COMMON OMISSIONS IN CHAPTER 11

DISCLOSURE STATEMENTS AND PLANS OF REORGANIZATION

This memo was prepared in an effort to assist the parties in drafting
disclosure statements and to streamline the Chapter 11 confirmation
process. A majority of the disclosure statements filed are not approved
because they lack adequate financial data or they are too long, and many
plans are not confirmed because the repayment terms are vague.

A fair disclosure requires a balance between the details in the text and
the tabular financial statements. Verbosity, excessive detail, and
argument are discouraged. In addition to a neutral recitation of the
facts required for the creditors to make an informed decision on the
plan, a disclosure statement must contain the following information:

\(1\) A clear, concise, and conspicuous summary of the plan. The summary
must be short and let creditors know what percentage of repayment they
can expect. The summary should not simply restate the entire plan.

\(2\) A one-page tabular liquidation analysis which lists the debtor=s
assets, the estimated liquidation value of each asset, the source of the
estimated value, the encumbrances against the assets, and all remaining
liabilities owed by the debtor with the respective priorities of the
debts.

Explanations may appear in footnotes to the table. A narrative
discussion regarding the value of the assets is not sufficient without a
table summarizing the items listed above. This information is required
to find that the plan meets the best interest of creditors test found in
11 USC Sec. 1129(a)(7).

\(3\) Historical and post-confirmation income statements and balance
sheets. The income statements should include information for the three
years prior to the filing of the disclosure statement and projections
for three years after confirmation. The basis of the projections should
be included in footnotes or supporting text. Any large variations from
historical income and expenses should be explained. This information is
necessary to determine whether the plan is feasible in accordance with
11 USC Sec. 1129(a)(11).

\(4\) A statement, as required by 11 USC Sec. 1129(a)(5), regarding the
identity and compensation of future management and any insiders that
will be employed by the reorganized debtor-in-possession.

In addition, a confirmable plan must delineate repayment terms which are
sufficiently clear to allow the creditors to know when a default has
occurred. The creditors must know what they will receive, when they will
receive it, and what they can do if they are not paid. This is most
easily accomplished by issuing promissory notes to the creditors which
include the principal balance, interest rate, payment dates and amounts,
and any acceleration or attorney fee provisions. The plan should contain
a sample promissory note, and the disclosure statement may have a table
listing the creditors with the corresponding balance and payment
amounts. Disputes over the exact amount of the debt will be resolved if
the debtor objects to a claim.

Finally, it would be greatly appreciated if all references to classes
included a name as well as a number. The practice of defining the
classes on one page and only referring to the class number thereafter
requires the reader to constantly refer back to the definition page.
This problem could be easily cured by adopting an abbreviated name for
each class.

We hope this information is helpful.

Elizabeth L. Perris, Bankruptcy Judge

Randall L. Dunn, Bankruptcy Judge

Trish M. Brown, Bankruptcy Judge