Case 6:13-bk SC Doc 1047 Filed 02/13/15 Entered 02/13/15 18:48:16 Desc Main Document Page 1 of 169

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1 Main Document Page 1 of MARC J. WINTHROP -- State Bar No mwinthrop@winthropcouchot.com GARRICK A. HOLLANDER -- State Bar No ghollander@winthropcouchot.com WINTHROP COUCHOT PROFESSIONAL CORPORATION 660 Newport Center Drive, Fourth Floor Newport Beach, CA Telephone: (949) Facsimile: (949) General Insolvency Counsel for Debtors and Debtors-in-Possession BERNARD D. BOLLINGER -- State Bar No bbollinger@buchalter.com BRIAN T. HARVEY -- State Bar No bharvey@buchalter.com BUCHALTER NEMER, A Professional Corporation 1000 Wilshire Boulevard, Suite 1500 Los Angeles, CA Telephone: (213) Facsimile: (213) Counsel for the Official Committee of Creditors Holding Unsecured Claims In re: VINCE F. EUPIERRE, and MANCHA DEVELOPMENT COMPANY, INC., UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA Debtors and Debtors-in-Possession. RIVERSIDE DIVISION Case No. 6:13-bk SC Substantively Consolidated with Case No. 6:13-bk SC Chapter 11 Proceedings DEBTOR S AND CREDITOR COMMITTEE S JOINT DISCLOSURE STATEMENT IN SUPPORT OF DEBTOR S AND CREDITOR COMMITTEE S AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION Disclosure Statement Hearing DATE: February 10, 2015 TIME: 1:30 p.m. Plan Confirmation Hearing DATE: March 17, 2015 TIME: 1:30 p.m. PLACE: Courtroom Twelfth Street Riverside, CA or - Courtroom 5C 411 West Fourth Street Santa Ana, CA

2 Main Document Page 2 of 169 TABLE OF CONTENTS PAGE I. INTRODUCTION... 2 A. Purpose of Disclosure Statement B. The New Plan C. Voting, Objections to Plan and Confirmation... 3 D. Disclaimers II. DEFINITIONS AND RULES OF INTERPRETATION... 7 III. BACKGROUND OF THE DEBTOR... 7 A. Brief Description of the Debtor B. Debtor s Assets and Liabilities Summary of Claims Events Precipitating Chapter 11 Filings... 9 IV. THE DEBTOR S CHAPTER 11 PROCEEDINGS A. Commencement of Cases B. Substantive Consolidation of Debtor s Estates C. Income and Payment of Expenses and Debts During Bankruptcy D. Employment of Professionals E. Analysis of Preferential, Fraudulent and Unauthorized Transfers F. Projected Objections to Claims Filed Against the Estates G. Background on the Debtor s Need for a New Plan V. FINANCIAL INFORMATION REGARDING THE RESTAURANTS A. Historical Financial Information B. Financial Information Provided During the Cases C. Valuation of Restaurant Entities VI. DESCRIPTION OF PLAN OF REORGANIZATION A. Summary of the New Plan B. Proposed Treatment of Claims Secured Creditors Administrative Priority Creditors Priority Tax Creditors Allowed Secured Claim of Governmental Units Pecuniary Loss Penalty Creditors Other Priority Creditors General Unsecured Creditors C. Executory and Assumed Contracts and Leases VII. FUNDING OF THE NEW PLAN A. Business Operations of Non-Debtor Affiliates and Sale and/or Refinancing of Certain Assets Reorganization of Restaurants Recapitalization of Assets Sale of Restaurants i

3 Main Document Page 3 of 169 TABLE OF CONTENTS (Continued) PAGE B. Causes of Actions VIII. FEASIBILITY OF NEW PLAN A. Projections of Future Cash Flow B. Assumptions to Financial Projections Confirmation and Effective Date of the New Plan Income of the Debtor Revenues Generated by the Restaurant Entities Expenses of the Restaurant Entities Income Taxes of the Debtor Expenses of the Debtor C. Funding of Distributions Required by the New Plan Funding of Distributions Required on or About the Effective Date Funding of Ongoing Distributions to Holders of Allowed Claims Required by the Plan IX. TAX CONSEQUENCES OF THE NEW PLAN A. Introduction B. Federal Income Tax Consequences to the Debtor C. Tax Consequences to Creditors X. LIQUIDATION ANALYSIS A. Classes 1 and B. Classes 2, 4, 5 and 6.1, and C. Classes 6.2 and D. Class E. Class F. Class G. Class H. Class I. Class J. Class XI. VOTING A. Who May Vote B. How to Vote C. Effect of Vote XII. CONCLUSION APPENDIX... 2 A. Definitions... 2 B. Rules of Construction C. Schedules ii

4 Main Document Page 4 of I. INTRODUCTION A. Purpose of Disclosure Statement. The purpose of a disclosure statement is to provide information to enable a typical creditor to make an informed judgment about a plan of reorganization and to enable such creditor to determine whether it is in its best interest to vote for (accept) or against (reject) such plan. The Bankruptcy Court has already approved a disclosure statement [Docket no. 815] in this case, which relates to the Old Plan [Docket no. 814]. However, the Debtor will not be proceeding with confirmation of the Old Plan for the reasons described in Section IV.G below. Accordingly, the Debtor has revised the Old Plan, and together with the Committee, is now seeking approval of the New Plan. This Disclosure Statement is in support of the Debtor s and Committee s New Plan. B. The New Plan. Included on the CD containing this Disclosure Statement is a copy of the Debtor s and Committee s Joint New Plan The New Plan provides for two alternatives for the payment of General Unsecured Claims. Under the Primary Alternative, General Unsecured Creditors are expected to receive one lump sum cash distribution equal to approximately 60% of their Allowed Claims, plus potential Net Litigation Proceeds realized from the pursuit of Causes of Action pursuant to the terms described in the New Plan. This payment is contingent upon the Debtor receiving funds from and closing on its Exit Loan (described herein) by April 1, 2015, or such later date as may be extended by the Committee. If the Debtor is unable to timely obtain and close on the Exit Loan, then under the Secondary Alternative, certain of the Debtor s assets will be transferred to a Plan Trust to be liquidated in an orderly manner and otherwise administered in a manner intended to maximize value and fund distributions to Creditors. Under the Secondary Alternative, the Debtor projects that Distributions to General Unsecured Creditors will yield approximately 37%. In either case, i.e., the Primary Alternative or Secondary Alternative, the Debtor s reorganization or orderly liquidation by the Plan Trustee will generate a significantly greater distribution than what may be realized in a chapter 7 liquidation. The following is a table ///

5 Main Document Page 5 of comparing the estimated returns to General Unsecured Creditors under each of the scenarios available to Creditors: CHAPTER 11 CHAPTER 7 Est d Recovery Primary Alternative Secondary Alternative Liquidation % Distribution: 60% 37% 12% to 25% Timing: Effective Date 1-2 Years 1-2 Years The Debtor and Committee have developed the New Plan after extensive review and analysis by the Debtor and Committee of all options available to the estates creditors based on the rights and remedies available to the Debtor and all creditors of the estates. The Debtor and Committee both believe that the proposed estimated 60% distribution to General Unsecured Creditors is greater than would be realized in the alternative liquidation. The Debtor and Committee both believe that absent the proposed financing, the best, if not only, alternative is for the Plan Trustee to liquidate assets and/or take such other actions as he deems appropriate to maximize value for creditors. The Debtor attests that the information stated in this Disclosure Statement and the New Plan is accurate to the best of his knowledge. All Creditors should refer to Articles V-VI of the New Plan for the precise treatment of their claims. This Disclosure Statement is explanatory only; the language used in the New Plan is binding. Your rights may be affected. You should read the New Plan and Disclosure Statement carefully and discuss them with your attorney, if you have one. C. Voting, Objections to Plan and Confirmation. To vote to accept or reject the Debtor s and Committee s New Plan, a Creditor must indicate its acceptance or rejection thereof on the ballot which accompanies this Disclosure Statement and return it to Winthrop Couchot Professional Corporation, such that the ballot is actually received by Winthrop Couchot on or before March 3, 2015 at 4:00 p.m. Each Class of Creditors allowed to vote on the New Plan will be deemed to have accepted the New Plan if the New Plan is accepted by valid ballots cast by Creditors in that Class holding at least twothirds (2/3) in dollar amount and more than one half (1/2) in number of the Allowed Claims of

6 Main Document Page 6 of Creditors in that Class actually voting on the New Plan. ONLY PROPERLY EXECUTED BALLOTS TIMELY RECEIVED BY COUNSEL FOR THE DEBTOR WILL BE COUNTED AS HAVING VOTED ON THE NEW PLAN. Since mail delays may occur, and because time is of the essence, it is important that ballots be mailed well in advance of the date specified hereinabove as the deadline for Winthrop Couchot to receive ballots. Any ballots received after that date will not be included in any calculation to determine whether the Debtor s Creditors have accepted or rejected the New Plan. Any party-in-interest may object to the confirmation of the New Plan. The Bankruptcy Court has fixed March 3, 2015 as the deadline for filing an objection to the New Plan and for serving a copy thereof upon the Debtor s attorneys, Winthrop Couchot, at the address set forth hereinabove (Attn: Garrick A. Hollander, Esq.); and upon the United States Trustee, located at 3801 University Ave., #720, Riverside, CA (Attn: Michael Bujold, Esq.). At the Confirmation Hearing, the Bankruptcy Court will determine, pursuant to Section 1129 of the Bankruptcy Code, whether the New Plan has been accepted by the necessary Classes of Claims created under the New Plan, and, if not, whether the Bankruptcy Court should, nevertheless, confirm the New Plan. If at such hearing the Bankruptcy Court should determine that the New Plan meets all the requirements for confirmation prescribed by the Bankruptcy Code, the Bankruptcy Court will enter a Confirmation Order. Pursuant to Section 1141 of the Bankruptcy Code, the effect of the Confirmation Order will be to make the provisions of the New Plan binding upon the Debtor and each of his Creditors, regardless of whether the Creditor voted to accept the New Plan. D. Disclaimers. THIS IS A SOLICITATION BY THE DEBTOR AND COMMITTEE. THE REPRESENTATIONS HEREIN ARE THOSE OF THE DEBTOR AND NOT OF THEIR ATTORNEYS OR OTHER PROFESSIONALS. NO REPRESENTATIONS CONCERNING THE DEBTOR, INCLUDING, BUT NOT LIMITED TO, REPRESENTATIONS AS TO HIS FUTURE BUSINESS OPERATIONS, CASH FLOW PROJECTIONS, THE VALUE OF HIS PROPERTY, THE AMOUNT OF CLAIMS

7 Main Document Page 7 of AGAINST THE ESTATES, OR ANY TAX EFFECT OF THE TRANSACTIONS PROPOSED UNDER THE NEW PLAN, ARE AUTHORIZED BY THE DEBTOR, OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY REPRESENTATIONS OR INDUCEMENTS MADE TO SECURE ACCEPTANCE OF THE NEW PLAN THAT ARE IN ADDITION TO OR DIFFERENT FROM THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY ANY PARTY-IN-INTEREST. ANY SUCH ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED TO THE DEBTOR S ATTORNEYS WHO, IN TURN, WILL DELIVER THE INFORMATION TO THE BANKRUPTCY COURT FOR SUCH ACTION AS THE BANKRUPTCY COURT MAY DEEM TO BE APPROPRIATE. THE DISCUSSION IN THIS DISCLOSURE STATEMENT REGARDING THE DEBTOR MAY CONTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF SUCH STATEMENTS CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD LOOKING TERMINOLOGY SUCH AS MAY, EXPECT, ANTICIPATE, ESTIMATE, OR CONTINUE, OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE READER IS CAUTIONED THAT ALL FORWARD LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD LOOKING STATEMENTS. THE LIQUIDATION ANALYSES, DISTRIBUTION PROJECTIONS, PROJECTIONS OF FINANCIAL PERFORMANCE AND OTHER INFORMATION CONTAINED HEREIN ARE ESTIMATES ONLY, AND THE TIMING, AMOUNT AND VALUE OF ACTUAL DISTRIBUTIONS TO CREDITORS MAY BE AFFECTED BY MANY FACTORS THAT CANNOT BE PREDICTED. THEREFORE,

8 Main Document Page 8 of ANY ANALYSES, ESTIMATES, OR PROJECTIONS MAY OR MAY NOT PROVE TO BE ACCURATE. UNLESS SPECIFICALLY SET FORTH HEREIN TO THE CONTRARY, THE INFORMATION CONTAINED OR REFERRED TO IN THIS DISCLOSURE STATEMENT HAS NOT BEEN SUBJECT TO AN AUDIT. RECORDS KEPT BY THE DEBTOR RELY FOR THEIR ACCURACY ON BOOKKEEPING PERFORMED INTERNALLY BY THE DEBTOR. THE DEBTOR BELIEVES THAT EVERY REASONABLE EFFORT HAS BEEN MADE TO PRESENT FINANCIAL INFORMATION AS ACCURATE AS IS REASONABLY PRACTICABLE GIVEN THE NATURE AND HISTORY OF THE DEBTOR S BUSINESSES AND THE CONDITION OF THE DEBTOR S BOOKS AND RECORDS. HOWEVER, THE RECORDS KEPT BY THE DEBTOR ARE NEITHER WARRANTED NOR REPRESENTED TO BE FREE OF INACCURACY. NEITHER THE DEBTOR NOR THE DEBTOR S COUNSEL VERIFIED INDEPENDENTLY THE INFORMATION CONTAINED HEREIN, OR MAKE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY THEREOF. THE DEBTOR AND HIS PROFESSIONALS HAVE MADE A DILIGENT EFFORT TO IDENTIFY IN THIS DISCLOSURE STATEMENT ALL LITIGATION CLAIMS, INCLUDING CLAIMS FOR RELIEF, COUNTERCLAIMS, AND OBJECTIONS TO CLAIMS. HOWEVER, NO RELIANCE SHOULD BE PLACED ON THE FACT THAT A PARTICULAR LITIGATION CLAIM IS OR IS NOT IDENTIFIED IN THIS DISCLOSURE STATEMENT. THE DEBTOR OR OTHER PARTIES-IN-INTEREST MAY SEEK TO INVESTIGATE, FILE AND PROSECUTE CAUSES OF ACTION WHETHER OR NOT SUCH CLAIMS ARE IDENTIFIED IN THIS DISCLOSURE STATEMENT. ALL PARTIES ENTITLED TO VOTE ON THE NEW PLAN ARE URGED TO CAREFULLY REVIEW THE NEW PLAN AND THIS DISCLOSURE STATEMENT PRIOR TO VOTING ON THE NEW PLAN. THE CONTENTS OF THIS DISCLOSURE STATEMENT SHOULD NOT BE CONSTRUED IN ANY MANNER TO BE LEGAL,

9 Main Document Page 9 of BUSINESS OR TAX ADVICE. EACH CREDITOR AND OTHER PARTY-IN-INTEREST SHOULD CONSULT WITH ITS OWN LEGAL COUNSEL, BUSINESS ADVISOR, CONSULTANT OR ACCOUNTANT PRIOR TO VOTING ON THE NEW PLAN IN ORDER TO ENSURE A COMPLETE UNDERSTANDING OF THE TERMS OF THE NEW PLAN. THIS DISCLOSURE STATEMENT IS INTENDED FOR THE SOLE USE OF THE CREDITORS OF THE DEBTOR TO ENABLE THEM TO MAKE AN INFORMED DECISION REGARDING THE NEW PLAN. THE BANKRUPTCY COURT S APPROVAL OF THIS DISCLOSURE STATEMENT INDICATES ONLY THAT THE DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION FOR THE PURPOSE OF SOLICITATION OF ACCEPTANCES TO THE NEW PLAN BY THE DEBTOR AND COMMITTEE, ASSUMING THE ACCURACY OF THE CONTENTS OF THIS DISCLOSURE STATEMENT. THE BANKRUPTCY COURT HAS NOT YET DETERMINED SUCH ACCURACY, BUT MAY DO SO AT THE HEARING REGARDING THE CONFIRMATION OF THE NEW PLAN. II. DEFINITIONS AND RULES OF INTERPRETATION See Appendix. III. BACKGROUND OF THE DEBTOR A. Brief Description of the Debtor. Eupierre, individually or through his wholly owned entities, owns and operates multiple casual dining and fast food restaurants in California, Colorado and Nevada. Mancha, a jointly administered debtor and debtor in possession, had previously owned and operated twenty-eight Burger King restaurants. Since the filing of this case, these stores were either closed or transferred to a third party pursuant to Court order. Eupierre, individually or through his wholly owned entities, also owns thirty-one Denny s restaurants and four Coco s restaurants. Eupierre also owns 50% of and is the operator of two additional Coco s and four Denny s restaurants. On May 19,

10 Main Document Page 10 of and June 21, 2013, Eupierre and Mancha, respectively, each filed a voluntary a petition for relief under Chapter 11 of the Bankruptcy Code. B. Debtor s Assets and Liabilities. The following is a summary of the Debtor s primary assets, estimated asset values, and corresponding asserted claims securing such assets. Asset Estimated Gross Value 1 Total Secured Claims Asserted Secured Creditor Exemption Equity 100% Interest in Mancha Inc. $ 0 n/a n/a n/a $ 0 100% Interest in 3,400,000 n/a n/a n/a 1,869,340 Mancha LLC 100% Interest in 11,099,000 n/a n/a n/a 5,437,685 MDC 100% Interest in TICI 2,855,000 n/a n/a n/a 0 100% Interest in VFE 0 n/a n/a n/a 0 50% Interest in JOVI 3,190,500 n/a n/a n/a 2,388,980 50% Interest in 1,460,000 n/a n/a n/a 950,423 INKA Eupierre Home 2,750,000 1st: Wells 25, ,213 1,422,797 2nd: 501,990 Fargo Vegas Property 405,000 1st: 541,676 Wells n/a $0 2nd: 217,071 Fargo Beach Blvd., Buena Park, CA (Building and Personal Property Only) 278, ,166 GE Capital n/a Audi A4 20,087 15,087 Audi Financial Group 2011 Mercedes Benz C300 5,000 17,100 22,723 US Bank 4, , Values for interests in entities owning restaurant operations are based on estimated broker opinion (by National Franchise Sales) of gross going concern valuations of the underlying restaurants owned by these entities factoring in, among other things, restaurant cash flows, leases, condition of assets, need for capital improvements, standard industry valuation multiples, etc. Values for cars are based on Kelley Blue Book. See Exhibit 9. Values for real properties are based on real estate appraisals. 2 Claim is being treated as fully secured under the Plan

11 Main Document Page 11 of Asset 2008 Ford E250 Truck Estimated Gross Value 1 Total Secured Claims Asserted Secured Creditor 5,477 5,477 Ford Motor Credit Exemption Equity 1996 Mercedes S 750 n/a n/a Lexus E-350 5,000 n/a n/a 5, Lexus LS 430 5,500 n/a n/a 6,700 0 (180K miles) /// 1. Summary of Claims. In addition to the $3,004,987 of secured claims referenced above, there are approximately $2,968,207 of projected Administrative Claims, $1,030,819 of priority claims, and $5,848,597 of General Unsecured Claims and $498,112 of subordinated unsecured Claims that the Debtor expects to be allowed in these Cases. Note, except for the Eupierre Home, Vegas Property, automobiles, home furnishings and jewelry, all of the assets in these cases are interests in entities that own business assets, and, except for the debt owed to financial institutions with respect to the residential real properties and automobiles, all of the claims asserted in these Cases are commercial arising from the purchase and operation of restaurants. 2. Events Precipitating Chapter 11 Filings. The actual timing of the bankruptcy Cases was related to, among other things, the Debtor s inability to secure funds to continue its Burger King day-to-day operations thereby affecting the Debtor s cash flow, i.e., lack of working capital, insufficient funds on hand and the Debtor s inability to satisfy ongoing obligations. The Burger King operations were causing a strain on the Coco s and Denny s franchises. In order to preserve the value of the Debtor s assets for the benefit of creditors, the Debtor determined that the commencement of these bankruptcy Cases was necessary and proper. 3 C.C.P (b)(2). 4 C.C.P (b)(5)

12 Main Document Page 12 of IV. THE DEBTOR S CHAPTER 11 PROCEEDINGS A. Commencement of Cases. On May 19, 2013, Eupierre filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code ( Bankruptcy Code ). On June 21, 2013, Mancha Inc. filed a voluntary petition for relief under the Bankruptcy Code. The Debtor s bankruptcy cases have been jointly administered pursuant to the Court s Orders Directing Joint Administration of Related Cases Pursuant to Federal Rules of Bankruptcy Procedure 1015(b) and Local Bankruptcy Rule (b), entered on June 27, The Debtor has managed his financial affairs as debtor-in-possession pursuant to 11 U.S.C and B. Substantive Consolidation of Debtor s Estates. On December 4, 2013, the Court entered an order substantively consolidating Mancha Inc. s Chapter 11 Estate with Eupierre s Chapter 11 Estate. Pursuant to that order, Eupierre s petition date is the effective date by which the deadline for plan exclusivity shall be based in these Cases. C. Income and Payment of Expenses and Debts During Bankruptcy. The Restaurant Entities represent the primary source of income generated by Eupierre. Eupierre has used cash generated from payments and distributions received from the Restaurant Entities to pay all of Eupierre s personal expenses, including his mortgage and car payments. These expenses represent the minimum necessary expenses to sustain Eupierre s livelihood, as set forth in the Plan Projections. The Debtor has been and is current on all of his post-petition obligations. D. Employment of Professionals. The Court has entered orders authorizing the employment of the following professionals: Professional Type of Professional Date Order Entered Landsberg & Former General Insolvency October 16, 2013 Associates, APC Counsel for Eupierre Levene, Neale, Bender, Yoo & Brill, LLP Former General Insolvency Counsel for Mancha, Inc. March 4,

13 Main Document Page 13 of Professional Type of Professional Date Order Entered Gordon Rees Debtor s Special Counsel October 16, 2013 Winthrop Couchot Debtor s General Insolvency November 19, 2013 Professional Corporation Counsel Buchalter Nemer Committee s General September 27, 2013 Insolvency Counsel Squar Milner Debtor s Accountants November 1, 2013 Burr Pilger Mayer Committee s Financial October 8, 2013 Advisor Stradling, Yocca Debtor s Special Counsel Pending Law Offices of Tom Polis Debtor s Special Counsel Pending E. Analysis of Preferential, Fraudulent and Unauthorized Transfers. The Debtor has not completed his analysis of the Debtor s books and records to determine whether any payments made prior to the Petition Date constitute preferential transfers avoidable pursuant to Section 547 of the Bankruptcy Code, or whether any transfers made by the Debtor are avoidable as fraudulent transfers under Sections 544(b) or 548 of the Bankruptcy Code, or avoidable pursuant to Section 549 of the Bankruptcy Code. Based on the Debtor s preliminary review and analysis, the Debtor has prepared a Schedule of Potential Causes of Action against third parties who have been preliminarily identified as recipients of potential preferential, fraudulent, and unauthorized post-petition transfers or other monies that the Debtor may be entitled to recover. See Exhibit 10. The amounts identified on this schedule represent the total amount of transfers made to each of the respective parties that the Debtor is aware of at this time. The Debtor has not fully analyzed the potential defenses that may exist or be asserted, or the collectability of any judgment should one be entered against a party. It is conceivable that after a review, analysis and consideration of all defenses that may exist, the Debtor may determine with respect to any particular action that there is no claim, the claim is less, and/or it is not in the best interests of the estate to pursue such action. The Debtor and Committee do not believe that any Creditor should rely on any recovery on the prosecution of Avoidance Actions. That being said, any recovery received, net of attorney s fees and costs, will increase the recovery to General Unsecured Creditors

14 Main Document Page 14 of F. Projected Objections to Claims Filed Against the Estates. The Debtor has completed his objections to Claims filed with the Court. Attached as Exhibit 4 is a schedule of anticipated Allowed Claims. G. Background on the Debtor s Need for a New Plan. The Old Plan was based and conditioned on the Debtor successfully refinancing assets pursuant to specific terms and conditions, and subject to certain rights and remedies granted to General Unsecured Creditors under the Old Plan in the event of default. Confirmation of the Debtor s Old Plan was delayed due to difficulties in obtaining the requisite financing. The Debtor s difficulty in obtaining financing has been attributed, in large part, to the significant working capital deficit (currently approximately $6 million) maintained by non-debtor Affiliates. While the Debtor tried to obtain financing on the same terms and conditions as proposed in the Old Plan, the Debtor has been unable to do so. After extensive efforts, the Debtor has finally secured a new lender (CapitalSpring), which has agreed to provide financing to the Debtor, which financing allows the Debtor to pay a significant distribution to its Creditors. A true and correct copy of the letter of intent is attached hereto as Exhibit 8. CapitalSpring, however, is not willing to refinance the Debtor s assets pursuant to the same terms and conditions set forth in the Old Plan, including, in particular, the default rights and remedies provided to the General Unsecured Creditors under the Old Plan. Instead, CapitalSpring is willing to provide financing to the Debtor whereby it is estimated that General Unsecured Creditors will be paid one lump sum cash payment in an amount that is approximately 60% of their Allowed General Unsecured Claims. If the Debtor is not able to close on the financing by April 1, 2015, or such later date as may be agreed to by the Committee, then the Debtor and Committee believe that the Debtor has no choice but to appoint the Plan Trustee to assume control and management over the Debtor s assets. In such event, it is expected that the Plan Trustee will begin liquidating certain of the Debtor s assets in an orderly fashion. /// ///

15 Main Document Page 15 of V. FINANCIAL INFORMATION REGARDING THE RESTAURANTS A. Historical Financial Information. The following is a summary of the pre-petition financial performance of Mancha Inc. and each of the Restaurant Entities: DEBTOR Mancha Inc. Total Revenues Net Profit (Loss) Five Mos. Ended 5/31/13 (000 s) $9,329 ($861) 2012 (000 s) $25,008 ($2,187) 2011 (000 s) $27,408 ($2,204) Mancha LLC MDC Total Revenues Net Profit (Loss) Total Revenues Net Profit (Loss) $2,813 $125 $12,034 $294 $6,688 $414 $29,838 ($424) $6,688 $345 $3,352 $ Laguna Restaurants Total Revenues Net Profit (Loss) $0 ($66) $3,034 $79 $7,754 ($96) TICI VFE Total Revenues Net Profit (Loss) Total Revenues Net Profit (Loss) $4,458 $139 $384 ($80) $11,211 $586 $483 ($127) $9,590 $407 $0 $ JOVI INKA Total Revenues Net Profit (Loss) Total Revenues Net Profit (Loss) $1,516 $137 $2,418 $142 $3,756 $405 $5,040 $107 $3,979 $499 $1,146 ($282) The Debtor has prepared financial statements for each of the Restaurant Entities and on a combined basis, including income statements for the nine months ending September 30, 2014 and fiscal years 2013 and 2012, and balance sheets for each of the Restaurant Entities and on a combined basis as of September 30, 2014, December 31, 2013 and December 31, Attached collectively hereto as Exhibit 7 and incorporated herein by this reference are copies of each of the Restaurant Entities unaudited income statements for the fiscal years and nine months ending September 30, 2014, as well as related balance sheets. As reflected in these financial statements, the Restaurant Entities in which the Debtor holds an interest are profitable

16 Main Document Page 16 of These financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States based on historical values and pre-petition agreements, but do not reflect the effect of Section 506 and other sections of the Bankruptcy Code that may affect financial statement reporting. In addition, these statements have not been subject to independent audit. AS TO THE UNCERTIFIED AND UNAUDITED FINANCIAL INFORMATION CONTAINED IN, OR ATTACHED TO, THIS DISCLOSURE STATEMENT, THE DEBTOR IS UNABLE TO WARRANT OR REPRESENT THAT THE FINANCIAL INFORMATION IS IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND IS WITHOUT ANY INACCURACIES, ALTHOUGH THE DEBTOR BELIEVES THAT HE HAS MADE REASONABLE EFFORTS, UNDER THE CIRCUMSTANCES, TO PRESENT FAIRLY AND ACCURATELY SUCH FINANCIAL INFORMATION. B. Financial Information Provided During the Cases. The Debtor has filed his Schedules in the Cases. The Schedules provide substantial financial information regarding the assets and liabilities of the Estates as of the Petition Date. The Schedules are available for inspection, during normal business hours, at the Clerk s Office of the Bankruptcy Court, located at 3420 Twelfth Street., Riverside, CA In addition to the Schedules, the Debtor has prepared throughout the Cases Monthly Operating Reports in accordance with the requirements of the United States Trustee. Copies of the Monthly Operating Reports are available for inspection on the docket and during normal business hours, at the Clerk s Office of the Bankruptcy Court, located at 3420 Twelfth Street, Riverside, CA C. Valuation of Restaurant Entities. The Debtor obtained from National Franchise Sales, brokers specialized in the sale of franchises, a broker opinion as to the value of the Restaurants. This opinion has been summarized in the Summary of Value of Restaurants Attached as Exhibit 9 and incorporated herein by this reference. As reflected in Exhibit 9, the Restaurants have a gross going concern value of approximately $26,655,000, which does not reflect the costs of liquidation, secured debt, or repayment of the respective working capital deficit for each of the Restaurant Entities. Based on

17 Main Document Page 17 of the foregoing, the Debtor has determined that, over time, the projected recapitalization and those proceeds projected to be generated from the operation of a sale of the Restaurants would generate significantly more than a sale of such assets. VI. DESCRIPTION OF PLAN OF REORGANIZATION A. Summary of the New Plan. The following is a brief summary of the New Plan and is qualified in its entirety by the full text of the New Plan. The terms of the New Plan are comprehensive and will be controlling on the Creditors and the Debtor in the event that the New Plan is confirmed. Therefore all Creditors are urged to read the New Plan carefully in its entirety rather than relying on this summary. New Plan and make distributions to Creditors from proceeds generated from dividends received by the Debtor from his interests in the Restaurant Entities, and in the case of General Unsecured Creditors, from the proceeds obtained from the recapitalization of his Assets. If the Debtor is unable to timely close on the Exit Loan, then the New Plan will be funded from the sale of the Debtor s assets, plus any Net Litigation Proceeds realized from the prosecution of Causes of Action, if any. For details about Plan treatment, see Article VI of the New Plan; for details about implementation of the New Plan, see Article VII of the New Plan. /// B. Proposed Treatment of Claims. 1. Secured Creditors. Secured creditors will be paid as set forth in Classes 1-6.4, as follows: a. Class 1. Creditor shall receive collateral in full satisfaction of Claim. For more details, see Section 6.1 of the New Plan. b. Class 2. Creditor shall receive $40,000 in full satisfaction of its Claim. For more details, see Section 6.2 of the New Plan. c. Class 3. Creditor shall have an Allowed Secured Claim in the amount of $5,477, which shall be paid over 18 months. For more details, see Section 6.3 of the New Plan

18 Main Document Page 18 of d. Class 4. Creditor s rights are unimpaired under the New Plan. For more details, see Section 6.4 of the New Plan. e. Class 5. Creditor s rights are unimpaired under the New Plan. For more details, see Section 6.5 of the New Plan. f. Class 6.1. Creditor s rights are unimpaired under the New Plan. Creditor will receive monthly payments of $7, through May 2042, which includes principal and interest at 4.5% amortized through maturity. For more details, see Section 6.6 of the New Plan. g. Class 6.2. Creditor s rights are impaired under the New Plan. Creditor will receive interest only monthly payments of $1,480 through March 31, 2022, plus an additional $ from May 1, 2014 through April 1, 2015 to cure arrears due post-petition. h. Class 6.3. Creditor s rights are unimpaired under the New Plan. Creditor will receive monthly payments of $3, through October 2035, which includes principal and interest at 5.875% amortized through maturity. For more details, see Section 6.6 of the New Plan. i. Class 6.4. Creditor s rights are impaired under the New Plan. Creditor will receive monthly payments of $1, through the 10 th anniversary of the Effective Date, which includes principal and interest at 3.25% amortized over 15 years, with the balance due in on the 10 th anniversary of the Effective Date. 2. Administrative Priority Creditors. Except as otherwise agreed to, Administrative Priority Creditors will be paid in full on the Effective Date. See Article IV of the New Plan. 3. Priority Tax Creditors. Priority Tax Creditors will be paid in full plus interest pursuant to Section 511(a) of the Bankruptcy Code over a period not to exceed five years from the Effective Date. See Section 4.2 of the New Plan. 28 ///

19 Main Document Page 19 of Allowed Secured Claim of Governmental Units. Members of this Class will be paid in full plus interest pursuant to Section 511(a) of the Bankruptcy Code over a period not to exceed five years from the Effective Date. See Section 6.7 of the New Plan. 5. Pecuniary Loss Penalty Creditors. Creditors in this Class shall receive 10% of the Allowed Non-Pecuniary Loss Penalty Claim. For more details, see Section 6.8 of the New Plan. 6. Other Priority Creditors. Other Priority Creditors will be paid in full on the Effective Date. For more details, see Section 6.9 of the New Plan. follows: 7. General Unsecured Creditors. General Unsecured Creditors shall be paid as a. Primary Alternative: Payment from Recapitalization. In the event the Debtor is able to timely close on the Exit Loan, on the Effective Date, the Reorganized Debtor shall deposit no less than $6,465,000 from the proceeds of the Exit Loan to fund distributions to Administrative Creditors and General Unsecured Creditors. After payment in full of all Allowed Administrative Claims, the Distribution Agent shall promptly distribute the remaining funds on a Pro Rata basis to the General Unsecured Creditors. Attached as Exhibit 6 is a list of each of the Allowed Claim amounts for General Unsecured Creditors on which Distributions to General Unsecured Creditors will be paid on a Pro Rata basis. Attached as Exhibit 5 is a Schedule of Estimated Allowed Administrative Claims. Based on the projected Allowed Administrative Claims, it is estimated that General Unsecured Creditors will receive a return of 60% of the Allowed General Unsecured Claims. General Unsecured Creditors also shall be entitled to 50% of the Net Litigation Proceeds realized, if any, from the pursuit of Causes of Action pursuant to Section 7.23 of the New Plan. b. Secondary Alternative: Payment from Plan Trust. If the Exit Loan is not timely obtained and the Reorganized Debtor does not deposit $6,465,000 into the Distribution Account on the Effective Date, then General Unsecured

20 Main Document Page 20 of Creditors shall be paid under the Secondary Alternative. In particular, on the Effective Date, the Plan Trust will be created pursuant to Section 7.4 of the New Plan. Each General Unsecured Creditor shall receive Distributions, on a Pro Rata basis, from the Plan Trustee, until (i) each such Creditor receives payments that aggregate to a Present Value, as of the Effective Date, equal to 90% of such Creditor s total Allowed General Unsecured Claim or (ii) all of the Plan Trust Assets have been liquidated and distributed by the Plan Trustee. Note: The Debtor and Committee both believe that Distributions to General Unsecured Creditors under the Secondary Alternative will be less than the Primary Alternative, but more than in a chapter 7 liquidation. If the Debtor is unable to timely close on the Exit Loan and the Plan Trustee assumes control and management over the Debtor s affairs, it is anticipated that the Debtor s assets will be liquidated over time, resulting in a Distribution of approximately 37%. For more details, see Exhibit 1B and Section 6.10 of the New Plan. 8. Allowed Claims of Contingent Creditors. Contingent Creditors shall retain their right to obtain recovery from Eupierre and be entitled to distribution in this case, but only in the event of a Guarantee Triggering Event, in which case, such Contingent Creditor shall share in distributions pro rata with General Unsecured Claims. See Section 6.11 of the New Plan for more details. 9. Allowed Burger King Subordinated Claim. Burger King shall receive, in full satisfaction of the Burger King Subordinated Claim, an amount equal to $50,000, which shall be paid on the Effective Date. For more details, see Section 6.12 of the New Plan. C. Executory and Assumed Contracts and Leases. The Debtor seeks to assume and/or assign a variety of executory contracts, as reflected in Schedule 10.1 to the New Plan. The Debtor is not aware of any other existing executory contracts and unexpired leases, but to the extent they exist, shall be deemed rejected. See Article X of the New Plan

21 Main Document Page 21 of VII. FUNDING OF THE NEW PLAN Pursuant to Section 1123(a), an individual must fund his plan with all or such portion of his earning s from personal services performed by the debtor after the Petition Date or other future income as is necessary for the execution of the New Plan. Pursuant to Section 1129(a)(15), if an unsecured creditor objects to confirmation of a plan, the Debtor must either pay unsecured creditors in full or distribute property of a value not less than projected disposable income (as defined in Section 1325(b)(2) to be recovered during the greater of the five year period beginning on the date the first payment is due under the New Plan, or the period for which the plan provides payments. In this case, the Debtor seeks to reorganize his financial affairs with financing from the Exit Loan, but if unable to obtain and close on such financing by April 1, 2015 or such later date as agreed to by the Committee, the Plan Trustee will liquidate and otherwise administer the Debtor s assets in a manner intended to maximize Distributions to the Estate s Creditors. After extensive efforts to obtain financing, the only financing that the Debtor has been able to obtain is contingent upon the General Unsecured Claims being satisfied, in full, from the loan proceeds made available as set forth in the New Plan. Accordingly, if the General Unsecured Creditors do not accept, in full satisfaction of their Claims, Distributions based on the Primary Alternative, then there will be no financing, and the Debtor, through the Plan Trustee, will be forced to liquidate the Debtor s Assets under the Secondary Alternative. Under either the Primary Alternative or the Secondary Alternative, the property distributed has a value greater than the Debtor s projected Disposable Income, see Exhibit 1B, and thus Section 1129(a)(15) is satisfied even if a Creditor objects to the New Plan. While the Debtor does not expect a General Unsecured Creditor to object to the Plan, even if one did, the New Plan satisfies Section 1129(a)(15) as the Debtor actually is not distributing less than the Debtor s projected Disposable Income over the term of the New Plan under both scenarios. Under the Primary Alternative, the Debtor is distributing 100% of Disposable Income ($8,765,402). Under the Secondary Alternative, the Debtor is distributing more than 100% of

22 Main Document Page 22 of Disposable Income (the Debtor is distributing $6,279,452 compared with $6,234,499 of Disposable Income). The following is a summary of the potential sources of funding of payments to Creditors: A. Business Operations of Non-Debtor Affiliates and Sale and/or Refinancing of Certain Assets. The New Plan is expected to be funded from the operations and recapitalization of some or all of the Restaurants owned 100% by the Debtor and dividends generated from the operations of all of the Restaurants; but may also be funded by the sale of certain of the Restaurants, or such combination of the foregoing that the Reorganized Debtor determines will enable the Reorganized Debtor to satisfy his payment obligations under the New Plan. The Plan Projections attached as Exhibit 1A are based on funding from the operations and recapitalization of certain assets, as more particularly described in Exhibit 2. The following is a brief description of the three primary potential sources of plan funding: 1. Reorganization of Restaurants. The New Plan is expected to be funded, in part, from the cash flows generated by the operations of the Restaurants. Except for JoVi, which shall be managed and controlled pursuant to the terms of the JoVi Operating Agreement and JoVi Settlement Agreement 5, all Assets of the Reorganized Debtor shall be managed and controlled exclusively by the Reorganized Debtor, or such person(s) as determined and designated by the Reorganized Debtor at his sole discretion, subject to the rights and powers of the Plan Trustee as described herein and the terms and conditions of a Plan Trust Agreement, which will be filed seven (7) days prior to the Confirmation Hearing. The Reorganized Debtor will maintain all appropriate and necessary insurance and name the franchisors as additional insureds as may be necessary pursuant to the license agreements with such franchisors. 2. Recapitalization of Assets. The Debtor is expecting to fund the New Plan, in large part, through a recapitalization of assets. The Debtor and certain Affiliates of the 5 A copy of the JoVi Settlement Agreement, in substantially the form agreed to by and between JFP and the Debtors, is attached as Exhibit 1 to the Plan and incorporated herein by this reference, which the Debtors seek approval of as part of confirmation of the Debtors Plan

23 Main Document Page 23 of Debtor have executed the Financing LOI with CapitalSpring for the refinancing/recapitalization of assets owned indirectly by the Debtor. A true and correct copy of the Financing LOI is attached hereto as Exhibit 8 and incorporated herein by this reference. The proceeds from the Exit Loan are expected to fund: (i) the payment in full of all secured claims held by United Capital against the 100% Owned Restaurant Entities; (ii) the payment of Allowed Administrative Claims; (iii) working capital needs of the Restaurant Entities in which Eupierre holds a 100% interest; and (iv) distributions to General Unsecured Creditors in an amount sufficient to pay the estimated 60% of Allowed General Unsecured Claims pursuant to Section 6.10 of the New Plan. The terms of the financing are reflected in the Restaurant Projections attached as Exhibit 2. The Debtor and Committee believe that entry into a loan facility consistent with the terms of the Financing LOI is in the best interests of Creditors and will help pave the way for the Debtor s successful implementation of the New Plan. 3. Sale of Restaurants. The New Plan may also be funded, in part, from proceeds generated from the sale of certain Restaurants owned by the Restaurant Entities or Eupierre s interest in Restaurant Entities. In addition, pursuant to the JoVi Settlement Agreement, the Debtor s partner in JoVi (JFP) has the exclusive right until April 1, 2015 to purchase the Debtor s 50% membership interest in JoVi based on a valuation of JoVi s assets to be performed pursuant to the terms of the JoVi Settlement Agreement 6. In the event of any such sale, the proceeds of that sale may only be distributed in accordance with the provisions of the New Plan and the Plan Trust Agreement. B. Causes of Actions. The Debtor has not completed his evaluation of Causes of Actions, if any, and on that basis, cannot draw any conclusions as to anticipated recovery, likely or otherwise. That being /// 6 If JFP cannot or otherwise chooses not to purchase the Debtor s membership interest in JoVi, then pursuant to the terms of the JoVi Settlement Agreement, the Debtor has the right for 120 days (i.e., until August 1, 2015) to purchase JFP s membership interest in JoVi. If neither party purchases the other s interest, then JoVi s two restaurants will either be split between the two members or continue to be owned by JoVi. JFP shall, in its sole discretion, determine which course of action will be taken. See JoVi Settlement Agreement

24 Main Document Page 24 of said, General Unsecured Creditors shall be entitled to and paid the Net Litigation Proceeds realized from the prosecution of Causes of Actions. VIII. FEASIBILITY OF NEW PLAN The Debtor is using loan proceeds received from the Exit Loan and proceeds received through shareholder distributions from his ownership in the Restaurant Entities to fund the New Plan. The New Plan is predicated on the ability to consummate a recapitalization of Mancha LLC, MDC and TICI. In addition to the proceeds generated from the recapitalization, the Debtor will fund the New Plan through (i) the proceeds generated from the consummation of the JoVi Settlement Agreement, and (ii) distributions received from cash flows generated by the Restaurant Entities. If the Debtor is unable to close on the Exit Loan by April 1, 2015, or such later date as may be extended by the Committee, then the New Plan will be funded from the sale of the Debtor s Assets and cash flows generated from the Restaurant Entities. A. Projections of Future Cash Flow. Attached hereto as Exhibit 1A and 1B are the Plan Projections prepared by the Debtor, which include notes detailing the assumption underlying the Plan Projections. Exhibit 1A reflects Plan Projections under the Primary Alternative (Recapitalization). Exhibit 1B reflects Plan Projections under the Secondary Alternative (Plan Trustee s orderly liquidation of assets). Attached as Exhibit 2 are Restaurant Projections, which reflect the proposed financing and continued operations of the Restaurant Entities. These projections provide support for the feasibility of the New Plan, pursuant to Section 1129(a)(11) of the Bankruptcy Code. The projections set forth the Debtor s estimate of the anticipated cash flow of the Debtor for the term of the New Plan. In the case of the Restaurant Projections at Exhibit 2, projected cash flows are based, in part, upon the historical earnings of the Debtor and the Debtor s historical expenses as such historical financial performance is relevant to the future operations of the Debtor, as well as anticipated trends within the Restaurant Entities, trends experienced by the respective franchisor and restaurant industry, and impact the current economic climate on the Debtor s business. ///

25 Main Document Page 25 of B. Assumptions to Financial Projections. Attached to each of the projections are footnotes detailing the material assumptions underlying the projections. Although the Debtor has devoted considerable effort to the development of the projections and believes that the projections represent fairly the projected future cash flow of the Debtor, care should be taken in analyzing the projections as no guarantee exists that the projections can be met by the Debtor. THE PROJECTIONS SET FORTH IN THIS DISCLOSURE STATEMENT REPRESENT AN ESTIMATE OF FUTURE PERFORMANCE BASED UPON CERTAIN ASSUMPTIONS SET FORTH WITH SUCH PROJECTIONS. THESE FUTURE EVENTS MAY OR MAY NOT OCCUR, AND THE PROJECTIONS MAY NOT BE RELIED UPON AS A GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS WHICH WILL OCCUR. BECAUSE OF THE UNCERTAINTIES INHERENT IN PREDICTIONS OF FUTURE EVENTS AND EVENTS OUTSIDE OF THE DEBTOR S CONTROL, THE DEBTOR S ACTUAL CASH FLOW MAY WELL BE DIFFERENT FROM THAT PREDICTED, AND SUCH DIFFERENCE MAY BE MATERIAL AND ADVERSE TO THE INTERESTS OF CREDITORS. The projections are intended to assess the future cash flow available to the Debtor for making the Distributions required by the New Plan. Significant assumptions underlying the projections include the following: 1. Confirmation and Effective Date of the New Plan. The Debtor estimates that the Confirmation Date will occur on or about March 12, For the purpose of the Plan Projections in the case of a successful refinancing (i.e., Primary Alternative see Exhibit 1A ), the Debtor estimates an Effective Date on or about April 1, In the case of an orderly liquidation by the Plan Trustee (i.e., Secondary Alternative see Exhibit 1B ), the Debtor estimates an Effective Date on or about April 1, Income of the Debtor. The projections of future income of the Debtor include shareholder distributions from the Restaurant Entities, a salary from an entity that will be formed by the Debtor to manage the Restaurant Entities, and social security income