAL STATEMENTS ------------------------------ DEBTORS' FINANCIAL PROJECTIONS AND BUSINESS PLAN SIGNIFICANT ASSUMPTIONS AND RISK FACTORS ---------------------------------------- The Company does not, as a matter of course, publicly disclose projections as to its future revenues or earnings In connection with the Company's consideration of the Plan, certain projections set forth below (the "Projections") of the Company's future operating performance were prepared. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS ("AICPA"), THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY THE DEBTORS' INDEPENDENT ACCOUNTANTS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH, ALTHOUGH DEVELOPED AND CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON, AS TO THE ACCURACY OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THESE PROJECTIONS. GIVEN THAT SUCH PROJECTIONS ARE SUBJECT TO SIGNIFICANT UNCERTAINTY, NONE OF THE COMPANY, MANAGEMENT, OR ANY OTHER PERSON ASSUMES ANY RESPONSIBILITY FOR THEIR ACCURACY. HOLDERS OF CLAIMS AND INTERESTS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTIONS. SIGNIFICANT ASSUMPTIONS UNDERLYING THE PROJECTIONS AND BUSINESS PLAN The starting point of the Projections is the unaudited historical financial information at February 28, 2003, and pro forma adjustments based upon the terms of the Plan and estimates of the amounts of prepetition claims. The Projections are presented on a going-concern basis which contemplates the realization by the Company of its assets and the satisfaction of its liabilities in the ordinary course of business. Significant general assumptions underlying the Projections and Business Plan include, but are not limited to, the following: (i) a return to favorable conditions in the market for high technology networking products over a five-year period and a return of major customers to at least historical levels. ii (ii) retention and growth of a significant customer relationship. (iii) successful expansion of the Company's sales into the business enterprise market as compared to the Company's historical telecom service provider market. (iv) fulfillment of a large anticipated contract. (v) realization of proceeds from the sale of non-core assets and a claim against Mayan Networks Corporation. (Refer to the Assumptions attached hereto). (vi) ability to outsource manufacture at significantly higher levels of production. (vii) ability to successfully lower costs of product components. (viii) ability to sustain the business with minimum capital investment of less than $500,000. (ix) successful completion of an outside audit for the fiscal years 2001 and 2002 and thereafter. (x) ability to use available federal and state tax NOL's to offset future income tax liabilities. (xi) the satisfaction of significant secured, unsecured, tax and contingent liabilities. (xii) no significant new liabilities arise. (xiii) the ability to retain qualified technical and other employees. (xiv) new products and features are successfully developed on schedule and achieve market acceptance and sales. (xv) no new regulations are passed that negatively impact the buying patterns of the Company's customers in the telecommunications industry. (xvi) ability to support growth without increasing total employee headcount. (xvii) the Company will continue to generate revenues, as in the past, without the benefit of long-term contracts. Further discussion of key plan assumptions is as follows: iii Revenue The following are the key revenue assumptions incorporated into the Business Plan: Telecom Equipment Market The Plan assumes that the market for telecommunications equipment and the economy in general will begin to improve in the last half of calendar 2003. To the extent such improvements do not occur or are delayed or less substantial than assumed, the Company's financial performance will be negatively impacted. Major Expected Order The Company anticipates that it will receive substantial orders under a large project for shipment beginning in Fiscal Year 2004 and continuing thereafter. Based upon discussions with representatives of the prime contractor for such project and the Company's distributor, the Company has been advised that its products have been selected for deployment in such project and the initial products for testing have been delivered. The anticipated orders from such project, in part, support the increasing revenue projected by the Company beginning in Fiscal Year 2004. New Products Over the past year the Company has introduced new products and product features. There exists a long cycle, often up to a year, to get new products approved by the Company's traditional customers who are large telecommunications service providers. Certain of the new products, most notably the SCIP and SCES (which provide Internet and Ethernet applications) have been tested and approved by certain important customers and early shipments to such customers have begun. Debtors expect sales of such products to improve in the future as they are implemented by customers and as additional customers complete their internal review and approval process. The internal review and approval process can take several months, depending on the customer. The Company is in the process of developing other new products and features which will be introduced in the future. While there is no guarantee that such new products will be successful, the Company believes strongly that they will be successful, as such products are being developed in large part to address particular needs and functionality identified to the Company by its larger customers. New products and features are also being introduced not only for the Company's traditional markets within the domestic telecom companies, but also to target the service provisioning markets within such companies. The Plan anticipates that shipments of new products and features will be substantial in the future (up to 20 percent of revenue in fiscal 2004 and higher thereafter), and in part, support the increasing future revenue projected by the Company. iv New Markets Through product innovation and sales force changes, the Company is actively pursuing business enterprise, integrators, resellers and other customers for product and service offerings. As part of this effort, the Company is reestablishing relationships with its substantial base of former business enterprise customers. The Plan anticipates that enterprise markets alone will constitute more than 10 percent of revenue in fiscal 2004 and beyond. The Company is also establishing international sales agency and distributor arrangements and anticipates growth in international sales. During the past year the Company has been able to reestablish relationships with old customers who have not done business with the Company for several years, as well as establishing relationships with new customers. These customers have already purchased the Company's products and have indicated they will be purchasing more of the Company's products in the future. Reorganization Costs The plan assumes that upon emergence from bankruptcy, the Company will benefit from a reduction in professional bankruptcy fees. For the first 18 months in Chapter 11 bankruptcy (through February 28, 2003), the Company incurred approximately $4.1 million, or $228,000 per month, in professional bankruptcy fees. Improved Margins The Company's financial projections assume the Company will be able to improve upon its overall gross margins over a period of time. The projected improvement in margins, a portion of which has already been achieved, is based upon a number of factors, including without limitation, reducing the Company's manufacturing and overhead costs, reducing the component costs for the Company's products (through the use of strategic purchases and utilization of alternative sources, including international sources), savings associated with increased volumes, increased utilization of outsource manufacturing of its products, and other productivity improvements. While there is no guarantee, the Company's management believes the margin improvements assumed in the preparation of the financial projections are achievable. If the projected margin improvements are not achieved, or are achieved more slowly than anticipated, the Company's financial performance will be negatively impacted. Secured Debt/Asset Recoveries Since August 20, 2002, when the secured debt level was agreed at $25 million(4), the Company has been able to reduce the secured debt to approximately $16.2 million (as of June 18, 2003) through a combination of asset sales and operating cash flow. - --------------- 4 The agreed debt level with the Lenders as of August 20, 2002 is actually $30 million, except that $5 million of that amount is eliminated if the debt is repaid by certain deadlines. The Company has already met one of those targets and expects to meet the other three. v Based on the cash flow projections in the Plan, the secured debt will be fully paid off by October 2004. Since the reorganization plan provides that such debt must be fully paid by December 31, 2007, the Company may perform below its projections and still be able to satisfy the Plan payment requirements. The Plan furthermore anticipates that approximately $9 million of cash will be generated from the sale of non-core assets and other recoveries apart from cash generated from ongoing operations. Such amounts will be applied first to pay down the secured debt. $1.9 million of this amount was recently satisfied from the sale of real estate in England, which occurred on April 24, 2003. This reduced the secured debt balance to approximately $16.2 million, as of June 18, 2003. Debtors expect to shortly receive an additional $1 million from proceeds of a Letter of Credit issued in connection with the sale of certain assets prepetition. Breakeven Upon emergence and for the quarter ending September 30, 2003, the Company's business plan requires average monthly revenue of $1.9 million in order to achieve breakeven net income (loss). Assuming that gross margins do not improve as anticipated in the Company's business plan in the quarter ended September 30, 2003 and remain at current levels, the average monthly revenue required to break even becomes $2.1 million (not including principal amortization payments to Ableco). When accounting for the principal amortization payments to Ableco, the break even point level is approximately $2.4 million to $2.6 million at current gross margins. The break even levels are substantially below the revenue projections. Tax Net Operating Loss Carryforwards The Plan anticipates that the Company will be able to utilize federal net operating loss carryforwards in order to offset tax liabilities in the years presented in the Plan. Management believes that under the federal tax rules, the total amount of its tax net operating losses (estimated by the Company to be in excess of $250 million) continue to be available. It is possible that certain events could limit the Company's ability to use its net operating losses. However, in the event they are limited, the Company believes that federal income taxes would still be reduced to the extent of the limitation and to the extent of other income tax credit carry forwards the Company has available. In the event the Company's use of the net operating loss carryforwards is limited and as a result the Company becomes obligated to pay substantial income taxes, the Company's ability to timely meet its payment obligations under the Plan may (depending upon the nature, magnitude and timing of such income tax obligations) be negatively impacted, including its ability to repay Ableco and in turn to repay the New Debentures. Plan Payment Obligations Under the Plan, the Company is required to pay the Lender's Secured Claim (estimated to be less than $15 million in principal on the Effective Date(5)) in full by December 31, 2007, and to pay the New Debentures (estimated to be less - --------------- 5 If the payment of the Lender's Secured Claim does not occur on the schedule necessary to eliminate all of the $ 5 million PIK Obligation ($2.50 million of which is expecting to be eliminated by the Effective Date), the total amount owing to the Lender could be higher. vi than $25 million in principal) in full by the fifth anniversary of the Effective Date, according to certain payment schedules and formulas. The Company's financial projections, if met, would enable the Company to satisfy those obligations in a much shorter period of time (approximately three years). The Committee has advised the Debtors that it believes certain of the revenue assumptions underlying the Debtors' financial projections are aggressive and has expressed its view that due to the risks referenced herein and in Exhibit E to the Disclosure Statement, there is some uncertainty whether the Company's performance will be sufficient to allow it to timely repay its obligations under the Plan. While the projections do show steady increases in revenue over the next four years and there is no guarantee that actual results will equal or exceed projections, the Debtors believe the assumptions underlying the projections are reasonable. Because the Plan provides the Reorganized Debtors with a period of five years to repay its debt obligations under the Plan and the financial projections, if met, would enable the Reorganized Debtors to fully satisfy those obligations in approximately three years, creditors and equity interest holders should be aware, that as a result and depending upon the nature, magnitude and timing of any variances, the Company may be able to meet its payment obligations under the Plan even if its actual financial performance is below the projections. WHILE MANAGEMENT BELIEVES THE ASSUMPTIONS UNDERLYING THE PROJECTED FINANCIAL INFORMATION FOR THE PROJECTION PERIOD, WHEN CONSIDERED ON AN OVERALL BASIS, ARE REASONABLE IN LIGHT OF CURRENT CIRCUMSTANCES AND EXPECTATIONS, NO ASSURANCE CAN BE GIVEN THAT THE PROJECTIONS WILL BE REALIZED. THE DEBTORS URGE THE UNDERLYING ASSUMPTIONS BE CONSIDERED CAREFULLY BY HOLDERS OF CLAIMS AND EQUITY INTERESTS IN REACHING THEIR DETERMINATION OF WHETHER TO ACCEPT OR REJECT THE PLAN. vii General DataComm Industries Income Statement (in thousands)
6 Mo. Total Total Total ---------------------------------------------------------------------------------------------- April May June July August Sept 2003 Q1 04 Q2 04 ---------------------------------------------------------------------------------------------- Revenue $2,100 $2,025 $2,000 $2,075 $2,075 $2,325 $12,600 $ 9,400 $10,250 Cost of Goods Sold 1,009 952 920 934 901 1,010 5,726 3,728 4,118 ---------------------------------------------------------------------------------------------- Gross Profit 1,091 1,073 1,080 1,141 1,174 1,315 $ 6,874 5,672 6,132 Gross Margin % 52% 53% 54% 55% 57% 57% 55% 60% 60% Operating Expenses Employee Benefits 50 50 50 50 50 50 300 150 174 Repairs & Maintenance 23 18 18 20 20 20 119 15 15 Rent Expense 7 7 7 7 7 7 42 6 6 Salaries, Commission & Fees 600 605 600 605 610 630 3,650 2,000 2,066 Supplies 4 4 4 4 4 4 24 14 14 Real Estate Taxes 10 10 10 10 10 10 60 32 32 Other Taxes 20 20 20 20 20 20 120 60 65 Travel & Entertainment 42 36 40 40 40 40 238 144 150 Utilities 18 18 16 20 22 20 114 50 65 Insurance 66 66 66 66 66 66 396 209 210 Other Expenses 45 45 44 44 44 44 266 136 140 Professional Fees 200 200 250 250 250 100 1,250 125 125 Depreciation & Amortization 1 1 1 1 1 1 6 15 15 ---------------------------------------------------------------------------------------------- Operating Expenses 1,086 1,080 1,126 1,137 1,144 1,012 6,585 2,956 3,077 Interest Expense 121 118 103 94 269 264 969 791 702 Other (income)/ Expense (164) (463) (958) (220) (220) (265) (2,290) (550) (500) Income Tax Expense 13 13 13 13 13 13 78 39 39 ---------------------------------------------------------------------------------------------- Net Income/ (Loss) $35 $325 $796 $117 ($32) $291 $1,532 $2,436 $2,814 ============================================================================================== ---------------------------------------------------------------------------------------------- EBITA $170 $457 $913 $225 $251 $569 $2,585 $3,281 $3,570 ==============================================================================================
Total Total Total Total Total Total ------------------------------------------------------------------------- Q3 04 Q4 04 FY 2004 FY 2005 FY 2006 FY 2007 ------------------------------------------------------------------------- Revenue $12,625 $13,025 $45,300 $59,400 $61,080 $73,300 Cost of Goods Sold 4,913 4,995 17,754 23,083 23,750 28,482 ------------------------------------------------------------------------- Gross Profit 7,712 8,030 $27,546 $ 36,317 $37,330 $44,818 Gross Margin % 61% 62% 61% 61% 61% 61% Operating Expenses Employee Benefits 174 174 672 752 843 944 Repairs & Maintenance 15 17 62 70 75 80 Rent Expense 6 7 25 28 31 34 Salaries, Commission & Fees 2,430 2,580 9,076 10,256 10,950 11,920 Supplies 16 18 62 68 75 83 Real Estate Taxes 32 34 130 140 151 163 Other Taxes 65 65 255 265 275 285 Travel & Entertainment 156 162 612 673 741 815 Utilities 55 69 239 251 264 277 Insurance 209 210 838 888 941 997 Other Expenses 140 142 558 586 616 647 Professional Fees 100 100 450 475 500 525 Depreciation & Amortization 20 28 78 90 105 120 ------------------------------------------------------------------------ Operating Expenses 3,418 3,606 13,057 14,542 15,567 16,890 Interest Expense 627 566 2,686 1,402 119 0 Other (income)/ Expense (450) (400) (1,900) (750) 0 0 Income Tax Expense 39 39 156 156 156 156 ------------------------------------------------------------------------- Net Income/ (Loss) $4,078 $4,219 $13,547 $20,967 $21,488 $27,772 ========================================================================= ------------------------------------------------------------------------- EBITA $4,764 $4,852 $16,467 $22,615 $21,868 $28,048 =========================================================================
General DataComm Industries, Inc Statement of Cash Flows (Unaudited) (1) ($$ in 000's) Increase in Cash and Cash Equivalents Projections
April 2003 May 2003 June 2003 July 2003 August 2003 Sept 2003 6 Mo. Total -------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $ 2,677 $ 1,983 $ 2,482 $ 2,267 $ 2,222 $ 2,235 $ 13,866 Non A/R cash 137 2,043 933 200 225 250 $ 3,788 Interest paid (121) (114) (105) (94) (95) (92) $ (621) Cash paid to suppliers and employees (1,740) (1,593) (1,597) (1,860) (1,770) (1,856) $(10,416) -------------------------------------------------------------------------------- Net cash provided by operating activities before reorganization items 953 2,319 1,713 513 582 537 $ 6,617 Operating cash flows from reorganization items: Professional fees (152) (465) (175) (175) (300) (300) $ (1,567) -------------------------------------------------------------------------------- Net cash used by reorganization items (152) (465) (175) (175) (300) (300) $ (1,567) Net cash provided by(used in) operating activities 801 1,854 1,538 338 282 237 $ 5,050 Cash flows from financing activities: Payments on Bank debt Principal (350) (2,283) (1,167) (425) (450) (475) $ (5,150) Payments on Debenture Principal $ - Payments on Taxes (150) $ (150) -------------------------------------------------------------------------------- Net cash provided by financing activities (350) (2,283) (1,167) (425) (450) (625) $ (5,300) -------------------------------------------------------------------------------- Net increase in cash $ 451 $ (429) $ 371 $ (87) $ (168) $ (388) $ (250) ================================================================================ Cash at beginning of period 1,378 1,829 1,400 1,771 1,684 1,516 1,378 Cash at end of period $ 1,829 $ 1,400 $ 1,771 $ 1,684 $ 1,516 $ 1,128 $ 1,128
Q1 2004 Q2 2004 Q3 2004 Q4 2004 2004 2005 2006 2007 ------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $ 7,494 $ 9,774 $ 11,295 $ 12,801 $ 41,364 57,487 60,514 71,711 Non A/R cash $ 3,724 665 450 400 $ 5,239 750 - - Interest paid $ (267) (190) (109) (50) $ (616) (2) (3,932) - Cash paid to suppliers and employees $ (6,837) $(7,180) $ (8,311) $ (8,731) $ (31,059) (38,520) (40,241)(46,724) ------------------------------------------------------------------------------------- Net cash provided by operating activities before reorganization items 4,114 3,069 3,325 4,420 14,928 19,715 16,342 24,988 Operating cash flows from reorganization item Professional fees - - - - - - - - ------------------------------------------------------------------------------------- Net cash used by reorganization items - - - - - - - - Net cash provided by(used in) operating activ 4,114 3,069 3,325 4,420 14,928 19,715 16,342 24,988 Cash flows from financing activities: Payments on Bank debt Principal (4,138) (3,095) (3,050) (3,278) $ (13,561) (600) - - Payments on Debenture Principal $ - (17,000) (6,000) Payments on Taxes (600) $ (600) (750) (500) ------------------------------------------------------------------------------------- Net cash provided by financing activities (4,138) (3,095) (3,050) (3,878) (14,161) (18,350) (6,500) - ------------------------------------------------------------------------------------- Net increase in cash $ (24) $ (26) $ 275 $ 542 $ 767 $ 1,365 $ 9,842 $24,988 ===================================================================================== Cash at beginning of period $ 1,128 $ 1,104 $ 1,078 $ 1,353 1,128 1,895 3,260 13,101 Cash at end of period $ 1,104 $ 1,078 $ 1,353 $ 1,895 $ 1,895 $ 3,260 $ 13,101 $38,089
General DataComm Industries, Inc. Consolidated Balance Sheet (1)
6/30/2003 9/30/2003 12/31/2003 In thousands Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 2004 ASSETS: Current Assets: Cash and cash equivalents $1,771 $1,128 $1,104 $1,078 $1,353 $1,895 $1,895 Accounts receivable 3,448 3,358 5,264 5,740 7,070 7,294 7,294 Notes receivable 0 0 0 0 0 0 0 Inventories 5,023 5,023 5,275 5,375 5,650 5,897 5,897 Deferred income taxes 0 0 0 0 0 0 0 Other current assets 824 574 408 383 358 308 308 --------- --------- --------- --------- ---------- --------- -------- 11,066 10,083 12,051 12,576 14,431 15,394 15,394 Property, plant and equipment, net 0 0 0 0 0 0 0 Land and buildings held for sale 4,569 4,569 1,569 1,569 1,569 1,569 1,569 Other assets 4 4 4 4 4 4 4 Net assets of discontinued operations 92 92 92 92 92 92 92 --------- --------- --------- --------- ---------- --------- -------- Total Assets $15,731 $14,748 $13,716 $14,241 $16,096 $17,059 $17,059 ========= ========= ========= ========= ========== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise Accounts payable, trade 945 975 1,025 1,225 1,400 1,500 1,500 Accrued payroll and payroll-related costs 617 617 620 625 635 642 642 Accrued expenses and other current liab. 4,175 3,943 4,036 4,125 4,249 4,248 4,248 --------- --------- --------- --------- ---------- --------- -------- 5,737 5,535 5,681 5,975 6,284 6,390 6,390 Liabilities subject to compromise Revolving credit loan $0 $0 $0 $0 $0 $0 $0 Notes payable 15,511 14,161 10,023 6,928 3,878 600 600 Mortgages payable on real estate held for sale 0 0 0 0 0 0 0 7 3/4% Convertible debentures 0 0 0 0 0 0 0 Accounts payable, trade 0 0 0 0 0 0 0 Accrued expenses and other current liab. 0 0 0 0 0 0 0 Debentures 25,000 25,193 25,717 26,229 26,747 26,663 26,663 --------- --------- --------- --------- ---------- --------- -------- 40,511 39,354 35,740 33,157 30,625 27,263 27,263 Redeemable 5% Preferred Stock 3,043 3,043 3,043 3,043 3,043 3,043 3,043 Stockholders' equity: Preferred stock 788 788 788 788 788 788 788 Common stock 3,328 3,328 3,328 3,328 3,328 3,328 3,328 Paid-in-capital 191,313 191,313 191,313 191,313 191,313 191,313 191,313 Accumulated deficit (227,550) (227,174) (224,738) (221,924) (217,846) (213,627) (213,627 Less: Treasury stock (1,439) (1,439) (1,439) (1,439) (1,439) (1,439) (1,439 --------- --------- --------- --------- ---------- --------- -------- (33,560) (33,184) (30,748) (27,934) (23,856) (19,637) (19,637 --------- --------- --------- --------- ---------- --------- -------- Total Liabilities and Stockholders' Equity $15,731 $14,748 $13,716 $14,241 $16,096 $17,059 $17,059 ========= ========= ========= ========= ========== ========= ========
In thousands 2005 2006 2007 ASSETS: Current Assets: Cash and cash equivalents $3,260 $13,101 $38,089 Accounts receivable 9,207 9,773 11,362 Notes receivable 0 0 0 Inventories 7,025 7,878 9,474 Deferred income taxes 0 0 0 Other current assets 258 258 200 ---------- --------- ---------- 19,750 31,010 59,125 Property, plant and equipment, net 0 0 0 Land and buildings held for sale 1,569 1,569 1,569 Other assets 4 4 4 Net assets of discontinued operations 92 92 92 ---------- --------- ---------- Total Assets $21,415 $32,675 $60,790 ========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise Accounts payable, trade 1,725 1,900 2,100 Accrued payroll and payroll-related costs 668 694 722 Accrued expenses and other current liab. 4,217 4,221 4,334 ---------- --------- ---------- 6,610 6,815 7,156 Liabilities subject to compromise Revolving credit loan $0 $0 $0 Notes payable 0 0 0 Mortgages payable on real estate held for sale 0 0 0 7 3/4% Convertible debentures 0 0 0 Accounts payable, trade 0 0 0 Accrued expenses and other current liab. 0 0 0 Debentures 10,432 0 0 ---------- --------- ---------- 10,432 0 0 Redeemable 5% Preferred Stock 3,043 3,043 3,043 Stockholders' equity: Preferred stock 788 788 788 Common stock 3,328 3,328 3,328 Paid-in-capital 191,313 191,313 191,313 Accumulated deficit (192,660) (171,172) (143,399) Less: Treasury stock (1,439) (1,439) (1,439) ---------- --------- ---------- 1,330 22,818 50,591 ---------- --------- ---------- Total Liabilities and Stockholders' Equity $21,415 $32,676 $60,790 ========== ========= ==========
(1) Subject to adjustments that may be required to record the fiscal year-end (2001 and 2002) audit adjustments and the effects of the bankruptcy filing. (2) Excludes $3,370 interest/fees on secured debt that may not be payable. General DataComm Industries, Inc. Business Plan Key Assumptions
COMMENTS 2003 2004 2005 2006 2007 Fiscal Year The Company's fiscal tear is assumed to be September 30, which is unchanged. Revenue Growth in revenue beginning in fiscal 2004 is due to several factors which include, sales of new products which is estimated to represent up to 20% of total revenue, the development of the enterprise market and the recovery of GDC's core telco customers. Headcount by Organization Departmental headcounts are shown by year. CEO All counts are effective the first of the year shown 1 1 1 1 1 Finance/hr 9 9 9 9 9 Sales 24 26 27 28 29 Marketing 4 4 5 6 6 Engineering 28 30 31 32 33 IT 6 6 6 4 4 Facilities/Admin/Cust Svcs 10 8 7 6 6 SUBTOTAL 82 84 86 86 88 Manufacturing 31 25 20 20 20 TOTAL EMPLOYEES 113 109 106 106 108 Salary Increases Salary Increases are assumed at the 0% 4% 4% 4% 4% rates in the year shown Employee Benefits Assumes health plan increase is 12% annually. 12% 12% 12% 12% Repairs and Maintenance Minimum amounts for computers and test fixtures. Salaries Commission & Fees Salaries are based upon current rates including reductions. (non-MFG) No increases are assumed in FY 2003. In 2004 the 10% salary deferral program currently in effect, is repaid. $650K for incremental salary required for non-mfg headcount. 5% (Five) of the Net sales increase is added for commissions. Travel & Entertainment Travel expenses will increase as new salespeople 10% 10% 10% 10% are added. Increased travel 10% per year. Utilities Assumed increase of 5% per year. 5% 5% 5% 5% Insurances Assumed increases of 6% over previous year. 6% 6% 6% 6% Other Expenses Assumed increases of 5% over previous year. 5% 5% 5% 5% Professional Fees Fees for Outside Auditors, Legal and Tax. 2004 assumed at $450,000 added $25,000 to each subsequent year. Term Note Assumes $19 million outstanding as of April 1, 2003. Subsequent Payments on debt will result in full payment of the note on or before September 2004. Interest on the note is 7.25% and paid until note is paid in full. Debentures Assumed $23 million outstanding. Excess cash used to prepay debentures and interest beginning in October 2004. Payments will continue through March of 2006, when the principal and interest will be paid. Interest on debentures is based on 8.25% Taxes Assumed $2 million outstanding. Excess cash used to repay Tax and interest beginning in October 2004. Payments will continue through August of 2006, when the taxes and interest will be paid. Interest on taxes is based on 8.25% Non A/R Cash Non A/R Cash receipts consists of: Aheadcom adequate protection payments assumed of $100,000 per month and totalling $1,725,000 Sale of GDC UK Building: $2 million in May 2003 Mayan Arbitration Award: $800,000 in June 2003 Excess component Inventory sales: Beginning July 2003 for $50,000 peaking at $100,000 per month in Sept.for several months and then declining. Total amounts recognized are $225,000 in FY2003 and $775,000 in FY2004. Sale of GDC Naugatuck Building Dec. 2003 for $3,000,000 Payout from Aheadcom Austria liquidation July 2005 of $750,000 Cash Paid to Vendors and Employees Inventory purchases increase both to support higher forecast sales levels and to reflect lower available inventory levels on hand. Balance Sheet Key Assumptions 2004 2005 2006 2007 ----------------------------- Inventory Inventory value is based upon the current year's COGS divided by 3.1 3.2 3.25 3.3 the turn estimates shown. Turns are lower historically based on high available inventory levels on-hand. Liabilities All unsecured Liabilities Subject to Compromise are included in a $25 million Debenture assumed to be issued on June 30, 2003. Accrued Expenses Reflects the estimated timing of property/franchise tax payments and professional fees. In addition, the company implemented a salary deferral program in April 2003 and such deferral amount is assumed to be paid in December 2003. Accounts Receivable Assumes approximately 49 days outstanding, consistent with historical experience.
Cash Flow Statement Formulas
Item ---- Cash flows from Operating activities Consists of 84.5% of current periods revenue, plus prior periods Non-A/R cash ending A/R Asset sales, Ahead Adequate Protection Payments, Vital Interest paid payments and inventory liquidation Reflects Interest paid on Cash Paid to Suppliers and Employees either Term Loan or debentures in the current period Reflects COGS plus all the current period's operating expenses except professional fees and Depreciation plus ordinary course professional fees in July 2003 and the cash difference between the current period's ending inventory less the previous preiod's ending inventory. Professional Fees Reflect bankruptcy related professional fees. Payments on debt Reflects principal payments made against first the term loan and then the debentures. Payments consist of GDC Adequate protection, Aheadcom adequate protection (up to $1,175,000), sales of assets held for sale and sales of excess inventories. Balance Sheet Formula's Item ---- Cash and Cash Equivalents Takes from cash flow statement the Cash at end of Period Accounts Receivable Consists of A/R from the previous period plus current period's revenue from the income statement less the cash received from customers in the current period. Inventories End of period inventories equal about 11.5% of net equipment revenues of the current period. Land & Buildings held for sale Reflects transaction for partial sale of property in 12/03 Accounts Payable trade Increases 5% over previous year Accrued Payroll Increases 4% over previous year All other accrued expenses Balances Liabilities to assets Accumulated deficit June 30, calculated with Bill Henry. Next period equals previous period's number plus the net income from the current period.
EXHIBIT D DEBTORS' GOING CONCERN VALUATION viii GDC's financial advisor, Chodan Advisors, Inc., ("Chodan"), was engaged by the Company's management to determine an estimate of the Company's reorganized value and to provide a limited scope report. The estimated range of the Company's reorganized enterprise value should not be considered indicative of the price at which the business may be purchased or sold upon completion of the proposed restructuring. Furthermore, the estimated reorganized enterprise value should not be considered a proxy for the value of the Company's new securities after completion of the restructuring. In preparing the valuation, Chodan relied upon the financial projections prepared by the Debtors' management, which were last updated as of May 13, 2003, and upon Chodan's review and discussions with management regarding the financial projections. To the extent the estimate of GDC's enterprise value derived by Chodan's analysis is dependent on the Company achieving the projected results, the valuation estimate is subject to uncertainty and risk. Since projections, by definition, are forward looking, certain financial results projected by the Company's management may differ from recent historical results. There are three conventional and generally accepted approaches to determine the value of a business like GDC: o Market approach. o Income approach o Asset approach The market approach is a valuation technique in which the fair market value of a business is estimated by comparing the target company to be valued to industry guideline companies whose stock is publicly traded. The income approach, also referred to as the Discounted Cash Flow (DCF) approach, measures the value of a company based on anticipated future (projected) earnings and cash flows of the business. An alternative approach to valuing a business enterprise is the underlying asset approach. This approach requires the determination of the aggregate market value of the collective assets and liabilities of the business. This approach is commonly used in valuing real estate, investment holding companies and insolvent businesses under a liquidation scenario. (a) The Market Approach Valuation As previously discussed, the market approach is a valuation technique in which the fair market value of a business is measured by comparing the target company to industry specific guideline companies whose common stock is publicly-traded. Chodan reviewed a list of companies in the United States, which manufacture and distribute telecommunication equipment. The following criteria were used to select companies for our market value analysis: o The company's stock was traded on a national exchange or over-the-counter o Adequate financial information was available o The company's size was relatively comparable to GDC - the approximate annual revenue range was $14.2M to $345.7M (note: GDC's reorganized average revenue amount for the projected period is near the midpoint of this range) o The companies operate in the telecommunications equipment market. The following companies were identified: - -------------------------------------- ----------------------- --------------- B. Company C. Ticker Symbol D. Revenue - -------------------------------------- ----------------------- --------------- Adtran, Inc. ADTN $345,725 - -------------------------------------- ----------------------- --------------- Aware, Inc. AWRE $13,844 - -------------------------------------- ----------------------- --------------- Carrier Access Corporation CACS $50,247 - -------------------------------------- ----------------------- --------------- Entrada Networks, Inc. ESCN $14,197 - -------------------------------------- ----------------------- --------------- Paradyne Networks, Inc. PDYN $112,264 - -------------------------------------- ----------------------- --------------- Tekelec TKLC $260,341 - -------------------------------------- ----------------------- --------------- Terayon Communications Systems, Inc. TERN $129,403 - -------------------------------------- ----------------------- --------------- Verilink Corporation VRLK $29,716 - -------------------------------------- ----------------------- --------------- Vina Technologies, Inc. VINA $25,143 - -------------------------------------- ----------------------- --------------- Zoom Technologies, Inc. ZOOM $37,274 - -------------------------------------- ----------------------- --------------- Chodan compared certain financial data for GDC with similar data for the industry guideline companies. The selected earnings parameters were the EBITDA and sales multiples. (Tab 2) EBITDA multiples for the guideline companies ranged from (-4.48)x to 32.72x at May 13, 2003. This wide range of results demonstrates the difficulty in using the market method to value certain companies, particularly financially troubled companies. With respect to the guideline companies, there is no apparent EBITDA multiple within this range to extrapolate to GDC's projected EBITDA. Furthermore, the Company anticipates significantly different earnings trends compared to its historical performance. While sales multiples for the guideline companies were more closely grouped, Chodan does not believe that this parameter alone provides sufficient guidance to apply it in valuing GDC. We also note that a number of the guideline companies have market valuations that are less than or close to the cash these companies have on their balance sheets. This indicates that there is some degree of irrational market valuation that currently exists in the sector and should not be construed as a basis for long-term valuations of going concerns. Accordingly, Chodan determined that the income approach was the most relevant valuation methodology for measuring GDC's reorganized enterprise value. Income Valuation Approach The income approach or DCF measures the value of a company based on anticipated future (projected) earnings and cash flows of the business. These estimated future earnings and cash flows are discounted to the present date at a rate of return, which is commensurate with the company's inherent market risk and expected growth. The present value of the company's projected cash flows is a proxy for the fair market value of the business. ii Cash Flow Estimates: In performing our valuation study, Chodan prepared a discounted cash flow analysis of the Company's unlevered free cash flows (assuming the financial forecasts, prepared and provided to Chodan by the Company's management were accurate and were realized in the amounts and at the times indicated). In connection with its review, Chodan did not assume any responsibility for independent investigation or verification of any of the information that was provided to it and it relied on such information being complete and accurate in all material respects. With respect to the financial forecasts prepared and provided by GDC, Chodan was advised, and assumed, that the forecasts were reasonably prepared on basis reflecting the best currently available estimates and judgments of Management as to the future financial performance of the Company. However, the materials and information presented in this report have been prepared for illustrative purposes only, and do not represent a prediction, forecast or projection of actual results. Chodan disclaims any assurance on the underlying assumptions and the user of this report should not rely on such assumptions as achievable since the actual results may significantly differ from the underlying assumptions. Furthermore, Chodan does not make, and expressly disclaims, any warranty or guarantee of any particular result and the user of this report should not rely on this analysis and valuation. Cost of Capital (Discount Rate): The proper cost of capital, or discount rate, is the expected rate of return that the market requires to attract funds to a particular investment. The cost of capital is market driven meaning it is the competitive rate of return in the market for assets with similar earnings streams and risk characteristics. Since GDC's restructured capital structure will incorporate both debt and equity financing, Chodan analyzed the Company's overall weighted-average cost of capital (WACC). The steps involved in developing the discount rate or WACC include the following: o Measure the company's cost of debt o Measure the company's cost of equity The pretax cost of GDC's debt of 8.81% (5.28% after tax) is the weighted average of the rates negotiated for both the secured and unsecured debt assumed to be in place at the time of emergence from Chapter 11. According to the proposed plan of reorganization, GDC's reorganized capital structure will include approximately $19.2 million of new secured debt with a proposed interest rate equal to the greater of 7.25% or the prime rate plus 2.5%, and approximately $25.0 of unsecured debt with a proposed initial interest rate of 10.0% that, under certain conditions, can be adjusted downward to 7.25%. It is important to note that these debt balances reflect the expected balances at the date of emergence from Chapter 11 and do not reflect the potential of reduced debt levels based upon certain prepayment discounts incorporated into the terms of the new debt and have chosen the higher amounts to reflect a more conservative valuation. Upon conditions that the projections indicate will be met, the iii balance of the Secured debt will effectively be $15.5 million upon emergence. If these conditions are not met, the effective balance is $20.5 million. The cost of the new debentures is also subject to reduction if certain financial targets are achieved. For conservative reasons, these potential reductions have not been included in the analysis. Unlike the cost of debt instruments, the cost of equity is not directly observable in the market because there are no known future return amounts to compare to current stock prices. The cost of equity for businesses covers a wide range of required rates of return due to a broad range of risks. The Capital Asset Pricing Model ("CAPM") was used to determine GDC's equity cost of capital. The computed CAPM equity cost of capital for the ten previously described publicly traded guideline industry companies ranged from 13.77% to 36.31% with a median of 25.43%. Chodan determined that a range of equity cost between 30% and 35% was appropriate for valuing GDC. This range is just below the average of the four highest equity costs of the guideline companies (30.87%) and slightly lower than the highest of 36.31%. Each of these is significantly higher than the median cost of equity capital of the guideline companies of 25.43%. These costs of equity capital were used to reflect the risk inherent in achieving the Companies projections and provides a more conservative valuation than using the median equity cost of capital. (Tab 3) To determine its weighted-average cost of capital, Chodan assumed a capital structure of 30% debt and 70% equity. It should be noted that depending upon how the equity of the reorganized entity is valued, the debt-to-equity ratio may be different from that used in the calculation. Accordingly, GDC's computed WACC at May 13, 2003 was within a range of 22.62% and 26.12% (see Tab 1 and 1a). Computation of Reorganized Value Based on management's projected operating assumptions, Chodan conducted the following procedures utilized in the application of the Discounted Cash Flow approach (see Tab 1 and 1a): o Computed unlevered free cash flows for the 4.25 year period ending September 30, 2007. o Computed the present value of the unlevered free cash flows using the weighted-average cost of capital at July 1, 2003. o Computed the terminal value by "capitalizing" the final year's free cash flow amount at the Company's cost of capital less an expected future cash flow growth rate of 5%. o Added the present value of the terminal value and the sum of the present values of the annual free cash flow amounts to arrive at an estimated reorganized enterprise value at July 1,2003. Based on management's projected assumptions for revenue, operating costs, working capital requirements and capital expenditures, in addition to GDC's current financial condition and assessed market risks, Chodan determined the Company's reorganized enterprise value including non-core assets held for sale at July 1, 2003 to be in a range of approximately: $89.9 million to $108.9 million iv This figure includes the estimated aggregate value of the "additional assets" is approximately $6.3 million and that it will take one year to realize the proceeds from disposition. The Company's plan of reorganization calls for general unsecured claims to be satisfied through the issuance of approximately $25.0 of new unsecured notes. Preferred stock will be reinstated and dividend arrears will be assumed in full. Accordingly, the estimated unencumbered (without debt) value of GDC's reorganized equity (common stock) at July 1, 2003 is a range of approximately: $19.1 million to $38.0 million In light of the valuation indicating a positive value for the common stock, the debentures offered to unsecured creditors in satisfaction of their claims should be valued at 100% of face. The terms of the debentures were extensively negotiated at arms length and the interest rate should therefore represent the rate appropriate for the perceived risk of the instrument. We note that the debenture's initial rate of 10% over 700 basis points above the current five-year treasury, a particularly large spread, especially considering the fact that the debentures benefit from a security interest in the Company's assets. Chodan assumed that the Restructuring would be completed in accordance with the terms of the Plan without any material amendments, modifications or waivers. Chodan also assumed that in the course of obtaining the necessary consents and approvals for the proposed restructuring and related transactions, there would be no material delays, modifications or restrictions imposed that would have a material adverse impact on the contemplated benefits of the proposed restructuring. Chodan was not requested to, and did not make an independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of GDC, and was not furnished with any evaluations or appraisals. Chodan's estimate of restructured enterprise values for GDC did not address any other aspects of the proposed restructuring or any related transactions or constitute a recommendation to any holder of GDC's outstanding securities as to how such security holder should vote or act on any matter relating to the restructuring or any related transactions. In addition, Chodan's valuation analysis does not constitute a fairness opinion to the holders of GDC's outstanding securities from a financial point of view for the consideration to be received by such security holders pursuant to the Restructuring. Chodan's valuation analysis was based on information available as of May 13, 2003 and financial, economic, market and other conditions as they existed on such date and assumed that the Restructuring became effective June 30, 2003. In performing its analysis, Chodan incorporated forward-looking projections prepared by management that included the period following May 13, 2003. Although developments subsequent to May 13, 2003 may affect the results of Chodan's analysis, Chodan does not have any obligation to update, revise or reaffirm its analysis or its estimate of GDC's restructured values. The reorganization value of a debtor does not necessarily correspond to the anticipated market or trading value of the debtor's securities upon plan confirmation. Nevertheless, GDC believes that a determination of reorganization v value is the proper means of valuing the Reorganized Company for purposes of confirmation, to the extent that such valuation is necessary. vi DRAFT - FOR DISCUSSION PURPOSES ONLY Management's Projections Tab 1
Operating Projections ($000's) ------------------------------ 3 Months FYE FYE FYE FYE 9/30/2003 9/30/2004 9/30/2005 9/30/2006 9/30/2007 ----------------------------------------------------------- Revenue $ 6,475 $ 45,300 $ 59,400 $ 61,080 $ 73,300 Cost of Goods Sold Total $ 2,845 $ 17,754 $ 23,083 $ 23,750 $ 28,482 ----------------------------------------------------------- Gross Profit $ 3,630 $ 27,546 $ 36,317 $ 37,330 $ 44,818 56% 61% 61% 61% 61% Operating Expenses Employee Benefits $ 150 $ 672 $ 752 $ 843 $ 944 Repairs & Maintenance $ 60 $ 62 $ 70 $ 75 $ 80 Rent Expense $ 21 $ 25 $ 28 $ 31 $ 34 Salaries, Commission & Fees $ 1,845 $ 9,076 $10,256 $10,950 $11,920 Supplies $ 12 $ 62 $ 68 $ 75 $ 83 Real Estate Taxes $ 30 $ 130 $ 140 $ 151 $ 163 Other Taxes $ 60 $ 255 $ 265 $ 275 $ 285 Travel & Entertainment $ 120 $ 612 $ 673 $ 741 $ 815 Utilities $ 62 $ 239 $ 251 $ 264 $ 277 Insurance $ 198 $ 838 $ 888 $ 941 $ 997 Other Expenses $ 132 $ 558 $ 586 $ 616 $ 647 Professional Fees $ 600 $ 450 $ 475 $ 500 $ 525 ----------------------------------------------------------- Depreciation & Amortization $ 3 $ 78 $ 90 $ 105 $ 120 Operating Expenses $ 3,293 $13,057 $14,542 $15,567 $16,890 Interest Expense $ 627 $ 2,686 $ 1,402 $ 119 $ - Other (Income)/Expense $ (705) $(1,900) $ (750) $ - $ - Income before taxes $ 415 $13,703 $21,123 $21,644 $27,928 Income Tax Expense $ 39 $ 156 $ 156 $ 156 $ 156 Net Income/ (Loss) $ 376 $13,547 $20,967 $21,488 $27,772 EBITDA $ 1,045 $16,467 $22,615 $21,868 $28,048 Margin 16.1% 36.4% 38.1% 35.8% 38.3% Net change in working capital $ 138 $(3,689) $(2,771) $(1,214) $(2,786) Capital expenditures $ (80) $ (80) $ (100) $ (120) $ (140) ----------------------------------------------------------- Net Cash Flow $ 1,064 $12,542 $19,588 $20,378 $24,966 Assets held for sale or collection $ 525 $ 5,750 Debt Repayment - ------------------------------------------------------------------------------------------------------------------ Free cash flow before debt payments $ 1,589 $ 18,292 $ 19,588 $ 20,378 $ 24,966 Interest expense $ 627 $ 2,686 $ 1,402 $ 119 $ - -------------------------------------------------------- Net cash available for debt payments $ 962 $ 15,606 $ 18,186 $ 20,259 $ 24,966 Bank debt payments $ 1,350 $ 13,561 $ 600 Debenture payments $ 17,000 $ 6,000 - ------------------------------------------------------------------------------------------------------------------ Terminal value $141,974 $ 1,589 $ 18,292 $ 19,588 $ 20,378 $166,940 Present Value of Cash Flows $ 1,510 $ 14,181 $ 12,388 $ 10,513 $ 70,259 Total Enterprise Value $108,852 Secured debt (1) $20,511 Prepetition unsecured debt(2) $25,000 -------- $45,511 Preferred stock(3) $25,300 ------- $70,811 Equity Value $38,041 Proportion Cost ---------- ----- Cost of equity 70.00% 30.00% Terminal cap rate 17.58% Cost of debt 30.00% 8.81% Growth rate 5.00% After tax debt cost 5.28% Tax rate 40.00% WACC 22.58% (1) May be reduced to $15.5 million under certain conditions. (2) Assumed face of the debenture is $25mm upon emergence. (3) Includes $5.3mm in arrears.0 EBITDA factor 1 Sr debt 19211 0.43 0.0725 0.0315 other debt 25000 0.57 0.1000 0.0565 44211 0.0881
DRAFT - FOR DISCUSSION PURPOSES ONLY Management's Projections Tab 1a
Operating Projections ($000's) ------------------------------ 3 Months FYE FYE FYE FYE 9/30/2003 9/30/2004 9/30/2005 9/30/2006 9/30/2007 ----------------------------------------------------------- Revenue $ 6,475 $ 45,300 $ 59,400 $ 61,080 $ 73,300 Cost of Goods Sold Total $ 2,845 $ 17,754 $ 23,083 $ 23,750 $ 28,482 ----------------------------------------------------------- Gross Profit $ 3,630 $ 27,546 $ 36,317 $ 37,330 $ 44,818 56% 61% 61% 61% 61% Operating Expenses Employee Benefits $ 150 $ 672 $ 752 $ 843 $ 944 Repairs & Maintenance $ 60 $ 62 $ 70 $ 75 $ 80 Rent Expense $ 21 $ 25 $ 28 $ 31 $ 34 Salaries, Commission & Fees $ 1,845 $ 9,076 $10,256 $10,950 $11,920 Supplies $ 12 $ 62 $ 68 $ 75 $ 83 Real Estate Taxes $ 30 $ 130 $ 140 $ 151 $ 163 Other Taxes $ 60 $ 255 $ 265 $ 275 $ 285 Travel & Entertainment $ 120 $ 612 $ 673 $ 741 $ 815 Utilities $ 62 $ 239 $ 251 $ 264 $ 277 Insurance $ 198 $ 838 $ 888 $ 941 $ 997 Other Expenses $ 132 $ 558 $ 586 $ 616 $ 647 Professional Fees $ 600 $ 450 $ 475 $ 500 $ 525 Depreciation & Amortization $ 3 $ 78 $ 90 $ 105 $ 120 ----------------------------------------------------------- Operating Expenses $ 3,293 $13,057 $14,542 $15,567 $16,890 Interest Expense $ 627 $ 2,686 $ 1,402 $ 119 $ - Other (Income)/Expense $ (705) $(1,900) $ (750) $ - $ - Income before taxes $ 415 $13,703 $21,123 $21,644 $27,928 Income Tax Expense $ 39 $ 156 $ 156 $ 156 $ 156 Net Income/ (Loss) $ 376 $13,547 $20,967 $21,488 $27,772 EBITDA $ 1,045 $16,467 $22,615 $21,868 $28,048 Margin 16.1% 36.4% 38.1% 35.8% 38.3% Net change in working capital $ 138 $(3,689) $(2,771) $(1,214) $(2,786) Capital expenditures $ (80) $ (80) $ (100) $ (120) $ (140) ----------------------------------------------------------- Net Cash Flow $ 1,064 $12,542 $19,588 $20,378 $24,966 Assets held for sale or collection $ 525 $ 5,750 Debt Repayment - ------------------------------------------------------------------------------------------------------------------ Free cash flow before debt payments $ 1,589 $ 18,292 $ 19,588 $ 20,378 $ 24,966 Interest expense $ 627 $ 2,686 $ 1,402 $ 119 $ - -------------------------------------------------------- Net cash available for debt payments $ 962 $ 15,606 $ 18,186 $ 20,259 $ 24,966 Bank debt payments $ 1,350 $ 13,561 $ 600 Debenture payments $ 17,000 $ 6,000 - ------------------------------------------------------------------------------------------------------------------ Terminal value $118,407 $ 1,589 $ 18,292 $ 19,588 $ 20,378 $143,373 Present Value of Cash Flows $ 1,500 $ 13,691 $ 11,628 $ 9,594 $ 53,536 Total Enterprise Value $89,949 Secured debt (1) $20,511 Prepetition unsecured debt(2) $25,000 -------- $45,511 Preferred stock(3) $25,300 ------- $70,811 Equity Value $19,138 Proportion Cost ---------- ----- Cost of equity 70.00% 35.00% Terminal cap rate 21.08% Cost of debt 30.00% 8.81% Growth rate 5.00% After tax debt cost 5.28% Tax rate 40.00% WACC 26.08% (1) May be reduced to $15.5 million under certain conditions. (2) Assumed face of the debenture is $25mm upon emergence. (3) Includes $5.3mm in arrears.0 EBITDA factor 1 Sr debt 19211 0.43 0.0725 0.0315 other debt 25000 0.57 0.1000 0.0565 44211 0.0881
DRAFT - FOR DISCUSSION PURPOSES ONLY Tab 2 $'s in 000's
5/13/2003 Market Value Parameters - ------------------------------------------------------------------------------------------------------------------------------------ Last Fiscal Gross EBITDA % Share Total Market BV of EV Ticker Quarter Revenue Margin EBITDA of Revenue Price Shares Cap. Debt - ------------------------------------------------------------------------------------------------------------------------------------ ADTN 31-Dec-02 $ 345,725 50.6% $53,930 15.60% $45.87 37,383 $1,714,758 $ 50,000 $1,764,758 AWRE 31-Dec-02 $ 13,844 37.9% ($10,685) -77.18% $ 1.95 22,698 $ 44,261 $ 0 $ 44,261 CACS 31-Dec-02 $ 50,247 34.0% ($34,317) -68.30% $ 1.52 24,771 $ 37,652 $ 0 $ 37,652 ESAN 31-Oct-02 $ 14,197 41.5% $2,773 19.53% $ 0.37 12,937 $ 4,787 $ 1,410 $ 6,197 PDYN 31-Dec-02 $ 112,264 48.4% ($17,295) -15.41% $ 1.64 42,862 $ 70,294 $ 396 $ 70,690 TKLC 31-Dec-02 $ 260,341 70.5% $53,595 20.59% $11.67 60,893 $ 710,621 $126,973 $ 837,594 TERN 31-Dec-02 $ 129,403 22.0% ($74,037) -57.21% $ 2.33 73,084 $ 170,286 $ 68,656 $ 238,942 VRLK 27-Dec-02 $ 29,716 34.2% $5,052 17.00% $ 1.17 15,003 $ 17,554 $ 4,842 $ 22,396 VINA 31-Dec-02 $ 25,143 30.3% ($16,098) -64.03% $ 0.13 62,080 $ 8,070 $ 3,000 $ 11,070 ZOOM 31-Dec-02 $ 37,274 25.0% ($2,605) -6.99% $ 0.78 7,858 $ 6,129 $ 5,534 $ 11,663 36.1% Median 39.4% Mean Std. Dev. 1.64 Maximum Minimum
- ------------------------------------------------------- EV to EV to EV Less Ticker Revenue EBITDA Cash Cash - ------------------------------------------------------- ADTN 5.10 32.72 $ 144,839 $1,619,919 AWRE 3.20 -4.14 $ 25,268 $ 18,993 CACS 0.75 -1.10 $ 14,900 $ 22,752 ESAN 0.44 2.23 $ 556 $ 5,641 PDYN 0.63 -4.09 $ 47,706 $ 22,984 TKLC 3.22 15.63 $ 181,572 $ 656,022 TERN 1.85 -3.23 $ 206,503 $ 32,439 VRLK 0.75 4.43 $ 9,790 $ 12,606 VINA 0.44 -0.69 $ 8,067 $ 3,003 ZOOM 0.31 -4.48 $ 7,612 $ 4,051 Median 0.75 -0.89 Mean 1.67 3.73 Std. Dev. 11.86 Maximum 5.10 32.72 Minimum 0.31 -4.48
General Datacomm Industries Tab 3
WACC Capital Asset Pricing Model - ----------------------------------------------------------------------------------------------------------------------------- Capital Structure -------------------------------------------------------------------------------------------------------------- 5/13/2003 Market Debt Equity Market Share Total Value as a % as a % Debt to Levered Unlevered Risk-Free Ticker Debt Price Shares of Equity of Capital of Capital Equity Ratio Beta(1) Beta(2) Rate(3) - ---------- ------------ --------- -------- ------------ ---------- ---------- ------------ -------- ---------- ----------- ADTN $50,000 $45.87 37,383 $1,714,758 2.83% 97.17% 2.92% 1.11 1.09 4.90% AWRE $0 $1.95 22,698 $44,261 0.00% 100.00% 0.00% 2.66 2.66 4.90% CACS $0 $1.52 24,771 $37,652 0.00% 100.00% 0.00% 2.66 2.66 4.90% ESAN $1,410 $0.37 12,937 $4,787 22.75% 77.25% 29.46% 4.08 3.47 4.90% PDYN $396 $1.64 42,862 $70,294 0.56% 99.44% 0.56% 2.67 2.66 4.90% TKLC $126,973 $11.67 60,893 $710,621 15.16% 84.84% 17.87% 1.55 1.40 4.90% TERN $68,656 $2.33 73,084 $170,286 28.73% 71.27% 40.32% 2.49 2.00 4.90% VRLK $4,842 $1.17 15,003 $17,554 21.62% 78.38% 27.58% 2.52 2.16 4.90% VINA $3,000 $0.13 62,080 $8,070 27.10% 72.90% 37.17% 4.85 3.97 4.90% ZOOM $5,534 $0.78 7,858 $6,129 47.45% 52.55% 90.29% 1.28 0.83 4.90% Median 0.18 0.82 0.23 2.59 2.41 Mean 0.17 0.83 0.25 2.59 2.29
------------------------------------- Lg. Co. Size Market Risk Risk Cost of Ticker Premium(4) Premium(5) Equity(6) - ---------- ------------- ----------- ----------- ADTN 7.00% 1.23% 13.77% AWRE 7.00% 3.65% 27.17% CACS 7.00% 3.65% 27.17% ESAN 7.00% 3.65% 32.82% PDYN 7.00% 3.65% 27.18% TKLC 7.00% 0.77% 15.47% TERN 7.00% 1.55% 20.48% VRLK 7.00% 3.65% 23.69% VINA 7.00% 3.65% 36.31% ZOOM 7.00% 3.65% 14.36% Mean 23.84% Median 25.43% Minimum 13.77% Maximum 36.31%
Notes: - ---------- (1) Source: Market Guide as of 4/4/03 (2) Unlevered beta determined as: beta --------------------------------------------- Unlevered Beta = 1+(1-tax rate)*(debt/equity) (3) 20 Year U.S. Treasury yield to maturity on April 4, 2003. (4) Source: Stocks, Bonds, Bills and Inflation: 2002 Yearbook Arithmetic mean market risk premium return for the period from 1926 through 1999; 7.0% large capitalization premium = arithmetic mean of total return of large company stocks less return on long-term U.S. Treasury securities (5) Source: Stocks, Bonds, Bills and Inflation: 2002 Yearbook Arithmetic mean micro-cap (10th size decile) risk premium return for the period from 1926 through 1999; Decile #1: Size Premium = -0.50% Decile #6: Size Premium = 1.23% Decile #2: Size Premium = 0.27% Decile #7: Size Premium = 0.77% Decile #3: Size Premium = 0.63% Decile #8: Size Premium = 1.22% Decile #4: Size Premium = 0.54% Decile #9: Size Premium = 1.61% Decile #5: Size Premium = 0.73% Decile #10: Size Premium = 3.65% (6) Cost of equity capital is determined using the Capital Asset Pricing Model: EXHIBIT E COMMITTEE'S VALUATION AND VIEW OF DEBTORS' BUSINESS PROJECTIONS AND VALUATION SUMMARY OF WORK PERFORMED BY DELOITTE & TOUCHE BACKGROUND The Financial Advisor to the Unsecured Creditor Committee of General Datacomm Corporation ("GDC" or the "Debtor"), Deloitte & Touche ("D&T"), has performed several tasks for the Committee, at the request of Counsel. These tasks include: o Critiquing the financial projections developed by GDC as found in their Amended Disclosure Statement filed April 29, 2003; o Performing some limited independent valuation analyses related to the Fair Market Value of GDC, and; o Reviewing and critiquing a valuation developed at the request of the Debtor by Chodan Advisors Inc. ("Chodan"). This summary contains details related to D&T's analyses, including a summary of our findings related to GDC's projections, a summary of D&T's valuation analysis, and a limited critique of the valuation performed by Chodan. 1. ASSESSMENT OF FINANCIAL PROJECTIONS DEVELOPED BY GDC GDC has provided projections through the end of fiscal year 2007 (September 30, 2007). We have reviewed these projections, held discussions with GDC management and performed market research on the telecom industry, GDC's primary customers and comparable companies to GDC in order to determine the reasonableness of these projections. The following sections briefly summarize the market research we utilized in our analysis. a. Industry Environment While Regional Bell Operating Companies ("RBOCs") have shown some improvement, weak economic conditions and competition are expected to continue to hamper telecom services growth and push recovery beyond 2003. Local business and consumer access line and enterprise long distance demand are expected to remain weak as a result of the economy and the effects of substitution (e.g. wireless). Competition in consumer and enterprise data remains intense particularly in light of RBOC and cable company advances. Despite significant cost cutting, aggressive pricing and declining pension/post-retirement income have pressured margins. Most industry observers agree that a rebound in demand, and consolidation are critical for a recovery and neither appears likely in the near-term. Telecom services capex guidance for 2003 is forecast to decline by roughly 8% from 2002 levels with some industry analysts suggesting the potential for further cuts in light of the FCC's Unbundled Network Element Platform ("UNE-P") ruling. In early 2003, RBOC capex spending was roughly 11% of revenue and viewed by some as in line with historical maintenance levels and sustainable for the short term. This is slightly below guidance of 15% of revenue for the full year 2003. Capex could decline further should weak economic conditions and UNE-P losses persist. 1 RBOC Capital Expenditures [Graphic Omitted] In light of the challenging economic and industry conditions, telecommunications equipment providers continue to face near-term risks with weak demand from wireline telecom service providers and enterprise customers. Consequently, guidance has remained cautious at best for 2003. Adtran management, for example, suggested that overall economic health and IT spending would carry legacy product sales and they remained cautiously optimistic that market share gains and an enhanced product portfolio would lead to gradual improvements through year-end 2003. Verilink cautioned that reduced customer capital spending and declines in legacy product sales would continue to affect revenue until the overall telecommunications market recovered and its newer Wide Area Network ("WAN") suite of products gained solid market share. Similar to other industry players, Verilink expressed doubt of a near-term recovery suggesting instead that it does not expect a telecom recovery until at least 2004. b. Customer Environment SBC During the first quarter of 2003, SBC reported strong growth in Digital Subscriber Line ("DSL") and Long Distance ("LD") subscriber adds as well as a slight decline in UNE-P line losses. Despite showing signs of improvement, the company's revenue and margins remain under pressure from aggressive pricing, competition and continued economic weakness. The decline in wireline revenue (-6% year-over-year) and EBITDA (-16% year-over-year) was largely attributable to SBC's reduction in access prices in response to UNE-P competition, continued line losses and the introduction of new LD and unlimited usage plans. Adding further to competition, the plans were priced below competitors such as Verizon and Bell South. Such declines within voice and LD revenue more than offset the 4% year-over-year growth in the data segment and record LD customer adds (marking entry into California market). Limited growth expectations within the analyst community are largely tempered by concerns that competition and operating tactics (e.g. bundling local/LD voice plus other services) will adversely affect margins. 2 Although management reaffirmed full year guidance of $5-$6 billion, capex declined to $897 million, 9% of revenue in the first quarter of 2003. Based on analyst projections, SBC capex is projected to grow (8% CAGR) from $5.3 billion in 2003 to $6.7 billion in 2006. Qwest Similar to SBC, analysts anticipate access lines will decline by roughly 5% year-over-year in the first quarter of 2003 in part from UNE-P competition. The company is expected to face continued revenue and EBITDA margin pressure despite cost savings efforts and improving LD revenue (stemming from recent approval of 9-state application). Qwest continues to add DSL subscribers (~15,000 during 1Q03) albeit to a lesser extent that its peers. DSL growth is expected to remain weak in the near term. Overall, total revenue is expected to decline through 2006 while EBITDA margins are expected to improve beginning in 2004. Capex, ranging from 15-18% of revenue, is expected to continue to decline (-7% CAGR) from $2.6 billion in 2003 to $2.1 billion in 2006. Verizon Telecom revenue is projected to continue to decline although at a slower pace than the prior year. Line losses are expected to continue largely driven by second-line losses and UNE-P competition. Verizon DSL growth is expected to outpace its peers and LD customer gains are expected to improve in light of the bundling approach (similar to competitors). Capex is expected to decline from $6.6 billion in 2003 to $5.5 billion in 2006 (-6% CAGR). c. Competitor Environment ADC Telecommunications ADC Telecommunications revenue is expected to decline to $810 million in 2003 from roughly $950 million in 2002. In the absence of a telecom capital expenditure recovery, ADC will likely maintain revenue with mature products and face challenges in driving growth as new product sales ramp slowly. ADC's new product sales, such as those related to cable systems, wireless and billing software, appear uncertain as carriers seek to maximize use of current networks and defer capital expenses. Operating margins are expected to improve from -26% in 2002 to -5% in 2003 as a result of restructuring efforts. In 2004, revenue growth of about 11% and continued margin expansion is expected in light of the slightly positive outlook for the overall telecom equipment market. Adtran Despite modest growth prospects, Adtran's management team and company structure are deemed by the analyst community to be the best amongst telecom equipment players. During the first quarter of 2003, T1 revenue declined in part due to seasonality but also as a result of the increasing use of Integrated Access Devices ("IAD") and access routers (vs. DSUs/CSUs). Despite the decline in DSU/CSU revenue, Adtran has been successful in gaining market share in the IAD market. In addition, the company expects to begin shipping its new ADSL DSLAM product line in mid-2003, however, it remains to be seen whether the company will be able to maintain this schedule and if so, how quickly sales will ramp. 3 Adtran management has expressed little, if any, optimism of an industry recovery during 2003. Congruent with the industry outlook, Adtran revenue is projected to grow roughly 5% from $346 million in 2002 to $364 million in 2003. New product revenues are expected to account for roughly 10% for total revenue in 2003. Operating margin is also expected to improve from 11% in 2002 to 16% in 2003. 2004 revenue growth is projected at 10% and operating margin is expected to expand further to 18% of revenue. Over the longer term, Adtran's continued success is expected to hinge on the overall success of its ILEC customers who are facing competition from cable companies in providing business high-speed data services. Carrier Access Corporation Carrier Access Corporation revenue is expected to decline slightly from roughly $50 million in 2002 to $48 million in 2003. Centillium Communications Centillium Communications revenue is projected to grow roughly 4% from $105 million in 2002 to $110 million in 2003 and reach $170 million in 2004. Operating margins are expected to improve to -11% in 2003 and turn positive reaching 12% in 2004. As a player in the Japanese DSL market, Centillium's key challenge in the future will be maintaining its significant market share with NTT (99%). In addition, the company faces challenges in gaining market share in the US and China. Paradyne Networks Corporation Paradyne Networks revenue is expected to decline slightly from $112 million in 2002 to $108 million in 2003 before reaching $164 million in 2004. The company is expected to shift focus to developing standards-based ADSL solutions in positioning for the future. Although the company has engaged in cost cutting, operating margins are expected to decline to -12% in 2003 before making positive gains, reaching 5% in 2004. Verilink Similar to other industry players, Verilink has experienced top-line declines as a result of the overall economic environment and declines in carrier and enterprise spending. Although there have been some gains in its carrier access product lines, the company has attributed this to sales to its largest customer which often fluctuate based on project timing. Enterprise access products have declined in large part due to decreased capital spending and legacy product sales. Closure of the Polycom network access division acquisition was the highlight of the recent quarter ended March. The acquisition will further expand Verilink's portfolio to include the Net Engine family of IADs and Voice-over-Broad (VoB) products which enable enterprise customers to access broadband and VoB services (e.g. VoIP and VoDSL). Company management heralded the acquisition as an opportunity to not only broaden its range of VOB solutions but also as an opportunity to increase its customer base and revenue stream, and to expand to new international markets. d. Critique Based on our discussions and findings, the primary focus of our critique of GDC's projections is on forecasted revenue. Although there are risks within the expense portion of the forecasted income statement, the gross margins and operating expense levels projected by GDC appear reasonable based on our discussions with GDC management, historical expense levels, and market information. Revenue projections, however, appear aggressive given the continued uncertainty within the 4 telecommunications sector, the capital expenditure forecasts of GDC's primary customers, and revenue forecasts of comparable companies. In addition to utilizing the market information outlined above, we utilized information provided to us by the Debtor in order to complete our analysis. This information included detailed projections, historical revenue streams by major customer or category, the Debtor's valuation as prepared by Chodan, and discussions with management. Revenue The Company projected revenue for eleven separate revenue streams for the remainder of 2003, and full year 2004 and 2005:
o Major Customer #1 o Distributors o Enterprise o Major Customer #2 o Independents/Other Telco's o Gov't Agency Project o Major Customer #3 o International o Maint./Service o Canada o Integrators
Revenue in 2006 and 2007 is not broken down into the above referenced revenue streams. Revenue in 2006 is based on a 20% growth rate applied to total 2005 revenue less revenue from the Government Agency Project. Revenue in 2007 is simply 2006 revenue grown by the 20% growth rate. Major Customer #1: Historically, this customer has had annual shipments of between $6 million and $8.5 million until the most recent year. GDC forecasts only $3 million of shipments for 2003. This customer has had sharp declines in their capex spending since 2001, and is forecast in 2003 to spend approximately half of what they spent in 2001. This drop in spending generally mirrors the decline in shipments to this customer by GDC. According to industry research, this customer is expected to basically maintain their current capex budget beginning in 2004. GDC's projections, however, show 100% growth in 2004, 17% growth in 2005, and 20% growth in 2006 and 2007. Based on the forecasted spending of this customer and the continued uncertainty within the telecom sector, GDC's revenue forecast for this customer appears aggressive. Major Customer #2: Historically, this customer has had annual shipments of between $8.0 million and $9.0 million until the most recent few years. GDC forecasts only $2.7 million of shipments for 2003. This customer has also had sharp declines in their capex spending since 2001, and is forecast in 2003 to spend approximately half of what they spent in 2001. This drop in spending again generally mirrors the decline in shipments to this customer by GDC. According to industry research, this customer is expected to continue to maintain their current capex budget beginning in 2004. GDC's projections, however, show 70% growth in 2004, 50% growth in 2005, and 20% growth in 2006 and 2007. Based on the forecasted spending of this customer and the continued uncertainty within the telecom sector, GDC's revenue forecast for this customer also appears aggressive. Major Customer #3: Historically, this customer has had annual shipments of between $3.5 million and $6.0 million until the most recent year in which shipments totaled only $1.1 million. GDC forecasts only $2.4 million of shipments for 2003. This customer has also had sharp declines in their capex spending since 2001, and is forecast in 2003 to spend approximately one third of what they spent in 2001. This drop in spending again generally mirrors the decline in shipments to this customer by GDC. According to industry research, this customer is expected to continue to maintain their current capex budget beginning 5 in 2004. GDC's projections, however, show 44% growth in 2004, 29% growth in 2005, and 20% growth in 2006 and 2007. Based on the forecasted spending of this customer and the continued uncertainty within the telecom sector, GDC's revenue forecast for this customer also appears aggressive. Canada: During the past three years, the Canadian market has totaled approximately $5 million of shipments per year. GDC has forecasted $5.4 million in 2003 and $6 million per year for 2004 and 2005. Based on the generic 20% revenue growth rate utilized by GDC for 2006 and 2007, Canadian shipments would have to grow by that percentage in 2006 and 2007 in maintain the overall 20% revenue growth rate. According to market research, the Canadian telecom market is similar to the U.S. market and suffers from the same uncertainty. As such, increasing the revenue derived from Canada much beyond their historical levels would appear to be aggressive. Distributors: During the past two years, distributors have accounted for approximately $3 million in shipments per year. GDC has forecasted $3.7 million in 2003, $4.8 million in 2004, $6 million in 2005, and 20% revenue growth thereafter. Distributors sell to customers in the telecom sector who are struggling with similar issues to those of GDC's major customers, and are thus reducing capex budgets in order to survive in this uncertain market. Given this uncertainty, GDC's forecast of 31% revenue growth in 2004 and 25% revenue growth in 2005 appears aggressive. Independents and Other Telco's: Revenue from independents and other telco's dwindled to $800,000 in 2002 from a high of $4.3 million in 2000. GDC projects revenue from this sector of $939,000 in 2003. In the following years, GDC projects revenue in this category to grow to $4.5 million in 2004 and $6 million in 2005. The primary reason for this tremendous growth is the potential for significant sales from a major telecom company that is currently in bankruptcy. Given the uncertainty as to whether this revenue will actually occur and at what level, GDC's forecasted growth in this sector appears aggressive. International: Although international accounted for over $8 million per year in 1999 and 2000, revenue from this sector plummeted to approximately $2 million per year in 2001 and 2002. GDC projects $2 million in shipments will also occur in 2003. In the following years, however, international revenue is forecasted to grow by 60% in 2004 and 25% in 2005. Once again, given the uncertainty of the international telecom market and historical trends in shipments, GDC's forecast appears aggressive. Integrators: Over the past two years, revenue from integrators was approximately $2 million per year. In 2003, GDC forecasts $691,000 from this revenue source. In 2004, this figure increases to $1.6 million and $2.4 million or a growth rate of 132% and 50%, respectively. GDC has achieved those revenue levels historically, but according to management has not targeted that market of late. It appears that it may be difficult to restart that revenue source without significant effort on the part of GDC management. Given that the Debtor has multiple areas that are being targeted by sales and limited resources in terms of staffing, the growth levels forecasted by GDC appear aggressive. Enterprise: The enterprise market has declined from a high of $3.8 million in 1999 to $925,000 in 2002. GDC has projected enterprise revenue of $2.3 in 2003, $4.8 million in 2004 and $6.0 million in 2005. The Debtor's management has stated that this revenue source is a major area of opportunity for the Debtor. GDC's projections, however, appear aggressive in light of the competition within the enterprise market and the limited staffing at GDC. 6 Government Agency Project: The Debtor has been informed that certain of their products will be utilized by a subcontractor for a major project with a government agency in 2004 and 2005. Information surrounding the contract such as how much equipment and the exact timing of shipments has been limited. GDC has projected approximately $13 million of shipments related to this project in the latter half of 2004 and throughout 2005. According to management, the revenue from this project is expected to cease after 2005. Given the uncertainty related to this project and the actual amount of GDC equipment to be utilized, it appears that the projections for 2004 and 2005 are aggressive. Maintenance and Service: Revenue from this source has declined from $4.2 million in 1999 to $1.0 million in 2002. GDC has forecasted $800,000 in 2003, $1.8 million in 2004 and $2.0 million in 2005. A substantial portion of the growth is directly related to the growth in enterprise revenue as enterprise customers will require maintenance and service on their GDC equipment. Given that the enterprise revenue growth appears aggressive, maintenance and service revenue would also appear aggressive. Cost of Goods Sold/Gross Margin An area of concern within Cost of Goods Sold is the ability of the Company to continue to receive favorable pricing of product components from foreign suppliers. If the general demand for components increases and prices rise, or if the minimum order level requirements are raised in order to maintain favorable pricing, the gross margins would be negatively impacted. Operating Expenses Given that the majority of the operating expense categories are fixed in nature, there appear to be no areas of significant risk within the forecasted operating expenses. The only area of concern would be the ability of the Company to maintain current staffing levels as revenue increases. For example, GDC forecasts revenue to increase from the current annual run rate of approximately $23 million to $73.3 million annually in 2007 while over the same period reducing headcount by five people. This may be difficult to achieve given the effort that will be required to increase sales levels, maintain customer relationships and develop new products. Capital Expenditures The valuation presented by the debtors includes very limited capital expenditures over the projection period. Between 2004 and 2007, capital expenditures range from $80,000 to $140,000 per year. This figure, which is approximately 0.2% of revenue per year, appears extremely low. Comparable company capital expenditures, for example, ranged from 0.8% to 3.9% of revenue in 2002. e. Conclusion In 1999 and 2000, when the telecom market was in its "boom" period, GDC's revenue within the categories outlined above was approximately $56 million per year. GDC's current forecast shows the Debtor returning to "boom" year revenue levels by 2005 and exceeding those levels in 2006 and 2007. The general consensus among telecom experts is that the "boom" years of excessive capital spending will never occur again in the telecom sector. Therefore, it is difficult to imagine GDC growing 7 revenue from $23 million over the past 12 months to $73.3 million in 2007 given current market conditions, little to negative capex spending growth forecast among its primary customers, and less significant growth rates forecasted by comparable companies. Given our market research of the industry, customers and comparable companies, as well as our review of the GDC projections and discussions with management, GDC's revenue projections appear aggressive, their gross margin levels and operating expense assumptions appear reasonable, and their capex forecast appears unusually low. 2. D&T'S VALUATION ANALYSIS D&T has developed a limited valuation analysis related to GDC. This section discusses the key valuation considerations, the valuation approaches utilized, a description of the valuation procedures performed, and a conclusion of value. a. Key Valuation Considerations o Limited Engagement D&T performed a limited valuation estimate of GDC. We have not performed the valuation in accordance with the Uniform Standards of Professional Appraisal Practice or the American Society of Appraisers. o Standard of Value The standard of value for D&T's valuation analysis is "Fair Market Value". Fair Market Value is defined as "the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties having reasonable knowledge of relevant facts."(1) Fair Market Value is commonly used in business valuations. In fact, "In the United States, the most widely recognized and accepted standard of value related to business valuations is fair market value."(2) o Premise of Value We have valued the total invested capital of GDC as of March 31, 2003. Invested capital is defined as common equity plus total debt plus preferred stock. This valuation assumes GDC continues as a going concern, and assumes a controlling, non-marketable interest. b. Valuation Approaches The generally accepted approaches to business valuation include the Income approach, the Market approach, and the Asset-Based approach. A brief description of each of these approaches follows. - --------------- 1 Revenue Ruling 59-60 2 Shannon Pratt, Robert Reilly, Robert Schweihs. Valuing a Business - The Analysis and Appraisal of Closely Held Companies (New York, McGraw -Hill Inc., 2000), pg. 28 8 o Market Approach Under the market approach, recent sales and listings of comparable assets are gathered and analyzed. The guideline company method (a variation of the Market Approach) quantifies value by reference to (a) the capital market activities of the shares of similar publicly traded companies, and (b) transactions involving the sale of public or private companies. o Income Approach The income approach is based on the premise that the value of a security or asset is the present value of the future earning capacity that is available for distribution to the subject investors in the security or asset. The most commonly used income approach to the valuation of securities or individual assets is a Discounted Cash Flow Analysis ("DCF"). A DCF analysis involves forecasting the appropriate cash flow stream over an appropriate period and then discounting it back to a present value at an appropriate discount rate. This discount rate should consider the time value of money, inflation and the risk inherent in ownership of the asset or security interest being valued. o Asset-Based Approach A third approach to valuation is the asset-based approach. The discrete valuation of an asset using an asset-based approach is based upon the concept of replacement as an indicator of value. The asset approach establishes value based on the cost of reproducing or replacing the property, less depreciation from physical deterioration and functional obsolescence, if present and measurable. This approach generally provides the most reliable indication of the value of land improvements, special-purpose buildings, special structures, systems, and special machinery and equipment. After giving careful consideration to each of the three approaches, we determined that the most appropriate approaches for the valuation analysis of GDC were the income and market approaches - the asset-based approach was not used. It is important to note that the objective of using more than one method is to develop mutually supporting evidence as to the valuation conclusion. A description of the valuation procedures related to the income and market approaches follows. c. Valuation Procedures Income Approach - DCF D&T estimated the value of GDC's invested capital using a DCF analysis. Under a DCF methodology, financial projections are used to estimate the present value of the future cash flows that an investor might anticipate. Present value is determined by adjusting anticipated future cash flows by a discount rate which reflects the risk or uncertainty regarding the realization of the cash flows. Different expectations of the amount of future cash flow or different assessments of risk will lead to different conclusions of value. The major variables in our DCF analysis are outlined below. 9 o Future Cash Flow Our DCF analysis utilizes the expected cash flow available to the total invested capital (defined above as total equity plus total debt). Cash flow was estimated for the remainder of the fiscal year (April 2003 - September 2003) and for the fiscal years 2004 through 2007 based on the following formula: - Revenue (less) Cost of Goods Sold (less) Operating Expenses (less) Depreciation Expense (less) Income Tax Expense = Net Income - Net Income (plus) Depreciation (less) Capital Expenditures (less) Working Capital Requirement = Cash Flow Available to Invested Capital. It is important to note that the revenue projections utilized in our DCF analysis consisted of GDC's projections, adjusted downward based on the rationale outlined above. Expense assumptions such as gross margins, fixed operating expenses and capital expenditures were unchanged and consistent with GDC Management estimates. o Discount Rate - Weighted Average Cost of Capital The discount rate applied to the forecasted cash flows must adequately reflect the nature of the subject investment and the risk of the underlying cash flows. For purposes of our analysis, the appropriate discount rate was determined to be the Weighted Average Cost of Capital ("WACC"), which was calculated using estimates of required equity and debt rates of return based upon a group of peer companies. In order to estimate an appropriate equity rate of return for use in our analysis, we employed the Capital Asset Pricing Model ("CAPM")(3). Employing the CAPM, and weighting anticipated debt and equity returns 5% and 95% respectively, we estimated a weighted average cost of capital of approximately 26% percent. o Terminal Value The anticipated future cash flow during 2003 - 2007 was discounted to the present using the WACC. A residual or terminal value was added to this interim cash flow to arrive at the value of GDC's invested capital. The residual or terminal value was calculated based on capitalization theory using the Gordon Growth model(4). The Gordon Growth model estimates the value of cash flow received after the discrete forecast period (i.e. after 2007), assuming stable annual growth, in perpetuity. The key assumptions in our terminal value estimate include the WACC of 26% (described above), and the perpetuity growth rate of 5%. The perpetuity growth rate of 5% is based upon long-term inflationary expectations and the expected growth of GDC's business. By combining the present value of the terminal value with the present value of the interim cash flow, we arrived at a DCF value of approximately $23.7M. We then subtracted total debt of approximately $19.8M and applied a lack of marketability discount of 35% to arrive at a value of GDC's equity of approximately $2.6M. We then added back total debt to arrive at an invested capital value of approximately $22.4M on a controlling, non-marketable basis. The DCF analysis can be found in Exhibit A. - --------------- 3 The CAPM formula is: Re =Rf + B(Rm) + Rc. Where: Re=Return on equity, Rf = Risk-free rate, B =Beta, Rm = Market risk premium, Rc =Company specific risk premium 4 The formula for the Gordon Growth Model is: PV=E(1+g)/(k-g). Where PV = present value in last year of projection period, E = cash flow in last year of projection period, g = long term/perpetuity growth rate of cash flow, k = WACC. 10 Market Approach The Market Approach is an important valuation approach and should not be easily discarded. "The use of comparable publicly held corporations as a guide to valuation, as a practical matter, may be the most important and appropriate technique for valuing a privately held business."(5) The guideline public company approach provides an indication of the Fair Market Value of a subject company by comparing it to publicly traded companies in similar lines of business. The basic premise of this approach is that an analysis of the market multiples of companies engaged in similar businesses yields insight into investor perceptions and, therefore, the value of the subject company. We performed the following tasks when applying the guideline public company approach to GDC: o Identified six publicly traded companies (after discussion with GDC management) that operate in the same industry or are influenced by the same underlying economics as the subject company and analyzed their business and financial profiles for relative similarity to the subject company; o Calculated valuation multiples (i.e. invested capital to LTM sales, invested capital to EBIT and invested capital to EBITDA), o Applied valuation multiples to the relevant financial results of GDC to estimate the marketable, minority interest invested capital value, o Subtracted debt to arrive at an equity value, o Applied a marketability discount and a control premium to the equity value, and o Added back the debt to arrive at the market value of invested capital. The majority of the guideline companies we selected had negative EBIT or EBITDA. As a result, the number and range of valuation multiples based on EBIT and EBITDA was limited and we did not use these multiples to estimate a value for GDC. Conversely, the range of invested capital to LTM sales multiples for the guideline companies was more closely grouped and provided a better indication of value. The median invested capital to LTM sales multiple was .95. We applied this multiple to GDC's LTM sales to arrive at a marketable, minority invested capital value of approximately $22.3M. We then applied a marketability discount of 35%, and added a control premium of 40%, to the equity component of the invested capital to arrive at a total invested capital valuation estimate of approximately $22M on a controlling, non-marketable basis. The Guideline Public Company Approach analysis can be found in Exhibit B. - --------------- 5 Frank M. Burke Jr., Valuation and Valuation Planning for Closely Held Businesses (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1981.) 11 d. Valuation Conclusions In order to arrive at a final estimate of value for GDC, we weighted the valuation indications provided by the DCF and Market approaches 60% and 40%, respectively. The corresponding value indications are summarized below: ---------------------- ------------------- -------------- ------------- Approach Estimated Value Weighting Value ---------------------- ------------------- -------------- ------------- DCF $22.4 M 60% $13.4M ---------------------- ------------------- -------------- ------------- Market Approach $22.0 M 40% $8.8M ---------------------- ------------------- -------------- ------------- Total Value $22.2M ---------------------- ------------------- -------------- ------------- We understand Chodan estimated the value of GDC's non-core assets at approximately $9.3M. When the value of the non-core assets is added to the above valuation indication, the total value of GDC including non-core assets is approximately $31.6M. e. Statement of Valuation Assumptions and Limiting Conditions This valuation analysis has been prepared pursuant to the following general assumptions and general limiting conditions: 1. We assume no responsibility for the legal description or matters including legal or title considerations. Title to the subject assets, properties, or business interests is assumed to be good and marketable unless otherwise stated. 2. The subject assets, properties, or business interests are valued free and clear of any or all liens or encumbrances unless otherwise stated. 3. We assume responsible ownership and competent management with respect to the subject assets, properties, or business interests. 4. The information furnished by others is believed to be reliable. However, we issue no warranty or other form of assurance regarding its accuracy. 5. We assume that there is full compliance with all applicable Federal, state, and local regulations and laws unless noncompliance is stated, defined, and considered in the valuation report. 6. We assume that all required licenses, certificates of occupancy, consents, or legislative or administrative authority from any local, state, or national government, private entity or organization have been or can be obtained or renewed for any use on which the valuation opinion contained in this report is based. 7. Possession of this valuation opinion report, or a copy thereof, does not carry with it the right of publication or distribution to or use by any third party. It may not be used for any purpose by any person other than the party to whom it is addressed without our prior written consent. Use of this analysis by any third party is at the sole risk of that party who agrees to hold Deloitte & Touche LLP harmless from any claims resulting from use by any third party. Access by any third party does not create privity between Deloitte & Touche LLP and any third party. 12 8. We, by reason of this engagement, are not required to furnish a complete valuation report, or to give testimony, or to be in attendance in court with reference to the assets, properties, or business interests in question unless arrangements have been previously made. 9. No part of the contents of this report (especially any conclusions of value, the identity of the appraisers, or the firm with which the appraisers are associated) may be disseminated to the public through advertising, public relations, news, sales, or other media without the prior written consent and in the sole discretion of Deloitte & Touche LLP. 10. We assume no responsibility for any financial or tax reporting requirements; such reporting requirements are the responsibility of the client for whom this analysis was prepared. 11. The valuation analyses contained herein are valid only as of the indicated date and for the indicated purpose. 3. CRITIQUE OF THE VALUATION PERFORMED BY CHODAN Essentially, there are three key differences between the valuation performed by Chodan on the Debtor's behalf, and the valuation performed by D&T that result in the tremendous difference in value: o Valuation Approaches Utilized o Revenue Projections o Income Taxes a. Valuation Approaches Utilized The Chodan valuation only utilizes the income approach or discounted cash flow methodology, whereas the D&T valuation considers two approaches to value (income and market) and weighs them 60/40 in order to arrive at a conclusion of value. According to the Chodan valuation, the market approach is not utilized in their valuation because "there is some degree of irrational market valuation that currently exists in the sector" as the valuation multiples derived through the market approach generally give little to no value to the assets of the comparable companies. As mentioned earlier in our analysis, the objective of using more than one method is to develop mutually supporting evidence as to the valuation conclusion. Chodan's use of only the income approach provides no supporting evidence for his valuation conclusion. In addition, the market approach yields insight into investor perceptions about the sector and, therefore, the value of the subject company. The fact that the valuation multiples give little to no value to the assets of the comparables does not mean that the market is irrational, it simply means that investors have a very poor perception of the future outlook of this sector. It is our opinion that the values indicated by the market approach, although low, should be carefully considered and factored into any conclusion of value for GDC. 13 b. Revenue Projections The income approach involves utilizing projections of cash flow for the subject company and discounting the cash flows to a present value based on a discount rate that reflects the risk associated with achieving those cash flows. The Chodan valuation utilizes the cash flows supplied by GDC Management which are generated through a substantial growth in revenue through 2007. As discussed in the critique of GDC's projections, it is our view that the revenue forecasts are aggressive based on historical trends, customer spending forecasts, and comparable company revenue growth forecasts. As such, the revenue forecast utilized in the D&T discounted cash flow model has been adjusted downward thus reducing the future expected cash flows from the levels forecasted by GDC Management. Obviously, any reduction in cash flows reduces the value derived by the discounted cash flow approach. c. Income Taxes The final key difference between the Chodan valuation and the D&T valuation is the use of GDC's net operating loss carry forward ("NOL") to limit the effect of income taxes in the discounted cash flow forecast. It is Chodan's contention that the NOL is applicable, and thus only a minimal amount of income taxes is included in their valuation model. As discussed earlier, the standard of value utilized by D&T is "Fair Market Value". Fair Market Value is defined as "the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties having reasonable knowledge of relevant facts." This standard of value, therefore, assumes a willing buyer. In only very limited circumstances is a willing buyer able to utilize the NOL generated by the willing seller. Therefore, it is common practice that any NOL is eliminated from consideration, and taxes must be included in the forecast of cash flows. As such, the D&T discounted cash flow model has assumed a 40% tax rate thus reducing cash flow available to investors, and the overall value of the invested capital. d. Conclusion The most widely accepted standard of value is Fair Market Value which is the value that a third party would pay for an asset or business. As such, the cash flows utilized in a discounted cash flow approach should reflect the cash flows that a potential buyer would expect to achieve. The D&T valuation projects revenue at growth rates which are more in line with investor perceptions, and includes taxes which would more than likely be paid by a willing buyer. In addition, the D&T valuation utilizes the market approach which again reflects investor perceptions of the sector and provides guidance as to what value a willing buyer would pay for a company such as GDC. 14 General DataComm Industries Discounted Cash Flow Valuation (in thousands) As of March 31, 2003
Projected ------------------------------------------------------------- Year = GDC Fiscal Year (Oct.-Sept.) April-Sept. Year 2 Year 3 Year 4 Year 5 2003 2004 2005 2006 2007 Total --------------------------------------------------------------------------- Revenue $12,050 $34,800 $44,100 $41,800 $44,100 $176,850 Cost of Goods Sold 5,434 13,720 17,136 16,242 17,136 69,668 Operating Expenses (Excluding Depreciation and Amortization) 6,229 12,026 13,075 13,707 14,487 59,523 ----- ------ ------ ------ ------ ------ EBITDA $387 $9,054 $13,889 $11,850 $12,478 $47,659 EBITDA Margin 3.2% 26.0% 31.5% 28.4% 28.3% Less: Depreciation Expense 6 78 90 105 120 399 - -- -- --- --- --- EBIT 381 8,976 13,799 11,745 12,358 $47,260 Income Taxes 40% 153 3,590 5,520 4,698 4,943 18,904 --- ----- ----- ----- ----- ------ Net Income 229 5,385 8,280 7,047 7,415 $28,356 Add: Depreciation 6 78 90 105 120 399 Less: Capital Expenditures 80 80 100 120 140 520 Less: Working Capital Requirement 20% 211 2,351 1,860 (460) 460 4,423 Add: Residual Value 0 0 0 0 34,673 34,673 - - - - ------ ------ Available Cash Flow (57) 3,032 6,410 7,492 41,608 $58,485 Periods to discount 0.50 1.50 2.50 3.50 4.50 Discount factor 0.891 0.707 0.561 0.445 0.353 ($50) $2,144 $3,597 $3,337 $14,706 Cash Flow Margin -0.5% 8.7% 14.5% 17.9% 94.3% Discount Rate 26.0% Residual Value Calculation ------------------------------- Discounted Cash Flow Value $23,733 Residual Value = CFYr6/Cap Rate CFYr5 = CFYr5 * g Less: Debt 19,783 D&T March Report Cap Rate = wacc - g ------ Equity Value $3,950 Less: Discount for lack of marketability 35.0% 1,383 ------ CFYr5 = $6,935 Equity Value $2,568 CFYr6 = $7,281 Plus: Debt 19,783 wacc = 26.0% ------- g = 5.0% Invested Capital Value $22,351 Cap Rate = 21.0% Invested Capital Value Based on Market Approach $22,000 Residual Value = $34,673 ------------------------------- Applicable weighting DCF 60.0% Market 40.0% DCF & Market $22,210 Non Core Assets $9,375 Chodin Valuation Invested Capital Value Including Non Core Assets $31,585
Comparable Public Company Analysis Market Performance Summary
Confidential Information - For Discussion Purposes Only - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Share Common Cash & Price Shares Equity Marketable MVIC Enterprise 3/31/03 Outstanding Capitalization Debt Securities Value [1] Value [2] ------------------------------------------------------------------------------------------------------ ADC TELECOMMUNICATIONS INC $ 2.06 801.9 $ 1,651.9 $ 30.1 $ 366.3 $ 1,682.0 $ 1,315.7 ADTRAN INC 35.91 37.7 1,353.8 50.0 138.7 1,403.8 1,265.1 CARRIER ACCESS CORPORATION 0.98 24.8 24.3 - 15.3 24.3 9.0 CENTILLIUM COMMUNICATIONS 4.05 35.3 143.0 - 99.5 143.0 43.4 PARADYNE NETWORKS INC 1.30 42.9 55.8 0.2 46.5 56.0 9.5 VERILINK CORP 0.81 15.0 12.2 3.9 7.3 16.1 8.8 - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL DATACOMM INDS 19.8 - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE - ------------------------------------------------------------------------------------------------------------------------------------ MEDIAN - ------------------------------------------------------------------------------------------------------------------------------------
Comparable Public Company Analysis Market Performance Summary Confidential Information - For Discussion Purposes Only - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MVIC Value to Enterprise Value to -------------------------------- --------------------------------- LTM LTM LTM ----------- ----------- ----------- --------- ---------- ----------- --------- --------- ------------- Sales EBIT EBITDA Sales EBIT EBITDA Sales EBIT EBITDA ADC TELECOMMUNICATIONS INC $ 954.1 $ (856.8) $ (764.5) 1.76 N.M. N.M. 1.38 N.M. N.M. ADTRAN INC 348.6 45.5 61.8 4.03 30.85 22.71 3.63 27.81 20.47 CARRIER ACCESS CORPORATION 45.0 (38.0) (31.8) 0.54 N.M. N.M. 0.20 N.A. N.M. CENTILLIUM COMMUNICATIONS 110.2 (27.8) (25.5) 1.30 N.M. N.M. 0.39 N.A. N.M. PARADYNE NETWORKS INC 91.4 (23.0) (14.6) 0.61 N.M. N.M. 0.10 N.M. N.M. VERILINK CORP 28.2 1.6 (2.0) 0.57 9.91 N.M. 0.31 5.44 N.M. - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL DATACOMM INDS - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE 1.47 20.38 22.71 1.00 16.62 20.47 - ------------------------------------------------------------------------------------------------------------------------------------ MEDIAN 0.95 20.38 22.71 0.35 16.62 20.47 - ------------------------------------------------------------------------------------------------------------------------------------
[1] MVIC Value is defined as market value of common equity, plus total debt, plus preferred stock [2] Enterprise Value is defined as market value of common equity, plus total debt, plus preferred stock, less cash
COMPARABLE COMPANY VALUATION SUMMARY ----------------------------------------------------------------------------------- LTM Comparable Sales Median MVIC Value Based Sales Multip on Multiple of Sales -------------------------------------------- General Datacomm Inds $ 23.3 0.95 $22.3 ----------------------------------------------------------------------------------- MVIC Value $22.3 ----------------------------------------------------------------------------------- ----------------- Less: Debt $19.8 ----------------- Equity Value (Marketable/Minority Interest Basis) $2.5 Less: Discount for Lack of Marketability 35% 0.9 Equity Value (Non-Marketable/Minority Interest Basis) 1.6 Plus: Control Premium 40% 0.6 Equity Value (Non-Marketable/Controlling Basis) 2.2 Plus: Debt 19.8 ----------------------------------------------------------------------------------- MVIC Value (Non-Marketable/Controlling Basis) $22.0 -----------------------------------------------------------------------------------
EXHIBIT F SUMMARY OF CHODAN'S CRITIQUE OF COMMITTEE VALUATION viii Chodan Advisors, Inc. 655 Barrymore Lane Mamaroneck, NY 10543 Telephone 914 381 2829 Fax 914 381 4062 Memo To: General Datacomm Industries, Inc. From: Arnold Kastenbaum Subject: Deloitte & Touche Valuation Analysis Date: 5/15/03 Chodan Advisors, Inc. ("Chodan"), as the financial advisor to General Datacomm Industries, Inc. ("GDC" or the "Company"), prepared a valuation of the Company based upon information previously set forth in the Company's Amended Disclosure Statement filed April 29, 2003 and has updated the valuation for inclusion in the Company's Amended Disclosure Statement to be filed on May 15, 2003. We have reviewed the Summary of Work Performed by Deloitte & Touche ("DT"), regarding GDC and the valuation analysis included therein on behalf of the Official Committee of Unsecured Creditors. We disagree with a number of the points DT raised as summarized below. While we do not agree with DT's reduced projections, we note that even according to DT's reduced projections GDC will be able to meet all its debt obligations under the Plan within the projected period. o DT applied a 40% tax rate to GDC's projected profits notwithstanding the availability of significant net operating loss carry forwards ("NOL's") which GDC believes will shield projected profits through the projection period from taxes. Assuming no other changes in DT's evaluation, the elimination of the income tax payments from DT's valuation would increase the valuation from $31,585,000 to $43,626000. o DT applied a lack of marketability discount in its valuation which is not applicable to a public company like GDC. Eliminating this discount together with the elimination of income tax payments results in a valuation of $51,417,000. o A valuation inconsistency exists in DT's analysis. The reduced DT projections indicate that all debt obligations can be satisfied in full yet DT's final determination of value indicates that the debt is not covered by the valuation. o DT used stock prices of March 31,2003 for its comparables while the use of more current stock prices of May 13, 2003 for the comparables results in a valuation range of $39,600,000 to $51,260,000 versus the $22,300,000 DT shows. o DT significantly reduced GDC's projected revenues relying chiefly on broad industry conditions and did not address specific factors favoring GDC's future revenue growth while citing significant projected growth for a number of GDC's competitors. Discounted Cash Flow Value Approach Taxes DT assumed a 40% tax rate even though GDC has significant net operating loss carryfowards, which GDC believes will effectively shield all profits from taxes for the foreseeable future. The total reduction DT used for taxes is $18,904,000 for 2003 through 2007. The correction of this item alone would have a significant effect on their valuation. While not accepting any of DT's differences, we note however, that eliminating the taxes alone from the DT calculation changes the valuation from $31,585,000 to $43,626,000. It is important to note that (as discussed below) even though we do not believe it is correct, in this calculation we reduced the valuation for a "discount due to lack of marketability" to remain consistent with DT's methodology. The elimination of this "discount" results in a further revised enterprise valuation of $51,417,000 versus $31,585,000. Marketability Discount and Control Premium With respect to the discount for lack of marketability (35%) we note the following: The lead article, as well as others that DT provided to GDC for support of this discount concerns itself with "estimating appropriate discounts for lack of marketability for both minority and controlling interests in closely held businesses." These articles refer to "Shares of closely held companies, most of which will never be freely tradable" and "restricted shares of publicly traded companies." Since GDC will emerge from bankruptcy as a public company neither of these applies to GDC and thus the articles do no support DT's methodology. Regarding the control premium, we note that in the DT valuation it is applied after the marketability discount. Common practice requires the control premium to be applied first and then the marketability discount. When these factors are -2- applied in this order and tax payments are eliminated, the DT valuation increases to $49,414,000 even including the marketability discount with which we disagree. Eliminating the marketability discount and control premiums from the calculation and also eliminating the tax reduction, results in an enterprise valuation of $51,417,000 based upon DT's reduced projections while keeping all other DT assumptions unchanged. Valuation and Cash flow Inconsistency DT's valuation indicates that, using their reduced projections, GDC will generate enough free cash flow to pay all principal and interest obligations on its debt. However, DT's final determination of value indicates that the debt is not covered by the valuation. This inconsistency is a function of the elimination of the NOL's in DT's calculation and points to the need to correct this assumption. Other The residual value appears to be low. A comparison of DT's residual value to other valuation matrices reveals the following: The $34,673,000 residual value shown by DT is 2.78 times DT's projected EBITDA of $12,478,000 and only 0.8 times their projected revenue in 2007. These multiples appear too low for a company exhibiting the performance shown even in the reduced projections. We note that DT showed sales comparative multiples of an average of 1.47 times with a median of 0.95 times, using March 31, 2003 market prices. Using more current stock prices the median of the DT selected comparables sales multiples is 1.7 times and the average is 2.2 times. Applying these sales multiples to the DT 2007 sales projection of $44,100,000 yields a range of residual value of between $74,970,000 and $97,020,000 versus the $34,673,000 DT computes. This would add between $14,225,000 and $22,008,000 to the DT valuation. DT assumed a valuation date effective March 31, 2003 effectively assuming emergence from bankruptcy on that date. Since such emergence is not expected until sometime after June 30, 2003, this adds at least three months of additional discounting which further reduces the valuation. Revenues The projections used by DT are significantly reduced from those provided by GDC. DT states its view that GDC's revenue projections "appear aggressive" and references certain industry data to support their reductions to GDC's projections. However, the determination of the amount of the reductions are not documented and therefore, appear arbitrary. With respect to the Customer Environment, DT notes that they expect revenue growth in 2004 to be 11% for ADC, 10% for Adtran, 55% for Centillium, and 52% for Paradyne. These higher projections as well as specific factors favoring GDC's growth, do not appear to be considered in DT's reduced revenue projections for GDC. -3- Sensitivity Analysis With respect to DT's view that GDC's revenue projections appear aggressive we have performed a variety of sensitivity analyses as applied to GDC's projections and the valuation ascribed thereto. Using our valuation model, for each of the major variables of EBITDA, revenue and gross margins, we performed a sensitivity analysis to determine what each of these variables would have to be reduced by in order to yield a breakeven level of common equity. In other words, we stressed the valuation model to determine, for example, what could projected EBITDA be reduced by while still providing enough value to cover the debt. The following chart shows the results of this analysis. This analysis is based upon the assumptions set forth in the Disclosure Statement to be filed May 15, 2003 and based upon a cost of equity capital of 30%. - ------------------------------------- ----------------------------------- Breakeven For Equity - ------------------------------------- ----------------------------------- EBITDA Reduction 59% - ------------------------------------- ----------------------------------- Revenue Reduction 38% - ------------------------------------- ----------------------------------- Gross Margins 38% - ------------------------------------- ----------------------------------- This chart shows, for example that using a 30% cost of equity capital and holding all other factors constant in our valuation model, EBITDA can fall by 59% in each of the projected periods and the resulting valuation will cover all of GDC's debt. Discount Rate Calculation In the current DT valuation there is no explanation for how the Weighted Average Cost of Capital (WACC) is determined. Since a previous explanation was provided in DT's previous valuation of October 2003 our comments are based on that document. One of the most important factors in determining value using a DCF approach is the WACC that is used to discount expected future cash flows. WACC is commonly determined by using the Capital Asset Pricing Model (CAPM) which has as it's components a risk free rate, beta, and market premium. Aside from using CAPM, which attempts to derive the cost of equity capital, one must determine both the cost and proportion of debt in the capital structure. In their cost of equity calculation, DT added a 2% company specific risk cost premium. No justification was offered for this. Accepted valuation theory indicates that application of an appropriate beta allows for individual company specific risk. Since DT used a beta of 2, which we do not take exception to, it appears that the company specific risk premium is duplicated and should not be applied. -4- DT used a debt to capital ratio of 5% based upon the average of the comparables even though GDC will emerge with a ratio of at least 30%. While there is some literature that suggests an appropriate ratio is that of an industry norm we believe that the correct ratio is one based upon company specific data. The IRS supports this view. In the IRS Business Valuation Standards literature, Invested Capital is defined as "the sum of equity and debt in a business enterprise. Debt is typically a) all interest bearing debt or b) long-term interest-bearing debt." Furthermore, if a ratio other than the one actually employed by the company is used an adjustment must be made to reflect the value derived from being able to take advantage of lower capital costs. Comparable Analysis While we take exception to the validity of using market comparables as noted in our valuation presented in the Disclosure Statement, we note a number of points with regard to DT's use of market comparables in their analysis. The most obvious is the use of stale data. DT used stock market prices of March 31, 2003 for their analysis. We note that between March 31, 2003 and May 13, 2003 the stock prices of the comparables used by DT moved up an average of 54.1%. Updating DT's spreadsheet for this change alone results in average and median sales multiples of 2.2 and 1.7 times, respectively. Using these revised averages applied to LTM sales of $23.3 million results in valuations of $51.3 million and $39.6 million, respectively, versus the $22.3 million DT used. We note that these figures do not include non-core assets the inclusion of which would significantly increase valuations. The only "benchmark" valuation DT used was market enterprise value as a percentage of sales. This benchmark, while not uncommon, generally is not regarded as a reliable measurement guide and typically shows a very wide range. In addition, it is only theoretically correct if there is a consistency in the ratio of profitability to sales. A more commonly used valuation benchmark is an EBITDA multiple. We note that only one of the comparable companies chosen by DT had a positive EBITDA and currently trades at 29.4 times EBITDA. Applying this multiple to DT's EBITDA 2004 projection of $9,054,000 yields a valuation of $266 million. While we do not suggest that this is the right multiple to apply to GDC, we do point out the difficulty in applying market comparables in this sector. The tremendous volatility in the sector speaks to this point as well. This point is emphasized by the large change in the comparable companies stock prices over a six-week period. Additionally, we note that the average range of stock prices of DT's comparables over the past 52 weeks has been over 600% adding credence to the argument. Furthermore, DT has chosen only six comparables and we suggest that it is difficult to draw valid conclusions from such a small field. We point out that a review of Market Guide, an unbiased collection of -5- market data, indicates that as of May 13, 2003 the industry and sector traded at 5.00 and 4.65 times sales, respectively, versus a 3.16 multiple for the S & P. This data alone indicates that by merely altering the selection of comparables there can be widely varying conclusions as to value. Conclusion Our review of the Summary of Work Performed By Deloitte & Touche noted a number of technical and theoretical points that result in material reductions in the DT valuation of GDC. We recognize that some of the points we raise, such as the variation of the projections prepared by DT versus those prepared by GDC are subject to debate. However, we believe that a number of points are not subject to serious debate, such as the use of stale data or the payment of taxes when the reorganized debtor will be able to avail itself of tax shields. Although we take exception with many of DT's assumptions and calculations, nevertheless DT's projections reflect that all of GDC's debt obligations can be satisfied. -6- EXHIBIT G LIQUIDATION ANALYSIS ix Chapter 7 Liquidation Analysis The "Best Interest Test" under Section 1129 of the Bankruptcy Code requires that each holder of impaired claims or impaired interests receive property with a value not less than the amount such holder would receive in a Chapter 7 liquidation. As indicated above, the Company believes that under the Plan, Holders of Impaired Claims or Impaired Equity Interests will receive property with a value equal to or in excess of the value such Holders would receive in a liquidation of the Company under Chapter 7 of the Bankruptcy Code. The Chapter 7 Liquidation Analysis set forth herein demonstrates that the Plan satisfies the requirements of the "Best Interest Test." To estimate potential returns to Holders of Claims and Equity Interests in a Chapter 7 liquidation, the Company determined, as might a bankruptcy court conducting such an analysis, the amount of liquidation proceeds that might be available for distribution and the allocation of such proceeds among the classes of Claims and Equity Interests based on their relative priority. The Company considered many factors and data, including (i) the Company's operating and projected financial performance, (ii) the attractiveness of the Company's assets to potential buyers, (iii) the potential universe of buyers, (iv) the potential impact of chapter 7 cases upon the businesses of the Company, as well as possible buyers' pricing strategies, (v) the relative timing of the potential sale of the Company's assets, and (vi) an analysis of the liabilities and obligations of the Company. The Company has assumed that the liquidation of all assets would be conducted in an orderly manner. The liquidation proceeds available to the Company for distribution to Holders of Claims against and Equity Interests in the Company would consist of the net proceeds from the disposition of the assets of the Company, augmented by any other cash held and generated during the assumed holding period stated herein by the Company and after deducting the incremental expenses of operating the business pending disposition. In general, liquidation proceeds would be allocated in the following priority: (i) first, to the Claims of secured creditors to the extent of the value of their collateral; (ii) second, to the costs, fees and expenses of the liquidation, as well as other administrative expenses of the Company's Chapter 7 cases, including tax liabilities; (iii) third, to the unpaid Administrative Claims of the Reorganization Case; (iv) fourth, to other Claims entitled to priority in payment under the Bankruptcy Code; (v) fifth, to Unsecured Claims; (vi) sixth, to Holders of Preferred Stock, and (vii) seventh, to Holders of Old Common Stock. The Company's liquidation costs in a Chapter 7 case would include the compensation of a bankruptcy trustee, as well as compensation of counsel and other professionals retained by such trustee, asset disposition expenses, applicable taxes, litigation costs, Claims arising from the operation of the Company during the pendency of the Chapter 7 cases and all unpaid Administrative Claims incurred by the Company during the Reorganization Case that are allowed in the Chapter 7 case. The liquidation itself might trigger certain Priority Claims. These Priority Claims would be paid in full out of the net liquidation proceeds, after payment of secured Claims, Chapter 7 costs of administration and other Administrative Claims, and before the balance would be made available to pay Unsecured Claims or to make any distribution in respect of Equity Interests. x The following Chapter 7 liquidation analysis is provided solely to discuss the effects of a hypothetical Chapter 7 liquidation of the Company and is subject to the assumptions set forth herein. There can be no assurance that such assumptions would be accepted by a bankruptcy court. The Chapter 7 liquidation analysis has not been independently audited or verified. Liquidation Value of the Company The table below details the computation of the Company's liquidation value and the estimated distributions to Holders of Impaired Claims and Impaired Equity Interests in a Chapter 7 liquidation of the Company. This analysis is based upon a number of estimates and assumptions that are inherently subject to significant uncertainties and contingencies, many of which would be beyond the control of the Company. Accordingly, while the analysis that follow are necessarily presented with numerical specificity, there can be no assurance that the values assumed would be realized if the Company was in fact liquidated, nor can there be any assurance that a bankruptcy court would accept this analysis or concur with such assumptions in making its determinations under Section 1129(a) of the Bankruptcy Code. Actual liquidation proceeds could be materially lower or higher than the amounts set forth below; no representation or warranty can or is being made with respect to the actual proceeds that could be received in a Chapter 7 liquidation of the Company. The liquidation valuations have been prepared solely for purposes of estimating proceeds available in a Chapter 7 liquidation of the Company's Estate and do not represent values that may be appropriate for any other purpose. Nothing contained in these valuations is intended or may constitute a concession or admission of the Company for any other purpose. In preparing the Hypothetical Liquidation Analysis, Chodan was provided financial information and certain assumptions from GDC's management. Chodan did not assume any responsibility for independent verification of any of the information that was provided and relied on such information being complete and accurate in all material respects. Methods for Determining Gross Proceeds from Liquidation To estimate the potential returns to Holders of Claims and Interests in a Chapter 7 liquidation, the Company determined, as might a bankruptcy court conducting such an analysis, the amount of liquidation proceeds that might be available for distribution and the allocation of such proceeds among the Classes of Claims and Interests based on their relative priority. The Company developed a liquidation analysis based upon a "forced liquidation" sale, such as an auction or other similar-type sale of the assets of the Company occurring over a period of six months starting August 5, 2003 and ending by February 5, 2004. The gross proceeds were based upon estimates from the Company and its financial advisors in light of a "forced liquidation" scenario. As set forth more particularly in the chart that follows, among the assumptions underlying the generation of Cash from liquidation of the Company's assets are that the Company's (i) accounts receivable would realize a return of approximately 90% of book value based upon the estimated recoveries based upon the financial strength of the majority of GDC's customers, (ii) inventory would realize a return of approximately 100% of book value, (which approximates 13% of gross value before reserves), after accounting for the salability of the inventory and allowing for the costs of collection or sale in bulk, (iii) property and equipment would realize a return of approximately 50% of book value, and (iv) real estate and other assets held for sale or collection would xi realize a return of approximately 150% of book value or $9,375 based upon fair market value estimates and estimated recoveries. Nature and Timing of the Liquidation Process Under Section 704 of the Bankruptcy Code, a Chapter 7 trustee must, among other duties, collect and convert the property of the debtor's estate to cash and close the estate as expeditiously as is compatible with the best interests of the parties in interest. Solely for the purposes of this liquidation analysis, it is assumed that the case would be converted to a Chapter 7 liquidation on August 5, 2003. The Company assumes dispositions of its assets in multiple transactions, rather than as an entirety or a piecemeal liquidation of the Company's operating assets, during a 6-month period ending February 5, 2004. Additional Liabilities and Reserves The Company believes that there would be certain actual and contingent liabilities and expenses for which provision would be required in a Chapter 7 liquidation before distributions could be made to creditors in addition to the expenses that would be incurred in a Chapter 11 reorganization, including: (a) certain liabilities that are not dischargeable pursuant to the Bankruptcy Code; (b) Administrative Claims including the fees of a trustee, counsel and other professionals (including financial advisors and accountants) and other liabilities; and (c) certain administrative costs including post-petition trade payables and general and corporate costs associated with the orderly wind-down of the business. Conclusion In summary, the Company believes that a Chapter 7 liquidation of the Company would result in a diminution in the value to be realized by the Holders of Claims and Equity Interests. As set forth in the table below, management of the Company estimates that the total liquidation proceeds available for distribution, net of Chapter 7 expenses, would aggregate approximately $20.1 million. The Company believes that the holders of claims other than those of the Secured Bank Claims would receive no value in a liquidation of the Company under Chapter 7 of the Bankruptcy Code. The Holders of the Secured Bank Claims, Other Unsecured Debt, and Administrative Claims, Priority Claims and Equity Interests are expected to receive recoveries under the Plan in excess of that shown in a Chapter 7 liquidation. Based upon the foregoing analysis, in a Chapter 7 liquidation, the recovery for the Company's creditors, in aggregate, would be less than the proposed distribution under the Plan. Consequently, the Company believes that the Plan, which provides for the continuation of its business, would prove a substantially greater ultimate return to the Holders of Claims and Equity Interests than would a Chapter 7 liquidation. The following table estimates the Company's assets as of February 28, 2003, and the amount of recovery on each asset. xii Liquidation Analysis
- ------------------------------------------------------------------------------------------------------------------ ($'s in 000's) Est. Est. 2/28/03 Est. Liquidation Plan Book Value Recovery Proceeds Recovery(1) Notes ----------- -------- ----------- ----------- ------- Cash and cash equivalents $ 1,292 100% $1,292 Accounts receivable $ 4,313 90% $3,882 2 Inventories $ 5,023 100% $5,023 3 Other current assets $ 908 10% $91 4 Property, plant and equipment, net $ 5 50% $3 Land, buildings and other assets held for sale or collection $ 6,269 150% $9,375 5 Other assets $ 4 50% $2 Net assets of discontinued operations $ 92 50% $46 Chapter 5 potential avoidance claim $500 Total net proceeds available for distribution $ 17,906 $20,213 Est. Total net proceeds available for distribution $ 20,213 Trustee fees $ 606 100% $ 606 n/a 6 Wind down costs $ 903 100% $ 903 n/a 7 Total $ 1,509 $ 1,509 Proceeds available for secured claims $ 18,704 Secured Claims Notes payable $ 24,258 77% $ 18,704 100% 8 Unsecured Claims $ 25,000 0% $0 100% 8 Preferred Stock $ 24,900 0% $0 100% 8 Common Stock $ 3,328 0% $0 >0 9
- --------------- 1 Under the Plan all creditor claims are estimated to be satisfied in full. 2 Receivables from major phone cos 3 B/S value is net of reserves of $37.27mm. Effective liquidation rate is 13%. 4 Mostly prepaids. Possible recovery of prepaid insurance premiums. 5 Contains assets held for sale or collection. 6 Calculated as 3% of recovery. 7 Includes estimated salaries, utilities, insurance, removal and miso. expenses. 8 Book value does not reflect settlement as provided by the Plan of Reorganization, nor does it reflect any reduction of the amount owed to lenders if the lender's claim was fully litigated. 9 Recovery for common stock assumed to be positive under the plan. Valuation not determined. xiii EX-99.2 5 ex99_2.txt EXHIBIT 99.2 Exhibit 99.2 General DataComm Industries, Inc. Unaudited Financial Statements June 30, 2003 CAUTIONARY STATEMENT The accompanying balance sheet as of June 30, 2003 and the related statements of operations for the one, three and nine months ended June 30, 2003 have not been reviewed by the Company's outside auditors, PricewaterhouseCoopers LLP. In addition, due to the Company's bankruptcy status, the audits for the fiscal years ended September 30, 2001 and 2002 have not been completed. Such audits and reviews are currently in process. Although management is not aware of any material adjustments to the June 30, 2003 financial statements that may arise as a result of the audits and reviews by PricewaterhouseCoopers LLP, until such audits and reviews are complete, there can be no assurance that such adjustments will not be required, and therefore, such financial statements should be considered in that content. The Company intends to file a Form 10-K for the fiscal years ended September 30, 2002 and 2001 upon completion of the PricewaterhouseCoopers' audit and thereafter will file a Form 10-Q for the current nine-month period ended June 30, 2003. General DataComm Industries, Inc. Consolidated Balance Sheet June 30, 2003 (Unaudited) In thousands ASSETS: Current Assets: Cash and cash equivalents $ 1,739 Accounts receivable 4,572 Notes receivable 1,000 Inventories 3,844 Other current assets 1,447 ------------- 12,602 Property, plant and equipment, net 2 Land and buildings held for sale 4,569 Other assets 4 Net assets of discontinued operations 92 ------------- Total Assets $ 17,269 ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Liabilities not subject to compromise Accounts payable, trade 422 Accrued payroll and payroll-related costs 788 Accrued expenses and other current liab. 3,836 ------------- 5,046 Liabilities subject to compromise Revolving credit loan $ 17 Notes payable 21,703 7 3/4% Convertible debentures 3,000 Accounts payable, trade 12,110 Accrued payroll and payroll-related costs 662 Net current liabilities of discontinued operations 7,991 Accrued expenses and other current liab. 12,371 ------------- 57,854 ------------- Total Liabilities 62,900 Redeemable 5% Preferred Stock 3,043 Stockholders' equity: Preferred stock 788 Common stock 3,346 Paid-in-capital 191,327 Accumulated deficit (242,696) Less: Treasury stock (1,439) ------------- (48,674) ------------- Total Liabilities and Stockholders' Equity $ 17,269 ============= The preceding "cautionary statement" is an integral part of these financial statements. General DataComm Industries, Inc. Statement of Operations One Fiscal Month Ended June 30, 2003 (Unaudited) ($$ in 000's) Sales $2,463 Cost of Sales 1,046 ----------- Gross Margin 1,417 Operating Expenses: Selling, general & administrative 651 Research & development 256 ----------- 907 Operating income 510 Interest expense(contractual interest/fees $327) 348 Other, net (10) ----------- Earnings(loss) before reorganization items, income taxes and discontinued operations 172 Reorganization items: Professional fees 275 ----------- Gain(loss) before income taxes and discontinued operations (103) Income tax provision 13 ----------- Income(loss) before discontinued operations (116) Income(loss) from discontinued operations 51 Net income(loss) $ (65) =========== - --------------------------------------------------- The preceding "cautionary statement" is an integral part of these financial statements. General DataComm Industries, Inc. Statement of Operations Three Fiscal Months Ended June 30, 2003 (Unaudited) ($$ in 000's) Sales $6,772 Cost of Sales 3,125 ---------- Gross Margin 3,647 Operating Expenses: Selling, general & administrative 1,850 Research & development 777 ---------- 2,627 Operating income 1,020 Interest expense(contractual interest/fees $1,031) 1,066 Other, net (24) ---------- Earnings before reorganization items, income taxes and discontinued operations (22) Reorganization items: Professional fees 900 ---------- Gain before income taxes and discontinued operations (922) Income tax provision 39 ---------- Income(loss) before discontinued operations (961) Income(loss) from discontinued operations 469 ---------- Net income(loss) $ (492) ========== - --------------------------------------------------- The preceding "cautionary statement" is an integral part of these financial statements. General DataComm Industries, Inc. Statement of Operations Nine Fiscal Months Ended June 30, 2003 (Unaudited) ($$ in 000's) Sales $17,020 Cost of Sales 8,384 ----------- Gross Margin 8,636 Operating Expenses: Selling, general & administrative 5,152 Research & development 2,305 ----------- 7,457 Operating income 1,179 Interest expense(contractual interest/fees $3,298) 3,179 Gain on legal settlement 2,450 Other, net (41) ----------- Earnings before reorganization items, income taxes and discontinued operations 491 Reorganization items: Professional fees 2,100 ----------- Gain(loss) before income taxes and discontinued operations (1,609) Income tax provision 117 ----------- Income(loss) before discontinued operations (1,726) Income(loss) from discontinued operations 994 ----------- Net income(loss) $ (732) =========== - --------------------------------------------------- The preceding "cautionary statement" is an integral part of these financial statements. -----END PRIVACY-ENHANCED MESSAGE-----