Indiana Law Review * Confirmation of a Plan Under Chapter 11 of the Bankruptcy Code and the Effect of Confirmation on Creditors 9 Rights Edward B. Hopper, II* I. Introduction Despite the fact that the Bankruptcy Code 1 has been in effect since October 1, 1979, the ambiguities and areas of concern involving a Chapter 11 plan of arrangement or liquidation and the effect of the confirmation of that plan on creditor's rights is still a fertile area for speculation among bankruptcy practitioners and judges. By its very nature, Chapter 11 involves an often complex attempt to save a busi- ness through reorganization, which at a minimum usually requires one to two years. Due to this time lapse, there are few court deci- sions dealing with the problem areas that will be discussed in this Article. Therefore, we are relegated for the most part to the stat- ute, legislative history, the prior Bankruptcy Act,2 where applicable, and the cases under the Act, as well as a smattering of law review articles which have been written on new Chapter 11. Because of the significant effect that the plan has on creditors, it is necessary to have an understanding of the steps leading to confir- mation and how a debtor can affect creditor's rights, as well as how creditors' attorneys can and should protect their clients prior to con- firmation. Chapter 11 of the Code is the reorganization chapter for partnerships, corporations, proprietorships, unincorporated associa- tions and individuals.3 Chapter 11 of the Bankruptcy Code contains attributes of the prior Bankrupcty Act Chapters X, XI and XII. Chapter 11 is correlative to the object of the old Chapters X, XI, Edward B. Hopper, II, Attorney, Partner in firm of Hopper & Opperman, In- dianapolis, Indiana. Admitted to bar, 1964, Tennessee; 1967, Indiana. Education: Vanderbilt University, B.A., 1961; LL.B., 1964. Memberships: Indianapolis (Member, Board of Managers), Indiana State, Tennessee State, Federal and American Bar Associations, Bar Association of Seventh Circuit and Bar Association of the U.S. Supreme Court. bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified at 11 U.S.C. §§ 1101-151326 (Supp. IV 1980)) [hereinafter cited as the Code]. bankruptcy Act of 1898, 11 U.S.C. §§ 1-1103 (1976) (repealed October 1, 1979, Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 401(a), 92 Stat. 2549) [hereinafter cited as the Act]. 3 11 U.S.C. § 109 (Supp. IV 1980) defines who may be a debtor in a Chapter 11 proceeding, generally following former Act § 11(a)(1). See S. Rep. No. 989, 95th Cong., 2d Sess. 31 (1978). See also In re Woodhouse, 11 Bankr. 322 (S.D. Ohio 1981) for the proposition that debtors as individuals are not prohibited from seeking relief under Chapter 11. 501 502 INDIANA LAWREVIEW [Vol. 15:501 and XII in its application to beleaguered debtors seeking court pro- tection from creditors attempting to force the liquidation of assets. Under Chapter 11, if reorganization is impossible at the outset of the case or is discovered to be impossible during the course of the attempt to reorganize, new Chapter 11 provides for a plan of liquida- tion without the necessity of converting the proceeding, as was nec- essary under the old Act.4 Often it is more economical from a creditor's standpoint to liqui- date under Chapter 11 rather than to convert to a Chapter 7 pro- ceeding for the reason that the creditor does not have to wait six months for claims to be filed as required in Chapter 7,5 nor is there the expense of the trustee, his counsel, and possibly, accountants. In addition, the entities already involved in the proceedings, the debtor and the creditors' committee, control the liquidation subject to court approval without the interjection of a new party, the trustee, who must be educated concerning the debtor's affairs. In the case of an operating business, once the Chapter 11 peti- tion is filed, regardless of the voluntary or involuntary nature of the petition, 6 a new entity, the debtor-in-possession, is created and enters into the operating phase of the business.7 After the petition is filed and the operational phase of the case is underway, the object of the proceeding is usually to determine whether the debtor can operate the business involved paying its day- to-day costs of operation and generating cash to apply towards debt service required under secured creditors' contracts. Additionally, under close monitoring by the creditors' committee,8 the debtor at- 4 11 U.S.C. § 1123(a)(5)(D) (Supp. IV 1980) provides for a liquidating plan in a Chapter 11 case. Under the Act, there were cases which indicated that the trustee could liquidate under a Chapter X plan but no statutory provision existed for such a plan. See S. Rep. No. 1916, 75th Cong., 3d Sess. 34 (1938). In re American Bantum Cart Co., 193 F.2d 616 (3d Cir. 1952). This area of controversy is now put to rest in the Code. bankruptcy Rule 302 wherein generally a claim must be filed within six months of the first date set for the first meeting of creditors. This rule continues to apply under the new code. See S. Rep. No. 989, 95th Cong., 2d Sess. 61, reprinted in [1978] U.S. Code Cong. & Ad. News 5787, 5847. 6 11 U.S.C. § 706(a) (Supp. IV 1980) provides for a conversion from Chapter 7 to Chapter 11 of the Code. Pursuant to 11 U.S.C. § 303(b) the creditors may file an in- voluntary Chapter 11 petition against a debtor. See also In re All Media Properties, Inc., 5 Bankr. 126 (S.D. Texas 1980), aff'd, 646 F.2d 193 (5th Cir. 1981). 7The powers and duties of a debtor in possession are defined in 11 U.S.C. § 1107(a) (Supp. IV 1980). For fiduciary responsibilities imposed by id. § 1107, see In re Antilles Yachting Inc., 4 Bankr. 470 (D.V.I. 1980). It is of consequence that the powers, rights, and duties of a debtor in possession are generally all rights of a trustee in a Chapter 7 proceeding. 8 11 U.S.C. § 1102(a)(1) (Supp. IV 1980) provides the statutory authorization for 1982] POST-CONFIRMATION 503 tempts to operate the business without losses on a weekly basis. Typically, if there is a positive cash flow, the debtor can determine what can be applied towards service on the secured debt and can ap- proach the secured creditor or creditors with an interim proposal.9 The third phase of the Chapter 11 proceeding is the promulga- tion of the plan of arrangement. It is possible for the plan to be developed early in the case, which would allow the debtor-in-posses- sion to accomplish phases two and three at the same time. The Code contemplates that the plan of arrangement typically be proposed by the debtor. 10 The plan is the debtor's program for settling with its creditors. After the exclusive debtor period has elapsed without an the formulation of a creditors' committee. The rights, powers, and duties of the creditors' committee are set forth in id. § 1103(c). In re Western Management, Inc., 6 Bankr. 438 (W.D. Ky. 1980), succinctly defined the duties of the committees: Further, there is no indication in the record that the unsecured creditors' committee has met, investigated, monitored or in any other man- ner attempted to fulfill its statutory responsibility. It was envisioned by the drafters, when they removed the bankruptcy judge as overseer of a Chapter 11 case, that the committee would fill the void. Without the recommenda- tions and findings of the creditors' committee, the Court, in ruling on a plan of reorganization, is confronted with a difficult, if not impossible, task in fulfilling its statutorily prescribed duties. It is vitally important that the Court be fully and accurately informed by independent reliable evidence. Neither the Court nor the creditors should be required to rely entirely on the evidence produced by the proponents of the plan. Id. at 443. Judges in both the Southern District and Northern District of Indiana have adopted procedures which will become a local rule requiring the reporting of income and receipts for the 90 days preceding the filing of the petition and bi-monthly from the date of filing, using the form found in the Addendum at 544-46. The same form is used for the 90-day and bi-monthly reports. The purpose of the reporting requirements is two-fold. Initially they protect the administrative creditor who can review the reports in the record in the bankruptcy court clerk's office to determine if it is in the best interest of a creditor to advance credit to the debtor in possession. Secondly, the reporting requirements allow the creditors' committee to determine whether the debtor's equity, if any, is deteriorating. Additional protection is afforded the creditor who advances credit to a Chapter 11 debtor or a trustee for a Chapter 11 debtor under 11 U.S.C. § 364 (Supp. IV 1980) which gives the creditor an administrative claim and id. § 364(c) which authorizes the granting of a super priority over all other administrative creditors. 911 U.S.C. §§ 361-364 (Supp. IV 1980) provides that creditors must be adequately protected during the pendency of the proceeding. Adequate protection can be a portion of the regular payment which compensates the creditor for the use of its collateral. See also Metropolitan Life Ins. Co. v. Murel Holding Corp. (In re Murel Holding Corp.), 75 F.2d 941 (2d Cir. 1935). 10 11 U.S.C. § 1121(b) (Supp. IV 1980) gives the debtor the exclusive right to file a plan within 120 days from the date of the petition provided no trustee is appointed, and further, when read in connection with id. § 1121(c)(3), grants the debtor an addi- tional 60 days to obtain confirmation. 504 INDIANA LAW REVIEW [Vol. 15:501 extension by the court, any party in interest may file the plan.11 The practice of negotiating a plan with the creditors' committee, which was prevalent under Chapters X, XI and XII of the Bankrupt- cy Act, is carried on under new Chapter 11. In a case in which there is no trustee, once the plan has been negotiated to the satisfaction of the debtor-in-possession and the creditors' committee, the plan is then circulated among the creditor body. The use of a disclosure statement under the Bankruptcy Code serves to prevent circulation of so-called "blind plans" in which the creditors really do not know on what they are voting. The disclosure statement is devised to pro- vide the creditor body with sufficient information so that a prudent decision can be made- on whether acceptance of the plan is in the in- terest of a particular creditor. 12 The next step involves the solicitation of votes from the creditor body for the purpose of obtaining confirmation of the plan.13 Confir- mation extinguishes all creditor rights beyond the terms of the plan itself against the debtor as those rights existed at pre-confirmation, with a few Code-defined exceptions discussed below.14 II. The Proposed Plan of Confirmation-A Quick Overview Assuming that there is no trustee in the case, the debtor has the exclusive right to file a plan within 120 days after the filing of the case. 15 If a trustee is appointed in the Chapter 11 proceeding or if the debtor's proposed plan is not accepted within 180 days follow- ing the filing of the case,16 any party in interest may file a plan.17 It "Pursuant to id. § 1121(c), after the exclusive period of time for filing the plan by the debtor, any party in interest may file a plan. 12 Id. § 1125(a)(1) provides that a disclosure statement must contain information of a kind, and in sufficient detail, as far as is reasonably prac- ticable in light of the nature and history of the debtor and the condition of the debtor's books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan. . . . "See id. § 1126 for the requirements of acceptance of plan. uSee id. § 1141. "See id. § 1121(b). 16The 180-day period includes 60 days for acceptance of the plan after the 120-day filing period. 17 11 U.S.C. § 1121(c) (Supp. IV 1980) provides as follows: (c) Any party in interest, including the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee, may file a plan if and only if— (1) a trustee has been appointed under this chapter; (2) the debtor has not filed a plan before 120 days after the date of the order for relief under this chapter; or (3) the debtor has not filed a plan that has been accepted, before 180 1982] POST-CONFIRMATION 505 should be noted that on request of a party in interest, normally the debtor, and after notice and a hearing, the court may reduce or in- crease the 120-day period or the 180-day period. 18 In most cases there should be no objection to the increase of the 120-day period if the creditors' committee realizes that the debtor is not in a position to file a plan at that time, but that there is a real possibility of a workable plan being filed in the future based on, for instance, refinancing or a sale, and there is no competing plan under consideration. The 180-day period should normally be extended when the debtor is not in a position to confirm the plan due to lack of funds or when the event which is to serve as the means for the ex- ecution of the plan, for example, a sale, cannot be closed for some reason. The only comment in the legislative history on the extension of the period appears at page 406 of the House Report where it is noted that "[c]ause might include an unusually large or unusually small case, delay by the debtor, or recalcitrance among creditors." 19 The Senate Report indicates that an extension should be granted only on the showing of some promise of probable success and not as a tactical device to pressure one of the parties negotiating the plan to yield and accept a plan they consider less than adequate.20 During this phase of the Chapter 11 case, the parties in interest, which typically include the debtor-in-possession and the creditors' committee, seek to formulate and work out a plan which specifies how much the creditors will be paid, the form of payment, and other details involving the reorganized debtor's business, such as interest that the stockholders will retain, who will manage the business, and in what form the reorganized debtor will continue.21 days after the date of the order for relief under this chapter, by each class the claims or interests of which are impaired under the plan. Query, is the court a party in interest? No provision of the Code has been read to place the court in that posture. U I In re JERICO, INCORPORATED, NO. IP Debtor. PLAN OF REORGANIZATION Definitions The following terms, when used in the Plan, shall, unless the context otherwise requires, have the following meanings, respective- Debtor: Jerico Incorporated, an Indiana corporation. Chapter 11: Chapter 11 of the Bankruptcy Code. Court: The United States Bankruptcy Court for the South- ern District of Indiana, Indianapolis Division, acting in this case. Plan: This Plan of Reorganization. Creditors' Committee: That Creditors' Committee appointed by the court herein. Confirmation of the Plan: The entry by this Court of an order confirming the Plan in accordance with Chapter 11. Consummation of Plan: The accomplishment of all things contained or provided for in this Plan, and the entry of an order of consummation finally dismissing the case. Effective Date: That date on which the order confirming the Plan becomes final and nonappealable. Joint Venture: The relationship of Gannon Oil Co., Inc. and ABC, Inc. Guaranteed: The unconditional joint and several guarantee of Gannon Oil Co., Inc. and ABC, Inc. Reorganized Debtor: The status of the Debtor after confir- mation of the Plan. The official Creditors Committee and Terry Shake, Trustee, both being parties in interest propose the following plan of arrange- ment. 524 INDIANA LAWREVIEW [Vol. 15:501 Article I Classification of Claims and Interests The claims and interests shall be classified as follows: Class 1 Unsecured claims to the extent that such claims are approved and allowed by the Court, in- cluding unsecured claims arising from the rejec- tion of all executory contracts not assumed under this Plan. Class 2 Unsecured claims of The Northfield Corporation and Bank of Indiana to the extent that such claim is approved and allowed by the Court. Class 3 The claim of Gannon Oil Co., Inc. to the extent that such claim is approved and allowed by the Court. Class 4 Secured claims as such claims existed on the date of the filing of the petition for relief under Chapter 11 of the Bankruptcy Code. Class 5 Claim of the Bloomington Bank. Article II Claims and Interests not Impaired Under the Plan There are no class of claims or interests which are not impaired under this Plan. Article III Treatment of Classes that are Impaired Under the Plan Each class of claim shall be treated as follows: Class 1 Each member of this class shall have the option of the selection of one of the following alterna- tives: A. A sum equivalent to fifty-six percent (56%) of the allowed claim. This payment shall be made in one cash payment at the time of the ef- fective date of the Plan. B. A sum equivalent to seventy-eight percent (78%) of the allowed claim. This payment shall be evidenced by an installment promissory note issued on the effective date of confirmation of the Plan by the Reorganized Debtor, payable in 1982] POST-CONFIRMATION 525 thirty-six (36) equal monthly installments without interest commencing upon the first day of the month following the effective date of the Plan. The first twenty-four (24) monthly payments will be guaranteed by each member of the joint venture. C. Payment of one hundred percent (100%) of the allowed claim by the Court. This payment shall be evidenced by an installment promissory note issued on the effective date of confirmation of the Plan by the Reorganized Debtor, the final payment being one hundred twenty (120) mon- ths from the effective date of the Plan. The note shall be without interest. Monthly installment payments shall commence twelve (12) months following the effective date of the Plan and shall continue in one hundred eight (108) equal installments thereafter. Each payee of the note shall have the option at the end of ninety-six (96) months to demand payment on the entire note balance. The first thirty-six (36) monthly pay- ments will be guaranteed by each member of the joint venture. Class 2 Payment of one hundred percent (100%) of the allowed claim by the Court. This payment shall be evidenced by an installment promissory note issued on the effective date of the confirmation of the Plan by the Reorganized Debtor, the final payment being due one hundred twenty (120) months from the effective date of the Plan. The note shall be without interest. Monthly install- ment payments shall commence twelve (12) mon- ths following the effective date of the Plan and shall continue in one hundred eight (108) equal installments thereafter. The payee of the note shall have the option at the end of ninety-six (96) months to demand payment on the entire note balance. The first thirty-six (36) monthly payments will be guaranteed by each member of the joint venture. Class 3 In the same manner as Class 1 claims. Class 4 The debt shall be paid pursuant to the terms of the debt instrument except the interest rate in each instrument shall be a fixed simple interest rate of ten percent (10%) per annum. Past due 526 INDIANA LAWREVIEW [Vol. 15:501 installments existing on the effective date of the Plan will be cured first by extending the term of each debt by two months. Then the balance of any cure shall be paid at the effective date of the Plan. The holder of each claim will retain a lien on the property securing said debt. Class 5 The debt shall be paid pursuant to the terms of the debt instrument except the interest rate in each instrument shall be a fixed simple interest rate of ten percent (10%) per annum. Past due installments existing on the effective date of the Plan will be cured first by extending the term of each debt by two months. Then the balance of any cure shall be paid at the effective date of the Plan. The holder of each claim will retain a lien on the property securing said debt. The claim shall be guaranteed to the extent of the portion previously guaranteed to the Small Business Administration. Article IV Provisions for Acceptance or Rejection of Executory Real Estate Leases A. The debtor will assume pursuant to § 365 of the Bankruptcy Code, each of the executory real estate leases set forth in Exhibit A attached hereto and made a part hereof. B. The debtor shall assume, pursuant to § 365 of the Bankrupt- cy Code, the executory franchisee contracts discussed in Exhibit B attached hereto and made a part hereof. C. The executory real estate leases set forth in Exhibit C [not attached for purposes of this Article] shall, pursuant to § 365 of the Bankruptcy Code, upon notice and hearing to any person, firm or corporation claiming an interest, be rejected and at such hearing the Court shall fix the dollar amount of damages, if any, and such per- son, firm or corporation shall become a Class 1 creditor. D. The executor real estate leases set forth in Exhibit D [not attached for purposes of this Article] shall be conditionally assumed by the Debtor until August 31, 1981 pursuant to the terms of the lease. The Reorganized Debtor would have the right to either affirm or reject the executory lease by giving the lessor notice. If the Reorganized Debtor elects to reject the lease, the landlord would become a Class 1 creditor. E. The Debtor shall assume all executory contracts with The Northfield Corporation which will be paid pursuant to the terms of the Plan. 1982] POST-CONFIRMATION 527 F. Any and all other executory contracts of the Debtor not specifically set forth herein are hereby rejected and treated as Class 1 claims. Article V Means for Execution of the Plan Execution of this Plan upon its effective date shall be accom- plished pursuant to an agreement entered into by and between the Joint Venture, the Trustee, and Official Creditors' Committee ex- ecuted June 17, 1980. The Joint Venture, under separate agreement with the individual shareholders, will purchase the outstanding shares of the Debtor's stock prior to the effective date of the Plan. Article VI Provisions for Priority Claims Each claim of the kind specified in sections 507(a)(1), 507(a)(2), 507(a)(3), 507(a)(4), and 507(a)(5) shall be paid on the effective date of the Plan cash equal to the allowed amount of such claim unless said claims are waived or payments otherwise agreed to. Each claim of the kind specified in Section 507(a)(6) shall be paid in full when due. Article VII General Provisions Until the case is closed, the Court shall retain jurisdiction to in- sure that the purpose and intent of this Plan are carried out. The Court shall retain jurisdiction to hear and determine all claims against the Debtor and to enforce all causes of action which may ex- ist on behalf of the Debtor. Nothing herein contained shall prevent the Reorganized Debtor from taking such action as may be neces- sary in the enforcement of any cause of action which may exist on behalf of the Debtor and which may not have been enforced or prosecuted by the Trustee. DATED: July 15, 1980 . OFFICIAL CREDITORS' COMMITTEE by 8 ROBERT COOPER One of Counsel 528 INDIANA LA WREVIEW [Vol. 15:501 TERRY SHAKE, Trustee for JERICO, INCORPORATED by EVERETT LINDSAY One of Counsel Acceptance Gannon Oil Co., Inc. and ABC, Inc., have entered into an agree- ment on or about June 17, 1980 with Terry Shake, Trustee, and the Official Creditors, Committee, hereby acknowledge the Plan of Reor- ganization contained herein and accept its terms pursuant to said Agreement. DATED this 15 day of July, 1980. GANNON OIL CO., INC. by ABC, INC. by 1982] POST-CONFIRMATION 529 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION IN RE: JERICO INCORPORATED, NO. Debtor. DISCLOSURE STATEMENT Introduction Terry Shake, Trustee of Jerico, Incorporated, the debtor, and the Official Creditors' Committee of Jerico, Incorporated provides this Disclosure Statement to all of the known creditors of Jerico, In- corporated in order to disclose that information deemed by the Trustee and the Official Creditors' Committee to be material, impor- tant, and necessary for the creditors of Jerico, Incorporated to ar- rive at a reasonably informed decision in exercising their right to vote for acceptance of the Plan of Reorganization (hereinafter "the Plan") presently on file with the Bankruptcy Court. A copy of the Plan accompanies this Statement. The Court has set August 15, 1980, at 10:00 a.m. for a first meet- ing of creditors and at 11:00 a.m. for a hearing on the acceptance of the Plan of Reorganization. Creditors may vote on the Plan by fil- ling out and mailing the accompanying Acceptance Form to the Bank- ruptcy Court or may attend such hearing and present the Accep- tance in person at that time. As a creditor, your acceptance is im- portant. In order for the Plan to be deemed accepted, creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims of Class 1 and 5 must vote for the Plan. NO REPRESENTATIONS CONCERNING THE DEBTOR (PAR- TICULARLY AS TO HIS FUTURE BUSINESS OPERATIONS, VALUE OF PROPERTY, OR THE VALUE OF ANY PROMISSORY NOTES TO BE ISSUED UNDER THE PLAN) ARE AUTHORIZED BY THE TRUSTEE OR THE OFFICIAL CREDITORS' COMMIT- TEE OTHER THAN AS SET FORTH IN THIS STATEMENT. ANY REPRESENTATIONS OR INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE WHICH ARE OTHER THAN AS CON- TAINED IN THIS STATEMENT SHOULD NOT BE RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH ADDI- TIONAL REPRESENTATIONS AND INDUCEMENTS SHOULD BE REPORTED TO COUNSEL FOR THE TRUSTEE WHO IN TURN SHALL DELIVER SUCH INFORMATION TO THE BANK- 530 INDIANA LAWREVIEW [Vol. 15:501 RUPTCY COURT FOR SUCH ACTION AS MAY BE DEEMED AP- PROPRIATE. THE INFORMATION CONTAINED HEREIN HAS NOT BEEN SUBJECT TO A CERTIFIED AUDIT. THE RECORDS KEPT BY THE DEBTOR AND TRUSTEE ARE DEPENDENT UPON AN AC- COUNTING PERFORMED BY OTHERS BEYOND THE CONTROL OF THE TRUSTEE OR THE OFFICIAL CREDITORS' COMMIT- TEE. FOR THE FOREGOING REASONS, AS WELL AS BECAUSE OF THE GREAT COMPLEXITY OF THE DEBTOR'S FINANCIAL MATTERS, THE TRUSTEE AND THE OFFICIAL CREDITORS' COMMITTEE IS UNABLE TO WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN IS WITHOUT ANY INACCURACY, ALTHOUGH GREAT EFFORT HAS BEEN MADE TO BE ACCURATE. II The Plan of Reorganization The Plan is based upon the belief of the Trustee and the Official Creditors' Committee that the present forced liquidation value of the principal assets of the debtor is so small as to offer the potential of only a minimal recovery to general unsecured creditors. The Trustee and the Official Creditors' Committee believe it is possible and in the best interest of all creditors to allow for the continued operation of the debtor as a reorganized debtor, pursuant to which, the reorganized debtor will make available to general unsecured creditors three alternatives for payment of a percentage of their claim and will allow for the normal retirement of secured indebted- ness over a negotiated period of time at a negotiated rate of interest all of which are to be paid out of the future operations of the debtor- in-possession and some of which payments are to be guaranteed as hereinafter more specifically set forth. It is believed that if the deb- tor were liquidate, the amount realized by unsecured creditors would be minimal in relation to what is being proposed to the vari- ous classes of creditors pursuant to the Plan of Reorganization which accompanies this statement. The Plan provides in Article I for the classification of claims and interests. The claims and interests are classified into five separate classes. Class I claims are unsecured claims approved and allowed by the Court. Claims under this class are generally unsecured creditors who are either purveyors, suppliers of merchandise, or suppliers of services and includes unsecured claims arising from the rejection of all executory contracts not specifically assumed under the Plan. Each member of Class I, shall have the option of selecting one of the following alternatives: 1982] POST-CONFIRMATION 531 (a) The sum equivalent to 56% of the allowed claim. This payment of 56% shall be made in one cash payment at the time of confirmation of the Plan. Funds for this payment will be made available by funds on hand of the debtor and by an infusion of capital of a joint venture composed of Gannon Oil Co., Inc., and ABC, Inc., the entities which are purchas- ing the stock of the debtor corporation. (b) A sum equivalent to 78% of the allowed claim of each unsecured creditor. This payment shall be in the form of an installment promissory note (see Exhibit "A") issued on the effective date of confirmation of the Plan by the reorgan- ized debtor and payable in 36 equal monthly installments without interest, commencing on the 1st date of the month following the effective date of the Plan. The first 24 monthly payments will be guaranteed by each member of the joint venture. (c) Payment of 100% of the allowed claim by the Court. This payment shall be in the form of an installment pro- missory note (see Exhibit "B") issued on the effective date of confirmation of the Plan by the reorganized debtor with the final payment being 120 months from the effective date of the Plan. The note shall be without interest. Monthly install- ment payments shall commence 12 months following the 1st date of the month following the effective date of the Plan and shall continue in 108 equal installments thereafter. Each payee of the note shall have the option at the end of 96 months to demand payment on the entire note balance. The first 36 monthly payments will be guaranteed by each member of the joint venture. The three methods of payment to unsecured creditors in Class I of- fer an alternative to each member of that class to choose the pay- ment program which he wishes. The acceptance by the creditor of an immediate payment of 56 cents on the dollar as of the effective date of the Plan would provide no risk to any member in Class I. The acceptance of alternative (b) or (c), providing for 78% of the allowed claim over a period of 36 months or 100% of the allowed claim over a period of 120 months, provides a certain risk to an ac- cepting unsecured creditor in Class I which will be set forth under the heading Special Risk Factors. A copy of the form of the note to be provided Class I creditors who choose alternative (b) or (c) is at- tached. Class I further provides for unsecured claims arising from the rejection of certain executory contracts for the lease of real estate to the extent that such claim is approved and allowed by the Court. The debtor owns no real property and leases all locations where its 532 INDIANA LAWREVIEW [Vol. 15:501 stores are located. The Plan sets forth in Article IV the leases which will be assumed by the reorganized debtor and the leases that will be rejected by the debtor. Article III Class I provides for the method of payment to those lessors holding leases which are reject- ing by the debtor. Under § 502 of the United States Bankruptcy Code, the lessor has a claim for damages resulting from a termina- tion of the lease of real property to the extent of the rent reserved by such lease, without acceleration, for the greater of one year or fifteen percent, not to exceed three years of the remaining term of such lease, following the earlier of the date of the filing of the peti- tion, the date on which such lessor repossessed, or the date on which the lessee surrendered the leased property, plus any unpaid rent due under such lease, without acceleration, on the earlier of such dates. In addition to those executory contracts which are to be assumed by the reorganized debtor as set forth in Exhibit "A" to the Plan of Reorganization, and in addition to the executory real estate leases as set forth in Exhibit "C" which are to be rejected by the debtor, Article IV subparagraph (d) provides for certain executory real estate leases which are set forth in Exhibit "D" to the Plan of Reor- ganization and are to be conditionally assumed by the reorganized debtor until August 31, 1981, pursuant to the terms of the lease. At the termination of that period, the reorganized debtor would have the right to either affirm or reject the executory lease. If the reor- ganized debtor elects to reject the lease, the landlord would become a Class I creditor for its allowed claim in these proceedings. Article IV further sets forth the provision that the debtor shall assume, pursuant to § 365 of the United States Bankruptcy Code, the ex- ecutory franchise contracts set forth in Exhibit "B" to the Plan of Reorganization. ANY AND ALL OTHER EXECUTORY CON- TRACTS OF THE DEBTOR NOT SPECIFICALLY SET FORTH IN ARTICLE IV ARE REJECTED PURSUANT TO THE PLAN OF REORGANIZATION. CLAIMS ARISING THEREFROM SHALL BE TREATED AS CLASS I CREDITORS. The Plan also provides for the classification of a separate class of creditors composed of the Northfield Corporation and the Bank of Indiana. This separate classification is set forth by virtue of the fact that the Northfield Corporation is not only a general unsecured creditor as a purveyor of merchandise but is also a licensor of the debtor and has guaranteed certain obligations of the debtor, in- cluding but not limited to, the obligation that is due and owing to the Bank of Indiana and any obligations for attorney fees arising out of that certain lawsuit entitled The Northfield Corporation, plain- tiff—counter-defendant v. Super Markets, Inc., defendant— counter- plaintiffs v. Jerico, Inc., counter-defendant, pending in the United 1982] POST-CONFIRMATION 533 States District Court for the Southern District of Indiana, Indian- apolis Division, which is presently on appeal to the United States Court of Appeals for the Seventh Circuit. The obligation due and owing to the Northfield Corporation, licensor and purveyor of goods to the debtor, is in the approximate amountof $395,456.00, together with an indebtedness due from debtor to the Bank of Indiana guar- anteed by Northfield in the approximate amount of $216,666.00, to- gether with additional amounts estimated to be due Northfield in the amount of $40,000.00, for a total amount due and owing to North- field Corporation on all obligations in the sum of $652,122.00. The Plan of Arrangement, as proposed, provides for the payment to creditors of Class II of 100% on the dollar of the allowed claim by the Court. The payment of 100 cents on the dollar is the same alter- native offered to creditors of Class I, in that the payment of 100 cents on the dollar shall be evidenced by an installment promissory note issued on the effective date of confirmation of the Plan by the reorganized debtor, the final payment being dated 120 months from the effective date of the Plan. The note issued by the reorganized debtor shall be without interest. Monthly installment payments shall commence twelve months following confirmation and shall continue in 108 equal installments thereafter. The payee of the note shall have the option at the end of ninety-six months to demand payment of the entire note balance. The first thirty-six monthly payments will be guaranteed by the joint venture of Gannon Oil Co., Inc. and ABC, Inc. It is important to note that the treatment of Class II creditors is the sffered to Class I creditors. Class III of the Plan is Gannon Oil Co., Inc., since it is a pur- chaser of the stock of Jerico, Incorporated, and will be executing certain guarantees as the creditors in Class I may choose. Treat- ment afforded to Gannon Oil Co., Inc. is the same treatment that is being afforded to Class I creditors. The Plan further provides for classification of secured creditors in Class IV. These creditors are primarily creditors who hold security on certain equipment of the debtor and include the Bank and Trust, Columbus, Indiana; the National Bank and Trust Company, Indian- apolis, Indiana; the Bank and Trust, Noblesville, Indiana; the Na- tional Bank, Danville, Indiana; the Bank & Trust, Little Rock, Ar- kansas; and the Bank and Trust New Albany, Indiana. The debt evidenced by creditors holding claims in Class IV shall be paid pur- suant to the terms of the debt instrument except that the interest rate in each instrument shall be a fixed simple interest rate of 10% per annum. Past due installments existing on the effective date of the Plan will be cured first by extending the term of each debt by two months. Then the balance of any cure shall be paid at the effec- tive date of the Plan. The holder of each claim will retain a lien on the property securing said debt. 534 INDIANA LAWREVIEW [Vol. 15:501 The remaining classification of claims is Class V which provides for a classification of the claim of the Bloomington Bank. The Bloom- ington Bank is set forth in a separate class by virtue of its setting off of certain obligations due and owing to the Bloomington Bank in the sum of $173,884.92 within ninety days prior to bankruptcy. The Trustee and the Official Creditors' Committee has taken the position that said set off is a preference. Notwithstanding that fact, the Plan proposes to treat the Bloomington Bank in Class V upon repayment by the Bloomington Bank to the Trustee of the sums set off with re- payment of said debt to the Bloomington Bank pursuant to the terms of the debt instrument with the bank, except that the interest rate in said instrument shall be a fixed simple interest rate of 10% per annum. Past due installments existing on the effective date of the Plan will be cured first by extending the terms of the debt by two months. The balance of any cure shall be paid at the effective date of the Plan. The Bloomington Bank will retain a lien on the property securing said debt, and the debt shall be guaranteed by each member of the joint venture for the SBA portion previously guaranteed. THE FOREGOING IS A BRIEF SUMMARY OF THE PLAN AND SHOULD NOT BE RELIED ON FOR VOTING PURPOSES. CREDITORS ARE URGED TO READ THE PLAN IN FULL. CREDITORS ARE FURTHER URGED TO CONSULT WITH COUNSEL OR WITH EACH OTHER IN ORDER TO FULLY UNDERSTAND THE PLAN. THE PLAN IS COMPLEX INAS- MUCH AS IT REPRESENTS A PROPOSED LEGALLY BINDING AGREEMENT BY THE TRUSTEE, DEBTOR, AND REORGANIZED DEBTOR, AND AN INTELLIGENT JUDGMENT CONCERNING SUCH PLAN CANNOT BE MADE WITHOUT UNDERSTANDING IT. Ill Financial Information Respecting the Reorganized Debtor The financial information hereinafter presented is to be con- sidered in the context of the debtor's primary business activity of operating convenience food stores and making sales of gasoline. As previously stated, the debtor owns no real property. All real property utilized by the debtor is on lease, and there may or may not be any equity value in any of the leases. The machinery and equipment used in the business has been used for a period of time, and it is esti- mated that the depreciated value of the equipment on the books of the corporation is not its true liquidation value. Its true liquidation value in the estimates of the Trustee and the Official Creditors' Committee would be much less than the depreciated book value and 1982] POST-CONFIRMATION 535 also much less than any amount owing to secured creditors on said equipment. The debtor did not own at any time any gasoline pumps or any gasoline storage tanks. That equipment was at all times owned by Gannon Oil Co., Inc. A further question arises as to whether or not gasoline in storage tanks on various premises of the debtor was in fact inventory of the debtor or belonged to Gannon Oil Co., Inc. under a consignment agreement. The Trustee and Official Creditors' Committee have taken the position that the gasoline on hand at any given date was an asset of the debtor. Gannon Oil Co., Inc. has taken the position that it was an asset of Gannon Oil Co., Inc. The treat- ment of Gannon Oil Co., Inc. as an unsecured creditor pursuant to the Plan of Arrangement puts that issue at rest. However, the value of the remaining machinery and equipment of the debtor, in your Trustee's opinion, is insignificant to the amount due and owing on the equipment and has no relationship to the depreciated book value of said equipment. With the exception of inventory, therefore, all of debtor's assets are encumbered by holders of prior secured claims, and accordingly, the amount of both secured claims and unsecured claims is relevant. A statement of assets and liabilities of the debtor as of the date of the filing of the petition under Chapter 11 of the United States Bankruptcy Code on May 28, 1980, has been filed with the Bankruptcy Court as of July 9, 1980. The schedule and statement of assets and liabilities should be inspected by all interests parties. The Trustee has estimated the total debts of the debtor to be as follows: Taxes owing to other than taxing authorities $ 20,000.00 Secured claims 712,848.59 Unsecured claims without priority 1,762,818.56 Total debts of debtor corporation 2,495,667.15 These are estimates only by the Trustee, and there has been no independent verifica- tion from creditors. IT IS IMPORTANT TO NOTE THAT ALL DEBTS OF THE DEBTOR WERE LISTED BY THE TRUSTEE AS BEING DISPUTED, CON- TINGENT, AND UNLIQUIDATED BY VIRTUE OF THE FACT THAT THE TRUSTEE COULD NOT INDEPENDENTLY VERIFY AND HAS NOT HAD SUFFI- CIENT TIME TO INDEPENDENTLY VERIFY THAT THE TOTAL DEBTS AS SET FORTH ON THE SCHEDULES AND STATEMENTS OF AFFAIRS ARE AC- CURATE. SINCE THE TRUSTEE HAS LISTED ALL DEBTS AS DISPUTED, CON- TINGENT, AND UNLIQUIDATED, FOR ANY CREDITOR TO SHARE IN A DISTRIBUTION IN THE ESTATE AND RECEIVE A DIVIDEND FROM THE ESTATE, SAID CREDITOR MUST FILE A PROOF OF CLAIM IN THESE PRO- CEEDINGS. It is further noted by the Trustee and the Official Creditors' Committee that the amount of debts of the corporation may be increased by virtue of certain lawsuits pending, a portion of which have been removed to the Bankruptcy Court, and a portion of which are on appeal. In addition, the debts as scheduled by the Trustee do not include any amounts that would be due to lessors under rejection of executory lease contracts. Those amounts arising by the rejection of executory contracts in Arti- 536 INDIANA LA WREVIEW [Vol. 15:501 cle IV (c), and those amounts arising by those executory contracts which may be re- jected in one year under Article IV (d) are not included in the total debt listing of the Trustee. The schedules and statement of affairs further reflect the property as listed by the Trustee as belonging to the debtor. That property may be summarized as follows and as appearing as of May 28, 1980, the date of the filing of the Chapter 11 petition: Cash on hand $ 393,000.00 Depreciated book value of machinery, equipment, and supplies used in business 970,000.00 Inventory on hand 310,000.00 Depreciated book value of patents and other general intangibles 55,000.00 Other liquidated debts due the debtor 130,000.00 Total property of the debtor $1,858,000.00 The cash on hand of the debtor oscillates, depending upon payment for gasoline sales made, payments to suppliers, and receipts for merchandise sold. The value of depreciated machinery, equipment, and other supplies used in the business is a depreciated book value, and it is the opinion of the Trustee and the Official Creditors' Committee that the listed value is greater than the liquidation value of said equip- ment, machinery, and supplies used in business, and in addition, the actual liquidation value of said machinery, equipment, and supplies used in business is less than the amount owed to secured creditors. It has been estimated by the Trustee that the true liquidation value of all machinery, equipment, and supplies used in the business owned by the debtor is the sum of $275,000.00, not including pumps and storage tanks in the ground used for gasoline which are claimed as owned by Gannon Oil Co., Inc. The in- ventory value in the sum of $310,000.00 is exclusive of gasoline and has fluctuated since the date of the filing of the petition under Chapter 11 of the United States Bankruptcy Code. The patent and other general intangibles in the sum of $55,000.00 is the original value of the license owned by the debtor for the operation of Super Markets, Inc. and its value cannot be estimated by the Trustee. Other liquidated debts due and owing to the debtor in the sum of $130,000.00 represent accounts receivable and notes receivable of questionable value. It is deemed relevant by the Trustee and the Official Creditors' Committee that the total estimated liquidation value of machinery, equipment, and supplies used in business is approximately $275,000.00, taken in light of the total indebtedness due and owing on said equipment and machinery in the sum of $712,848.59. The following is the Trustee's best estimates of the secured creditors holding security as set forth above: The Bloomington Bank security in store equipment $173,884.92 The Bank and Trust, Columbus, Indiana security in store equipment 46,644.66 The National Bank and Trust Company security in store equipment 166,666.70 1982] POST-CONFIRMATION 537 The Bank and Trust, Noblesville, Indiana security in store equipment 28,679.04 The National Bank, Danville, Indiana security in store equipment 84,503.00 The Bank and Trust, Little Rock, Arkansas security in store equipment 92,532.00 The Bank and Trust, New Albany, Indiana security in store equipment 123,551.58 Total secured indebtedness $716,461.90 The total amount due and owing to tax creditors are personal property taxes for assessments made March of 1979 and 1980 pay- able in May and November, 1980, in Monroe County, Marion County, Bartholomew County, Hamilton County, Madison County, Hendricks County, Hancock County, Floyd County and Clark County in the total sum of $20,000.00. According to the best estimates of your Trustee, the amount of claims held by general unsecured trade creditors who would be af- fected by the treatment of Class I creditors is in the sum of approxi- mately $700,000.00. Amounts due Northfield and the Bank of Indiana approximate $652,000.00, and the debt due to Gannon Oil Co., Inc. approximates $191,000.00. Additional claims included in the total unsecured claims without priority represent contingent lawsuits and other claims. It is estimated that the amount of the allowed claims of lessors on the rejection of executory contracts is in the sum of $89,493.00. In addition, certain executory contracts which are set forth in Ex- hibit "D" to the Plan of Arrangement will be conditionally assumed by the reorganized debtor for a period of one year, pursuant to the terms of the lease, and at the termination of one year from the effec- tive date of the Plan, the reorganized debtor would have the right to either affirm or reject the executory leases. If the reorganized debtor elects to reject the leases, the estimated amount of unse- cured liability on those leases is in the sum of $138,915.00. To your Trustee's knowledge, and the knowledge of the Official Creditors' Committee, the debtor owns no stock in any other entity but does hold a note in the sum of $25,000.00 from Uptown Realty Corporation secured by property located at 21st and Vine, In- dianapolis, Indiana. The Plan provides that the joint venture of Gannon Oil Co., Inc. and ABC will purchase the issued and outstanding stock held by of- ficers of Jerico Corporation for the sum of $5,000.00 plus forgiveness of a $25,000.00 note due from Steven Harold to the debtor which the joint venture deems uncollectible. Gannon Oil Co., Inc., and ABC, Inc., have been operating the debtor corporation under a manage- 538 INDIANA LAWREVIEW [Vol. 15:501 ment agremeent with the Trustee since June 17, 1980. The con- tinued operation by Gannon Oil Co., Inc., and ABC, Inc., will allow for a continued and uninterrupted chain of management through the new reorganized debtor. Said stock purchase will be consummated subsequent to accep- tance of the Plan of Arrangement and prior to the confirmation of said Plan. All priority claims will be paid in full upon consummated of the Plan of Arrangement unless waived or otherwise agreed to. Those claims include all claims set forth in sections 507(a)(1), 507(a)(2), 507(a)(3), 507(a)(4), and 507(a)(5). More specifically, those claims in- clude administrative claims of the Trustee, the Trustee's counsel, the Official Creditors' Committee, and attorney for the debtor all of which shall be paid in full upon confirmation, and all expenses of do- ing business, including payments for merchandise received, shall be paid according to terms of payment, or if administrative claims are past due as of that time, they shall be paid in full. Claims of all secured creditors shall be paid pursuant to the provisions for pay- ment of secured creditors, and the payments of all obligations under leases being assumed by the reorganized debtor shall be cured and paid in full upon confirmation. In addition, each claim of the kind specified in section 507(a)(6), tax claims of the debtor, shall be paid in full when due. To accomplish the payments of all funds as above set forth, in- cluding provisions for treatment of classes, Gannon Oil Co., Inc., and ABC, Inc., shall fund the proposed Plan of Reorganization for the reorganized debtor and shall provide the monies necessary for pay- ment to classes calling for payment upon confirmation and for the provisions for payment of priority claims. IV Special Risk Factors Certain substantial risk factors are inherent in most securities issued pursuant to a Plan of Reorganization in a Chapter 11 case. If such plans are accepted, it is usually because they represent a greater hope for return than the dividend in a liquidating Chapter 7 case. ALL OF THE RISK FACTORS INHERENT IN SECURITIES ISSUED PURSUANT TO A PLAN OR REORGANIZATION ARE PRESENT IN THE PROMISSORY NOTES PROPOSED TO BE ISSUED IN THIS CASE SHOULD CREDITORS IN CLASS I CHOOSE TO ACCEPT PROMISSORY NOTES AND IN THE OTHER CLASSES WHERE PROMISSORY NOTES ARE ISSUED. While creditors in Class I, if they so choose, and creditors in Class II, III, IV and V will be accepting notes of the reorganized debtor, 1982] POST-CONFIRMATION 539 and while there is a guarantee as set forth in Article III of certain portions of those notes by Gannon Oil Co., Inc. and ABC, those credi- tors accepting notes should realize that outside of the viability of Gannon Oil Co., Inc., and ABC, there is no guarantee that said notes will be paid in full when due. Based upon the April 30, 1980, finan- cial statements supplied by Gannon Oil Co., Inc., and ABC, Inc., which are on file in the offices of the attorney for the Trustee and attorney for the Official Creditors' Committee, the combined unau- dited net worth of both companies is approximately $1,500,000.00. These financial statements may be reviewed at either of the above offices by any creditor during normal business hours. The Trustee and the Official Creditors' Committee make no representation or warranty of payment in full of said notes when due. It is expected that should any Class I creditor choose to accept treatment under subparagraph (b) or (c) of Article III Class I and receive a promissory note that no market will exist for said notes issued under the Plan and realization upon them must await distri- butions pursuant to the terms of said note, if any, from the reorgan- ized debtor. The notes as issued under the Plan are exempt from registration under the Securities Act of 1933 and State or local laws to the extent provided in 11 U.S.C. § 1145 (Supp. IV 1980). DATED at Indianapolis, Indiana, this 15 day of July, 1980. TERRY SHAKE, TRUSTEE FOR JERICO, INCORPORATED By. Everett Lindsay, One of Counsel OFFICIAL CREDITORS' COMMITTEE OF JERICO, INCORPORATED By Robert Cooper, One of Counsel 540 INDIANA LAWREVIEW [Vol. 15:501 PROMISSORY NOTE AND LIMITED WARRANTY NOTE $ Date: August , 1980 For value received the undersigned promises to pay to the order of the total sum of Dollars ($ ), at or at such other place as the holder hereof may direct in writing. Payment shall be in 36 equal monthly installments commencing on September 1, 1980 and each month thereafter. No interest shall be payable on any amount due here- under. In the event of any default in payment not cured within 15 days after receipt by maker of written notice of such default by certified mail addressed to maker at , then the holder of this note shall have the right to declare the entire remaining balance immediately due and payable without further presentment, protest, notice of pro- test or dishonor. After default, upon acceleration, the holder shall be entitled to recover attorney fees and costs in collection of this note, all without relief from valuation and appraisement laws. No delay or omission on the part of the holder hereof in the ex- ercise of any right or remedy shall operate as a waiver of such right or remedy and no single or partial exercise of any right or remedy by the holder shall preclude further exercise of any other right or remedy. JERICO, INC. By President LIMITED GUARANTY Date: August , 1980 In order to induce the payee of the above note to accept same, the undersigned, jointly and severally, absolutely guaranty the full and prompt payment of every indebtedness due together with rea- sonable attorney's fees and costs of collection to the extent allowed by the note. 1982] POST-CONFIRMATION 541 Provided, however, the liability of the undersigned pursuant to this Guaranty shall be limited only to the making of the first 24 in- stallments due upon the note and such guaranty shall not extend to any other installments. The liability of the undersigned shall arise upon acceleration of the note by the holder when effected in accor- dance with the terms contained in the note and payment of any re- maining guaranteed amount shall be made upon demand. Such liability shall not be affected by any settlement, compromise, exten- sion, or variation of the terms of the note. The undersigned hereby expressly waive the following: (a) notice of (and acknowledge due notice of) acceptance of this Guaranty by payee; (b) protests, demands, pursuit of collection, and notices thereof; (c) notices of nonpayment and nonperformance and amount of indebtedness outstanding at any time; and (d) the right to remove any legal action from the Court originally acquiring jurisdiction. This agreement shall, without further consent of or notice to the undersigned, pass to, and may be relied upon and enforced by, any successor or assignee of payee. GANNON OIL CO., INC. By Guarantor ABC, INC. By Guarantor 542 INDIANA LAWREVIEW [Vol. 15:501 PROMISSORY NOTE AND LIMITED GUARANTY NOTE $ Date: August , 1980 For value received the undersigned promises to pay to the order of the total sum of Dollars ($ ), at or at such other place as the holder hereof may direct in writing. Payment shall be in 108 equal monthly installments commencing on September 1, 1980 and each month thereafter. No interest shall be payable on any amount due here- under. The holder shall have the right to demand payment in full of the remaining balance at any time after September 1, 1988. In the event of any default in payment not cured within 15 days after receipt by maker of written notice of such default by certified mail addressed to maker at , then the holder of this note shall have the right to declare the entire remaining balance immediately due and payable without further presentment, protest, notice of pro- test or dishonor. After default, upon acceleration, the holder shall be entitled to recover attorney fees and costs in collection of this note, all without relief from valuation and appraisement laws. No delay or omission on the part of the holder hereof in the ex- ercise of any right or remedy shall operate as a waiver of such right or remedy and no single or partial exercise of any right or remedy by the holder shall preclude further exercise of any other right or remedy. JERICO, INC. By President LIMITED GUARANTY Date: August , 1980 In order to induce the payee of the above note to accept same, the undersigned, jointly and severally, absolutely guaranty the full and prompt payment of every indebtedness due together with rea- sonable attorney's fees and costs of collection to the extent allowed by the note. 1982] POST-CONFIRMATION 543 Provided, however, the liability of the undersigned pursuant to this Guaranty shall be limited only to the making of the first 36 in- stallments due upon the note and such guaranty shall not extend to any other installments. The liability of the undersigned shall arise upon acceleration of the note by the holder when effected in accor- dance with the terms contained in the note and payment of any re- maining guaranteed amount shall be made upon demand. Such liability shall not be affected by any settlement, compromise, exten- sion, or variation of the terms of the note. The undersigned hereby expressly waive the following: (a) notice of (and acknowledge due notice of) acceptance of this Guaranty by payee; (b) protests, demands, pursuit of collection, and notices thereof; (c) notices of nonpayment and nonperformance and amount of indebtedness outstanding at any time; and (d) the right to remove any legal action from the Court originally acquiring jurisdiction. This agreement shall, without further consent of or notice to the undersigned, pass to, and may be relied upon and enforced by, any successor or assignee of payee. GANNON OIL CO., INC. By Guarantor ABC, INC. By Guarantor 544 INDIANA LA WREVIEW [Vol. 15:501 IN THE MATTER OF:) CASENO. ) ) INTERIM FINANCIAL REPORT NO. _ ) ) THROUGH ) PETITION FILED: (ITEMS 1 THROUGH 16 MUST BE ANSWERED) (USE "NONE" OR "N/A" WHERE APPROPRIATE) SUMMARY OF CASH TRANSACTIONS 1. Cash and Bank Balances at beginning of Current Reporting Period. $ 2. Receipts during Current Reporting Period: A. Cash Sales (ordinary courses of business) B. Collection of Pre-Chapter 11 Receivables (Net of Discounts) C. Collection of Post-Chapter 11 Receivables D. Other Cash Receipts (attach schedule itemizing receipts-See Form 2D attached) TOTAL RECEIPTS (2A through 2D) 3. Cash Disbursements during Reporting Period (ex- clude transfers between bank accounts for payrolls, taxes, etc.) A. For ordinary operations: 1. Net payroll other than officers, stockholders and directors. 2. Net payroll, officers, stockholders and directors (attach list of salaries of officers, directors & management personnel requested only for in- itial report unless there are changes in salaries or personnel). 3. Payroll taxes disbursed to taxing authorities. 4. Other taxes disbursed to taxing authorities. 5. Utilities. 6. Insurance premiums (See #15) 7. Rent (premises). 8. Purchase of goods and materials. 9. Other (itemize if over $250.00-use separate schedule if necessary. TOTAL SPENT FOR ORDINARY OPERATIONS: $ B. Payments to secured parties (list below and in- dicate basis of payment, i.e., court order): $ 1982] POST-CONFIRMATION 545 C. Administrative Disbursements (non-business expenses relating to Chapter 11): 1. Appraiser's fees and expenses.* 2. Accountant's fees and expenses.* 3. Other Administrative Disbursements (itemize) TOTAL accountant fees paid to date. $ TOTAL ADMINISTRATIVE DISBURSEMENTS TOTAL DISBURSEMENTS 4. Cash and Bank Account balances at inception of Chapter 11. 5. Total Cash and Bank Account balances at end of Current Reporting Period (items 1, plus 2, minus 3). $ 6. Itemize cash and all bank balances invested funds, as of end of Reporting Period. Provide account numbers; identify payroll, tax and other special accounts. (The total must equal the bal ance shown in #5). Debtor-in-possession Accounts: DEPOSITORY ACCT.NO. TYPEACCT. BALANCE 1. $ 2. $ 3. $ 4. $ 5. $ SUB TOTAL $ 7. Petty Cash on Hand $ TOTAL $ 8. ADD: Total Receipts from inception of Chapter 11 to end of Reporting Period: $ 9. LESS: Total Disbursements from inception of Chapter 11 to end of Reportiong Period: $ *Cannot be paid without Court Order. 10. Total Cash and Bank Account Balances at end of Cur- rent Reporting Period - per item #5. $ 11. Total deposited into Special Tax Account this period for Payroll Taxes: (Attach Federal Deposit Receipts.) $ 546 INDIANA LAWREVIEW [Vol. 15:501 SUMMARY OF OPERATIONS 12. Total Sales of Mdse./Services during the Current Reporting Period: $ 13. Inventory: Quantities based on physical count ( ) visual estimate ( ), other ( ) describe. A. Inventory at inception of Chapter 11. _____ B. Inventory at beginning of Reporting Period. C. Inventory purchased during Reporting Period. D. Inventory sold during Reporting Period. E. Inventory on hand at end of Current Reporting Period. 14. Accounts Receivable: A. Accounts receivable at inception of Chapter 11 B. Accounts receivable at beginning of Reporting Period. C. Accounts receivable created during Reporting Period. D. Accounts collected during Reporting Period: Pre-11 Post-11 E. Balance accounts receivable at end of reporting period: Pre-11 Post-11 ** F. Attach schedule of accounts receivable 90 days and over, plus any other doubtful accounts. Des- cribe collection efforts. 15. Itemize all unpaid obligations, including accruals for utilities, rent, salaries, etc. post Chapter 11. TOTAL **State Amount Due for Liens for Post Receivables. 16 Status of insurance coverage, payment and proof of premium payments (see Operating Guidelines): 17. Remarks: DEBTOR-IN-POSSESSION By: Position DATED: