The Disclosure Statement and Ballots

Around the end of February you should be receiving a Disclosure Statement in the Thaxton Bankruptcy, along with a lot of other documents, including a pink ballot form and an envelope to send it off in.

The following comments should help you put the Disclosure Statement in context.

The Disclosure Statement has been approved by the Court and is designed to provide you with extremely accurate and complete disclosures regarding the plan. Unfortunately, the result is a lot of "legalese" that is difficult for almost anyone to follow. A great deal of effort went into making the Disclosure Statement scrupulously accurate, and to get the most accurate picture of the situation you should read the Disclosure Statement itself.

As you should know at this point, all the parties entered into a settlement agreement that is expected to result in noteholders getting around 85% of their money back, and hopefully more. Since Thaxton is bankrupt, it needs to formulate a plan to carry out the settlement agreement. It has sent out this mailing with ballots to get approval for the proposed plan, with the intent of carrying out the settlement agreement, Without approval, it is hard to say what will happen, or how long it would take. The "Liquidation Analysis" at the end of the Disclosure Statement shows that even in the best of circumstances you would expect to get less than 85% unless the plan is approved.

The mailing you receive should include the following:

1. Court Order.

This is an order of the Bankruptcy Court that approves the Disclosure Statement and sets up the procedure for voting on the ballots.

2. Notice of Deadline.

This sets the official deadline for mailing in ballots. If you vote, you should do so immediately.

3. The Ballot.

The pink ballot is something you should fill out and send in. If you approve of the plan you should indicate that you accept the plan. We cannot advise you how to vote, but you should know that the Creditors' Committee has supported and proposed the plan, and we are advising our individual clients to support the plan, since it carries out the settlement. In filling out the ballot, enter your name and the claim amount shown on the first page. The claim amount should be a little more than your actual note amount, but if it is less you should contact Thaxton and find out why your full claim is not shown.

4. The Disclosure Statement.

This provides a history of Thaxton and describes the plan.

5. The Plan

This is the official plan that is designed to carry out the settlement. You may find it difficult to follow because it deals with technical bankruptcy matters. Basically, it calls for Thaxton to pay all available money to noteholders after the plan is approved, and then to sell its remaining assets and pay that money to noteholders as well. Everyone seems to believe that it is safe to assume this will pay everyone at least 85% of their money back. If the plan is not approved, it is very difficult to predict what other plan might be proposed or how long it might take for people to get what they could in that case.

6. Financial Information.

An exhibit provides some financial information about Thaxton. We believe this shows that Thaxton is now performing well and should produce a fair price if it is sold.

7. Liquidation Analysis.

This indicates that if the plan is not approved it is likely that noteholders will recover less money. The Liquidation Analysis shows what money might be realized if the plan is not approved. However, that picture may be even bleaker for noteholders, since in that situation the settlement might be wiped out also, resulting in more years of litigation.

8. No guarantees

Some folks are concerned because the plan does not "guarantee" an 85% recovery. It is true that your recovery remains uncertain because nobody can predict the future and say exactly how much Thaxton will sell for. However, simply because nobody is willing to guarantee a future result doesn't mean that they don't have an idea what is most likely to happen. As set forth in the Disclosure Statement, it is expected that noteholders will recover around 85% under the plan. It is also possible they could recover even more. The liquidation analysis also indicates that if the plan is not approved folks will probably get less.