UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA. NEW ORLEANS PADDLEWHEELS, INC. : CHAPTER 11 Debtor

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1 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA IN RE: : CASE NO NEW ORLEANS PADDLEWHEELS, INC. : CHAPTER 11 Debtor AMENDED DISCLOSURE STATEMENT IN SUPPORT OF AMENDED PLAN OF REORGANIZATION OF NEW ORLEANS PADDLEWHEELS, INC. AS PROPOSED BY LOUIS M. PHILLIPS, CHAPTER 11 TRUSTEE OF NEW ORLEANS PADDLEWHEELS, INC., UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE DATED AS OF MAY 19, 2008 Louis M. Phillips Brandon A. Brown Ashley S. Green GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, L.L.P. 301 Main Street, Suite 1600 Baton Rouge, Louisiana Telephone: (225) Attorneys for Louis M. Phillips, Chapter 11 Trustee for the bankruptcy estate of New Orleans Paddlewheels, Inc. Dated: MAY 19, 2008

2 TABLE OF CONTENTS Page IMPORTANT... ix SUMMARY INFORMATION ON CHAPTER WHO IS THE DEBTOR? HOW LONG HAS THE DEBTOR BEEN IN CHAPTER 11? HAS A TRUSTEE BEEN APPOINTED? HAS A COMMITTEE OF UNSECURED CREDITORS BEEN APPOINTED? WHAT IS PADDLEWHEELS ATTEMPTING TO DO IN CHAPTER 11? HAS A PLAN OF REORGANIZATION BEEN PROPOSED? IF THE PLAN OF REORGANIZATION IS THE DOCUMENT WHICH GOVERNS HOW A CLAIM WILL BE TREATED, WHY AM I RECEIVING THIS DISCLOSURE STATEMENT? HAS THIS DISCLOSURE STATEMENT BEEN APPROVED BY THE BANKRUPTCY COURT? HOW DO I DETERMINE WHICH CLASS I AM IN? WHAT IS THE DISTRIBUTION I WILL RECEIVE WITH RESPECT TO MY CLAIM? WHY IS CONFIRMATION OF A PLAN OF REORGANIZATION IMPORTANT? WHAT IS NECESSARY TO CONFIRM A PLAN OF REORGANIZATION? AM I ENTITLED TO VOTE ON THE PLAN? WHEN IS THE DEADLINE BY WHICH I NEED TO RETURN MY BALLOT?... 5 I. INTRODUCTION... 5 II. VOTING PROCEDURES AND REQUIREMENTS... 7 i

3 A. Ballots and Voting Deadline... 7 B. Creditors Solicited to Vote... 8 C. Definition of Impairment... 8 D. Classes Impaired Under the Plan... 9 E. Vote Required for Class Acceptance... 9 F. Distributions Only to Holders of Allowed Claims... 9 III. CONFIRMATION OF THE PLAN... 9 A. Confirmation Hearing... 9 B. Requirements for Confirmation of the Plan Feasibility Best Interests Test Fair and Equitable Test ( Cramdown ) IV. GENERAL INFORMATION A. Overview of Paddlewheels Business B. History of Paddlewheels, Debt and Corporate Structure and Management History of Paddlewheels; Corporate Structure; Management Deadlock C. Prebankruptcy Operations Historical Financial Discussion Events Leading to Bankruptcy D. Current Financial Structure and Situation; Analysis of the Present and of Past Records General Overview of Assets E. Significant Debt Obligations ii

4 1. Secured Claims Unsecured Administrative/Cure Claims Resolved by Compromise Unsecured Priority Claims; Compromise with the City of New Orleans Other Priority Unsecured Claims Unsecured Claims V. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE A. Voluntary Petition B. Use of Cash Collateral C. Schedules and Statement of Financial Affairs D. Retention of Professionals E. Appointment of Official Committee of Unsecured Creditors and Retention of Counsel F. Motion to Incur Secured Debt G. Removal of State Court Proceedings H. Motion to Appoint Trustee I. Filing of the Whitney Suit J. Appointment of the Trustee and Retention of Trustee Professionals K. Sale of the M/V Cajun Queen L. New Orleans Tours Bankruptcy Case M. The State Court Lawsuits Revisited N. Dismissal of the Whitney Suit O. Global Settlement P. Plan and Disclosure Statement Q. Claims Bar Date iii

5 VI. VII. INTRODUCTORY STATEMENT AND SUMMARY OF HOW THE PLAN WILL BE IMPLEMENTED SUMMARY OF THE PLAN TERMS CONCERNING CLASSIFICATION AND TREATMENT OF CLAIMS, ACCEPTANCE OR REJECTION OF PLAN, DISTRIBUTIONS, AND DISPUTED CLAIMS A. Unclassified Claims Administrative Expense Claims B. Classified Claims Class 1. Administrative/Cure Claim of the Port of New Orleans Class 2. Priority Claim of the IRS Class 3. Priority Claim of the LDRT Class 4. Priority Claim of the City of New Orleans Class 5. Convenience Class of General Unsecured Claims ($1, or Less) Class 6. General Unsecured Claims Class 7. Claims of Paddlewheels Insiders, Affiliates and/or Related Party Claimants Class 8. Paddlewheels Equity Interests C. Procedures For Resolving And Treating Contested And Disputed Claims Prosecution of Objections to Claims Estimation of Claims Allowance of Claims Controversy Concerning Impairment Voting Rights as to Confirmation of Plan D. Distributions Under The Plan Distributions for Allowed Claims iv

6 2. Delivery and Distributions and Undeliverable or Unclaimed Distributions VIII. SUMMARY OF PLAN TERMS CONCERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES A. Assumption and Rejection of Contracts and Leases In General Assumed Contracts Cure Payments and Release of Liability Rejection of Executory Contracts and Unexpired Leases Filing of Claims Under Rejected Contracts IX. SUMMARY OF PLAN TERMS CONCERNING THE MEANS OF IMPLEMENTATION OF THE PLAN A. Settlement and Releases of Claims and Liens; Assumption by Airport Shuttle Release by Paddlewheels of Released and/or Indemnified Parties Release by Global Settlement Parties of Paddlewheels Release of the Trustee Approval of Settlements and Compromises Assumption by Airport Shuttle, Inc B. Obtaining Loan by Paddlewheels C. The Continued Existence of Reorganized Debtor Corporate Operation Adoption, Amendment and Restatement of Charter Documents and Corporate Bylaws Corporate Approvals F. Corporate Governance, Management Committee and Officers, and Corporate Action v

7 1. Corporate Action Officers and Directors of Reorganized Paddlewheels; Corporate Organization G. Causes of Action and Avoidance Actions Retention of Causes of Action Release of Avoidance Actions and Use of Avoidance Powers to Fix Unsecured Claims H. Approval of Plan Supplement X. SUMMARY OF PLAN TERMS CONCERNING CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN, EFFECT OF CONFIRMATION OF PLAN, AND EFFECTIVE DATE A. Conditions Precedent to Effective Date Confirmation Order Authorizations Execution of Plan Supplement Documents B. Waiver of Conditions C. The Effective Date D. Effects of Confirmation Revesting of Assets Findings by the Bankruptcy Court Approval of Plan Supplement Dismissal of Place Holder Proceedings Reservation of Rights, to Holders of Unliquidated Tort Claims XI. DISCHARGE, RELEASE, INJUNCTION AND RELATED PROVISIONS A. Discharge of Debtor B. Injunction vi

8 C. Exculpations D. Indemnification Obligations E. Limited Release F. Releases by Consenting Parties G. Subordination XII. MISCELLANEOUS PROVISIONS A. Retention of Jurisdiction B. Modification of Plan C. Revocation of Plan D. Successors and Assigns E. Reservation of Rights F. Governing Law G. Default Provisions XIII. FEASIBILITY OF THE PLAN AND VALUATION OF REORGANIZED PADDLEWHEELS XIV. LIQUIDATION ANALYSIS A. Liquidation Under Chapter Generally Liquidation Analysis XV. MATERIAL UNCERTAINTIES A. Fluctuations within the Tourism Industry B. Supply Costs C. Financing Requirements and Restrictions D. Competitive Industry E. Uncertainty Regarding Amount of Certain Claims and Objections To Claims vii

9 F. Other Uncertainties XVI. SECURITIES LAW MATTERS XVII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN A. Introduction B. IRS Circular 230 Disclosure C. Consequences to Holders of Claims Realization and Recognition of Gain or Loss in General Accrued Interest Withholding C. Consequences to Debtor or Reorganized Debtor XVIII. CONCLUSION viii

10 IMPORTANT This Amended Disclosure Statement (the Disclosure Statement ) in Support of the AMENDED PLAN OF REORGANIZATION OF NEW ORLEANS PADDLEWHEELS, INC. AS PROPOSED BY LOUIS M. PHILLIPS, CHAPTER 11 TRUSTEE FOR THE ESTATE OF NEW ORLEANS PADDLEWHEELS, INC. UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE DATED AS OF MAY 19, 2008 (the Plan ) has been prepared by Louis M. Phillips (referred to herein as Trustee, ) and describes the terms and provisions of the Plan, including any Plan Supplements. The chapter 11 case of New Orleans Paddlewheels, Inc. ( Paddlewheels or Debtor ) is pending in the United States Bankruptcy Court for the Eastern District of Louisiana ( Bankruptcy Court ) under Chapter 11 of Title 11, United States Code (the Bankruptcy Code ). The Trustee believes that the Debtor s operations have been strengthened as a result of (i) the passage of time which has seen progress toward recovery of the New Orleans tourism industry, (ii) the streamlining of operations and focus upon reductions in operating expenses, (iii) a cessation of focus upon litigation and (iv) a global settlement among the equity owners of the Debtor and affiliate entities which has allowed the equity owners to work together and with the Trustee to obtain consensual resolution of the large pre bankruptcy claims and to obtain capital infusion necessary for the success of any but a liquidating plan. The Trustee believes that under the new debt structure as provided under the Plan, the operations of the Debtor are positioned for profitable growth in the future, and that the Plan provides for the greatest value for distributions to the broadest range of Creditors available under the circumstances. A copy of the Plan is attached hereto as Exhibit A and should be reviewed carefully. The Trustee urges those holders of Allowed Claims entitled to vote upon the Plan to vote in favor of the Plan. The Trustee has been advised by Albert J. Derbes, IV of the Derbes Law Firm, L.L.C., which has been retained as Committee Counsel (defined below), that the Committee representing the Holders of Unsecured Claims has determined to support the Plan. /s/ Louis M. Phillips Louis M. Phillips, Chapter 11 Trustee. ix

11 SUMMARY INFORMATION ON CHAPTER 11 This Disclosure Statement is offered in connection with solicitation of acceptances of the Plan. A capitalized term used in this Disclosure Statement and not defined herein has the meaning assigned to that term in the Plan. This Disclosure Statement is being provided in order to disclose important and necessary information to allow a reasonably informed decision by Creditors exercising their right to vote on, or otherwise participate in, confirming the Plan. The purpose of this Summary is to answer questions which are often asked by a party receiving a disclosure statement. Unless otherwise stated, the information contained herein is as of April 15, 2008, or as of any date as indicated within the Exhibits to this Disclosure Statement. 1. WHO IS THE DEBTOR? New Orleans Paddlewheels, Inc. is a corporation organized under the laws of the state of Louisiana. Paddlewheels operates within the tourism services industry and provides paddlewheel boat tours on the Mississippi river for tourists. 2. HOW LONG HAS THE DEBTOR BEEN IN CHAPTER 11? On May 3, 2006 (the Petition Date ) Paddlewheels filed a voluntary petition under chapter 11 of the Bankruptcy Code in the Bankruptcy Court, commencing bankruptcy case number HAS A TRUSTEE BEEN APPOINTED? Yes. On September 22, 2006, the Bankruptcy Court relieved the Debtor of its duties as a debtor-in-possession and ordered the appointment of a chapter 11 trustee. On October 30, 2006, the Bankruptcy Court approved the appointment of Louis M. Phillips as chapter 11 trustee. 4. HAS A COMMITTEE OF UNSECURED CREDITORS BEEN APPOINTED? Yes. The Office of the United States Trustee ( OUST ) appointed an official committee of unsecured creditors on June 23, 2006 (the Committee ). Present members of the Committee are Hansen Music Productions, Inc., Stone Insurance, Inc., and Sysco Food Service of New Orleans, LLC. The Committee moved for authority to employ counsel, which was granted by the Bankruptcy Court. Present counsel for the Committee is the Albert J. Derbes, IV of the Derbes Law Firm, L.L.C Ridgelake Dr., Metairie, Louisiana WHAT IS PADDLEWHEELS ATTEMPTING TO DO IN CHAPTER 11? Chapter 11 is the principal reorganization chapter of the Bankruptcy Code. Under chapter 11, a debtor is reorganizing its business to maximize return to the creditors of the debtor. Formulation and confirmation of a plan of reorganization, providing for such reorganization, is the principal purpose of the chapter 11 process. The plan of reorganization is the legal document which sets forth the means by which holders of claims and equity interests against a debtor will be treated. 1

12 6. HAS A PLAN OF REORGANIZATION BEEN PROPOSED? Yes. As mentioned, the Plan has been filed and is attached hereto as Exhibit A. 7. IF THE PLAN OF REORGANIZATION IS THE DOCUMENT WHICH GOVERNS HOW A CLAIM WILL BE TREATED, WHY AM I RECEIVING THIS DISCLOSURE STATEMENT? In order to confirm a plan of reorganization, the Bankruptcy Code provides that proponents solicit acceptances of a proposed plan of reorganization. Before proponents can solicit such acceptances, the Bankruptcy Court must approve the information to be sent to the Creditors 1 and Holders of Equity Interests, disclosing information to allow them to make informed judgments about the plan of reorganization. The purpose of this Disclosure Statement is to provide that information required by the Bankruptcy Code. 8. HAS THIS DISCLOSURE STATEMENT BEEN APPROVED BY THE BANKRUPTCY COURT? The Bankruptcy Court approved this Disclosure Statement by order dated May 22, 2008, as containing information of a kind, and in sufficient detail, adequate to enable a hypothetical, reasonable investor typical of each class of Creditors whose acceptance is being solicited to make an informed judgment whether to vote to accept or reject the Plan. THIS DISCLOSURE STATEMENT, TOGETHER WITH THE PLAN WHICH IS ATTACHED HERETO, SHOULD BE READ IN ITS ENTIRETY. FOR THE CONVENIENCE OF CREDITORS AND HOLDERS OF EQUITY INTERESTS, THE TERMS OF THE PLAN ARE SUMMARIZED IN THIS DISCLOSURE STATEMENT, BUT THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PLAN ITSELF, WHICH IS CONTROLLING IN THE EVENT OF ANY INCONSISTENCY. 9. HOW DO I DETERMINE WHICH CLASS I AM IN? You will find in the Plan, within the Table of Contents, a reference to the discussion of the Classes of Creditors and Equity Interests and the treatment provided to such Classes. Article VII of the Disclosure Statement explains, among other things, what Creditors or types of Creditor Claims and Equity Interests are in each Class, the estimated size of each Class, what distributions the members of the Classes will receive if the Plan is Confirmed, and how the distributions under the Plan will be made if the Plan is Confirmed. If you are unsure as to the Class in which your Claim or Equity Interest falls, you may need to consult an attorney. 10. WHAT IS THE DISTRIBUTION I WILL RECEIVE WITH RESPECT TO MY CLAIM? Set forth below is a table that summarizes the treatment of each class of Claims or Equity Interests under the Plan. The table below is qualified by reference to Article VII of this Disclosure Statement and the Plan. In the event of any inconsistency between the explanation below and the Plan, the Plan is controlling. 1 Capitalized terms not defined herein shall have the meaning ascribed to them within the Plan. 2

13 THE DESCRIPTION BELOW IS ONLY A SUMMARY AND DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE TREATMENT OF EACH CLASS OF CLAIMS OR EQUITY INTERESTS UNDER THE PLAN. Claim Unclassified Administrative Expense Claims (Trustee, Professionals, post petition tax claims) Class 1. Administrative/Cure Claim of the Port of New Orleans Class 2. Priority Claim of the IRS Class 3. Priority Claim of the LDRT Class 4. Priority Claim of the City of New Orleans Class 5. Convenience Claims Class 6. General Unsecured Claims Treatment A Holder of an Administrative Expense Claim, other than OUST claims, ordinary course of business claims incurred in operations of the Debtor s business and claims of the Port of New Orleans, will be paid in full in cash on the later of (A) the Effective Date and (B) within twenty (20) days following the date on which such Administrative Expense Claim is Allowed. The Administrative/Cure Claim of the Port of New Orleans shall be fixed at $221,210. Reorganized Paddlewheels shall pay the Claim in full, together with simple interest at the rate of 7.5% per annum payable in 29 equal monthly payments of $4,433, and a balloon payment of $120,904 at the end of the thirtieth (30 th ) month following the Effective Date. The Trustee asserts that the Allowed Priority Claim of the IRS should be fixed at $852.03, which is the amount claimed as the amended proof of claim filed by the IRS on May 8, Reorganized Paddlewheels will pay the Claim in full, within five (5) days after the Effective Date. The Allowed Priority Claim of the LDRT will, if a compromise to be submitted by the Trustee is accepted, be fixed at $220,000. Reorganized Paddlewheels will pay the Claim in full, with interest at the rate provide by statute in equal monthly payments ending at the end of the 60 th month after the Effective Date. The Allowed Priority Claim of the City of New Orleans shall be fixed at $1,500,000. Reorganized Paddlewheels shall pay the City of New Orleans a cash payment of $1,000, on the Effective Date. The remaining $500, of the Claim will be made by Airport Shuttle, Inc. and collateralized in accordance with the treatment of the Class 4 Claim. Unsecured Convenience Claims are Claims of less than $1, Such claimants shall receive a cash payment on the Effective Date equal to the lesser of 30% of the Allowed Class 5 Claim held by each Claimant or a Pro Rata Share of $17,000. Class 6 will consist of General Unsecured Claims of more than $1,000 (exclusive of any claims of Insiders and Affiliates of Paddlewheels). Each Holder of an Allowed Class 6 Claims shall receive a Pro Rata Share interest in the Class 6 Note in the principal amount of $250,000, payable over a period of five (5) 3

14 years from the fifteenth (15 th ) day of the first full month following the Effective Date, without interest, in equal monthly payments, subject to reduction by the amount that the Allowed Administrative Expense Claim of Counsel for the Committee exceeds $70,000. Class 7. Claims of Insiders and Affiliates Class 8. Equity Interests As a component of the overall settlement of Disputed Claims represented by the Plan, including the compromise of (i) the prospect of the Trustee pursuing (a) substantive consolidation of non-debtor entities with the Paddlewheels Estate, (b) avoidance actions and other non-bankruptcy law claims against Class 7 Claimants, and (ii) the Claims of Class 7 Claimants against the Paddlewheels Estate the Class 7 Claimants shall receive no distribution from Reorganized Paddlewheels, but shall upon Confirmation be released from any Causes of Action held by the Debtor or the Trustee against such Class 7 Claimants. Likewise, Confirmation shall constitute a release by all Class 7 Claimants of any Claims against the Paddlewheels Estate and the Trustee. In return for and conditioned upon the securing, facilitating and providing the Effective Date Cash Contribution, Holders of Equity Interests will retain such Allowed Equity Interests in the same amount and proportion as existed prior to the Petition Date, subject to the terms of the Plan. 11. WHY IS CONFIRMATION OF A PLAN OF REORGANIZATION IMPORTANT? Confirmation of a plan of reorganization is necessary for a debtor in chapter 11 to provide the Bankruptcy Court-approved treatment to its Creditors and Holders of Equity Interests under its plan. Confirmation of a plan of reorganization will also bind Creditors, Equity Interests, and the Debtor, regardless of whether they have voted, voted against, or voted for the plan of reorganization. Confirmation of the Plan, the Trustee believes, is the most viable alternative to liquidation. The Plan was arrived at upon the agreement of numerous Claimants that maintenance of the business of Paddlewheels was preferable to liquidation, and upon the agreement of those Claimants that the Plan was preferable even if it meant that such Claimants might receive less than if all legal rights and priorities were litigated to conclusion. In sum, the Trustee believes that the Plan is a true reorganization, involving all classes of Claims and Interests working together and with the Trustee to achieve consensus and hopefully successful business operation post-confirmation. 12. WHAT IS NECESSARY TO CONFIRM A PLAN OF REORGANIZATION? Confirmation of a plan can be premised upon, among other things, the vote in favor of the plan of two-thirds in total dollar amount and a majority in number of claims actually voting in each voting class. (If the vote is insufficient, the Bankruptcy Court can still confirm the plan, but only upon being provided additional proof regarding the ultimate fairness of the plan to the 4

15 creditors in accordance with the Bankruptcy Code). Confirmation can only be effected by a court order. 13. AM I ENTITLED TO VOTE ON THE PLAN? A Creditor of or Holder of an Equity Interest in the Debtor is not entitled to vote on the Plan unless its Claim or Equity Interest is IMPAIRED, and even if the Claim or Equity Interest is Impaired, there are certain Classes under the Plan that are presumed to accept or reject the Plan and therefore cannot vote. Article II below (VOTING PROCEDURES AND REQUIREMENTS) contains an explanation of voting. Under the Plan, Holders of Claims and Equity Interests in Classes 5 through 8 are IMPAIRED and are entitled to vote on the Plan. 14. WHEN IS THE DEADLINE BY WHICH I NEED TO RETURN MY BALLOT? The deadline for returning your Ballot is 5:00 p.m. Central Time on June 17, 2008 (the Voting Deadline ). Article II below contains further explanation. I. INTRODUCTION The Trustee submits this Disclosure Statement under 11 U.S.C in connection with the solicitation of acceptances of the Plan. The Disclosure Statement, which includes the Plan as Exhibit A, will be transmitted to all Holders of Claims against and Equity Interests in Paddlewheels. However, the Trustee is seeking votes only from Creditors in Impaired Classes 5 through 8. All persons receiving the Disclosure Statement and Plan are urged to review fully the provisions of the Plan and all attached Exhibits, in addition to reviewing this Disclosure Statement. This Disclosure Statement is not intended to replace careful review and analysis of the Plan. Rather, it is submitted as an aid and supplement in your review of the Plan and an effort to explain the terms and implications of the Plan on file with the Bankruptcy Court. Every effort has been made to explain fully the various aspects of the Plan as it may affect all Creditors and Holders of Equity Interests. If you have any questions, you may contact the Trustee s legal counsel and every effort will be made to assist you. However, please be advised that counsel for the Trustee cannot provide you with legal advice, including, but not limited to, a determination of whether you possess a Claim, the amount of any such Claim, your ability to vote on the Plan, etc. Please refer all legal questions to your attorney[s] or legal advisor[s]. On May 22, 2008, after notice and a hearing, the Bankruptcy Court entered an order approving the Disclosure Statement as containing information of a kind and in sufficient detail, adequate to enable Creditors whose votes on the Plan are being solicited to make an informed judgment whether to accept or reject the Plan. The order also fixed June 25, 2008 at 9:00 a.m., at the Bankruptcy Court as the date, time, and place for a hearing on Confirmation of the Plan (the Confirmation Hearing ), and fixing June 17, 2008 as the last date for the filing of any objections to Confirmation of the Plan. A copy of the Bankruptcy Court order approving this Disclosure Statement will be noticed to Creditors and parties in interest. The Confirmation Hearing may be adjourned from time to time without further notice. 5

16 IT IS POSSIBLE THAT ANY ANNOUNCEMENT OF ADJOURNMENT OF THE DATE AND TIME MADE IN BANKRUPTCY COURT AT THE CONFIRMATION HEARING WILL BE THE ONLY NOTICE SO PROVIDED. Creditors should read this Disclosure Statement in its entirety prior to voting on the Plan. No solicitation of votes on the Plan may be made, except pursuant to this Disclosure Statement and Bankruptcy Code section No other party has been authorized to utilize any information concerning the Debtor or its business, other than the information contained in this Disclosure Statement, to solicit votes on the Plan. Parties in interest should not rely on any information relating to the Debtors or their businesses other than that contained in this Disclosure Statement and the Exhibits attached hereto. EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS, REPRESENTATIONS CONCERNING THE DEBTOR, THE ASSETS, THE PAST OR FUTURE OPERATIONS OF THE DEBTOR OR THE PLAN ARE NOT AUTHORIZED, NOR ARE ANY SUCH REPRESENTATIONS TO BE RELIED UPON IN ARRIVING AT A DECISION WITH RESPECT TO THE PLAN. ANY REPRESENTATIONS MADE TO SECURE ACCEPTANCE OR REJECTION OF THE PLAN OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD BE REPORTED TO COUNSEL FOR THE TRUSTEE. EXCEPT AS SPECIFICALLY NOTED, THERE HAS BEEN NO INDEPENDENT AUDIT OF THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT. THE FACTUAL INFORMATION REGARDING THE DEBTOR, INCLUDING THE ASSETS AND LIABILITIES OF THE DEBTOR HAVE BEEN DERIVED FROM NUMEROUS SOURCES, INCLUDING, BUT NOT LIMITED TO THE DEBTOR S BOOKS AND RECORDS, SCHEDULES, AND DOCUMENTS SPECIFICALLY IDENTIFIED HEREIN. THE TRUSTEE ALSO COMPILED THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT FROM RECORDS AVAILABLE TO HIM, INCLUDING, BUT NOT LIMITED TO, PLEADINGS AND REPORTS ON FILE WITH THE BANKRUPTCY COURT, LOAN AGREEMENTS, AND BUSINESS RECORDS. THE APPROVAL BY THE BANKRUPTCY COURT OF THE DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A GUARANTY OF THE ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED HEREIN. THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED NOR DISAPPROVED THE INFORMATION CONTAINED IN THE DISCLOSURE STATEMENT. THE SECURITIES AND EXCHANGE COMMISSION HAS ALSO NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. NEITHER THE TRUSTEE NOR COUNSEL FOR THE TRUSTEE CAN WARRANT NOR REPRESENT THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS WITHOUT INACCURACY. NEITHER THE TRUSTEE NOR HIS COUNSEL HAS VERIFIED THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, ALTHOUGH THEY DO NOT HAVE ACTUAL KNOWLEDGE OF ANY INACCURACIES. 6

17 THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON BY ANY PERSON OR ENTITY FOR ANY PURPOSE OTHER THAN BY HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE ON THE PLAN IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN. NOTHING CONTAINED HEREIN WILL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE TRUSTEE, THE DEBTOR OR ANY OTHER PARTY. CERTAIN OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE FORWARD LOOKING PROJECTIONS AND FORECASTS BASED UPON CERTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT, EXPRESS OR IMPLIED, IS INTENDED TO GIVE RISE TO ANY COMMITMENT OR OBLIGATION OF THE TRUSTEE OR THE DEBTOR OR WILL CONFER UPON ANY PERSON ANY RIGHTS, BENEFITS, OR REMEDIES OF ANY NATURE WHATSOEVER. EXCEPT AS OTHERWISE NOTED HEREIN, THE INFORMATION CONTAINED HEREIN IS GENERALLY INTENDED TO DESCRIBE FACTS AND CIRCUMSTANCES ONLY AS OF THE DATE OF THIS DISCLOSURE STATEMENT, AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR THE CONFIRMATION OF THE PLAN WILL CREATE ANY IMPLICATION, UNDER ANY CIRCUMSTANCES, THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS CORRECT AT ANY TIME AFTER THE DATE OF THIS DISCLOSURE STATEMENT OR THAT THE TRUSTEE OR THE DEBTOR WILL BE UNDER ANY OBLIGATION TO UPDATE SUCH INFORMATION IN THE FUTURE. II. VOTING PROCEDURES AND REQUIREMENTS A. Ballots and Voting Deadline A Ballot to be used for voting to accept or reject the Plan is enclosed with this Disclosure Statement and transmitted to Creditors entitled to vote. Creditors should carefully review the Ballot and the instructions thereon, and must execute the Ballot, and return it to the address indicated thereon by the deadline to enable the Ballot to be considered for voting purposes. FOR YOUR VOTE TO BE COUNTED, YOU MUST COMPLETE THE BALLOT, INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOXES INDICATED ON THE BALLOT, AND SIGN AND RETURN THE BALLOT TO THE ADDRESS SET FORTH ON THE PRE-ADDRESSED ENVELOPE. IF A BALLOT IS RECEIVED AFTER THE VOTING DEADLINE, IT WILL NOT BE COUNTED. If you hold Claims in more than one Class under the Plan, you must return two (or more) completed Ballots, i.e., one for each Claim. You must vote the entirety of your Claim within a single Class under the Plan to either accept or reject the Plan. Accordingly, a Ballot (or multiple Ballots with respect to multiple Claims within a single class) that partially rejects and partially accepts the Plan will not be counted. The Ballot is for voting purposes only and does not constitute and shall not be deemed a proof of Claim or Equity Interest or an assertion of a Claim or Equity Interest. 7

18 The Bankruptcy Court has directed that, in order to be counted for voting purposes, Ballots for the acceptance or rejection of the Plan must be received no later than 5:00 p.m., Central Time, on June 17, 2008, or as subsequently notified, at the following address: GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, L.L.P. 301 Main Street, Suite 1600 Baton Rouge, Louisiana Telephone: (225) Attention: Paddlewheels Claims Balloting ANY BALLOTS RECEIVED AFTER 5:00 P.M., CENTRAL TIME, ON JUNE 17, 2008 WILL NOT BE COUNTED. After careful review of this Disclosure Statement and all Exhibits attached hereto, please indicate your vote on the enclosed Ballot and return the Ballot in the enclosed self-addressed return envelope to be received by the date and time set forth above. B. Creditors Solicited to Vote Any Creditor of the Debtor with an Impaired Claim under the Plan is being solicited to vote, if either (i) its Claim has been scheduled by the Debtor and such Claim is not scheduled as disputed, contingent, or unliquidated, or (ii) it has filed a Proof of Claim pursuant to section 501 of the Bankruptcy Code on or before the last date set by the Bankruptcy Court for such filings. Any Claim as to which an objection has been filed, if such objection is still pending as of the voting deadline, is not entitled to have its vote counted, unless the Bankruptcy Court temporarily allows the Claim upon motion by such Creditor whose Claim has been objected to, in an amount which the Bankruptcy Court deems proper for the purpose of accepting or rejecting the Plan. Such motion must be heard and determined by the Bankruptcy Court prior to the date and time established by the Bankruptcy Court to confirm the Plan. In addition, a Creditor s vote may be disregarded if the Bankruptcy Court determines that the Creditor s acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code. C. Definition of Impairment Under section 1124 of the Bankruptcy Code, a class of claims or equity interests is impaired under a plan of reorganization unless, with respect to each claim or equity interest of such class, the plan: leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest; or notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default -- cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title; 8

19 . reinstates the maturity of such claim or interest as such maturity existed before such default; compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest. D. Classes Impaired Under the Plan Claims and Equity Interests in Classes 5 through 8 are IMPAIRED. Claims in Classes 5 through 8 are being solicited to accept or reject the Plan. The remaining Classes are of Claimants whose Claims are either administrative/cure Claims, or Unsecured Priority Claims and therefore are dealt with pursuant to section 1129 (a) (9) and compromise. The Trustee, however, specifically reserves the right to contest (1) the Impaired or Unimpaired status of any class under the Plan; and (2) whether any Ballots cast by such class should be allowed to be counted for purposes of Confirmation of the Plan. E. Vote Required for Class Acceptance Acceptance of the Plan by a Class of Creditors will be obtained by the acceptance of the Plan by Holders of two-thirds in dollar amount and a majority in number of the Claims in any such class which actually cast Ballots for acceptance or rejection of the Plan. In other words, acceptance takes place only if two-thirds in amount and majority in number of the Creditors in a given class who vote cast their Ballots in favor of acceptance. F. Distributions Only to Holders of Allowed Claims A Claim will receive a distribution under the Plan only if it is an Allowed Claim. Allowed under the Plan shall mean, with respect to any Claim, a Claim (i) that has been listed by Debtor in its Schedules, as the same may from time to time be amended in accordance with Bankruptcy Rule 1009, other than Claims scheduled as contingent, unliquidated or disputed, or proof of which has been timely filed with the Bankruptcy Court on or prior to the Bar Date and that is not a Disputed Claim, (ii) as to which a Final Order has been entered allowing such Claim or any portion thereof or (iii) that is deemed Allowed under the Plan. Any Claim allowed solely for the purpose of voting to accept or reject the Plan pursuant to an Order of the Bankruptcy Court shall not be considered an Allowed Claim thereunder. Unless otherwise specified within the Plan or by Final Order of the Bankruptcy Court, an Allowed Claim shall not, for purposes of computation of distributions under the Plan, include interest on such Claim from and after the Paddlewheels Petition Date. III. CONFIRMATION OF THE PLAN A. Confirmation Hearing Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on Confirmation of the Plan. Section 1128(b) provides that any party in interest may object to Confirmation of the Plan. 9

20 By order of the Bankruptcy Court dated May 22, 2008, the Confirmation Hearing has been scheduled for June 25, 2008 at 9:00 a.m., United States Bankruptcy Court, Eastern District of Louisiana, 500 Poydras Street, Room B-709, New Orleans, Louisiana, The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice, except for an announcement made at the Confirmation Hearing or any adjournment thereof. Any objection to Confirmation must be made in writing and filed with the Bankruptcy Court with proof of service and actually received by the following parties on or before June 17, 2008 at 5:00 p.m. Central Time: The Debtor: Counsel for the Trustee: Counsel for the Committee: NEW ORLEANS PADDLEWHEELS, INC. World Trade Center 2 Canal St., Suite 2004 New Orleans, Louisiana Telephone: Facsimile: Attention: Craig Smith GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, L.L.P. 301 Main Street, Suite 1600 Baton Rouge, Louisiana Telephone: (225) Facsimile: (225) Attention: Louis M. Phillips THE DERBES LAW FIRM, L.L.C. P.O. Box 8176 Metairie, Louisiana Telephone: (504) Facsimile: (504) Attention: Albert J. Derbes, IV United States Trustee: OFFICE OF THE UNITED STATES TRUSTEE 400 Poydras Street, Suite 2110 New Orleans, Louisiana Telephone: (504) Facsimile: (504) Attention: Robert Gravolet UNLESS AN OBJECTION TO CONFIRMATION IS PROPERLY AND TIMELY SERVED AND FILED, IT WILL NOT BE CONSIDERED BY THE BANKRUPTCY COURT. and B. Requirements for Confirmation of the Plan At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for Confirmation are that the Plan (a) is feasible, (b) is in the best interests of Holders of Claims 10

21 and Equity Interests Impaired under the Plan, and (c) is accepted by all Impaired Classes of Claims and Equity Interests or, if rejected by an Impaired Class, that the Plan does not discriminate unfairly and is fair and equitable as to such Class. 1. Feasibility The Bankruptcy Code requires that Confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of a debtor. For purposes of determining whether the Plan meets this requirement, the Trustee has proposed the structure of the Reorganized Paddlewheels, which will have as its business purpose the operations of the business and payment of the Claims Classes. The Trustee has analyzed the prospects of future operations and has submitted projections upon which he has concluded that future operations of the business will provide sufficient revenues so that the deferred payments provided for under the Plan will be made. This information is discussed and the Exhibits containing the underlying information are described and referred to, infra. The Trustee believes that Confirmation of the Plan is not likely to be followed by liquidation or the need for further financial reorganization. 2. Best Interests Test At the Confirmation Hearing, the Bankruptcy Court must, among other things, determine whether Creditors and Holders of Equity Interests would receive at least as much under the Plan as they would receive in liquidation under chapter 7. The Liquidation Analysis is discussed in Article XIII, infra. The Trustee believes that the Plan is superior to liquidation. 3. Fair and Equitable Test ( Cramdown ) If a sufficient number of Creditors and amount of Claims in the Impaired Classes (5 through 8) vote to accept the Plan, the Trustee believes that the Bankruptcy Court will grant Confirmation and that the Plan will satisfy all of the applicable statutory requirements of the Bankruptcy Code section1129(a). The Trustee may seek to confirm the Plan notwithstanding the non-acceptance of the Plan by any Impaired Class of Claims entitled to vote on the Plan. To obtain such Confirmation, it must be demonstrated to the Bankruptcy Court that the Plan does not discriminate unfairly and is fair and equitable with respect to each dissenting Impaired Class. A plan does not discriminate unfairly if the legal rights of a dissenting Impaired Class are treated in a manner consistent with the treatment of other Classes whose legal rights are substantially similar to those of the dissenting Impaired Class and if no class receives more than it is entitled to for its Claims. The Trustee believes the Plan satisfies this requirement. The Bankruptcy Code establishes different fair and equitable tests for secured claims, unsecured claims, and holders of equity interests. (a) Secured Claims. With respect to treatment of a Secured Claim under the Plan, fair and equitable means either (i) the Impaired Secured Creditor retains its liens to the extent of its Allowed Claim and receives deferred cash payments at least equal to the Allowed amount of its Claims with a present value as of the Effective Date of the Plan at least equal to the value of such Creditor s interest in the property securing its liens, (ii) property subject to the lien of the Impaired Secured Creditor is sold free and clear of that lien, with that lien attaching to the proceeds of sale, and such lien proceeds are treated in accordance with clauses (i) and (iii) hereof, or (iii) the Impaired Secured Creditor realizes the indubitable equivalent of its Claim under the Plan. 11

22 (b) Unsecured Claims. With respect to treatment of an Unsecured Claim under the Plan, fair and equitable means either, (i) each Impaired Unsecured Creditor receives or retains property of a value equal to the amount of its Allowed Claim, or (ii) the Holders of Claims and interests that are junior to the Claims of the dissenting Class will not receive any property under the Plan on account of their pre-existing junior claim or interest. (c) Equity Interests. With respect to the treatment of Equity Interests under the Plan, fair and equitable means either (i) each Equity Interest Holder will receive or retain under the Plan property of a value equal to the greatest of the Allowed amount of any fixed liquidation preference or redemption price, if any, of such Equity Interest or the value of the Equity Interest, or (ii) the Holders of Equity Interests that are junior to the dissenting Class of Equity Interests will not receive or retain any property under the Plan on account of such junior Equity Interest. The Trustee believes that the Plan can be confirmed on a non-consensual basis if the Holders of any Class of Claims entitled to vote on the Plan vote to reject the Plan (provided at least one Impaired Class of Claims votes to accept the Plan), notwithstanding the presumed acceptance by the Class 8 Holders of Equity Interests, as the Trustee has determined that the Plan meets the absolute priority rule since Equity Interests are retaining pre-petition Date Equity Interests on account of new value infused into Paddlewheels, and not merely on account of the pre-existing Equity Interest. If appropriate, the Trustee will demonstrate at the Confirmation Hearing the Plan satisfies the requirements of section 1129(b) of the Bankruptcy Code as to any non-accepting Class. IV. GENERAL INFORMATION A. Overview of Paddlewheels Business Paddlewheels is a privately owned corporation which owns and runs a paddlewheel steamship vessel used to provide an event hosting facility for special events and to provide tourist amusement rides along the New Orleans portion of the Mississippi River. Paddlewheels also owns a portion of Airport Shuttle, Inc., a business providing shuttle services to and from the New Orleans airport. B. History of Paddlewheels, Debt and Corporate Structure and Management 1. History of Paddlewheels; Corporate Structure; Management Deadlock Paddlewheels is a Louisiana corporation formed in The common stock of Paddlewheels was originally owned by Warren L. Reuther, Jr. ( Reuther ) and James E. Smith, Sr. ( Smith ) in equal 50%-50% portions. Paddlewheels is but one of a group of related, affiliated companies owned or which were owned by Reuther and Smith, i.e, the Hospitality Group. 2 Ultimately, Smith transferred a large portion of his holdings in Paddlewheels to his sons. 2 The Hospitality Group comprises the following companies: Airport Holdings, Inc., Airport Shuttle, Inc., Airport Shuttle Colorado, Inc., ASI to Airport Joint Venture d/b/a Airport Shuttle, Inc., Bayou Sauvage Swamp Tours, Ltd., Chicory Building, Inc., Delta Transit, Inc., Destination Management, Inc., Hospitality Enterprises, Inc., HE Real Estate, L.L.C., Lodging, Inc., New Orleans International Cruise Ship Terminal, Inc., New Orleans Paddlewheels, Inc., New Orleans Tours, Inc., On The Town, Inc., RSC Management, Inc., Reuther & Smith Enterprises, L.L.C., and Visitor Marketing, Inc. 12

23 Reuther transferred one (1%) percent of his Paddlewheels stock to his two sons, keeping the remainder for himself. A description of the pre-bankruptcy corporate structure and the deadlock leading to the filing of the bankruptcy case from the AMENDED REASONS FOR APPOINTING A CHAPTER 11 TRUSTEE ( Reasons ), issued by the Bankruptcy Court on September 28, See, Docket #289 is reproduced below. According to the Bankruptcy Court: Recognizing Smith s desire to involve his children in the business more directly, in the 1990s the two men [Reuther and Smith] began including Smith s sons as officers in the Hospitality Companies. Initially, this involved electing Duane Smith as president of NOP [Paddlewheels]. Tensions mounted, however, between the two men and in 1999 JES [James Smith] approached Reuther about a shift in management. JES laid out a plan for the both of them to spearhead the Hospitality Companies. JES proposed himself as president, in charge of the day to day operations of the company, with Reuther as its Chief Executive Officer ( CEO ), the visionary, in charge of marketing and development. At a momentous directors meeting for the Hospitality Companies conducted in January of 1999, the two families joined once again in an agreement for joint and shared responsibility over management. The boards of the Hospitality Companies, composed of Reuther, JES, Craig Smith and Nancy Reuther (Reuther s wife), elected Reuther chairman of the board, JES president, and Craig Smith secretary/treasurer. A certificate of incumbency for NOP, executed by Craig Smith as secretary, confirms this election, as well as Reuther s position as CEO. But this was to be a short respite. Over the next few years animosities developed and strengthened between Reuther and JES. Nevertheless, Reuther, his wife Nancy, and JES remained on the boards of the Hospitality Companies from 1999 forward. Additionally, JES remained as president and Reuther as CEO during this entire period.... In early 2001, JES requested from his firm an opinion as to the legality of Reuther s position as CEO and the powers of the presidency.... In October of 2001, JES unilaterally terminated Reuther as CEO and denied him access to the business offices and records of the Hospitality Companies, literally changing the locks on the doors.... In a board of directors meeting of the Hospitality Companies, held in November of 2001, deadlock ensued. The lines had been drawn and the directors, Reuther, Smith, JES, and Nancy Reuther, voted along family affiliations on each and every issue. 3 The Bankruptcy Court further noted that despite board of director deadlock, the company operated through the oversight of the Executive Committee of the Board of Directors. Eventually, Reuther and James E. Smith, Jr. ( JES ), on behalf of themselves and certain entities, including Paddlewheels, filed a number of suits against each other, related persons and against the Hospitality Group (including Paddlewheels). These suits were originally filed in Louisiana state court. Upon the filing of bankruptcy by an Affiliate of Paddlewheels, New Orleans Tours, Inc. ( Tours ), the suits were removed to the United States District Court for the Eastern District of 3 See, Reasons, pp Some paragraph breaks have been removed to condense the narrative and keep the narrative flow intact. 13

24 Louisiana ( District Court ). 4 As will be discussed infra, the issues raised in these suits have been settled by the parties. The settlement of these issues, in large part, provided the Trustee with the ability to file the present version of the Plan. C. Prebankruptcy Operations 1. Historical Financial Discussion Paddlewheels is a Sub Chapter S corporation under the Internal Revenue Code, and therefore profits and losses are recognized at the owner level, as are tax attributes and obligations. Paddlewheels has historically operated as a component of the Hospitality Group. Prior to the end of 2003, the Hospitality Group cash management system was comprised of a single operating bank account and the individual companies within the group were treated essentially as divisions. As of January 1, 2004, the Hospitality Group began operating as a group of affiliated companies, each having its own operating bank account. The Trustee has determined that the accounting system changeover was effected upon the making of journal entries purporting to represent the status of inter-company rights and obligations ( Due To/Due From ) existing as of December 31, A problem facing the Trustee and the Estate s accountants is that the Journal entries to record the end of 2003 Due To/Due From cannot be verified, and purport to reflect the Due To/Due From emanating from the entire history of the companies making up the Hospitality Group. It is thought by the Trustee that the Due To/Due From was not, prior to 2004, ever actually tied to the actual cash into and out of the single account and it is also thought that no obligation was ever written off as a result of the passage of time. As a result, therefore, the Trustee has deemed the historical balance sheet of Paddlewheels to be suspect. As will be discussed, the Estate s accountant is Patrick C. Gros, CPA (the Gros Firm ). 5 The Gros Firm has performed analysis and has attempted to reconcile the Due To/Due From accounts of Paddlewheels and of the Hospitality Group. The work has yielded no satisfactory conclusions, but has generated the Trustee s conclusion that the Due To/Due From bookings are not reliable. Attached hereto as Exhibit B is a spread sheet prepared by the Gros Firm attempting to balance the Due To/Due From regarding the members of the Hospitality Group. The conclusion at this stage is that over tan unknown number of years the Due To/Due From became out of balance by some $3.46 million. Knowing this, it is clear that the balances residing in the individual bookings of the individual companies cannot be statements of a true financial picture. Without tremendous expense and expanse of time it would not be possible with any certainty to determine where the out of balance deficit should be allocated; and even with such expense and time allocated to the task, the Trustee is not certain that an answer would be possible. It is clear that the old Whitney operating account was not overdrawn by the aggregate deficit within the intercompany balances (the $3.467 million number). It is not clear where the deficit should be applied to cancel it out. After October 2001, the Hospitality Group was controlled by James Smith Jr. The pre 2004 accounting system it appears became a shambles by December 31, 2003, and it appears as well that insufficient controls were in place even after the changeover to the multi-company data 4 The six suits were given case numbers , , , , , and All six of the suits were consolidated by the District Court under the lead case, Reuther, et al. v. Smith, et al., No (the Removed Cases ). 5 The Bankruptcy Court also approved the retention of Douglas W. Finegan, with the firm Kushner LaGraize, L.L.C. (the Finegan Firm ) to prepare tax returns. Both the Gros firm and the Finegan firm have performed services for certain of the Global Settlement Parties. The Bankruptcy Court is aware of this. 14

25 base and system. One of the things that the Trustee has focused upon since his appointment is the monthly accounting. Through the hard work of the Gros firm, the accounting has obtained focus, controls and it is thought, reliability. The Hospitality Group is still operated as an affiliation of related companies, but the accounting focus because of the Tours and Paddlewheels bankruptcy cases has caused the Hospitality Group to regain its accounting footing. 2. Events Leading to Bankruptcy The causes of the Paddlewheels bankruptcy filing were numerous. The Hospitality Group had been in litigation since essentially October 2001, on numerous fronts, because of the falling out between James Smith Jr. and Warren Reuther. The company was of course affected by the drop in tourism caused by the attacks on September 11, Another driver of the Paddlewheels bankruptcy filing was the imposition by the City of New Orleans of certain allegedly overdue sales taxes of various types for years 1996 through March 2003 in an aggregate amount exceeding $3 million. After extensive litigation within the state court system, Paddlewheels was found not to be able to challenge the assessments given the alleged requirement of state law that a tax payer pay assessed amounts as a pre condition for fighting the assessment. 6 Additionally, Paddlewheels was affected by Hurricane Katrina. Katrina devastated New Orleans. Business essentially evaporated and even after the closed city opened back up, the city population and tourism rates stayed non-existent to extremely low. The interruption of the core event hosting and tourism business operated by Paddlewheels along with the trickle of income post-katrina also contributed to the filing of the bankruptcy case. As of the commencement of the Paddlewheels Chapter 11 Case, then, the company had encountered two shocks within less than 5 years over which it had no control (September 11 and Katrina), a massive assessment by the City of New Orleans to which the company could not mount a viable challenge under non-bankruptcy law, and a shareholder dispute that certainly drained the company s ability to undertake its business in a rational fashion. Additionally, the company s accounting procedures were such that timely tax returns had not been filed and accounting controls were inadequate or non-existent. D. Current Financial Structure and Situation; Analysis of the Present and of Past Records 1. General Currently, Paddlewheels is maintaining operations through the use of cash generated from operations. As of the commencement of the Paddlewheels Chapter 11 Case, the company had no line of credit financing. After much travail the company as debtor in possession was able to obtain post-petition financing for a period of roughly 120 days (in the principal amount of $400,000). However, due to a law suit being filed against the post-petition lender (Whitney), the line was halted after the company had drawn only some $110,000 (of which some $75,000 was used to pay Debtor s chapter 11 counsel). Notwithstanding the filing, the company has been able to maintain ordinary course of business financing by vendors, many of whom are pre-petition Claimants. The company personnel and the Trustee are grateful to those vendors who have 6 A fuller discussion of the claims of the City and the Trustee s compromise of those Claims is set forth in Article IV, section E (2)(a) below. 15

26 allowed the Estate to use unsecured credit, or who have given terms for purchases necessary to the operation. Paddlewheels, as a event hosting and tourism related business, is dependent to a large extent on its relationships with area food and beverage caterers, musicians, and others who provide products to the company. Attached hereto as Exhibit C is the cumulative profit and loss statement and balance sheet for Paddlewheels from the Filing Date through February 29, This Exhibit is the base of the following discussion. Operations have recently turned profitable. As well, the company has experienced a general upturn over the near two years of bankruptcy. For example, comparison of the May 2006 through February 2007 period ( Period 1 ) with May 2007 through February 2008 ( Period 2 ) reveals that the company has made significant strides. Monthly revenue for Period 1 averaged $137,669, while the Period 2 average was $236,762, representing an increase of 72%. For Period 1 the monthly net loss averaged $98,269, while the Period 2 monthly loss averaged $19, Regarding the January-February 2007 and 2008 periods, the accomplishment is significant. The 2007 two-month figures for revenue and loss are $187,656 and $327,145, respectively. The 2008 two-month figures for revenue and profit are $579,143 and $78,059, respectively. This represents a monthly revenue increase of $195,743 and a monthly profit increase of $202,601. While there were several events in January and February 2008, and while any two month snap shot is not necessarily indicative of long trends, the Trustee has determined that the time for the company to emerge from bankruptcy is sooner rather than later Overview of Assets (a) Balance Sheet Assets. Paddlewheels hard assets consist primarily of the M/V Creole Queen and related equipment, accounts receivable, cash on hand, and its investment in Airport Shuttle, Inc. The asset values shown on Exhibit C are the book values, or asset costs less depreciation. Other assets such as contracts and leases, etc., to which Paddlewheels is a party, are listed and described in Schedule G on file with the Bankruptcy Court. Please see the discussion below of executory contracts and unexpired leases for further information concerning the expected exercise of the Bankruptcy Code rights of assumption and rejection of contracts and leases. The Current Assets number listed on the balance sheet is $468,765. Total assets are booked, net of depreciation, at a value of $4,056,467. The Trustee believes that this asset value does not accurately reflect 7 Not included in the monthly numbers for Period 2, or for the months of November through February for Period 1 are amounts for compensation to the Trustee and his counsel. The assumption is that the total bill will be approximately $250,000, which would constitute an average expense of approximately $14,000 per month (November 2006 through May 2008). If that figure is added to the monthly loss numbers, the Period One loss would be $103,869 and the Period 2 figure would be $33,908, still over a three times better monthly performance. Also, in December 2007 an expense of approximately $100,000 was booked as a catch up accrual of berthing charges for the year As such, approximately $34,000 of expense belonging to Months January through April, 2007 offsets booked revenue for May through December. If this catch up accrual is factored into calculation of loss for Period 2, the monthly loss would decrease to approximately $16,600 or adjusted for trustee expenses, approximately $30,000 per month. 8 Since preparation of the April 15 Disclosure Statement the Trustee has reviewed the March 2008 monthly operating report. The balance sheet and profit and loss components of this report are attached hereto as Exhibit R and show that March 2008 performance represented a continuation of the above described up trend. March 2008 revenues increased % over March 2007 revenues. Net profit increased two hundred twenty percent (220%) over the March 2007 performance. 16

27 the true value of the M/V Creole Queen sold in a market environment due to the accumulated depreciation booked on the balance sheet. The Trustee believes that the asset value of the M/V Creole Queen should be substantially higher than the $967, booked for the total value of the Property, Plant & Equipment. If the prior sale of the M/V Cajun Queen is an indicator, the market value of the Creole Queen would approximate $2.8 million, or roughly 70% of the value attributed by an appraisal performed prior to the appointment of the Trustee. 9 The net accounts receivable are listed at a value of approximately $304,026. However, as reflected on the balance sheet, older receivables have not necessarily been written off as bad or already paid accounts in a timely fashion, but it is submitted that after nearly two years in bankruptcy, this number has dwindled such that the receivables number is approaching validity. (b) Related Party Transactions and Investments. The balance sheet portion of Exhibit C contains asset line items reflecting amounts due to Paddlewheels from related parties, particularly Hospitality Enterprises and Tours. Additionally there exists a booked investment of approximately $2 million in ASI. The ASI designation refers to the investment in two companies, Airport Shuttle, Inc. and ASI To Airport Joint Venture, d/b/a Airport Shuttle, Inc. ( ASI To Airport ). Paddlewheels holds a 15% interest in Airport Shuttle, Inc. and a 45% interest in ASI To Airport. Airport Shuttle, Inc. is party to a certain ground transportation service concession (designated the Contract within the description of treatment of the Class 4 Claim which provides airport shuttle, Inc. the concession to transport passengers from the Louis Armstrong Airport in New Orleans. ASI To Airport transports passengers to the airport. These two companies utilize a consolidated financial reporting system, but from analysis of the tax returns the Trustee has concluded that the vehicle fleet resides in Airport Shuttle, Inc., while ASI To Airport utilizes the vehicle fleet through an expense allocation related to vehicle use. Attached hereto as Exhibit D are the January 2008 income statement and balance sheet of the two companies. The balance sheet contains booked entries evidencing Due From Related Parties amounts of some $4.58 million. This booked item is included in the overarching group of bookings of Due To/Due From, discussed supra., that cannot be reconciled without a look back audit period of undetermined duration. In the Trustee s work with both the Gros Firm and the Finegan Firm, the Trustee has come across an off balance sheet item that should be mentioned as well. Within the trial balance of Paddlewheels calculated for tax return purposes, there is an item referred to as a due from related parties in the approximate amount of $2.9 million. A copy of the trial balance is attached hereto as Exhibit E. Apparently Paddlewheels is the owner of a now-defunct company, Shreveport Paddlewheels, Inc., and for tax purposes the two are consolidated. However, the historical balance sheet of Paddlewheels has no booked investment into Shreveport Paddlewheels. The trial balance item can be traced to the same journal entry mechanism that is the source of most of the Due To/Due From. The problem from the Trustee s perspective in relying upon this supposed asset as a source of value is that it is bound up in the historically problematic record keeping that pre existed the conversion to a multiple company format (which itself has created significant accounting problems). The second is that reliance upon the journal entries for asset purposes seems to require reliance upon those same entries for debt purposes. As discussed below, the balance sheet shows debts due affiliated entities 9 During the marketing of the M/V Cajun Queen, the Debtor before the Trustee and the Trustee received no bids from the Louisiana/Mississippi area. Therefore, while the market has picked up in New Orleans and the company is performing better, the Trustee has received no inquiries that the Trustee could put stock in as to whether the M/V Creole Queen is for sale. 17

28 in excess of $2.96 million. The booked entry due from Hospitality Enterprises ( HE ) of $443,676 was generated by the entries attached hereto as Exhibit F and actually can be to some extent traced to cash transactions (e.g., a payment of $300,000 to a Whitney bank debt on the basis of collateral guarantees encumbering the assets of Paddlewheels). HE is treated as the administrative company (analogous to a holding company performing administrative functions that are allocated out amongst related entities). As of December 2006, Paddlewheels began to obtain repayment of the booked entry, by forgoing payment on allocated expenses such as insurance, rent, the salary of Craig Smith, and other items. In effect, HE has been repaying Paddlewheels for the pre bankruptcy due from item, and as Exhibit F shows, the $443,676 entry has been reduced to $267,264. This has provided Paddlewheels with some $176,412 in liquidity which has assisted the recovery of the company. The debt owed by Tours arose from the payment by Paddlewheels of some $30,000 of Tours debt to Whitney with proceeds from the sale of the M/V Cajun Queen. Reorganized Paddlewheels will retain this note from Tours. (c) Balance Sheet Liabilities. Paddlewheels remaining liabilities arise from tax debt and unsecured debt owed to third parties and affiliated entities. As discussed elsewhere, the pre- and post-bankruptcy debt owed to Whitney has been paid. Total liabilities inclusive of pre- and post-petition obligations are booked as of February 2008 at $5,175,588. Equity, therefore, is negative. Much of the booked liabilities arise from obligations allegedly owed by Paddlewheels to Insiders and Affiliate entities. As discussed above, the bulk of these related party debts (which aggregate approximately $2.965 million) arise from journal entries made upon conversion of accounting systems, and from the Trustee s perspective cannot be verified. There are as well insider debts specifically scheduled that were specifically booked as payables. As discussed infra, on of the facets of the Plan is that Confirmation will constitute a mutual release and waiver by Paddlewheels, its Insiders, and Affiliates whereby all claims among such parties will be released and waived as part of a global settlement of disputed Class 7 Claims. Ridding the balance sheet of Paddlewheels of such claims, and retained focus on proper bookings of affiliated allocations and transactions should assist Reorganized Paddlewheels in maximizing efficiency of accounting procedures and will for the first time in a very long while if ever) allow Paddlewheels the luxury of relying upon its own financial statements. A further discussion of the treatment of unsecured claims and the effect of the omnibus settlement and compromise of the Due To/Due From is contained infra. (d) Licenses. Paddlewheels is the holder of certain licenses from applicable regulatory authorities. Attached hereto as Exhibit G is a schedule of the licenses and permits owned by Paddlewheels. (e) Causes of Action. Causes of Action is a defined term in the Plan. Under the Plan, to the extent that Causes of Action exist, such Causes of Action, exclusive of Avoidance Actions, will be retained by Paddlewheels. Avoidance Actions, or those actions arising under Chapter 5 of the Bankruptcy Code (please refer to Plan for actual definition), will be released except as may be used as a defense to any claim asserted by a Creditor, or will be compromised by Confirmation so that any such Avoidance Action is released as consideration for waiver of Claims against Paddlewheels. Given the limitations period set forth in section 546 and section 108 of the Bankruptcy Code, the Trustee determined that it was necessary to file placeholder suits in the event the Effective Date cannot be achieved by May 3, The trustee filed adversary proceedings through on May 2, 2008 ( Place Holder 18

29 Proceedings ). These adversary proceedings were required because of the limitations periods of sections 108 and 546 of the Bankruptcy Code. The Trustee believes that the Place Holder Proceedings state claims against the defendants, on the basis of the matters discussed with Article IV, Section D (2) (b) and (e), and described in Exhibits D, E, F, and H. However, Confirmation will constitute a settlement of the Place Holder Proceedings which will be immediately dismissed with prejudice. The Trustee has not requested the issuance of summons and submits that Confirmation will obviate the necessity of overcoming the obstacles inherent in the applicable burden of proof. (i) Post-bankruptcy rights. Paddlewheels is presently unaware at this time of any Non-Bankruptcy Causes of Action accruing post-petition or arising from post-petition conduct of any third-party. (ii) Pre-bankruptcy rights. The Trustee does not believe that Paddlewheels holds a claim against its pre- and post-petition lender, Whitney National Bank ( Whitney ). However, prior to the Trustee s involvement in the case, Reuther, the Committee, and the City of New Orleans filed an adversary proceeding in the Bankruptcy Court attempting to assert a variety of causes of action against Whitney on behalf, and derivative, of the rights of Paddlewheels (the Whitney Suit ). 10 The Bankruptcy Court never entered an Order authorizing these parties to proceed in the stead of Paddlewheels. After the Trustee was appointed, the Trustee conducted an examination of the alleged bases for the Whitney Suit. The Trustee concluded, based on the information available to him at the time that no cause of action for recovery lay upon the allegations set forth with the Whitney Suit and moved to dismiss same without prejudice to the right to assert such claims at a later date if additional information became available. After a hearing on the matter, the Bankruptcy Court entered an Order dismissing the Whitney Suit without prejudice. The Trustee has uncovered no additional information that causes him to doubt his earlier determination. As part of the Global Settlement the Equity Interests and the related parties to Paddlewheels agreed that Whitney should be released from all claims. Whitney has been fully paid for all debt for which Paddlewheels could be liable or for which assets of Paddlewheels could stand as collateral. As such, the Trustee has no consideration that he could obtain from Whitney in exchange for a release of Whitney from claims of Paddlewheels. Notwithstanding this, the Trustee believes that the estate of Paddlewheels has no Cause of Action against Whitney. Attached hereto as Exhibit H is a set of schedules detailing on the basis of information currently available transfers and entries relating to transactions with various insiders prior to the Petition Date. As is discussed elsewhere, the Reuther litigation focused upon the claims of damage done to Reuther and to the other members of the Hospitality Group. All those claims have been resolved by the Global Settlement, and a condition of this Plan is that all such Causes of Action as may be held against Insiders of Paddlewheels and Affiliates of Paddlewheels are to be released and waived as settled and compromised Causes of Action by means of Confirmation. 10 See, Official Committee of Unsecured Creditors, et al. v. Whitney Nat l Bank, Adv. P. No , U.S.B.C., E.D.La. 19

30 (iii) Bankruptcy Causes of Action; Preferential Transfers. Paddlewheels has disclosed certain transfers as transfers made during the 90 days prior to the Order for Relief within its Statement of Financial Affairs. Attached hereto as Exhibit I is the most recent version of the cash disbursements schedule covering the period 90 days before the commencement of the Paddlewheels Chapter 11 Case. Upon the filing of the bankruptcy petition, debtors in possession, such as Paddlewheels, are empowered with several rights non-existent outside bankruptcy. Chief among these rights is the power to avoid and recover certain transfers made to or for the benefit of Creditors pursuant to 11 U.S.C The preferential transfer statute allows a debtor in possession to recover money paid to Creditors on account of a pre-existing obligation during a limited period of time prior to bankruptcy. The Bankruptcy Code provides several defenses to claims for avoidance of preferential transfers. Payments made within the ordinary course of business are not recoverable as preferences. Creditors who subsequently extended new value to Paddlewheels which remains unpaid have a defense to the extent of the new value. If a payment is made as a contemporaneous exchange of value, such payment is not recoverable. Further, Paddlewheels notes that in many instances it is uneconomical to pursue legal redress for payments aggregating less than $25,000, given the attorneys fees and costs involved. The Trustee has analyzed the transfers made by Paddlewheels within the ninety days prior to bankruptcy and believes that most, if not all, would be subject to ordinary course of business, contemporaneous exchange, or subsequent new value defenses. Further, the Trustee notes that most transfers are not of an amount which would make it economical to pursue recovery even if defenses were not present. Finally, the Trustee notes that many of the transferees still provide goods and services to Paddlewheels necessary for its ongoing business. On the basis of his analysis, the Trustee has proposed within the Plan to release all affirmative recovery under any preferential claims against Creditors listed on Exhibit I, reserving the rights of Paddlewheels under section 502(d) of the Bankruptcy Code. Under this section an entity that has received an avoidable transfer cannot have an Allowed Claim until the avoidable transfer is returned. Paddlewheels reserves the right to assert preferential transfer allegations in connection with Allowance of Claims and to utilize its rights under section 502(d) for purposes of disallowance or offset. E. Significant Debt Obligations 1. Secured Claims (a) The Whitney Secured Claim. As of the Petition Date, Paddlewheels owed Whitney approximately $1.3 million. This debt was secured by vessel liens filed against the Debtor s two vessels, the M/V Cajun Queen and the M/V Creole Queen. Post-petition, Paddlewheels entered into a financing arrangement with Whitney (approved by the Bankruptcy Court) under which Paddlewheels borrowed an additional $110,000 approximately. Subsequent to the Trustee s appointment, the Trustee negotiated the sale of the M/V Creole Queen to a third-party purchaser for an approximate purchase price of $1.5 million. After the sale was approved by the Bankruptcy Court, Paddlewheels closed on the transaction. The proceeds of the transaction were remitted to Whitney in full payment of all pre- and post-petition claims of Whitney directly against Paddlewheels. A small portion of the proceeds were used to pay the debt of an Affiliate, Tours, which obligation was secured by the vessel. Whitney 20

31 possesses no in personam claims directly against Paddlewheels. The Trustee has received from Whitney the Paddlewheels Notes and as well as a cancellation of mortgage, evidencing Whitney s agreement with the Trustee that Paddlewheels owes no inpersonam debt and that assets of Paddlewheels are free of liens in favor of Whitney. (b) The GMAC Claim. GMAC has filed a claim (Proof of Claim # 1) alleging that it is the Holder of a Secured Claim against Paddlewheels in the amount of $39, and secured by an interest in a Chevy C-15. The Trustee has reviewed the claim and has determined from the attachments thereto that the claim is possibly not a Secured Claim due to it being grounded in a true lease. The title shows that GMAC owns the vehicle. GMAC does have rights to the vehicle by virtue of its ownership interest. The GMAC lease was complied with subsequent to the Paddlewheels Petition Date and at the expiration of the lease term, the vehicle was returned to GMAC in accordance with the terms of the lease. Confirmation shall constitute a Final Order that the lease has been complied with and has terminated by its terms upon transferring the vehicle to GMAC at the expiration of the term of the lease. There will be no residual amount due GMAC. If necessary, the Trustee will object to the GMAC Claim. (c) River Parish Disposal Secured Claim. River Parish Disposal ( RPD ) has filed a Proof of Claim (Proof of Claim # 6) asserting that it is the Holder of a Secured Claim in the amount of $2, The Trustee has reviewed the RPD proof of claim and does not believe such proof of claim to properly assert a Secured Claim against Paddlewheels. The RPD proof of claim merely attaches a two page summary of invoices related to a portable toilet provided from September 2005 to February No liens or other documents indicating a perfection of a security interest in, to, or upon any property of Paddlewheels are attached. The Plan does not propose to treat RPD as a secured creditor, and the Trustee will institute an objection to the status of the RPD claim as secured (reserving all rights to also object to amount of claim) to clarify the claims register. (d) City of New Orleans Secured Claim. The City of New Orleans has filed a Proof of Claim alleging that it is the Holder of a Secured Claim in the amount of approximately $4.6 million. Prior to the Trustee s appointment, Paddlewheels objected to the claim of the City of New Orleans. Subsequent to the appointment of the Trustee he was advised by a former counsel for the City of New Orleans that the Claim would be amended. Such amendment has not occurred, but the suggestion of an amendment (wherein former counsel alleged the right to an additional $ million), 11 was considered by the trustee in determining the ultimate compromise that has been incorporated into the Plan whereby the Claims of the City of New Orleans for pre bankruptcy taxes is fixed at $1.5 million, payable as a compromised Priority Unsecured Claim in accordance with the terms of the Plan. 11 Any such amendment, as was mentioned by the Trustee, would bring into play whether the City of New Orleans was entitled to the expansive taxes claimed, without the necessity of compliance with applicable non- bankruptcy law requiring payment of assessed taxes as a condition for challenge (See 11 U.S.C. section 505). 21

32 2. Unsecured Administrative/Cure Claims Resolved by Compromise (a) Port of New Orleans Claim. -- The Port of New Orleans ( Port ) is a lessor/contracting party under several agreements whereby Paddlewheels had preferred rights to wharf space under First Call Agreements. These agreements were month to month agreements, and as of the commencement of the Paddlewheels Chapter 11 Case, Paddlewheels was in default under these agreements in the amount of approximately $200,000. Due to cash constraints Paddlewheels was unable to make post petition payments until an agreement was reached between the Trustee and the Port whereby all but one agreement were retroactively terminated and the parties reached a compromise of the amounts due to allow Reorganized Paddlewheels to continue as contract party under the agreement covering space at the Julia Street Wharf and to provide a payment term for the administrative and cure amounts. Under the agreement with the Port, the Estate paid the sum of $48,740.88, in April of 2008, and agreed to a revised First Call Agreement covering a reduced amount of space at the Julia Street Wharf going forward. The compromise provides for a remaining Claim due the Port of $221,210, which is payable as provided for in the treatment of the Class 1 Claim. According to the Port, the reduction agreed to is in excess of 40% of the aggregate amount claimed by the Port, which the Trustee believes to be a fair compromise designed to allow continued use of the First Call space at the Julia Street Wharf, and as well allows Reorganized Paddlewheels an extended payment term for repayment of what is in effect an Allowed Administrative Expense Claim. 3. Unsecured Priority Claims; Compromise with the City of New Orleans (a) City of New Orleans Claim. The Bankruptcy Code provides a priority in payment over General Unsecured Creditors to certain kinds of Claims as delineated within 11 U.S.C. Section 507. Paddlewheels has scheduled and/or the Plan will treat certain Claims held by various taxing and governmental authorities as Priority Unsecured Claims. As of the Filing of this Disclosure Statement an agreement has been reached with the City of New Orleans to compromise the Claim of the City of New Orleans through Confirmation. On April 15, 2003, the City of New Orleans Department of Finance filed suit against Paddlewheels alleging $1,961, in tax liability for failure to pay sale, use and amusement taxes for the years 1996 through In response, Paddlewheels, on May 12, 2003, filed suit against the City of New Orleans alleging that the City of New Orleans, by filing suit against Paddlewheels for taxes, breached the Compromise and Settlement Agreement entered into by the parties in 1998 (the 1998 Compromise Agreement ), which released Paddlewheels from tax liability arising out of a suit filed by the City of New Orleans in The City of New Orleans then filed a second suit against Paddlewheels on May 30, 2003 seeking taxes for the January 2000 to March 2003 tax period in the amount of $1,055, All three suits were subsequently consolidated. After consolidation, the trial court granted Paddlewheels Motion for Summary Judgment and exceptions, citing the 1998 Compromise Agreement, and dismissed the cases with prejudice. The Fourth Circuit Court of Appeal ultimately reversed the trial court s judgment and granted the City of New Orleans s Motion for Summary Judgment, effectively upholding the tax assessment against Paddlewheels. The Fourth Circuit s reasoning was twofold: (1) because Paddlewheels did not pay the tax 22

33 assessment under protest, it could not now contest the tax, and (2) the 1998 Compromise Agreement had no effect on the current lawsuits. Despite the state law cited by the Fourth Circuit, and despite the fact that the Fourth circuit ruling became final and unappealable prior to the Paddlewheels Petition Date, the Trustee believes that a challenge to the City of New Orleans s tax assessment and the ruling of the Fourth Circuit could be made, by bringing a 1983 action against the City of New Orleans alleging that its due process rights were violated by the City of New Orleans s application of Louisiana s pay under protest procedure. Indeed, the United States Supreme Court has held that procedural due process in the context of tax collection requires that the State provide taxpayers with a clear and certain remedy for erroneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaningful one. McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, Dept of Bus. Regulations of Florida, 496 U.S. 18, 39 (1990). The ordinary and proper application of Louisiana s pay under protest procedure has been upheld by Louisiana courts; nevertheless, the application of the City of New Orleans s pay under protest procedure, when applied in conjunction with New Orleans City Ordinance and and the Louisiana Supreme Court s holding in Cox Cable New Orleans, Inc. v. City of New Orleans, 624 So.2d 890 (La. 1993), arguably violated the due process rights of Paddlewheels. Indeed, applying the holding of Cox Cable to Paddlewheels, regardless of whether Paddlewheels was ultimately responsible for the taxes, because Paddlewheels passengers are the actual taxpayers, Paddlewheels does not have standing to claim a refund of taxes paid under protest, regardless of whether the assessment is improper or unconstitutional. Thus, Paddlewheels had absolutely no remedy for the allegedly unlawful tax collection, much less a clear and certain remedy as required by the Supreme Court s interpretation of the due process clause. Therefore, under this theory, Paddlewheels (and upon appointment the Trustee on behalf of Paddlewheels) would have been entitled to damages, injunctive relief, or declaratory relief, which could underlie an objection to the Claim of the City of New Orleans. Moreover, the Trustee has several valid substantive arguments against the City of New Orleans s tax assessment. Indeed, the 1998 Compromise Agreement specifically released Paddlewheels from all claims, demands, liens, rights and causes of action of whatsoever kind arising from the aforementioned Tax Litigation and Gaming Litigation, or the matters referenced therein, whether pending or that could have been brought in the Tax Litigation and Gaming Litigation. (Emphasis added). Thus, Paddlewheels could argue that any alleged tax liability incurred by Paddlewheels during the time period covered by the 1997 lawsuit against Paddlewheels was extinguished by the 1998 Compromise Agreement. On the other hand, the City of New Orleans would likely argue, as it did in prior litigation, that the 1998 Compromise Agreement only applies to the vessel known as the Flamingo Casino and not Paddlewheels operations on the M/V Creole Queen and the M/V Cajun Queen. Additionally, the Trustee could argue against the tax assessment on the following additional grounds: (1) the amusement tax does not apply to Paddlewheels because its vessels are not steamers as defined by the City of New Orleans s tax ordinance and the general enabling state statute; (2) the amusement tax does not apply to Paddlewheels because it does not provide live entertainment, as required by the taxing ordinance; (3) the tax levied upon Paddlewheels is unconstitutional because the tax is a duty of tonnage in violation of Clause 3 of the United States Constitution; (4) the tax assessed by the City of New Orleans upon Paddlewheels was prohibited by Congress when 23

34 Louisiana was admitted into the Union when it stated that use of the Mississippi River is forever free without tax, duty, impost or toll therefore, imposed by said state; (5) the City of New Orleans s claim is barred by res judicata in that in 1991, the Department of Revenue issued an opinion stating that the Louisiana statute that defines sales of service does not apply to a dealer who did not provide access to an event or facility that itself is amusement, entertainment, athletic, or recreational and (6) the City of New Orleans s claim is barred by a three year prescriptive period. Conversely, the City of New Orleans would likely argue, as it has in prior pleadings, that the tonnage clause is not applicable to Paddlewheels operations because the taxed sales occurred at the dockside facility and not the river. The City of New Orleans could additionally argue that its claims are not prescribed because Paddlewheels issued prescription waivers in 1996, 1997 and The City of New Orleans filed a proof of claim in the Paddlewheels bankruptcy for $4,634,797.48, which includes sales, use and amusement and other tax liability, penalties, interest, audit costs and attorneys fees from 1996 to Former counsel for the City of New Orleans advised the Trustee that additional Claims would be made, through No additional proof of claim has been filed by the City of New Orleans, and given the federal overlay creating grounds for objection, the treatment of the Claim of the City of New Orleans applies to all Claims which could have been filed under section 501 of the bankruptcy Code. The Trustee believes that the Plan treatment of the Claims of the City of New Orleans is well within reasonable, and believes also that the settlement and compromise contained within the Plan is grounded in great part by the decision of the City of New Orleans to balance assertion of its legal rights with preservation of a New Orleans family owned business that provides jobs and is integral to the New Orleans culture. Frankly, the City of New Orleans could have pressed for liquidation, but the Trustee believes that the City of New Orleans made the decision that pressing for liquidation would constitute a counterproductive signal and that in the long run, the good of New Orleans would be better served by assisting a local business in its recovery. The Trustee also believes, however, that it was incumbent upon the Equity Interests to resolve their differences and as well for the business of the Debtor to make structural changes for purposes of future operations. The Trustee believes that the required changes have been made. According to information provided to the Trustee by the Gros Firm, the Estate is current with its post bankruptcy tax returns and payments to the City of New Orleans, and the Trustee has received no communication from the City of New Orleans raising objections to the current reporting or payment mechanics. 4. Other Priority Unsecured Claims (a). Internal Revenue Service The Internal Revenue Service ( IRS ) has filed an amended proof of claim (#27-3) alleging a Priority Unsecured Claim in the amount of $ As a result of investigation and the preparation of returns by the Gros Firm the is satisfied that the Claim of the IRS should be fixed at $ The general Unsecured Claim of the IRS is filed as $7,100. (b) Louisiana Department of Revenue and Taxation the Louisiana Department of Revenue and Taxation ( LDRT ) has filed an amended proof of claim to amend Claim #23 alleging a Priority Unsecured Claim in the amount of $413, After completion of returns, the Gros Firm has advised the Trustee that the tax arguably due over and above the bulk of the LDRT claim assessed in 2001 after audit ($294,000) amounts to $73, The Trustee is in contact with the legal division of the LDRT 24

35 and has approached LDRT about a face to face meeting seeking compromise. Now that returns have been completed (for a large number of pre-petition periods), discussion is possible. The Trustee understands that the Paddlewheels file has now been referred to the legal department for LDRT. The Trustee has made contact with counsel for LDRT and a meeting has been set tentatively for May 21, 2008 to discuss consensual resolution of the LDRT Claim. The Plan proposes to resolve the LDRT Claim by fixing the Claim in the compromised amount of $220,000, and further proposes a compromise payment term of 5 years from the Effective Date. It is hoped that after the triggering objection the Trustee can resolve the LDRT claim by consent and compromise. Though the Trustee believes that the LDRT will act in good faith regarding compromise, and despite the willingness of the other constituencies to compromise in favor of consensual resolution, the Trustee cannot predict the ultimate outcome of negotiations with the LDRT. The Trustee can only state that commencing the week of April 14, the Trustee will be working through whatever avenues are available to resolve the LDRT claim in an amount that will not endanger the prospects of Plan success. (c) David McFarland -- $5, David McFarland has filed a proof of claim (#2) in alleging entitlement to a Priority Unsecured Claim in the amount of $5, The alleged basis for this claim is unpaid wages for the period September 2005 through May The Trustee has reviewed the records of Paddlewheels and disputes that Mr. McFarland is owed money for wages during that time period. The Trustee intends to object to Mr. McFarland s Priority Unsecured Claim if the matter cannot be resolved by consent. (d) Wage Claims The Schedules list several small wage Claims asserting priority status. The amended schedules filed by the Trustee list these wage Claims as Disputed. These Claims are not material in amount (less than $19,000 in the aggregate). If Allowed these Claims will be paid over five (5) years in equal monthly payments including simple interest at 7% per annum (the Trustee has not scheduled a projection for these wage Claims due to lack of materiality). 4. Unsecured Claims Unsecured Claims against Paddlewheels shall be given the treatment as outlined in Classes 5, 6 and 7. The Trustee in the amended schedules has scheduled an aggregate of approximately $4,354,512 in Unsecured Claims. On the basis of the discussion below, the Trustee believes that the Class 5 Claims should aggregate approximately $55,900, and the Class 6 claims, before adjustment through non-filing of Claims and objections to Claims, aggregate approximately $981,000. Attached hereto as Exhibit J is a schedule of the Class 5 Claims. Attached hereto as Exhibit K is a schedule showing all claims other than the Claim of the City of New Orleans, grouped according to nature of the Claim, and contains the Class 6 and Class 7 Claims. Those Claimants that have filed proofs of claim (as of May 11, 2008) are designated with a c and it is clear that the vast majority of potential claimants still have not filed proofs of claim. This Class 6 estimation includes the deductible portion of all persons known to the Trustee to have made demand upon Paddlewheels prior to the Paddlewheels Petition Date, though 25

36 only two have filed Claims 12. The Trustee submits the following discussion of the Class 6 and 7 Claims and certain proofs of claim on file. The Trustee is reviewing the filed claims and believes that certain Unsecured Claims may be objectionable. The Trustee has not completed his review of the Claims register, but has noted the following Claims filed with the Bankruptcy Court as objectionable or potentially objectionable: David McFarland. Mr. McFarland filed a proof of claim in the amount of $2,000,000 (Proof of Claim # 2). The claim is unliquidated and subject to litigation. The Trustee believes that insurance will ultimately cover any liability on the claim over and above a deductible of $15,000 (crew deductible). Thomas Brooks. Mr. Brooks filed a proof of claim in the amount of $1,000,000 (Proof of Claim # 32). The claim is unliquidated and subject to litigation. The Trustee believes that insurance will ultimately cover any liability on the claim over and above a deductible of $10,000 (passenger deductible). Pitre Family, LLC. Pitre Family, LLC has filed a proof of claim in the amount of $52, (Proof of Claim # 9). Pitre Family, LLC asserts that the claim arises as a result of a lease. Paddlewheels scheduled a claim in the amount of $ The Trustee does not believe that the proof of claim accurately reflects pre-petition amounts owed, but is rather representative of the full balance of all future lease payments. Further, to the extent that Pitre Family, LLC has a lease, such lease is being maintained, and the Estate is current on post-petition obligations. The Plan proposes to maintain the lease, and therefore the Claim on file will be rendered moot. Map New Orleans, Inc. Map New Orleans, Inc. has filed a claim (Proof of Claim # 13) asserting it is entitled to an unsecured claim in the amount of $23, for services provided from 2002 through Paddlewheels scheduled a claim for Map New Orleans, Inc. in the amount of $2, The Trustee is investigating the validity of the claim due to the large discrepancy, but notes that the claim is objectionable on its face to the extent of $9, as such amounts arose from invoices due prior to May 3, 2003, i.e., three years before the Petition Date. Louisiana has a liberative prescription of three years which would bar collection of amounts alleged to be due for more than three years prior to the Petition Date. See, La. Civ. Code art Caroline Drachenberg. Ms. Drachenberg has filed a proof of claim in the amount of $52, (Proof of Claim # 17). Ms. Drachenberg, like Pitre Family, LLC asserts that the claim arises as a result of a lease. No attachments were provided with the Proof of Claim. Paddlewheels scheduled, as disputed, a claim in the amount of $ The Trustee does not believe that the proof of claim accurately reflects pre-petition amounts owed, but is rather representative of the full balance of all future lease payments. Further, to the extent that Ms. Drachenberg has a lease, such lease is being maintained, and the Estate is current 12 The Trustee has provided counsel for David McFarland and Thomas Brooks with insurance policy information and has consented to relief from stay to allow Thomas Brooks to pursue his Claim against the insurer directly. 26

37 on Post-petition obligations. The Plan proposes to maintain the lease, and therefore the Claim on file will be rendered moot. Kish and Company, LLC. Kish and Company, LLC has filed a proof of claim (# 18) in the total amount of $196, Paddlewheels did not schedule a claim for Kish and Co., LLC. The proof of claim contains, as an attachment, a summary of invoices. It is unclear exactly what services were performed by Kish and Company, LLC for Paddlewheels as the vast majority of the 17 page attachment seemingly relates to Affiliate entities. The Trustee is investigating this claim and plans to object. The Trustee reserves the right to assert objections to any Claim deemed by him to be objectionable, but lists the aforementioned Claims for purposes of disclosure. The Trustee is continuing to review the records of Paddlewheels to determine which claims he believes do not accurately reflect amounts owed. After communication with the Gros Firm, the Trustee has determined that the pre-petition accounts of Paddlewheels are not reliable indicators of the Claims actually due. The Trustee points out that despite the fact that the Paddlewheels Chapter 11 Case was widely publicized only some 37 Creditors filed proofs of claim (including the two Holders of leases), out of a scheduled universe of some 287 Creditors (12.89%). This has caused the Trustee to doubt the validity of the range of payables remaining on the books of Paddlewheels. The Trustee therefore has scheduled all Claims in excess of $500 as disputed, requiring the Claimants to file proofs of claim as a precondition to Allowance. The Trustee has transmitted a letter to each scheduled Claimant so advising the Claimants, advising further of the filing of Amended Schedules and showing the scheduling of each Creditor s Claim. If the tort Claimants Claims are limited to the deductible liability (as they should be), the patently objectionable Claims (see, Kish, Mapp) are removed, and a predictable percentage of supposed Claimants do not file proofs of claim, it is possible that the final aggregate count of Class 6 Claims could be approximately $700,000. The Plan provides that the Holders of Allowed Class 6 Claims will receive a Pro Rata share of $250,000, regardless of the Allowed amount of Class 6 Claims. The Trustee will evaluate the prospect of objection so as not to pursue immaterial objections, and will make a reasonable effort to ensure that it determines that objections to Claims be predicated upon the conclusion that objection would yield a material result. Finally, Exhibit K includes the scheduled Class 7 Claims of Affiliates and Insiders that under the Plan will be compromised with no distribution but by means of a mutual release and waiver of Claims that will be effectuated by Confirmation. The Trustee calculates that this method of resolving this category of Claims will result in savings of litigation costs and will act to give full value to remaining claims. V. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE A. Voluntary Petition On May 3, 2006, Paddlewheels filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code initiating this bankruptcy case. 27

38 B. Use of Cash Collateral As of the date of the petition, Paddlewheels was indebted to Whitney in the principal amount of approximately $1.15 million, with such claims secured by liens on, inter alia, Paddlewheels two vessels, and its accounts receivable and cash. Further, Paddlewheels collateral also stood as collateral for other obligations owed by affiliates of Paddlewheels. Pursuant to section 363 of the Bankruptcy Code, the proceeds of any disposition of the pre-petition collateral constituted cash collateral of Whitney such that Paddlewheels could not use such cash collateral without the consent of Whitney, or pursuant to an order of the Bankruptcy Court, after hearing. Continuation of Paddlewheels operations required continued access to cash collateral. Accordingly, Paddlewheels filed a motion to permit the use of cash collateral ( Cash Collateral Motion ), and thereby sought to have the Bankruptcy Court enter, what became, the Cash Collateral Order permitting Paddlewheels to use cash collateral in accordance with the terms and conditions contained in the Cash Collateral Order. Such terms and conditions included, inter alia, that Whitney was given replacement liens on any property received through the use of cash collateral. A final hearing on the Cash Collateral Motion was held on May 31, The Bankruptcy Court entered the final Order approving use of Cash Collateral ( Cash Collateral Order ) on June 26, C. Schedules and Statement of Financial Affairs Paddlewheels originally filed Schedules and Statement of Financial Affairs on June 2, Paddlewheels filed amended Schedules on July 5, As discussed below, subsequent to the appointment of the Trustee, the Schedules have been amended again by filings made on April 11 and April 17, D. Retention of Professionals In order to assist Paddlewheels with the legal and financial issues involved in the Chapter 11 Case, the Bankruptcy Court approved the retention by Paddlewheels of Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, L.L.P. ( Lugenbuhl ) as general counsel. Paddlewheels also requested authority to employ the Gros Firm to provide general accounting services to the Debtor. The Bankruptcy Court granted this request. Although the appointment of a Trustee discharged Lugenbuhl as general counsel for Paddlewheels, the Trustee has continued to retain Gros as the estate s accountants, with approval of the Bankruptcy Court. E. Appointment of Official Committee of Unsecured Creditors and Retention of Counsel On June 23, 2006, the Office of the United States Trustee filed a Notice of Appointment of Official Committee of Unsecured Creditors ( Committee ). The Committee was comprised of Hansen Music Productions, Inc., Stone Insurance, Inc., and Sysco Food Service of New Orleans, LLC. 13 The Committee subsequently moved the Court to authorize it to retain the Derbes Law 13 The Trustee believes, however, that subsequent to the appointment of the Committee, at least one of the Committee members has had its claim paid a portion of its Claim as a result of a personal guarantee by at least one of the equity security holders of Paddlewheels. 28

39 Firm, L.L.C. ( Derbes Firm ) as Committee Counsel. By Order entered July 27, 2007, the Bankruptcy Court authorized the Committee to employ the Derbes Firm as Committee Counsel. F. Motion to Incur Secured Debt On July 20, 2007, Paddlewheels filed a motion seeking authorization to borrow funds from Whitney. Paddlewheels asserted that its revenues were insufficient to provide funds to pay ordinarily occurring business obligations post-petition, such as insurance premiums and wages of employees, and that it needed to borrow funds (up to $400,000) to fund such obligations. Paddlewheels stipulated to the validity and extent of the Whitney claim, and to the validity of the security agreements securing the Whitney Claim. Paddlewheels further stipulated that Whitney was an over-secured creditor with rights to accrue interest and attorneys fees pursuant to 11 U.S.C. 506(b). Paddlewheels further granted Whitney a superpriority first position lien against all of Paddlewheels property to secure the post-petition financing. After a final hearing held on August 22, 2006, and over the objection of an equity security holder of the Debtor, Warren Reuther ( Reuther ), the Bankruptcy Court entered a Final Order authorizing Paddlewheels to borrow from Whitney on the terms outlined within the motion. Within the Final Order, the Bankruptcy Court fixed a deadline for parties in interest to object to the validity of the Whitney pre-petition claims and security interests of thirty days after entry of the Final Order authorizing the post-petition borrowing by Paddlewheels. The Trustee believes that under the post-petition financing arrangement, Paddlewheels borrowed only approximately $110,000 of the $400,000 limit, and that of this amount Paddlewheels used approximately $75,000 to pay the fees of Lugenbuhl incurred during its representation of Paddlewheels. G. Removal of State Court Proceedings Prior to the institution of the Bankruptcy Case, beginning in approximately 2001, Reuther and other equity security holders represented by the Smith family (collectively, the Smiths ) filed various actions within the Louisiana district courts against and/or on behalf of themselves, Paddlewheels, and 26 other affiliated, commonly-owned entities (collectively with Paddlewheels, the Hospitality Companies ). The state court litigation is complex and involved multiple claims of mismanagement, damages, injunctive relief, etc. At the heart of the state court proceedings is the disagreement between James E. Smith, Jr. ( Smith, Jr. ) and Reuther over management and control over the Hospitality Companies. Smith, Jr., through a series of moves, apparently attempted to remove Reuther from management and board duties of each of the Hospitality Companies. Reuther responded by seeking entry of a temporary restraining order and preliminary and permanent injunctions against Smith, Jr. personally and in his capacity as President of the Hospitality Enterprises. Reuther requested that Smith, Jr. and the Hospitality Companies be refrained from interfering with Reuther s duties as an officer of the companies comprising the Hospitality Companies. Smith, Jr., in his capacity as President of the Hospitality Companies also filed suits against Reuther for breach of contract and rescission, and to enjoin Reuther (and a Reuther-related entity, Hospitality Consultants, LLC) from competing against the Hospitality Enterprises, and from calling board of director meetings of each of the Hospitality Enterprises. The litigation (several separate suits between the parties) progressed in state court until the filing of the Bankruptcy Case. After the filing of the Bankruptcy Case, Paddlewheels filed a Motion seeking to extend the time to remove the state court lawsuits. Both Reuther and the 29

40 Committee separately moved to extend the time to remove the state court litigation. The Bankruptcy Court extended the time to remove the lawsuits until October 1, The Committee requested authority to act in the stead of the Debtor for the purpose of removing the state court lawsuits. The Bankruptcy Court also denied the Committee s request to be authorized to remove the actions in Paddlewheels stead. On September 27, 2006, the state court lawsuits were removed to the United States District Court for the Eastern District of Louisiana. H. Motion to Appoint Trustee On July 15, 2006, Reuther filed a Motion to Appoint a Chapter 11 Trustee ( Trustee Motion ), seeking the appointment of a chapter 11 trustee to supplant current management of Paddlewheels. On July 26, 2006, the City of New Orleans joined the Trustee Motion. Among the allegations made within the Trustee Motion, Reuther alleged that the board of Paddlewheels was deadlocked and thus, could not act, and further, that present management had mismanaged Paddlewheels by diverting assets, failing to provide accurate information, and failed to account for assets. The Trustee Motion was hotly disputed by Paddlewheels. After a lengthy trial, the Bankruptcy Court specifically found that the Paddlewheels board was deadlocked and thus could not authorize actions during the Bankruptcy Case, and further, that present management, consisting of Smith, Jr., had not properly maintained books and records, and had improperly blocked Reuther from performing his job as an officer of the company. Upon these findings, the Bankruptcy Court issued an Order directing the appointment of a trustee. I. Filing of the Whitney Suit On September 27, 2006, Reuther and the Committee moved the Court for derivative authority to object to the claim of Whitney (as required under the Final Order entered in relation to the post-petition financing facility), and to assert other claims against Whitney arising from its payment of drafts and checks from the Paddlewheels bank accounts and alleged diversion of funds at the direction of Smith, Jr. On September 20, 2007, without having authorization from the Bankruptcy Court, the Committee and Reuther, along with the City of New Orleans, filed an adversary complaint against Whitney alleging entitlement to recovery on the basis of improper payment, fiduciary breach, revocatory action, and fraudulent transfer, as well as a claim to equitably subordinate Whitney s claims ( Whitney Suit ). J. Appointment of the Trustee and Retention of Trustee Professionals After entry of the Order directing the Office of the United States Trustee to appoint a chapter 11 trustee had been entered, the Office of the United States Trustee filed a motion to appoint Paul Debaillon as chapter 11 trustee on October 2, The UCC and Reuther opposed the appointment of Mr. Debaillon, arguing that instead a Mr. Nieremberg should be appointed chapter 11 trustee due to his perceived experience in the hospitality industry. 14 By Order entered 14 Subsequent to the appointment of the Trustee, the Committee moved to have Mr. Nieremberg employed by the Committee as an advisor on plan feasibility and prospects, with Mr. Nieremberg disclosing that he wished to obtain an employment contract with any potential reorganized entity. The Bankruptcy Court denied the application of the Committee. 30

41 on October 19, 2007, the Bankruptcy Court denied the appointment of Mr. Debaillon as chapter 11 trustee. The Office of the United States Trustee subsequently filed a motion seeking to have the appointment of Louis M. Phillips as chapter 11 trustee approved. By Order entered October 31, 2006, the Bankruptcy Court approved the appointment of Louis M. Phillips as chapter 11 trustee. Trustee has continued to act as chapter 11 trustee since the date of approval. The Trustee moved to employ the law firm of Gordon Arata McCollam Duplantis & Eagan, LLP ( Gordon Arata ) as counsel for the Trustee. On December 4, 2006, the Bankruptcy Court authorized the Trustee to employ Gordon Arata as attorneys for the Trustee. K. Sale of the M/V Cajun Queen Shortly after being appointed, the Trustee embarked on the marketing and sale of one of Paddlewheels two vessels, the M/V Cajun Queen (the Cajun Queen ). After marketing the Cajun Queen, the Trustee received a bid for $1.5 million from Savannah Riverboat Company, LLC ( Buyer ). The Trustee moved for authority to sell the Cajun Queen to Buyer and for implementation of bid procedures designed to secure the highest and best bid. The Bankruptcy Court approved the bid procedures, and at auction, no higher and better bids surfaced. The Trustee moved to confirm the sale to Buyer at the $1.5 million purchase price. By Order entered April 2, 2007, the Bankruptcy Court approved the sale of the Cajun Queen to Buyer. The proceeds of the sale of the Cajun Queen were paid to Whitney in payment of Paddlewheels direct obligations to Whitney, and further in payment of obligations of the affiliated Hospitality Companies for which the Cajun Queen secured payment. The (partial) payment of these affiliated Hospitality Companies obligations gave rise to claims by Paddlewheels against the Hospitality Companies for repayment of the money paid to Whitney on account of the sale of the Cajun Queen. L. New Orleans Tours Bankruptcy Case New Orleans Tours, Inc. ( Tours ), an affiliate of Paddlewheels and member of the Hospitality Companies, also filed a bankruptcy case in the United States Bankruptcy Court for the Eastern District of Louisiana (Case # ) ( Tours Case ). As a result of various intercompany transfers pre-petition, and as a result of the partial payment of Tours obligations to Whitney arising from the sale of the Cajun Queen, Paddlewheels held claims against Tours. Tours filed a plan of reorganization which was subsequently confirmed by the Bankruptcy Court. The Trustee participated in the confection of the Tours plan, and as a result, the Tours plan acknowledged that Paddlewheels was subrogated to the secured claim rights of Whitney to the extent of its over-payment of money from the sale of the Cajun Queen. All told, the overpayment resulted in the approval of a secured claim in the approximate amount of $30,000. This Secured Claim, of Paddlewheels will be maintained by Reorganized Paddlewheels. M. The State Court Lawsuits Revisited After docketing of the Removed Cases, the Trustee moved to stay the litigation. The Trustee asserted that to the extent the litigation asserted rights either directly on behalf of Paddlewheels, or derivative of Paddlewheels, the automatic stay precluded further litigation of those issues. In addition, the Trustee urged the court to stay the entire litigation so as to allow the Trustee to confect a plan of reorganization. The District Court granted the stay request as to the 31

42 Paddlewheels actions, actions against Paddlewheels, and derivative actions of Paddlewheels. The District Court, however, allowed the remainder of the Removed Cases to proceed, which generated extensive litigation. The Removed Cases were ultimately settled by means of Global Settlement and the involvement of Paddlewheels will likewise be resolved by Confirmation. N. Dismissal of the Whitney Suit After being appointed as Trustee, the Trustee immediately began investigating the basis and validity of the claims asserted by Reuther, the Committee, and the City of New Orleans within the Whitney Suit. The Trustee was very concerned with a lawsuit against the pre- and post-petition secured lender of Paddlewheels (who also refused to continue to lend money to the estate under the post-petition facility due to the existence of the lawsuit). The Trustee was concerned first and foremost with threshold standing issues of the parties plaintiff as the Bankruptcy Court had never authorized those parties to act on behalf of Paddlewheels, and (except for the equitable subordination claim) each of the causes of action alleged were derivative of the rights of Paddlewheels. Moreover, the Trustee s investigation revealed substantial questions as to the validity of any improper payment claims, fraudulent transfer claims, etc. Further, the Trustee was very concerned with the interpretation of the Bankruptcy Court s order as requiring such litigation to be brought within thirty days of entry. The Trustee believed that the parties plaintiff misread the Order, and prematurely instituted the adversary proceeding (again, causing funding to cease and operations to be hampered by the unavailability of cash). The Trustee, on the basis of his investigation, moved the Bankruptcy Court to dismiss the Whitney Suit, without prejudice. Over the objection of the parties plaintiff, the Bankruptcy Court granted the dismissal motion and dismissed the Whitney Suit, without prejudice. O. Global Settlement During the continuation of the pending litigation (sans Paddlewheels) in the United States District Court, Reuther and the Smiths agreed to compromise their differences and settle the Removed Cases and all disputes arising among them. The Global Settlement was reached among Airport Holdings, Inc., Airport Shuttle, Inc., Airport Shuttle Colorado, Inc., ASI to Airport Joint Venture d/b/a Airport Shuttle, Inc., Bayou Sauvage Swamp Tours, Ltd., Chicory Building, Inc., Delta Transit, Inc., Destination Management, Inc., Hospitality Enterprises, Inc., HE Real Estate, L.L.C., Lodging, Inc., New Orleans International Cruise Ship Terminal, Inc., New Orleans Paddlewheels, Inc., New Orleans Tours, Inc., On The Town, Inc., RSC Management, Inc., Reuther & Smith Enterprises, L.L.C., and Visitor Marketing, Inc., Warren L. Reuther, Jr., Nancy M. Reuther, Robert G. Reuther, M.D., Warren L. Reuther, III, M.D., James E. Smith, Sr., James E. Smith, Jr., Craig W. Smith, Duane P. Smith, Glenn W. Smith, Jason L. Smith, M.D., Betty J. Smith, The Jeffrey Smith Trust, The Alexis Smith Trust, Smith Martin, APLC, Staci M. Rosenberg, Smith Rosenberg, L.L.C., and the Smith Law Firm, L.L.C. The terms of the settlement have made possible the prospect of the Plan. The Global Settlement resolved the shareholder disputes and intercompany disputes and provided as restructured corporate governance provision within the corporate by-laws and/or charter documents of the members of the Hospitality Group (other than Paddlewheels). According to the Global Settlement this corporate governance will apply to Paddlewheels upon confirmation. The Plan requires this consequence. Further, the Global Settlement provides a release of intercompany Claims and shareholder Claims effective as of the date of the Global Settlement (November 21, 2007). The Plan is consistent with the Global Settlement and the compromise of shareholder, personal and 32

43 intercompany Claims provided by the Plan will be deemed by the Confirmation Order to be effective as of the effective date of the Global Settlement. P. Plan and Disclosure Statement On April 15, 2008, the Trustee filed the Plan and Disclosure Statement. At a hearing held on May 14, 2008, the Bankruptcy Court approved the Disclosure Statement as containing adequate information and allowed the Trustee to begin disseminating the Disclosure Statement to parties in interest and to begin soliciting votes in favor of the Plan. Q. Claims Bar Date On April 17, 2008 the Bankruptcy Court entered an Order setting June 15, 2008 as the last date for filing Claims against Paddlewheels (the Paddlewheels Claims Bar Date ). Notice of the Paddlewheels Claims Bar Date was mailed to all persons on the Paddlewheels mailing matrix as amended by the Trustee, and each creditor received a letter from the Trustee contains the bar date order, the page from the amended schedule showing that Claimant s claim as scheduled and a proof of claim form. This letter from the Trustee advised of the necessity of filing proofs of claim as a pre condition to Allowance of those Claims listed as disputed, unliquidated, or contingent. Claims scheduled as disputed, unliquidated, or contingent, will be disallowed if proof of any such Claim is not filed by the Paddlewheels Claims Bar Date. THE SUMMARY OF THE PLAN SET FORTH BELOW IN ARTICLE VI AND THE FOLLOWING ARTICLES IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PLAN. IN THE EVENT OF ANY INCONSISTENCY BETWEEN THE PROVISIONS OF THE PLAN AND THE SUMMARY CONTAINED HEREIN, THE TERMS OF THE PLAN WILL GOVERN. A COPY OF THE PLAN IS ATTACHED HERETO AS EXHIBIT A. CREDITORS ARE ENCOURAGED TO THOROUGHLY REVIEW THE TERMS OF THE PLAN AND TO SEEK INDEPENDENT LEGAL OR FINANCIAL ADVICE REGARDING THE TERMS OR TREATMENT CONTAINED THEREIN. VI. INTRODUCTORY STATEMENT AND SUMMARY OF HOW THE PLAN WILL BE IMPLEMENTED The Plan represents a broad based collective recognition that maintenance of the business of Paddlewheels is an objective that is worth sacrifice of pure legal position argument and is a superior objective to one obtained by focus on litigation and its attendant costs. The Trustee has obtained compromise with (i) the City of New Orleans, (ii) the Port, (iii) and all affiliated Claimants, and is pursuing compromise with the LDRT. Along the way within the Paddlewheels Chapter 11 Case, (i) the Debtor s operations have been streamlined, (ii) the resolution of the dispute among the Equity Owners has resulted in the prospect of a combined group marketing effort that can allow Paddlewheels to retake its place in the tourism industry of New Orleans, (iii) the figure of Craig Smith has emerged as a person of untiring dedication to the pursuit of restructure and resolution and as the future operations head of the Paddlewheels business plan, and (iv) a financial retooling through the efforts of the Gros Firm has paved the way to maintenance of future financial clarity and reliability. The Trustee takes this opportunity to point out the efforts of the following persons who in vigilant pursuit of protection of their client s and constituencies rights were able to bring good sense to the table to assist the Trustee in the pursuit of his duties: (i) Blake Jones, counsel for the City of New Orleans; (ii) Patrick Gallwey, Robert Jumonville, Jim Ruckert, Brien Gussoni, Jeff Lynch and Joseph Fritz, the management team of 33

44 the Port; (iii) Kirk Reasonover, Graymond Martin and Michael Walshe, architects of the Global Settlement; (iv) David Waguespack, counsel for Whitney (who despite representing a party sued after agreeing to lend post-petition, forestalled the undoing of the Paddlewheels Chapter 11 Case by providing the Trustee with forbearance while the MV Cajun Queen could be sold; (v) the Office of the United States Trustee, who exhibited the patience and good sense to allow this case to run its course as opposed to pressing for resolution before the company could in reality stand on its own two feet; (vi) Warren Reuther James Smith, Sr. and Craig Smith, who exhibited the fortitude to be able to put aside years of litigation and inter-family hurt to pursue a rebuilding of the Hospitality Group; (vii) Albert J. Derbes, IV, counsel for the Committee; and (viii) James Smith Jr., who despite holding a position of power within the Hospitality Group for years, and despite adverse rulings of several courts, determined to work toward consensual resolution of years of conflict, for the good of the whole. 15 The distilled version of Plan mechanics is that as of the Effective Date, the Equity Interests will provide funding to Reorganized Paddlewheels in the amount of $1.5 million. This infusion together with cash on hand will be used to pay (i) the $1 million cash portion of the Claim of the City of New Orleans, (ii) the professional fees and expenses that are unpaid as of the Effective Date, 16 (iii) the Cash payment to the Class 5 Claimants, and (iv) any other Administrative Expense Claims for taxes due outside the ordinary course of business. Confirmation will establish the payment terms by which the remaining Claims will be satisfied. The description of the terms of the applicable compromises and particulars of treatment afforded each Class (whether voting or non-voting) are set forth below. Given the requirements of section 1129(a) (9), Classes 1, 2, 3, and 4 are not Classes solicited to vote, as each Class has a single member that either has compromised with the Trustee concerning the treatment of its Claim or is in discussions with the Trustee about the terms of a compromise. In reality, there is no solicitation, because without compromise the Plan could not be Confirmed, as Creditors covered by section 1129(a)(9) holding similarly situated Claims cannot through majority vote bind other Claimants. For this reason, each such claimant is separately classified. The Plan is premised upon certain conclusions reached by Paddlewheels upon analysis of its past operations. First, given its asset base, equity in its assets over debt must come from (i) future operations and (ii) cash contributions. Second, asset liquidation as opposed to a restructuring of Paddlewheels as an operating entity would bring less recovery to creditors and would likely result in the loss of jobs and future business opportunities for suppliers. Third, to emerge from bankruptcy and to fund operations going forward, substantial cash sums will be 15 It goes without saying that all are indebted to the Court, Hon. Elizabeth Wall Magner, but to put such thanks in the body of this Disclosure Statement might be misconstrued as currying. Also, the Trustee is certain that by the above listing he will have left someone out. 16 The Trustee has analyzed the potential Administrative Expense Claims and believes that the unpaid Claims of professionals employed by the Paddlewheels Bankruptcy Estate to be paid by or shortly after the Effective Date should total approximately $490,000 through the Confirmation Date. This amount includes fees for accounting professionals for Paddlewheels (projected to be approximately $40,000), amounts previously approved by the Bankruptcy Court for counsel for the Debtor incurred prior to the Trustee s appointment (approximately $72,000), fees approved by the Bankruptcy Court for counsel for the Committee and an estimate of fees for Committee counsel through the Confirmation Date (projected to be $70,000), as well as Trustee compensation and compensation for Trustee s counsel. Currently (through April 30, 2008) the Trustee and Trustee counsel charges for fees and costs approximate $262,000. The pro forma projections comprising Exhibit P now assume Trustee and Trustee counsel fees and costs to be $300,000, and show the other professional fees and expenses mentioned here at $190,000 (under the heading legal and accounting). 34

45 needed by Paddlewheels on the Effective Date. Thus, additional capital is necessary; otherwise initial payments cannot be funded. Fourth, the Plan is premised upon the resolution of the shareholder and management disputes that have plagued the Hospitality Group for in excess of 7 years, through which a restructuring of the corporate form and management of Reorganized Paddlewheels will allow for an integral approach to marketing of the Hospitality group as a whole, which hopefully will provide benefit to the component companies, including Reorganized Paddlewheels. Fifth, on the basis of restructured creditor claims and implementation of streamlining of operations, Reorganized Paddlewheels will be able to maintain a focus on its accounting controls so as to provide the company with current and reliable financial information going forward. Seventh, given the Global Settlement, the upward trend regarding airport traffic, and the compromise with the City of New Orleans, it will be possible (and necessary) that the Paddlewheels interest in Airport Shuttle will provide the basis for repayment of this residual debt owed to the City, pursuant to the treatment of the Class 4 Claim of the City of New Orleans. The primary debt overhang that remains is that (i) from the Priority Unsecured Claims held by various taxing authorities, (ii) the Claim of the Port, (iii) the remaining Unsecured Claims. As discussed above, the Whitney Debt was paid after the Paddlewheels Petition Date, and as all Whitney Debt for which assets of Paddlewheels stood as collateral has been paid, there is no remaining encumbrance against assets of the Estate. This will allow Reorganized Paddlewheels, in combination with the willingness of Equity Interests to execute personal guarantees to raise capital infusion funding, to obtain a refinancing of the Administrative Claims and the Claim of the City of New Orleans for cash payoff of these Claims and other Claims entitled to Effective Date cash payment, as required by the Plan. Through the Plan, the City of New Orleans s sizeable tax claim will be settled and fixed in an amount less than one-third the amount claimed by the City of New Orleans in its Proof of Claim (i.e., $1,500,000.00). In return for this agreed reduction in claim amount, the City of New Orleans will be paid $1 million on the Effective Date, with the remaining $500, to be paid over a sixty month period by Airport Shuttle. The effect of the agreement with the City of New Orleans as to its Claim and as to treatment cannot be overstated. The Compromise Treatment of the Claim of the City of New Orleans is the sole basis upon which the Class 5 and 6 Creditors will achieve recovery. The Settlement reached among the City of New Orleans, the Trustee and the Equity Interests has shifted the residual liability to Airport Shuttle, Inc. and individual Equity Interest Owners and has given the Trustee the basis for a return to Class 5 and Class 6 Claims. Additionally, the agreement with the City of New Orleans avoids extensive and expensive litigation over allowance of the full amount of the Claim, the success of which is by no means guaranteed. Additionally, the Trustee has proposed a separate classification for small General Unsecured Claims of $1, or less. Such Claims are proposed to be paid, in cash on the Effective Date, an amount equal to 30% of the Allowed Claim amount. The Trustee has analyzed the Schedules of Paddlewheels and the claim register of the Paddlewheels Bankruptcy Case and believes that General Unsecured Claims of this category total approximately $55,904. The percentage of claimants who have claims of $1, or less out of the total of all claimants projects to be approximately 60-65% of the number of Unsecured Creditors. If the Trustee s projections are accurate, Paddlewheels will be required to expend approximately $17,000 in cash on the Effective Date for the Class 5 distribution. The Plan also proposes to pay Allowed Administrative Expense Claims in full on the Effective Date as provided in 11 U.S.C. 1129(a)(9)(A) All told, the Trustee estimates that Paddlewheels will need approximately $1,480,000 - $1,500,000 in cash to make payments under 35

46 the Plan on the Effective Date. In order to generate the cash to pay these claims, the Equity Interests will facilitate a capital infusion of $1.5 million. Under the Plan, several classes of creditors will be granted termed payouts of any Allowed Claims, i.e., the LDRT, the City of New Orleans, the Port, and the Class 6 General Unsecured Creditors. Thus, future operational success is necessary. The Trustee notes that many of the claims originally scheduled by Paddlewheels were held by Affiliates and Insiders of Paddlewheels. The Trustee has negotiated with the Insiders and Affiliates, and such claimants have agreed, as part of this Plan, that Confirmation shall constitute a waiver and release of any and all claims held by such Insiders and Affiliates. The Trustee believes that these waivers and releases along with objections that will be made could have the effect of reducing the General Unsecured Claims aggregate amount to approximately $650,000 to $700,000. The Trustee notes that many claims scheduled on the Amended Schedules filed by the Trustee are scheduled as disputed, contingent or unliquidated. Therefore, any person holding a claim so scheduled must file a proof of claim for such claim to become an Allowed Claim. At this juncture in the disclosure statement the Trustee makes mention that he has determined to limit his Claim for Trustee compensation to and hourly based charge. Trustee compensation is governed by 11 U.S.C. 330, but subject to the statutory cap on compensation described within 11 U.S.C See, In re England, 153 F.3d 232, (5th Cir. 1998); In re Guyana Dev. Corp., 201 B.R. 462, 477 (Bankr. S.D.Tex. 1996). Section 326 allows trustee compensation on a sliding scale depending on disbursements made by the trustee to parties in interest. The term disbursements includes all payments in the ordinary course of business by a trustee operating a business, in addition to disbursements made by the Trustee to pre-petition creditors and administrative creditors. See, In re Orient River Invs., Ltd., 133 B.R. 729 (Bankr. E.D.Pa. 1991); see also, In re North American Oil & Gas, Inc. 130 B.R. 473, 478 (Bankr. W.D.Tex. 1990); compare In re P. J Keating Co., 205 B.R. 663 (Bankr. D.Mass. 1997) (discussing term disbursements in context of 28 U.S.C. 1930(a)(6)). Parties in interest correlatively includes all entities to whom distribution of estate assets is legitimately made in furtherance of the overall reorganization process. North American, 130 B. R. at 480. Recent amendments to the Bankruptcy Code have added subsection (a)(7) to Section 330. Section 330(a)(7) provides that in determining the reasonable compensation to be awarded to a trustee, the court shall treat such compensation as a commission, based on section 326. Although the additional language is a relatively recent addition to the Bankruptcy Code, it does govern trustee compensation in this case, as the case was filed after the effective date of the BAPCPA. Most interpretations of the statute have concluded that a trustee s allowed fee will presumptively be the statutory commission amount. L. Kind, Collier on Bankruptcy, Sec [1][a] at (15th ed. rev d 2006); see also In re McKinney, -- B.R. --, 2008 WL , *3 (Bankr. N.D.Cal.). While the Section 326 statutory commission may be presumptively reasonable, a court still has discretion to review the request. Id. In this case, the monthly disbursement reports from the date of the approval of the appointment of the Trustee reflect that through February, 2008, the Trustee has disbursed approximately $5,098,114 to parties in interest (this figure reflects an average disbursement of approximately $300,000 per month). As of February, statutory commission allowable on disbursements would equate to $176,443.42, plus an additional $9,000 per month until the estate is administered. This figure would be increased by a large portion of the projected $1,500,000 in payments to be made pursuant to the Plan proposed herewith (maximum increase of $45,000). Assuming three months of further administration and confirmation of the Plan as proposed, statutory compensation due the Trustee would presumptively be approximately $248,

47 Additionally, the /trustee distributed the proceeds of the sale of the M/V Cajun queen ($1,500,000), which under the statutory formula would generate additional compensation ground. Also the treatment of Class 6 Claims is contingent upon a maximum fee payable to Committee Counsel of $70,000. To the extent that Committee Counsel has an Allowed Administrative Expense Claim in excess of $70,000, the Class 6 recovery will be reduced. Recovery at all was only ever possible if allowed to occur by the City of New Orleans through compromise. The Trustee notes that the compromise treatment of the Class 4 Claim involves collateralization by certain Holders of Equity Interests of the residual Claim and for payment of the $500,000 remaining portion of the Class 4 Claim by an affiliate of Paddlewheels. Now that the prospect of substantial recovery to Class 5 and 6 has been achieved further Administrative Expense Claims for fees of Committee Counsel would be unwarranted. As well, it is clear that the Trustee has capped his fees and that other Claimants have as well agreed to compromise in favor of reorganization. To treat Committee Counsel in a similar manner is reasonable, and leaves it to Committee Counsel, to a great extent, to determine the return to Class 6 Claims. 17 VII. SUMMARY OF THE PLAN TERMS CONCERNING CLASSIFICATION AND TREATMENT OF CLAIMS, ACCEPTANCE OR REJECTION OF PLAN, DISTRIBUTIONS, AND DISPUTED CLAIMS A. Unclassified Claims 1. Administrative Expense Claims The Holder of an Administrative Expense Claim, other than the Office of the United States Trustee, with respect to fees payable under 28 U.S.C. section 1930, and excluding any Administrative Expense Claim held by the Port (which is treated as a separately classified claim, infra) and the Administrative Expense Claim of Lugenbuhl, Wheaton, Peck, Rankin and Hubbard (which has been made subject of a Final Order that is non appealable) but including the Holders of Claims for Trustee and Professional fees and expenses, must File with the Bankruptcy Court no later than twenty (20) days after the Effective Date and serve on the Trustee, and/or counsel, as applicable, counsel for the Committee, and the Office of the United States Trustee, a request for payment of such Administrative Expense Claim. Any such request must (1) be set and noticed for hearing in accordance with the Bankruptcy Rules and the Local Rules of the Bankruptcy Court, and (2) set forth at a minimum (i) the name of the Holder of the Claim, (ii) the amount of the Claim, (iii) the basis of the Claim, and (iv) the basis for its allowance as an Administrative Expense Claim. This requirement shall not supersede any applicable Local Rule of the Bankruptcy Court regarding the required content of motions seeking approval of Administrative Expense Claims. Failure to File this request timely and properly shall result in the Administrative Expense Claim being forever barred, discharged, and waived. Except to the extent any Entity entitled to payment of any Allowed Administrative Expense Claim agrees to a different treatment, the Plan provides that each Holder of an Allowed Administrative Expense Claim will receive Cash in an amount equal to such Allowed Administrative Expense Claim on the later of the Effective Date or within twenty (20) days after the date such Administrative Expense Claim becomes an Allowed Administrative Expense Claim. 17 The Trustee notes regarding time charged by him that despite the fact that the Trustee received and reviewed notification of each check issuance from both the Gros Firm (directing issuance) and the operations employees of the Estate (confirming issuance), the Trustee customarily did not charge time for reviewing these communications, which total in the hundreds. 37

48 Notwithstanding the immediately preceding two paragraphs, however, Allowed Administrative Expense Claims representing liabilities incurred in the ordinary course of business by Paddlewheels through the Effective Date, except (i) Allowed Administrative Expense Claims for Trustee and Professional fees and expenses, (ii) outside the ordinary course of business borrowing, (iii) any tax Claim that is past due according to payment requirements regarding the time after the Paddlewheels Petition Date, shall be paid in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, custom regarding or other documents relating to such transactions, as the Claims accrue, and only such expenses incurred in the operation of the ordinary course of the businesses of Paddlewheels, post-petition, shall be assumed by Reorganized Paddlewheels as ordinary course of business obligations, to be paid post-confirmation as these Claims come due in the course of the business of Reorganized Paddlewheels. Entities doing business with Paddlewheels post-petition and prior to the Effective Date whose Allowed Administrative Expense Claims represent Claims arising in the ordinary course of business post-petition shall not be required to File a request for payment as otherwise required herein. Unclassified Administrative Expense Claims are not impaired and shall not be entitled to vote on the Plan. Paddlewheels has been paying its ongoing expenses in the ordinary course of business. It is current on its payment obligations to the Office of the United States Trustee. B. Classified Claims 1. Class 1. Administrative/Cure Claim of the Port of New Orleans (a) Classification. Class 1 consists of the Allowed Administrative/Cure Claim of the Port of New Orleans. (b) Compromise Treatment. Attached hereto as Exhibit L is the letter agreement relating to the compromise/cure treatment of the Claim of the Port. As set forth herein, Paddlewheels has been party to several agreements with the Port, and as of the Paddlewheels Petition date was in arrears to the extent of approximately $200,000 under these agreements. Additionally Paddlewheels due to cash constraints made no payments to the Port prior to April, 2008 on account of the post-petition obligations under the agreements. As a result of the compromise with the Port, all agreements except the First Call/Preferred Space agreement covering a portion of the Julia Street Wharf have been retroactively terminated, and the Julia Street Wharf Agreement has been modified to allow use of a reduced space at a reduced rate. As of February 1, 2008, the Julia Street First Call Agreement shall be $1, per month, and a new agreement will be negotiated with the Trustee or the Reorganized Paddlewheels to reflect this revision. Dockage charges will be billed at the first of each month at the rate of $ per day, with electricity charges to be billed in arrears. Paddlewheels is current under this new arrangement through April, The total compromised Claim of the Port, of $254,960 (which represents a reduction of in excess of $150,000 in the total claim) had been paid down by the sum of $33,750, leaving a residual Administrative/Cure Claim of $221,210. The Port Administrative/Cure Claim shall be paid by 29 equal monthly payments of $4,432.44, including simple interest at the 38

49 rate of 7.5% per annum, and a balloon payment during the 30 th month following the first month after the Effective Date for the full remaining balance due (projected to be approximately $120,904). The additional terms of the treatment are set forth in Exhibit L hereto. In consideration of the treatment afforded under the Plan, Reorganized Paddlewheels shall be entitled to retain the Julia Street Wharf space unless it goes into default, and such default is not cured as provided in Exhibit L. (c) Voting. Class 1 is deemed the Holder of an Allowed Administrative expense /Cure Claim and therefore hall not be solicited or entitled to vote on the Plan. 2. Class 2. Priority Claim of the IRS IRS. (a) Classification. Class 2 consists of the Allowed Priority Claim of the (b) Claim Amount, Treatment. The Allowed amount of the Class 2 Priority IRS Claim shall be fixed at $852.03, as the result of work done by the Gros Firm in finalizing applicable returns and determining that during years covered by the proof of claim filed by the IRS that the employees of Paddlewheels were accounted for as Tours employees. The IRS has filed an amended Claim in this amount. Paddlewheels shall pay the IRS Allowed Class 2 Claim in full within five (5) Business Days after the Effective Date. If any payment required by Plan, any deposits of any currently accruing employment tax liability, or any payment of any tax is not made within 10 days of the due date of such deposit or payment, or any required tax return is not filed by the due date of such return or any outstanding tax liability shown on the return is not paid at that time the return is filed, then the IRS may declare a default of the plan. Failure to declare a default does not constitute a waiver by the IRS of the right to declare that such default. If the IRS declares such default, then the entire imposed liability, together with any unpaid current liabilities, shall become due and payable immediately upon written demand to Reorganized Paddlewheels. If full payment is not made within 15 days of such demand, or other acceptable arrangements are not made, then the IRS may collect any unpaid liabilities through the administrative collection provisions available to it under the law. (c) Voting. Class 2 is the Holder of a Claim covered by section 1129(a)(9) and therefore will not be solicited and shall not vote on the Plan. 3. Class 3. Priority Claim of the LDRT (a) Classification. Class 3 consists of the Allowed Priority Claim of the LDRT, Filed in the amount of $413,105 (plus an Unsecured non-priority Claim of $46,626). Subsequent to the filing of this amended Claim, the Gros Firm has prepared returns to current status and believes that the aggregate tax to be Claimed on the basis of the returns now prepared shall amount to $73,653, over and above an amount assessed in 2001 on the basis of an alleged audit (as of 2001), which with interest asserts in excess of $294,732. (b) Claim Amount, Treatment. For purposes hereof, the Allowed Class 3 Claim shall through compromise be fixed at $220,000. Paddlewheels shall pay the LDRT Allowed Class 3 Claim in full with simple interest at the rate required by applicable statute (projected at seven (7%) percent per annum). The Priority LDRT 39

50 Claim shall be paid in equal monthly payments with the balance to be paid in full by the 60 th month following the Effective Date. The Trustee recognizes that such treatment represents a compromise term of repayment, and respectfully sets forth that confirmation shall constitute approval of this compromise term. (c) Voting. Class 3 is the Holder of a Claim covered by section 1129(a)(9) and therefore will not be solicited and shall not vote on the Plan. 4. Class 4. Priority Claim of the City of New Orleans (a) Classification. Class 4 consists of the Allowed Priority Claim of the City of New Orleans. (b) Treatment. In accordance with the compromise of the Priority Claim of the City of New Orleans, the Allowed Class 4 Claim, representing taxes due the City of New Orleans for periods prior to May 3, 2006, shall be fixed at $1,500,000. Reorganized Paddlewheels shall pay the City of New Orleans a cash payment of $1,000, on the Effective Date. Thereafter, the remaining $500, of the Allowed Class 4 Claim shall be paid in full by Airport Shuttle, Inc. with interest at a simple interest rate of ten (10%) percent, payable over a five year term in equal quarterly installments with the first payment due ninety days after confirmation and the final payment due on the 5 th anniversary of the Confirmation of this Plan. (c) Other Settlement Terms. Confirmation shall constitute the approval, ratification and the Confirmation Order shall constitute a Final Order implementing the following terms: (i) As a compromise and cause for the agreement of Airport Shuttle, Inc. to pay the $500, required by paragraph 4(b) and in consideration of the promise to pay the City of New Orleans made by Airport Shuttle, Inc. and the guarantees and security provided, the City of New Orleans shall not cancel or in any way impair the ongoing operations of Airport Shuttle, Inc., in connection with that certain Ground Transportation Service Concession Proposal FTC-2453, (the Contract ), nor shall the City of New Orleans take any action to enter into any contract or seek to enter into any contract with any party which in any way terminates or replaces the ongoing operations of Airport Shuttle, Inc., in connection with the Contract, for a period of ten years from the date of the confirmation of the Plan. The City of New Orleans shall act at all times as if the pre-bankruptcy injunction issued by order dated February 19, 2002, within Action No , Civil District Court for the Parish of Orleans, State of Louisiana remains in force and effect for a period of ten years from the date of the Confirmation of the Plan. (ii) As further consideration for the commitments made by the City of New Orleans in paragraph 4(c)(i), Warren L. Reuther, Jr. and James E. Smith, Sr. shall cause to be provided security for the performance of the payment obligations to the City of New Orleans as a Class 4 creditor herein in the form of a letter of credit from a federally chartered bank in the amount of $500,000, being the balance due to the City of New Orleans pursuant to the Final Order Confirming this Plan. 40

51 (iii) If at any time or for any reason for period of ten years from the date of the confirmation of the Plan, the City of New Orleans terminates or replaces the operations of Airport Shuttle, Inc. under the Contract, then the obligations of Airport Shuttle, Inc. in paragraph 4(b) and the guaranty and security provisions of paragraph 4(c)(ii) shall be null and void and without affect or effect. (iv) Confirmation shall constitute a Final Order granting the Class 4 Allowed Priority Claim of the City of New Orleans, to the extent of the amount stated above in paragraph 4(b), for all tax Claims asserted or assertable by the City of New Orleans against Paddlewheels or Reorganized Paddlewheels. (d) Voting. Class 4 is the Holder of a Claim covered by section 1129(a)(9) and therefore will not be solicited and shall not vote on the Plan. 5. Class 5. Convenience Class of General Unsecured Claims ($1, or Less) (a) Classification. Class 5 Claims shall include all Allowed Unsecured Claims of $1, or less. (b) Treatment. Each Holder of an Allowed Unsecured Claim (other than Allowed Administrative Expense Claims, Unsecured Priority Claims and Other Securities Claims) in an amount of up to $1, shall receive a cash distribution equal to the lesser of 30% of its Allowed Claim or a Pro Rata share of $17,000, within fifteen (15) Business Days after the Final Unsecured Distribution Record Date. The Trustee calculates that an aggregate amount of $56,654 in claims will be Holders of Class 5 Claims. (c) Voting. Class 5 is Impaired and shall be entitled to vote on the Plan. 6. Class 6. General Unsecured Claims (a) Classification. Class 6 consists of all Allowed General Unsecured Claims other than Class 5 Claims and Class 7 Claims. The Trustee estimates approximately $850,000 in Class 6 Claims, but that the ultimate Allowed amount will be closer to $600,000-$700,000. There are basically two categories of Class 6 Claims the general liquidated Claims and the unliquidated tort Claims that expose the company only to deductible liability under applicable insurance policies. All unliquidated tort Claims are scheduled as contingent and unliquidated, and have been scheduled at the maximum amount of applicable deductible liability of Paddlewheels. There have been only three proofs of Claim filed/submitted to the Trustee on behalf of the Holders of unliquidated tort Claims as of preparation of this Disclosure Statement. The applicable deductible for such Claimants is $10,000 per passenger and $15,000 per crew member, with a per accident maximum of $50,000. Confirmation shall constitute a Final Order recognizing all rights of the Holders of unliquidated tort Claims to proceed directly against the applicable insurer of Paddlewheels for the full amount of their Claims over and above the applicable deductible, and a limitation of the allowable amount of said Claims to the applicable deductible. 41

52 (b) Treatment. Reorganized Paddlewheels shall issue to the Note Agent the Class 6 Note. Each Holder of a Class 6 Allowed General Unsecured Claim shall receive, in respect of such Claim, an undivided Pro Rata Share interest in the Class 6 Note. The Class 6 Note shall be substantially in the form included in the Plan Supplement. Payment of the Class 6 Note shall be secured by a preferred ship mortgage upon the m/v Creole Queen subordinate to financing secured by a first preferred ship mortgage of up to $2.5 million 18, or other collateral mutually acceptable to the Committee on behalf of Holders of Allowed Class 6 Claims and the Holders of the Equity Interests. Distributions by the Note Agent shall be controlled by the provisions of Article VI of the Plan. (c) Voting. The Holders of Class 6 Allowed General Unsecured Claims are Impaired and shall be entitled to vote to accept or reject the Plan. (d) Note Agent. In addition to the provisions of the Plan regarding the Note Agent, the Note Agent shall have the authority to retain counsel to pursue collection of the Class 6 Note, pursuant to terms and condition as determined by the Note Agent in the sole discretion of the Note Agent. Further terms of the Note Agent agency relationship shall be made part of the Plan Supplement. (e) Note Agent Fee and Cost Amount. Reorganized Paddlewheels shall add to and pay to the Note Agent with the final payment under the Class 6 Note the Note Agent Fee and Cost Amount. 7. Class 7. Claims of Paddlewheels Insiders, Affiliates and/or Related Party Claimants (a) Classification. Class 7 Claims are the Paddlewheels Insiders, Affiliates and/or Related Party Claims, consisting of the Claims of those Claimants listed upon Exhibit M attached hereto. (b) Treatment. As a component of the overall settlement of the Class 7 Claims including the compromise of (i) the prospect of the Trustee pursuing (a) substantive consolidation of non-debtor entities with the Paddlewheels Estate, (b) avoidance actions and other non-bankruptcy law claims against Class 7 Claimants, and (ii) the Claims of Class 7 Claimants against the Paddlewheels Estate, the Class 7 Claimants shall receive no distribution from Reorganized Paddlewheels, but shall upon Confirmation be released from any Causes of Action held by the Debtor or the Trustee against such Class 7 Claimants, including without limitation the Place Holder Proceedings. Likewise, Confirmation shall constitute a release by all Class 7 Claimants of any Claims against the Paddlewheels Estate and the Trustee. The settlement and compromise treatment of Class 7 Claims shall by Confirmation be deemed effective as of November 21, (c) Voting. The Holders of Class 7 Allowed General Unsecured Claims are Impaired and shall be entitled to vote to accept or reject the Plan, but only if such Claims are not Disputed Claims. 18 It is possible that financing secured by a first preferred ship mortgage upon the m/v Creole Queen in an amount up to $2.5 million will be obtained by Reorganized Paddlewheels through facilitation by the Holders of Equity Interests for the purpose of funding payments required to be made under the Plan and for future operations. 42

53 8. Class 8. Paddlewheels Equity Interests (a) Classification. Class 8 consists of all Paddlewheels Equity Interests. (b) Treatment. In return for and conditioned upon the securing, facilitating and providing the Effective Date Cash Contribution, Holders of Equity Interests will retain such Allowed Equity Interests in the same amount and proportion as existed prior to the Petition Date, subject to the terms of the Plan. (c) Voting. Class 8 is Impaired, as retention of the Equity Interests is conditioned upon providing the $1.5 million in funding provided for under the Plan, and therefore the Holders of Class 8 Equity Interests shall be entitled to vote on the Plan. C. Procedures For Resolving And Treating Contested And Disputed Claims 1. Prosecution of Objections to Claims The Trustee and/or Reorganized Paddlewheels, as applicable, shall have the exclusive authority on or before the Claims Objection Bar Date to file objections, settle, compromise, withdraw or litigate to judgment objections to Claims or Equity Interests. Hearings on any such objections shall be fixed for hearing at least thirty (30) days after the filing of the objections or at such other time as may be fixed by the Bankruptcy Court. The Trustee and/or Reorganized Paddlewheels, as applicable, shall litigate to judgment, settle or withdraw objections to Disputed Claims, and with regard to objections pending as of Confirmation, the Trustee and/or Reorganized Paddlewheels, as applicable, shall be entitled to litigate to judgment, settle or withdraw objections to Disputed Claims without the necessity of notice or hearing. From and after the Effective Date, the Trustee and/or Reorganized Paddlewheels, may settle or compromise any Disputed Claim without approval of the Bankruptcy Court. The Trustee and/or Reorganized Paddlewheels, as applicable, also reserve the right to resolve any Disputed Claims outside the Bankruptcy Court under applicable governing law. The Trustee shall attempt to file any objection to then pending Claims before ten (10) days prior to the Confirmation Hearing. 2. Estimation of Claims The Trustee and/or Reorganized Paddlewheels, as applicable, may, at any time, request that the Bankruptcy Court estimate any disputed, contingent or unliquidated Claim pursuant to section 502(c) of the Bankruptcy Code regardless of whether the Trustee and/or Reorganized Paddlewheels, as applicable, have previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including during the pendency of any appeal relating to any such objection. In the event that the Bankruptcy Court estimates any disputed, contingent or unliquidated Claim, that estimated amount will constitute either the Allowed amount of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on such Claim, the Trustee and/or Reorganized Paddlewheels, as applicable, may elect to pursue any supplemental proceedings to object to any ultimate payment on such Claim. All of the aforementioned Claims and objection, estimation and resolution procedures are cumulative and not necessarily exclusive of one another. Claims may be estimated and subsequently compromised, settled, withdrawn or resolved by any mechanism approved by the Bankruptcy Court. 43

54 3. Allowance of Claims Except as to Claims Allowed by the Plan or as otherwise expressly provided herein or in any order by the Bankruptcy Court prior to the Effective Date (including the Confirmation Order), no Claim shall be deemed Allowed, unless and until such Claim is deemed Allowed under the Bankruptcy Code or the Bankruptcy Court enters a Final Order in the Paddlewheels Chapter 11 Case allowing such Claim. Except as to Claims Allowed by the or any order entered by the Bankruptcy Court prior to the Effective Date (including the Confirmation Order), the Trustee and/ or Reorganized Paddlewheels, as applicable, after Confirmation, will have and retain any and all rights and defenses the Trustee or the Debtor had with respect to any Claim as of the Paddlewheels Order for Relief. 4. Controversy Concerning Impairment If a controversy arises as to whether any Claims or Equity Interests, or any Class of Claims or Equity Interests, are Impaired under the Plan, the Bankruptcy Court shall, after notice and a hearing, determine such controversy before the Confirmation Date. 5. Voting Rights as to Confirmation of Plan If a Claim is a Disputed Claim prior to the Confirmation Date, such Disputed Claim shall not be entitled to vote with respect to the Plan unless such Claim is estimated, for voting purposes, by order of the Bankruptcy Court. D. Distributions Under The Plan 1. Distributions for Allowed Claims If any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. 2. Delivery and Distributions and Undeliverable or Unclaimed Distributions (a) Delivery of Distributions in General. Except as otherwise provided herein, Reorganized Paddlewheels shall make all distributions required under the Plan. Distributions to Holders of Allowed Claims shall be made at the address of the Holder of such Claim or Equity Interest as indicated on the records of Paddlewheels as of the Effective Date and as set forth on the Schedules filed with the Bankruptcy Court, or at the address specified in a timely filed proof of claim, or other such addresses as may be provided in writing, to Reorganized Paddlewheels or the Note Agent. Notwithstanding the immediately preceding sentence, the Trustee shall make distributions upon (i) the Priority Unsecured Claim of the City of New Orleans, (ii) Allowed Administrative Expense Claims for the Trustee and other professionals, (ii) the distributions to Class 5 Allowed Claims, (iv) other Administrative expense Claims entitled to distribution as of the Effective Date, and (v) other distributions required to be made prior to discharge of the Trustee by the Final Decree. 44

55 (b) Distributions to Class 6 Holders by Note Agent. Within five (5) Business days after the Final Unsecured Distribution Record Date the Trustee shall transmit to the Note Agent a final list of Class 6 Allowed Claims and the addresses of the Class 6 Claimants as known to the Trustee. Thereafter, the Note Agent shall make distributions to the Holders of Allowed Class 6 Claims in accordance with the provisions of this Plan regarding delivery of distributions and in accordance with the following specific provisions: (i) Quarterly Distributions. The Note Agent shall collect the monthly payments upon the Class 6 Note from Reorganized Paddlewheels and shall hold such payments in trust pending distributions to be made quarterly, commencing on the fifteenth (15th) Business Day after the end of the month within which the Final Unsecured Distribution Record Date occurs. (ii) Note Agent Fee and Cost Amount. The Note Agent shall withhold from each quarterly distribution the Note Agent Fee and Cost Amount in respect of such distribution. (iii) Note Agent Reserve. The Note Agent shall be entitled to retain a reserve, to be held in trust, of up to an additional five percent (5%) of each quarterly distribution for purposes of providing a retainer for costs of collection of the Class 6 Note in the event of default by Reorganized Paddlewheels. (iv) Distribution of Note Agent Reserve. Upon completion of payment by Reorganized Paddlewheels of the Class 6 Note, the Note Agent shall pay over the Note Agent Reserve as part of the final distribution to the Holders of Allowed Class 6 Claims. (c) Undeliverable Distributions (i) Holding of Undeliverable Distributions. If any distribution to a Holder of an Allowed Claim is returned to the Trustee or Reorganized Paddlewheels or the Note Agent as undeliverable, no further distributions shall be made to such Holder unless and until the Trustee or Reorganized Paddlewheels or the Note Agent is notified in writing of such Holder s thencurrent address. Undeliverable distributions shall remain in the possession of the Trustee within the accounts of Reorganized Paddlewheels or in possession of the Note Agent, as applicable, and after discharge of the Trustee by Reorganized Paddlewheels, until such time as a distribution becomes deliverable. Undeliverable Cash shall not be entitled to any interest, dividends or other accruals of any kind. As soon as reasonably practicable, the Trustee or Reorganized Paddlewheels or the Note Agent, as applicable, shall make all distributions that become deliverable. (ii) Failure to Claim Undeliverable Distributions. In an effort to ensure that all Holders of Allowed Claims receive their allocated distributions, one hundred twenty (120) days after the Effective Date, the Trustee or Reorganized Paddlewheels or the Note Agent, as applicable, will compile and file with the Bankruptcy Court a listing of unclaimed distribution Holders. This list will be maintained for as long as the Paddlewheels Chapter 11 Case stays open. Any Holder of an Allowed Claim (irrespective of when a Claim became an 45

56 Allowed Claim) that does not assert a Claim pursuant hereto for an undeliverable distribution (regardless of when not deliverable) within one (1) year after the Effective Date shall have its Claim for such undeliverable distribution discharged and shall be forever barred from asserting any such Claim or Equity Interest against Reorganized Paddlewheels, or its property. In such cases: (i) any Cash held for distribution on account of such Claims except on account of Class 6 Claims shall revert to Reorganized Paddlewheels free and clear of any claims or interests, and in respect of Class 6 distributions, shall revert to the Note Agent for the benefit of the Holders to whom distributions have been deliverable. Nothing contained herein shall require Reorganized Paddlewheels the Trustee or the Note Agent to attempt to locate any Holder of an Allowed Claim on account of an unclaimed distribution. (d) Compliance with Tax Requirements/Allocations. In connection with the Plan, to the extent applicable, Reorganized Paddlewheels shall comply with all tax withholding and reporting requirements imposed on it by any governmental unit, and all distributions pursuant hereto shall be subject to such withholding and reporting requirements. For tax purposes, distributions received in respect of Allowed Claims in Classes 1, 3, 4, 5, 6 and 7 will be allocated to the principal amount of such Claims. (e) Right of Offset. Pursuant to section 553 of the Bankruptcy Code or applicable non-bankruptcy law, Reorganized Paddlewheels may setoff against any Allowed Claim and the distributions to be made pursuant hereto on account of such Claim or Equity Interest (before any distribution is made on account of such Claim or Equity Interest), the claims, equity interests, rights and causes of action of any nature that Paddlewheels or Reorganized Paddlewheels, may hold against the Holder of such Allowed Claim; provided that neither the failure to effect such a setoff nor the Allowance of any Claim or Equity Interest hereunder shall constitute a waiver or release by Paddlewheels or Reorganized Paddlewheels, of any such claims, equity interests, rights and causes of action that Paddlewheels or Reorganized Paddlewheels, may possess against such Holder, except as specifically provided herein. No Entity shall retain the right of offset, set off, recoupment, or any other right, Claim, Lien or Secured Claim as against Paddlewheels or Reorganized Paddlewheels, under section 553 of the Bankruptcy Code or otherwise unless such Entity is the Holder of a Claim that has been timely filed under section 502 of the Bankruptcy Code and such Claim is an Allowed Claim. VIII. SUMMARY OF PLAN TERMS CONCERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES A. Assumption and Rejection of Contracts and Leases. 1. In General The Bankruptcy Code provides a debtor in possession the right to either assume or reject executory contracts and unexpired leases. In general, assumption means that the debtor in possession wishes to continue to be bound by the terms of the contract/lease, and correlatively, rejection means that the debtor in possession wishes to be freed of the contractual or lease obligations. If a debtor in possession assumes a contract, the debtor in possession must provide adequate assurance of its ability to promptly cure any outstanding defaults under the contracts and adequate assurance of its ability to make future performance under the lease or contract. If a debtor in possession rejects an executory contract or unexpired lease, such rejection acts as a 46

57 breach of the contract and gives rise to a prepetition general unsecured claim for breach damages (subject to applicable caps, such as in the context of rejected leases of real property). 2. Assumed Contracts The Trustee has identified certain contracts and leases that will be assumed through Confirmation of the Plan. Attached hereto as Exhibit N is a list of the contracts and leases that the Trustee will assume which includes a description of any unpaid or cure amounts that may be owed by Reorganized Paddlewheels in connection with assumption. Exhibit N is also made an Exhibit to the Plan. Except to the extent Exhibit N is amended prior to the entry of a Confirmation Order, Confirmation of the Plan shall constitute an order of assumption of the contracts listed on Exhibit N, and a finding that Reorganized Paddlewheels shall not owe any cure amounts in connection with any assumed contract except to the extent of the described cure amounts on Exhibit. With respect to any assumed contract, Reorganized Paddlewheels will cure such outstanding defaults no later than the later of (i) thirty (30) days after the Effective Date, (ii) thirty (30) days after a Final Order authorizing assumption and ordering cure, or (iii) a date mutually agreed upon. Entry of the Confirmation Order by the Bankruptcy Court shall constitute approval of such assumptions pursuant to sections 365(a), 365(b), and 1123 of the Bankruptcy Code and the retention of the assumed contracts by Reorganized Paddlewheels without any further action of the Trustee or Reorganized Paddlewheels, or the Bankruptcy Court, or any other person or entity. 3. Cure Payments and Release of Liability Any party to a contract or unexpired lease assumed pursuant to the Plan who contends that cure or compensation payments are due shall be required to controvert the amount of cure due by filing and serving an objection on counsel for the Trustee prior to the Confirmation Hearing and stating in its objection with specificity what cure such party believes is required (with appropriate documentation in support thereof). Any party to an assumed executory contract or unexpired lease that has not Filed with the Bankruptcy Court and served on counsel for the Trustee prior to the Confirmation Hearing an appropriate objection shall be deemed to have waived its right to dispute the Trustee s determination regarding cure or compensation payments as set forth on Exhibit N attached to this Disclosure Statement. If a timely and properly Filed objection is made, the cure amount, if any, shall be determined, if necessary, at the Confirmation Hearing or at such other date noticed for hearing or as may be determined by the Bankruptcy Court. 4. Rejection of Executory Contracts and Unexpired Leases Any contracts not specifically assumed or listed on Exhibit N shall be deemed rejected by Confirmation. 5. Filing of Claims Under Rejected Contracts All Claims arising from the rejection of executory contracts or unexpired leases must be evidenced by properly filed proofs of claim. Such proofs of claim must be Filed within thirty (30) days after the later of (i) the date of rejection of such contract or lease or (ii) the date of Confirmation unless an earlier deadline is applicable. Any Claims not filed within such time shall be forever barred from assertion against Paddlewheels, its Estate, its property, or Reorganized Paddlewheels. Unless otherwise ordered by the Bankruptcy Court, all Claims arising from rejection of executory contracts and unexpired leases shall be Unsecured Claims and treated as 47

58 Class 5 Claims or Class 6 Claims, depending on the size of the Claim, or a Class 7 Claim, if held by a Paddlewheels Affiliate, Insider and/or Related Party Claimant. IX. SUMMARY OF PLAN TERMS CONCERNING THE MEANS OF IMPLEMENTATION OF THE PLAN A. Settlement and Releases of Claims and Liens; Assumption by Airport Shuttle 1. Release by Paddlewheels of Released and/or Indemnified Parties Confirmation shall constitute a release by Paddlewheels and Reorganized Paddlewheels of any and all Claims, causes of action, demands, actions, etc., existing, whether choate or inchoate, known or unknown, as of the date of Confirmation of Paddlewheels against the Paddlewheels Released and/or Indemnified Parties. 2. Release by Global Settlement Parties of Paddlewheels Confirmation shall constitute a release by all Global Settlement Parties of any and all Claims, causes of action, demands, actions, etc., existing, whether choate or inchoate, known or unknown, as of the date of Confirmation against Paddlewheels and/or Reorganized Paddlewheels. 3. Release of the Trustee Confirmation shall constitute a release by Paddlewheels, Reorganized Paddlewheels and the Paddlewheels Released and/or Indemnified parties (other than the Trustee) of any and all Claims, causes of action, demands, actions, etc., existing, whether choate or inchoate, known or unknown, as of the date of Confirmation against the Trustee. 4. Approval of Settlements and Compromises Pursuant to 11 U.S.C. 1123(b)(3)(A), and to the extent applicable, Bankruptcy Rule 9019, Confirmation of this Plan shall constitute a finding that the settlements and releases contained in the Plan are in the best interests of Creditors and of the Paddlewheels Estate, and further shall constitute a grant of authority to enter into any and all documents and agreements reasonably determined by the parties to be necessary to facilitate the releases and compromises set forth in the Plan, and shall constitute approval of all settlements and compromises contained within the Plan. 5. Assumption by Airport Shuttle, Inc. Confirmation shall constitute an Order of assumption by Airport Shuttle, Inc. of the remaining $500,000 amount due to the City of New Orleans as provided in the Treatment of the Class 4 Claim of the City of New Orleans. In addition, the Trustee will provide at the Confirmation Hearing a contractual Assumption Agreement. B. Obtaining Loan by Paddlewheels Prior to the Confirmation Date, Paddlewheels and/ or the Equity Interests will obtain a commitment to provide the funding required under the Plan in the principal 48

59 amount of at least $1.5 million, ( Required Funding ) which commitment will provide the Required Funding as of the Effective Date. C. The Continued Existence of Reorganized Debtor 1. Corporate Operation Reorganized Paddlewheels will exist after the Effective Date as a separate entity, with all the powers of a corporation under the applicable law of Louisiana, without prejudice to any right to terminate such existence (whether by merger or otherwise) under applicable law after the Effective Date. Except as otherwise provided in the Plan, on the Effective Date, all property, including appurtenant rights and privileges, comprising the Paddlewheels Estate will vest in Reorganized Paddlewheels, free and clear of all Claims, Liens, charges, encumbrances and interests of Creditors and Holders of Equity Interests (except as otherwise expressly provided in the Plan). As of the Effective Date, Reorganized Paddlewheels may operate its business and use, acquire and settle and compromise Claims without supervision of the Bankruptcy Court free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan and Confirmation Order. Reorganized Paddlewheels may also pay the charges it incurs for Professional fees, disbursements, expenses or related support services after the Effective Date without any application to the Bankruptcy Court. The Confirmation Order will provide that Reorganized Paddlewheels will be responsible for the timely payment of all statutory fees under 28 U.S.C. section 1930 relating to the Paddlewheels Chapter 11 Case. 2. Adoption, Amendment and Restatement of Charter Documents and Corporate Bylaws In conformity with applicable non-bankruptcy law, Reorganized Paddlewheels shall cause to be filed with all appropriate governmental agencies appropriate Restated Articles of Incorporation and/or By-Laws, to the extent necessary under the Bankruptcy Code. The articles of organization of Paddlewheels shall be amended and restated to the extent necessary: (i) to prohibit the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, subject to further amendment as permitted by applicable law; and (ii) to effectuate the provisions of the Plan, without the need for any further approval action by Paddlewheels or its shareholders, officers, or directors, or Reorganized Paddlewheels or its shareholders, officers, or directors. After the Effective Date, Reorganized Paddlewheels may amend and restate its Restated Articles of Incorporation and Restated By-Laws and other constituent documents as permitted by Louisiana law. 3. Corporate Approvals On the Effective Date, all matters provided for under the Plan that would otherwise require approval of Paddlewheels or its shareholders, officers, or directors, or Reorganized Paddlewheels or its shareholders, officers, or directors, including, without limitation, the notes to be issued pursuant to the Plan, the adoption and effectiveness of the Restated Articles of Incorporation and/or By-Laws, and the election or appointment, as the case may be, of officers of Reorganized Paddlewheels as provided for under the Plan, shall be deemed to have occurred and shall be in effect from and after the Effective Date without any requirement of further action by Paddlewheels or its shareholders, officers, or directors or Reorganized Paddlewheels or its shareholders, officers, or directors. 49

60 F. Corporate Governance, Management Committee and Officers, and Corporate Action 1. Corporate Action The shareholders, officers, or directors of the Reorganized Paddlewheels shall be authorized and directed to issue, execute and deliver, through authorized representatives, the agreements, documents, securities and instruments contemplated by the Plan in the name of and on behalf of Reorganized Paddlewheels. To the extent necessary to effectuate the terms of the Plan, Craig Smith shall in all respects be deemed and appointed (and shall have all past acts ratified) by means of Confirmation. 2. Officers and Directors of Reorganized Paddlewheels; Corporate Organization Attached hereto as Exhibit O is a recapitulation of part of the memorandum of understanding executed by the Hospitality Group and the various shareholder interests, including the shareholders of Paddlewheels. Exhibit O sets forth the corporate governance structure of Reorganized Paddlewheels and parties are referred to said Exhibit for such information. G. Causes of Action and Avoidance Actions 1. Retention of Causes of Action As of the Effective Date, pursuant to section 1123(b)(3) of the Bankruptcy Code, except as otherwise provided in this Plan, any and all Causes of Action shall be property of Reorganized Paddlewheels, and shall remain assets of the Paddlewheels Estate, and shall vest in Reorganized Paddlewheels as the Bankruptcy Court approved representative of the Paddlewheels Estate under section 1123(b)(3) of the Bankruptcy Code, save and except any and all Avoidance Actions, which shall be released in accordance with Section VIII(D)(2), infra., and the Causes of Action against the Paddlewheels Released and/or Indemnified Parties, Reorganized Paddlewheels shall be deemed, without further action of the Bankruptcy Court, to be the judicial substitute as the party in interest with Bankruptcy Court approved standing in the Paddlewheels Chapter 11 Case, under the Plan, or in any judicial proceeding or appeal to which Paddlewheels is a party, or in which Reorganized Paddlewheels shall become a party, and shall have the standing as provided in the Plan, to pursue any and all Causes of Action retained under this Plan. 2. Release of Avoidance Actions and Use of Avoidance Powers to Fix Unsecured Claims Upon the Effective Date, any and all Avoidance Actions shall be released by Paddlewheels and Reorganized Paddlewheels, except that Paddlewheels and Reorganized Paddlewheels shall retain the rights afforded under sections 547 and 502(d) of the Bankruptcy Code to utilize avoidance powers under the Bankruptcy Code as the basis upon which to object to and/or reduce Claims, whether or not Paddlewheels has determined to waive affirmative recovery under such avoidance powers regarding the Holders of such Claims. H. Approval of Plan Supplement The solicitation of votes on the Plan shall be deemed a solicitation for the approval of the Plan Supplement and all transactions contemplated by the Plan. Entry of the 50

61 Confirmation Order shall constitute approval of the Plan Supplement and such transactions. The Plan Supplement shall be submitted to the Court at the hearing on Confirmation of the Plan. X. SUMMARY OF PLAN TERMS CONCERNING CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN, EFFECT OF CONFIRMATION OF PLAN, AND EFFECTIVE DATE A. Conditions Precedent to Effective Date The Effective Date shall not occur until the following conditions have been satisfied or waived: 1. Confirmation Order The Confirmation Order, in form and substance reasonably acceptable to the Trustee, shall have been entered by the Bankruptcy Court, shall not have been stayed, and shall otherwise be in full force and effect. 2. Authorizations Paddlewheels shall have received all authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions or documents, if any, that are determined by the Trustee to be necessary to implement the Plan. 3. Execution of Plan Supplement Documents Reorganized Paddlewheels shall have received all executed Plan Supplement Documents, which shall be held in Trust by the Trustee pending the Effective Date. B. Waiver of Conditions The conditions precedent to the Effective Date may be waived or modified by an act of the Trustee pursuant to a writing signed by the Trustee and approved by the Bankruptcy Court. C. The Effective Date The Effective Date shall be the first Business Day that is at least one (1) full Business Day after the Confirmation Order becomes a Final Order. D. Effects of Confirmation 1. Revesting of Assets (a) The property of Paddlewheels shall revest in Reorganized Paddlewheels on the Effective Date, except as otherwise provided in the Plan, free and clear of all Liens, Claims and interests of including such Liens and Claims and Interests held by Holders of Claims and Equity Interests, except as provided in the Plan. 51

62 (b) From and after the Effective Date, Reorganized Paddlewheels may operate its business, and may use, acquire and dispose of property free of any restrictions imposed under the Bankruptcy Code, but subject to the terms of this Plan. 2. Findings by the Bankruptcy Court In addition to the findings set forth in section 1129 (a) of the Bankruptcy Code, Confirmation of the Plan shall constitute such findings by the Bankruptcy Court as are reasonably proper in the premises. Without limitation, such findings shall include: (a) Confirmation shall be deemed a finding by the Bankruptcy Court that the Class 6 Note, to be issued under the Plan, is/are exempt from registration under the Securities Act of 1933 pursuant to section 1145 of the Bankruptcy Code, except to the extent that Holders of the Class 6 Notes are underwriters, as that term is defined in section 1145 of the Bankruptcy Code, and further that the Class 6 Note is exempt from the Trust Indenture Act of 1939 pursuant to, in accordance with, and to the extent provided in, Section 1145(d) of the Bankruptcy Code. (b) Confirmation shall be deemed a finding by the Bankruptcy Court that the Trustee and/or Reorganized Paddlewheels are authorized and directed to take all actions necessary or appropriate to enter into, implement and consummate the contracts, instruments, releases, leases, indentures and other agreements or documents created in connection with the Plan. (c) Confirmation shall be deemed a finding by the Bankruptcy Court that any claim, right, cause, or cause of action of Paddlewheels and/or Reorganized Paddlewheels, or any Holder of any Claim, that (i) is waived or deemed waived pursuant to the Plan or pursuant to the Disclosure Statement or (ii) is against any Person or Entity listed on Exhibit I to this Disclosure Statement, shall have been waived and released upon the Effective Date, subject to the reservations or right and avoidance power set forth in this Plan. (d) Confirmation shall be deemed a finding that cause exists to abrogate the stay of the effect of the Confirmation Order in accordance with Bankruptcy Rule 3020(e). 3. Approval of Plan Supplement Confirmation shall constitute approval of the Plan Supplement and such transactions as are provided by the exhibits comprising the Plan Supplement. 4. Dismissal of Place Holder Proceedings Confirmation shall result in the dismissal with prejudice of the Place Holder Proceedings pursuant to motion to be filed by the Trustee on the Effective Date seeking dismissal with prejudice. 5. Reservation of Rights, to Holders of Unliquidated Tort Claims Confirmation shall constitute at Final Order recognizing all rights of the Holders of unliquidated tort Claims to proceed directly against the applicable insurer of Paddlewheels for the full amount of their Claims over and above the applicable deductible. 52

63 XI. DISCHARGE, RELEASE, INJUNCTION AND RELATED PROVISIONS A. Discharge of Debtor The rights afforded under the Plan and the treatment of all Claims and Equity Interests under the Plan shall be in exchange for and in complete satisfaction, discharge, and release of Claims and Equity Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Commencement Date, against the Trustee, Paddlewheels, Reorganized Paddlewheels, or any of their assets or properties. Except as otherwise provided herein, on the Effective Date, all such Claims against and Equity Interests in the Trustee, Paddlewheels and/or Reorganized Paddlewheels, shall be satisfied, discharged, and released in full, and all persons shall be precluded from asserting against the Trustee, Reorganized Paddlewheels, and/or any party released under the Plan, their successors and/or assigns, their assets, or their properties any other or further Claims or Equity Interests based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date. B. Injunction There shall be an injunction to the full extent allowed under sections 1141 and 524 of the Bankruptcy Code, and all Holders of Claims, Other Securities Claims, and Equity Interests shall be enjoined from pursuing any action on account of or related to any Claim or Equity Interest through any conduct or proceeding whatsoever, with respect to discharged, released, enjoined or exculpated claims, and as against any person subject to or deriving rights from the discharge and/or any release or exculpation arising under the Plan, against the Trustee, Paddlewheels or Reorganized Paddlewheels. C. Exculpations Paddlewheels, Reorganized Paddlewheels, the Trustee, and the Committee, and each of their respective officers, employees, advisors, agents, affiliates, and representatives (including any attorneys, accountants, financial advisors, investment bankers and other professionals retained by such persons or entities), provided, if applicable, such persons or entities shall have been employed by Paddlewheels and/or Reorganized Paddlewheels on the Confirmation Date, unless terminated without cause prior thereto, shall have no liability to any Holder of any Claim, Other Securities Claim, or Equity Interest for any act or omission occurring during the course of the Paddlewheels Chapter 11 Case occurring up to the Effective Date, including acts or omissions in connection with, or arising out of, the filing of the petition, the preparation of motions, memoranda, or other documents, preparation and/or negotiation of the Disclosure Statement and the Plan, the solicitation of votes for and the pursuit of Confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for gross negligence or willful misconduct as determined by a Final Order of the Bankruptcy Court, which shall possess exclusive jurisdiction over all such determinations, and, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. D. Indemnification Obligations Subject to the occurrence of the Effective Date, the obligations of Paddlewheels and/or Reorganized Paddlewheels to indemnify, defend, reimburse or limit the liability of directors, officers or employees who were directors, officers or employees of Paddlewheels, including the Paddlewheels Released and/or Indemnified Parties against any liabilities, claims or causes of 53

64 action as provided in any of the articles of organization or operating agreements of Paddlewheels, or under applicable state or federal law, shall be assumed and be accepted from discharge and shall remain an obligation of Reorganized Paddlewheels. The indemnification obligations of Paddlewheels and/or Reorganized Paddlewheels, set forth herein are limited to those authorized or permitted under state or federal law as the same is now or may become applicable at the time any claim for indemnification is made. E. Limited Release On the Effective Date, Paddlewheels and Reorganized Paddlewheels shall release (i) those officers and/or members of Paddlewheels employed by Paddlewheels as of the Confirmation Date, (ii) persons who are employed by Paddlewheels as of the Confirmation Date, (iii) the Trustee, (iv) the Committee, and (v) each of their respective officers, employees, advisors, agents, affiliates, and representatives (including any attorneys, accountants, financial advisors, investment bankers and other professionals retained by such persons or entities), and (vi) the Paddlewheels Released and/or Indemnified Parties, for any act or omission occurring up to the Confirmation Date, including acts or omissions in connection with, or arising out of, the Disclosure Statement, the Plan, the solicitation of votes for and the pursuit of Confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for acts or omissions constituting gross negligence or willful misconduct as determined by a Final Order of the Bankruptcy Court, which shall possess exclusive jurisdiction over all such determinations, and, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. F. Releases by Consenting Parties On and after the Effective Date, each Consenting Party shall be deemed to have unconditionally released (i) the Trustee, Paddlewheels, Reorganized Paddlewheels, and the Trustee, (ii) those officers of Paddlewheels both employed by Paddlewheels and holding office as of the Confirmation Date, and (iii) each of their respective officers, employees, advisors, agents, affiliates, and representatives (including any attorneys, accountants, financial advisors, investment bankers and other professionals retained by such persons or entities), and (iv) Paddlewheels the Released and/or Indemnified Parties from any and all Claims (as defined in section 101(5) of the Bankruptcy Code), obligations, rights, suits, damages, causes of action, remedies and liabilities whatsoever, including any derivative claims, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that such Person or Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event or other occurrence taking place on or before the Effective Date in any way relating or pertaining to (a) the purchase or sale, or the rescission of a purchase or sale, of any security of Paddlewheels, or Reorganized Paddlewheels, (b) the Paddlewheels Chapter 11 Case, or (iii) the negotiation, formulation and preparation of the Plan, or any related agreements, instruments or other documents. G. Subordination The classification and manner of satisfying all Claims, Other Securities Claims and Equity Interests and the respective distributions and treatments hereunder take into account and/or conform to the relative priority and rights of the Claims, Other Securities Claims, and Equity Interests in each Class in connection with any contractual, legal and equitable 54

65 subordination rights relating thereto whether arising under general principles of equitable subordination, section 510(b) of the Bankruptcy Code or otherwise, and any and all such rights are settled, compromised and released pursuant hereto. The Confirmation Order shall permanently enjoin, effective as of the Effective Date, all Persons and Entities from enforcing or attempting to enforce any such contractual, legal and equitable subordination rights satisfied, compromised and settled in this manner. XII. MISCELLANEOUS PROVISIONS A. Retention of Jurisdiction The Plan contains a number of matters over which the Bankruptcy Court shall retain jurisdiction, notwithstanding the effects of Confirmation and the occurrence of the Effective Date. The Bankruptcy Court shall retain jurisdiction and authority to: (1) allow, disallow, determine, liquidate, classify, estimate or establish the priority or secured or unsecured status of any Claim or Equity Interest, including the resolution of any request for payment of any Administrative Expense Claim and the resolution of any and all objections to the allowance or priority of Claims or Equity Interests; (2) grant or deny any applications for allowance of compensation or reimbursement of expenses authorized pursuant to the Bankruptcy Code or the Plan, for periods ending on or before the Effective Date; (3) resolve any matters related to the assumption, assumption and assignment, or rejection of any executory contract or unexpired lease to which the Debtor is a party or with respect to which the Debtor may be liable and to hear, determine and, if necessary, liquidate, any Claims arising therefrom, including those matters related to the amendment after the Effective Date pursuant to the Plan to add any executory contracts or unexpired leases to the list of executory contracts and unexpired leases to be assumed or rejected; (4) ensure that distributions to Holders of Allowed Claims are accomplished pursuant to the provisions of the Plan; (5) decide or resolve any motions, adversary proceedings, contested or litigated matters and any other matters and grant or deny any applications involving the Debtor that may be pending on the Effective Date; (6) enter such orders as may be necessary or appropriate to implement or consummate the provisions of the Plan and all contracts, instruments, releases, indentures and other agreements or documents created in connection with the Plan or this Disclosure Statement; (7) resolve any cases, controversies, suits or disputes that may arise in connection with the Consummation, interpretation or enforcement of the Plan or any Person s or Entity s obligations incurred in connection with the Plan; (8) issue injunctions, enter and implement other orders or take such other actions as may be necessary or appropriate to restrain interference by any Person or Entity with Consummation or enforcement of the Plan, except as otherwise provided herein; 55

66 (9) resolve any cases, controversies, suits or disputes with respect to the releases, injunctions, exculpations and other provisions contained in the Plan and enter such orders as may be necessary or appropriate to implement such releases, injunctions, exculpations, and other provisions; (10) enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked or vacated; (11) determine any other matters that may arise in connection with or relate to this Plan, the Disclosure Statement, the Confirmation Order or any contract, instrument, release, indenture or other agreement or document created in connection with the Plan or the Disclosure Statement; 11 Case. (12) enter an order and/or final decree concluding the Paddlewheels Chapter (13) interpret and enforce the terms of any settlement and compromise set forth within the Plan to ensure compliance with the Confirmation Order which shall be a Final Order of the Bankruptcy Court directing through the approval of compromises contained within the Plan that the parties to such compromises have resolved that all disputes arising thereunder are reserved for decision in the Bankruptcy Court. B. Modification of Plan The Trustee reserves the right, in accordance with the Bankruptcy Code and the Bankruptcy Rules, to (1) amend or modify the Plan prior to the entry of the Confirmation Order and (2) after the entry of the Confirmation Order, the Trustee and/or Reorganized Paddlewheels, as the case may be, may, upon order of the Bankruptcy Court, amend or modify the Plan, in accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. C. Revocation of Plan The Trustee reserves the right to revoke or withdraw the Plan prior to the Confirmation Date and to file subsequent plans of reorganization. If the Plan is withdrawn or revoked, or if Confirmation or Consummation does not occur, then (i) the Plan shall be null and void in all respects, (ii) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain any Claim or Equity Interest or Class of Claims or Equity Interests), assumption or rejection of executory contracts or leases affected by the Plan, and any document or agreement executed pursuant hereto, shall be deemed null and void, and (iii) nothing contained in the Plan shall (a) constitute a waiver or release of any Claims by or against, or any Equity Interests in, Paddlewheels, Reorganized Paddlewheels, or any other Person, (b) prejudice in any manner the rights of Paddlewheels, Reorganized Paddlewheels, or any other Person, or (c) constitute an admission of any sort by Paddlewheels, Reorganized Paddlewheels, or any other Person. 56

67 D. Successors and Assigns The rights, benefits and obligations of any Person or Entity named or referred to herein shall be binding on, and shall inure to the benefit of any heir, executor, administrator, successor or assign of such Person or Entity, including any future trustee for Paddlewheels, if applicable. E. Reservation of Rights Except as expressly set forth herein, the Plan shall have no force or effect unless the Bankruptcy Court shall enter the Confirmation Order. None of the filing of the Plan, any statement or provision contained herein, or the taking of any action by the Trustee and/or Reorganized Paddlewheels, with respect to this Plan shall be or shall be deemed to be an admission or waiver of any rights of the Trustee, Paddlewheels and/or Reorganized Paddlewheels, with respect to the Holders of Claims or Equity Interests prior to the Effective Date. F. Governing Law Except to the extent that the Bankruptcy Code or Bankruptcy Rules are applicable, and subject to the provisions of any contract, instrument, release, indenture or other agreement or document entered into in connection with the Plan, the rights and obligations arising under the Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Louisiana, without giving effect to the principles of conflict of laws thereof. G. Default Provisions Failure to make payments as provided for within this Plan shall be an event of default, and failure of Reorganized Paddlewheels to cure such default within twenty (20) days after receipt of written notice of default, given as required herein, shall entitle the Holder of any such Claim to enforce the rights of the Holder of such Claim under this Plan in any court of competent jurisdiction. XIII. FEASIBILITY OF THE PLAN AND VALUATION OF REORGANIZED PADDLEWHEELS For feasibility related to the prospect of re-payment of the term obligations to be created under the Plan, attached hereto as Exhibit P is a pro forma presentation of projected Paddlewheels financial statements, including a residual cash flow pro forma for the years 2008 through 2010 that reflects the estimated cash to be generated by operations (reported on an accrual basis) that will be available for payment of Claims as required by the Plan. The projections of income and cash flow are premised upon the experience of Paddlewheels in the tourist hospitality industry and the particular investigations that have been performed by the Trustee concerning (i) the prospect of a closely managed financially scrutinized operation; (ii) a more structured level of debt; (iii) a renewed commitment from Equity Interest Holders and Affiliate entities to work together to maximize profitability and efficiently utilize interconnected business relationships. As well, the assumptions underlying the projections were arrived at by the Trustee after consultation with management personnel, the Gros Firm and review of actual financial performance during the Paddlewheels Chapter 11 Case. 57

68 The difference between the cash balance per the monthly reporting for February (Exhibit C ) and the ending cash balance for February as reflected in Exhibit P is due to the timing of expenses being reported on the income statement verses the actual payment of these expenses. There are expenses that have been recorded on the income statement for January and February in the forecast that are being deducted from the cash balance, but in reality these vendor invoices are not being paid, and likewise deducted from the actual book cash balance until actual paid in subsequent months. The cash results represent an estimation of the cash generated by the turn of receivables (generated by the revenue numbers) and the timing of payment of expenses (booked when accrued rather than when paid). Note that the interest portions of the debt repayments under the Plan are booked as expense items and therefore the payment entries below the monthly profit or loss result reflect only the principal components of the monthly Plan payments. The actual loan details at the bottom of the projections show both principal and interest, and are a recapitulation (in other words, no double counting). XIV. LIQUIDATION ANALYSIS A. Liquidation Under Chapter 7 1. Generally This Disclosure Statement contains an analysis of the projected effect of liquidation of the Debtor under Chapter 7 of the Bankruptcy Code ( Chapter 7 ) so that Creditors can analyze the Plan treatment against recovery that might occur upon liquidation. In a Chapter 7 case, a trustee would be elected or appointed to liquidate the assets of Paddlewheels ( Chapter 7 Trustee ). The proceeds of the liquidation, augmented by cash and any recoveries from third parties, would be distributed to the respective Holders of Claims in accordance with the priorities established by the Bankruptcy Code. A Chapter 7 Trustee also would be entitled to compensation representing a statutorily fixed portion of the distributions made to Creditors. As discussed above and in the following paragraphs, the Trustee believes that the proceeds received by the Estate pursuant to a bankruptcy liquidation sale of the assets of Paddlewheels would result in considerably less of a return to Creditors than the consideration to be received by Creditors pursuant to the Plan. The amount of liquidation value available to Holders of Unsecured Claims would be reduced first by the Secured Claims, to the extent of the value of the collateral securing such Claim, and then by the costs and expenses of liquidation, as well as by other administrative expenses and costs of both the chapter 7 cases and the chapter 11 cases. Costs of liquidation under Chapter 7 would include: (i) the compensation of the Chapter 7 Trustee, as well as of counsel and other professionals retained by the Chapter 7 Trustee; (ii) asset disposition expenses; (iii) all unpaid approved compensation of the Trustee and his counsel (iv) expenses incurred by Paddlewheels in the Paddlewheels Chapter 11 Case that would be allowed in the Chapter 7 Case including ordinary course of business expenses, compensation of attorneys and accountants; (v) litigation costs; and (vi) the full amount of Priority Unsecured Claims as a result of there being no incentive to compromise as a part of an overall rehabilitation of the business operation of Paddlewheels. It is assumed that a liquidation would trigger an aggregation of ordinary course of business Administrative Expense Claims that will be maintained under the Plan on a going forward basis, and the abrogation of the compromise treatment of the Administrative Expense Claim of the Port, 19 that extensive litigation would be necessary to determine the full Allowed 19 The Chapter 7 Trustee would have the argument that the post-petition use value of the month to month agreements would result in a judgment that the Administrative Expense Claim of the Port would be 58

69 amount of the Unsecured Priority Claims, that the settlement of Claims of Class 7 Claimants would only occur if at all after litigation, that the Trustee would claim an uncapped fee, and that the Chapter 7 Trustee would generate extensive fees and costs in administering the Chapter 7 Estate. Liquidation would see the M/V Creole Queen being sold, and the sale process would require a continuation of payment of dockage to the Port (currently being charged at the rate of $ per day) unless other dockage could be found, and unless the Chapter 7 Trustee could make arrangements to lease or charter the vessel pending sale, there would no revenue to offset the cost of holding the vessel until it could be sold. Also, liquidation is often not productive of the highest return on sale, though the actual outcome could not be predicted with real certainty. The liquidation analysis assumes a sale price of $2.8 million for the M/V Creole Queen, and a 5% broker commission (leaving a net price of $2,660,000) and that there would be no possible benefit of the assets being sold on a going concern basis (this assumed sales price represents the same relative valuation in comparison to the appraised value of the M/V Creole Queen as was received from the sale of the M/V Cajun Queen). Regarding the agreement with the Port for space at the Julia Street Wharf, the agreement is a month to month agreement and therefore would be of little value. The swamp tours operation might be able to be sold separately, but to do so it would seemingly have to be operated by the Chapter 7 Trustee prior to sale. The accounts receivable would to a certain extent be collectible, but the majority of booked receivables (some $189,000 out of approximately $300,000) are over 90 days old, and therefore the liquidation analysis has discounted this batch. The licenses and permits are not transferable without consent of the applicable issuing bodies. It is assumed that the investment of Paddlewheels in Airport Shuttle, Inc. and ASI To Airport would not add material value to the Chapter 7 Estate of Paddlewheels. First, the Contract referred to in the treatment of Class 4 Claims would not be subject to the compromise set forth within the Plan, and there could be no protection offered any transferee that the Contract could even be transferred, much less that the state court injunction issued prior to the Paddlewheels Petition Date could be sustained. Therefore, the liquidation analysis assumes no greater return than the liquidation values of the assets of the two Entities, after payment of all debts of the two Entities and the costs of liquidation (as the interest of the Estate is a shareholder or ownership interest), in accordance with the ownership interest of the Estate in the two Entities (15% interest in Airport Shuttle, Inc. and 45% interest in ASI To Airport, plus the 15% of the 5% Airport Shuttle, Inc. interest). The Trustee has in effect done little more than assign an arbitrary number to the liquidation value of the interests in these Entities, and admits such. It is assumed that the Chapter 7 Trustee would explore substantive consolidation of the non-debtor members of the Hospitality Group with the Chapter 7 Estate. The Trustee has analyzed such an approach to obtaining value, but has determined that the cost and chances of success make the Plan the better alternative, by far. In the case In re Amco Ins., 444 F.3d 690 (5th Cir. 2006), the Court denied substantive consolidation of a non-debtor estate retroactively. While the facts would be different (for example there would be no retroactivity component), the Chapter 7 Trustee would have to deal with the following quote from the opinion, which appears to give an opponent in a substantive consolidation action a good head wind: only slightly more than agreed to between the Port and the Trustee, but assuming the contracts prevailed until rejection, the Port would have the argument that the Administrative expense Claim of the Port could exceed $200,

70 Without deciding whether the bankruptcy court has the power to order substantive consolidation, we do note that those jurisdictions that have allowed it emphasize that substantive consolidation should be used sparingly. 20 It is an extreme and unusual remedy. 21 Indeed, because substantive consolidation is extreme... and imprecise, this rough justice remedy should be rare and, in any event, one of last resort after considering and rejecting other remedies. 22 Furthermore, it appears on the record before us that other remedies, such as the doctrines of alter ego and fraudulent conveyance, may have been available, and appropriate under the circumstances, and the bankruptcy court should duly make such considerations. Substantive consolidation should not be used as a free pass to spare [d]ebtors or any other group from proving challenges, like fraudulent transfer claims, that are liberally brandished to scare yet are hard to show. 23 As the Owens Corning court noted, if the objectors to substantive consolidation were as vulnerable to the fraudulent transfer challenges as alleged, then the game should be played to the finish in that arena. 24 Regarding the booked Due To/Due From, and the Shreveport Paddlewheels booked Due From Related Parties, the Trustee has assumed that the ultimate recovery cannot be anticipated to be material. The booking methodology is simply unknown, and the cost of an audit, which might not even be possible given the condition of the pre-bankruptcy records and the expanse of time within which the Hospitality Group operated out of a single operating account seemingly would not justify the possible outcome. The value numbers come from the same place as the debt numbers, in most instances, and if one side of the ledger is relied upon then it would seem the other side should be as well. Within the various exhibits attached hereto is information that seemingly states that the Due To/Due From, even including the trial balance number for Shreveport Paddlewheels, unless numbers bad for Paddlewheels can be eradicated, would result in a near wash, and certainly would not result in material recovery (unless lawyers could use the proceeds from the sale of the M/V Creole Queen to finance litigation in that case there would be recovery, to lawyers). In the final analysis, with the expected amount of debt that would have to be covered by recovery on account of balance sheet booked items, and the cost of litigation and investigation that would be necessary, the Trustee is unable to project a set of facts within which recovery by Class 5 or Class 6 Claims could be possible in a Chapter 7 Case Amco, 444 F.3d at fn 5, citing In re Owens Corning, 419 F.3d 195, (3 d Cir. 2005); In re Bonham, 229 F.3d 750, 767 (9 th Cir. 2000); Union Sav. Bank v. Augie/Restivo Baking Co. (In re Augie/Restivo Baking Co.), 860 F.2d 515, 518 (2 d Cir. 1988); 2 COLLIER ON BANKRUPTCY [1][d] (15 th ed. rev.2005). 21 Amco, 444 F.3d at fn 5, citing Gandy v. Gandy (In re Gandy), 299 F.3d 489, 499 (5 th Cir.2002) Amco, 444 F.3d at fn 5, citing Owens Corning, 419 F.3d at 211. Amco, 444 F.3d at ftn 5, citing Owens Corning, 419 F.3d at 215. Id. 25 The Trustee notes here that there has been no exclusive period prohibiting any party from filing a plan since expiration of the order of the Court which extended the exclusivity period by agreement until December 31, As well, there have been no motions to convert the Paddlewheels Chapter 11 Case to a Chapter 7 Case. 60

71 If Paddlewheels is able to abide by the obligations detailed in the Plan, the Holders of Class 6 Claims will receive a Pro Rata Share of the $250,000 and have this aggregate obligation secured by a subordinate security interest is the m/v Creole Queen or such other substitute collateral as is acceptable to the Committee on behalf of the Holders of Allowed Class of 6 Claims. Admittedly the payment over time without interest does not act to provide a present value equal to the principal amount of the payments proposed to Class 6 Claims. But, under the liquidation analysis set forth below, it is reasonably clear that in a liquidation scenario Allowed Unsecured Claims (Classes 5 and 6) would receive no distributions. 2. Liquidation Analysis The liquidation model used is as of February 29, The Trustee submits that the time passed since February 29, 2008 would not have a material affect upon the substance of this analysis. Attached hereto as Exhibit Q is the liquidation model, which includes the projected recovery discounts that the Trustee believes to be reasonably foreseen in the event of liquidation of Paddlewheels within a Chapter 7 Case. Exhibit Q has two separate calculations, the first assuming Allowance of the full Claim of the City of New Orleans as represented to the Trustee (approximately) by prior counsel for the City of New Orleans, and one assuming Allowance of the Claim of the city of New Orleans as Filed, which was reduced to final judgment prior to the Paddlewheels Petition Date. As shown on Exhibit Q, the Trustee believes that the Holders of Allowed General Unsecured Claims would receive NO recovery in the event of a liquidation of the Estate of Paddlewheels under Chapter 7. The Trustee does not believe that Paddlewheels possesses assets including any Causes of Action, that would generate recovery sufficient to offset the size of the aggregate Priority Unsecured Claims and Administrative Expense Claims that would be asserted within a liquidation under Chapter 7. As shown, the asset deficit at the Unsecured Priority Claims level, under the Trustee s assumptions, is between some $4.45 million and $2.98 million. If the Trustee s assumptions are reasonable, recovery under the Plan to Holders of Class 5 and Class 6 Claims is clearly superior to the absence of recovery reasonably projected in the event of Chapter 7 liquidation. XV. MATERIAL UNCERTAINTIES HOLDERS OF CLAIMS AGAINST PADDLEWHEELS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN, PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. The risk factors are relevant to the projected reorganization value of Paddlewheels and the ability of Reorganized Paddlewheels to provide the treatment afforded under the Plan to the Allowed Claim Holders. A. Fluctuations within the Tourism Industry The future financial condition and results of operations of Paddlewheels Acquisition are dependent on the continued strength and growth of the convention and tourism industry in New Orleans. Many factors may affect convention bookings and tourist visits, including general macroeconomic factors, acts of God, and destructive acts of man. As with all businesses, business demand cannot be predicted with certainty, and the Trustee has used both historical modeling and information gathered to project future operations. Paddlewheels Acquisition 61

72 cannot predict with full accuracy whether supply costs will increase by variances from historical rates and costs that will be substantial. B. Supply Costs Profitability is dependent to an extent upon costs of goods sold. The Trustee cannot predict with full accuracy whether supply costs of fuel, food, and other items will substantially vary from historical rates. C. Financing Requirements and Restrictions Although the Trustee projects that Paddlewheels will have the ability to conduct business operations with cash on hand, one uncertainty regarding the projections will be its ability to obtain financing in the future for the purpose of funding future business activities. Without additional financing, Paddlewheels may not be able to service some new business expansion due to working capital constraints, and such inability may negatively impact the cash flow of Paddlewheels. Though the Trustee does not expect that future operations will be harmed in such a manner, there can be no assurance that the ability to obtain future financing will not have an impact on the future operations and growth. D. Competitive Industry The tourism industry is highly competitive. Paddlewheels competes for business with many competitors, not only for boat tours, but for other tourist and event related activities, some of which may have financial and other resources that substantially exceed those of Paddlewheels. However, the Global settlement has opened the way for Paddlewheels to operate with the Hospitality Group and to take advantage of cross marketing is possible through the Collections vehicle. E. Uncertainty Regarding Amount of Certain Claims and Objections To Claims The Plan provides that objections to Claims must be filed with the Bankruptcy Court within thirty (30) days after the Effective Date. Although objections to Claims will be filed within such time, it is possible that a Claimant may not know how its Claim will be resolved until after the Effective Date. For each Class of Creditors under the Plan, the Trustee has estimated in this Disclosure Statement the amount that it expects will ultimately be allowed in that Class. However, there are material uncertainties regarding the exact amount of Claims that will ultimately be allowed. Until all Claim objections have been definitively resolved, the exact amount of Claims that will ultimately receive distributions, and the distributions to the various Classes of Claims under the Plan, will be uncertain. F. Other Uncertainties The Trustee has tried to project the most common uncertainties which could affect implementation and realization of the Plan. However, events outside the control of Paddlewheels, and not heretofore seen, may affect the ability of Paddlewheels to fund the Plan. 62

73 XVI. SECURITIES LAW MATTERS The Trustee believes that based on the exemption from the registration requirements of the Securities Act afforded by section 1145 of the Bankruptcy Code, the issuance of the Class 6 Note as provided in the Plan will be exempt from the registration requirements of the Securities Act and equivalent state securities laws. Section 1145(a) of the Bankruptcy Code generally exempts from such registration the offer or sale of a Debtor s securities if such securities are offered or sold in exchange for a Claim against, or interest in, or an Administrative Expense Claim against, such Debtor. The Trustee believes the exchange of the Class 6 Note for Claims under the circumstances provided in the Plan will satisfy the requirements of section 1145(a) of the Bankruptcy Code. The Trustee believes, therefore, that the Class 6 Note issued pursuant to the Plan would be deemed to have been issued in a public offering under section 1145(c) of the Bankruptcy Code, and, as a result, could be resold by the Holder thereof without registration under the Securities Act, unless the Holder is an underwriter, as that term is defined in section 1145(b) of the Bankruptcy Code, with respect to such securities. Section 1145(b) of the Bankruptcy Code defines underwriter for purposes of the Securities Act as one who, except with respect to ordinary trading transactions of an entity that is not an issuer, (a) purchases a Claim against, interest in, or Claim for an administrative expense in the case concerning, the Debtor, if such purchase is with a view to distribution of any security received or to be received in exchange for such a Claim or interest, (b) offers to sell securities offered or sold under the Plan for the Holders of such securities, (c) offers to buy securities offered or sold under the Plan from the Holders of such securities, if such offer to buy is with a view to distribution of such securities and under an agreement made in connection with the Plan, with the consummation of the Plan or with the offer or sale of securities under the Plan or (d) is an issuer, as such term is used in section 2(11) of the Securities Act, with respect to such securities. The term issuer is defined in section 2(11) of the Securities Act to include all persons who, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with, an issuer of securities. Control (as defined in Rule 405 promulgated under the Securities Act) means the possession, direct or indirect, of the power to direct or cause the direction of the policies of a person, whether through the ownership of voting securities, by contract or otherwise. Accordingly, an officer or director of a reorganized debtor or its successor, under a plan of reorganization (e.g., Paddlewheels, as Reorganized Debtor) could be deemed to be a control person of such debtor or successor, particularly if the management position or directorship is coupled with ownership of a significant percentage of the reorganized debtor s or its successor s voting securities. Moreover, the legislative history of section 1145 of the Bankruptcy Code suggests that a person that owns at least ten percent (10%) of the voting securities of a reorganized debtor is a presumptive control person of such debtor. If a person who obtains an interest in the Class 6 Note pursuant to the Plan is deemed to be a control person, and thus, an underwriter for purposes of section 1145 of the Bankruptcy Code, re-sales by such person would not be exempted by section 1145 of the Bankruptcy Code from registration under the Securities Act or other applicable law. However, entities deemed to be underwriters for purposes of section 1145 of the Bankruptcy Code may be able to sell securities without registration pursuant to the resale provisions of rule 144 promulgated under the Securities Act. 63

74 Rule 144 permits the resale of securities subject to certain requirements, including applicable holding period requirements, volume limitations, notice and manner of sale requirements, availability of current information about the issuer and certain other conditions. Generally, rule 144 provides that if such conditions are met, specified persons who resell restricted securities or who resell securities that are not restricted but who are affiliates of the issuer of the securities sought to be resold, will not be deemed to be underwriters as defined in section 2(11) of the Securities Act. Under rule 144(k), a person who is not deemed to have been an affiliate of the issuer at any time during the 90 days preceding a sale, and who has beneficially owned the securities proposed to be sold for at least two years, is entitled to sell such securities without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of rule 144. It should be noted, however, that, prior to such time, the conditions for use of rule 144 may include the availability to the public of current information about Reorganized Paddlewheels. Such information is not now available and Paddlewheels has no plans to make such information available. Whether or not any particular person would be deemed to be an underwriter of the Class 6 Note to be issued pursuant to the Plan, or an affiliate of Reorganized Paddlewheels, or the Note Agent, would depend upon various facts and circumstances applicable to that person. Accordingly, the Trustee does not express a view as to whether any person would be such an underwriter or an affiliate. IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE OF REORGANIZED PADDLEWHEELS OR THE NOTE AGENT THE TRUSTEE MAKES NO REPRESENTATIONS OR AGREEMENTS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN RIGHTS TO A PRO RATA SHARE INTEREST IN THE CLASS 6 NOTE, OR FOR THE NOTE AGENTS TO TRADE IN THE CLASS 6 NOTE. ACCORDINGLY, THE TRUSTEE RECOMMENDS THAT POTENTIAL RECIPIENTS OF SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES. Pursuant to the Plan, the Class 6 Note received by the Note Agent will bear a legend substantially in the form below: THIS NOTE OR MEMBERSHIP UNIT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH SHARES (EACH A DISPOSAL ) MAY BE MADE UNLESS, (I) REGISTERED UNDER AND OTHERWISE IN COMPLIANCE WITH THE SECURITIES ACT AND ALL OTHER APPLICABLE SECURITIES LAWS, RULES AND REGULATIONS OR (II) THE ISSUER RECEIVES AN OPINION, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, FROM LEGAL COUNSEL SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH DISPOSAL IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND OTHERWISE COMPLIES WITH THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS, RULES AND REGULATIONS. Under the Plan, the term Restricted Holders is defined to include Note Agent and all Persons entitled to receive a Pro Rata Share interest in the Class 6 Note that do not certify, in a written document in form and substance satisfactory to Reorganized Paddlewheels and the Trustee, as applicable, and delivered to Reorganized Paddlewheels, as applicable, on and as of a 64

75 date within the ten (10) Business Day period preceding such Holder s receipt of the Class 6 Note or such Pro Rata Share interest in such Note that they are not underwriters within the meaning of section 1145 of the Bankruptcy Code. The Note Agent and all Holders of Allowed Class 6 Claims should be aware that the Class 6 Note must be held indefinitely unless the sale or transfer thereof is subsequently registered under applicable securities laws, or an exemption from such registration is available at the time of any proposed sale or other transfer thereof. Reorganized Paddlewheels will be under no obligation to, has no plans to register the Class 6 Note. In addition, all Class 6 recipients should be aware that the Class 6 Note is not publicly traded, that no market now exists for such Class 6 Note and that no market may exist for such Class 6 Note at the time of any resale. Paddlewheels does not intend to apply to list such Class 6 Note on any exchange. EACH RECIPIENT OF A PRO RATA SHARE INTEREST IN THE CLASS 6 NOTE SHOULD SATISFY ITSELF, THROUGH CONSULTATION WITH ITS OWN LEGAL ADVISORS, AS TO WHETHER OR NOT ANY RESALES OR OTHER TRANSACTIONS IN SUCH CLASS 6 NOTE ARE LAWFUL UNDER FEDERAL AND STATE SECURITIES LAWS. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE SEC ) OR ANY STATE SECURITIES COMMISSION, NOR HAS ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THE DEBTOR HAS NOT REQUESTED A NO-ACTION LETTER FROM THE SEC OR ANY STATE SECURITIES COMMISSION WITH RESPECT TO ANY MATTER DISCUSSED HEREIN. XVII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN A. Introduction THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN OF THE SIGNIFICANT FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO PADDLEWHEELS, AND TO HOLDERS OF CLAIMS AND EQUITY INTERESTS AND IS BASED ON THE INTERNAL REVENUE CODE OF 1986 (TITLE 26, UNITED STATES CODE), AS AMENDED TO THE DATE HEREOF (THE TAX CODE ), TREASURY REGULATIONS PROMULGATED AND PROPOSED THEREUNDER, JUDICIAL DECISIONS AND PUBLISHED ADMINISTRATIVE RULES AND PRONOUNCEMENTS OF THE IRS AS IN EFFECT ON THE DATE HEREOF. CHANGES IN SUCH RULES OR NEW INTERPRETATIONS THEREOF COULD SIGNIFICANTLY AFFECT THE TAX CONSEQUENCES DESCRIBED BELOW. NO RULINGS HAVE BEEN REQUESTED FROM THE IRS. MOREOVER, NO LEGAL OPINIONS HAVE BEEN REQUESTED FROM COUNSEL WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN. THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE PLAN TO THE HOLDERS OF CLAIMS AND EQUITY INTERESTS MAY VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. IN ADDITION, THIS DISCUSSION DOES NOT COVER ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO THE DEBTOR OR THE HOLDERS OF ALLOWED CLAIMS OR EQUITY INTERESTS (SUCH AS HOLDERS 65

76 WHO DO NOT ACQUIRE THEIR CLAIM ON ORIGINAL ISSUE), NOR DOES THE DISCUSSION DEAL WITH TAX ISSUES PECULIAR TO CERTAIN TYPES OF TAXPAYERS (SUCH AS DEALERS IN SECURITIES, S CORPORATIONS, LIFE INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS). NO ASPECT OF FOREIGN, STATE, LOCAL OR ESTATE AND GIFT TAXATION IS ADDRESSED. THE FOLLOWING SUMMARY IS, THEREFORE, NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR EQUITY INTEREST. HOLDERS OF CLAIMS OR EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES PECULIAR TO THEM UNDER THE PLAN. THE TRUSTEE ASSUMES NO RESPONSIBILITY FOR THE TAX EFFECT THAT CONFIRMATION AND RECEIPT OF ANY DISTRIBUTION UNDER THE PLAN MAY HAVE ON ANY GIVEN CREDITOR OR OTHER PARTY IN INTEREST. B. IRS Circular 230 Disclosure THIS DISCLOSURE STATEMENT IS WRITTEN TO SUPPORT THE PROMOTION OR THE MARKETING OF TRANSACTIONS DISCUSSED HEREIN. TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS, THE TRUSTEE IS INFORMING YOU THAT THIS DISCLOSURE STATEMENT IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING TAX-RELATED PENALTIES THAT MAY BE IMPOSED ON SUCH TAXPAYER UNDER THE TAX CODE. TAXPAYERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. C. Consequences to Holders of Claims 1. Realization and Recognition of Gain or Loss in General The federal income tax consequences of the implementation of the Plan to a Holder of a Claim will depend, among other things, upon the origin of the Holder s Claim, when the Holder s Claim becomes an Allowed Claim, when the Holder receives payment in respect of such Claim, whether the Holder reports income using the accrual or cash method of accounting, whether the Holder has taken a bad debt deduction or worthless security deduction with respect to such Claim, and whether the Holder s Claim constitutes a security for federal income tax purposes. Generally, a Holder of an Allowed Claim will realize gain or loss on the exchange under the Plan of its Allowed Claim for stock and other property (such as Cash and new debt instruments), in an amount equal to the difference between (i) the sum of the amount of any Cash and the issue price of any debt instrument, (other than any consideration attributable to a Claim for accrued but unpaid interest), and (ii) the adjusted basis of the Allowed Claim exchanged therefor (other than basis attributable to accrued but unpaid interest previously included in the Holder s taxable income). The treatment of accrued but unpaid interest and amounts allocable thereto varies depending on the nature of the Holder s Claim and is discussed below. Whether or not such realized gain or loss will be recognized (i.e., taken into account) for federal income tax purposes will depend in part upon whether such exchange qualifies as a 66

77 recapitalization or other reorganization as defined in the Tax Code, which may in turn depend upon whether the Claim exchanged is classified as a security for federal income tax purposes. The term security is not defined in the Tax Code or in the Treasury Regulations. One of the most significant factors considered in determining whether a particular debt instrument is a security is the original term thereof. In general, the longer the term of an instrument, the greater the likelihood that it will be considered a security. As a general rule, a debt instrument having an original term of 10 years or more will be classified as a security, and a debt instrument having an original term of fewer than five years will not. Debt instruments having a term of at least five years but less than 10 years are likely to be treated as securities, but may not be, depending upon their resemblance to ordinary promissory notes, whether they are publicly traded, whether the instruments are secured, the financial condition of the debtor at the time the debt instruments are issued, and other factors. Each Holder of an Allowed Claim should consult his or her own tax advisor to determine whether his or her Allowed Claim constitutes a security for federal income tax purposes. 2. Accrued Interest The Debtor intends to take the position that all payments in respect of Allowed Claims in Classes 2, 3, 4, 5, and 6 will be first allocated to the principal amount of the Allowed Claim, with any excess allocated to accrued unpaid interest. As set forth within the Plan, the distributions under the Plan shall be in an amount that is less than the aggregate amount of such Allowed Claims plus interest, and the Class 6 Allowed Claims shall not bear interest. However, there is no assurance that such allocation would be respected by the IRS for federal income tax purposes. In general, to the extent any amount received by a Holder of an Allowed Claim is received in satisfaction of accrued interest during its holding period, such amount will be taxable to the Holder as interest income (if not previously included in the Holder s gross income). Conversely, a Holder generally will recognize a deductible loss to the extent any accrued interest claimed was previously included in gross income and is not paid in full. Each Holder of an Allowed Claim is urged to consult its tax advisor regarding the allocation of consideration and deductibility of unpaid interest for tax purposes. 3. Withholding All distributions to Holders of Claims under the Plan are subject to any applicable withholding. Under federal income tax law, interest, dividends, and other reportable payments may, under certain circumstances, be subject to backup withholding at a 28% rate. Backup withholding generally applies if the Holder (a) fails to furnish its social security number or other taxpayer identification number ( TIN ), (b) furnishes an incorrect TIN, (c) fails properly to report interest or dividends, or (d) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons are exempt from backup withholding, including, in certain circumstances, corporations and financial institutions. C. Consequences to Debtor or Reorganized Debtor In general, the discharge of a debt obligation by a debtor for an amount less than the adjusted issue price (generally, the amount received upon incurring the obligation plus the amount of any previously amortized original issue discount and less the amount of any previously amortized bond issue premium) gives rise to cancellation of indebtedness ( COD ) income which 67

78 must be included in a debtor s income for federal income tax purposes, unless, in accordance with section 108(e)(2) of the Tax Code, payment of the liability would have given rise to a deduction. A corporate debtor that issues its own stock or its own debt in satisfaction of its debt is treated as realizing COD income to the extent the fair market value of the stock or the issue price of new debt issued is less than the adjusted issue price of the old debt. COD income is not recognized by a taxpayer that is a debtor in a title 11 (bankruptcy) case if a discharge is granted by the Bankruptcy Court or pursuant to a plan approved by the Bankruptcy Court (the Bankruptcy Exclusion Rules ). As Paddlewheels is a corporation taxed as a Sub Chapter S corporation, the tax consequences are experienced at the owner level as opposed to the corporate level. Much of the treatment of Claims under the Plan involves and was arrived at through settlement and compromise of disputed Claims. However, there will be discharge of debt under the Plan that could flow through to the Equity Interests, personally. To the extent the Holders of Equity Interests have suspended losses that have not been utilized through offset against income the discharge of debt income will apply to reduce such suspended losses in conformity with the tax code. It is thought that compromise of disputed Claims, where there is a good faith basis upon which to dispute the existence or amount of the Claims would not generate debt forgiveness. Holders of Equity Interests are cautioned that they should contact their tax advisers to obtain advice concerning the possibility of adverse tax consequences of Confirmation. XVIII. CONCLUSION The Trustee urges Creditors solicited by this Disclosure Statement to vote to accept the Plan and to evidence such acceptance by returning the Ballots so that they are received by June 17, /s/ Louis M. Phillips CHAPTER 11 TRUSTEE FOR THE BANKRUPTCY ESTATE OF NEW ORLEANS PADDLEWHEELS, INC. -and- GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, L.L.P. By: /s/ Louis M. Phillips Louis M. Phillips (#10505) Brandon A. Brown (#25592) Ashley S. Green (#29217) 301 Main Street, Suite 1600 Baton Rouge, Louisiana Telephone: (225) Attorneys for Louis M. Phillips, Chapter 11 Trustee for the Bankruptcy Estate of New Orleans Paddlewheels, Inc. 68

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116 New Orleans Paddlewheels Unsecured Claims to Aged A/P Vendor Name Schedule F Report Unsec. Claims A & Z Marine $ 2, A & Z Paper Company $ AAA c $ 9, ABC Rental Company $ Abita Springs Water Company $ 1, Ad-Dis-Play $ 4, Advanced Industrial Products Inc. $ Albert Uster Imports, Inc $ American Jr. Golf Assoc. $ - American Steamship Prot. & Indem. c $ 59, Amsan LLC $ Artistic Sketches $ 1, ASCAP $ 1, ASCO $ 47, Aububon Nature Institute c $ 35, Auto-Chlor System c $ Avist Martin $ Baker Lymann and Co. Inc $ Bank One $ 5, Belle Chasse Marine Transportation $ BellSouth c $ Bittersweet Plantation Dairy $ Black Tie Service Co. $ 9, BMI General Licensing $ 6, Bobby Boyd & Company $ - Bob's Bar Supplies $ 6, Boland Marine & MFG Co. $ Bonnie Lustig $ - Brenda Nunez $ Brennan's House of Printing $ 1, Broadcast Music Inc. c $ 5, Brother's Food, LLC $ 1, Building Control Systems, LLC $ 1, C V Harold Rubber Company $ Cajun Pride Entertainment $ - Capital City Trade Exchange $ 9.07 Cash Register Sales $ Catherine A. Pyburn $ CBS Outdoor, Inc. c $ 9, CED Inc/Consolidated Electrical $ Certified Folder Display $ 2, Channel Craft & Dist. Inc $ 2, Charles M. Salter & Associates $ - Chicory Building Inc. $ - Chilly's Inc $ 2, Chiltern International $ - CHL Inc. $ 1, Cigar Factory $ 1, Cingular Wireless $ 1, Cintas Corporation $ Citicorp Vendor Finance, Inc. $ 7, City of N.O. Parking Violation $ City Wholesale Liquor Co Inc. $ Classic City Tours $ 1, Cliff Weil, Inc. $ 5.00 Compucast Web Design c $ 1, Concentra Medical Centers $ 1, Contiki Holidays $ Cooper/T. Smith Mooring c $ 1, Cox Communications $ - Crawford Fire & Safety, Inc. $ Crescent Business Machines $ Crescent City Produce $ Crescent Crown Distributing, LLC c $ 7, Crescent Distributing $ 5, Crescent Towing & Salvage Co. c $ 9,576.00

117 New Orleans Paddlewheels Unsecured Claims to Aged A/P Vendor Name Schedule F Report Unsec. Claims Data Management Archives Of New Orleans, L.L.C $ David McFarland c $ 2,005, Delgado Community College $ Delores B. Strain $ Delta Region Coffee Srv $ Deluxe Pest Control c $ Destination Mgmt. Inc. $ - Dina Blanchard $ Division of Liquor Control $ Dixieland Music & Gifts c $ 1, Dmi Travel Agency $ Doerle Food Services Llc $ 1, Duane Smith $ - Durward Dunn, Inc $ Economical Janitorial & Paper c $ 1, Ed Smith'S Stencil Works $ 3.65 Engine Monitor Inc $ Entercom New Orleans, LLC $ 3, Entergy c $ Eugene Bach c $ Event Consulting $ - Express Publishing Co Inc c $ 6, FAIRWAY MANUFACTURING CO. c $ FANCY FACES $ FASTENERS, INC $ Fedex Kinko's $ Fire Extinguisher Company of La $ Flagshop $ FLEET MOTORS INC $ FLEET TIRE SERVICE INC $ FOLEY MARKETING $ FQFI $ 1, Future Image $ G & M ELECTRIC SALES CO., INC. $ 2, G A LOTZ COMPANY, LTD. $ G E Capital $ G E Entergy Services $ - Ganz, Inc $ 1, GATOR TRAX $ GE ENERGY SERVICES $ - GEAR SERVICES, INC. $ 8, Gears for Sports $ 3, Gene Howard $ 10, Glazer's Companies of La $ 2, Global Safety and Security Inc. $ GO 4th ON THE RIVER $ 1, GO-CANS, LLC $ Grainger $ GRAND LODGE FRATERNAL ORDER OF POLICE $ 7, GRAPHTEX INC c $ 3, GREEN MARINE & INDUSTRIAL $ 1, GREG TULLIER $ Grueninger Tours c $ 1, GUEST INFORMANT $ GULF BEST ELECTRIC, INC. $ 5, GULF COAST INTERNATIONAL LLC $ 1, GULF COAST OFFICE PRODUCTS, IN $ GULF COAST POWER & CONTROL INC $ GUMBO SHOP $ Guste Barnette & Shushan, LLP $ 2, HALMARK SYSTEMS, INC. $ HAMCO NEW ORLEANS c $ HANSEN MUSIC PRODUCTIONS LLC c $ 10, Harry Lee, Sheriff, Tax Collector $ - Haunted History Tours $

118 New Orleans Paddlewheels Unsecured Claims to Aged A/P Vendor Name Schedule F Report Unsec. Claims Helena Bridge Terminal, Inc $ HENA $ HENA Hospital Ed & Network $ HERBERT S. HILLER CORPORATION c $ 2, HERITAGE HOUSE WINES $ 7, HILTON RIVERSIDE-- OLD $ 1, IMPERIAL TRADING COMPANY $ 2.00 Industrial Welding Supply, Co. c $ INTERNATIONAL ENVIRONMENT MAN. $ INTERNATIONAL ENVIRONMENT MAN. $ INTERNATIONAL TICKET COMPANY $ 3, Jacob's Andouille $ James E. Smith Sr. $ - Jefferson Parish Sheriff's Office $ 4, Jim Duckworth Tire Inc. $ JIM ENGLAND IMAGES $ JOE TAMPORELLO c $ 1, JOHN BOUTTE $ John W. Stone Oil Distributor, LLC $ 29, Kish & Co. c $ 196, Klotz & Early, Attorneys at Law $ 21, KUSHNER LAGRAIZE, LLP $ 7, La LOUISIANE BAKERY $ 1, LAGNIAPPE OF NEW ORLEANS, LTD. c $ LAWSON AND COMPANY, INC. $ 1, LEMOINE'S MARINE REFRIG c $ 3, LOEWS EXPRESS BUS CHARTER $ LOOP LINEN SERVICE, INC. c $ 7, Louis Schmitt $ LOUISIANA COCA-COLA BTLG CO. $ 5, LOUISIANA FISH FRY PRODUCTS c $ 1, LOUISIANA LIFT & EQUIPMENT,INC $ 1, LOUISIANA TAX FREE SHOPPING $ Louisiana Travel Promotion ASSN $ 1, LSAE $ M&R Printing $ - Magnolia Springs $ MAISON DUBOIS B & B $ Manny's Sanitary Supplies LLC $ - Manuel's Supply Company, LLC $ MAP NEW ORLEANS, INC. c $ 23, MARDI GRAS PRODUCTIONS, INC. $ MARDI GRAS ZONE $ MARINE SPLICING CO INC c $ 1, MARITIME NAVIGATION SAFETY $ MARITIME REPORTER $ MAURICE FRENCH PASTRIES $ MESIROW FINANCIAL $ 9, Michele Poole $ MICHELLE LANGSFORD c $ 4, Modular Space Corporation c $ 4, MONAHAN PRINTING & DIRECT MAIL c $ 7, MOORE WALLACE NORTH AMERICA, INC. c $ 29, Mr. John KOK $ - Natal's Air Conditioning c $ 2, NATCO $ 2, NATIONWIDE TRAVELERS $ NATURAL STONE SELECTIONS INT'L, INC $ NAYLOR PUBLICATIONS INC $ NESARC SECURITY INC. c $ 2, Neumeyer's Custom Millwork, Inc $ NEW ORLEANS ATTRACTIONS $ 2, NEW ORLEANS EVENT RENTAL $ 1, NEW ORLEANS FISH HOUSE $ 9, NEW ORLEANS METROPOLITAN $

119 New Orleans Paddlewheels Unsecured Claims to Aged A/P Vendor Name Schedule F Report Unsec. Claims NEW ORLEANS PUBLISHING GROUP $ New Orleans Riverwalk $ New Orleans Steamboat Company $ New Orleans Tour $ - NEW ORLEANS TOURISM MARKETING $ NEW ORLEANS TOURISM MARKETING $ NEW ORLEANS TOURISM MARKETING $ New Orleans Tours Percap $ 7, NEW SOUTH COMMUNICATIONS $ NOMCVB $ NOMCVB $ NU-LITE $ Nuvox Communication $ - Office & Professional Employess International Union c $ 1, Office Depot $ Offshore Suppliers, Inc $ 1, OK State School Board c $ 4, On The Town $ P & A GIFTS $ P & S Diesel Services, Inc $ 4, PAL SIGNS, INC. $ PAPER DOLL PROMOTIONS $ PARTY KING c $ Passport Incentives $ - PC TUNE-UPS/AFCOM Inc $ PC TUNE-UPS/AFCOM INC. $ Pelican Wines & Spirit $ Perfect Presentations $ Performance Software Inc $ - PERRIER PARTY LINENS $ PIGEON CATERERS c $ 7, Plantation Billing Center $ PNEUMATIC SPECIALTIES $ POST-A-GRAM $ PRESSURE ZONE $ PROBST DECORATING SHOPPE $ PROFIT ON HOLD c $ PROGRAPHICS $ Public Recreation Commission $ PUMP SYSTEMS c $ PUTUMAYO WORLD MUSIC $ 1, Republic Beverage $ River Parish Disposal Inc c $ 2, Riverwalk Associates c $ Rouse-New Orleans LLC $ - Sandy's Of Metairie, Inc $ SCHUBERT'S MARINE SALES & SERVICE $ SEA CHEST MARINE STORE $ Sea-Trac Offshore c $ 8, Secretary of State/ Commercial Division $ Service First $ Service Plus Auto Service $ 2, SEWERAGE & WATER BOARD of NEW ORLEANS $ SHARPSHOOTER SPECTRUM IMAGING c $ 7, SHORELINE CREATIONS LTD. $ 2, SILVER LEAF PARTY RENTALS, INC c $ SKYLINE DISPLAY SOUTH $ SOS TECHNOLOGIES $ SOUTHEAST PUBLICATIONS USA $ SOUTHERN EAGLE SALES & SERVICE LP $ 2, SOUTHERN OUTDOORS & MARINE, INC $ 11, Southland Plumbing Supply $ Southland Shirts and Souvenirs $ 3, Sports Promotion $ Sprint $ 4,641.81

120 New Orleans Paddlewheels Unsecured Claims to Aged A/P Vendor Name Schedule F Report Unsec. Claims STANDARD COFFEE COMPANY $ STONE INSURANCE, INC $ 28, Sun Industries $ SUPERIOR ASSET MANAGEMENT INC. $ Superior Food Services $ - SWISS CONFECTIONERY $ Sysco Food Services - N.O. c $ 3, T & J OUTBOARD REPAIR $ T J SOFTWARE, INC. c $ 1, Tax Collector-Sheriff/ Newell Normand $ 1, THE TIMES PICAYUNE $ Timesaver Software $ Topline Product $ TOUR CORP c $ TOURO INFIRMARY $ TRAVELHOST PUBLICATIONS $ 1, TRUST SERVICES $ 1, TULANE UNIVERSITY - RIPPLES SUMMER CAMP $ UNITED GIFT AND NOVELTY $ 1, UPTOWN GRAPHICS $ USCG Inspection Fees $ 1, Val's Diving Services, Inc $ VERIZON $ VIACOM OUTDOOR $ 5, Waste Management of New Orleans $ Weaver Publications $ WILLIAMS ENTERPRISES $ WM. B. ALLEN SUPPLY CO. $ World Discover Tour $ - WORLDWIDE MULTIMEDIA $ Yellow Interactive c $ Zapp's Potato Chips, Inc c $ $ 2,914, Internal Revenue Service Unsecured Nonpriority $ 7, Unsecured Priority $ La. Department of Revenue Unsecured Priority $ 413, Unsecured General $ 46, Total Claims $ 467, INSIDER and AFFILIATES CLAIM Craig Smith $ 27, Hospitality Enterprises Inc. $ New Orleans Tours $ 53, SMITH LAW FIRM, LLC $ 83, $ 164, Pre-Petition Related Party Liabilities (excluding A/P Invoices) Due to Shareholders $ 112, Due to Regilvan $ 7, Due to DMI $ Due to NOT $ 35, Due to CHICORY $ Due to Queen N.O. Jt. Venture $ 144, Due to Related Parties $ 1,689, ASI Colorado $ 141, N/P - HE Real Estate $ 622,177.50

121 New Orleans Paddlewheels Unsecured Claims to Aged A/P Vendor Name Schedule F Report Unsec. Claims N/P - Chicory Building $ 158, Total Pre-Petition Liabilities $ 2,911, $ 3,075, PORT CLAIMS Board of Commissions of the Port of New Orleans $ 132, $ 132, LEASE AGREEMENTS Caroline Drachenberg c $ 52, PITRE FAMILY, LLC c $ 52, $ 104, TORT CLAIMANTS Derrick Brasley $ 10, Deshone Williams $ 10, Lemuria Clark $ 10, McFarland, David c $ 15, Melvina Clark $ 10, Susan Atkins $ 10, Thomas Brooks c $ 10, $ 75,000.00

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131 New Orleans Paddlewheels Estimated Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Description January 2008 February 2008 March 2008 April 2008 May 2008 June 2008 July 2008 August 2008 Sept Oct Nov Dec Total Paddlewheels, net of refunds 281, , , , , , , , , , , ,200 2,965,600 Jean Lafitte Swamp Tours 38,400 30,000 29,400 33,000 34,800 25,200 29,400 24,600 26,400 50,400 42,000 40, ,600 TOTAL REVENUE 320, , , , , , , , , , , ,000 3,370,000 Food Purchases 73, % 57, % 56, % 63, % 66, % 48, % 56, % 47, % 50, % 96, % 80, % 78, % 775,100 Beverage Purchases 9, % 7, % 7, % 8, % 8, % 6, % 7, % 6, % 6, % 12, % 10, % 10, % 101,100 Entertainment 15, % 18, % 17, % 20, % 21, % 15, % 17, % 14, % 16, % 30, % 25, % 24, % 238,330 Passenger Services % % % % % % % % % % % % 4,974 Contract Labor 21, % 16, % 16, % 18, % 19, % 13, % 16, % 13, % 14, % 27, % 23, % 22, % 222,420 Transportation 2, % 2, % 1, % 2, % 2, % 1, % 1, % 1, % 1, % 3, % 2, % 2, % 26,960 Other Expenses 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 35,400 Airboat Commission COGS 125, , , , ,408 88, ,027 86,688 92, , , ,832 1,404,284 Gross Margin 194, , , , , , , , , , , ,168 1,965,716 Paddlewheel/Swamp Payroll and taxes 73, % 57, % 56, % 63, % 66, % 48, % 56, % 47, % 50, % 96, % 80, % 78, % 775,100 Health & Life Insurance 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 16,800 W/C Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 Advertising 5, % 4, % 4, % 4, % 5, % 3, % 4, % 3, % 3, % 7, % 6, % 5, % 58,975 Berth 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 37,764 Credit Card Fees 4, % 3, % 3, % 3, % 3, % 2, % 3, % 2, % 2, % 5, % 4, % 4, % 42,462 Fuel 11, % 9, % 9, % 10, % 10, % 7, % 9, % 7, % 8, % 15, % 12, % 10, % 122,310 Utilities 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 13,500 Rent 9, % 8, % 8, % 8, % 8, % 8, % 8, % 8, % 8, % 9, % 9, % 9, % 106,298 Miscellaneous Fees (operational) (1) 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 56,880 Insurance 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15, ,000 Interest Expense ,332 12,044 12,231 11,850 12,123 11,962 72,542 HR and Acct overhead 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 43,200 License & Fees 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 25,200 Professional Fees - Accounting 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Professional Fees - Legal 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Repairs & Maintenance 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Supplies 3, % 2, % 2, % 2, % 2, % 2, % 2, % 1, % 2, % 4, % 3, % 3, % 32,352 Taxes ,200 US Trustee Fees 3,750 3,750 7,500 Equipment rental/leases 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 12,012 Total Operating Expenses 149, , , , , , , , , , , ,187 1,724,095 Net Operating Income (Loss) 44, % 17, % 12, % 24, % 28, % 2, % 3, % (7,349) -3.6% (3,328) -1.5% 53, % 33, % 32, % 241, % Beginning Cash Balance 185, Loan Proceeds 1,500, ,500,000 Bank Loan - prin. Payments 4, , , , , , ,309 Cash Payments Port of New Orleans 33, , , , , , , ,338 City of New Orleans 1,000, ,000,000 Legal & Accounting 190, ,000 Trustee & Trustee legal fees 300, ,000 Priority Claims IRS and La. State payments , , , , , , ,667 Unsecured (prorata share of $300K) Unsecured Convenience Class 17, ,000 Capital Improvement Allowance 75, , , , , , , ,000 Net Cumulative Cash Balance 229, , , , , , , , , , , , ,307 Loan Details: NOP Bank Loan 7.5% for 15 years) Principal 4, , , , , , ,309 Interest 9, , , , , , ,128 La. State Claim 8% for 48 months)

132 New Orleans Paddlewheels Estimated Budget Principal 3, , , , , , ,817 Interest 1, , , , , , ,407 Unsecured Creditors Financing ($250,000 for 60 months) Principal 4, , , , , , ,000 Port of New Orleans Loan 7.5% for 60 months, w/ balance pymt 30th mth of $120,904) Principal 3, , , , , , ,588 Interest 1, , , , , , ,007 Total Monthly Loan Payments (P&I) 27, , , , , , ,255.55

133 New Orleans Paddlewheels Estimated Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Description January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 July 2009 August 2009 Sept Oct Nov Dec Total Paddlewheels, net of refunds 281, , , , , , , , , , , ,200 3,247,200 Jean Lafitte Swamp Tours 38,400 33,600 37,200 39,000 38,400 30,600 30,000 24,000 31,800 49,200 46,800 43, ,600 TOTAL REVENUE 320, , , , , , , , , , , ,000 3,690,000 Food Purchases 73, % 64, % 71, % 74, % 73, % 58, % 57, % 46, % 60, % 94, % 89, % 83, % 848,700 Beverage Purchases 9, % 8, % 9, % 9, % 9, % 7, % 7, % 6, % 7, % 12, % 11, % 10, % 110,700 Entertainment 15, % 20, % 22, % 23, % 23, % 18, % 18, % 14, % 19, % 29, % 28, % 26, % 261,690 Passenger Services % % % % % % % % % % % % 5,446 Contract Labor 21, % 18, % 20, % 21, % 21, % 16, % 16, % 13, % 17, % 27, % 25, % 24, % 243,540 Transportation 2, % 2, % 2, % 2, % 2, % 2, % 2, % 1, % 2, % 3, % 3, % 2, % 29,520 Other Expenses 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 35,400 Airboat Commission COGS 125, , , , , , ,069 84, , , , ,044 1,534,996 Gross Margin 194, , , , , , , , , , , ,956 2,155,004 Paddlewheel/Swamp Payroll and taxes 70, % 61, % 68, % 71, % 70, % 56, % 55, % 44, % 58, % 90, % 85, % 80, % 811,800 Health & Life Insurance 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 16,800 W/C Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 Advertising 5, % 4, % 5, % 5, % 5, % 4, % 4, % 3, % 4, % 7, % 6, % 6, % 64,575 Berth 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 37,764 Credit Card Fees 4, % 3, % 3, % 4, % 4, % 3, % 3, % 2, % 3, % 5, % 4, % 4, % 46,494 Fuel 11, % 10, % 11, % 12, % 11, % 9, % 9, % 7, % 9, % 15, % 14, % 10, % 133,975 Utilities 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 13,500 Rent 9, % 8, % 8, % 9, % 9, % 8, % 8, % 8, % 8, % 9, % 9, % 9, % 107,681 Miscellaneous Fees (operational) (1) 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 56,880 Insurance 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15, ,000 Interest Expense 11,673 11,887 11,506 10,774 11,732 11,435 11,451 11,151 11,329 10,956 11,201 11, ,147 HR and Acct overhead 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 43,200 License & Fees 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 25,200 Professional Fees - Accounting 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Professional Fees - Legal 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Repairs & Maintenance 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Supplies 3, % 2, % 2, % 3, % 3, % 2, % 2, % 1, % 2, % 3, % 3, % 3, % 35,424 Taxes ,200 US Trustee Fees 3,750 3,750 7,500 Equipment rental/leases 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 12,012 Total Operating Expenses 157, , , , , , , , , , , ,227 1,850,152 Net Operating Income (Loss) 36, % 16, % 21, % 30, % 28, % 6, % 8, % (5,858) -2.9% 12, % 55, % 49, % 44, % 304, % Beginning Cash Balance 195, Loan Proceeds 0 Bank Loan - prin. Payments 4, , , , , , , , , , , , ,499 Cash Payments Port of New Orleans 3, , , , , , , , , , , , ,338 City of New Orleans 0 Legal & Accounting 0 Trustee & Trustee legal fees 0 Priority Claims Prin. pymts-city Tax $500K IRS and La. State payments 4, , , , , , , , , , , , ,585 Unsecured (prorata share of $300K) 4, , , , , , , , , , , , ,000 Capital Improvement Allowance 7, , , , , , , , , , , , ,000 Net Cumulative Cash Balance 207, , , , , , , , , , , , ,737 Loan Details: NOP Bank Loan 7.5% for 15 years) Principal 4, , , , , , , , , , , , ,499 Interest 9, , , , , , , , , , , , ,373 La. State Claim 8% for 48 months) Principal 4, , , , , , , , , , , , ,585 Interest 1, , , , , , , , , , , ,927 Unsecured Creditors Financing ($300,000 for 60 months) Principal 4, , , , , , , , , , , , ,000

134 New Orleans Paddlewheels Estimated Budget Interest 0 Port of New Orleans Loan Principal 3, , , , , , , , , , , , ,338 Interest 1, , , , , , , , , , , , ,847 Total Monthly Loan Payments (P&I) 27, , , , , , , , , , , , ,568.60

135 New Orleans Paddlewheels Estimated Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Description January 2010 February 2010 March 2010 April 2010 May 2010 June 2010 July 2010 August 2010 Sept Oct Nov Dec Total Paddlewheels, net of refunds 337, , , , , , , , , , , ,440 3,451,360 Jean Lafitte Swamp Tours 46,080 36,000 38,400 38,280 42,240 27,600 28,800 25,200 30,000 54,000 51,480 52, ,880 TOTAL REVENUE 384, , , , , , , , , , , ,000 3,922,000 Food Purchases 88, % 69, % 73, % 73, % 80, % 52, % 55, % 48, % 57, % 103, % 98, % 100, % 902,060 Beverage Purchases 11, % 9, % 9, % 9, % 10, % 6, % 7, % 6, % 7, % 13, % 12, % 13, % 117,660 Entertainment 18, % 21, % 23, % 23, % 25, % 16, % 17, % 15, % 18, % 32, % 31, % 31, % 277,090 Passenger Services % % % % % % % % % % % % 5,789 Contract Labor 25, % 19, % 21, % 21, % 23, % 15, % 15, % 13, % 16, % 29, % 28, % 28, % 258,852 Transportation 3, % 2, % 2, % 2, % 2, % 1, % 1, % 1, % 2, % 3, % 3, % 3, % 31,376 Other Expenses 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 35,400 Airboat Commission COGS 150, , , , ,734 96, ,984 88, , , , ,862 1,628,227 Gross Margin 233, , , , , , , , , , , ,138 2,293,773 Paddlewheel/Swamp Payroll and taxes 84, % 66, % 70, % 70, % 77, % 50, % 52, % 46, % 55, % 99, % 94, % 96, % 862,840 Health & Life Insurance 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 16,800 W/C Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 Advertising 6, % 5, % 5, % 5, % 6, % 4, % 4, % 3, % 4, % 7, % 7, % 7, % 68,635 Berth 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 3,147 37,764 Credit Card Fees 4, % 3, % 4, % 4, % 4, % 2, % 3, % 2, % 3, % 5, % 5, % 5, % 49,417 Fuel 14, % 11, % 11, % 11, % 13, % 8, % 8, % 7, % 9, % 16, % 15, % 13, % 142,048 Utilities 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 1,125 13,500 Rent 9, % 8, % 9, % 9, % 9, % 8, % 8, % 8, % 8, % 9, % 9, % 9, % 108,683 Miscellaneous Fees (operational) (1) 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 4,740 56,880 Insurance 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15, ,000 Interest Expense 10,746 10,921 10,492 10,784 10,578 9,758 10,468 10,154 10,321 9,957 10,172 10, ,387 HR and Acct overhead 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 43,200 License & Fees 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 25,200 Professional Fees - Accounting 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Professional Fees - Legal 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Repairs & Maintenance 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Supplies 3, % 2, % 3, % 3, % 3, % 2, % 2, % 2, % 2, % 4, % 4, % 4, % 37,651 Taxes ,200 US Trustee Fees 3,750 3,750 7,500 Equipment rental/leases 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 12,012 Total Operating Expenses 176, , , , , , , , , , , ,676 1,907,718 Net Operating Income (Loss) 57, % 23, % 25, % 29, % 38, % % 6, % (1,956) -0.9% 9, % 67, % 61, % 67, % 386, % Beginning Cash Balance 211, Loan Proceeds 0 Bank Loan - prin. Payments 5, , , , , , , , , , , , ,958 Cash Payments Port of New Orleans 3, , , , , , , , , , , , ,381 City of New Orleans 0 Legal & Accounting 0 Trustee & Trustee legal fees 0 Priority Claims IRS and La. State payments 4, , , , , , , , , , , , ,783 Unsecured (prorata share of $300K) 4, , , , , , , , , , , , ,000 Capital Improvement Allowance 7, , , , , , , , , , , , ,000 Net Cumulative Cash Balance 244, , , , , , , , , , , , ,671 Loan Details: NOP Bank Loan 7.5% for 15 years) Principal 5, , , , , , , , , , , , ,958 Interest 8, , , , , , , , , , , , ,912 La. State Claim 8% for 48 months)

136 New Orleans Paddlewheels Estimated Budget Principal 4, , , , , , , , , , , ,783 Interest ,665 Unsecured Creditors Financing ($300,000 for 60 months) Principal 4, , , , , , , , , , , , ,000 Interest 0 Port of New Orleans Loan Principal 3, , , , , , , , , , , , ,381 Interest 1, ,810 Total Loan Payments 27, , , , , , , , , , , ,877.35

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